Debt

Debt (Lat. debitum, a thing owed), a definite sum due by one person to another. It may be created by contract, by statute or by judgment. Putting aside those created by statute, recoverable by civil process, debts may be divided into three classes, (1) judgment debts, (2) specialty debts, and (3) simple contract debts. As to judgment debts, it is sufficient to say that, when by the judgment of a court of competent jurisdiction an order is made that a sum of money be paid by one of two parties to another, such a debt is not only enforceable by process of court, but it can be sued upon as if it were an ordinary debt. A specialty debt is created by deed or instrument under seal. Until 1869 specialty debts had preference under English law over simple contract debts in the event of the bankruptcy or death of the debtor, but this was abolished by the Administration of Estates Act of that year. The main difference now is that a specialty debt may, in general, be created without consideration, as for example by a bond (a gratuitous promise under seal), and that a right of action arising out of a specialty debt is not barred if exercised any time within twenty years, whereas a right of action arising out of a simple contract debt is barred unless exercised within six years. (See Limitation, Statutes of.) Any other debt than a judgment or specialty debt, whether evidenced by writing or not, is a simple contract debt. There are also certain liabilities or debts which, for the convenience of the remedy, have been made to appear as though they sprang from contract, and are sometimes termed quasi-contracts. Such would be an admission by one who is in account with another that there is a balance due from him. Such an admission implies a promise to pay when requested and creates an actionable liability ex contractu. Or, when one person is compelled by law to discharge the legal liabilities of another, he becomes the creditor of the person for the money so paid. Again, where a person has received money under circumstances which disentitle him to retain it, such as receiving payment of an account twice over, it can generally be recovered as a debt.

At English common law debts and other choses in action were not assignable (see Chose), but by the Judicature Act 1873 any absolute assignment of any debt or other legal chose in action, of which express notice in writing is given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim such debt, is effectual in law. Debts do not, as a general rule, carry interest, but such an obligation may arise either by agreement or by mercantile usage or by statute. The discharge of a debt may take place either by payment of the amount due, by accord and satisfaction, i.e. acceptance of something else in discharge of the liability, by set-off (q.v.), by release or under the law of bankruptcy (q.v.). It is the duty of a debtor to pay a debt without waiting for any demand, and, unless there is a place fixed on either by custom or agreement, he must seek out his creditor for the purpose of paying him unless he is “beyond the seas.” Payment by a third person to the creditor is no discharge of a debt, as a general rule, unless the debtor subsequently ratifies the payment. When a debtor tenders the amount due to his creditor and the creditor refuses to accept, the debt is not discharged, but if the debtor is subsequently sued for the debt and continues willing and ready to pay, and pays the amount tendered into court, he can recover his costs in the action. A creditor is not bound to give change to the debtor, whose duty it is to make tender in lawful money the whole amount due, or more, without asking for change. (See Payment.) A debtor takes the risk if he makes payment through the post, unless the creditor has requested or authorized that mode of payment. The payment of a debt is sometimes secured by one person, called a surety, who makes himself collaterally liable for the debt of the principal. (See Guarantee.) The ordinary method of enforcing a debt is by action. Where the debt does not exceed £100 the simplest procedure for its recovery is that of the county court, but if the debt exceeds £100 the creditor must proceed in the high court, unless the cause of action has arisen within the jurisdiction of certain inferior courts, such as the mayor’s court of London, the Liverpool court of passage, &c. When judgment has been obtained it may be enforced either by process (under certain conditions) against the person of the debtor, by an execution against the debtor’s property, or, with the assistance of the court, by attaching any debt owed to the debtor by a third person. Where a debtor has committed any act of bankruptcy a creditor or creditors whose aggregate claims are not less than £50 may proceed against him in bankruptcy (q.v.). Where the debtor is a company or corporation registered under the companies acts, the creditor may petition to have it wound up. (See Company.)

Imprisonment for debt, the evils of which have been so graphically described by Dickens, was abolished in England by the Debtors Act 1869, except in cases of default of payment of penalties, default by trustees or solicitors and certain other cases. But in cases where a debt or instalment is in arrear and it is proved to the satisfaction of the court that the person making default either has or has had since the date of the order or judgment the means to pay the sum in respect of which he has made default and has refused or neglected to pay, he may be committed to prison at the discretion of the judge for a period of not more than forty-two days. In practice, a period of twenty-one days is usually the maximum period ordered. Such an imprisonment does not operate as a satisfaction or extinguishment of the debt, and no second order of commitment can be made against him for the same debt, although where the court has made an order or judgment for the payment of the debt by instalments a power of committal arises on default of payment of each instalment. In Ireland imprisonment for debt was abolished by the Debtors Act (Ireland) 1872, and in Scotland by the Debtors (Scotland) Act 1880. In France it was abolished in 1867, in Belgium in 1871, in Switzerland and Norway in 1874, and in Italy in 1877. In the United States imprisonment for debt was universal under the common law, but it has been abolished in every state, except in certain cases, as where there is any suspicion of fraud or where the debtor has an intention of removing out of the state to avoid his debts. (See also Contract; Bankruptcy.)

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