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5. Mutual ral parcels of goods sold to the bankrupt, for which the latter gave his credit. acceptances, payable at different times, having received of the bankture of the rupt at the time one of them became due before the bankruptcy, a debt to be bill of exchange for a greater amount, and giving an undertaking to pay over the difference when received, was allowed, though contrary to the agreement, to retain it for the debt due to him upon the other parcels, which were not paid for at the time of the bankruptcy; this constituting a mutual credit, on the one side to the bankrupt upon his acceptances, the obligation to pay which, at all events, at a future day, was not superseded by the agreement; and on the other by giving the bill." The same point was established in Ex parte Wagstaff, in which it was held, that an acceptance not due till after the bankruptcy of the drawer, is capable of being set-off against a distinct debt due from such acceptor to the drawer, within the clause of the act as to mutual credit. And where Lord Cork gave the bankrupt his accommodation notes, upon a written undertaking to indemnify, and his Lordship paid the notes after the bankruptcy, he was allowed to set-off the payment against a demand of the bankrupt for business done." But where A. previous to his bankruptcy, deposited a bill of exchange with B. for the specific purpose of raising money thereon, and B. advanced money on the bill, it was held that the assignees of A. were entitled to recover from B. the amount of the bill in an action of trover, having tendered to B. the money advanced by him, though a general balance remained due from the bankrupt to B. and that this did not form a case of mutual credit. If the assignees of a bankrupt affirm


the acts of the bankrupt as a contract, by suing a party in assumpsit, he may have the benefit of a set-off, which he could not have had if [476 ] he had been sued as for a tort. As where goods had been sold to a party by way of fraudulent preference in satisfaction of a debt due to him from the bankrupt, and the assignees sued him as for goods sold and delivered, thereby affirming the transaction as a contract of sale by the bankrupt; the purchaser was allowed to avail himself of a setoff. But if a banker receive and pay money on account of a bankrupt, after notice of his bankruptcy, he cannot set-off the payments against the receipts. A creditor upon a bill of exchange or promissory note of the bankrupt's indorsed to him, before the bankruptcy, may set it off against a debt due from him to the bankrupt for goods bought after the indorsement, and also before the bankruptcy, though the bankrupt did not know that the bill was indorsed to and in the possession of the party at the time, for the sending of a bill into the world is considered as gaining a credit to the party with every person who takes the bill. The case Ex parte Metcalf, may be considered as a case of mutual credit; A. and B. had become bankrupts, and proof in respect to a cash balance due from A. to B. was admitted, but the dividends were ordered to be retained to reimburse the estate of B. what it might be liable to pay on account of an advance of bills from A. to B. some of which were dishonoured. Where A. before his bankruptcy, discounted certain bills with B. and C. his bankers, and they gave him immediate credit for the value of the bills in his account minus the discount, and a balance was struck before the bankruptcy, and

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whilst the bills were yet running, in favour of A., when the bankers 5. Mutual admitted that they had in their hands £934. 88. 8d. due to A., giving him credit for the bills then running, and A. became a bankrupt, and 1. The nathe bills were dishonoured, it was held, that in an action against the debt to be bankers for the balance admitted to be due to A. before his bankruptcy, set-off. they have a right to set-off against such claim the amount of the dishonoured bills, it being a case of mutual credit.©

ture of the

The [ 477 ]

II. To constitute mutuality of debts or of credits, it is in general 2. In what necessary, that the sum claimed was due to the bankrupt, and is due to right due. the creditor in their own rights respectively. Thus a joint and separate debt cannot be set off against each other; and in the case of the bankruptcy of one only of several partners, the defendant, in an action by assignees and solvent partners, cannot set-off, and a debt due to a party as trustee for another person, cannot be set-off. ⚫ right of set-off in this respect appears to be governed by the same rules as prevail at common law. In the case Ex parte Twogood, under separate commissions of bankruptcy, relief in the nature of set-off against a separate creditor of the bankrupt, indebted to the partnership to a greater amount was refused, and Lord Eldon, after pointing out the inconveniences that might ensue if he allowed the petition, said, that there was a good deal of natural equity in the proposition upon which the petition stood, but that pursuing it through all its consequences, it would so disturb all the habitual arrangement in bankruptcy that he dare not But under particular circumstances where great injustice would otherwise prevail, exceptions to this rule are allowed. Thus where a person gave a note to his bankers on account of a supposed balance due to them, but in which there was a mistake, and the bankers indorsed the note to another firm, consisting of some of the partners in the bankinghouse; the maker of the note may set off the debt due to him from his bankers, to an action commenced against him on the note by the firm who hold it, the knowledge of one of the partners in such firm, being deemed equivalent to notice to all, and consequently they were affected by the state of accounts between the maker of the note and his bankers. And in Ex parte Stevens, an equitable set-off, under circumstances, was allowed when there could be none at law. In that case bankers directed to lay out money in navy annuities, but not having done so, represented that they had, and made entries, and accounted for the dividends accordingly; and they took a joint promissory note from the party under that supposition, and her brother, to secure an advance from them to him, upon which the assignees, under their bankruptcy, sued him alone, and an order was made for proof of the balance, setting off the debt upon the note, and that the note should be delivered to her as if she had paid it.


Arbouin v. Tritton, Holt, C. N. P.

dEx parte Twogood, 11 Ves. 519. Ex parte Stevens, 11 Ves. 27. 1 Mont. 552. 1 Chitty on Pleading, 3d ed. 554, 5.

• Staniforth v. Fellows, 1 Marsh. 484. f Fair v. M'Iver, 16 East, 130.

8 Tidd's Prac. 4th edit. 598, 9, and see the set-off of one judgment against another, id. 195, 6, and see I Chitty on Pleading,

3d edit. 554. 558 to 560,

11 Ves. 517; but see the cases at law in Tidd's Prac. 4th edit. 895, 6, where a joint demand has been set-off, with the concur-"

rence of the partners, against a separate de-
mand, and vice versa. It appears equitable
that where all the partners agree to set-off
their joint demand against the demand of a
separate creditor of one of them, it should
be allowed, so as to prevent his entire de-
mand being recoverable. But in case of
bankruptcy, creditors might be prejudiced
by such an arrangement, and the difficulties
in effecting it would be insurmountable.
1 Chitty on Pleading, 3d edit. 549. 558 to

i Pulier v. Roe, Peake, 197.
* 11 Ves. 24.

5. Mutual

3. The

debts credits


III. Consistently with the rule by which no creditor, whose debt did credit not accrue before the bankruptcy, can prove under a commission, and ume when also upon the express words of 5 Geo. 2. c. 30. s. 25, and the 46 Geo. the mutual 3. c. 135. s. 3. relative to mutual debts and credits, no debt or credit or can be set against another by way of set-o, unless with respectively ac* crued or were given before the bankruptcy, or two calendar months before the commission where there has been a secret act of bankruptcy. Thus where bankers accepted bills of exchange for the accommodation of a trader, and he, after committing an act of bankruptcy, lodged money in their hands to pay the bills, it was held that as the money was deposited after an act of bankruptcy, the assignees might recover it, and the bills could not be set-off, and it has been recently held, that to enable the holder of a bankrupt's acceptances to avail himself of them in an action by the assignees against himself on his own acceptances, by way either of set-off or of mutual credit, he must most distinctly prove, either that the obligation on himself to pay the bill so set-off subsisted before the bankruptcy, or that there was a mutual credit created in the origin of the bills. Yet, if the ground of the proposed set-of constituted a credit, though not, strictly speaking, a debt, before the act of bankruptcy, it may be set-off under the clause of mutual credit." A demand arising upon an instrument payable after the bankruptcy, may, if made before, be set-off, if it is payable unconditionally on a day certain. And a bill or note payable unconditionally, and given by a principal to a surety by way of indemnity, may be set-off. And a person who lends notes of hand, and receives from the borrower a memorandum promising to indemnify him, may set-off the amount of any of these notes paid by him after the bankruptcy of the borrower to a demand from the assignees for a sum due to the borrower. But a debt contracted after notice of the act of bankruptcy cannot be set off."

A bill or note indorsed to the claimant after the bankruptcy cannot be set-off, although we have seen that it may be proved; and it is incumbent on an indorsee to show that the indorsement was made before the bankruptcy; but the possession by the payee of a note, made before the bankruptcy, seems to afford reasonable presumptive evidence [479] that it came into his possession at the time it bears date. In a recent case, where to an action by the assignees of a bankrupt for a debt due to the bankrupt's estate, the defendant set off notes in his possession issued by the bankrupt before his bankruptcy, it was held, that proof that notes to the amount of the set-off came into the defendant's lands three or four weeks before the bankruptcy, was sufficient evidence from which the jury might infer that he was in possession of them at the time of the bankruptcy, without identifying them with the notes proThough, in this case, the debt, as against the bankrupt existed before the bankruptcy, yet it was not to the same party, and ⚫ though we have seen that such a debt is allowed to be proved by the

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3. The

time when



stat. 7 Geo. 1. c. 51, that is very different from the operation of a set- 5. Mutual off: for, by the former, no new charge at least is brought upon the credit. estate, which it would not have been liable to at the time of the bankruptcy, but which there is in the latter, and a creditor cannot be per- the mutual mitted to vary the relation in which he stood to the bankrupt's estate at debts that time, by an act ex post facto, in a transaction with a third party, credits and thereby to put himself in a better condition than the rest of the rose. creditors. In the case of Dickson v. Evans, Lord Kenyon, observing upon this rule, said, "It would be most unjust indeed if one person, who happens to be indebted to another at the time of the bankruptcy of the latter, were permitted, by any intrigue between himself and a third person, so to change his own situation, as to diminish or totally destroy the debt due to the bankrupt, by an act ex post facto. In cases of this sort, the question must be considered in the same manner as if it had arisen at the time of the bankruptcy, and cannot be varied by any change in the situation of one of the parties." So a bill of exchange bona fide negotiated by an indorser before an act of bankruptcy by the acceptor, and taken up and paid by such indorser after the bankruptcy, cannot be set off by him under the commission against the acceptor. This point was established in the case Ex parte Hale, and in that case the Chancellor said, "Pay the £93 that you owe the estate, and prove the £200. I see no objection to that, but you cannot, by paying that bill, put yourself in a better situation than any other creditor. was no mutual credit. There was a debt created upon the estate, and due at the time of the bankruptcy, but that debt was not due to you; therefore, in that respect, the set-off fails. In the latter case cited," there was no prejudice to the estate ; it made no larger demand."



statute 46 Geo. 3. c. 135. s. 3, has provided, that mutual debts and credits contracted or grown after a secret and unknown act of bank-[ 480 ] ruptcy, two calendar months before the date of the commission, may

be set off.


. In considering who may indorse a bill, and by and to whom payment may be made, several of the points relating to bankruptcy have necessarily been considered. A few others remain to be stated, which may be arranged under the following heads, as they relate to,

1st. The property of the bankrupt, and contracts entered into by him.

2dly. The property of others.

and con

First. The uniform principle laid down by the courts upon this sub- 1. The project is, that assignees take a bankrupt's property in the same situation, perty of the and subject to the same burthens as the bankrupt himself had it, and bankrupt, they stand in his place, and are bound by all acts fairly done by him in tracts en. relation to his property, and that this remains in their hands subject to tered into all equitable liens, by which it was affected in the hands of the bank- by him. rupt himself. And though a chose in action cannot strictly be assigned


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1. The


6. Effect at law, yet if a bankrupt, before his bankruptcy, for a valuable consibank-deration, and without fraud, assign to a creditor, a debt or bill of exruptcy, &c. change or note, it will be binding on the assignees. And if a bill er perty of the note be not capable of delivery at the time, a transfer of it, without bankrupt, delivery, will be binding upon the assignees, provided notice of the con-assignment be given to the debtor. But as soon as the security is tracts en-capable of being delivered, it must be handed over, for if it remain in tered into the hands of the bankrupt, the assignees will be entitled to it. And by him. where a trader delivered a bill for a valuable consideration to another, previously to an act of bankruptcy, and forgot to indorse it, it was held that he might indorse it after his bankruptcy. And if the bankrupt has no beneficial interest or valuable property in a bill, as where it is accepted by another for his accommodation, he may, after an act of [481 ] bankruptcy, indorse it, so as to convey a right of action thereon to third person against the accommodation acceptor. And in Willis r Freeman, where the bill was drawn by the bankrupt partly for value. and partly for accommodation, and he indorsed it after his act of bankruptcy to a creditor, it was held that the latter might recover on the bill the difference between the real debt and the whole sum for which the bill was drawn. And assignees cannot, any more than the bankrupt himself could, hold property obtained by his fraud or crime, and therefore, they have been held liable to restore money received by them upo: bills, which he had got in return for one, of which he knew the acceptance was a forgery.

So bills of exchange, or promissory notes indorsed by the bankrup: after he had dishonoured bills, and been otherwise irregular in his pay ments, may be retained by the indorsee, unless it were known to him at the time that the insolvency of the bankrupt was decidedly a genera! *inability to answer his engagements. So, if a trader, after he has committed a secret act of bankruptcy, indorse a bill of exchange to creditor, who receives the money due on a bill before a commission issues against the trader, such payment is protected by the statute."

But if the holder of a bill of exchange give time to an acceptor, upon condition that he shall pay interest, and the acceptor afterwards pay the bill after having committed a secret act of bankruptcy, this is a payment of a loan of money at interest, and not a payment in the course of trade. But a payment by a trader, after having had time given him for payment, but not upon an over-due security, may, as it seems, be protected by the statute. A payment of a bill before it is due, or upon a trader's soliciting his creditor to receive the money, seems not to be a payment in the course of trade."

Rowe v. Dawson, 1 Ves. jun. 331.-
Graff, v. Greffulke, 1 Campb. 89.

Brown v. Heathcote, 1 Atk. 160.—
Lempriere r. Pasley, 2 T. R. 485. Cullen,
IS9, 190. 309. 1 Mont. 342, 343, 344.

Jones v. Gibbins, 9 Ves. 410. Cooke,
349 to 352.

Smith v. Pickering, Peake's Ca. Ni. Pri. 50. Rolleston v. Hibbert, 3 T. R. 411. Arden v. Watkins, 3 East, 317. Wallace v. Hardacre, 1 Campb. 46, 47; but qualified in notes, id. 179.

12 East, 656.

1 Harrison v. Walker, Peake's Ca. Ni. Pri. 111.

Anon. 1 Campb. 491, in notes.

" Hawkins v. Penfold, 2 Ves. 550. Copland v. Steine, 8 T. R. 199. Ante, 170, note, 115 to 120.

P Vernon v. Hall, 2 T. R. 684. Ante,


Per Eyre, J. in Holmes v. Wennington, 2 Bos. & Pul. 399.

Per Heath, J. in Cox e. Morgan, 2 Bos. & Pul. 398.

• Id. ibid. and Singleton v. Butler, 1 Bes & Pul. 283. See various decisions & 10 payments by and to bankrupts, in 1 Mont 311 to 324. Cullen, 234 to 239.

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