Page images


had received payment of part from the other, he could only CHAPTER have proved the residue under the latter bankruptcy, as the form of proving his debt shows, because no more would remain due to him " (e). And not only if any part of a bill have been received by the holder, before he have actually proved it upon the estate of a party, but even if a dividend under another commission have been merely declared, he can only prove for the residue (f).

Where an estate was bankrupt both in England and in a foreign country, and the holder of a bill had received a dividend in such foreign country, he was not allowed to prove again here until all the creditors had received a dividend after the foreign rate (g).

Where the creditor knowingly holds the joint and separate security of partners for the same debt (h), he could not in general prove both on the joint and separate estate (i). The application of this rule to bills on which there were the names of two firms, in which firms were common partners, was involved in great uncertainty (k). Upon principle it should seem that in such cases there should be double proof. Accordingly the Act of 1883, Sched. II. par. 18, closely following similar provisions in 24 & 25 Vict. c. 134, s. 152, and 32 & 33 Vict. c. 71, s. 37, enacts that "If a debtor was at the date of the receiving order liable in respect of distinct contracts as a member of two or more distinct firms, or as a sole contractor and also as member of a firm, the circumstance that the firms are in whole or in part composed of the same individuals, or that the sole contractor is also one of the joint contractors, shall not prevent proof in respect of the contracts against the properties respectively liable on the contracts "(1).

(e) Ex parte Wyldman, 1 Atk. 109; 2 Ves. sen. 113; Ex parte Par, 11 Ves. 65; 1 Rose, 76; 11 R. R. 149; Ex parte Tayler, 1 De G. & J. 112; 26 L. J., Bank. 58.

(f) Cooper v. Pepys, 1Atk. 106; Er parte Leers, 6 Ves. 644; Ex parte The Royal Bank of Scotland, 19 Ves. 310; Ex parte Worrall, 1 Cox. 309; see, however, In re Gibson and Johnson, cited 19 Ves. 311; and Ex parte De Tastet, 1 Rose, 16.

(9) Ex parte Wilson, L. R., Ch. App. 490.


(h) Ex parte Henton, De Gex,


(See the judgment of Lord Justice Turner in Ex parte Goldsmith, 25 L. J., Bank. 26. But see also Ex parte Thornton, 28 L. J., Bank. 4, where double proof was allowed, and it was said that the rule against it is a technical rule not to be extended.

(k) See the authorities collected in Ex parte Goldsmid, 25 L. J., ·Bank. 25; 1 De G. & J. 257.

(1) Ex parte Honey, L. R., 7 Ch. App. 178; 41 L. J., Bank. 9.

Proof against

estate bankrupt in more

than one country.

Proof against joint and estate.



Where a creditor holds bills as a collateral security.

Proof of bill

Where a creditor proves a debt, and holds certain bills of exchange or promissory notes, as securities, if any of them be afterwards paid to him, the amount of such payment must be expunged from the proof, and the future dividends will be paid on the residue only (m). Where a creditor holds a bill as a security for a smaller sum than the amount of the bill, he may prove against any parties to the bill (except against the party who deposited the bill with him) for the whole amount of the bill, provided he do not receive more than twenty shillings in the pound on the debt due to him from the depositor of the bill (n).

A holder who has bought up the notes or acceptacquired after ances of the bankrupt after the bankruptcy will be admitted to prove (0), provided that, at the time of the bankruptcy, they were in the hands of a person entitled to prove (p).

acceptor's bankruptcy.

Set-off in bankruptcy.

When the

mutual credit must have


Next as to set-off and mutual credit in bankruptcy.

Set-off in bankruptcy was first given by the 4th Anne, c. 17, s. 11, re-enacted by 5 Geo, 2, c. 30. These statutes

(m) Ex parte Smith, Cooke B. L. 175, 191; Ex parte Barratt, 1 Glyn & J. 327; Ex parte Bloxham, Cooke B. L. 176; Er parte Burn, 2 Rose, 55; Ex parte Rufford, 1 G. & J. 41; Ex parte Brett, 40 L. J., Bank. 55; In re Barned's Bank, L. R., 10 Chan. App. 198. See further as to the mode of dealing with bills which have been deposited as a security, Er parte Baldwin, 19 Ves. 230; Ex parte Tougood, 19 Ves. 229; Ex parte Rushworth, 10 Ves. 419; Ex parte Rufford, 1 G. & J. 41 ; Ex parte Brown, 1 G. & J. 407. This rule is confined to bills and notes, per V. Williams, L.J., In re Blackburn, 9 Morr. 249; the guarantee of a third party does not constitute the holder a secured creditor within sect. 168, In re Hallett & Co., [1894] 2 Q. B. 256. As to proof by one partner against the estate of his co-partner for any debt in respect of the partnership, see Ex parte Maud, L. R., 2 Chan. App. 550. As to secured creditors in general, see s. 168 and Sched. II. rr. 9—17; and Ex parte Jacobs, L. R. 17

Eq. 575; Er parte Ashworth, L. R. 18 Eq. 705. Money paid into Court in order to obtain leave to appear makes the bill holder a secured creditor. Er parte Banner, L. R., 9 Chan. App. 379. A secured creditor in the case of a deceased insolvent or the winding up of a company can now only prove on the balance. 38 & 39 Vict. c. 77, s. 10.

(n) Ex parte King, Co. B. L. 177; Ex parte Crossley, 3 Bro. C. C. 237; Co. B. L. 177; Er parte Bloxham, 5 Ves. 499; 5 R. R. 358; see Ex parte Reader, Buck, 381 ; Ex parte Philips, 1 M., D.& D. 232.

(0) Ex parte Lee, 1 P. Wms. 782; Er parte Atkins, Buck, 479; Ex parte Deey, 2 Cov. 423; Er parte Brymer, Co. B. L. 187; Er parte Thomas, 1 Atk. 73; Joseph v. Orme, 2 N. R. 180; Mead v. Braham, 3 M. & Sel. 91; Cowley v. Dunlop, 7 T. R. 565; Houle v. Baxter, 4 East, 177.

(P) Ex parte Rogers, Buck, 490; see Ex parte Dickinson, 3 D. & C. 520; Ex parte Botten, 1 M. & Bli. 412. See the Chapter on TRANSFER.

enact, that the mutual credit must have been before the bankruptcy; and therefore it was decided, where a debtor to the estate claimed to set-off notes of the bankrupt, that it was for him to show that he took the notes before the act of bankruptcy (q). The 46 Geo. 3, c. 135, s. 3, enacted that one debt or demand might be set off against another, notwithstanding a prior act of bankruptcy, provided the credit were given to the bankrupt two months before the date of the commission, and providing the person claiming the set-off had no notice of an act of bankruptcy, or that the bankrupt was insolvent or had stopped payment. The 6 Geo. 4, c. 16, s. 50, repealed, but re-enacted by 12 & 13 Vict. c. 106, s. 171 (r), went still further, and allowed all debts to be set off, whether contracted before or after the act of bankruptcy, provided no notice of a specific act of bankruptcy when the credit was given could be brought home to the person claiming the benefit of such set-off. This was still further extended by the Act of 1869 (s), which is substantially reproduced by the provision of the Act of 1883 (), enacting that where there have been mutual credits, mutual debts, or other mutual dealings between a debtor against whom a receiving order is made, and any other person proving or claiming to prove, an account shall be taken of such mutual dealings, and the balance of the account and no more shall be claimed or paid on either side respectively; but a person shall not be entitled to set-off under this section against the property of the debtor if he had, at the time of giving credit to the debtor, notice of an available act of bankruptcy.

In case, therefore, of a country banking-house stopping payment, there does not now seem any necessary legal objection to a set-off by the debtors of a firm, of notes bought up by them in the interval between the stopping payment and the commencement of the bankruptcy. If, indeed, when the doors and windows of a bank are closed, the bankers either withdraw from the bank, or shut themselves up in it, and so avoid any communication with their creditors, they commit an act of bankruptcy by keeping house or absenting themselves with intent to defeat their creditors (u). But if, on stopping payment and closing the

(q) March v. Chambers, 2 Stra. 1234; Dickson v. Erans, 6 T. R. 57; 3 R. R. 119; Oughterlony v. Easterby, 4 Taunt. 888; Moore v. Wright, 6 Taunt. 517; 2 Marsh. 209; Ex parte Ryder, 40 L. J., Bkcy. 63; L. R., 6 Ch. App. 413.

(r) Not repealed or altered in this respect by 24 & 25 Vict.

c. 134.

(8) 32 & 33 Vict. c. 71, s. 39.
(t) Sect. 38.

(u) Cummingv. Bailey, 6 Bing.
363; 4 Moo. & P. 36; 31 R. R. 438.




Fraudulent set-off.

Attempt to deprive of set-off.


credits more comprehensive than mutual debts.

bank, they are, from illness, unable to be seen, or the creditors are referred to them at their banking-house, or at their private houses, the mere circumstance of stopping payment is not an act of bankruptcy; and notes taken by a debtor to the firm, after knowledge that the firm had stopped payment, may be set off (x). Notice of acts of bankruptcy by some members of a banking firm, without notice of an act of bankruptcy by another member, will take away the right to set-off (y). But a man cannot buy up and set off notes and bills, known by him to have been given by the bankrupt for the accommodation of other persons (z). Where an indorser of a bill subsequently becomes the holder, the acceptor having meanwhile become bankrupt, the claim on the bill can be set off against a debt due to the acceptor's estate (a).

A debtor to the bankrupt's estate cannot set off a bill or note transferred to him by the real owner, even before the bankruptcy, for the mere purpose of being set off against a demand by the bankrupt's estate, so that the real owner might receive 20s. in the pound (b). For in such a case, the debtor is a mere trustee for others, and having no real cross demand of his own against the estate, cannot be allowed to set off another man's (c). But if the notes were handed over to the debtor to the estate for an antecedent debt due to him from the owners of the notes, they may be set off (d). Mere legal debts, without any beneficial interest in the creditor, may be set off under the general statutes of set-off, but not under the mutual credit clause. "The object of the mutual credit clause," says Parke, B., "is to do substantial justice between the parties, where a debt is really due from the bankrupt to the debtor to his estate" (e).

Nor can the trustees of a bankrupt deprive a man of a set-off once existing (ƒ).

We have seen that the former statutes of set-off only authorised a set-off of mutual debts; but the Bankrupt Acts

[blocks in formation]


have long authorised the set-off of mutual credits, as well as CHAPTER of a mutual debt. The former Act, 32 & 33 Vict. c. 71, s. 39, introduced a set-off, not only where there have been mutual debts and credits but mutual dealings, and this is preserved under the Act of 1883 (g).

It was decided in Rose v. Hart, that the term mutual credit is more comprehensive than the expression mutual debts.

In the first place, it has been held, that credit need not Mutual necessarily be of money. Therefore, where a trader, being credit need indebted to a packer on a note of hand, sent him certain not be of goods to pack, the trader having become bankrupt, Lord money. Hardwicke thought that the packer was entitled to set off against the price of the goods, not only the charge for packing, but the money due on the note (). This decision, however, goes further than any other, and was qualified very soon after by the same learned Judge (i). The law

is now taken to be, that, in order to set off goods, the property must have been deposited with an authority to turn it into money; in other words, the mutual credit must be such as was intended to terminate in a debt (k). Therefore, it has been held, that where, in consideration of the bankrupt's acceptance, défendant promised to indorse a bill to the bankrupt, such promise was not a subject of mutual credit (7). And the mutual credit must have actually existed between the barkrupt himself and the other party (m).

There may be mutual credit in bankruptcy, though one of the debts constituting it be not due; as if it be a bond, bill, or note payable at a future day (n).

(g) S. 38, see Booth v. Hutchinson, L. R., 15 Eq. 30; Mersey Steel and Iron Co. v. Naylor, 9 Q. B. D. 664. In mutual dealings, only those prior to the commencement of the bankruptcy can be considered unless the act of bankruptcy was secret, in which case the creditor's knowledge fixes the time. Cave, J., In re Gillespie, Ex parte Reid, 14 Q. B. D. 963; 54 L. J., Q. B. 342. Ante, p. 426. (h) Ex parte Deeze, 1 Atk. 228. (i) Ex parte Ockenden, 1 Atk.


(k) Glennie v. Edmunds, 4 Taunt. 775; Rose v. Hart, 8 Taunt. 499; 2 Moo. 547; 20 R. R.

533; 2 Smith's L. C., 10th ed. 288;
Easum v. Cato, 5 B. & Ald. 861;
1 Dowl. & R. 530; 24 R. R. 594 ;
Sampson v. Burton, 2 B. & B. 89;
Russell v. Bell, 8 M. & W. 277.
A mere liability is insufficient.
Abbott v. Hicks, 5 Bing. N. C.
578; Eberle, &c. Co. v. Jonas, 18
Q. B. D. 459; 56 L. J., Q. B. 278.

(1) Rose v. Sims, 1 B. & Ad.
521; but see Gibson v. Bell, 1
Bing. N. C. 743; 1 Scott, 712.

(m) Young v. Bank of Bengal, 1 Moore, P. C. 150. But as to this case, see Naoroji v. Chartered Bank of India, L. R., 3 C. P. 444.

(n) Er arte Prescott, 1 Atk.

The debts need not be


« PreviousContinue »