#3674 - Recoupment, Contribution And Subrogation - Aspects Of Obligations

Brook’s Wharf & Bull Wharf v Goodman Bros (1937) (CA) –Lord Wright MR –essence is where there is [1] liability for the same debt on both claimant and defendant and [2] claimant has been legally compelled to pay but [3] defendant gets the benefit of the payment because his debt is discharged entirely or pro tanto, [4] and the defendant is liable to pay the claimant

i.e. X sues C for damage incurred by C and D. But then C can claim against D

1. Types of Recoupment

   • Burrows–a standalone primary/secondary liability analysis may be a problem in situations where X retains C’s property unless a debt is paid by C to X. Birks describes this as proprietary liability, because the property is encumbered by a liability. However, this distorts the meaning of liability. It is better to recognise that legal compulsion comprises two categories of recoupment: [a] C discharges D’s liability to X in order to recover C’s property, [b] C and D both liability to X but C’s liability is secondary to D’s

1. Claimant (“C”) and Defendant (“D”) Both Liable to Third Party (“X”)

   1. D’s Liability

      • Moule v Garrett (1872) (HC) –lessee C compelled to pay for breach of covenant could seek reimbursement from D, an assignee, even though there had been intermediate assignees. Also, D could have been sued for breach of covenants so C had discharged D’s liability.

      • Bonner v Tottenham & Edmonton Building Society (1899) (CA) – C assigned lease to X who mortgaged it to D. X went bankrupt and D took possession but failed to pay landlord. Landlord sued C for breach of covenant. C was compelled to pay landlord and sought to recover from D. Held that D’s liability had not been discharged because D was a sub-lessee who was not liable to pay landlord any rent

      • Fortis Bank v India Overseas Bank (2011) (HC) – C agreed to pay X by letter of credit to be opened by D. Held that payment by C had not discharged any liability of D

   2. C’s Liability

Brook’s Wharf & Bull Wharf v Goodman Bros (1937) (CA) –D imported squirrel skins from Russia and stored them in C’s warehouse. D was primarily liable to pay tax to X but C had agreed to pay as well. C paid the tax when X demanded it. Lord Wright MR – D, as importer, was still liable for tax because C’s payment did not supersede D’s liability even though X could not compel payment a second time. An obligation on the part of C to pay implied by statute.

Gebhardt v Saunders (1892) (CA) –house leased by D to C, which had a blocked drain. X served a notice requiring D or C to abate the nuisance. Primary responsibility for this fell on D, but C paid repairs. C then sued D for recoupment. Charles J –C was directly liable towards X and D was legally compellable to do the work. Therefore C could recover

1. Seizure of Property Cases

C can get a claim for recoupment if he is compelled to pay, even if not liable to pay:

Exall v Partridge (1799) (CA) –C left carriage in D’s garage for repairs. D failed to keep up payments on the lease of the garage from X. X sought remedy of distrainment, i.e. keeping property until D was paid. C paid D’s rent to get his carriage back. Grose J – this was a compulsory (as opposed to voluntary) payment because the only way C could get his goods back was by paying. Therefore there was an implied promise by D to pay C

• Johnson v Royal Mail Steam Packet (1867) (HC) –C’s ship was seized because D had failed to pay wages of crew. C paid the sum in order to obtain possession and was allowed to a claim in recoupment from D

1. D is Primarily Liable to X as Between C and D

   1. Person Who Benefits From the Arrangement Primarily Liable

      • Moule v Garrett (1872) (HC) – Willes J –if a party (C) is liable by immediate privity of contract to another (X) but the whole benefit of the contract is taken by another party (D), C is entitled to be indemnified by D in respect of the performance of the obligation

2. C Does Not Act Voluntarily

   1. Request

The original idea was that payment must be requested from C. However, this became implied. Nonetheless, remnants of the idea remained

If C not legally compelled to pay, he is treated as having acted voluntarily. If he is legally compelled to act he is not treated as having acted voluntarily (e.g. Exall v Partridge)

• Bonner v Tottenham & Edmonton Building Society (1899) (CA) –Smith CJ –both C and D must be compellable to pay X. Otherwise, the C X payment is voluntary, which raises no implication of a request by D to pay X

1. Volunteers

Where C pays (e.g. money to X to get distrained property back), he cannot have a claim for recoupment if he took the risk that D might not pay him back. The more modern way of putting it is that volunteers cannot have a claim for recoupment

• England v Marsden (1866) (CA) –C had machinery on D’s premises. C was entitled to take it away but didn’t. D defaulted on his lease, so X sought distraint. C therefore legally compelled to pay rent to get it back. Held that C had undertaken the risk not to be paid back, Exall v Partridge distinguished because he had left it there even when asked to take it away.

• Edmunds v Wallingford (1886) (CA) – goods were seized, and C paid off D’s debt in order to get them back. Lindley LJ –a request should have been implied in England v Marsden

• Burrows –hard to see why it should make a difference as to the motives for C acting, as long as he was compelled to discharge a liability of D

Owen v Tate (1976) (CA) –D borrowed money from X which was secured by L. L didn’t want the loan secured on her property, so C helped him out. C told X that if X released L’s charge, C would personally guarantee D’s debt. D knew nothing about what C had done; in fact, D would have preferred it to have been secured on L’s real property. D defaulted on the debt and X sued C. C paid and tried to recover from D. Held that theobligation was assumed against D’s will, therefore C was a volunteer. On the facts it was not just and reasonable to grant him reimbursement because no request and acted against D’s will

Scarman LJ –if without an antecedent request a person assumes an obligation or makes a payment for the benefit of another, the law will generally refuse him a right of indemnity. But if he can show in the circumstances that there was some necessity for the obligation to be assumed, law grants a right of reimbursement if this would be just and reasonable

• Burrows –Owen v Tate stands in the way of giving a voluntary surety a right to subrogation, but the case seems wrong in light of s 5 Mercantile Amendment Act 1856. Another criticism is that the switch of terminology to subrogation ought to change nothing

1. Appraisal of the Volunteer Rule

Owen v Tate (1976) (CA) – Ormrod LJ –a cynical view should be taken because it is possible that D’s position has worsened by C’s intrusion. “Beware of Greeks bearing gifts”

• Birks –restitution should have been allowed because it was nearly allowed on ordinary grounds and there is no policy objection here to recovery (i.e. creditor wasn’t deceived into thinking that claimant would not be seeking reimbursement)

• Burrows – may be inconsistent with Moule v Garrett because there the claimant had voluntarily covenanted to keep the property in repair

Under LPA 1925 s 136 you can assign choses in action without the debtor’s consent; all you need is to give him notice. So if the concern is that D had no choice to accept obligation or not, this is a strong counter-argument against this. And even if you don’t allow recoupment, law of subrogation might allow claim to succeed

The better view may be that there should be a narrower rule subject to exceptions saying that you may not allow volunteer to have recoupment where (e.g.) he is trying to harass

1. Distinction Between Volunteers and Volunteer Surety

One view is that you cannot sue for recoupment if you are not under a legal obligation to pay the debt. Therefore it makes perfect sense that a volunteer can’t recover from D

• Burrows – a volunteer is distinguishable from a volunteer surety, who hopes to never pay the money. There is therefore a difference, and the latter should get restitution.

However that might not always be the case. The difference is that D had no choice whether or not to accept the obligation

• Burrows –volunteer surety is indistinguishable from a requested surety on the legal compulsion analysis: D would be unjustly enriched in both circumstances and it would ensure that the proper party pays the liability, i.e. D

1. Failure of Consideration

   • Burrows – could also analyse on the basis of failure of consideration. C pays and expects to get payment back from D. When D refuses to pay basis for the payment fails and he is permitted to get restitution from D

2. Subrogation

   • Goff and Jones –C’s conduct was not officious vis-à-vis the X, but was vis-à-vis D. Therefore this was a case in which subrogation should have been awarded

   • Burrows –owing to Mercantile Act 1856 s 5 subrogation should have been awarded

3. Inconsistent With Contribution

   • Burrows –if C and D were co-sureties, C would be able to get contribution from D notwithstanding the fact that D did not request C to act as surety

1. D’s Debt to X Discharged

   1. General

If D authorised C to pay off D’s debt to X, that debt is paid off. But where there was no authorisation, the question is more difficult because it would not be certain whether the C X payment was in discharge of D’s debt or for some other reason

• Bonner v Tottenham &...