Q.B.D. Smalley v. Hardinge. 1881 by arrangement under the Bankruptcy Act, 1869, and his trustee, under an order of the Court of Bankruptcy, disclaimed the lessee's interest in the premises. Notice of the application to the court for leave to disclaim was given to the sub-lessee within a reasonable time before the order was made. The lessor having brought an action to recover possession of the part of the premises demised to the sub-lessee as from the date of the appointment of the trustee: Held, by Mathew, J., that the lessor was entitled to recover possession. STATEMENT OF CLAIM. 1. The plaintiffs are the owners of 90 New Bond Street, Middlesex. 2. By lease of the 30th of December, 1870, the plaintiff Smalley demised the premises to Jones for sixty-one years from 1868, at a certain rent, with a covenant by Jones against assignment of the whole or part without Smalley's license. 3. By lease of the 19th of May, 1871, Jones demised to Gardner, without Smalley's license, part of the premises for twenty-one years from 1870, at a certain rent. 4. By a subsequent deed Gardner assigned to the defendant, without Smalley's license, all his interest in the lease of the 19th of May, 1871, and the premises thereby demised, and the defendant thereupon entered and is still in possession. The plaintiffs require the production at the hearing of the lease of the 19th of May, 1871, and the assignment, and crave leave to refer to them and to the lease of the 30th of December, 1870. 5. In December, 1879, Jones filed a petition in the London Bankruptcy Court; a resolution for liquidation by arrangement was afterwards passed and registered, and a trustee appointed on the 23d of January, 1880. *6. On the 29th of April, 1880, the trustee applied [372 to the Bankruptcy Court for leave to disclaim Jones' interest in 90 New Bond Street; and by an order of the court dated the 3d of June, 1880, leave was given to the trustee to disclaim such interest. 7. Shortly after the making of the application the defendant received notice thereof, and within a reasonable time before the 3d of June, 1880, the defendant received notice that the application would be heard and disposed of by the court on the 3d of June. 8. On the 14th of July, 1880, the trustee, under and by virtue of the said order, by writing under his hand, duly disclaimed the interest of Jones in and to the premises, 90 New Bond Street, demised to Jones by the lease of the 30th of December, 1870. 9. Alternately, the plaintiffs repeat all the above allegations, and say that shortly after the execution of the dis Smalley v. Hardinge. 1881 Q.B.D. claimer they gave the defendant notice thereof, and of all the circumstances mentioned in the 5th, 6th, and 8th paragraphs, and required him to give them, within a reasonable time, possession of the premises assigned to him by Gardner, but the defendant refused to give up possession within a reasonable time, or at all, and the reasonable time elapsed long before this action. Claim-1. Possession of the premises assigned to the defendant by Gardner. 2. Mesne profits from the 23d of January, 1880, to the day of recovering possession. Demurrer to the claim. March 7. Warmington, for the defendant: A disclaimer under s. 23 of the Bankruptcy Act, 1869 ('), affects only the 373] rights and liabilities of lessor and lessee, and of the trustee. It cannot affect legal rights created before the bankruptcy. The words "shall if the same is a lease be deemed to have been surrendered" mean that it shall be as if there had been a voluntary surrender to the lessor, who on a voluntary surrender takes subject to the rights of the sub-lessee, and can sue him upon the covenants in the sublease. The disclaimer here is not of the premises or the property, but only of the lessee's interest, and thus leaves untouched the rights of the sub-lessee. Arthur Charles, Q.C. (Moorsom, with him), for the plaintiffs: Upon the execution of the disclaimer the plaintiff's became entitled to recover possession as from the date of the trustee's appointment. (1) Sect. 23. "When any property of the bankrupt acquired by the trustee under this act consists of land of any tenure burdened with onerous covenants, of unmarketable shares in companies, of unprofitable contracts, or of any other property that is unsalable or not readily salable by reason of its binding the possessor thereof to the performance of any onerous act, or to the payment of any sum of money, the trustee, notwithstanding he has endeavored to sell, or has taken possession of such property or exercised any act of ownership in relation thereto, may, by writing under his hand, disclaim such property, and upon the execution of such disclaimer the property disclaimed shall, if the same is a contract, be deemed to be determined from the date of the order of adjudication; and if the same is a lease, be deemed to have been surrendered on the same date; and if the same be shares in any company, be deemed to be forfeited from that date: and if any other species of property, it shall revert to the person entitled on the determination of the estate or interest of the bankrupt; but if there shall be no person in existence so entitled, then in no case shall any estate or interest therein remain in the bankrupt. "Any person interested in any disclaimed property may apply to the court, and the court may, upon such application, order possession of the disclaimed property to be delivered up to him, or make such other order as to the possession thereof as may be just. Any person injured by the operation of this section shall be deemed a creditor of the bankrupt to the extent of such injury, and may accordingly prove the same as a debt under the bankruptcy." Q.B.D. Smalley v. Hardinge. 1881 [MATHEW, J.: It sounds rather alarming to say that where a freeholder leases for building purposes, and the lessee builds and becomes bankrupt, and his trustee disclaims, the freeholder can eject all the tenants of the houses, and recover the land with all its improvements.] In such a case the trustee should not and would not disclaim. The creditors would not allow him, because the lease would be a valuable property. If, however, the trustee desires to disclaim, any sub-lessee can, by indemnifying the trustee for the short period during which the lease is vested in him, obtain an assignment. If the sub-lessee makes application, the court will compel the trustee to assign on these terms, and will not allow him to disclaim. This was done in the case of an equitable mortgagee of the *lease: Ex parte Buxton, In re Müller ('). The ex- [374 pressions of James, L.J., there imply that a disclaimer would affect the equitable mortgagee; and in Ex parte Dillon, In re Woods ("), the Court of Appeal held that after the execution of a disclaimer by the lessee's trustee, with the leave of the Bankruptcy Court, the lessor's title to the property was complete, and the rights of an equitable mortgagee of the lease extinguished. If the defendant's contention is correct, the plaintiffs have no right to the land, for that is in the possession of the sub-lessee, nor to the rent, for that is gone with the disclaimed lease, nor to enforce the covenants, for the same reason. They could not even sue the sub-lessee upon the covenants in the sub-lease, for the assignee of a reversion can only sue when he voluntarily accepts the reversion, which is not the case here. But if they could, the covenants in the sub-lease and the rent reserved differ materially from those in the lease, and it would be very unjust to force upon the plaintiff's terms they object to and a tenant they do not want. The lessee might have taken a large premium and granted a sub-lease at a peppercorn without covenants. This question was decided in the plaintiffs' favor in Taylor v. Gillott (), where the lessee having let a sub-tenant into possession under an agreement for a lease, liquidated, and his trustee disclaimed. The lessor having brought ejectment against the sub-tenant, Hall, V.C., refused to restrain the ejectment, or to compel the lessor to grant a lease to the sub-tenant upon the terms of the agreement, and pointed out the distinction between a disclaimer and a voluntary surrender. If the sub-lessee is injured he can prove against the estate under the last clause of s. 23 and s. 31. (1) 15 Ch. D., 289. (*) 3 Ch. D., 459. (3) Law Rep., 20 Eq., 682. 1881 Smalley v. Hardinge. Q.B.D. Warmington, in reply: A lessor to whom a lease has been surrendered can sue the sub-lessee upon the covenants in the sub-lease, 8 & 9 Vict. c. 106, s. 9; and if he is damnified, can prove against the estate under s. 31 of the Bankruptcy Act. In Ex parte Ditton () there was no judgment of the court. Taylor v. Gillott (3) was an attempt by a stranger to foist on the lessor a new contract. The sub-tenant should have asked for a lease on the terms of the origi375] nal lease. The present defendant is in *possession under a legal estate, and that gives him an advantage over the tenant in Taylor v. Gillott (†). Cur. adv. cult. March 8. MATHEW, J.: The question in this case turns upon the construction of the 23d section of the Bankruptcy Act of 1869, and is, What is the effect of a disclaimer, by a trustee in bankruptcy of a lease made to a bankrupt, on the sub-leases made by him before bankruptcy of the premises contained in the original lease? Mr. Charles contended, on the authority of Taylor v. Gillott (), that the disclaimer put an end to the lease and the sub-leases which the bankrupt had created. It seems to me that the reasoning of the Vice-Chancellor is applicable to the present case, and that the plaintiffs are entitled to rely upon the judgment as a decision in their favor. It was argued by the learned counsel for the defendant that the sub-lease here is a legal interest, while in Taylor v. Gillott (2) the subordinate interest was equitable. This, it was argued, made all the difference; but I think it makes no difference. The argument from hardship is available upon either contention; but I do not think it unreasonable to suppose that the Legislature intended to solve the difficulties, occasioned by the bankruptcy of a lessee, by providing means for terminating the lease, while the Court of Bankruptcy is provided with the means of protecting the interests derived from the lessee. Whether or not the Court of Bankruptcy has power to administer relief in this case under s. 23 I express no opinion. Judgment for the plaintiffs. Solicitors for plaintiffs: Walters. Deverell & Walters. Solicitor for defendant: W. H. Herbert. (1) 3 Ch. D., 459. (*) Law Rep., 20 Eq., 682. See 27 Eng. R., 791 note; 15 id., 745 note. (C.A.) Q.B.D. Glynn v. East and West India Dock Co. 1880 [6 Queen's Bench Division, 475.] Nov. 19, 1880-(C.A.), Q.B.D. [IN THE COURT OF APPEAL.] GLYN, MILLS, CURRIE & Co. v. THE EAST AND WEST INDIA DOCK COMPANY. Sale of Goods-Bill of Lading-Title of First Indorsee-Production of Unindorsed Copy -Warehouseman, Liability of. Goods having been shipped for London consigned to C. & Co., the captain signed a set of three bills of lading, marked "first," "second," and "third," respectively, making the goods deliverable to C. & Co. or their assigns, freight payable in London, the one of the bills being accomplished, the rest to stand void." During the voyage C. & Co. indorsed the bill of lading marked "first" to the plaintiff's for valuable consideration. Upon the arrival of the ship at London, C. & Co. entered the goods consigned to them, and they were landed and placed in the custody of the defendants in their warehouses; the captain lodging with the defendants notice under the Merchant Shipping Act, 1862, to detain the cargo until the freight should be paid. C. & Co. then produced to and lodged with the defendants the "second" of the bills of lading. The defendants accordingly entered C. & Co. in their books as enterers, importers, and proprietors of the goods and, the stop for freight being afterwards removed, they delivered the goods to various persons upon delivery orders signed by C. & Co.: Held, by Bramwell and Baggallay, L.JJ. (Brett, L.J., dissenting), that the defendants had not been guilty of a conversion, and that no action could be maintained against them by the plaintiffs. Judgment of Field, J. (5 Q. B. D., 129; ante, 211), reversed. APPEAL by the defendants from the judgment of Field, J., after trial without a jury. *The facts are sufficiently stated in the report of [476 the proceedings before Field, J. ('), and in the judgment of Brett, L.J. June 12, 14, 15, 17, 18, 1880. Sir F. Herschell, S.G., and J. C. Mathew, for the plaintiffs. Watkin Williams, Q.C., and Pollard, for the defendants. The arguments are sufficiently noticed in the judgments of the Lords Justices. Cur. adv. vult. Nov. 19, 1880. The following judgments were delivered: BRETT, L.J.: This case seems to me to be one of unusual difficulty. The solution of it depends so entirely upon a minute examination of the legal and business effect of each step in the transactions described in it between the various parties, that it seems to me to be necessary to state those successive steps with considerable particularity. The sugar, which is the subject-matter of the litigation, () 5 Q. B. D., 129; Ante, p. 211. |