References: (1832) 22 LJ Bank 21, [1852] EngR 1101, (1852) 2 De G M & G 953, (1852) 42 ER 1145
Links: Commonlii
Coram: Maule J
A covenant given by the father of two existing partners to an incoming partner to pay any shortfall in the debts due to the firm below a stated sum and to bear the debts of the existing partners in excess of a stated sum was treated not as a contractual liability to pay a stated or liquidated sum but as a liability for unliquidated damages. The court an appeal against the refusal of the Commissioner to set aside the adjudication of bankruptcy.
Maule J said: ‘The question now before the Court is, whether the debt or alleged debt or demand asserted to be due is one which will be sufficient, as a petitioning creditor’s debt, to support an adjudication in bankruptcy. I am of opinion that it is not. It is clear from the recitals in the deed of partnership which contains the covenant in question, that the engagement entered into was one entered into for the benefit of Mr Walker. The covenant was with Mr Walker for the benefit of Mr Walker, and was not a covenant with Mr Walker for the benefit and on behalf of Walker, Perry & Broadhurst. They had, in fact, no interest in it, but Mr Walker was alone interested; it was a covenant to pay the difference between the debts due from the old firm stated in the schedule and any further debts; it was to pay the excess of one set of debts-over the amount of debts due to the firm. That being so, it seems to me impossible to turn the covenant into a covenant to pay a liquidated sum, or any sum, to Walker. The covenant could not be performed by doing that; the object of the parties was to put the firm in the same position in which they would be if the debts, active and passive, were to the amount stated in the covenant, and there is no specific sum engaged to be paid to Walker. It cannot be treated at law as a specific sum of money to be received, for the right to receive would be co-extensive only with the demand sustained; and this cannot be so made the subject of computation as to be a fit ground for a petitioning creditor’s debt. No action could be framed upon it. I do not mean to say that a covenant to pay to A. for the benefit of A, B. and C. may not make a good petitioning creditor’s debt. In the present case there might not be a sufficient damage to constitute the debt; or, even suppose that damage to the amount of 100l, was shewn, still it does not follow that the money could have been recovered, as anything to be recovered must be in the shape of damage, and such damage is not of a character to amount to a petitioning creditor’s debt.’
This case is cited by:
- Cited – McGuinness -v- Norwich and Peterborough Building Society CA (Bailii, [2011] EWCA Civ 1286, [2012] BPIR 145, [2011] NPC 117)
The appellant had guaranteed his brother’s loan from the respondent, and the guarantee having been called in and unpaid, he had been made bankrupt. He now appealed saying that the guarantee debt, even though of a fixed amount could not form the . .