Wren v Mahony [1972] HCA 5

Wren v Mahony [1972] HCA 5

A promise of indemnity, as contained in the deed, does not create a debt provable in bankruptcy until the indemnified party has paid the third party debt. The bankruptcy court was bound to consider whether the proof of debt was satisfactory and, in this case, should not have been satisfied that a debt existed at the relevant date, as the respondent had not paid the Commissioner of Taxation. Therefore, the sequestration order should not have been made.

Jurisdiction
Australia
Procedural Posture
Appeal / Judgment
Outcome
Appeal allowed by majority; sequestration order set aside.
Legal Topics
['indemnity' 'judgment Debts' 'sequestration Orders']
['bankruptcy' 'contract'] ['indemnity' 'judgment Debts' 'sequestration Orders']

Case Brief

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Procedural Posture

Appeal / Judgment

Legal Issues

  1. 1 ['Whether a promise of indemnity gives rise to a debt provable in bankruptcy prior to payment by the indemnified party.' "Whether the Bankruptcy Court can or should 'go behind' a judgment to ascertain if a real debt exists for purposes of a sequestration order."]

Ratio Decidendi

A promise of indemnity, as contained in the deed, does not create a debt provable in bankruptcy until the indemnified party has paid the third party debt. The bankruptcy court was bound to consider whether the proof of debt was satisfactory and, in this case, should not have been satisfied that a debt existed at the relevant date, as the respondent had not paid the Commissioner of Taxation. Therefore, the sequestration order should not have been made.

Court Disposition

Appeal allowed by majority; sequestration order set aside.

Orders

  • ['Order of the Court of Bankruptcy set aside.' 'Order that the petition be dismissed with costs.' 'Appeal allowed with costs.']