UNIT 6:SATISFACTION
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main content
3.1 Definition of satisfaction
3.2 Satisfaction of debt by legacy
3.3 Satisfaction of portion debt by legacies or by subsequent portions
3.4 Satisfaction of legacy by legacy
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignments
7.0 References / Further Reading
1.0 INTRODUCTION
In the last unit we considered the doctrine of election. In this unit we will consider the doctrine of satisfaction. Equitable doctrine of satisfaction is said to be founded on the maxim that equity imputes an intention to fulfill an obligation. That may be so, but there are one or two heads of satisfaction whose operation can, in addition, be explained on the basis of one or two other max- ims. For example, the heads of satisfaction which operate in the narrow area of relationship of father and child or one in locoparentis and a child may also be explained on the basis of the rule that equity leans against double portions or equality is equity. As Lord Cranworth observed in Chichester v. Conventry (1867) L.R. 2 H.L. 71, the rule against double portions is a useful rule which carried into effect the intention of parents and others in loco-parentis, making provisions for those for whom they are bound to provide.
2.0 OBJECTIVES
By the end of this unit you should be able to:
(i) Define satisfaction;
(ii) Explain satisfaction of debt by legacy;
(iii) Explain how legacy can be used to satisfy a legacy.
3.0 MAIN CONTENT
3.1 Definition of satisfaction
Satisfaction is the gift or donation of a thing with the intention that it shall be taken either wholly or partly in extinguishment of some prior claim of the donee. Thus, the doctrine becomes rele- vant where X, who had been under a certain obligation to give something to Z, donates a thing (which is not directly connected with the discharge of his obligation) to Z; such a donation, sub- ject to the fulfillment of some other attendant requirements, raises a presumption that the inten- tion of X in making the donation is to satisfy or discharge his prior obligation to Z.
Before a presumption of satisfaction can be raised, two basic requirements must be met: first the donation must have been made in such circumstances that an intention on the part of the donor to satisfy an obligation can be presumed since the essence of the equitable doctrine of satisfaction is to carry into effect the presumed intention of the donor. See Cranmer's case (1702) 2 Salk 508; 91 E.R. 434. In Goldsmid v. Goldsmid (1818) 1 Wils. Ch. 140, 149, Plumer M.R. said "where there is a question of satisfaction, there must be a reference to the intention. Satisfaction is a substitution of one thing for another; and the question in cases of that kind is whether the substi- tuted thing was given for the thing proposed." 37 E.R. 63.
Second, there must be some prior and existing claim of the donee; cases of genuine equitable sa- tisfaction presuppose an existing obligation which the donor is presumed to have intended to sa- tisfy. See Re Fletcher (1888) 38 Ch. D. 373. While all heads of satisfaction must necessarily satis- fy the former requirement, as will be seen below, not all satisfy the latter requirement. For this reason it may not be all that correct to classify as cases of equitable satisfaction those heads of satisfaction that cannot meet the two requirements.
SELF ASSESSMENT EXERCISE 1
Define satisfaction.
3.2 Satisfaction of Debt by Legacy
Where a testator gives a legacy to his creditor without any reference to the debt, such legacy, (subject to the fulfillment of the requirements discussed below), will be presumed to be a satis- faction of the testator's indebtedness to the donee. In other words, the intention of the testator, in that cir- cumstance, is presumed to be that his creditor/donee shall not have both the debt and the legacy, and if the presumption is sustained, the legacy discharges the testator's prior obligation to pay the debt.
The role was stated by Sir J. Trevor M.R in Talbott v. Duke of Shrewsbury (1714) Prec. Ch. 394 at 395;
24 E.R. 177. 'If one, being indebted to another in a sum of money, does by his will give him a sum of money as great as, or greater than, the debt, without taking any notice at all of the debt, this shall, never- theless, be in satisfaction of the debt, so that he shall not have both the debt and the legacy. The rule may be said to have been founded on the maxim 'debitor non praesumitur donare', a debtor is not presumed to give; he is presumed to intend to be just before being generous. As stated above, the rule is a mere pre- sumption and can, therefore, be rebutted.
Circumstances Rebutting the Presumption
(i) The presumption is rebutted where the legacy is smaller than the debt. In Coates v. Coates (l898) 1 I.R. 258, the Vice-Chancellor observed that the nature of the legacy must correspond with the nature of the obligation to be conclusive satisfaction. In that case it was held that the legacy of 12/- a week could not operate as a satisfaction of the testator's liability under the separation deed of the greater amount of 15/-.
'That which is less is not to be presumed in satisfaction of that which is greater'; see Atkinson v. Webb (1704) 2 Vern. 478, 479; 23 E.R. 907; Crichton (1895) 2 Ch. 853. Furthermore there is no pro tanto satisfaction of a debt by a legacy. See Atkinson v. Webb (supra). The whole essence of the doctrine therefore, is that the debtor can be held to have offered the creditor something equivalent to his debt or greater than it. See Stirling J. in Re Horlock (1895) 1 Ch. 516 at 518.
In Fitzgerald v. National Bank (1929) 1 K.B. 394. Talbot J., held that a debt of £100 which carried an in- terest of 5% was satisfied by a legacy of £100; the mere fact that the interest on the debt was in arrears at the time of the testator's death was immaterial. It was argued that the sum due in respect of the debt must necessarily be different from the legacy by reason of the fact that the debt carried interest; the contention seems to be that prima facie the legacy is equal to the debt but when the interest due on the debt is added, the legacy is less than the debt and, therefore, there cannot be presumption of satisfaction. The court could not find any authority for this proposition. Talbot J., decided in favour of presumption of satisfaction be- cause the legacy was equal to the debt and the presumption was not thereby rebutted by the mere fact that debt carried interest from day to day.
(ii) There is no presumption of satisfaction where the debt was contracted subsequently to or even con- temporaneously with the making of the will; there cannot be an intention to satisfy a non-existing obliga- tion. In Cranner’s Case (1702) 2 Salk. 508; 91 E.R. 434, the testator, who was indebted to C for a sum of £50, thereafter proceeded to make a will by which he gave C £500. Subsequently, he borrowed £150 from C and died.
The Master of Rolls decreed that the legacy was a satisfaction of both debts but Harcourt L.C. reversed the decree 'because a Court of Equity ought not to hinder a man from disposing of his own as he pleases; and when he says he gives a legacy, we cannot contradict him, and say he pay a debt;' therefore, the debt contracted subsequently to the making of the will could not raise a case of satisfaction. If the doctrine of satisfaction is truly based on the presumed intention of the testator, it is impossible for the testator to have intended to satisfy an obligation that was not in existence at the time of making the will. For the same reason there may not be presumption of satisfaction where the debt was contracted contemporaneously with the making of the will.
In Wiggins v. Horlock (1888) 39 Ch.D. 142, the legatee claimed to be entitled to £100 under a deed and to a legacy of £100; both the deed and the will were made substantially contempora- neously. Cotton L.J. found that there was no evidence to presume that one gift was intended to be in satisfaction of the other. 'I do not say that in no case can a presumption of satisfaction arise where the documents are contemporaneous; but their being so is an important consideration.' (Ib- id., at 146) 'The language of this will did not show that the testator intended by his will the same
£100 as was mentioned in the convenant.' (Ibid., at 147 per Bowen, L.J.) In cases where the debt is contracted contemporaneously with the making of the will, presumption of satisfaction de- pends on the intention of the testator as could be gathered from the language of his will.
(iii) There is no presumption of satisfaction where the legacy is not in every way as beneficial and advantageous as the debt. It is a settled principle that if the legacy is less than the debt there is no satisfaction even pro tanto. The same principle applies where the debt is certain and the legacy is contingent or uncertain, even though the legacy is of greater amount than the debt. As North J., observed in Crichton v. Crichton (1895) 2 Ch. 853 at 858, 'I cannot understand how the father's debt or liability to the son could be satisfied by investments in the joint names which ul- timately survived to the father, the debtor; nor how the son's certainty of succeeding ultimately to one moiety of the settled funds could be satisfied by giving him a chance of succeeding to some- thing else.' Uncertainty of a legacy makes it less beneficial and less advantageous than the debt which is certain.
Contingency of legacy as a bar to satisfaction was emphasised in the early case of Talbott v. Duke of Shrewsbury (1794) Pre. Ch. 394 at 395; 24 E.R. 177 where the Master of Rolls said 'but if such a legacy were given upon a contingency which if it should not happen, the legacy would not take place, in that case though the contingency does actually happen and the legacy thereby became due, yet it shall not go in satisfaction of the debt because a debt, which is certain shall not be merged or lost by an uncertain and contingent recompense, for whatsoever is to be a satis- faction of a debt, ought to be so in its creation and at the very time it is given which such contin- gent provision is not .. if the provision be absolute and certain, it shall go in satisfaction of the debt; but if it be uncertain, and contingent, it can be no satisfaction because it could not be so in its creation and the happening of the contingency afterwards will not alter the nature of it.'
Whether a legacy is not as beneficial and advantageous as a debt is a question of fact to be deter- mined with reference to the facts of each case. In Re Haves (1951) 2 All E.R 928, the testator, in his lifetime, covenanted with his former wife to pay her the sum of £3 a week. He subsequently bequeathed the sum of £3 a week to her. The question was whether the will, being later than the deed of covenant, operated in satisfaction of the covenanted annuity. Harman J. held that there was presumption of satisfaction as the gift by will was found to be as advantageous as the cove- nanted sum and that the testator intended to satisfy his obligation by the disposition in his will.
But on a similar fact, in Re Van den Bergh’s Will Trust (1948) 1 All E.R 935, Romer J. held that there could not be presumption of satisfaction on the ground that the provision by the will was differ- ent from the covenanted annuity and was also less advantageous to the person concerned. The servant who was entitled to the annuity under the deed could dispose of the annuity as he wished under the deed, but he would lose the annuity completely if he attempted to do so under the will.
The position is not clear whether a legacy for which no time of payment is fixed in the will is less advantageous to the creditor than a debt which is owing and due at the time of the testator's death. In Re Horlock (1895) 1 Ch. 516 at 522, Stirling J., held that such a legacy is less beneficial; a finding that rebuts presumption of satisfaction. He approved of the statement made by Lord Hardwicke in Clark v. Sewell (1744) 3 Atk. 86 at 98; 26 E.R 858 that 'a legacy that ought to be deemed a satisfaction must take place immediately after the death of the testator'.
Where there is a difference, in any circumstance between a legacy and the debt which makes the latter less beneficial than the former, there will be no presumption of satisfaction. A difference in time is material in rebutting the presumption that the rule of satisfaction applies even in cases where no time has been fixed by the testator for the payment of the legacy. See Clark v. Sewell (supra). Furthermore, a legacy directed to be paid six months after the testator's death is not im- mediately as beneficial to the creditor as the payment of debt to which he is entitled before or at the death of the testator. See Haynes v. Mico (1781) 1 Bro. C.C. 129; 28 E.R. 1031.
However, in Re Rattenbury (1906) 1 Ch. 667, Swinfen Eady J. held that the legacy was to be in sa- tisfaction of the debt despite the fact that the legacy was not payable until a year after the death of the testator. He qualified Lord Harwicke's observation in Clarke v. Sewell as meaning that the payment of the legacy must not be postponed by the testator; therefore, if it should be payable in due course of administration and if the legacy carries interest from the death of the testator, it is as beneficial as the debt and, therefore, a satisfaction of the debt. See further Re Stibbe (1946) 175 L.T. 198, 201.
(iv) There is no presumption of satisfaction where there is contrary intention (express or im- plied) in the will of the testator.
Where there is an express direction in a will for payment of debts and legacies, such direction is sufficient to rebut presumption of satisfaction and it will be assumed that prima facie both will be payable. See Chancey's Case (1725) 1 P. Wms 408; 24 E.R. 448. In Bradshaw v. Huish (1889) 43 Ch. 260 at 264, Kay J. stated that 'it has long been settled that in the case of a debt owing by a testator, if the testator afterwards makes a will and gives a legacy of the same or a greater amount to the creditor and then in his will directs that his debts and legacies shall be paid, that direction rebuts the presumption of satisfaction of the debt by the legacy. The position is the same where the will merely contains a direction to pay debts. There is no difference between a direction to pay debts and legacies because the gift of a legacy is in itself a direction that the legacy shall be paid. Therefore, all that is material is that there should be a direction that debts should be paid. It is not necessary in a will to give a direction to pay debts at all. If such a direction is inserted it may be assumed to be there for some purpose.
Similarly, in Re Manners (1949) Ch. 613 at 618, Evershed M.R. said 'I think from a consideration of other cases and of the textbooks, that it seems tolerably clear that a direction for payment ei- ther of debts and legacies, or of debts simpliciter, is treated as being something which prima facie takes the case altogether out of the rule'. In that case a mere direction by the testator for payment of his debts was held sufficient to rebut the presumption that a covenant made by him during his lifetime for a payment of life annuity was satisfied by a direction in his will to purchase out of part of his estate a like annuity for the same person.
A contrary intention will also be implied where the testator states a particular motive for the leg- acy other than in satisfaction of the debt. For example where the legacy is stated to have been given for the 'useful assistance' he received from the creditor; this indicates a contrary intention and will be sufficient to rebut presumption of satisfaction.
(v) There is no presumption of satisfaction where the legacy is not of the same nature as the debt. A bequest of the life use of a house and furniture could not be treated as a satisfaction of debt.
See Coates v. Coates (1898) 1 I.R. 258. In Barret v. Beckford (1750) 1 Yes. Sen. 519 at 521; 27
E.R. 1179, a testator who was under an obligation to pay an annuity of £300 per annum to his aunt bequeathed the residue of his estate for the benefit of his mother and aunt for life. The Lord Chancellor held that 'it is a general rule of satisfaction that the thing to be considered as a satis- faction should be exactly of the same nature and equally certain, here, it is not of the same na- ture'.
A devise of land would not be presumed to be a satisfaction of debt. But, suppose a testator- debtor devised land upon trust to sell with a direction that the proceeds be given to his creditor as a beneficiary. In that case, there is conversion which becomes operative at the death of the testa- tor, in which case the legacy is of the same nature as the debt. Nevertheless, on principle there cannot be a presumption of satisfaction because the value of the legacy is uncertain at the time of its creation, 'for whatsoever is to be a satisfaction of a debt, ought to be so in its creation and at the very time it is given.' See Talbott v. Duke of Shrewsbury (supra) at 395. It would equally ap- pear that there would be no presumption of satisfaction where the amount of debt due is uncer- tain.
(iv) Payment of Debt in the Lifetime of the testator: In that case the rule as to satisfaction does not apply even if, but for the payment of the debt in the lifetime of the testator, the legacy would have been held to be a satisfaction of the debt.
In Re Fletcher (1888) 38 Ch.D. 373 at 376, a testator at the date of his codicil owed his wife
£625 and by his codicil he gave her that precise amount. North J., said 'I cannot imagine any rea- son for his giving that exact sum except to provide for the payment of the debt. Afterwards the debt was paid off and the purpose for which the legacy was given, I am convinced, was satisfied. The testator, having paid off the debt in his lifetime, his estate is relieved from the payment of the legacy.' In such a case, the legacy is adeemed by the payment of the debt; the creditor is not entitled to take it in that it was originally given in discharge of an obligation which existed before the will was made but which had been subsequently discharged before the will became operative.
3.3 Satisfaction of Portion debts by legacies or by subsequent portions
Satisfaction (or Ademption) of Legacies by Portions: There is much similarity of circums- tance between these two heads of satisfaction hence the traditional tendency of considering both together. Both operate within a narrow area of the relationship between father and child or a person in loco parentis and another. Both are premised on the rule that 'equality is equity' and therefore lean against double portions. However, while the first head is a case of genuine satis- faction which presupposes an existing obligation intended to be satisfied, there is no such obli- gation in the second head; at best it can only be explained as an equitable devise to give effect to the true intention of the testator, a common element to all cases of satisfaction.
For clarity, the two heads may be treated under the following subheads-
(a) Satisfaction of Portion-debt by Legacy:
The rule here is where a father or a person in loco parentis is under a covenant to provide a por- tion for a child and the father or the person in loco parentis subsequently gives a legacy to the child, a presumption arises that the legacy was intended as a satisfaction of the portion-debt. Equity is not in favour of the child or quasi-child claiming the legacy and at the same time in- sisting on enforcing his rights under the covenant. Where the legacy is equal to or greater than the portion-debt, there is satisfaction in toto, but if the legacy is less valuable than the portion-debt, there is satisfaction pro tanto. See Re Blundell (1906) 2 Ch. 222.
As Cotton, L.J. said in Montagu v. Earl of Sandwich (1886) 32 Ch.D. 525 at 534-535,
“as between father and son the presumption arises that a father does not intend to give double portions to his children; that is to say, if a father has made a provision by way of covenant in favour of his child before the date of his will; then unless it appears upon the will or by parol testimony ... that he intends to give the benefit conferred by will in addi- tion to that which is already secured to the child by covenant, then the child will not take both”.
In Re Blundell (supra), Swinfen Eady J., held that the devise and bequest of one-third share of the testator's residuary real and personal estate to his daughter operated as a satisfaction of the testator's covenant in his daughter's marriage settlement.
(b) Satisfaction of Portion-Debts by Subsequent Portions: Where a father or a person in loco parentis had agreed to give a portion to a child and subsequently makes some other provision inter vivos which has the character of a portion, the second provision is deemed to be a satisfaction either wholly or in part of the agreed or covenanted provision. In Lawes v. Laes (1881) 20 Ch.D. 81, F bound himself by a bond to pay S, his natural son, £10,000 by a named date. Before that date F took S into partnership as a result of which £19,000 cre- dited to the partnership account would be owned by S as his share. Jessel M.R. held that the rule against double portions applied and that the benefit given to S under the partner- ship articles must be taken in satisfaction of the sum due under the bond.
Satisfaction (or Ademption) of Legacy by Portion:
In this case, the rule has been clearly stated by Lord Selbourne L.C. in Re Pollock (1885) 28 Ch.D. 552 at 555:
“When a testator gives a legacy to a child or to any other person towards whom he has taken on himself parental obligations and afterwards makes a gift or enters into a binding contract in his lifetime in favour of the same legatee, then (unless there be distinctions between the nature and conditions of the two gifts) there is a presump- tion prima facie that both gifts were made to fulfill the same natural or moral obliga- tion of providing for the legatee, and consequently, that the gift inter vivos is either wholly or in part a substitution for, or an 'ademption' of the legacy.”
If the amount of the subsequent gift is less than that of the legacy, the presumption does not go beyond an ademption pro tanto. As Lord Cottenham explained in Pym v. Lockyer (1841) 5 My & Cr. 29 at 34-35; 10 L.J. Ch. 153; 4 E.R. 283
“all the decisions upon the question of double portions depend upon the declared or pre- sumed intention of the donor. The presumption of equity is against double portions because it is not thought probable, when the object appears to be to make a provision; and that object has been effected by one instrument that a repetition of it in a second should be intended as an addition to the first. The second provision, therefore, is presumed to be in- tended as a substitution for, and not as an addition to that first given; but when the gift is a mere bounty, there is no ground for raising any presumption of intention as to its amount although such amount be comprised in two or more gifts.”
In all the foregoing heads of satisfaction the common elements are; the relationship of father and child (or a person in loco parentis) which relationship carries along with it a moral or natural obligation on the part of the father or a person in loco parentis to provide portion for the child; existence of circumstances in which the child is entitled to a portion and at the same time claim- ing another gift conferred upon him by his father or a person in loco parentis to him. In that case the father is not to be presumed to have intended that the child should have both; equity leans against double portion, and, provided the second gift (which might be inter vivos or under a will) constitutes a portion, it is deemed to be a satisfaction of the child's prior entitlement. Then, the important question, what is a portion?
3.2.1 What is a Portion?
It is natural for a father either in his lifetime or at different times or by will to make various gifts to his child. This is to be expected in the context of the relationship existing between a fa- ther and a child or between a person in loco parentis and a quasi-child. However, not every such gift is a portion, and yet it must be established that a gift is by way of portion before a presumption of satisfaction can be sustained.
As to what is a portion, the authorities seem to have established that a portion is something given by a father to his child with a view to establishing the child in life. See Taylor v. Taylor (1875) L.R. 20 Eq. 155. Examples of gifts by way of portions include, marriage portion; money laid out either for the training of the child into a profession or setting him up in business; paying for his commission, paying for the goodwill of child's business and giving him stock-in-trade. As Ro- mer J. stated in Re Lacon (1891) 2 Ch. 482, cases show that gifts of shares of residue, of shares in partnership property and of real estate have been considered and treated as portions. Whether or not a gift is to be regarded and treated as a portion depends on the intention of the donor which may be drawn from the circumstances in which the gift was made. See Re Georges Will Trust (1948) 2 All E.R. 1004 at 1009.
There is no difficulty where the purpose for which the gift is made is expressly stated, but where in the absence of such evidence a father gives a large sum of money to a child in one payment, the presumption is strengthened that the money is intended to start him in life or make a provi- sion for him; but if it is a small amount that is so given, it requires strong evidence to show that it is intended to be a portion. See Taylor v. Taylor (supra). However, there is presumption of a por- tion where the purpose for which the payment was made has been shown to be that which every one would recognise as being for establishing the child or making a provision for the child.
It is not an overstatement that it is not every payment made or gift to a child that is to be re- garded as advancement by way of portion. This point was emphasised by Jenkins J., in Re George’s Will Trusts (supra), when he said, quoting the Master of Rolls in Re Vaux (1939) Ch. 465,
'when the words "portion' is used in reference to a gift inter vivos, it has a qualitative significance, in this sense, that it is not every gift inter vivos that will cause the rule to come into operation. Similarly, there may be various reasons why the testator should give property to a child. He may wish to free him from some embarrassment, or something of that kind. In cases of that sort upon the facts a gift may not be a portion at all, in which case, of course, the rule does not apply'. Re George's Will Trust (supra) at 1008. In that case, the testator left substantial part of his residuary estate to his son. Later he gave live and dead farm stock and assigned leases to the same child. Jenkins J., held that a gift by a farmer to his son of live and dead stock with which to set up in business as a farmer may be in the nature of a portion and in the absence of circumstances tend- ing to show the contrary, would generally be regarded as such.
In Re Scott (1903) 1 Ch. 1, it was held that a sum expended by a father in paying his son's debts is not necessarily an advance to the son by way of portion but may be regarded as a temporary assistance. Casual or occasional gifts of no qualitative significance will not be regarded as portions, neither would the aggregate of such gifts; 'the court has never added up small sums in order to show that if the child claims those sums as well as the larger provision made for him by the parent, he would be taking a double portion.' See Wigram V.C. in Suisse v. Lowther (1843) 2 Hare 424, at 434, 67 E.R. 175; Re Peacock's Estate (172) L.R. 14 Eq. 236.
Where the father is a donee of a special or general power of appointment and he exercises it by appointing the property to a child, the gift will be regarded as a portion just as much as if the property were the father's own. In Re Peel (1911) 2 Ch. 165 at 170, a testator, who had a special power under a marriage settlement to appoint certain funds, exercised it by will appointing it among his seven children equally. Later, he exercised it by deed appointing a seventh share of the funds to each of two of these children. Joyce J. held that the two children could not claim to share in the appointment under the ·will. 'In popular language, the sums appointed by deed, as also bequeathed by the will, are portions properly so called in legal language'; a portion incudes a sum of money secured to a child out of property either coming from or settled upon its parents, it does not cease to be a portion because it is given to all the children.
4.0 CONCLUSION
It is not every payment made or gift to a child that is to be regarded as advancement by way of portion. Where the father is a donee of a special or general power of appointment and he exer- cises it by appointing the property to a child, the gift will be regarded as a portion just as much as if the property were the father's own. Where a testator gives a legacy to his creditor without any reference to the debt, such legacy will be presumed to be a satisfaction of the testator's indebtedness to the donee.
5.0 SUMMARY
In this unit we have considered the doctrine of satisfaction. You should now be able to: define satisfaction; explain satisfaction of debt by legacy and how legacy can be used to satisfy a legacy.
6.0 TUTOR-MARKED ASSIGNMENT
(i) What do you understand by portion? Expantiate.
(ii) Explain satisfaction of portion debt by legacies or by subsequent portions.
7.0 REFERENCES / FURTHER READING
Hackney J., (1987) Understanding Equity and Trusts; London: Fontana press
Jegede M. I. (2007rep.) Principles of Equity; Ibadan: Unique Design/Prints