The debts also must be strictly mutual: hence, if a firm sue for a partnership debt, a debt due from some members of the firm could not be set-off. If a firm be sued, they could not set-off debts due to some of them. One partner, however, may settle a debt due to the partnership by setting-off against it a debt due from himself. The Statutes only permit set-off in the case of mutually existing legal debts. But the Bankruptcy Act goes further; it allows the set-off of mutual credit, as well as of mutual debts; and mutual credit is more extensive than mutual debt. There is mutual credit, though one of the claims constituting it is not yet due, as in the case of a bond, bill, or note, payable at a future time. Thus if a banker is indorsee of a bill of a bankrupt acceptor or indorser, and the acceptor or indorser holds an equivalent amount of the banker's notes payable on demand, there is a mutual credit, and the banker may set-off one against the other. A Bill accepted for the bankrupt's accommodation is within the mutual credit clause, and may, under the Bankrupt Acts, be setoff against a demand by the assignees for money had and received to their use after the bankruptcy. If a banker, however, commits a breach of trust, as if he receives bills or notes with orders to apply their proceeds to a particular purpose, and, instead of doing so, converts them to his own use, he could not plead set-off. Mutual credit and a Lien do not destroy each other. Clark v. Fell, 4 B. & Ad., 404. Ex parte Barnett, L. R., 9 Chanc. Ap. 293. Under the Bankrupt Act a set-off is available in all actions, whether for debt or damages. Under the term mutual credit-the credit need not necessarily be given in money. Thus, if goods be deposited with the authority to convert them into money, that may be pleaded as setoff. Thus the mutual credit must be such as was intended to terminate in a debt. This is manifestly the same principle as applies to bills and notes not yet due. Mutual credit, however, must actually exist at the time between the bankrupt; therefore, when the defendant promised to indorse a bill to the bankrupt, in consideration of his acceptance, it was held not to be mutual credit. On Securities given by Third Parties to Bankers to secure advances to their customers. 11. We have now given what appears to us to be necessary to explain the relations between a banker and his customer, and securities given by the customer; we have now to consider the case where strangers give securities to bankers on behalf of their customers, which are much more strictly interpreted than securities given by the customer himself. The general rule is this-That if a person gives a guaranty to a banking firm to secure advances made or to be made to another firm as customers, if any change takes place in either firm, either from death or the withdrawal of any partner; or the adoption of a new one; the guaranty holds good as to any operations which have already been commenced but not completed before the change: as, for instance, to bills accepted, discounted, or negotiated before the change, but which did not become payable till after it; but it then becomes ipso facto void and determined as regards any new transactions. These doctrines having been established by a host of cases were confirmed by Statute, 19 & 20 Vict. (1856), c. 97, s. 4 "No promise to answer for the debt, default, or miscarriage of another, made to a firm consisting of two or more persons, or to a single person trading under the name of a firm: and no promise to answer for the debt, default, or miscarriage of a firm consisting of two or more persons, or of a single person trading under the name of a firm, shall be binding on the person making such promise, in respect of anything done or omitted to be done, after a change shall have taken place in any one or more of the persons constituting the firm, or in the person trading under the name of a firm, unless the intention of the parties that such promise shall continue to be binding, notwithstanding such change, shall appear, either by express stipulation, or by necessary implication from the nature of the firm, or otherwise." If, therefore, it be the intention that the guaranty should be a continuing security, notwithstanding any change in either or both of the firms, such a stipulation must be clearly set forth in it. A guaranty is also vitiated if the banker deviates in the slightest degree from its precise terms, for there is, in fact, a dealing between the banker and his customer to which the guarantor has never consented. Before 1856 a guaranty required to have the consideration it was given for stated on the face of it; but by the Mercantile Law Amendment Act, 18 & 19 Vict. (1856), c. 97, s. 3, it is enacted— "No special promise to be made by any person after the passing of this Act to answer for the debt, default, or miscarriage of another person, being in writing, and signed by the party to be charged therewith, or some other person by him thereunto lawfully authorised, shall be deemed invalid to support an action, suit or other proceeding to charge the person by whom such promise shall have been made, by reason only that the consideration for such promise does not appear in writing, or by necessary inference from a written document." Evans v. Whyle, 5 Bing., 485. Eyre v. Bartrop, 3 Madd., 221. Archer v. Hale, 4 Bing., 464. Whitcher v. Hall, 5 B. & C., 269. Bonar v. Macdonald, 3 H. L. Ca., 226. If the banker advances to his customer a sum in excess of the sum guaranteed, that is not a variation of the terms of the guaranty. Sellers v. Jones, 16 M. & W., 112. Parker v. Wise, 6 M. & S., 247. Laurie v. Scholefield, L. R., 4 C. P., 622. If a surety guarantees a fixed sum, and the banker advances to his customer beyond the sum fixed, and the customer becomes bankrupt, the surety is only liable for the sum he guaranteed, less the amount of any dividend on the bankrupt's estate. Ex parte Rushforth, 10 Ves., 409. Paley v. Field, 12 Ves., 435. Bardwell v. Lydall, 7 Bing., 489. Raikes v. Todd, 8 Ad. & E., 846. Ex parte Brook, 2 Rose, 334. Ex parte Holmes, M. & Ch., 301. Gee v. Pack, 33 L. J., Q. B., 49. But a guaranty is not determined by the death of the guarantor, so long as the obligation is uncompleted. Bradbury v. Morgan, 1 H. & C., 249. A guaranty, even though it states a specified time, is always countermandable-except, of course, as regards any advances made under it. Offord v. Davies, 12 C. B., N. S., 748. Any variation between the precise terms of the guaranty and the actual dealing between the banker and the debtor will avoid the guaranty. Glyn v. Hertel, 8 Taunt., 208. Bacon v. Chesney, 1 Stark., N. P. C., 192. Bonser v. Cox, 6 Beav., 110. The General Steam Navigation Co. v. Rolt, 6 C. B., N. S., 550. Calvert v. the London Docks Co., 2 Keen, 638. A guaranty will be construed most strictly against the grantor. Mason v. Pritchard, 12 East., 227. Mayor v. Isaac, 6 M. & W., 605. Wood v. Priestner, L. R., 2 Exch., 66. An omission or misstatement of facts which affects the guarantor's responsibility will avoid the guaranty (a). But an omission to state facts which do not affect the guarantor's responsibility will not do so (b). If the creditor knows that the principal has committed an act of dishonesty, and does not inform the surety, he is discharged (c). (a) Pidcock v. Bishop, 3 B. & C., 605. Jackson v. Duchaire, 3 T. R., 551. Mayhew v. Crickett, 2 Swanst., 193. Glyn v. Hertel, 8 Taunt., 208. Stone v. Compton, 5 Bing., N. C., 142. Pledge v. Buss, John., 663. Swan v. Bank of Scotland, 1 Dow., 272. Blest v. Brown, 8 Jur., N. S., 603. Lee v. Jones, 17 C. B., N. S., 482. (b) Hamilton v. Watson, 12 Cl. & F., 109. North British Insurance Co. v. Lloyd, 10 Exch., 523. (c) Phillips v. Foxall, L. R., 7 Q. B., 666. If the Creditor, without the surety's knowledge and consent, gives the principal debtor time by a positive legal contract which suspends his right of action against him-and is not a mere forbearance to sue: or if he obtains execution against him and then withdraws it (1): or agrees that the debtor's estate shall be administered for the benefit of the creditors, "in like manner as if he had obtained a discharge in bankruptcy" (2): the surety is discharged (a). But not if it is done with the surety's knowledge and consent (b). (a) Nisbet v. Smith, 2 Bro. C. C., 579. Rees v. Berrington, 2 Ves., jun., 540. Samuell v. Howarth, 3 Mer., 272. Creighton v. Rankin, 7 Cl. & F., 346. Eyre v. Everett, 2 Russ., 381. Heath v. Howell v. Jones, 1 C. M. & R., 97. Combe Orme v. Young, Holt, N. P. C., 84. Boultbee Key, 1 Y. & Jer., 434. V. Woolfe, 8 Bing., 156. v. Stubbs, 18 Ves., 20. Bank of Ireland v. Beresford, 6 Dow, 233. (1) Mayhew v. Crickett, 2 Swanst., 191. But an additional and collateral security which does not suspend the creditor's right of action does not discharge the surety. Twopenny v. Young, 3 B. & C., 208. Bell v. Banks, 3 M. & G., 258. If the principal debtor is discharged by operation of law, as by a certificate of bankruptcy, the surety is not discharged. Brown v. Carr, 7 Bing., 508. Langdale v. Parry, 2 Dow. & Ry., 337. If the creditor takes a security of a higher order, such as a specialty instead of a simple contract, the latter is "merged " and the surety is discharged. But if the remedy against the surety is expressly reserved in the specialty, the surety is not released, even though it is given without his knowledge. For a specialty to operate as a merger it must coincide exactly in amount and with the parties, with the simple contract. Ex parte Carstairs, Buck, B. C., 560. Ex parte Glendinning, Buck, B. C., 517. Ex parte Gifford, 6 Ves., 805. Boales v. Mayor, 19 C. B., N. S., 76. Kearsley v. Cole, 16 M. & W., 128. Hooper v. Marshall, L. R., 5 C. P., 4. Bateson v. Gosling, L. R., 7 C. P., 4. Teede v. Johnson, 11 Exch., 840. If the holder of a security agrees with the principal debtor to give time to the surety, he thereby discharges the surety. Oriental Financial Co. v. Overend & Co., L. R., 7 Ch. Ap., 142. On the Appropriation of Payments. 12. If a debtor owes several debts to a creditor he may appropriate or impute any payment he makes to whichever of the debts he pleases, if he declares his intention at the time of making the payment (a). And such an appropriation may be implied from circumstances, even though not expressly declared (b). (a) Anon. Cro. Eliz., 68. Pinnel's case, 5 Co., 117b. Peters v. Smith v. Ex parte (b) Shaw v. Picton, 4 B. & C., 715. Young v. English, 7 Beav., 10. Stoveld v. Eade, 4 Bing., 154. Waters v. Tompkins, 2 C. M. & R., 723. Knight v. Bowyer, 4 De G. & J., 619. Pearl v. Deacon, 24 Beav., 186. Marryats v. White, 2 Stark., 102. Newmarch v. Clay, 14 East., 239. Taylor v. Kymer, 3 B. & Ad., 320. Wright v. Hickling, L. R., 2 C. P., 199. Nash v. Hodgson, 6 De G. M. & G., 474. Henniker v. Wigg, 4 Q. B., 792. Williamson v. Rawlinson, 10 J. B., Moore, 371. Pease v. Hirst, 10 B. & C., 122. Wickham v. Wickham, K. & J., 478. If the debtor makes no appropriation at the time of the payment, the creditor may appropriate it to whichever debt he pleases (a). And he may do this at any time before trial (b). |