firms and companies, consequences of considerable importance, which we shall have to examine somewhat in detail. When so applied, the doctrine in question is known as 'the rule in Clayton's case, that having been the first instance of its application to partnership questions. Clayton's case (a) was that of a banking company consisting of Rule in Clayton's case. five partners. One of them, Devaynes, died; and the business was carried on by the surviving partners until they became bankrupt. Clayton, a customer, had an open account with the concern, which was current both during the lifetime of Devaynes and after his death. At Devaynes' death the company were due Clayton a balance of £1713. Subsequently the company both received and paid out monies on Clayton's behalf; and the account current between them was treated not as two separate accounts, one ending on Devaynes' death, and the other beginning from that time, but as being throughout continuous and unbroken. When the bankruptcy took place, it appeared that the company had, after Devaynes' death, and before their bankruptcy, made payments on Clayton's account, which were more than sufficient to extinguish the balance of £1713, but that he had made deposits during the same period to an extent that left a still larger balance in his favour. In these circumstances, Clayton contended that he was entitled to impute the indefinite payments which the bank had made on his account subsequent to Devaynes' death, in extinction of the lastmentioned balance, and proceed against Devaynes' estate for the old balance of £1713. But the Court held that the whole course of dealing both before and after Devaynes' death must be treated as one account, and that the various payments made by the bank must be applied in the order of their dates towards extinction or reduction of the balance due Clayton at each of these dates respectively; so that the balance of £1713 which was due at Devaynes' death having been extinguished by payments made subsequent to that event, Clayton could only claim in the bankruptcy for the new balance which had subsequently arisen. Subsequently many cases occurred where the companies were Extension (a) Devaynes v. Noble, 1 Mer. 572, 3 Ross Le. Ca. 654, Bell's Illus. 336. In Scotland the rule in Clayton's case is sometimes termed the rule in De- of rule. 268 Statement of rule as applied general merchants, not mere banking firms, and where the partnership was dissolved not by death, but by retirement (a); yet the rule in Clayton's case was equally applied in all. The rule in Clayton's case as to extinction of company liabilities to companies. by indefinite payments, may therefore now be stated thus. If a customer have an open account with a company upon which both parties are in the practice of operating, by making deposits and honouring drafts, as in the case of banking companies, or by making consignments of goods and partial payments as in the case of ordinary mercantile firms, and on the dissolution of the company the open account is continued unbroken and continuously with their successors, if the balance be found ultimately to be in favour of the customer, he cannot impute indefinite payments on his behalf, whensoever made, during the existence of the new firm, in such a manner as to preserve recourse against the old firm for that part of the account which was incurred during its existence. This rule seems to apply in all cases of dissolution where the business is transferred to a new company or firm; and therefore has place when a partner dies, or retires with due notice, quite as much as when an old firm is entirely broken up and a new firm comes in its place (b). Order of dates. The principle being that all indefinite payments in accounts current must be applied in the order of their dates, the rule is equally applicable when the company is creditor. Hence the debtor of a company is not entitled at settlement of an account current to insist that such indefinite payments as he has made throughout shall be applied to the later instead of the earlier items, if he should find that mode of application more suitable to his own views (c). But, on the other hand, it is equally incompetent for a company to invert the order of apportionment so as to serve its own purposes. Thus, when in an account current between a party and a company, a third party has become surety for a debt which forms an item in the account, the company will not be allowed to impute indefinite payments in extinction of such parts of the account as were not (a) Brooks v. Enderby, 2 Brod. and Bing. 70; Simpson v. Ingham, 2 Barn. and Cress. 65; Pemberton v. Oakes, 4 Russ. 154; Bodenham v. Purchas, 2 Bar. and Ald. 39, 3 Ross Le. Ca. 661. (b) Smith v. Wigley, 3 Moo. and Sc. 174; Newmarsh v. Clay, 14 East 239. (c) Beale v. Caddick, 2 H. and N. 326. covered by the security, if to do this would be to invert or change the natural sequence of the items (a). in It must, however, be borne in mind that the rule in Clayton's case is a mere presumption of law founded on the apparent intention of parties to treat the sequence of transactions between them as one unbroken and continuous whole. If, therefore, the various items do not form one account current, but resolve into distinct accounts, or if it can be shown that it was the intention of parties that they should not be taken as a whole, then the rule in Clayton's case will not be held to apply. If, for example, when a change takes place a company, by death or retirement, the creditor refuses or withholds his consent to his debt being transferred so as to form the first item in his account with the new firm, but keeps in fact his accounts with the two firms distinct, indefinite payments made by the new firm will not be applied to liquidate the debt due by the old (b). Even when the account is, ex facie, continuous and unbroken, the intention of parties that the rule in Clayton's case should not apply, may be proved by facts and circumstances (c), and from the representations of the parties made when the payments were received (d). The rule in Clayton's case is not in accordance with the older decisions of the Scottish courts, who seem to have gone on the principle that the creditor was in all cases entitled to regulate the application of indefinite payments (e). But from the recent decisions, there can remain no doubt that in this matter the law in both countries must now be taken as identical (ƒ); and indeed there is great reason to believe that in this, as in many other (a) Christie v. Royal Bank, 1839, 1 D. 745; aff. 1841, 2 Rob. 118. See also Allan v. Allan and Co., 1831, 9 S. 519; Bodenham v. Purchas, 2 B. and Pemberton v. Oakes, 4 Russ. A. 39; 154. (b) Simpson v. Ingham, 2 B. and Cr. 65; Jones v. Maund, 3 Y. and C. Ex. 347. (c) Taylor v. Kymer, 3 B. and Add. 320; Lysaght v. Walkers, 5 Bli. N. S. 1; Stoveld v. Eade, 4 Bing. 154; Thompson v. Brown, Moo. and M. 40. (d) Wickham, 3 K. and J. 478; Bannatyne v. Brown's Trs., 1825, 3 S. (e) Cochrane and Co. v. Mathie, (f) Houston's Exec. v. Speirs, 1826, 4 S. 573, reversed 3 W. and S. 392; Christie v. Royal Bank, 1839, 1 D. 745, aff. 1841, 2 Rob. 118. See pp. 212-13 of the Report, also 3 Ross' Lead. Ca. 668. Lang v. Brown, 1859, 22 D. 113. See Lord Cowan's judgment, which was that of the Court, and is most exhaustive and instructive. Adoption of this rule in Scotland. instances, the laws were always the same when properly understood Firms and common law companies. General rules. II. VIRTUAL FULFILMENT. 1. Compensation. As we shall afterwards have occasion to consider the import and effects of this very important doctrine in all its bearings on the partnership relation (b), it will be sufficient in this place to indicate the rules which are observed in applying its principles towards extinguishing obligations incurred by a company or firm considered as a separate person. In Companies and Firms unincorporate. 1. When a company is sued by one of its creditors, it may plead compensation on a private debt due by the creditor to one of its partners (c), if it have the partners' consent to that effect (d). 2. When a partner sues a company creditor for a private debt, he may be met by setting off a debt due by the company to the creditor (e). 3. When a concourse of debit and credit takes place between 4. When the rights and obligations of a company have come to (b) See chap. on Compensation. (d) Thomson v. Stevenson, supra; Raleigh v. Hughson, 1861, 23 D. 352. (e) Hotchkis v. Royal Bank, 1797, M. 2673, aff. 3 Paton 618. (f) Inglis and Co. v. Cuthbertson, 1809, Hume 122; Handyside v. Harwood, 1812, 17 F. C. 29. which he is due as representing the company, and those in which he is individually creditor (a). In the case of Incorporated Companies. General rules. 1. When a concourse of debit and credit arises between two Corporations. incorporated companies, or between an incorporated company and an individual, the same rules apply as if both had been individuals. 2. An incorporated company with limited liability cannot set off the claim of one of its shareholders against a company debt, unless it be the special assignee of its shareholder. The theory and full exposition of these rules will be found in the chapter on Compensation. 2. Delegation and Novation. and novation. 'Delegation is the substitution of a new obligor, novation that Delegation of a new obligation, for the old. To the validity of such substitutions the full consent of the creditor is requisite. But it may be implied as well as express, and it is not dependent on the construction of formal documents; it is properly a question for a jury. The law of England appears upon this branch of the subject to be in most cases coincident with our own. tion. Company obligations are frequently extinguished by delega In the first place, the creditor may agree to accept another company as his debtor, in room of the company which originally occupied that position. This will effectually release the latter. The firm of Somerville and Co. stood indebted to that of Buchanan and Co. Pending this obligation, Somerville and Co. dissolved, the copartnery contract having expired. From that time a new company, viz. Jamieson and Co., which undertook the debts and obligations of the former company, came into existence. The old company differed from the new in this respect, that one partner had retired, and another had been assumed. Soon after, the creditor applied to the new company for payment of the debt; and (a) Slipper v. Stidstone, 5 T. R. 493; French v. Andrade, 6 T. R. 582; see also Golding v. Vaughan, 2 Chitty 436; Thomson v. Stevenson, 1855, 17 D. 739. Substitution of one company for another. |