1. The nature of off. where Lord Cork gave the bankrupt his accommoda- 5. Mutual credit. tion notes, upon a written undertaking to indemnify, the debt to be set 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'. So 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 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 set-off. 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 3. 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 Metcalfe s 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 Ex parte Boyle, 1 Cooke, 561. 2 Smith v. Hodgson, 4 T. R. 211.; but see Thomason v. Frere, 10 East. 418.-Cooke, 557. 3 Vernon v. Hankey, 2 T. R. 113. Hankey v. Smith, 3 T. R. 507. * 11 Ves. jun. 404.-Madden v. Kempster, 1 Campb. 12. S. P. 1. The nature of the debt to be set off. 5. Mutual credit. bills from A. to B. some of which were dishonoured. Where A. before his bankruptcy, discounted certain bills with B. and Co. 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 whilst the bills were yet running, in favour of A., when the bankers admitted that they had in their hands £934: Ss.: 8d. due to A., giving him credit for the bills then running, and A. became a bankrupt, and the bills were dishonored, it was held that in an action against the bankers for the balance admitted to be due to A. before his bankruptcy, they have a right to set off against such claim the amount of the dishonoured bills, it being a case of mutual credit1. 2. In what right due. II. To constitute mutuality of debts or of credits, it is in general necessary, that the sum claimed was due to the bankrupt, and is due to 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 off3, and a debt due to a party as trustee for another person, cannot be set off*. The right of set off in this respect appears to be governed by the same rules as prevail at common laws. In the case Ex parte Twogood, under 'Arbouin v. Tritton, 1 Holt, Ca. Ni. Pri. 408. 2 Ex parte Twogood, 11 Ves. jun. 519.-Ex parte Stevens, 11 Ves. jun. 27.-1 Mont. 552.-1 Chitty on Pleading, 3d edit. 554, 5. 3 Staniforth v. Fellows. 1 Marsh. 184. 4 Fair v. M'lver, 16 East. 130. 6 Tidd's Prac. 4th edit. 598, 9. and see the set-off of one judgment against another, id. 895, 6. and see 1 Chitty, 3d edit. 554. 558 to 560. 11 Ves. jun. 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 concurrence of the partners, against a separate demand, 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 demand 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 2. In what right separate commissions of bankruptcy, relief in the nature 5. Mutual credit. of set-off against a separate creditor of the bankrupt, dae. indebted to the partnership to a greater amount was refused, and Lord Eldon, after pointing out the inconveniencies 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 do it. 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 banking house; 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. 'Puller v. Roe, Peake, 197. 5. Mutual credit. 3. The time when or credits arose. III. Consistently with the rule by which no credi the mutual debts tor, whose debt did not accrue before the bankruptcy, can prove under a commission, and also upon the express words of 5 Geo. 2. c. 30. s. 28. and the 46 Geo. 3. c. 135. s. 3. relative to mutual debts and credits, no debt or credit can be set against another by way of setoff, unless both respectively accrued 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 setoff 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-off 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 Tamplin . Diggings, 2 Campb. 313.-Cullen, 197.-1 Holt, C. N. P. 411. in notes.-Oughterlony v. Easterby, 4 Taunt. 888. 2 Tamplin v. Diggings, 2 Camph. 312. 3 Oughterlony v. Easterby, 4 Taunt. 888. 4 Cullen, 199. 5 Ex parte Prescott,. 1 Atk. 231.-Smith v. Hodson, 4 T. R. 211. Atkinson v. Elliot, 7 T. R. 371.. 3. The time when the mutual debts or credits arose. by way of indemnity, may be set off'. And a person 5. Mutual credit. 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 off3. 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 shew 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 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 hands 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 produced. Though, 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 Stat. 7 Geo. 1. c. 31., that is very different from the operation of a set-off; for, by the former, no new charge at least is brought upon the estate, which it would not 1 Dobson v. Lockart, 5 T. R. 133. 2 Ex parte Boyle, Cooke, 561.—1 Mont. 541. 3 Hawkins v. Penfold, 2 Ves. jun. 550.-Vernon v. Hankey, 2 T. R. 113.-1 Mont. 540. · + March v. Chambers, Bull. N. P. 180.-2 Stra. 1234.-Dickson Evans, 6 T. R. 57.-Cooke, 552. 5 Dickson v. Evans, 6 T. R. 57. • Moore v. Wright, 6 Taunt. 517.-2 Marsh. 209. S. C. |