Those who rushed out to see the new James Bond film would have seen that the invincible James Bond met his demise. Whilst the circumstances of his death were unforeseen, the unpredictability of his death is something familiar to us all.
The reality is we never know when another person will die. This makes decisions such as lending money or paying sums under a contract a risk as we do not know whether the other person will actually live long enough to pay off the loan or fulfil their contractual obligations. There are various options available to creditors where a debtor has died before paying off their debts or performing their side of a contract.
Making a claim against the debtor’s estate
Where a person has died having appointed an executor in their Will, the executor will be responsible for ingathering their estate (including for example, any bank accounts, policies, investments etc) to pay outstanding debts. The executor must pay these debts before they can distribute the estate to beneficiaries in accordance with the Will.
With this in mind, where you are owed sums by someone who has died, you should take steps to identify their executor and advise them of the debt. The executor may be able to accept that the debt is due at face value or may require vouching. In any event, where it is accepted that payment is due, the executor can seek to pay you (the creditor) from the deceased’s estate.
There is normally a six-month period from the deceased’s death for creditors to advise the executor of any sums due to them from the estate. If you intimate a claim after this period, the executor may look to pay the sums due to you but if they have acted in good faith and already administered the estate, they will not be liable to pay off any sums owed to you. It is therefore important to make the executor aware of the debt as quickly as possible.
Raising court proceedings
Where the executor disputes that the debt is owed by the estate or refuses to engage with you, it may be possible to raise court proceedings to try and recover the sums due.
In raising court proceedings, you would need to bring the action against the executor in their capacity as executor. In these circumstances, the executor would ‘step into the shoes’ of the deceased.
If the action was successful, the sums due to you would be paid from the deceased’s estate unless there was a reason why the executor would be found personally liable to you. For example, if the executor had acted fraudulently or in a way in which the court considers justifies personal liability.
The following are types of actions recently considered by the courts concerning the recovery of funds from a deceased’s estate.
(1) Anticipatory Breach of Contract
In the recent case of Lynn Slight v Jean Hope it was considered that a creditor could raise an action for what is known as an ‘Anticipatory Breach of Contract’. In short, Ms Sight had agreed with her civil partner, Ms Tait, that she would make monthly contributions towards a mortgage taken out over a property in Ms Tait’s sole name. A condition of this agreement was that the property would be transferred into their joint names once the mortgage was paid in full.
The parties subsequently split up and Ms Tait advised Ms Sight that despite their agreement, she would never transfer the property into joint names - even when the mortgage was paid off. Ms Tait suddenly died. As the property remained in her sole name it fell into her estate. Ms Slight raised an action against Ms Tait’s executor to recover the monthly contributions she had made towards the mortgage from Ms Tait’s estate.
The Court considered that Ms Tait had not breached her agreement with Ms Sight as she had only agreed to transfer the property into joint names when the mortgage was paid in full. This had not yet happened when Ms Tait died. However, as Ms Tait had indicated that she would have refused to transfer the property when the mortgage was paid off, it was clear that she would have breached the contract at a later date. Therefore, the Court held Ms Sight could have pursued Ms Tait for anticipatory breach of contract whilst she was alive and could now therefore pursue Ms Tait’s executor in her place.
(2) Unjustified Enrichment
It may also be possible to raise a claim of ‘unjustified enrichment’. This may be possible, where a deceased has financially benefited during their lifetime at your expense, and there is no justification for that financial benefit.
This was discussed in the case referred to above as Ms Sight had made payments to Ms Tait which were put towards her mortgage. These contributions were never intended to be gifts but were to pay off the mortgage so that Ms Tait’s property would be transferred into their joint names. As the property had never been transferred into joint names, Ms Sight argued that Ms Tait had been unjustifiably enriched by Ms Sight’s monthly contributions, and at Ms Sight’s expense as she received nothing in return.
The Court considered that Ms Tait had retained funds from Ms Sight to which she was arguably not entitled. For such reason, Ms Sight could have raised a claim for unjustified enrichment against the Ms Tait whilst she was alive but could not raise a claim against her executor in her place.
Appointment as Executor-Creditor
Where a person dies without a Will and there is no executor appointed by the court, it may be possible to apply to the court to be appointed as an ‘Executor-Creditor’. This is different to being appointed as executor as an executor-creditor is not responsible for administering the deceased’s estate as a normal executor would be required to do. Rather, an executor-creditor is given the authority to deal with specific assets which total the value of the sums due to them by the deceased. This is therefore a form of diligence as opposed to a means of administering and distributing a deceased’s entire estate.
Insolvent estates
The above options proceed on the assumption that the estate has sufficient funds to pay off the debt. Unfortunately, there are cases where an estate’s debts exceed its assets. If this is the case and the estate cannot pay its debts the executor may look to have the estate sequestrated. For further information on this please refer to our article; ‘What happens when an insolvent individual dies?’
Conclusion
When a person dies, it is a sensitive and difficult time for friends and family. Whilst this should be born in mind, where you are creditor and due sums from a deceased’s estate, you should take action as quickly as possible to try and secure your position. Whether you require assistance intimating your claim to an executor or wish to consider raising proceedings or becoming an executor-creditor, our Dispute Resolution and Litigation teams would be happy to help.
