SPECIALTY AND SIMPLE CONTRACT DEBTS BILL. (Hansard, 3 April 1856)

§ MR. MALINS

said, he would now ask leave to bring in a Bill to abolish all distinctions between specialty and simple contract debts. He was aware that the subject to which he wished to call the attention of the House might not be very attractive, yet he considered that it was one of great importance. His object was to remove an anomaly from the law, which was not creditable to the jurisprudence of the country, by putting an end to the distinction between specialty and simple contract debts. A specialty debt was created by a person signing an instrument to which a seal was affixed; a simple contract debt was not under seal, but was incurred in the case of the purchase of goods or the signing of a promissory note. Formerly the creditor by specialty had this advantage over the creditor by simple contract debt—namely, that the former only could have recourse to the land of the debtor for the payment of the money due to him. Down to the time of William and Mary a specialty creditor had a right to resort to the land of the debtor, and he had also a priority of claim as regarded the personal estate of the debtor. But there was this limitation of the right of the specialty creditor, that he could only resort to the land of his debtor, while it was in his own hands or in the hands of his heir-at-law; he could not follow the land if it were in the hands of a devisee. The practice, therefore, was for the debtor to devise his land, and thus deprive his credi- 429 tor of any remedy against it. That mischief was cured by the Act of the 3 & 4 Will, and Mary, called the Statute of Fraudulent Devises, and which enacted that if any land was devised for the purpose of defrauding a specialty creditor the devise should he void as against that creditor, and that he should be able to follow the land in the hands of the devisee just as he could if it were in the hands of the heir. Such was the state of the law from the time of William and Mary down to the year 1807. Previously to 1807 the land of the debtor was in no way liable to pay simple contract debts. But the Court of Chancery, when dealing with the property of deceased persons, seeing not only the difficulties, but the injustice to which simple contract creditors were subjected, anxiously laid hold of any circumstances that would enable it equitably to administer the properly that was entrusted to it. If, therefore, a man who was indebted, not only as a specialty debtor, but as a simple contract debtor, devised his lands for the purpose of paying his debts, or charged his lands with the payment of his debts, the Court of Equity considered the land as equitable assets, and as being distributable accordingly. So, again, while the specialty debtor retained possession of his land un-incumbered, the property was considered legal assets, over which the specialty creditor had a priority of claim; yet, if the debtor mortgaged that land, the equity of redemption was held to be equitable assets, and to be administered according to the principles of the Court of Equity. The difference of the principles laid down by a Court of Law and a Court of Equity in the administration of the property of debtors was, that the Court of Equity recognised no distinction between specialty creditors and simple contract creditors—the rights of both being considered equal, and each having a claim, share and share alike; whereas the Court of Law recognised a priority on the part of the specialty creditor. Lord Mansfield, one of the greatest Judges, laid down the proposition that every man was bound to make provision for the payment of his debts out of his real estate by will, and he that did not do it sinned in his grave, because they might otherwise remain unpaid, although the debtor left a real estate abundantly sufficient to pay them. In 1807 Sir Samuel Romilly, who did so much to remedy the defects of the law, took up this subject, and introduced a Bill to 430 make freehold estates liable to the payment of simple contract debts. In Sir Samuel Romilly's Diary it was stated that Lord Ellenborough thought no objection could be urged against the measure, but that great opposition would be made to it by the landed gentry, who would be alarmed at subjecting real property to any charges from which it was exempt. Sir Samuel Romilly proposed that the law should prevent a man, as Lord Mansfield expressed it, "sinning in his grave." The second reading of the Bill was discussed on the 18th February, 1807, and the then Master of the Rolls, Sir William Grant, opposed it, on the ground that there was no pressing necessity for such a measure, and that, as the simple contract debtor had not stipulated to be paid by the heir, there was no reason for giving him that for which he had not contracted. Mr. Canning considered it an attempt to sacrifice the landed to the commercial interests and an attack upon the aristocracy, which might end in something similar to the French Revolution. The Bill was carried in the House of Commons by a majority of sixty-nine to forty-seven, but when the Bill went to the House of Lords it was rejected. Sir Samuel Romilly renewed his efforts every year down to 1816, but though the Bill was repeatedly carried through the House of Commons, it was uniformly rejected in the House of Lords. In 1816 it was opposed by Lord Eldon and Lord Redesdale, and supported by Lord Erskine and Lord Holland. It was again rejected, and Sir Samuel Romilly finally abandoned his efforts to obtain that improvement of the law. In 1833 his son, Sir John Romilly, the present Master of the Rolls, brought in a Bill which became law, with universal consent, and made real estates assets for the payment of simple contract debts, still preserving the distinction by which specialty creditors were paid in full before creditors on simple contracts. No man could now die and leave his creditors unpaid if he had real estates sufficient to pay them, but the specialty creditor might either be paid in full or partially paid, while the simple contract creditor was not paid at all. During life the existing distinction between simple and specialty debts was very small, consisting chiefly in the difference of time within which the debtor might be sued. For specialty debts the time was twenty years; but in simple contracts the time was limited to six years. One object of the present Bill was to abolish that dis- 431 tinction, and make six years the limit in both cases. That only affected the debts during life; but it was after death that the great inconvenience arose. If A died indebted to B by bond, and to C by simple contract, and the assets were anything that could be recovered in a Court of Law, the specialty creditor B would perhaps sweep away everything, and leave C unpaid. Or, take another case, constantly occurring, where a man commits a breach of trust. If the fund which he misappropriated be vested in him by deed under seal (a marriage settlement, for instance), it becomes a specialty debt; but if it be vested in him by a will or other document not under seal, it is merely a simple contract debt. The parties entitled under the document would, therefore, get nothing at all, while the cestuique trust under the settlement would sweep away everything the fraudulent trustee possessed in liquidation of their claims. But would anybody, in the nineteenth century, attempt to say that a seal on a piece of paper or parchment made a debt more or less a debt than it otherwise would be? He had been engaged a short time since in a very hard case, where a solicitor in North Wales died, contrary to expectation, poor, leaving a widow with but slender provision, who was also a creditor by simple contract on his estate. By a deed of partnership he had stipulated that in a certain event his estate should be liable to a penalty of £5,000. It was decided by the Court that the partner was a specialty creditor, because the deed of partnership had a seal to it, whereas but for that it would have been only a simple contract debt, and the widow and other simple contract creditors were left unpaid. But what could be the difference whether a man signed his name on a bill or on a deed by the side of a seal? The debt was a debt all the same, and natural justice and equity required that a man's assets should be equally divided amongst his creditors. He believed the House fully understood the question and was prepared to deal with it. As to the objection that where A took a bond and C took a bill, the original contract was different, there might be something in that if the distinction was of any value. But a man has now the power of drawing all his real estate away from the specialty creditor, and by making it equitable assets, prevent the bond creditor having any preference. He proposed, therefore, to enact that after the 1st of January, 1857, or some 432 other appointed time, six years should be the limitation for all debts, and that in administering the estates of persons dying after that date there should be no priority by reason of a debt being created by bond or by deed under seal. His Bill, therefore, would only apply to the estates of persons dying after a future day to be named in the Bill, and, as it would place the law in harmony with the principles of justice, he hoped that there would be no objection to its introduction.