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are provable. And it may well be doubted whether such a promise would not be illegal.

§ 250. Whether New Promise enures to Benefit of Indorsee, etc. Closely connected with this question is another, whether such a promise made to the payee or holder of a negotiable instrument will avail a subsequent indorsee suing in his own name. Though the more numerous authorities are perhaps in favor of a negative answer,1 yet as most of them rest upon the proposition that the action must be upon the new promise, and as that proposition cannot be now considered sound, the better opinion seems to me to be that the old debt. and its evidence or obligation are revived for all purposes, and for the benefit of the same persons, as if there had been no discharge.3 So the authorities are divided on the question whether the promise may be made to any third person for the benefit of the creditor, or only to the creditor himself.1

1 Depuy v. Smart, 3 Wend. 135; 420; Soulden v. Van Rensselaer, 9 Wend. Moore v. Viele, 4 Wend. 420; Wal- 293; Wakeman v. Sherman, 5 Seld. bridge v. Harroon, 18 Vt. 448; White 85; on the other, McKinley v. O'Keson, v. Cushing, 30 Maine, 267; Wardwell 5 Penn. St. 369; Evans v. Carey, 29 Ala. v. Foster, 31 Maine, 558. See Field's 99; Wachter v. Albee, 80 Ill. 47; Allen Estate, 2 Rawle, 351. v. Collier, 70 Mo. 138; s. c. 35 Am. Rep. 416 and note; Sibert v. Wilder, 16 Kan. 176; Katz v. Moessinger, 7 Brad. 536. That a new oral promise is barred in five years, see Reith v. Lullman, 11 Mo. App. 254.

2 Ante, § 248.

3 Underwood v. Eastman, 18 N. H. 582; Badger v. Gilmore, 33 N. H. 361; Way v. Sperry, 6 Cush. 238.

On the one side, Depuy v. Smart, 3 Wend. 135; Moore v. Viele, 4 Wend.

CHAPTER XI.

SET-OFF AND MUTUAL CREDIT.

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§ 251. Statute of Anne. The injustice of requiring one who is both debtor and creditor of a bankrupt to pay the assignees in full and receive only a dividend early shocked, says Lord Mansfield, the natural sense of mankind. Accordingly in the year 1705, by the statute 4 & 5 Anne, c. 17, § 11, set-off was provided for by statute in England, in cases of bankruptcy, many years before any similar law was applied to actions between solvent persons. It was a very liberal statute, and has been followed ever since in all revisions of the bankrupt laws. It contained the important phrase "mutual credit," which covers the whole ground.2 The latest law in England adds “mutual dealings," which, however, does not enlarge the already broad scope of the law.4

§ 252. Set-off by Statute between Party and Party. — The bankrupt law not only first provided for set-off by statute, but likewise first gave the written law an equitable construction. In 1843 an eminent judge declared that set-off at law was established for convenience to prevent cross-actions; and in bankruptcy, to make a final and equitable settlement between the parties really interested, upon terms of substantial justice. The courts have now adopted an equitable practice in ordinary cases, so that in 1849 another eminent judge was able to say, "In all these cases of set-off the law endeavors to meet the

1 Green v. Farmer, 4 Burr. 2214, 2220.

4 Robson, 7th ed., p. 365. [Sect. 68 of the act of 1898 provides for set-off. It

2 See 1 Christian, Bankruptcy, 2d is very similar to the corresponding

ed., 238 et seq.

3 32 & 33 Vict., c. 71, § 39. B. A. 1883, § 38.

provision of the act of 1867. See infra, See § 531.]

5 Per Parke, B., Forster v. Wilson, 12 M. & W. 191, 203.

1

real honesty and justice of the case." There remains the difference that the settlement in bankruptcy is final, and this in many cases makes that a just and proper set-off which would be unjust or inconvenient between solvent persons, as where the debt on one side is not yet payable, or is contingent or unliquidated; and, on the other hand, the equality due to creditors sometimes prevents a set-off otherwise good, as when a debt is bought after the bankruptcy, or a set-off is agreed for in order to give a preference.

§ 253. Set-off independent of Statute. - Courts of equity established a limited practice of set-off in cases of insolvency even before or independently of the statute of Anne.2 In this country some courts will interfere by injunction to require a set-off in an action pending at law, if the plaintiff is insolvent and there is no adequate remedy by statute. Under the various laws for winding up insolvent corporations or settling the estates of insolvent natural persons, living or dead, a very liberal practice of set-off has obtained, extending to equitable and unliquidated debts, even where the statute has contained no provision at all upon the subject. Thus the "natural

1 Fish v. Kempton, 7 C. B. 687, per Wilde, J.

2 Powel v. Stuff, 2 Bulst. 26; Hawkins v. Freeman, 2 Eq. Cas. Abr. 10; Vin. Abr. Discount, A, pl. 26; Chapman v. Derby, 2 Vern. 117; Anon., 1 Mod. 215; see remarks of the judges in Ex parte Stephens, 11 Ves. 24; Freeman v. Lomas, 9 Hare, 109, 112; Gibson v. Bell, 1 Bing. N. C. 743, 753; Jones v. Mossop, 3 Hare, 568, 572; Boyd v. Mangles, 16 M. & W. 337; Bailey v. Finch, L. R. 7 Q. B. 34; Vulliamy v. Noble, 3 Mer. 593.

8 Pond v. Smith, 4 Conn. 297; Simson v. Hart, 14 Johns. 63; Lindsay v. Jackson, 2 Paige, 581; Gay v. Gay, 10 Paige, 369; Tuscumbia R. R. v. Rhodes, 8 Ala. 206; Goldsmith v. Stetson, 39 Ala. 183; Ferris v. Burton, 1 Vt. 439; Downer v. Dana, 17 Vt. 518; Blake v. Langdon, 19 Vt. 485; Favorite v. Lord, 35 Ill. 142; Raleigh v. Raleigh, ib. 512;

Dorsey v. Reese, 14 B. Mon. 157; Hughes v. Trahern, 64 Ill. 48; Hall v. Kimball, 77 Ill. 161; Russell v. Conway, 11 Cal. 93; Merrill v. Souther, 6 Dana, 305; Payne v. Loudon, 1 Bibb, 518; Davis v. Milburn, 3 Iowa, 163; Lee v. Lee, 31 Ga. 26; Field v. Oliver, 43 Mo. 200; Hobbs v. Duff, 23 Cal. 596; Hamilton v. Van Hook, 26 Texas, 302; Thrall v. Omaha Hotel, 5 Neb. 295; Farris v. Howston, 78 Ala. 250. [See contra, Hale v. Holmes, 8 Mich. 37; Riddick v. Moore, 65 No. Car. 382; Rawson v. Samuel, Cr. & P. 172.]

Rose v. Hart, 2 Smith L. C., 7th Am. ed., 293, note. See preceding notes 2 and 3. McDonald v. Webster, 2 Mass. 498; Bigelow v. Folger, 2 Met. 255; Knapp v. Lee, 3 Pick. 452; Sewall v. Sparrow, 16 Mass. 24; Comm. v. Phoenix Bank, 11 Met. 129; Phelps v. Rice, 10 Met. 128; Aldrich v. Campbell, 4 Gray, 284; McLaren v. Pennington, 1 Paige,

sense of mankind " has found expression in later times. Some few judges have thought that equality among the creditors is repugnant to set-off; but the decided weight of opinion is that this equality begins with the bankruptcy or known insolvency of the debtor, and that the right of set-off stands upon similar grounds of universal justice with that of a secured creditor to hold his security.

Courts of law exercise an equitable power of setting off judgments against each other when justice requires it. Recoupment, which is an equitable set-off, depending upon a connection in the origin of the cross demands, has received great extension of late years. There may be set-off by virtue of an agreement which was made when the debt on one side was contracted or forborne, or when an account was adjusted.2 If incomplete, the agreement may in some cases be revoked by bankruptcy, where the rights of third persons may be prejudiced by enforcing it, and if illegal, as a preference or for any other reason, it will, of course, not be enforced by the

courts.5

§ 254. Assignees bound by Ordinary Practice of Set-off. — Set-off of these various sorts existing by statute or practice may be availed of by a defendant when assignees are plaintiffs, in addition to or instead of that established by the bankrupt

102; Carroll v. Weaver, 65 Conn. 76; Wetherell v. Bldg. Assn., 153 Ill. 361; Medomak Bank v. Curtis, 24 Maine, 36; Morrison v. Jewell, 34 Maine, 146; Ellis r. Smith, 38 Maine, 114; Clarke v. Hawkins, 5 R. I. 219; Receivers v. Paterson Gas L. Co., 3 Zab. 283; Ross v. McKinny, 2 Rawle, 227; Beaver v. Beaver, 23 Penn. St. 167; Boissier v. Belair, 1 Mart. (La.) N. s. 481; Kenner v. Sims, 6 Mart. (La.) N. s. 66; Tuscumbia R. R. v. Rhodes, 8 Ala. 206; Betts v. Gunn, 31 Ala. 219; Keightley v. Walls, 27 Ind. 384.

1 Sedgwick, Damages, tit. Recoup

ment.

2 Dobson v. Lockhart, 5 T. R. 133; Kinnerley v. Hossack, 2 Taunt. 170;

Owens v. Denton, 1 C. M. & R. 711; Roper v. Bumford, 3 Taunt. 76; Vulliamy v. Noble, 3 Mer. 593; Freeman v. Lomas, 9 Hare, 109, per Turner, V. C.; Habershon's Case, L. R. 5 Eq. 286; Ward v. Winship, 12 Mass. 481; Mays v. Mays, 7 Watts, 561; Mitchell v. Sellman, 5 Md. 376; Sparhawk v. Drexel, 12 N. B. R. 450, Fed. Cas. No. 13,204; Lincoln v. Hinzey, 51 Ill. 435.

8 Williams v. Brimhall, 13 Gray, 462; Barge's Case, L. R. 5 Eq. 420; Black & Co.'s Case, L. R. 8 Ch. 254; Ex parte Hodgkin, L. R. 20 Eq. 746.

4 Parker v. Smith, 16 East, 382; Wiltshire Iron Co. v. Great W. Ry. Co., L. R. 6 Q. B. 101.

Forsyth v. Woods, 11 Wall. 484.

law itself, unless when some principle of that law will be violated. If the assignees are not parties to an action, though they may have some interest in it, or are parties jointly with solvent persons, the law of set-off as between solvent parties is the only one which can be availed of, and that of bankruptcy, in so far as it is peculiar, cannot be invoked.2 So where the debtor makes his own assignment, the ordinary law of set-off, and not the more liberal rules in bankruptcy, will apply.

§ 255. Mutual Credit. Bankrupt laws usually contain a provision substantially like that of the early statutes, that when there have been mutual debts or mutual credits between the bankrupt and any other person, a balance shall be struck, and that only shall be recovered or proved. Mr. Justice Story and other jurists have used the phrase "mutual credit" as meaning, in equity, a credit agreed upon between the parties, or arising out of connected transactions. These decisions and remarks have been sometimes cited by learned judges sitting in bankruptcy. But the phrase was first used in bankruptcy, and in that connection has a much more extensive meaning. It was early decided in England that it was of no consequence that the parties had not knowingly trusted each other, and the cases, especially those on negotiable notes, are wholly inconsistent with any such narrow definition; nor is there a single case under any bankrupt law which supports it. Mutual credit, in the bankrupt law, means that the parties are, or in the natural course of events will be, creditors of each other. Lord Hardwicke was reported in Ex parte Deeze to have extended the rule to a case in which the bankrupt's property was in the hands of his creditor for any purpose, as, for instance, to be packed. This supposed decision was challenged, and the same

1 Ridout v. Brough, Cowp. 133; Lock v. Bennet, 2 Atk. 48; Thornton v. Maynard, L. R. 10 C. P. 695, per Coleridge, C. J.; Chase v. Petroleum Bank, 66 Penn. St. 169.

2 Staniforth v. Fellowes, 1 Marsh. 184; New Quebrada Co. v. Carr, L. R. 4 C. P. 651; Turner v. Thomas, L. R. 6 C. P. 610.

8 2 Story Eq., 13th ed., § 1435; Greene v. Darling, 5 Mason, 201, Fed. Cas. No. 5765.

4 Hankey v. Smith, 3 T. R. 507; Munger v. Albany Bank, 85 N. Y. 580, contra.

5 1 Atk. 228.

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