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the goods for twenty one days under process or
order of the court amounts to an act of bankruptcy.
Section 45 of the same Act provides
(inter alia)
that
nothing shall invalidate an assignment by the debtor
for valuable consideration prior to the date of the
receiving order provided that the person to whom
the assignment is made has not at that time any
notice of the act of bankruptcy. Section 46 provides
that a payment by any person of money to a person
subsequently adjudicated a bankrupt or to a person
claiming under an assignment from the bankrupt
is a good discharge if the payment is made prior
to the date of the receiving order and without notice
of the presentation of a bankruptcy petition and is
either pursuant to the ordinary course of business or
is
bona fide.
The facts of this case were as follows :
On September iyth, 1959, a judgment creditor levied
•execution under three judgments for a total sum of
.£1,447 4s - 3d- on trie goods of D who was a grocer
D signed
a
" walking possession agreement"
under which he undertook not to remove any of the
goods seized in order that he could continue trading.
•On October 9th, D entered into a contract for the
sale of the shop which was to be completed on
November znd. On that day the purchaser paid to
D's solicitor £7,625 for the premises fixtures and
goodwill and £1,101 95. 6d. for the stock in trade.
The solicitor had been acting for D all along and had
notice of the execution order and the possession by
the sheriff of D's stock in trade.
The solicitor
received a total of approximately £9,000 and out of
this he paid £4,412 to the mortgagees of the
premises who had joined in the sale and between
November 2nd and November i}th, he paid out
about £4,500 to various creditors including the
balance due to the judgment creditor in pursuance
•of instructions given to him by D. On November
2nd, D had informed his solicitor that there were no
debts other than those of which the solicitor knew
and
there were sufficient funds to meet them.
By November 2jth, the solicitor discovered that the
•debtor had not disclosed all his debts to him and that
there were further debts amounting to £4,000
which the debtor was unable to pay. On December
nth, 1959, D was adjudicated a bankrupt on his
own petition. The trustee in bankruptcy applied
to the County Cork for an order for an account
from the solicitor of the proceeds of the sale and
the payment of the sum found due and the judge
ordered (i) that the title of the trustee related
back to October, 9th 1959, (twenty one days after the
sheriff had taken possession) and (2) that the solicitor
'was accountable to the trustee for the sum of
£4,114 195. 6d. received by him on the bankrupt's
behalf subsequent to and with notice of an act of
bankruptcy. It was also ordered that this sum should
be paid by the solicitor to the trustee. On appeal to
the Divisional Court it was held (i) that the oral
permission given to D after seizure of the goods to
deal with them in a limited way without further
reference to the sheriff was not inconsistent with his
possession of the goods and that accordingly an
act of bankruptcy occurred on October 9th, 1959.
(ii) That the payments made to the creditors by D's
solicitor out of the money in his hands were pay
ments made " to " the bankrupt and being
bona fide
they fell within the meaning of section 46. Accord
ingly they were a good discharge to the solicitor,
(iii) That certain of the payments were made pur
suant to an assignment by the bankrupt for valuable
consideration within the meaning of section 46
(/)
and were therefore validated by that section by
reason of the fact that the payees had not notice of
the act of bankruptcy. The fact that the solicitor
(the person making the payments) had such notice
did not bring them within the section. It was there
fore ordered that the County Court judge's order
be set aside except in so far as it ordered that the
act of bankruptcy occurred on October 9th.
The remarks of Russell J. in giving judgment are
of interest to the profession because he held that the
payments made by the solicitor were not made in
the ordinary course of business and, therefore, in
order to bring them within the section they would
have to be made
bona fide.
The learned judge said
that a solicitor (or any person) paying money on
behalf of a debtor in a situation like this owes a
duty to the debtor's creditors and the good faith
to be shown to such person went beyond mere
personal honesty and involved more than absence
of a conscious attempt to defraud. The learned judge
said: "If Mr. Bennett (the solicitor) had made the
payments with the knowledge that the process would
result in some creditors being paid in full and others
whistling for their money we do not consider that
the payments would have been made
bona fide.
It might well be that if a person in Mr. Bennett's
position had a strong suspicion that the process of
his payments would have the result mentioned above
but took pains to avoid finding out the truth he
could not be said to make them
bona fide.
But the
situation in the present case was otherwise." The
learned judge went on to point out that though the
solicitor knew that his client had committed an act
of bankruptcy and was generally
insolvent the
situation at the time when the purchase money came
into his hands was that he thought he had sufficient
to pay all the client's debts and the client had told
him expressly that there were no further debts.
The judge continued, " All the payments now
thought to be recovered were made before he found
out that Dalton had not told him the truth. There