from a very early period, certainly before st. 4 & 5 Anne, c. 17, in which it first received the express sanction of the legislature. See 1 Ch. 499. Anon. 1 Mod. 215; Chapman v. Derby, 2 Vern. 117. The policy of allowing a set-off between monies due to and from the bankrupt's estate, is precisely the same as that in which the law relative to stoppage in transitu originated. It is to prevent one man's debts from being paid with another man's money, which would take place if a man, being at once the debtor and creditor of the bankrupt, was forced to pay the whole of his debt to the estate, and to receive only a dividend. The enactment in the statute of Anne was followed by a similar one in the temporary act of 5 G. 1, c. 11; then with improvements by 5 G. 2, c. 30, s. 28. None of these acts, however, went further than to allow a set-off upon the accounts existing at the time of the bankruptcy. The 46 G. 3, c. 135, s. 3, went further, and extended the right of set-off to cases where the credit was given within two months of the date of the commission, provided the person giving it had not notice of a prior act of bankruptcy, or that the bankrupt was insolvent, or had stopped payment. It was found, however, that even with this extension, cases of great hardship occurred. See Kinder v. Butterworth, 6 B. & C. 42. depends upon st. 6. G. 4, c. 16, s. 50, which enacts, "That where there has been mutual credit given by the bankrupt and any other person, or where there are mutual debts between the bankrupt and any other persons, the commissioners shall state the account 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 provable 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 credit was given, notice of

It now

an act of bankruptcy, by such bankrupt committed.

Notice of the act of bankruptcy is now, therefore, the dividing point at which the right of set-off terminates; and consequently it has been held, that a person who, after bankers had actually stopped payment,industriously collected their notes for the express purpose of setting them off against a debt due from himself to the firm, should be allowed to do so, as he had no notice of any act of bankruptcy actually committed by either of the partners. Dickson v. Cass, 1 B. & Adol. 343, accord. Hawkins v. Whitten, 10 B. & C. 217. But it was held in the same case, that he could not set off notes which he had taken after he knew that some of the partners had committed acts of bankruptcy.

Under this section, there are, it will be observed, two classes of cases in which the right of set-off is expressly given. 1. Where there are mutual debts. 2. Where there have been mutual credits. It is upon the second of the above two classes, that Rose v. Hart is a leading authority. It is cited whenever the question occurs," does a particular state of dealings amount to a mutual credit between the bankrupt, and some person claiming to set off a cross demand against his estate?"

The first case, bearing upon this question, was Ex parte Prescott, Atk. 230, where the claimant owed the bankrupt a debt, payable in futuro, and the bankrupt owed him one payable in præsenti. Lord Hardwicke said, that this constituted, not indeed a mutual debt, but a mutual credit, The cases soon multiplied; and it was settled, that, in order to render credits mutual, within the meaning of the bankrupt laws, it was not necessary that the bankrupt and the creditor should particularly intend to trust each other, or to raise cross demands. This was settled in Hankey v. Smith, 3 T. R. 507 n., where A.'s acceptance got into B.'s hands, and B. bought goods of A., who did not know that the bill was in B.'s hands.

After Lord Hardwicke had, in Ex parte Prescott, pointed out the distinction between mutual debts and mutual credits; the latter term was frequently relied on, and

there was a struggle to bring within its meaning many demands which could not possibly have ranged within the former term. It has been seen from the discussion in the text, that in Ex parte Deeze, 1 Atk. 228, these words received a very large construction, which was narrowed by Ex parte Ockenden, 1 Atk. 234; and that these cases were followed by a string of decisions, beginning with French v. Fenn, C. B. L., 7th Ed. 536, A. D. 1783, and extending over a period of more than thirty years, during which French v. Fenn was the leading case upon this subject. At last, in 1818, Rose v. Hart was decided, and the rule established which now prevails, namely," that mutual credits, within the meaning of the bankrupt laws, are credits which must, in their nature, terminate in debts." And this it is submitted means, not, as has been contended in some cases, credits which must, ex necessitate rei, terminate in debts, but credits which have a natural tendency to terminate in debts not in claims differing in nature from a debt, such as the right of lien in Ex parte Deeze. Thus it was settled, in Smith v. Hodson, 4 T. R. 211, that an accommodation acceptance is a credit, given by the acceptor to the party accommodated; and yet it is not certain to end in a debt, for the party accommodated ought to provide for the bill at maturity, and if he do, there will be no debt.

'The cases between French v. Fenn, and Rose v. Hart, are all recognised by the latter case, and stated by the Lord Chief Justice to be reconcilable with, and supported by, his decision. They are therefore still of authority, and it will be necessary to review them before proceeding to the cases subsequent to Rose v. Hart. The case of French v. Fenn, itself, is well abridged by the Lord Chief Justice in the text, and is well epitomized by the same learned Judge, while at the bar, in his argument in Smith v. Hodson, ante, so that it is unnecessary to repeat the facts here at full length.

It is a very remarkable case, and was long the leading decision on this subject; and, excepting the overruled case of Ex parte Deeze, and the recent decision of Easum v. Cato, goes perhaps further than any case upon this

branch of the bankrupt laws. Smith v. Hodson, 4 T. R. 211, is reported at length in this number, being the leading case upon another equally important point. As far as it bears on the present subject, it was expressly approved of by the court in Hulme v. Mugglestone, 3 Mee & Welsb. 30. In Atkinson v. Elliott, 7 T. R. 378, the defendant sold the bankrupt a parcel of tars for 4301. at six months' credit, for which the bankrupt accepted a bill, and afterwards bought another parcel for 2301. on the same terms. On the first bill becoming due, he gave the defendant two bi'ls on third parties, making together 600., and the defendant undertook, on their being paid, to return 170%., it not being intended to do more than take up the bill accepted for the price of the first parcel. In an action for the 1707., the defendant was allowed to set off his demand for the second parcel of goods. In Ex parte Boyle re Shepherd, 15 Aug., 1803, Co. Bank. L., 8th Ed., 571, Lord Cork, to accommodate Shepherd, who was his solicitor, drew four notes, two payable to Nibbs or order, and two to Shepherd or order, making, in the whole, 9811. Os. 3d. Lord Cork having been forced to take up one of them before the bankruptcy, and two afterwards, the question was, whether these payments could be set off against a debt due from his lordship to Shepherd's estate. The Lord Chancellor at first thought that the account must be taken as it stood at the time of the bankruptcy, and that the debt could not be set off against the mere liability on which no payment was made till after the bankruptcy; but afterwards his lordship said he had considered the case, and was of opinion, that the petitioner was entitled to set off the debt against the payments after the bankruptcy. That an accommodation acceptance, not paid till after the bankruptcy by the acceptor, could be set off against the estate of the party accommodated, was also decided in Ex parte Wagstaff, 13 Ves. 65; and these cases were cited with approbation by Parke, B., in Hulme v. Mugglestone, 3 Mee & Welsb. 30. In Sheldon v. Rothschild, 8 Taunt, 156 2 Moore, 43; Otte drew a bill on B. & Co., for 400/., which they

accepted without value. They afterwards owed Otte 2367. 11s. 3d., and drew on him for 1634. 8s. 9d., the balance. This bill they sold to the defendant, and afterwards became bankrupts, the 400% bill remaining in Otte's hands unpaid. Otte accepted without notice of the bankruptcy, and paid the 1637.8s.9d. to the defendant, on which, the assignees of B. & Co. brought an action, as for money had and received; but the court held that there was a mutual credit between the bankrupt and Otte, and that, inasmuch as he could have set off his demand on the estate in any action brought against him, the defendant, whom he had indemnified, and who stood in his place, might do so also.

The next decision is the principal one of Rose v. Hart, which is reported in the same volume with Sheldon v. Rothschild, the Lord C.J. Gibbs, who had argued, when at the bar, in Smith v. Hodson, delivering the judgment, which was one of the last pronounced by that distinguished judge. This case settled the law upon the subject; the subsequent decisions turning all of them on the applicability of the rule, promulgated in Rose v. Hart, to particular states of fact. In Collins v. Jones, 10 B. & C. 777, it was laid down by Bayley, J., that," whoever takes a bill, must be considered as giving credit to the acceptor; and whoever takes a note, credit to the drawer." See also Arbouin v. Tritton, Holt, 608; Edmeads v. Newman, 1 B. & C. 418. In Belcher v. Lloyd, 10 Bingh. 316, a distinction was engrafted on the above rule; namely, that the holder of the bill or note, to be within the statute, must not be a mere agent holding it for the benefit of a third person. In that case, Maberly's assignees sued Lloyd and Co., acceptors of a bill for 1,000%, drawn by the Commercial Banking Co., and indorsed to Maberly. When Maberly became bankrupt, Lloyd and Co. had in their hands a bill for 7607., drawn by a firm in which Maberly was a partner, accepted by a firm in which he was also a partner, and indorsed by the Commercial Banking Co. This bill became due on the 6th of January, the day on which Maberly stopped payment, whereupon Lloyd and Co. protested it; and having in their hands sufficient assets of the Commercial Bank

ing Co. to discharge it, debited the company with the amount, and sent them the protested bill, with a receipt for it. The Commercial Banking Co. sent back the bill, requesting Lloyd and Co. to set off its amount against their own acceptance for 1,000l.; and the question was, whether they had a right to do so. The court held not. "Can it be said," asked Mr. J. Bosanquet, "that the defendants are creditors of Maberly, and hold the bill on their own account? If not, and if they hold the bill as mere trustees for the Scotch house, as such trustees they are not entitled to set it off against a demand made on themselves in their own right." That the demands in respect

of which a set-off is claimed must be in the same right, is established by several cases. See West v. Pryce, 2 Bingh. 555; Ex parte Whitehead, 1 G. & J. 39; Stanniforth v. Fellowes, 1 Marsh, 184. Thus in Groom v. Medley, 3 Bingh. N. C. 138, where, to an action for money had and received to the use of the assignees, the defendant pleaded a set-off of money due to him from the bankrupt, it was held ill on demurrer.

A very remarkable case on this part of the bankrupt law is Easum v. Cato, 5 B.. & A. 861, in which the doctrine of mutual credit has, perhaps, been carried further than in any case subsequent to Rose v. Hart. In Easum v. Cato, J. S., being desirous of making a shipment at his own risk, but not in his own name, represented to the merchants through whom the shipment was to be made, that the goods were A.'s; and procured A. to write to them to insure, and make advances on the goods, which was done. J. S. having become a bankrupt, it was held, that A. might recover the proceeds of the goods, and set off a debt due to himself from J. S. in an action for them by the assignees. The nature and extent of the rule laid down in Rose v. Hart are well illustrated by the two cases of Rose v. Sims, 1 B. & Ad. 521, and Gibson v. Bell, 1 Bingh. N. C. 748; in the former of which it was held, that an agreement to indorse a bill of exchange did not create such a credit as the statute intends; in the latter, that an agreement to accept a bill did create such a credit. These

cases turned on the distinction between an acceptance which creates a debt, and an indorsement which creates only a suretyship. In Hulme v. Mugglestone, 3 Mee & Welsb. 30, to an action for money had and received to the use of the assignees of John Smith, the defendant pleaded, that before notice of the bankruptcy, he indorsed a bill for Smith's accommodation, and discounted another for him, both of which he was obliged to take up after the bankruptcy; that before the bankruptcy, Smith lent him a cheque, the proceeds of which he received after the bankruptcy, which was the same money now sued for, and against which he claimed to set off the amount of the dishonoured bills. The court held the plea good. It must be borne in mind, that any demand proveable under the fiat may, by the express words of the statute, be set off. The history of this head of the bankrupt laws is so clearly, and, at the same time briefly, sketched by the Lord Chief Justice Tindal, in his judgment in the case of Gibson v. Bell, 1 Bingh. N. C. 753, that this note cannot be better concluded than by extracting it.

"The principle," said his lordship, "which the bankrupt laws seem to have had in view, from the earliest time to the last provisions made therein, is this, that where two persons have dealt with each other on mutual credit, and one of them becomes bankrupt, the account shall be settled between them, and the balance only payable on either side. That this was the practice of the commissioners of bankrupt, long before any statutory provision on the subject, appears clear from the two earliest decided cases-. -Anonymous, 1 Mod. 215, before Lord Chief Justice North,

and Chapman v. Derby, 2 Vern. 117. The first statute which made any express provision on the subject, was the expired statute, 4 & 5 Anne, c. 17. By that statute it was enacted, in the eleventh section, 'that where there hath been mutual credit given between the bankrupt and any debtor, and the accounts are open and unbalanced, it shall be lawful for the commissioners, or assignees, to adjust the account; and the debtor shall not be compelled to pay more than shall appear to be due on such balance. This provision of the expired statute of Anne is re-enacted in the twentyeighth section of 5 G. 2, c. 30, with some variation in the expression; that section enacting, that the commissioners, or assignees, shall state the account between them, and one debt may be set against another; and what shall happen to be due on either side, on the balance of such accounts, and on setting such debts against one another, and no more, shall be claimed, or paid, on either side respectively.' This statute continued in force until the 46 G. 3, c. 135, s. 3, which provides, that where there hath been mutual credit given, or mutual debts between the bankrupt and any other person, one debt or demand may be set against the other, notwithstanding any secret act of bankruptcy before committed.' The same language is continued in the last statute, 6 G. 4, c. 16. So that from the earliest prac tice to the latest provision by statute, the object seems to have been, that the account should be stated, as between merchant and merchant; and that whatever would be in ordinary practice a pecuniary item in such account, should be the subject of set-off."