Bankruptcy-Composition-Promise by friend of bankrupt to' make' additional
payment to a creditor as inducement to sign a pre-bankruptcy composition
agreement-s-Failure of court to approve the composition-Post-bankruptcy
composition subsequently approved-Liability on the original promise

Contract-s-Promise to pay-Inducement for signing a composition agreement
=-Composition not approved by court-Whether original promise enforce-
able upon approval of a subsequent composition

• Court: Owen CJ., Gorman J. and Sandes P.I.

After a receiving order had been made against the bankrupt, one of
the creditors, the appellant, agreed to join in a composition scheme de-
signed to prevent adjudication in consideration of £E.60.500 m/rns to be
paid by a friend of the bankrupt, the respondent. The court rejected the
composition scheme and an adjudication in bankruptcy followed. Later the
court approved of a different scheme and the bankruptcy was annulled.
The appellant then sued the respondent on the collateral agreement.

Held: The agreement was made in contemplation of the approval of a
composition before bankruptcy and the composition subsequently approved
by the court was not the composition contemplated. On the failure of the
original scheme, the respondent was absolved from his obligations there-
under.

Appeal

March 17, 1934. Owen C.l.: This is another appeal arising
from the bankruptcy of Khalid Ahmed Suliman. In May of 1932

'the friends of this unhappy merchant were straining every effort to
effect a composition between him and his creditors. A receiving order
had been made against him and matters were critical. Antoun Ginno,
the appellant, was 'a, creditor for about £E.200, who so far had re-
sisted all temptations to sign any agreement for composition, but on
May 25 he was persuaded to do so in consideration of the promise by
Hemeida Khalafalla, the respondent, to pay him £E.60.500 m/ms.
That promise was contained in a document whose terms were as
follows:

"I, the undersigned, Hemeida Khalafalla, undertake to pay
Khawaga Antoun Ginno the sum of Pt.6050, six thousand and
fifty piastres, by monthly installments of ten pounds, the payment
starts from the date of the approval of the composition of Sheikh
Khalid Ahmed Suliman in his bankruptcy in court. I undertake,
declare, and accept to pay this sum without any objection in
consideration of the loss sustained by Khawaga Antoun Ginno in
his claim against Sheikh Khalid Ahmed. This is an undertaking
by me for necessary action."

Dated: May 25, 1932

Sgd. Hemeida Khalafalla

Witnessed by:

Sgd. Osman Wanni

The appellant thereupon signed a composition accepting 30% of
his debt in full discharge. The composition, however, was not ac-
cepted by the court, and Khalid Ahmed Suliman was, on July 17,
1932, duly declared bankrupt. Another composition was arranged,

this time on a 20% basis. The appellant signed it and it was duly ap-
proved by the court in August or September of the same year, and the
bankruptcy was annulled under section 46 (2) of the Ordinance.

On June 17, 1933, the appellant brought an action in the High
Court, claiming the sum of £E.60.500 m/ms from the respondent,
supporting his claim by production of the written promise to pay
dated May 25, 1932, and the whole point of this appeal is whether
the learned judge of the High Court was right in holding that the re-
spondent was not bound by that promise, having regard to the circum-
stances in which it was made and the events which happened.

The important consideration is: what was in the contemplation
of the parties when they entered into this agreement on May 25, 1932?
A proposal for composition was actually before them. It was a pro-
posal whose approval by the court would prevent the adjudication in
bankruptcy-it would avoid the bankruptcy of Khalid Ahmed Suli-
man altogether. The effect of the avoidance of bankruptcy would
naturally be that Khalid Ahmed Suliman would be able to carry on
business, freed of the burden of past debts' and in a better position ul-
timately to help those who, like the respondent, had helped him.
This was the situation when the so called promissory note was signed.
It was an agreement made in comtemplation of a composition before
bankruptcy.

But this particular composition was disapproved, and Khalid Ah-
med Suliman was adjudicated bankrupt. The situation was com-
pletely altered by this event. The status of Khalid Ahmed Suliman
was changed. His property became vested in the Official Receiver,
and, if a composition were to be effected after bankruptcy, that com-
position would be subject to consideration and directions by the court,
which are inapplicable to a composition before bankruptcy. The re-
spondent says that the adjudication in bankruptcy was an event which
was not contemplated by the parties to this agreement, and that when
the event occurred he was no longer bound by his promise. The event
upon which that promise turned was the acceptance by the court of a
composition before bankruptcy, and on the failure of that event, the
parties were, absolved from their obligations.

The appellant however argues that the promise turned upon the
acceptance by the court of any composition, before or after bank-
ruptcy, and that the question of adjudication did no affect the matter
in any way, because in the event the parties were in much the same