mode of & expung ing proof. proved is materially altered: and, in such cases, it becomes necessary 6thly. The either to reduce the proof, or to expunge it altogether. Thus if any proof, and bills, proved and accepted as securities by a creditor who discount- terms on ed them for the bankrupt, or took them as a security for a general which adbalance, are afterwards paid in full, or in any way fully satisfied, the mitted. amount of each bill must be deducted from the proof, and the future Reducing dividends only paid on the residue of the debt. So if the holder of a bill compounded with the prior names upon it, without the previous assent of assignees of the subsequent parties, the latter are discharged; [469] and if he takes such composition after having proved under the commission against the latter, the amount of the bill must be deducted from the proof. But the principle of these decisions, is the same as that which precludes a party from recovering at law, and we have seen that, at law, that the holder does not discharge a prior party to a bill by compounding with a subsequent one, even though the former was known to be an accommodation acceptor," so in the case of bankruptcy, compounding with a subsequent party will not affect the right to the dividends under a commission against a prior one, because the estate of the latter had no claim upon that of the former, and therefore could not be prejudiced by the arrangement. It was on this ground held, in the case of Ex parte Giffard," that if a promissory note be made by one principal and three sureties, two of whom, and the principal, become bankrupts, and the holder of the note prove his whole debt under each commission, and afterwards receive a composition of 4s. in the pound from the remaining surety, the receipt for, which is expressed to be for £191, and two notes, which, when duly paid, will be in full of the said debt and all other demands; and the dividend paid by the estate of the principal is 4s. in the pound, and by the bankrupt sureties is 5s. in the pound; no part of the proof under the commission against the bankrupt sureties must be expunged. The commissioners cannot expunge a debt without an order upon petition. We have seen that in some cases, where the proof has been expunged, Restoring it may be restored, in order that the party himself, or some third per-proof. son, may have the benefit of the original proof, and receive dividends which would not otherwise be recoverable.P Benefit Where, between the time of proving his debt and of applying for a dividend under a commission against a principal debtor, as acceptor of of another's a bill, maker of a note, or prior indorser, who ultimately ought to pay proof. it, the holder has received from a surety or subsequent indorser, or of an accommodation acceptor, the whole of his debt, such party, thus 470 ] standing in the situation of a surety, is entitled to the benefit of the proof made by the creditor; and he must receive the dividends as trustee for the security; provided the creditor be not thereby prejudiced in respect of any other claim upon the estate." If a person, having a demand upon a country firm, who have dealings Cullen, 158. 1 Mont. 545. *Ex parte Smith. Ex parte Bloxham. Ex parte Wallace. Ex parte Cropley, Cooke, 155, 156. Ex parte Smith, 3 Bro. 1. Cooke, 168, 9; and Ex parte Smith and others, Cooke, 171. Cullen, 159. 1 Mont. 546. 154. Ante, 301, 2, 3. Ante, 298 to 300. " 6 Ves. 805; see also Williams v. Walsby, 4 Esp. Rep. 220. • Ex parte Nixon, 4 Mont. 84. P Ex parte Matthews, 6 Ves. 285. Cooke, 154. ¶ Ante, 452, &e. Ex parte Ryswicke, 2 P. Wms. 89. Cooke, 152. Ante, 469, &c. mode terms on mitted. 6thly. The with a house in London, obtain permission from the country firm for of one of his creditors to draw upon the London house, and the country proof, and firm and the London house became bankrupts, and the drawer, after which ad-proving under the commission against the London house, receive payment from his original debtor, that is, the person having a demand upon Benefit the country firm, such person is entitled to the benefit of the drawer's of another's proof against the London house, if he have not proved the debt under proof. the commission against the country firm, but if he has, it seems he is not entitled. If a banker pay, after notice of an act of bankruptcy committed by his customer, the drafts of a customer, in favour of a creditor whose debt would have been proveable under the commission, the banker is not entitled to stand in the place in which the creditor would have stood had his debt not been paid, and as so standing to receive a dividend rateably with the other creditors.t vidend. Remedy to Formerly, when a dividend of the bankrupt's estate had been declarrecover di-ed by the commissioners, an action might be maintained against the assignees by a party who had proved a bill, for his share of the dividend; and in such action the proceedings, before the commissioners were conclusive evidence of the debt, nor where assignees suffered to set off any debt from the plaintiff to the bankrupt." But it was enacted, by the 49 Geo. 3. c. 121. s. 12, that " no action shall be brought against the assignee for dividends, but on petition to the Chancellor to pay the same with interest and costs, when the justice of the case shall require tificate. it." Seventhly, The Consequence of not proving, and Effect of Certificate. 7thly. Ef- It may be laid down as a clear and established principle, that the dis fect of cer- charge of the bankrupt should be commensurate and co-extensive with the relief to the creditor, and consequently that all debts shall be dis charged by the certificate that either have been, or that might have bees, proved under the commission; and, on the other hand, the bank[ 471 rupt's remaining still liable, and the creditor's not being able to prove his debt under the commission, are convertible terms. The various instances in which bills and notes may be proved have been considered. The statutes which enable the holder of a bill to prove in particular cases, contain a clause, that in cases where the holder could avail him self of the proof, the certificate shall protect the bankrupt from all further responsibility; and the statute 49 Geo. 3. c. 121. s. 8. having enabled sureties to prove in various instances where he has been compelled to pay the bill or note after the issuing of the commission has greatly enlarged the effect of the certificate. There are, however, still some cases relating to bills and notes, in which the certificate will not be a bar to any future action. Thus, if the bill or note were drawn and payable in England, and the cause of action accrue here, a certificate abroad will not be any bar to an action in this country, although at the time of making the contract the bankrupt resided abroad, in the country where he afterwards obtained his certificate." But where the Ex parte Matthews, 6 Ves. 285. " Brown v. Bullen, Dougl. 407; and Ex * Ex parte Groom, 1 Atk. 119.-Chilton 2. Wiffin, 3 Wils. 13. y Per Lord Kenyon, in Cowley a. Dunlop, 7 T. R. 565; and see 49 Geo. 3. c. 121. s. 14. and 1 Rose, 204. Quin v. Keefe, 2 Hen. Bla. 553Pedder v. Macmaster, 8 T. R. 609Smith v. Buchanan, I East, 6; but see Burrows v. Jemmino, 2 Stra. 733. tificate. cause of action accrues abroad, a certificate in the country where the 7thly. Efcause accrued, is a bar to any action in this country. And if a bill of fect of ceexchange, drawn in Ireland upon a person resident in Ireland, be accepted, and the acceptor become a bankrupt in Ireland, and there obtain his certificate, and afterwards be proceeded against in this country upon the bill, the court will order an exoneretur to be entered on the bail piece, on the ground, that as the debt was contracted in Ireland where the commission issued, it was discharged by the certificate. And if a person draw a bill in America, in favour of a firm in America, who have also a house in London, upon a person residing in London, and the bill be refused acceptance, and notice of refusal is given to the drawer in America, and the drawer afterwards become a bankrupt and obtained his certificate in America, it is a bar in this country to any action against the drawer. The general rule of law is, that debitum et contractus sunt nullius loci, and that the payment of a debt, wherever it may have been contracted, may be enforced in any country; and consequently, whenever creditor might prove under a commission abroad, it should seem, on principle, that a certificate should be a bar to every debt wherever it was contracted. But, on the other haud, great inconveniencies might ensue from fraudulent certificates in remote countries being obtained before a creditor here could be apprized of the proceeding, and therefore unless the contract was made, or at least in some measure connected with the foreign country, he should not be [ 472 ] prejudicd by such certificate. When a certificate abroad operates as a discharge in this country, it seems that the extent of the discharge will depend upon the law of the country where the certificate is ob tained. Where a bankrupt is discharged by his certificate from a debt in one form, he cannot be charged by the creditor from the same debt in another form of action: and therefore, in the case of Foster v. Surtees, where, by agreement between the plaintiffs, bankers at Carlisle, and the defendants, bankers at Newcastle, the plaintiffs were weekly to send to the defendants all their own notes and the notes of certain other banking-houses; and the defendants were in exchange to return the plaintiffs their own notes and the notes of certain other bankers, and the deficiency, if any, was to be made up by a bill drawn by the defendants in favour of the plaintiffs at a certain date; it was held, that the notes so sent by the plaintiffs to the defendants constituted a debt against them, which the defendants might pay by a return of notes according to the agreement; but if they made no such return, or a short ruturn, and gave no bill for the balance, such balance remaining as a debt against them, which was proveable by the plaintiffs, under a commission of bankrupt issued against the defendants, on an act of bankruptcy committed after the time when the bill for the balance, if drawn, would have been due and payable; and that the plaintiff's could not maintain an action to recover damages as for a breach of contract against the defendants who had obtained there certificates. But, in some cases a creditor has an election to shape his demand on the bankrupt either as a debt, or as for a tort, and if he adopt the latter, the certificate will be no bar. Thus, if a bankrupt to whom a bill has been delivered to obtain the payment when due, and to remit to his employer, discount it at a loss before it was due, and embezzel the Potter . Brown, 5 East, 124. dEx parte Burton, 1 Atk. 255. 1 Mont. So f 7thly. Ef- money, if sued for this tort his certificate would be no bar. fect of cer-bills be deposited merely as a pledge, if the bankrupt pledge them as tificate. his own, he will continue liable to a special action for this tort. New con tract, promise. The effect of the certificate as to a debt which might have been or proved under the commission, may be avoided by a fresh contract entered into with the bankrupt bona fide after an act of bankruptcy, even before or after he has obtained his certificate." All the debts of a [473] bankrupt continue due in conscience, notwithstanding he has obtained his certificate; and though a security, or a promise, as a consideration for signing his certificate is void, any security given bona fide without fraud or imposition on the bankrupt is valid and binding upon him, though there be no new consideration. Thus in the case of Trueman v. Fenton, where the bankrupt after the act of bankruptcy, and after the issuing of the commission, but before he had obtained his certificate, gave a promissory note in consideration of two former bills of the bank. rupt being cancelled, and of an agreement not to accept a dividend under the commission, it was held that the certificate was no bar to an action on the note. And if a bankrupt, after obtaining his certificate, undertake to pay any creditor the residue of his debt, the undertaking, if made freely, and without fraud, is binding. However, a bankrupt having obtained his certificate, is not liable upon a promise to pay former debt, unless it be express, distinct, and unequivocal. 5. Mutual credit." V. OF MUTUAL CREDIT AND SET-OFF. WHEN at the time of the act of bankruptcy, there were cross demands subsisting between the bankrupt and a creditor, the latter, by setting off his debt against his demand, stands in a better situation than other creditors not in that situation, who can only prove under the commission, and receive dividends. In equity, long anterior to the statutes permitting a set-off at law, a party might avail himself of any cross demand, and preclude his creditor from recovering more than the balance that might be due to him on a fair adjustment of accounts. And though the spirit of the bankrupt laws is to make an equal distribution amongst all the creditors, yet this must in justice be governed by the nature of the dealings between the parties, and as it may be fairly presumed that where mutual transactions have taken place between a bankrupt and another trader, they have respectively given greater credit to each other than would have taken place in any separate ex parte dealings; it is therefore just, that in the case of bankruptcy their mutual demands should be set-off against each other. therefore enacted by the statute 5 Geo. 2. c. 30. s. 28. That where "it shall appear to the commissioners, or the major part of them. 474] that there hath been mutual credit given by the bankrupt and any Parker v. Norton, 6 T. R. 695. 8 Johnson v. Spiller, Dougl. 167. Cul len, 113. 391. b Cullen, 386. 1 Mont. 586. i Trueman v. Fenton, Cowp. 344. Birch v. Sharland, 1T. R. 745. * Cowp. 544. Ibid. and the several cases collected in Cullen, 86 to 388. and in 1 Mont. 587, Fleming o. Hayne, I Stark. 370. a As to mutual debts and credits between a bankrupt and other persons, see Bay! 212 to 216. 66 66 "other person, or mutual debts between the bankrupt and any other 5. Mutual person, at any time before such person became a bankrupt, the said credit. "commissioners, or the major part of them, or the assignees of such bankrupt's estate, shall state the account between them and one debt "may be set against another, and what shall appear to be due on either "side on the balance of such account, and on setting such debts against one another, and no more, shall be claimed or paid on either "side respectively." And by the statute 46 Geo. 3. c. 135. s. 3. it is enacted, That in all cases in which, under commissions of bankrupt "hereafter to be issued, it shall appear that there has been mutual "credit given by the bankrupt and any other person, or mutual debts "between the bankrupt and any other person, one debt on demand "may be set-off against another, notwithstanding any prior act of "bankruptcy committed by such bankrupt before the credit was given "to, or the debt was contracted by such bankrupt, in the like manner "as if no such prior act of bankruptcy had been committed, provided "such credit was given to the bankrupt two calendar months before "the date and suing forth of such commission, and provided the "person claiming the benefit of such set-off, had not, at the time of giving such credit, any notice of any prior act of bankruptcy by such "bankrupt committed, or that he was insolvent or had stopped pay"ment." Upon these statutes it is observable that the word credit is more comprehensive than the word debt, and Lord Mansfield said, in the case of French v. Fenn, that the act of parliament was accurately drawn to avoid the injustice that would be done, if the words were only mutual debts, and it therefore provides for mutual credit. The subject of mutual credit, as far as it relates to bills of exchange and promissory notes, may be considered under the three following heads: 1st. The nature of the debt and consideration upon which it is 2d. The parties between whom the mutual credit may exist. 3d. The time when the debt or credit arose. I. With respect to the debt or demand proposed to be set off, not 1. The naonly mutual running accounts are within the statutes, but also other ture of the cross demands subsisting at the time of the act of bankruptcy, and debt to be set-off. even such debts have been allowed to be set off as could not have been brought into any account in equity betwixt the parties, such as debts arising to one party not by contract, but by reason of a fraud on the [ 475 ] other, and therefore not a mutual credit. Even a legacy, which cannot be considered as a demand arising from a contract, has, when assented to by the executor, been considered admissible as a set-off against a demand on the legatee. And the illegality of the consideration will not, in the case of bankruptcy, in all cases preclude a person from setting off what is equitably due. And therefore it has been decided, that a party to a contract, on which he has taken usurious interest, may set-off the sum really advanced on the contract. And a transaction has been held to be a mutual credit, though its operation seem contrary to an agreement of all the parties, for a vendor of seve Ex parte Stevens, 11 Ves. 27. Cooke, berts v. Goff, 4 Barnewall & Alderson, 554. 1 Mont. 529. Cullen, 192 to 197. P Cullen, 198; but this is contrary to the intent of the statute of usury; and see RoCHITTY ON BILLS. 62. 4 Jeffs v. Wood, 2 P. W. 128. 3 H |