A holder has, subject to the power of the court to restrain legal proceedings, an election to proceed by proof under the bankruptcy, or by action, but cannot do both; yet he may proceed against some parties to the bill of action, and against others by proof under the bankruptcy; and against the same party he may prove for one debt, and bring his action for another. "It is clear," observes the Court of Common Pleas, "that a creditor has a right to sue for, or to prove, each individual debt as may best suit his purpose."(t) *But this defence to an action cannot be raised by plea.(u) The holder may, however, by motion be put to his election, either to stay the action or relinquish his proof.

[*449]

The principal difficulties as to proof in respect of bills of exchange arise where there has been mutual accommodation between the bankrupt and other parties.

Mutual accommodation may be either with a specific exchange of securities or without a specific exchange of securities.

Mutual accommodation with specific exchange is where the acceptance of A. is exchanged for the acceptance of B. to the same amount. In this case each party is bound to pay his own acceptance, and, in paying it, is not considered as surety for another. Plaintiff and defendant each drew a bill on the other for the same amount, and each accepted the bill drawn on him without further consideration. Before the bills became due defendant became bankrupt, having indorsed the bill accepted by the plaintiff to a creditor. The creditor proved the bill under the commission, and then the plaintiff paid the creditor the residue. The plaintiff now sued the defendant on

(t) Bridget v. Mills, 4 Bing. 18 (13 E. C. L. R.); 12 Moo. 92, s. c.; Ex parte Grosvenor, 14 Ves. 588; Ex parte Glover, 1 G. & J. 270; Watson v. Medex, 1 B. & Ald. 121; Harley v. Greenwood, 5 B. & Ald. 95 (7 E. C. L. R.); 2 D. & R. 337, s. c.; Mead v. Braham, 3 M. & Sel. 91; Ex parte Lobbon, 17 Ves. 334; 1 Rose 219, s. c.; Adames v. Bridger, 8 Bing. 314 (21. E. C. L. R.); 1 Moore & S. 438, s. c.; Ex parte Edward, 1 Mont. & Mac. 116; 6 Geo. 4, c. 16, s. 59; 12 & 13 Vict. c. 106, s. 128. This defence, however, cannot be made by plea: Spencer v. Demmett, L. R., 1 Ex. 123. The power of the court to restrain under s. 13 and R. G. 134, 260, and 289, is not taken away by the new act: Ex parte Ditton, L. R., 1 Chan. D. 557. This power extends to cases both of liquidation and composition. Proceedings under a debtor's summons are not usually restrained before an adjudication. (u) Spencer v. Demmett, Law Rep., 1 Ex. 123.

the bill accepted by the defendant. But the Court of Common Pleas were clearly of opinion that the two bills were mutual engagements, constituting on each side a debt, the one being a consideration for the other. That the bill accepted by the defendant and on which the plaintiff sued created an absolute debt from the beginning which was capable of being proved under the commission, and, being so provable, was necessarily barred by the certificate.(v) Three years after, two of the judges of the Court of King's Bench held the same doctrine. The Peters and the Dunlops had specially exchanged acceptances to the amount of 3000l. Both parties became bankrupt. The Peters and their estate had paid money on their own acceptances and also on the Dunlops' acceptances. Both parties had obtained their certificates. The action was brought by the assignees of the Peters for money paid against the certificated bankrupts. It was held by Lawrence and Grose, jus[*450] tices,-First, that for payments on account of the Peters' own acceptances, the Peters' assignees had no remedy, for that the Peters were bound to pay those acceptances; and secondly, that they could not recover for money paid on the Dunlops' acceptances for two reasons: because the action should have been brought on the bills and not on any implied promise, there being an express one; and also because the Dunlops' acceptances were provable under the Dunlops' commission, and therefore were barred by the certificate.(w) About four years afterwards, the doctrine of Mr. J. Grose and Mr. J. Lawrence was adopted by the whole Court of King's Bench. Plaintiff and defendants had made specific exchange of bills. Of some of the bills given by defendants to plaintiff, defendants were drawers, of others indorsers. The bills given by defendants to plaintiff were all dishonored. Defendants became bankrupt. Before their bankruptcy, plaintiff paid money on his own acceptances, for which he had proved under the commission. After the bankruptcy, he paid the residue of the money due on his own acceptances, amounting to 491. 158. 2d. This action was brought to recover that sum as money paid. It was held that plaintiff did not pay his own acceptance as surety; that he had, therefore, no remedy to recover such payments, but that his remedy

(v) Rolfe v. Caslon, 2 H. Bl. 570, anno 1795.

(w) Cowley v. Dunlop, 7 T. R. 565, anno 1798, Lords Kenyon and Ashhurst, justices, dissentientibus.

would have been on the cross-bills had they not been barred by the certificate.(x)

It is not essential, in order to constitute a specific exchange of securities, that the acceptances given in exchange should be the acceptances of the party giving them, nor that the amounts or dates should be exactly the same.(y)

Formerly, a party to a specific exchange of paper was allowed to prove the bankrupt's paper without having paid his own, the dividends being retained until he had paid his own paper;(2) but now he must, before he can prove, take up his own bills or exonerate the bankrupt's estate from the original debt.

Mutual accommodation without specific exchange will not create a debt from the acceptor to the drawer. But the *acceptor is to be considered as a surety, and may recover what he [*451]

pays as money paid to the drawer's use.

If a holder of a bill has proved against the estate of the person for whose accommodation the bill was accepted, there can be no further proof by any one to whom the bill is returned, nor by the accommodation acceptor when he pays it.(a)

The mode of adjusting the accounts between two estates where there had been mutual accommodation paper, a cash balance, and a mutual bankruptcy, has much embarrassed the courts. Various accommodation transactions had for many years taken place between Caldwell & Co. and the Brownes. The former were the bankers of the latter. A commission of bankruptcy issued against Caldwell & Co. in March, 1793, and in the same month the Brownes became bankrupt. An account was then taken of the mutual debts and credits. That account consisted, first, of a cash account, which in

(x) Buckler v. Buttivant, 3 East 73, anno 1802. (y) Ibid.

(z) Ex parte Beaufoy, Cooke's Bank. L. 180; Ex parte Lord Clanricarde, Ibid. 182; In re Bowness and Padmore, Ibid. 183; Ex parte Bloxham, 8 Ves. 531; Sarratt v. Austin, 4 Taunt. 200; 2 Rose 112, s. c. See Ex parte Solarte, 2 D. & C. 261.

(a) Ex parte Read, 1 G. & J. 224; Ex parte Oriental Bank, L. R., 7 Ch. Ap. 99; 41 L. J. 217.

cluded good bills as well as payments in cash; and, secondly, of a bill account, which related exclusively to bills which had been passed by one house to the other, and which were all ultimately dishonored. The result was that on the cash account the Brownes were indebted to Caldwell & Co. in the sum of 40,7167., and that on the bill account Caldwell & Co. had received from the Brownes bad bills to the amount of 305,1497. 198. 10d., and the Brownes had received from Caldwell & Co. bad bills to the amount of 204,9107. 58. Of the bad bills received from Caldwell & Co. the Brownes had negotiated bills to the amount of 196,589l. 68. 4d., and of those received from the Brownes, Caldwell & Co. had negotiated bills to the amount of 126,8557. 11s. 10d., having retained the residue, viz.: 178,2947. 88., at the request of the Brownes. All the bills received by the Brownes were discountable, and upon most of them they had received the full value, and Caldwell & Co. had no consideration for them but the bad bills received from the Brownes. All the bills (or nearly so) which the Brownes had negotiated were proved against the estate of Caldwell & Co., and by far the greater part against the estate of the Brownes also; but to a large amount, viz., 30,000l., the Brownes had deposited bills as a security for payment of a much smaller sum, so that the proof against them in respect of those bills was only for the sum really *due, whereas against Caldwell & Co. the proof was for the

remained in their

But Lord Loughthe creditors of

[*452] whole sum payable on the bills; and the consequence of this, and of the unequal negotiation of each other's bills, was that a much larger sum was proved against Caldwell & Co. in respect of bills negotiated by the Brownes, than against the latter in respect of bills negotiated by the former. Caldwell & Co., on petition, claimed the right to prove the bills which still hands, in order to be reimbursed the difference. borough, C., said, "Till Caldwell & Co. pay all Browne, who are likewise creditors of theirs, 20s. in the pound, they would be, by proving, sharing with the creditors of Browne, who are likewise creditors of theirs. If I allow this petition I must do two things that are quite impossible. I must hold that the bankruptcy creates a debt which did not exist antecedently, and I must hold that the same debt may be proved twice." The proof was confined to the balance of the cash account only.(b) Where a petition was presented by the assignees of a bankrupt, the object

(b) Ex parte Walker, 4 Ves. 373.

of which was to prove, not only for the cash balance between the two bankrupts' estates, but also in respect of the dishonored bills, upon an issue of cross paper dishonored on both sides, part of which having been negotiated, was proved by the holders against both estates, Lord Ellenborough, C., said, "Upon consideration of the case Ex parte Walker, it struck me that there were but two ways of taking it as between the two estates: either to consider all the bills as struck out of the case entirely, as issued for a bad purpose, like gambling transactions, etc., upon which there could be no proof, or to consider them all as good bills. I do not see that there is a middle course.' The order was pronounced that the petitioners should be at liberty to prove the cash balance only. (c) In the case of Ex parte Rawson, (d) Lord Eldon said, "I think that I argued the case of Ex parte Walker, and I must say that the speculations about paper certainly outran the grasp of the wits of the courts of justice. This sort of circulating medium puzzled as able a man as ever sat here, Lord Thurlow. I remember the first case of it. It was then small in amount, one bill and another. He then considered the acceptance of the one as a consideration for the other, and allowed both to prove, but then there was this difficulty, that it lessened the fund for paying the holder of the bill, and thus, by proving, they prejudiced their own creditors. *It was found this would not do: and then it was said, 'if [*453] you will prove, you must first take up your acceptance,' which got rid of the objection of the party proving in competition with his own creditor. Then came those houses at Liverpool and Manchester, drawing on one another to the amount of 50,0002. What was to be done then? The court was puzzled and distressed. At last, however, we came to a sort of anchorage in that case, Ex parte Walker; I have no difficulty in saying that I never understood it. I am satisfied that though no doubt the court understood that judgment, yet none of the counsel did. The decision was this: that where there are cross-bills drawn for accommodation, they are all to be thrown out of the account on both sides, and it is to be taken as if it were a cash balance only. If this were upon the principle that applies to one or two bills, that they are not to be proved by one estate against the other till all the creditors of both are paid, I could understand it. If there be 10007. of acceptances

(c) Ex parte Earle, 5 Ves. 833.

(d) 1 Jacob 274.