eminent judge afterwards declared that the report was incorrect, and that the case was decided upon evidence of a custom that packers should have a lien for their general balance;1 he accordingly decided that a miller had no such set-off unless he could prove a similar custom. The Court of King's Bench followed the later decision. Notwithstanding these corrections, the unreliable report of Ex parte Deeze was cited for forty years, and led to at least one decision which was not satisfactory to the profession.3

§ 256. Rose v. Hart. - In 1818 the Court of Common Pleas carefully reviewed the subject, and in the leading case of Rose v. Hart laid down the rule that credit means not only a present debt, but also a course of dealing which will result in one, such as the possession by the person claiming the set-off of chattels or choses in action, with power to sell or to collect them; but that a mere deposit, whether for safe keeping or for a particular purpose, which would never give rise to the relation of debtor and creditor between the parties, was not within the statute. This case has been followed to this time with one slight modification, or rather explanation.

In 1836 a most elaborate judgment was given in the judicial committee by Lord Brougham, in Young v. Bank of Bengal,5 in which he argued that a bailee could only set off a debt of the bankrupt bailor where the deposit must necessarily terminate in a debt, or where he had an irrevocable power to convert it. The actual decision was that bankers with whom government bills were deposited as security for an advance,

1 Ex parte Ockenden, 1 Atk. 235. Mr. Eden thinks this explanation was an afterthought, Eden, Bankruptcy, 2d ed., 190; Lord Brougham proved from Lord Hardwicke's original minute-book that there was evidence of such a custom; Young v. Bank of Bengal, 1 Deacon, 622, 684, note (c); and it has lately been decided that the custom was established by that case, and is still the law of England in the absence of evidence of a change of usage. Ex parte Shubrook, 2 Ch. D. 489.

with power to sell only after default, and no default had happened at the time of the bankruptcy, could not set off their general balance against the surplus. Baron Parke, who sat in the case, explained afterwards that it was decided upon two reasons that the deposit was for a particular purpose, and that the assignees were bound to redeem before default.1 The latter is the true reason: the right to sell the bills, and, therefore, to convert the surplus into a debt, did not arise in the time of the bankrupt, and the credit could not be created by the neglect of the assignees to redeem at once. In technical language there was no mutuality. That this is the scope of the decision is shown by two later cases. In Naoroji v. Bank of India, a mere agency to collect bills was held to establish a case of mutual credit; and in Astley v. Gurney,3 a pledge of goods and acceptances for a particular debt, but accompanied with a present right to sell, had a similar effect, though the power was not fully exercised until after the bankruptcy, and though enough had been realized before to pay the particular debt. The statement in Rose v. Hart, therefore, remains untouched, excepting when the power to sell depends upon a contingency which has not happened at the date of the bankruptcy. These decisions have been followed in the United States, and the law in this country is that one who has the goods or effects of the bankrupt, with a present right to convert them into money, has been given credit by the bankrupt, and may, therefore, set off against the proceeds of the goods. or choses in action a debt which he owes the bankrupt."

§ 257. French v. Fenn; Easum v. Cato. - Two early cases will illustrate this part of the subject. In French v. Fenn,"

1 Per Parke, B., Alsager v. Currie, 218; Palmer v. Day 895), 2 Q. B. 12 M. & W. 751. 618.

2 L. R. 3 C. P. 452.

3 L. R. 4 C. P. 714.

42 Smith Lead. Cases, sub nom. Rose v. Hart; and see Atkinson v. Elliott, 7 T. R. 378; Bittleston v. Timmis, 1 C. B. 389; Chalmers v. Page, 3 B. & Ald. 697, and cases cited in the following sections. Re Rose, 1 Manson,

Murray v. Riggs, 15 Johns. 571; Bemis v. Smith, 10 Met. 194; Ex parte Whiting, 2 Lowell, 472, Fed. Cas. No. 17,573; Re Farnsworth, 5 Biss. 223, Fed. Cas. No. 4673; Goodrich v. Dobson, 43 Conn. 576, per Shipman, J., as referee.

6 2 Doug. 257.

the defendant owned a string of pearls, and duly transferred to the bankrupt one-third of the profits to arise from the sale of them; after the bankruptcy the defendant sold the pearls, and in an action by the assignees for the bankrupt's share of the profits, the defendant was permitted to set off a debt due him from the bankrupt not connected with the joint dealing. Here was no lien by contract, nor one by custom or general law, and there was no debt on one side at the time of the bankruptcy. In Easum v. Cato,' the defendant Cato had authorized the bankrupt to ship goods in his name, and had written to the foreign merchants to insure, etc. The proceeds having come to the defendant's hands, and the assignees having brought suit for them, he was allowed to set off his general balance, as well as the charges of the particular adventure. There was no lien existing at the time of the bankruptcy; the jury had found one, but the court left it out of the case.

§ 258. Banker and Customer. - Though bankers are bound to honor their customer's checks to the extent of his cash balance, without regard to his liability on running bills or notes, yet as soon as he becomes bankrupt there is a lien or right of set-off for those liabilities, whether they have matured or not. This is the law for another reason, that the right being reciprocal, if the banker becomes bankrupt, the payment of checks is stopped, and the customer is entitled to the set-off.3 § 259. Lien, Pledge, Set-off. -In many of the cases above referred to the law of mutual credit in bankruptcy may be said to create a lien which did not before exist, or to make irrevo

1 5 B. & A. 861.

2 Jourdaine v. Lefevre, 1 Esp. 67; Alsager v. Currie, 12 M. & W. 751; Demmon v. Boylston Bank, 5 Cush. 194; Scammon v. Kimball, 92 U. S. 362; Re Petrie, 7 N. B. R. 332, Fed. Cas. No. 11,040; Blair v. Allen, 3 Dillon, 101, Fed. Cas. No. 1483; Sparhawk v. Drexel, 12 N. B. R. 450, Fed. Cas. No. 13,204; Clark v. Northampton Bank, 160 Mass. 26; Kentucky Co. v. Merch. Bank, 90 Ky. 225. A court of law, in the exercise of its equitable

powers, will stay an action to give an opportunity for the set-off where the customer is insolvent. Alliance Bank v. Holford, 16 C. B. N. s. 460. In Traders' Bank v. Campbell, 14 Wall. 87, this right was lost by the act of the defendants, who, instead of relying on the set-off, caused the deposit, with other property, to be seized on a judg ment which was a preference.

3 Winslow v. Bliss, 3 Lans. 220; Platt v. Bentley, 20 Am. Law Reg. 171; Jones v. Piening, 85 Wis. 264.

cable a power of sale which the bankrupt, while solvent, could have recalled. But, as Mr. Christian observes,1 it is immaterial whether we call it mutual debt, mutual credit, lien, or pledge, so long as it has all the effect of a general lien.

§ 260. Bills and Notes. If A takes a bill or note, he gives credit to all the antecedent parties to it; if he lends his name on such paper, he gives credit to the person accommodated; and if any of these persons becomes bankrupt, being a creditor of A, the credit is mutual; and A, taking up the paper before or after the bankruptcy, may set the amount against his debt to the bankrupt.2

Where bankers discounted a bill accepted by the defendant, and afterwards negotiated it and became bankrupt, and the holder paid himself out of the funds of the bankers, and returned the bill to their assignees, the defendant was permitted to set his deposit with the bankrupt against the amount of the bill, because the credit, though suspended while the bill was in the hands of a third person, was revived when the assignees received it again.3 Knowledge on the debtor's part that the creditor is his creditor is not material; 4 but it is held that one who indorses or guarantees the payment of a debt of the bankrupt without his privity, and without being an owner of the paper, but entering into a merely collateral undertaking, has not given credit to the bankrupt, and cannot set off the debt if paid after the debtor's bankruptcy.5

11 Christian, Bankruptcy, 2d ed., 513; approved, Eden, Bankruptcy, 2d ed., 189.

2 Smith v. Hodson, 4 T. R. 211; Ex parte Boyle, Cooke, 7th ed., 542; Houle v. Baxter, 3 East, 177; Ex parte Wagstaff, 13 Ves. 65; Bittleston v. Timmis, 1 C. B. 389; Collins v. Jones, 10 B. & C. 777; Barrett's Case, 4 De G. J. & S. 756; McKinnon v. Armstrong, 2 App. Cas. 531; Hulme v. Muggleston, 3 M. & W. 30; Russell v. Bell, 8 M. & W. 277; Alsager v. Currie, 12 M. & W. 751; Robinson v. Howes, 20 N. Y. 84.

Bolland v. Nash, 8 B. & C. 105. See a criticism on this decision, 1 Griffith & Holmes B. L. 616, but the case seems well decided. See Ex parte Staddon, 3 M. D. & De G. 256.

4 See supra, § 255, note 2, and per Knight Bruce, arg.; Clark v. Cort, Cr. & Ph. 154.

5 See Nelson v. Harrington, 16 Gray, 139. By the law of Massachusetts a contingent debt, arising by guaranty, could not be proved, so that the claim could not be set off as a mutual debt.

§ 261. No Credit by Fraud, Mistake, or Breach of Duty. One party cannot set off a debt which has arisen by his fraud, or breach of trust, or even by accident or mistake, unless the other party chooses to waive the right to recover in full.1 Bankruptcy will not convert a mere bailment without power of sale into a debt. If goods or other property are in the defendant's hands. for safe-keeping, as where a banker or merchant has taken notes or goods with a view to a discount or advance, and has neglected or refused to make the discount or advance; or where the person asking the set-off has power only to collect the interest or the like, or has received delivery by mistake or fraud, or on any condition, or for any special purpose, inconsistent with a payment of his own debt, such as to pay a debt to some third person, or to save the bankrupt from bankruptcy by an arrangement, the nature of the transaction repels the presumption of a mutual credit. If the bankrupt's property has been mortgaged for the debt of a third person, and the assignees redeem it, the case is not one of mutual credit, but the assignees are to be paid in full; and a liability to pay the bankrupt's debt will not make a case of credit, unless the liability is one which, when paid after the bankruptcy, will be a provable debt.5

4

The right of set-off against party occupied no fiduciary

§ 262. Promise to pay Cash. the assignees, when the solvent relation to the bankrupt, will not be lost by a promise on his part to pay cash, or to accept a bill, or even to pay without

1 Ex parte Whittaker, 1 Rose, 301; Buchanan v. Findlay, 9 B. & C. 738; Ex parte Douglas, Mont. & Ch. 1; Alder v. Keighley, 15 M. & W. 117. The defrauded party or his assignees may require the set-off. Ex parte Minton, 3 Dea. & Ch. 688.

2 Brandao v. Barnett, 1 M. & G. 908, 12 Cl. & F. 787; Stetson v. Exch. Bank, 7 Gray, 425; Simpson v. Sikes, 6 M. & S. 295; Lucas v. Dorrien, 7 Taunt. 278.

Key v. Flint, 8 Taunt. 21; Ex parte Flint, 1 Swanst. 30; Ex parte

Hankey, 4 Dea. 1; Buchanan v. Findlay, 9 B. & C. 738; Cornforth v. Rivett, 2 M. & S. 510; Holmes v. Tutton, 5 E. & B. 65; Hill v. Smith, 12 M. & W. 618; Haggerty v. Palmer, 6 Johns. Ch. 437; United States Bank v. McAlester, 9 Penn. St. 475; Re Troy Woollen Co., 8 N. B. R. 412, Fed. Cas. No. 14,203; Palmer v. Haynes, 2 La. 370; Blanchard v. Lockett, 3 La. Ann. 98; Weston v. Barker, 12 Johns. 276; Bishop v. Fowler, 35 Conn. 5.

4 Rowe v. Anderson, 4 Sim. 267. 5 Howe v. Snow, 3 Allen, 111.