Muntz v Smail - [1909] HCA 13

ON APPEAL FROM THE SUPREME COURT OF Insolvency-Fraudulent - preference- " With a view to prefer"--Disposition made to

carry out legal obligation-Insolvency Act 1890 (Vict.) (No. 1102), sec. 73- Insolvency Act 1897 (Vict.) (No. 1573), sec. 116-Equitable <signment of future fund-Registration- Book Debts Act 1896 (Vict.) (No. 1424), sec. 2. March 18, 19,

In order that a disposition of property made by a debtor in insolvent April 2.

circumstances to one of his creditors may be a fraudulent preference within the meaning of sec. 73 of the Insolvency Act 1890 (Vict.), the giving of a preference must be the substantial object which the debtor desires to achieve. The motive or reason which induces that desire is irrelevant.

The defendant, a cattle salesman, on behalf of a principal sold cattle to A., advancing the purchase money himself and receiving from A. a promissory note for the amount of the advance, and also entering into a verbal agreement with A. that A. would re-sell the cattle through the defendant, who might repay himself the amount of the advance out of the purchase money. A. having come into insolvent circumstances, instructed his solicitor to call a meeting of his creditors. Two days afterwards, being requested by other creditors to allow them to take some of the cuttle in payment of their debts, he refused to do so on the ground that it would not be fair to the other creditors. Eight days afterwards and within a month of his insolvency, and before the

8 CLR 263

promissory note became due, A., at the request of the defendant, and believ- ing that he was thereby fulfilling his obligation to the defendant, and that it would be wrong to do otherwise, sold the cattle through the defendant who received the purchase money and applied it in discharge of A.'s liability to him. In an action by the trustee in insolvency of A. against the defendant:

Held (Isaacs J. dissenting), that A. had made a fraudulent preference in favour of the defendant, and that the trustee was entitled to recover the amount received by the defendant as purchase money for the cattle.

Quare, whether the agreement as to the re-sale of the cattle through the defendant amounted to an assignment to the defendant of the purchase money which might be paid on the re-sale of the cattle, and, if so, whether the agreement should have been in writing and registered under the Book Debts Act 1896 (Vict.).

Per Isaacs J.-The agreement amounted to an equitable assignment, and did not require registration either under the Instruments Act 1890 or the Book

Judgment of the Supreme Court (àBeckett J.): Muntz v. Smail, 29 A.L.T., 223, reversed.

APPEAL from the Supreme Court of Victoria.

An action was brought in the Supreme Court of Victoria by Thomas W. Muntz, trustee of the insolvent estate of David Eyles, against Walter G. Smail, impeaching a transaction by which Smail sold certain cattle for Eyles and received and retained…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Muntz v Smail

Details

AGLC: Muntz v Smail [1909] HCA 13
Case: [1909] HCA 13
Decision Date: 2 April 1909

CaseChat Overview and Summary

The appellant, Thomas W. Muntz, as trustee of the insolvent estate of David Eyles, appealed from a judgment of the Supreme Court of Victoria. The action concerned a transaction where the respondent, Walter G. Smail, sold cattle on behalf of Eyles and retained approximately £852 of the proceeds. Muntz sought to have this transaction declared a fraudulent preference under the Insolvency Acts, or alternatively, that the transfers were made with intent to defeat or delay creditors.

The High Court was required to determine whether Eyles's disposition of the cattle proceeds to Smail constituted a fraudulent preference under section 73 of the Insolvency Act 1890. Specifically, the court had to consider whether the disposition was made "with a view of giving such creditor a preference over the other creditors," and whether Eyles's belief that he was fulfilling a contractual obligation to Smail negated the intent to prefer. A further question arose as to whether the agreement constituted an equitable assignment of future funds and, if so, whether it required registration under the Book Debts Act 1896.

The majority of the High Court, allowing the appeal, held that Eyles had made a fraudulent preference. The Court reasoned that for a disposition to be a fraudulent preference, the substantial object the debtor desired to achieve must be the giving of a preference, and the motive or reason inducing that desire is irrelevant. Despite Eyles's belief that he was fulfilling a contractual obligation to Smail, the Court found that his intention was to give Smail a preference over his other creditors, particularly in light of his prior statements to other creditors about fairness and his intention to call a meeting of creditors. The Court reversed the judgment of the Supreme Court, finding the trustee entitled to recover the amount received by Smail.

Orders