ruptcy Act, 1890, i.e., making them subject only to the same Astbury, K.C., and Hansell, for the appellants. It is submitted that a vesting order should have been made in the terms mentioned in s. 13 of the Bankruptcy Act, 1890, i.e., making the appellants liable upon the covenants in the leases to the same extent only to which they would have been liable if the of releasing the bankrupt and his property and the trustee from liability, affect the rights or liabilities of any other person." "(6.) The Court may, on application by any person either claiming any interest in any disclaimed property, or under any liability not discharged by this Act in respect of any disclaimed property, and on hearing such persons as it thinks fit, make an order for the vesting of the property in or delivery thereof to any person entitled thereto, or to whom it may seem just that the same should be delivered by way of compensation for such liability as aforesaid, or a trustee for him, and on such terms as the Court thinks just; and, on any such vesting order being made, the property comprised therein shall vest accordingly in the person therein named in that behalf without any conveyance or assignment for the purpose. Provided always that, where the property disclaimed is of a leasehold nature, the Court shall not make a vesting order in favour of any person claiming under the bankrupt whether as underlessee or as mortgagee by demise, except upon the terms of making such person subject to the same liabilities and obligations as the bankrupt was subject to under the lease in respect of the property at the date when the bankruptcy petition was filed, and any mortgagee or underlessee declining to accept a vesting order upon such terms shall be excluded from all interest in and security upon the property, and, if there shall be no person claiming under the bankrupt, who is willing to accept an order upon such terms, the Court shall have power to vest the bankrupt's estate and interest in the property in any person liable either personally or in a representative character, and either alone or jointly with the bankrupt to perform the lessee's covenants in such lease, freed and discharged from all estates, incumbrances, and interests created therein by the bankrupt." By s. 13 of the Bankruptcy Act, 1890, "The Court may, if it thinks fit, modify the terms prescribed by the proviso in sub-s. 6 of the same section (i.e., s. 55 of the Bankruptcy Act, 1883), so as to make the person in whose favour the vesting order may be made subject only to the same liabilities and obligations as if the lease had been assigned to him at the date when the bankruptcy petition was filed and (if the case so requires) as if the lease had comprised only the property comprised in the vesting order." C. A. 1905 CARTER & SAVILL BROTHERS, C. A. 1905 ELLIS, In re. SAVILL BROTHERS, Ex parte. leases had been assigned to them on the day of the filing of the bankruptcy petition. Sub-s. 2 of s. 55 of the BankCARTER & ruptcy Act, 1883, shews that the intention of the Legislature was that the trustee's disclaimer should not affect the rights or liabilities of third parties, including therefore an underlessee or a mortgagee by sub-demise. The registrar's order very seriously affects the rights and liabilities of the appellants, as was pointed out by Lindley L.J. in In re Finley. (1) The object of making a mortgage of a leasehold interest by way of underlease is that the mortgagee may escape from liability upon the lessee's covenants in the original lease; and this object is frustrated and the position of the mortgagor is entirely changed for the worse by an order in the form provided by s. 55, sub-s. 6, of the Bankruptcy Act, 1883. That is the order which the registrar has made. The effect of that order is that the appellants will lose their security altogether, unless they are willing to assume the liabilities of the bankrupts under the original leases. They will be liable under the covenants during the whole of the term of ninety-nine years, even if they should realize their security and assign the property. They will be worse off than if they had taken their security by an assignment of the lease, for then they could have got rid of future liability by assigning the lease to a pauper. Probably the reason why s. 13 of the Bankruptcy Act, 1890, was enacted was that it had been pointed out in In re Finley (1) what hardship an order as provided by s. 55, sub-s. 6, of the Bankruptcy Act, 1883, would cause to a mortgagee by underlease. Under s. 13 the Court has a discretion, and it is submitted that the discretion should be exercised in such a way as to do what is right to both parties-the lessor and the underlesseeand not to give an exceptional benefit to one of them. The only case which has yet been decided upon s. 13 is In re Walker. (2) In that case breaches of the lessee's covenants had been committed before the bankruptcy, and a right of re-entry had accrued to the lessor, and, that being so, Vaughan Williams J. thought that he ought not to exercise the dis(1) (1888) 21 Q. B. D. 475, at pp. 486, 487. (2) (1895) 64 L. J. (Q.B.) 783. C. A. 1905 ELLIS, In re. SAVILL BROTHERS, Ex parte. cretion given by s. 13 so as to deprive the lessor of his right of re-entry. But the learned judge made use of his power for the purpose of imposing terms on the parties, and a vesting CARTER & order was made, as provided by s. 55, sub-s. 6, of the Bankruptcy Act, 1883, upon the terms that the lessor should at any time accept a surrender, upon the mortgagee giving six months' notice in writing and performing all the covenants and obligations of the lease down to the date of disclaimer. In the present case there had been no breaches of the lessees' covenants before the bankruptcy, and no injury will be done to the lessors by making an order under s. 13. The lessors took the risk of their tenants becoming bankrupt; it is not the fault of the mortgagees that they have done so, and the mortgagees ought not because of the bankruptcy to have a greater burden imposed on them. If the discretion of the Court under s. 13 cannot be exercised in the present case, it is impossible to conceive of any case in which it could be exercised. By making the order contemplated by that section the lessors will not be deprived of any right which they would have had if there had been no disclaimer. The mortgagees did not apply for a vesting order; the lessors sought to impose it upon them. Upjohn, K.C., and Wace, for the Coopers' Company. After the decision in In re Walker (1), it cannot be disputed that as an ordinary rule a vesting order ought to be made on the terms mentioned in sub-s. 6 of s. 55. Under that sub-section the Court had no discretion in the matter, but the persons who took the vesting order must become subject to the liabilities to which the bankrupt was subject under the lease. Sub-sect. 6 has not been repealed, but s. 13 of the Bankruptcy Act, 1890, gives the Court a judicial discretion to modify the terms imposed by sub-s. 6 of s. 55. The onus must be on those who desire that this discretion should be exercised to shew some reason why it should be exercised. The appellants have filed no evidence as to this; they have not even alleged any ground for modification of the ordinary terms. It is submitted that, as Vaughan Williams J. said in In re (1) 64 L. J. (Q.B.) 783. C. A. 1905 ELLIS, In re. SAVILL BROTHERS, Ex parte. Walker (1), s. 13 was intended for the relief of an underlessee or mortgagee in hard cases. Suppose, for instance, that these CARTER & bankrupts, instead of taking seven leases of the seven houses, had taken one lease of all the seven, and had then mortgaged one of the houses by underlease, it would be hard upon the mortgagee if, in order to keep his security, he must on taking a vesting order become liable on the lessees' covenants in respect of all the seven houses though his security was upon one house only, and he had no interest in the other houses. This is a case of the kind to which the discretionary power was intended to apply. Suppose, again, there had been a breach of covenant which was not continuing-a breach of a covenant to lay out a specified sum of money in improving the demised premises-and the lessor had waived the right of re-entry by accepting payment of rent, it would be monstrous to compel an underlessee to perform that contractual obligation of the lessee for the breach of which the lessor had lost his right of re-entry. That would be a case for the exercise of the discretion under s. 13. It is submitted that if ever there were a case in which the terms mentioned in s. 55, sub-s. 6, should be imposed, the present case is one. The seven houses are granted each for a term of ninety-nine years and at a small ground-rent. The present value of the total of the seven ground-rents is about 6007., and the mortgage debt is 18647., and this shews that for many years to come the real value of the property will belong to the mortgagees, and that practically there will be no liability under the lease. If a mortgagee has the ownership and the real enjoyment of a house, subject to the payment of a small ground-rent, it is not fair to the lessor that towards the end of the term he should be able to get rid of all liability by assigning the lease to a pauper. If at the end of the term there should be breaches of covenant, it would be practically impossible to prove that they occurred before the assignment. The houses were let at small ground-rents because the lessors were at the end of the long term to get back their land improved by the existence upon it of good and substantial houses-not houses (1) 64 L. J. (Q.B.) at p. 786. in ruins. It must not be forgotten that the first effect of a disclaimer is to leave the lessor without a lessee, and without any one liable to him upon the covenants in the lease. [VAUGHAN WILLIAMS L.J. If the lessor reserved no power of re-entry on the bankruptcy of the lessee, the underlessee would have been unassailable so long as he paid the groundrent and performed the covenants. If a mortgagee by subdemise is entitled in every case to a vesting order on the terms of being liable on the covenants in the lease only as if he had been an assignee, the practical result is to repeal s. 55, sub-s. 6, of the Bankruptcy Act, 1883-not to modify it. STIRLING L.J. The lessor would be able to re-enter as soon as the assignee committed a breach of covenant.] The lessor would be involved in litigation. The power given to the Court by s. 13 is discretionary, and the Court of Appeal will not interfere with the exercise of this discretion by the registrar unless he proceeded on a wrong principle. Astbury, K.C., in reply. If before the Bankruptcy Act, 1869, a lessee had become bankrupt, the lessor could not have interfered with an underlessee: Co. Litt. 19th ed. vol. ii. 338 b; Doe v. Pyke. (1) And statutory force was given to that doctrine by the Act 8 & 9 Vict. c. 106. An underlessee was in a better position than an assignee of the lease. The Bankruptcy Act, 1869, did not alter the position of an underlessee: Smalley v. Hardinge. (2) In In re Walker (3) a right of re-entry for breach of covenant had accrued to the lessor, and if the Court had made a vesting order as contemplated by s. 13 of the Bankruptcy Act, 1890, that vested right of re-entry would have been destroyed. In the present case the lessors will be in no way injured by making such an order, and if the Court cannot in this case exercise its discretion in favour of the mortgagees it is difficult to conceive a case in which it could do so. Cur. adv. vult. March 13. VAUGHAN WILLIAMS L.J., after stating the order of the registrar, continued:-The question we have to (1) (1816) 5 M. & S. 146, 154; 17 R. R. 296. (2) (1881) 7 Q. B. D. 524. C. A. 1905 CARTER & ELLIS, In re. SAVILL BROTHERS, Ex parte. |