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or, at any rate, that the bank were entitled to apply the money received on the guaranties against such part of their debt as might be held not proveable, and that the amount so received under the guaranties ought not to be deducted from the sum which they might be entitled to prove.

Mr. Wigram, and Mr. Bacon, in support of the petition. The right of proof in this case depends upon the question, whether the petitioners had notice of the act of bankruptcy on which the fiat issued; it is immaterial, whether they had notice of any prior act of bankruptcy. And this question will turn upon the construction of the 47th section of the 6 Geo. 4. c. 16., by which it is declared, that every person, with whom any bankrupt shall have really and bona fide contracted any debt or demand before the issuing of the commission, shall, notwithstanding any prior act of bankruptcy committed by such bankrupt, be admitted to prove the same, and be a creditor under such commission, as if no such act of bankruptcy had been committed, provided such person had not, at the time the same was committed, notice of

any act of bankruptcy by such bankrupt committed. Now, in Ex parte Bowness (a) it was decided, that the statute of 46 Geo. 3. c. 135. s. 2., which is in pari materiá with the 47th section of the 6 Geo. 4. c. 16., did not restrain a creditor from proving under a commission of bankrupt a debt contracted before the act of bankruptcy on which the commission issued, though after notice of a prior act of bankruptcy. So, in Ex parte Birkett (6), it was held that the relation to the act of bankruptcy could not be

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carried back beyond the debt upon which the commission had proceeded.

There is also another point in this case, namely, whether the payments made by the petitioners on the bankrupt's cheques to various creditors of the bankrupt, after the date of the bill of sale, were bona fide payments made on behalf of the bankrupt, within the meaning of the 82nd section of the 6 Geo. 4. c. 16. By that section it is enacted, that all payments really and bonâ fide made by any bankrupt, or by any person on his behalf, before the date and issuing of the commission, to any creditor of the bankrupt, (such payment not being a fraudulent preference of such creditor,) shall be deemed valid, notwithstanding any prior act of bankruptcy, and such creditor shall not be liable to refund the same to the assig. nees, provided the person so dealing with the bankrupt had not, at the time of such payment, notice of any act of bankruptcy committed by the bankrupt. As the payments made, therefore, by the banking company to the several creditors of the bankrupt, were made bona fide, the petitioners contend that they ought to stand in the place of those creditors, and have a right to prove such payments under the fiat.

If, however, the Court should determine that any portion of the debt of the petitioners is not proveable, then they submit that they have a right to appropriate the payments made under the guarantie towards the reduction of that portion of the debt, and that they are not to go in reduction of the proveable portion of their debt. The rule is, as to appropriation, that when a payment is made to a creditor generally, without specifying to which part of the debt the payment is to be applied, the creditor has a right to appropriate it to such part of the debt

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as he may think proper. This rule is clearly laid down
by the Vice-Chancellor of England in Brudly v. Heath(a),
in the following terms :-“Where a party makes a pay-
ment, and gives a direction with respect to its applica-
tion, the payment must be applied in the manner in
which he directs. But if he does not give any direction,
solvitur ad modum recipientis.” Thus in Ex parte
Haward (6), it was determined, that where a security is
deposited generally,—if the creditor has two demands, the
one proveable under the commission, and the other not,
he may apply his security, in the first place, to reduce
that demand which is not proveable. So in Ex parte
Hunter (c), where a creditor had a demand against a
bankrupt, consisting partly of unliquidated damages, and
partly liquidated, it was held, that he might apply a se-
curity which he held, first to the former, and then to the
latter, and that he might prove for the residue. The
whole law, as to the application of indefinite payments,
is considered by Sir William Grant in Clayton's case (d),
where he says, that the rules were probably borrowed
in the first instance from the civil law; but he admits,
that the rule of the civil law, which gave the first option
to the debtor of applying a payment, and the second to
the creditor, to be expressed at the time of payment, has
been extended by many cases, so as, in general, to autho-
rize the creditor to make his election when he thinks fit,
instead of confining it to the period of payment.

V. C. Knight Bruce, C. J.-My impression is, that I must dismiss this petition, as to that part of it praying to prove for the amount of the payments made

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by the petitioner to the bankrupt's creditors, on cheques drawn by the bankrupt on the petitioners. It is admitted, that two acts of bankruptcy have been committed by the bankrupt, the first of which was the bill of sale of the 28th December 1841, whereby the bankrupt assigned the whole of his property to the petitioners; and that the cheques in question were paid by the petitioners, after the execution of this bill of sale. I must hold, therefore, that whatever was done by the petitioners after the 28th December, was done with notice of an act of bankruptcy, and that the payments subsequently made by the petitioners cannot be proved under the fiat. But I will hear the counsel for the respondents, as to the question of appropriation.

Mr. Swanston, and Mr. Paton, for the assignees. As to the first point, the case of Hankey v. Vernon (a) is decisive. It was there held, that, where bankers receive and pay money on account of a bankrupt, after notice of an act of bankruptcy, all the sums received are received to the use of the estate, and they cannot set off the payments made, or be allowed to come in as creditors and to claim dividends on debts paid which were owing before the act of bankruptcy. There is no evidence of any appropriation by the petitioners of the money paid by the guarantors, to any particular portion of the debt due to the petitioners from the bankrupt. In the absence of such evidence, the rule of law appropriates it to the discharge of the earliest portion of the debt, or to that part of it in which it would be most for the interest of the party making the payment, that it should be appropriated. In Smith v. Wigley (6) it was decided, that, if

(a) 3 Brown, 13.

(6) 3 Moo. & Sc, 175.

1844.

Ex parte
SHARP.

the creditor does not make any appropriation at the time the payment is made, it must be applied to the discharge of the earliest debt. The cases cited by the other side were all decided on the ground of acts done at the time of payment, either by the party paying, or the party receiving. Whatever option a creditor has of applying a payment to any portion of his debt, it must be exercised at the time of payment, and cannot be exercised by him at a subsequent period; Bodenham v. Purchus (a). In that case, a bond was given to the several persons constituting the firm of a banking-house, conditioned for the repayment of the balance of an account, and of such further sums as the bankers might advance to the obligor; one of the partners died, and a new partner was taken into the firm, when a considerable balance was due from the obligor to the firm ; advances were afterwards made by the bankers, and payments made to them on account by the obligor, who was credited by the new firm with the several payments, and charged with the original debt and subsequent advances, as constituting items in one entire account; the balance due at the time of the partner's death was thus considerably reduced, and that reduced balance, by order of the obligor, was transferred by the bankers to the account of another customer, who, with his assent, was charged with the then debt of the obligor; the person so charged having become insolvent, the surviving partners of the original firm brought their action upon the bond ; and it was held, that, as they had not originally treated the balance due on the bond as a distinct account, but had blended it in the general account with other transactions, they were not at liberty so to treat it at a subsequent period; and that, having

(a) 2 B. & Ald. 39.

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