7thly. Effect of certificate.

Where a bankrupt is discharged by his certificate from a debt in one form, he cannot be charged by the creditor for the same debt in another form of action: and therefore, in the case of Foster v. Surtees', where, by agreement between the plaintiffs, bankers at Carlisle, and the defendants, bankers at Newcastle, the plaintiffs were weekly to send to the defendants all their own notes and the notes of certain other banking-houses; and the defendants were in exchange to return the plaintiffs their own notes and the notes of certain other bankers, and the deficiency, if any, was to be made up by a bill drawn by the defendants in favour of the plaintiffs at a certain date; it was held that the notes so sent by the plaintiffs to the defendants constituted a debt against them, which the defendants might pay by a return of notes according to the agreement; but if they made no such return, or a short return, and gave no bill for the balance, such balance remained as a debt against them, which was proveable by the plaintiffs, under a commission of bankrupt issued against the defendants, on an act of bankruptcy committed after the time when the bill for the balance, if drawn, would have been due and payable; and that the plaintiffs could not maintain an action to recover damages as for a breach of contract against the defendants who had obtained their certificates. But, in some cases a creditor has an election to shape his demand on the bankrupt either as a debt, or as for a tort, and if he adopt the latter, the certifi çate will be no bar. Thus, if a bankrupt to whom a bill has been delivered to obtain the payment when due, and to remit to his employer, discount it at a loss before it was due, and embezzle the money, if sued for this tort his certificate would be no bar. So if bills be deposited merely as a pledge, if the bank

12 East. 605.

Parker v. Norton, 6 T. R. 695.

certificate.

rupt pledge them as his own, he will continue liable 7thly Effect of to a special action for this tort'.

The effect of the certificate as to a debt which New contract, or promise. might have been proved under the commission may be avoided by a fresh contract entered into with the bankrupt bonâ fide after an act of bankruptcy, even before or after he has obtained his certificate. All the debts of a bankrupt continue due in conscience, notwithstanding he has obtained his certificate; and though a security, or a promise, as a consideration for signing his certificate is void, any security given bonâ fide without fraud or imposition on the bankrupt is valid and binding upon him, though there be no new consideration. Thus in the case of Trueman v. Fenton*, where the bankrupt after the act of bankruptcy, and after the issuing of the commission, but before he had obtained his certificate, gave a promissory note in consideration of two former bills of the bankrupt being cancelled, and of an agreement not to accept a dividend under the commission, it was held that the certificate was no bar to an action on the note. And if a bankrupt, after obtaining his certificate, undertake to pay any creditor the residue of his debt, the undertaking, if made freely and without fraud, is binding'.

V. OF MUTUAL CREDIT AND SET OFF.

WHEN at the time of the act of bankruptcy, there 5. Mutual credit. were cross 'demands subsisting between the bankrupt

Johnson v. Spiller, Dougl. 167.-Cullen, 113. 891.

2 Cullen, 386,-1 Mont. 586.

3 Trueman v. Fenton, Cowp. 544.-Birch v. Sharland, 1 T. R.

715.

+ Cowp. 544.

5 Ibid. and the several cases collected in Cullen, 386 to 388. and in 1 Mont. 587. n. p. where see other points on this subject, &c. 6 As to mutual debts and credits between a bankrupt and other persons, see Bayl. 212 to 216.

5- Mutual credit. and a creditor, the latter, by setting off his debt against his demand, stands in a better situation, than other creditors not in that situation, who can only prove under the commission, and receive dividends, In equity, long anterior to the statutes permitting a set-off at law, a party might avail himself of any cross demand, and preclude his creditor from recovering more than the balance that might be due to him on a fair adjustment of accounts. And though the spirit of the bankrupt laws is to make an equal distribution amongst all the creditors, yet this must in justice be governed by the nature of the dealings between the parties, and as it may be fairly presumed that where mutual transactions have taken place between a bankrupt and another trader, they have respectively given greater credit to each other than would have taken place in any separate ex parte dealings; it is therefore just, that in the case of bankruptcy their mutual demands should be set-off against each other. It was therefore enacted by the Stat. 5 Geo. 2. c. 30. s. 28. "That where it shall appear to the com"missioners, or the major part of them, that there "hath been mutual credit given by the bankrupt and

any other person, or mutual debts between the "bankrupt and any other person, at any time before "such person became a bankrupt, the said commis"sioners, or the major part of them, or the assignees "of such bankrupt's estate, shall state the account "between them and one debt may be set against an"other, and what shall appear to be due on either "side on the balance of such account, and on setting "such debts against one another, and no more, shall "be claimed or paid on either side respectively. And by Stat. 46 Geo. 3. c. 135. s. 3. it is enacted, "That in all cases in which, under commissions of

bankrupt hereafter to be issued, it shall appear that "there has been mutual credit given by the bankrupt "and any other person, or mutual debts between the

bankrupt and any other person, one debt or demand 5. Mutual credit. may be set off against another, notwithstanding

any prior act of bankruptcy committed by such bankrupt before the credit was given to, or the "debt was contracted by such bankrupt, in the like

manner as if no such prior act of bankruptcy had "been committed, provided such credit was given to "the bankrupt two calendar months before the date "and suing forth of such commission, and provided "the person claiming the benefit of such set-off, had not at the time of giving such credit any notice of

any prior act of bankruptcy by such bankrupt com"mitted, or that he was insolvent or had stopped payment."

te

Upon these statutes it is observable that the word credit is more comprehensive than the word debt, and Lord Mansfield said, in the case of French v. Fen', that the act of parliament was accurately drawn to avoid the injustice that would be done, if the words were only mutual debts, and it therefore provides for mutual credit. The subject of mutual credit, as far as it relates to bills of exchange and promissory notes, may be considered under the three following heads:

1st. The nature of the debt and consideration
upon which it is founded.

2d. The parties between whom the mutual credit
may exist.

3d. The time when the debt or credit arose.

the debt to be set

I. With respect to the debt or demand proposed 1. The nature of to be set off, not only mutual running accounts are off. within the statutes, but also other cross demands. subsisting at the time of the act of bankruptcy, and even such debts have been allowed to be set off as could not have been brought into any account in

* Ex parte Stevens, 11 Ves. jun. 27.-Cooke, 554.-1 Mont. 529. Cullen, 192 to 197.

RR

1. The nature of the debt to be set off.

5. Mutual credit. equity betwixt the parties, such as debts arising to one party not by contract, but by reason of a fraud on the other, and therefore not a mutual credit'. Even a legacy, which cannot be considered as a demand arising from a contract, has, when assented to by the executor, been considered admissible as a set-off against a demand on the legatee'. And the illegality of the consideration will not, in the case of bankruptcy, in all cases preclude a person from setting off what is equitably due. And therefore it has been decided, that a party to a contract, on which he has taken usurious interest, may set-off the sum really advanced on the contract'. And a transaction has been held to be a mutual credit, though its operation seem contrary to an agreement of all the parties, for a vendor of several parcels of goods sold to the bankrupt, for which the latter gave his acceptances, payable at different times, having received of the bankrupt at the time one of them became due before the bankruptcy, a bill of exchange for a greater amount, and given an undertaking to pay over the difference when received, was allowed, though contrary to the agree ment, to retain it for the debt due to him upon the other parcels, which were not paid for at the time of the bankruptcy; this constituting a mutual credit, on the one side to the bankrupt upon his acceptances, the obligation to pay which, at all events, at a future day, was not superseded by the agreement; and on the other by giving the bill. The same point was established in Ex parte Wagstaff, in which it was held that an acceptance not due till after the bankruptcy of the drawer, is capable of being set off against a distinct debt due from such acceptor to the drawer within the clause of the act as to mutual credit. And

1 Cullen, 196.

2 Jeffs v. Wood, 2 P. W. 128.

3 Ryall v. Rolls, 1 Ves. 375.

4 Atkinson v. Elliot, 7 T. R. 378.-Cooke, 559. but see Ex parte Flint, 1 Swanston's Rep. Ch. 30.

5 13 Ves. jun. 65.