the settlement of the estates of deceased insolvents, leaves that matter at large to be determined on general principles applicable to it. In the settlement of the estates of deceased insolvents, the analogical rule followed here in regard to set-off is as it is in other states, the equitable rule of the bankrupt systems of England and the United States; that is, without any special connection between the claims sought to be set off, to sink the sum due to the insolvent by the amount of the sum actually due from him to his debtor, and in truth to hold the latter to be a debtor to the estate only for the balance." The creditors of a living insolvent have the same adverse interest to each other and to the insolvent's debtors that the creditors of a deceased insolvent have to each other and to the debtors to the estate. Hence the cases cited in which the debtors of a living insolvent have been allowed to set off his debts to them, when sued by the assignee, are directly in point as authorities upon the question at bar. See Carr v. Hamilton, 129 U. S. 252, 9 Sup. Ct. 295, 32 L. Ed. 669; Aldrich v. Campbell, 4 Gray, 284; Thomas v. Bank, 99 Iowa, 202, 208, 68 N. W. 780, 35 L. R. A. 379; Nashville Trust Co. v. Bank, 91 Tenn. 336, 18 S. W. 822, 15 L. R. A. 710. The statute providing for the settlement of the estates of deceased intestates, recognizing these principles, provides only for the report by the commissioners of claims against the estate, and, in the case of cross-claims, only for a report of balances against the estate. If the statute required that all conflicting claims, regardless of how the balance stands, should be submitted to the commissioners, then the administratrix in this case should have presented the account to them before commencing this suit. Under a similar system in Massachusetts, it has been held from early times that a claim, which had not been proven before the commissioners, might be set off in a suit by the administrator of an insolvent estate. McDonald v. Webster, 2 Mass. 498 (1807): "If the balance be against the creditor," says the court, "it is not a subject of the report, which is to include only claims against the estate. In this last case, if the executor or administrator of the insolvent sue the creditor at law, he must have a right, resulting from the principles of the statute, to plead his own demand by way of set-off, and the executor or administrator can recover only the balance." This decision has been followed in Massachusetts, notwithstanding the changes in details of the statutes. Bigelow v. Folger, 2 Metc. 255, and cases cited. The same rule is adopted in Morrison v. Jewell, 34 Me. 146; Smalley v. Trammel's Adm'r, 11 Tex. 10; Mitchell v. Rucker, 22 Tex. 66.

The plaintiff urges that it is the policy of the statute to submit all claims against the estate to the contestation of other creditors. This is undoubedly so when the claimant is a creditor of the estate, and desires to prosecute his claim (Mason v. Taft, 23 R. I. 389,

50 Atl. 648); but claims of the estate against its debtors are, by the policy of the statute, intrusted to the administrator to enforce. He is required to file an inventory, which the creditors may examine and object to if they see fit; and, if he is derelict in his duty, he and the sureties upon his bond are responsible. There is no superior equity in the body of creditors which ought to outweigh the rights of a defendant to a suit brought on behalf of the estate. The policy of the law does not require a party to present his defense for criticism and conflict until he is attacked. If he has a claim to enforce, he must begin the contest; if he desires only to retain possession of what he has, the law allows him to remain quiet until an adverse party makes a claim upon him. In Knapp v. Lee, 3 Pick. 452, the court say (page 469): "Without this remedy, great injustice would happen, for the administrator might refuse to produce the counterclaim before the commissioners, and the consequence would be that on a suit he would recover the whole sum due to the estate, whereas the other party could obtain only an equal proportion with the other creditors of the insolvent's effects." The same injustice would occur in the case of a debtor to the insolvent estate who should be a creditor in a larger amount, but who did not desire to prosecute his claim because he had reason to believe that his dividend would not repay him for the trouble and expense. If the contention of the plaintiff should prevail, such a creditor would be obliged to use his claim as a sword in order that it might retain its efficacy as a shield.

My conclusion is that, upon the well-settled principles governing cases of insolvent estates of deceased persons as recognized by the statute, it is not necessary to prove before the commissioners such a claim as the defendant presents before pleading it in setoff.

Decision for the plaintiff for the balance of the account deducting the note, with interest accrued to April 23, 1902, amounting altogether to $352.21, and costs.

STATE V. MAHONEY. (Supreme Court of Rhode Island. July 25, 1902.)

UNLAWFUL DEALING IN DRUGS-INDICTMENT. 1. An indictment under Gen. Laws, c. 152, § 7, for unlawful dealing in drugs, must negative the exceptions contained in section 8 from the prohibitions of the statute.

Henry Mahoney was indicted under Gen. Laws, c. 152, § 7, for unlawful dealing in drugs. He demurs to the indictment. Demurrer sustained.

Argued before STINESS, C. J., and TILLINGHAST and BLODGETT, JJ.

Charles F. Stearns, Atty. Gen., for the State. John W. Hogan, for defendant.

PER CURIAM. The court is of the opinion that the exceptions from the prohibitions of the statute should be specifically negatived, since the allegations in the indictment may all be true, and the respondent nevertheless may be within the exceptions contained in section 8, c. 152, Gen. Laws. Demurrer sustained.

VAUGHN v. RHODE ISLAND MORTGAGE & TRUST CO.

(Supreme Court of Rhode Island. July 29, 1902.)

NOTES-PROVISION FOR COLLATERAL-
BREACH OF TRUST-DEMAND.

1. Provision in each of several notes that the maker deposits with a trust company, as collateral for this note, certain tax-sale certificates to the amount of the note and 10 per cent. more, and authorizes the holder to sell the same on nonpayment of the note, calls for the deposit of specific certificates for each note, to be kept separate and apart from securities for other notes, and not to be mingled by the trust company with the securities for other notes, as a common fund, without the consent of the holders of the notes.

2. As a condition to bringing suit for breach of trust, as custodian of securities, it is not necessary to demand the securities of the trustee: it having admitted the mingling thereof with others, so that demand would be futile.

Suit by Lyman A. Vaughn against the Rhode Island Mortgage & Trust Company. Degree for complainant.

Argued before STINESS, C. J., and TILLINGHAST and ROGERS, JJ.

ROGERS, J. This is a suit in equity for an accounting and for other relief growing out of dealings in Kansas tax-sale certificates, and comes before us on bill, answer, and proofs. On or about April 1, 1895, the complainant purchased of the respondent corporation four negotiable promissory notes, made by the Topeka Commercial Security Company, all of the same tenor, except as to the numbers and amounts thereof, etc., as hereinafter indicated. One of said notes was as follows, viz.: "$500. Topeka, Kansas, Feb. 1, 1895. 1896, $517.50. 8/4/95, $17.50.

Number 41. Due Feb. 4, One year aft

er date we promise to pay to the order of the Rhode Island Mortgage & Trust Company five hundred dollars at the office of the Rhode Island Mortgage & Trust Co., Providence, R. I., value received, with seven per cent. interest, payable semiannually from date until paid. And we hereby deposit or pledge, as collateral security for the payment of this note, certain tax-sale certificates, deposited with Rhode Island Mortgage & Trust Company, and amounting, principal

and accrued interest, to five hundred and fifty dollars. And we hereby give to the holder thereof full power and authority to sell or collect at our expense all or any portion thereof at any place, either in Topeka or elsewhere, at public or private sale, at their option, on the nonperformance of the above promise, and at any time thereafter, and without advertising the same, or otherwise giving to us any notice. In case of public sale, the holder may purchase without being liable to account for more than the net proceeds of such sale. The Topeka Commercial Security Co. R. M. Gage, Secy. & Cash." The other three notes were exactly like the one a copy whereof is given above, save that those were each for $1,000, and were respectively numbered 44, 45, and 46. Six months' interest, or $17.50 on the $500 note, and $35 each on the $1,000 notes, was indorsed as having been paid. All of the above-described notes were indorsed to the complainant's order, without recourse, by the respondent, and thus indorsed were transferred by delivery to the complainant. The proof satisfies us that at the time of the purchase of said notes the treasurer of the respondent corporation stated to the complainant that tax-sale certificates had been deposited with said trust company, as collateral security for the payment of said notes, to the amount of the principal thereof and 10 per cent. in addition, and that he could have said certificates; but, as a general thing, purchasers of those notes left the collateral security with the company, and that at the suggestion of the respondent, and as a matter of convenience, the complainant allowed said collateral security to remain with said respondent. It also appeared in proof that some purchasers of similar notes from the respondent, upon such purchases took into their own actual possession the tax-sale certificates pledged as collateral securities for such purchased notes. As said by this court in Browne v. Trust Co., 21 R. I. 169, 43 Atl. 537, which was a suit upon notes precisely like those involved in the present suit: "We think that the clause in the complainant's notes called for the deposit and pledge of specific tax-sale certificates for each of the notes, which, or the proceeds of which, were required to be set apart and held for the payment of such notes, and that the respondent, when it undertook to take charge of these securities, was bound to keep them separate and apart from all securities for other notes, unless it had the consent of the complainant and of the holders of other notes to mingle them in a common fund." The respondent admits that instead of keeping the tax-sale certificates given by the maker of the notes so purchased by the complainant as collateral security therefor separate and apart, it mingled them with numerous other tax-sale certificates given by the maker of said notes as collateral security for numerous other notes held by different

parties, so that it was impossible for the respondent to sort out and determine which certificates were furnished as collateral for the notes held by the purchasers of similar notes, the collateral for which had been allowed to remain in the hands of the respondent, and which collateral, and the proceeds thereof, it terms a "common fund." The respondent claims that the complainant had knowledge of the "common fund," so called, and consented to the mingling of his collateral security with the collateral of other purchasers of notes with tax-sale certificates as collateral. There is much conflict in the evidence upon this point, the complainant swearing, in the most positive and explicit manner, that he not only never consented to having his securities go into a "common fund," but that he never even heard of a "common fund" in connection therewith, until long after the notes became due and remained unpaid. In this conflict of testimony, it is necessary, to be able to properly weigh the evidence, to understand what the "common fund" exactly was, and what manner of treatment, in the respondent's understanding, as shown by its treatment of it, it authorized the respondent to exercise. It appears from the testimony that prior to the sale of said notes to the complainant, the respondent had been dealing in notes made by the said Topeka Commercial Security Company, secured by Kansas tax-sale certificates. The respective notes were secured by tax-sale certificates to an amount 10 per cent. larger than the face value of the note. These certificates were of various amounts, from a few dollars up to $150, varying in that respect as the taxes on the land or estates to which they applied varied. When a Kansas taxpayer was in default a certain length of time in the payment of the taxes upon his landed estate, such estate, or sufficient thereof to pay the tax, was sold for the payment thereof, and a tax-sale certificate was given to the purchaser. If within a certain prescribed period (three years, we understand) the taxpayer paid the tax, together with interest at a prescribed rate (which was very high), then the holder was obliged to accept the money, and surrender up the tax-sale certificate. If, however, the amount of the tax and interest was not paid within the prescribed period, then the holder of the taxsale certificate was entitled, if he had kept the taxes paid up meanwhile, to an absolute deed of the property. These tax-sale certificates applied to different pieces of property, and hence the notes secured thereby, made by the Topeka Commercial Security Company for different amounts, and bearing different dates, bore no more relation to one another, as far as the holders thereof were concerned, than that they were made by the same maker; that is to say, by way of illustration, that the security of these notes was not the same relatively as is that of a series of a railroad company's bonds which

are secured by a mortgage on identically the same property, and which are to be paid in whole, or, if default be made, then pro rata, out of the same security. The tax-sale certificates held by the various purchasers of the Topeka Commercial Security Company's notes did not, therefore, afford the same security to the holders thereof, for they varied as much as liens, whether by mortgage or otherwise, on different pieces of land, would vary, and of course tax-sale certificates on fertile or valuable land might be worth more than those on less fertile land, and these tax-sale certificates were not confined to the same town or county, nor even to the same section of the state, necessarily. So taxsale certificates on the lands of taxpayers who would redeem their lands would be worth more, at least for security, than those on lands of taxpayers who would not re deem them.

The origination of the idea of a "common fund," as it is called, seems to have been in a letter from R. M. Gage, the secretary of the Topeka Commercial Security Company, to the respondent, dated April 9, 1894. "I note what you say," runs the letter, "about various parties returning collateral to you, and also what you say about splitting up the collateral, etc. It seems to me the subject is now sufficiently introduced, so we could afford to stand pat on a proposition to keep the collateral to notes of less than $10,000 in a common fund, and I really don't see the advantage to the lender in separating the collateral at all, for I do not believe there is any choice in the collateral we sent you, all of which we regard as strictly gilt edge, and safe beyond question. At the same time, the terms of their notes would enable them to call upon you for a specific amount of this collateral at any time default were made, so that it seems to me their advantage would really lie in the direction of having it all in a common fund, while beyond doubt it would relieve you and ourselves of a good deal of labor. I have been so anxious to get this matter properly introduced to you and your people, that I have been very willing, and am still very willing, to do any reasonable amount of work, and even to ask you for the time being to share with us this extra labor, but I shall, of course, be glad when the simpler methods are practicable. If we had it all in one fund, or even in $10,000 blocks, after the certificates were once entered up, the expenditure of nerve force would be very light indeed, and would be more than compensated for by the feeling of absolute security in a profitable investment." Notwithstanding the contents of the above referred to letter, no change was made in the form or manner of issuing the notes or the agreement in regard to the collateral, so far, at least, as a formal or distinct proposition to, or agreement by, the beneficial holders thereof, evidenced by any written or printed paper, was concerned. The evidence shows

that the respondent, from time to time, permitted the Topeka Commercial Security Company, without the knowledge or consent of the complainant, to receive the money from the redemption of said tax-sale certificates, and to substitute other certificates in the place of those redeemed. The evidence also shows that the respondent, for some time after it came into possession of said tax-sale certificates, was accustomed to send such of them, as and when they were called for to be redeemed, to the Merchants' National Bank of Topeka, Kan., which received the money paid for the redemption of said security, and paid it to the respondent company. This seems to have been done at the suggestion, in part, at least, of a letter from said Topeka Commercial Security Company of March 27, 1894, as follows: "Now, if the holders of these certificates desire, they can send them to the county treasurer of the various counties in addressed envelopes, which we will send them; but it occurs to me that it would be more convenient for them if the certificates were sent in a lump to the Merchants' National Bank, assuming, of course, that they would not think it good banking to send them directly to us, as they are collateral to our own notes." Subsequently, however, the respondent began to send the tax-sale certificates which were to be redeemed directly to said Topeka Commercial Security Company, instead of the Merchants' National Bank of Topeka, and permitted it to receive the money paid for the redemption of said collateral, and transmit it to the respondent company, with the result that a considerable sum was lost, inasmuch as the Topeka Commercial Security Company transmitted by worthless checks, which have never been made good. There are other peculiarities of the "common fund" which are alleged to exist, but which we do not refer to, as not having been so satisfactorily proved as those already referred to. Such was the "common fund." which the respondent claims the complainant had knowledge of the existence of, and consented to have his securities managed and administered in.

We think it might well go without saying that to justify the respondent in including the securities of the complainant in a "common fund," thus composed and administered, would require clear and convincing evidence of knowledge and consent to such treatment; especially when the complainant swears emphatically and explicitly that he never consented to any such arrangement, and never even heard of a "common fund" of any description in connection with his securities. is a matter of surprise that the respondent should be willing to so manage securities intrusted to its keeping without a distinct written authority thereto. This claim is sought to be supported, not by any indisputable written evidence, not even by oral evidence to any collective body of note holders in any quasi

It

public or formal manner, but only by testimony of Messrs. Mason, Jillson, and Carpenter, who were the president, treasurer, and bookkeeper, respectively, of the respondent company, to alleged casual conversations with individual note holders from time to time, and in this case with the complainant. The complainant swears that he remembers no such conversation, when, it seems to us, with his interest, unless he is committing willful perjury, he could not fail to remember them, and therefore could not so swear; and he swears emphatically that he did not have such knowledge, and never gave such cansent. The said officials of the respondent company swear with varying degrees of positiveness and detail. The three officials referred to evidently sympathize with the respondent, as is perhaps only natural, and under all the circumstances of this case, and taking into consideration the character of their evidence, it is easier for us to believe that they are mistaken either in the matter sworn to, or in the identity of the person to whom it is applied, than it is for us to believe that the complainant in his testimony committed willful perjury. The burden of proof is upon the respondent to make out the defense it relies upon, and we are far from being satisfied, by a preponderance of evidence that commands our confidence, that the complainant had knowledge of the existence of a "common fund," so called, until long after the default in the payment of said notes, or that he ever consented to the inclusion of his security in such "common fund."

The respondent contends that the complainant never demanded from it the collateral security, belonging to him as the holder of the notes, which had been left with the respondent, nor had ever requested the respondent to sell the collateral, and that it was necessary for the complainant to have made one or the other, or both, of such requests, and to have shown that the respondent refused such requests, as a condition precedent to the maintenance of this suit. Granting that no such demands were ever made, we fail to see any necessity in this case for them. A formal demand is necessary in some actions, under some circumstances. Thus, in an action by the holder of a promissory note against an indorser upon his indorsement, a demand for payment upon the indorser after default by the maker is necessary, unless such demand has been waived; but in the case at bar, the respondent, although he happens to be the indorser upon said notes, yet it is without recourse to him as such indorser, and he is being sued, not upon any pretended liability as an indorser, but upon his liability for an alleged breach of trust as custodian of security intrusted to it. So, in an action of trover, where a defendant came into possession of converted chattels by the plaintiff's own act, it is sometimes necessary to show a demand and re