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Colonial Cases

Re Dent and Co., bankrupts, 1868

[bankruptcy]

Re Dent and Co., bankrupts

Supreme Court of China and Japan
1867-1868
Source: The North-China Herald, 5 August 1867

 

H.B.M. SUPREME COURT, IN BANKRUPTCY.

Before Sir EDMUND HORNBY, Chief Judge.

In re DENT & Co., Bankrupts.

   This was an application made in Chambers by the Agra Bank, who is a judgment creditor of the Bankrupts, to set aside the adjudication obtained on the petition of Messrs. Turing and Hanssen, the partners in Shanghai of the firm of Dent & Co., for themselves and partners.

   There was also an application on the Common Law side of the Court for a rule for leave to issue execution in the same judgment against the property of Dent & Co. in the event of the rule nisi, if obtained, being made absolute.

   Mr. Myburgh appeared for the Agra Bank.

   The points taken by the learned Counsel were as follows:-

   The adjudication of all the partners in the firm of dent & Co. upon the petition of two partners is bad.  There are no cases in the books in which it was held that adjudication under such circumstances is goof.  In Doria & Macrae, there is a reference to a case in which a petition wass held irregular.

   A debtor or debtors can be adjudicated bankrupts only in manner provided by the Bankruptcy Act and by virtue of its express provisions.  The Act is most comprehensive, and it was evidently in contemplation of the framers to reach every specific case. The Act therefore and the Act alone must be the guide.  Sec. 97 (Act. 149) provides for creditors petitioning against one or more partners, and makes a petition valid though not including all the partners.  Again rules 75.77 provide for the validity of an affidavit made by one of many petitioning creditor parties.  But sec. 98 (1849) inferentially shews that a member of a firm can only obtain a separate adjudication against himself.  Independently of the argument adduced from Sec. 98, it seems clear from the provisions made for so many special cases that it was never intended that power should be vested in one partner to petition against himself and others.  The absence of such a provision in so elaborate an Act is pregnant with argument in support of the Agra's Bank intention.

   By permitting the adjudication to stand, the Court will practically be legislating and will in effect add a section to the Act.  Where such a course interferes with the legal rights of parties, the Court will look closely at the Act, which is almost wholly in derogation of the law as it then stood, and will not strain it to support an adverse contention. The Act is silent, there are no words before the Court to construe or interpret according to the intention of the legislature.  Admitted that it is the avowed object of the Act to create a machinery by which bankrupt property may be equally distributed amongst creditors, it is contended that where machinery is not provided for the purpose of defeating the rights of individual creditors, these ordinary remedies must be allowed to be enforced.

   It is presumed that it never has been held, and will not be held, that a Deed under the Act executed by one partner in the name of himself and his co-partners, he having no authority to execute such Deed, is valid by virtue of the known intention of the framers of the Act to encourage such Deeds.  In other words, there being no express provision to establish that which is in derogation of law, it will not be allowed to stand.  If this be tenable, why not as regards a petition, the effect of the latter being as regards partners far greater than that of a Deed.

   Lord Tenterden says - There is always danger in giving effect to what is called the equity of a Statute. (Brandbury v. Barington, 8 B. & C., 475.) Modern statutes are interpreted more strictly and with clear adherence to the letter. (Stephen's Comm. p. 75.) In principle the act of one partner in order to bind the firm must be necessary for the carrying on of its business.  The filing of a petition in bankruptcy is a complete annihilation of the business of the firm. (Lindley p. 193.)  Without special authority, one partner has no power to bind a firm by consenting to an order for judgment against it. (Lindley p. 227.)  It is against all principle that one partner should be permitted to petition against the co-partners.  There is no such power under the Act now in principle.

JUDGMENT.

   In this case, I am asked to set aside the adjudication of bankruptcy granted on the petition of two of the partners of the firm of Messrs. Dent & Co.  The adjudication is against all the partners comprising the trading firm of Dent & Co., and the ground upon which it is sought to set it aside is that the petition is not signed by all the partners.

   I have given every consideration I can to the argument of the learned Counsel who appeared on behalf of the Agra Bank, who has an unsatisfied judgment against the firm, but I disagree with him on two points.

   1st, - I think that if I was to hold that the petition for adjudication by a trading firm in a state of Bankruptcy is invalid because it is not signed by each individual partner, I should be acting against the spirit of the Act, and against what I conceive to have been the object of the Legislature in framing it. I cannot be said to be acting in contradiction to the language of the Act itself because it is silent on the subject, and I am not over-ruling any decision of a competent Court, because both the learned Counsel for the bank as well as myself have been unable to find any reported cases on the subject.  It is true there is a case mentioned in "Doria & Macrae on Bankruptcy" as reported in the Law Times, which states that a petition made by one partner only of a firm on behalf of himself and co-partners, and not signed by the other is irregular, but whether the irregularity alluded to is one of which a creditor could take advantage, or merely one which a dissentient and non-signing partner can alone avail of, does not appear. Moreover, the irregularity in the case I allude to, may have arisen from the names of all the Partners not appearing on the attestation or in the body of the petition, or it may be that the partners who did sign the petition did not pretend to sign on behalf of the firm. For the reasons therefore which I shall presently state I do not consider myself bound by this decision.

   I have said that in setting aside this adjudication, I should be acting in opposition to what I conceive to have been the object of the provisions of the Acts of Bankruptcy, and of the Legislature; and my reason for so thinking is this.  The main object of the bankruptcy Acts of 1849 and 1861 was to give relief to traders when they found themselves unable to meet their engagements, on condition of there giving up their property to their creditors for the purpose of division amongst them.  Every inducement is held out to traders in an insolvent state to avail themselves of the protection afforded by these Acts.  The object was to prevent men from continuing to trade when they were insolvent, and in granting to debtors their certificate under the first Act, and their discharge under the second, the question of whether they continued trading after they were seriously or hopelessly involved, was evidently intended to be a matter of grave consideration for the commissioner.

   Now I confess, I do not see how a firm in the position of the Bankrupts is ever likely to be able to take the prompt action required by the Law the moment it found itself hopelessly involved, or of some one creditor pressing his claim to the prejudice of all the parties, if it must wait before going into bankruptcy to obtain the signature of all the parties to the petition.  In most instances firms engaged in foreign trade have partners scattered over the face of the globe, superintending different branches in different countries, or it may happen that a partner who does not interfere with the management of the business, who is in fact a sleeping partner, may be on the [prairies of America shooting bisons, or in the interior of Africa looking after the tusks of elephants.  Are the partners then who know the firm to be insolvent or who are being pressed by a creditor, and over whom the certainty of an execution under a judgment is impending, would not be obtained until the object were defeated, and one or more creditors had paid themselves twenty shillings in the pound out of the estate of their debtor, leaving little or nothing for the other creditors.  Such a ruling would in my opinion operate as a denial to men in partnerships availing themselves of one of the most important privileges conferred by the Bankruptcy Act namely that of making the firm bankrupt and preserving its assets for equal division amongst the creditors. 

    It is quite true, as urged by the learned Counsel, that any act of a debtor to prevent a judgment creditor availing himself of his judgment is in derogation of the Common Law; but the whole of Bankruptcy legislation is in derogation of the Common Law, which does not recognise any discharge from indebtedness except payment.  It was to modify the severity of the Common Law as regards an involved debtor, and to secure an equal division amongst all classes of creditor, that the bankrupt Laws were passed, and I do not therefore feel the necessity or importance of upholding the Common Law rights of a creditor when they clash with the object which the bankrupt Statutes were framed to attain, and more particularly when such rights are opposed to the interests of the main body of creditors.

   It was also urged by the Counsel for the judgment creditor, that if it had been intended to enable one partner to obtain an adjudication of bankruptcy as against the firm on the absence of the other partner, the Act would not have been silent on the subject, and he very fairly argued that when Acts of Parliament so comprehensive as the Bankrupt Acts, and which sought by the infinite variety and specificness of their provisions to foresee almost all possible cases which might arise, it was to be presumed that the omission to provide for the absence of Partners, or their liability to join in signing a petition in bankruptcy was intentional.

   Another argument advanced by Mr. Myburgh, and to which I have naturally attached great weight, because I conceive that there is nothing so prejudicial to the interests of suitors, and therefore to the interest of justice, as judge-made-law, is, that if I rule that one of more partners can obtain an adjudication of bankruptcy against the firm without its being necessary to obtain the consent and signature of absent partners to the petition, I shall be adding a section to the Bankrupt Act.  Mr. Myburgh admits that the Act is silent on the subject.  There is nothing in it for or against the commencement of bankruptcy proceedings by one or more partners - the term used is "Debtor."  "Any Debtor," according to the 86 Sect. of the Act of 1861, "may petition for adjudication of bankruptcy against himself" - and if he does, he must comply with the other sections of the Act with reference to proceedings to obtain adjudication.  He must file a petition - he must support the allegations contained in it by oath - he must file a full, true, and accurate statement, verified by oath of his debts and liabilities of every kind - of the names and residences of his creditors, and of the causes of his inability to meet his engagements.

    Now who is the "debtor" in the case of a firm? Why the several partners of which it consists.  It is true that each may be individually liable to the debts of the firm, but it is the firm which is primarily liable.  It is the firm which has contracted the engagements generally under the trading name - it is the firm which commits the act of bankruptcy - such for instance as the dishonour of a bill of exchange, as the closing of the establishment - it may be that these acts are committed by the partner in charge, but because he is the instrument or organ through which the act of bankruptcy is committed it is not the less the act of the firm.  It is the several gentlemen trading under the style of Dent & Co. that have dishonoured the promissory note given to the Agra Bank, by which Dent & Co. promised to pay a given sum in a given time.  Dent & Co. may therefore fairly be considered as the "debtor."

   Then we have to look and see if there is anything in the requirements of the Act which a single partner cannot lawfully and properly perform.  He can file the petition - he can swear to its truth - he can verify it on oath, and he can state the causes of the inability of the firm to meet its engagements.  The signing by all the partners to the petition would not in all probability enable the one partner to perform all the requirements of the Act in any more satisfactory manner, and if therefore as I think, the object of the Legislature was to induce persons practically insolvent to avail themselves of the Bankrupt Act, I so not see that I am adding a section to it, in other words going beyond the Act and legislating, when I decide that one partner having the means and all the necessary knowledge to do all that is required of a single debtor, does that which it was the evident intention of the Act he should so, namely declare himself and the firm of which he is a member insolvent, petition the Court, hand over the property of the firm to the person appoint to receive it, so that it may be fairly and rateably divided amongst the creditors, and not be  swallowed up by one to the prejudice of all the rest.

   It is unnecessary for me to decide in the present case what the rights of non-signing partners may be against those partners who thus throw the firm into Bankruptcy, but I should be very much inclined to hold that he acted within the powers which impliedly his position as partner conferred on him.

   This brings me to another point raised by Counsel, namely that the filing of a petition for an adjudication is not within the authority of one partner, and "Lindley on Partnership" was quoted as disclosing a doctrine from which inferentially it was to be presumed that such an act was beyond the power of an individual partner.  The principle laid down in Lindley is undoubtedly correct, to the effect that in order to bind a firm the act done by one partner must be necessary for carrying on the business.  No case however was cited showing that it was beyond the power of a partner to file a petition in bankruptcy, but it was urged that such a proceeding being a complete annihilation of the business of the firm, could not be said to be within the principle laid down.  I am inclined however to think that this is attaching too great importance to the language in which utterance or expression is given to the principle itself.  Perhaps it would be more correct to say that the act must be one intimately connected with the business rather than it must be one necessary to the carrying on of the business - for it would be easy to suggest a number of acts which a single partner might lawfully perform, which would in no way be necessary to the carrying on of the business - thus the dismissal of a clerk, the recision of a contract, the release of a debt, the pledging of the personal property of the firm - none of these may be necessary to the carrying on of the business, yet they are all so intimately connected with it that they fall within the implied power of partners, and are binding on the firm.

   On referring also to the Rules framed by the Commissioners in Bankruptcy and approved by the Lord Chancellor for the guidance of proceedings in these Courts, I find one, namely the 21st, which seems to me to support the view which I take.  The Rule was made under the Act of 1849, but it is not repealed by the Act of 1861. Nor is it in contradiction to any rule framed under that later Act, and it may therefore be considered as in force and explanatory of the views held by the Commissioners on this subject.

   It says, "that except when otherwise provided as required by the statute, or by these Rules, every petition presented to the Court of bankruptcy in London or in the country shall be signed by the petitioner or petitioners; provided always, that in the case of partnership, or absence of any petitioner or petitioners from the United Kingdom, the signature of one of the partners or of the partners or of the party presenting the same on behalf of the person to absent, shall be sufficient, and the signature of each person signing the same shall be attested by the Solicitor actually presenting the petition, or by some other Solicitor who shall state himself in his attestation to be the Solicitor or agent of the Solicitor of the party signing in the matter of the petition."

This Rule refers to the 12th section of the Bankrupt Act of 1849 which gives jurisdiction to the Court in all matters appertaining to Bankruptcy, and as there is nothing in the Acts which provides that a petition and adjudication shall be signed by all the partners of a firm, it appears to me that it justifies me in assuming that in the case of a partnership the signature of one of the partners is sufficient even to a petition for adjudication.

   But even in the absence of this Rule I should on principle be inclined to hold that as against creditors, a petition so signed would be sufficient.  To do otherwise would it appears to me to ignore the policy and object of the whole of our Bankruptcy legislation.  It would practically prevent forms from ever becoming Bankrupts on their own petition - it would r ender it impossible for them to comply with the Law, or to avail themselves of its provisions for their own and their creditor's benefit.  It would force them to continue trading when they knew they were insolvent; it would place them at the mercy of a single creditor without the means of protecting themselves or their other creditors, and it would, as it appears to me, defeat one important end and aim of our Law of Bankruptcy.

   I must refuse therefore to grant this Rule, and as the adjudication is upheld by this refusal it follows that the other Rule asked for, namely to refuse execution against the property of the Bankrupt under the judgment obtained by the Bank, will also fall to the ground. - Supreme Court and Consular Gazette.

 

Source: The North-China Herald, 9 May 1868

IN BANKRUPTCY.

Shanghai, May 4th.

 Before Sir E. HORNBY.

Re DENT & Co.

   Mr. Harwood for the Bankrupts.

   Mr. Bird for the Agra Bank.

   Mr. Hannen for several creditors.

   Last meeting of Creditors, Bankrupts to apply for their discharge.

   Mr. HARWOOD said he was about to present a petition asking for an order to annul the bankruptcy, which had been assented to by all the creditors who had proved.  Bu there had been, he understood, a judgment obtained by the Agra Bank against the estate, and in that case he could not proceed with the petition unless they waived their right.

   Mr. BIRD said the Agra Bank were ready to prove their claim.  But after some discussion it was eventually agreed by the learned counsel (Mr. B.) that, if a short time only took place to annul the bankruptcy and the signing of the deed, he would take no further steps at present.

   Mr. HANNEN remarked that the Chief Justice at Hongkong had made it imperative that the deed should be signed within ten days from the order to annul the bankruptcy.  He would therefore ask that the petition be heard at an early date.

   The meeting was accordingly adjourned till Thursday.

May 7th.

   Mr. HARWOOD renewed his application that the bankruptcy might be annulled.

   Mr. HANNEN supported the prayer.

   Mr. BIRD having undertaken, on behalf of the Agra Bank, not to enforce their judgment pending the execution of a deed of assignment.

   The CHIEF JUDGE annulled the bankruptcy.

 

Hongkong, April 25th.

Before CHIEF JUSTICE SMALE.

   Judgment was delivered in a similar petition in the Hongkong Court, to the following effect.

   It having been suggested that further delay may greatly prejudice trhe interests of the creditors, I accede to their wishes in now giving my decision.

   I think that the case before me is eminently one in which I should (following the practice of the Lord Justice Knight Bruce), impose terms on the parties before me as a condition precedent to the order (possibly an irregular one), which I purpose to make, therefore.

  1. - Upon the Official Assignee and his two solicitors expressing themselves to be individually satisfied in respect of their fees, and their costs, charges, and expenses, and respectively declaring that they have no claim against the state in bankruptcy.
  2. - And upon Counsel for Messrs. Turing, Kresser, and Lemann undertaking for them that upon their becoming Trustees respectively under any Deed of the bankrupt's estate, they will respectively release and indemnify the Official Assignees in respect of all claims, and suits whatsoever.
  3. - And upon an undertaking by Mr. Dent for himself and partners, to execute a deed which has been produced to the court on their own parts, forthwith as soon as the Court in Shanghai shall have annulled the bankruptcy.
  4. 4. - And upon counsel for all the creditors who have proved, and for the attorneys under power of attorney of such creditors respectively, undertaking respectively for them and their constituents to execute the same deed within one month after the execution of the said deed by the said bankrupts.
  5. - And upon the said Messrs. Turing, Kresser and Lemann undertaking by their counsel within one year from their being respectively appointed trustees to file copies of their accounts as trustees in the court, and so from time to time at the end of every year until all the accounts of the trust shall be closed, with the registrar of this court as of record.

Let this bankruptcy be annulled, with liberty to all persons appearing on this petition to apply to enforce the terms and undertakings aforesaid, and otherwise as they may be advised.

Published by Centre for Comparative Law, History and Governance at Macquarie Law School