any bankrupt before the date and issuing of the commission against such bankrupt, shall be deemed valid, notwithstanding any prior act of bankruptcy by such bankrupt committed; and such creditor shall not be liable to refund the same to the assignees of such bankrupt, provided the person so dealing with the said bankrupt had not, at the time of such payment by or to such bankrupt, notice of any act of bankruptcy by such bankrupt committed (a)."

To constitute that mutuality of debts or of credits which is required by the statute, it is necessary that the debt claimed or the credit given, should be so due to or given by the party in his own right (b).

Generally, therefore, in bankruptcy, as well as at law, there can be no set-off between joint and separate debts, unless otherwise provided for by special agreement (c). And where a debt has been converted from a joint into a separate debt, it cannot be set off against a joint debt. Thus, A. and B., partners, were creditors of C., who had also a joint demand against them. A. and B. having dissolved partnership, A., by a letter addressed to C., made himself separately liable to C. on account of the joint demand against himself and B.; Lord Eldon held, that A. was not entitled to set off against C.'s demand, though originally joint, the joint debt due from C. to A. and B. (d).

II. But the rule in bankruptcy against the set-off of joint and separate debts is not so strict as to preclude the admission of equitable set-off in a few particular cases; equitable set-off having prevailed long before the statute (e). "It is true," ob

(a) 6 Geo. 4, c. 16, s. 82, overruling Tamplin v. Diggins, 1 Camp. 312, and Kinder v. Butterworth, 6 Barn. & Cres. 42; 9 Dowl. & Ryl. 47. In the former of these cases, bankers having accepted bills for the accommodation of a trader, and he, after an act of bankruptcy but before the commission, having lodged money with them to take up the bill, it was holden that they were bound to refund this money to the assignees, and could not set it off.

(b) Lanesborough v. Jones, 1 P. W. 325; Bishop v. Church, 3 Atk. 691; Ex parte Whitehead, 1 Glyn & Jam. 69.

(c) Ex parte Riley, W. Kelynge, 24; Ex parte Christie, 10 Ves. 105; Ex parte Twogood, 11 Ves. 517; Kinnersley v. Hossack, 2 Taunt. 170; Ex parte Soames, 3 Dea. & C. 320.

(d) Ex parte Ross, Buck, 125.

(e) 2 Geo. 2, c. 22; 8 Geo. 2, c. 24; Ex parte Blagden, 19 Ves.

served Lord Eldon, “that where the Court does not find a natural equity going beyond the statute, the construction of the law is the same in equity as at law: but that does not affect the general doctrine upon natural equity (a).”

A strong case of this kind occurred before Lord Loughborough (b). There A. and B. were partners, and indebted, by joint and several bond, to C. Upon A.'s retirement from, and D.'s accession to the firm, advances were made to C. to the exact amount of his debt, out of the monies deposited by D. for the purchase of A.'s share of the partnership. The bond was not given up, but A. took a separate note from C. for the amount. B. died. Upon the bankruptcy of C., A. was allowed to set off the money secured by the note against the money secured by the bond. The grounds of Lord Loughborough's decision appear to have been, not that A. was liable for the bond debt as surviving partner, and, therefore, that he might set against it his separate debt on the note, but that the joint transaction had not terminated by the mere fact of A.'s taking a separate note; that A. had not been accepted as separate debtor; that the bond had not been given up; and that the debt had been paid out of the assets of the old partnership; that, therefore, the joint debt secured by the bond might be set off against a debt which was equitably joint, though represented by a separate security.

Where stock, the separate property of A., is transferred to bankers, as a security for advances made by them to A., who likewise gives them his note for the amount, payable on a retransfer of the stock, and A. afterwards pays off the note, and substitutes the joint note of himself and son, without calling for a transfer then, if you can shew a clear and distinct series of transactions, in which both the father and son have had credit given to them, as credit was previously given to the father only, you certainly have very strong evidence of such a case as would authorize a Court of equity in allowing a set-off as between the stock-debt due to the father, and the advances made to the father and son (c).

Another exception to the general rule occurred before Lord

467; Whyte v. O'Brien, 1 Sim. & Stu. 551.

(a) 11 Ves. 27.

(b) James v. Kynnier, 5 Ves. 108. (c) Vulliamy v. Noble, 3 Mer.

618.

Erskine (a); but the case involved a principle totally different from that of the foregoing. There A. and B. were indebted, as principal and surety, in a joint bond, and A. was a creditor of the obligees to an amount exceeding the bond. The obligees, who were bankers, having become bankrupt, and their assignees having brought an action against A., the latter presented a petition, praying that he might be allowed to set off and to prove the balance; and Lord Erskine allowed the claim. "In this case," said his Lordship, "I am not obliged to do more than Courts of equity were in the habit of doing before the statute of set-off existed, which statute was made only to prevent circuity. Suppose the bankruptcy had not occurred. A plea of set-off could not have been put in to an action by the bankers; but, the moment they obtained judgment, the petitioner would have brought an action, and, if the surety had paid the joint debt, would have repaid him by the money recovered in that action; if the petitioner himself had paid it, he would then have been reimbursed; and, if they had paid in moieties, they would have divided it. So, the thing would have been just as if no action had been brought. Without the aid, therefore, of the extraordinary principles of fraud, which governed the case of Ex parte Stephens (b), there is a clear principle that decides this case-that assignees in bankruptcy take subject to all equities attaching upon the bankrupt; and, as the condition of the bankrupts, if they had continued solvent, would, as between them and these persons, be such as I have represented, that must be the condition of the assignees.”

In cases where the bankrupt has committed a gross fraud against his creditor, the latter will be allowed a set-off of joint and separate debts. Thus, where A. had instructed her bankers to purchase certain stock in her name, which they, contrary to the fact, represented to have done, by making false entries in her book, and giving her credit for the dividends, and B., the brother of A., borrowed a sum of money of the bankers on the joint and several promissory note of himself and sister, Lord Eldon held that A. might set off the sum so borrowed against the debt due from the bankrupts, and might prove for the residue (c).

(a) Ex parte Hanson, 12 Ves. 346; 18 Ves. 233.

(b) See infra.

(c) Ex parte Stephens, 11 Ves. 24.

Again, V., a customer of the banking house of D. & Co., transferred to P., a partner in that house, a sum of stock, by way of security for money borrowed of them, and gave his notes for the amount, payable on the stock being transferred to him. V. paid off these notes, and afterwards borrowed a further sum on the joint note of himself and his son, without calling for a retransfer. P. fraudulently sold the stock, together with other stock, and applied the produce to the use of the partnership. It was held, on the authority of Ex parte Stephens, that V. might set off, against the joint note of himself and son, so much of the money received by the partnership out of the sale of the stock, as was equal to the amount of such joint note (a).

On a subsequent occasion (b), Lord Eldon, speaking of Ex parte Stephens, observed that the decision entirely depended on the fraud; and it is clear that he was anxious not to extend this class of cases.

Thus, in Ex parte Twogood (c), it appeared that A. and B., of the firm of S. & Co., did, for certain considerations, jointly and severally covenant to pay C. the sum of £4000, with interest. In April, 1803, S. & Co. stopped payment, and a separate commission issued against B. At the time of the bankruptcy, C. was indebted to the house, in a sum much greater than the debt due to him from A. and B.; he, however, proved his debt and interest, amounting to £4200, under the commission against B., and, in July, 1803, assigned it to a stranger for £5500. A petition was then presented on the part of the creditors of the house, praying a set-off of the two debts, and suggesting that the assignment of C.'s debt was made without consideration, and with a view to obtain payment of the dividend from the separate estate of B., while C.'s debt was due to the joint estate; and likewise suggesting that there would be a surplus of B.'s separate estate, in which the creditors of the house were interested. But Lord Eldon dismissed the petition, saying that he did not deny that there was a good deal of natural equity in the proposition upon which it stood; but, pursuing it through all its consequences, it would so disturb all the

(a) Vulliamy v. Noble, 3 Mer. 50. (b) Ex parte Blagden, 19 Ves. 46. (c) 11 Ves. 517, overruling Ex

parte Quinten, 3 Ves. 248, and Er parte Edwards, 1 Atk. 100.

habitual arrangement in bankruptcy, that he dared not permit the set-off.

It appears, therefore, that even on equitable grounds, except under special circumstances, there cannot be a set-off as between joint and separate debts. Thus, in Addis v. Knight (a), a debtor by bond to the separate estate of a deceased partner was not allowed in equity to set off his bond debt, in respect of acceptances for which he had become liable to the partnership estate, and which were proved by him under a joint commission of bankrupt.

It will be observed, that, under the 50th section of the statute, set-off is allowed between the creditor and his bankrupt debtor, only under the proviso, "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." Therefore in an action brought by the assignees of certain bankers, it was held, that, under this section, the defendant had no right to set off notes of such bankers, taken by him after he knew that three of the four partners, constituting the bankinghouse, had committed acts of bankruptcy (c).

(a) 2 Mer. 117.

(b) Dickson v. Cass, 1 Barn, &

Adol. 343. See Craven v. Edmonson, 6 Bing. 734.