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between them, and one debt or demand may be set against another, notwithstanding any prior act of bankruptcy committed by such bankrupt before the credit given to, or the debt contracted by, him; and what shall appear due on either side on the balance of such account, and no more, shall be claimed or paid on either side respectively; and every debt or demand hereby made proveable against the estate of the bankrupt may also be set off in manner aforesaid against such estate; provided that the person claiming the benefit of such set-off had not, when such credit was given, notice of an act of bankruptcy by such bankrupt committed."

Notice of having stopped payment is not sufficient to exclude a party from the benefit of this clause (d); it must be notice of an act of bankruptcy. Thus in an action brought by the assignees of bankers, it was held, that the defendant might set-off notes of such bankers taken by him after he knew that they had stopped payment, but before he knew that any of the partners constituting the banking-house had committed an act of bankruptcy. The defendant, however, cannot set-off notes of such bankers taken by him after he knew that three of the four partners had committed acts of bankruptcy (e).

It is well settled that the provision with respect to mutual credit is confined to debts between the bankrupt and other parties, or to transactions in their nature likely to result in debts (f). Thus, a mere claim for unliquidated damages, as for breach of an agreement to indemnify (g), or to indorse a bill of exchange (h), does not constitute a subject of mutual credit. But the defendant may set off a debt due to him from the bankrupt for money lent, against a claim by the bankrupt's assignees on defendant for not accepting, pursuant to agreement, a bill of exchange by way of part payment for goods sold and delivered by the bankrupt to the defendant; for the demand is a mere pecuniary demand which the court might have stated in account between the defendant and the bankrupt, the undertaking of the acceptor being an original contract, that of the indorser a contract of suretyship only (i). So where the defendant lent his acceptance to the bankrupt on a bill which did not become due till after the act of bankruptcy, and was then outstanding in the hands of third persons, and the defendant paid the amount after the commission issued, and before action brought by the assignees, he was held to be entitled

(d) Hawkins v. Whitten, 10 B. & C. 217 (e) Dixon v. Cass, 1 B. & Ad. 343. (f) Rose v. Hart, 8 Taunt. 499; 2 Sm. L. C. 232, S. C.; Russell v. Bell, 8 M. & W. 277.

(g) Bell v. Carey, 8 C. B. 887; Abbott v. Hicks, 5 B. N. C. 578.

(h) Rose v. Sims, 1 B. & Ad. 521, cited by Patteson, J., in Groom v. West, 8 A. & E. 772.

(i) Gibson v. Bell, 1 B. N. C. 743, recognizing the principle in Sampson v. Burton, 2 B. & B. 94. See Groom v. West, sup.

to set off the amount as a "mutual credit" (k), and an accommodation indorsement may also be set off under the same circumstances (1); though, as has been seen, an agreement to indorse could not.

In order to come within this clause, the mutual credit must exist at the time of the bankruptcy (m); although, as will be seen, the debt set off may not actually fall due till afterwards. Thus, a bill which forms an item of credit on one side, need not be in the hands of the person claiming it, as an item of credit, at the time of the bankruptcy (n). The term mutual credit is not confined to pecuniary demands, liquidated at the time, but extends to cases where the creditor has been entrusted with that which may become productive of value. J. S. being desirous of making a shipment for his own risk or advantage, but not in his own name, represented to the merchants, through whom the shipment was to be made, that the goods were the property of A., and shipped on his account; and A. accordingly, by the desire of J. S., wrote to those merchants, stating the property to be so, and directing them to insure and to advance money to J. S. on the goods, which was done. It was held, that this was a credit given to A. by J. S. by the delivery of the goods, in its nature likely to terminate in a debt, and that therefore J. S. having subsequently become bankrupt, A. was entitled to recover the proceeds of the shipment from the merchants, and to set it off against a debt due from the bankrupt to him in respect of the advances, it being a case of mutual credit within the statute (o). A. and Co. being bankers, discounted bills of exchange for B., and gave him immediate credit for them in his account, minus the discount. Afterwards, and whilst the bills were yet running, a balance was struck, upon which the bankers admitted money to be due to B., giving him credit for the bills then running. Shortly afterwards B. became a bankrupt, and the bills were dishonoured. It was held, in an action against the bankers for the admitted balance, that they were entitled to set off the amount of the dishonoured bills, on the ground of its being a mutual credit within the foregoing clause (p). But where B., being indebted to defendant previously to his bankruptcy, deposited a bill of exchange with the defendant, not for the satisfaction of the debt, but for the purpose of raising money thereon, and an advance was accordingly made; after the bankruptcy, the assignees tendered to the defendant the amount of

(k) Smith v. Hodgson, 4 T. R. 211; Russell v. Bell, 8 M. & W. 277; Exp. Wagstaff, 13 Ves. 65; Bittleston v. Timmis, 1 C. B. 389; Exp. Boyle, Cook's B. L. 571 (8th ed.). See ante, p. 324n.

(1) Hulme v. Mugglestone, 3 M. & W. 30; Alsager v. Currie, 12 M. & W. 751. (m) Boyd v. Mangles, 16 M. & W. 337.

(n) Bolland v. Nash, 8 B. & C. 105 Collins v. Jones, 10 B. & C. 777.

(0) Easum v. Cato, 5 B. & Ald. 861. But see Young v. The Bank of Bengal, 1 Moore, P. C. C. 150; 1 Deac. 622, S. C.; and Alsager v. Currie, 12 M. & W. 751. (p) Arbouin v. Tritton, 1 Holt. 408.

the money advanced, and demanded possession of the bill, which being refused, the assignees brought trover for the bill; and it was held, that they were entitled to recover, this not being a case of mutual credit within the statute, the bill having been deposited for a specific purpose without reference to the general account (q). "Mutual credit must mean mutual trust; this attempt of the defendant appears to me a gross breach of trust." Per Dallas, J., 8 Taunt. 23.

An insurance broker who is indebted to the estate of a bankrupt underwriter for premiums, cannot, without a special authority, set off, against that debt, sums due from the underwriter for return of premiums (r). Where defendants, insurance brokers, effected several policies, some in the name of their own firm, others in the name of their own firm but on account of their principals, and others in the name and on account of their principals, for which principals they acted under a del credere commission, without the knowledge of the underwriters: it was held, that in an action brought against them for premiums by the assignees of one of the underwriters upon these policies, who had become bankrupt, the defendants might set off losses and returns due on all such of those policies as were effected in the names of their own firm, but not on such as were effected in the names of their principals, such losses and returns having become due on those policies before the time when the bankrupt stopped payment, though they had never been adjusted by the bankrupt, but only by the other underwriters between the time of his stopping payment and committing the act of bankruptcy, on which adjustment the defendants had given their principals credit for the amount (s). And the principle is the same, whether the broker act under a del credere commission or not, if the policy be effected in the name of the broker, and he has a lien on the goods insured (t). The debt to be set off under the statute must be a real bona fide debt due to the defendant, and not a mere colour and contrivance (u).

The object of this clause is not to avoid cross actions,-for none would lie against assignees, and one against the bankrupt would be unavailing ;-but to do substantial justice between the parties, where a debt is really due from the bankrupt to the debtor to his estate and the Court of King's Bench, in construing the corresponding clause of 6 Geo. IV. c. 16, held, that it did not authorise a set-off, where the debt, though legally due from the bankrupt,

(q) Key v. Flint, 8 Taunt. 21; 1 J. B. Moore, 451, S. C.

(r) Minett v. Forrester, 4 Taunt. 541, n.; Goldschmidt v. Lyon, 4 Taunt. 534; Parker v. Smith, 16 East, 382; Houston v. Robertson, Holt, 88, S. P.

(8) Koster v. Eason, 2 M. & S. 112. See Thomson v. Redman, 11 M. & W. 487;

Lee v. Bullen, 8 E. & B. 692, in notis.

(t) Parker v. Beasley, 2 M. & S. 423; Davis v. Wilkinson, 4 Bingh. 573; Beckwith v. Bullen, 8 E. & B. 682.

(u) Lackington v. Combes, 6 B. N. C. 71, recognising Fair v. M'Iver, 16 East, 130.

was really due from him as a trustee for another, and though recoverable in a cross action, would not have been recovered for his benefit. "This appears to have been the main ground of the decision in the case of Fair v. M'Iver (x), and we think that the principle of that decision was correct" (y). But the debts and credits sought to be set off must be in the same right; therefore in an action for money received by the defendant to the use of the assignees, the defendant cannot set off a sum due from the bankrupt on an account stated before the bankruptcy (≈).

This section cannot be taken advantage of in actions of contract unless it is specially pleaded (a).

XV. Of the Evidence (b).

Formerly, in actions brought by the assignees, it was incumbent on them to prove, in all cases: 1. That the bankrupt was a trader. 2. The act of bankruptcy. 3. That the commission was regularly granted. 4. The assignment to the plaintiffs. 5. A right of action in the assignees. But now the third and fourth of these heads, in all cases, and the first in case of non-traders, is no longer applicable. By 12 & 13 Vict. c. 106, s. 234 (c), it is enacted, "that in any action (d), other than an action brought by the assignees for any debt or demand for which the bankrupt might have sustained an action had he not been adjudged bankrupt, and whether at the suit of or against the assignees, or against any person acting under the warrant of the court, for anything done under such warrant, no proof shall be required, at the trial, of the petitioning creditor's debt, or of the trading, or act of bankruptcy

(x) 16 East, 130.

(y) Per Parke, B., delivering judgment in Forster v. Wilson, 12 M. & W. 191, 203. See Boyd v. Mangles, 16 M. & W. 337.

(z) Groom v. Mealey, 2 B. N. C. 138; Wood v. Smith, 4 M. & W. 522; Yates v. Sherrington, 11 M. & W. 42. See also Graham v. Alsop, Exch. 186, where it was held that an undertenant of the bankrupt was not entitled in an action by the assignees for rent due before the bankruptcy, but brought after they had elected not to take the bankrupt's term, to set off a payment of ground rent made since the bankruptcy in order to save the undertenant's goods from a distress. On this subject, see further Exp. Hope, 3 De G. & J. 92.

(a) R. G. H. T. 1853, r. 8. See Kynaston v. Crouch, 14 M. & W. 266; and for form of pleading, see Russell v. Bell,

8 M. & W. 277. In Hewison v. Guthrie, 2 B. N. C. 755, it was held that this applied in trover, but this is virtually overruled by Young v. Cooper, 6 Exch. 259.

(b) As to evidence in actions against the bankrupt, see ante, p. 3248. As to the proof of bankruptcy proceedings before 1849, see 2 & 3 Will. IV. c. 114, and s. 236 of the 12 & 13 Vict. c. 106. As to proof of declaration of insolvency under the last-mentioned act, see s. 238 of that act, and 15 & 16 Vict. c. 77, s. 6; of petitions and other proceedings in the Insolvent Debtors' Court in England, or in any court of bankruptcy or insolvency in any of her Majesty's dominions, colonies, &c., 24 & 25 Vict. c. 134, s. 206.

(c) See 6 Geo. IV. c. 16, s. 90, and 49 Geo. III. c. 121, s. 10, now repealed.

(d) This section applies to actions of ejectment. Doe v. Liversedge, 11 M. & W. 517.

respectively, unless the other party in such action shall, if defendant, at or before pleading, and if plaintiff, before issue joined, give notice in writing to such assignees, or other person, that he intends to dispute some and which of such matters; and in case such notice shall have been given, if such assignees, &c. (e) shall prove the matter so disputed, or the other party admit the same, the judge before whom the cause shall be tried (ƒ) may (if he think fit) grant a certificate of such proof or admission; and such assignees, &c., shall be entitled to the costs occasioned by such notice; and such costs shall, if such assignees, &c., shall obtain a verdict, be added to the costs, and if the other party shall obtain a verdict, shall be deducted from the costs, which such other party would be otherwise entitled to receive from such assignees or other persons."

The notice to dispute must be specific, as to which of the three matters, trading, petitioning creditor's debt, or act of bankruptcy, it is intended to dispute; notice to dispute the bankruptcy will not suffice (g). Assumpsit by assignees of bankrupt against a sheriff' to recover the proceeds of goods seized under a fi. fa.; the defendant did not give any notice to dispute; the plaintiff's proved that an act of bankruptcy was committed before the levy; and the defendant did not prove any other act of bankruptcy: it was held, that the plaintiff's were not bound to prove that a petitioning creditor's debt existed at the time of the act of bankruptcy on which they relied (h). In assumpsit by assignees for money had and received to their use after the bankruptcy, the defendant pleaded non assumpsit, and that the plaintiffs were not assignees, and gave notice to dispute the act of bankruptcy, upon which the party was declared a bankrupt. The plaintiff's proved the act of bankruptcy and the fiat; it was held, that in the absence of proof of any other act of bankruptcy, the defendant by giving notice to dispute the act of bankruptcy only, must be taken to have admitted a trading and a petitioning creditor's debt, co-existent with the act of bankruptcy proved (i). So where the defendant gave notice to dispute the trading and act of bankruptcy, but no notice to dispute the petitioning creditor's debt, the court agreed, "that, where the statute says no evidence shall be required, it means that no evidence on the point shall be admitted on either side; and that the defendant in this case, not having given notice, could not be allowed to give evidence, or to contend on any evidence given,

(e) As to service of the notice, see Howard v. Ramsbottom, 3 Taunt. 526; Folks v. Scudder, 3 C. & P. 232.

(f) Where a cause is referred, the judge before whom the cause is opened cannot certify. Barthrop v. Anderton, 8 Bingh. 268.

(g) Trimley v. Unwin, 6 B. & C. 597.

(h) Per Lord Tenterden, C. J., and Parke, J., con. per Bayley, J., and Littledale, J., Norman v. Booth, 10 B. & C. 703; Littledale, J., seems since this case to have altered his opinion, per Coltman, J., in Porter v. Walker, 1 M. & G. 694.

(i) Porter v. Walker, 1 M. & G. 686.

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