A builder agreed with the owner of the land on which he was to build houses that upon his bankruptcy all the building materials on the land should become absolutely forfeited to the owner. The builder than charged the materials, but this was not registered as a bill of sale. The builder was then made bankrupt, and his trustee and the landowner disputed the right to the materials.
Held: The agreement was void, as it violated or was ‘in fraud of’ the bankruptcy laws. Upon bankruptcy, the bankrupt’s property was really no longer his own, and becomes the property of his trustee in bankruptcy.
Cotton LJ said: ‘though the contract is good as between the parties to it, it is on principle void in the event of the builder’s bankruptcy’ and ‘there cannot be a valid contract that a man’s property shall remain his until his bankruptcy, and on the happening of that event shall go over to someone else, and be taken away from his creditors.’
James LJ said: ‘a simple stipulation that, upon a man’s becoming bankrupt, that which was his property up to the date of the bankruptcy should go over to some one else and be taken away from his creditors, is void as being a violation of the policy of the bankrupt law.’
Judges:
Cotton, James LJJ
Citations:
(1880) 14 ChD 19, [1880] UKLawRpCh 60
Links:
Jurisdiction:
England and Wales
Cited by:
Cited – Perpetual Trustee Company Ltd and Another v BNY Corporate Trustee Services Ltd and Others CA 6-Nov-2009
The court considered the extent of the so-called anti-deprivation rule which would avoid a contract designed to deprive creditors of an asset on the insolvency of a party to the contract. The claimant appealed a finding that the rule did not apply . .
Cited – Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd and Another SC 27-Jul-2011
Complex financial instruments insured the indebtedness of Lehman Brothers. On that company’s insolvency a claim was made. It was said that provisions in the documents offended the rule against the anti-deprivation rule. The courts below had upheld . .
Lists of cited by and citing cases may be incomplete.
Insolvency, Contract
Updated: 17 September 2022; Ref: scu.374117
