were handed *over to the debtor to the estate for an ante[*372] cedent debt due to him from the owners of the notes, they may be set off.(u) 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 Park, B., "is to do substantial justice between the parties, where a debt is really due from the bankrupt to the debtor to his estate."(v)

Nor can the former assignees or present trustees of the bankrupt deprive a man of a set-off once existing.(x)

We have seen that the former statutes of set-off only authorized a set-off of mutual debts; but the bankrupt acts have long authorized the set-off of mutual credits, as well as of a mutual debt. The recent 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.

It has been decided 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 necessarily be of money. Therefore, where a trader, being indebted to a packer on a note of hand, sent him certain goods to pack, the trader having become bankrupt, Lord 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.(y) This decision, however, goes further than any other, and was qualified very soon after by the same learned person.(2) 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.(a) Therefore it has been held that where, in consider

(u) Foster v. Wilson, 12 M. & W. 191.

(v) Ibid.

(x) Edmeads v. Newman, 1 B. & C. 418 (8 E. C. L. R.); Bolland v. Nash, 8 B. & C. 105 (15 E. C. L. R.).

(y) Ex parte Deeze, 1 Atk. 228.

(z) Ex parte Ockenden, 1 Atk. 235.

(a) Glennie v. Edmunds, 4 Taunt. 775; Rose v. Hart, 8 Taunt. 499 (4 E. C. L. R.); 2 Moo. 547, s. c.; Easum v. Cato, 5 B. & Al. 861 (7 E. C. L. R.); 1 Dowl. & R. 530; Sampson v. Burton, 2 B. & B. 89 (6 E. C. L. R.); Russell

ation of the bankrupt's acceptance, defendant promised to indorse a bill to the bankrupt, such promise was not a subject of *mutual credit. (b) And the mutual credit must have act- [*373] ally existed between the bankrupt himself and the other

party.(c)

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.(d)

An acceptance of the bankrupt's may be set off as an ingredient in mutual credit, notwithstanding that it was not due at the time of the bankruptcy, and was in the hands of an indorsee.(e)

And where a bill is indorsed, credit may be deemed to be given to the indorser as well as to the acceptor, and therefore if the indorser become bankrupt, the indorsement may be an ingredient in mutual credit.(ƒ) A bill accepted for the accommodation of the bankrupt is within the mutual credit clause, (g) and may, under that clause, be set off against a demand by the trustees in bankruptcy for money had and received to their use after the bankruptcy.(h)

v. Bell, 8 M. & W. 277. A mere liability is insufficient: Abbott v. Hicks, 5 Bing. N. C. 578 (35 E. C. L. R.).

(b) Rose v. Sims, 1 B. & Ad. 521 (20 E. C. L. R.); but see Gibson v. Bell, 1 Bing. N. C. 743 (27 E. C. L. R.); 1 Scott 712, s. c.

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

(d) Ex parte Prescott, 1 Atk. 230; Atkinson v. Elliott, 7 T. R. 378. But the mutual credit must have existed before the bankruptcy; thus a bill drawn by the debtor and accepted by the creditor after debtor had executed a deed of assignment, but before registry thereof, cannot be set off against debtor's previous acceptance, inasmuch as at the date of the deed there was no mutual credit: Ex parte Ryder, L. R., 6 Chan. Ap. 413; 40 L. J. 63; Selby v. Graves, L. R., 3 C. P. 594.

(e) Collins v. Jones, 10 B. & C. 777 (21 E. C. L. R.); Bolland v. Nash, 8 B. & C. 105 (15 E. C. L. R.); 2 Man. & R. 189, s. c.; Russell v. Bell, 8 M. & W. 277.

(ƒ) Alsager v. Currie, 12 M. & W. 755; and see Starey v. Burns, 7 East * 435; see Young v. Bank of Bengal, 1 Moore's Privy Council Cases 150.

(g) Smith v. Hodson, 4 T. R. 211; Ex parte Bayle, Cooke's Bkt. Law 542; Ex parte Wagstaff, 13 Ves. 65; Bittleston v. Timmis, 14 L. J., C. P. 117; 1 C. B. 389 (50 E. C. L. R.), s. c.

(h) Bittleston v. Timmis, and see Hume v. Muggleton, 3 M. & W. 30. The mistake in the marginal note of that case is corrected in Bittleston v. Timmis, ubi supra.

It is not necessary, to constitute mutual credit, that the parties both intended there should be mutual credit; it is sufficient though one take, by indorsement from a third party, the note or acceptance of another without his knowledge.(i)

*But where goods or bills are deposited with a direction

[*374] to turn them into money and apply the proceeds in a particular manner, if the party receiving the property is guilty of a breach of trust he cannot claim the benefit of a set-off under this section.(j)

When a man's private account at a bank was overdrawn, but there was a balance on a trust account which he kept there also under a different name, it was held that the banker who had notice of the trust could not set off the balance against the deficit.(k)

But mutual credit will not destroy a lien created by express contract. C. held M.'s acceptance for 247., and sent M. an article to be repaired by him. It was agreed that C. should pay M. the amount of the repairs in ready money. Before the repairs were completed M. became bankrupt. Held that C. could not, by virtue of his cross-demand on the acceptance, sue M.'s assignees in trover for the article before paying the amount of repairs.(7)

Set-off in bankruptcy may be either in an action at law or before the Court of Bankruptcy.

A set-off under the bankruptcy act is available in all actions, whether for debt or damages. No plea or notice was formerly necessary, though it was usual to plead or give notice as under the general statutes. But by Rule 8, T. T. 1853, re-enacting R. H., 4 Will. 4, mutual credit must be pleaded. Where the assignees or trustees affirm the bankrupt's dealings, they let in his set-off.(m) An assignment under the old insolvent debtors act had no rela

(i) Hankey v. Smith, 3 T. R. 507.

(j) Key v. Flint, 8 Taunt. 21 (4 E. C. L. R.) ; 1 Moo. 451, s. c.; Ex parte Flint, 1 Swanst. 30; Buchanan v. Findlay, 9 B. & C. 738 (17 E. C. L. R.); 4 M. & Ry. 593, s. c.

(k) In re Gross, L. R., 6 Ch. App. 632.

(7) Clarke v. Fell, 4 B. & Ad. 404 (24 E. C. L. R.); 1 Nev. & Man. 244,

S. C.

(m) Smith v. Hodson, 4 T. R. 211.

tion back to the commencement of the imprisonment, and therefore the assignees having declared on a sale by the insolvent, after the imprisonment, and before the assignment, not on a sale by themselves, were subject to the defendant's set-off against the insolvent.(n)

To an action for a debt due to the assignees in their official character, the defendant cannot plead a set-off due from the bankrupt before his bankruptcy.(0) But such a *set-off may be the subject of mutual credit. (p) A garnishee could not set off a debt due to him from the judgment creditor. (q)

[*375]

But where, there being no bankruptcy, a company in process of winding up held acceptances of S., not yet due, but S., the acceptor, held bills drawn and indorsed by the company, which bills, the drawees having refused acceptance, had therefore become a present debt due from the company to S., it was held on appeal that the official liquidator of the company had a right to negotiate the acceptances of S., because there was no mutual credit, the case not being within the provisions of the bankruptcy act.(r)

Thirdly, Set-off in equity.

The jurisdiction of courts of equity in set-off did not depend on the statute law; it existed before any act of Parliament on the subject; and has, since the statutes, been exercised in cases which they will not reach.(8)

Thus, where A. S. directed her bankers to invest a sum of money in the public funds, which they led her to believe they had done, when in fact they had not, A. S. afterwards joining her brother J. S. in a joint and several note to the bankers for money advanced by them to J. S., and the bankers failing, Lord Eldon directed the sum due to A. S. to be set off (t) against the demand in a suit by the assignees against J. S.

(n) Sims v. Simpson, 1 Bing. N. C. 306 (27 E. C. L. R.).

(0) Groom v. Mealey, 2 Bing. N. C. 138 (29 E. C. L. R.); 2 Scott 171, s. c.; Wood v. Smith, 4 M. & W. 522.

(p) See Bittleston v. Timmis, 14 L. J., C. P. 117; 1 C. B. 389 (50 E. C. L. R.).

(g) Sampson v. L. & S. W. Railway, L. R., 10 Q. B. 28.

(r) In re Commercial Bank of India, L. R., 1 Ch. App. 538. See In re Agra and Masterman, L. R., 3 Eq. 337.

(s) Story's Equity Jurisprudence, s. 1435.

(t) Ex parte Stevens, 11 Ves. 24; and see Ex parte Hansom, 12 Ves. 346.

Equity would not relieve a party who neglected to plead a set-off at law. (u) But if the set-off were a mere equitable demand, not available at law, equity would assist. (v)

A defendant in an action may now set off or set up by way of counter-claim any right or claim whether sounding in damages or not, and such set-off or counter-claim is to have the effect of a statement of claim in a cross-action. The cross-claim may, however, if inconvenient or not properly *allowable, be struck out on the application of the plaintiff, (w) before trial, to a court or

[*376]

judge.

The relief claimed by a defendant or the counter-claim made by him must be stated specifically, and when he relies upon any facts to support such set-off or counter-claim, he must, in his statement of defence, state specifically that he does so by way of set-off or counter-claim.(x)

Distinct grounds of set-off must be separately and distinctly stated,(y) and each allegation in a counter-claim is entitled to a specific answer. (2) Where a defendant raises a counter-claim against the plaintiff along with others, he must set forth in the title of his defence the names of all such persons, and must deliver his defence to such of them as are parties to the action, within the prescribed period. (a) Should the set-off or counter-claim be established for a greater amount than that claimed by the plaintiff, the defendant may have judgment in his favor for such balance.(b)

It will thus be seen that a defendant in an action may avail himself of any claim he may have against the plaintiff which would support a cross-action, and is not confined to claims against the

(u) Ex parte Ross, Buck. 127.

(v) Townrow v. Benson, 3 Mad. 203. An equitable set-off could be pleaded by way of equitable plea in an action at law. And see Cochrane v. Green, 9 C. B., N. S. 443 (99 E. C. L. R.); 30 L. J., C. P. 79, s. c.

(w) Ord. XIX. r. 3; Newell v. National Provincial Bank, L. R., 1 C. P. D. 496, where a debt accruing after the death of the intestate was not allowed to be set off against a claim due to him in his lifetime; 23 & 24 Vict. c. 38, s. 14.

(x) Ord. XIX. rr. 8 & 10.

(y) Ibid. r. 9.

(z) Ibid. rr. 20 & 21.

(a) Ord. XXII. r. 5. Eight days, unless extended under Ord. LVII. r. 6. (b) Rule 10.