set-off. If such an agreement would otherwise be binding, bankruptcy changes the condition of the parties; the bankrupt no longer needs the cash to support his credit, and the other party no longer has a solvent person to look to for his counterclaim. It is on this principle that stoppage in transitu, and many of the decisions above referred to, on mutual credit, are supported. § 263. Mutual Debts. Mutual debts include all those which are provable in bankruptcy, and the right is reciprocal, so that all such debts held by either party may be set off.2 As the class of such debts has been enlarged from time to time, the right of counterclaim has followed. It has thus happened that many demands may now be set off as debts which formerly could only come in as mutual credits; and others, such as unliquidated damages, are included, even where no credit could be said to have been given, as when the party asking the set-off waives a tort. But a penalty for usury, not made a debt by the statute, may be recovered in full by the assignees, because, if the bankrupt had been the usurer, the penalty would not have been provable. Even now "mutual credit" is an important phrase. When it is wanting, set-off will be confined to debts which were existing at the date of death or bankruptcy. Thus, when a mortgagee of policies collected the amount after the death of 1 Lechmere v. Hawkins, 2 Esp. 626; Eland v. Karr, 1 East, 375; Marks v. Barker, 1 Wash. C. C. 178, Fed. Cas. No. 9096; Taylor v. Oaky, 13 Ves. 180; Mayor v. Nias, 8 Moore, 275; Cornforth v. Rivett, 2 M. & S. 510; Groom v. West, 8 A. & E. 758; Ex parte Fletcher, 6 Ch. D. 350; Ex parte Jackson, W. N., May 19, 1877, p. 122; Stettinius v. Myer, 4 Cranch C. C. 349, Fed. Cas. No. 13,385; Lime Rock Bank v. Plympton, 17 Pick. 159; Miller v. Florer, 15 Ohio St. 148. The decision in Clarke v. Fell, 4 B. & Ad. 404, seems not to harmonize with the foregoing decisions, and may be considered doubtful; and so of Colson v. Welsh, 1 Esp. 378. Rose v. Sims, 1 B. & Ad. 521, refused set-off against a demand for not indorsing a bill, which can hardly be reconciled with the set-off granted against damages for not accepting a bill. Groom v. West, 8 A. & E. 758. But the former case is now obsolete, because it was put on the ground that the plaintiff's damages were unliquidated, which is not now an objection. 2 Tucker v. Oxley, 5 Cranch, 34, 39, per Marshall, J.; Bemis v. Smith, 10 Met. 194; Warren v. Burnham, 32 Fed. Rep. 579. 8 Adams v. United States, 17 Wall. 207; McCabe v. Winship, 17 N. B. R. 113, Fed. Cas. No. 8668. the mortgagor, he was not allowed to set off his simple contract debt against the surplus, when there were specialty debts unpaid, and the estate was insolvent.1 In bankruptcy there is no privilege for debts by specialty. § 264. Debts not due; Contingent Debts. We have seen that all debts due, but not payable, are admitted to proof;" they may, therefore, be used in set-off, either as mutual debts or mutual credits, under which head they were always admissible.3 A court of equity will, if necessary, enjoin an action by an insolvent or his assignees on a debt which is payable, in order that a set-off may be made by the defendant at law of one not yet payable. But whether it will do this in default of a statute which makes such debts provable or the subject of mutual credit is an open question. Similar considerations apply to contingent debts and liabilities; so far as they are made provable, they may be set off; and the courts of law or equity, as the modes of practice may prescribe, should require actions to be stayed until the contingency happens or its value can be ascertained, according to the particular provisions of the bankrupt law in that behalf.5 § 265. Unliquidated Damages. We have seen that unliquidated damages could always be proved in this country against the estate of a bankrupt. They could, therefore, be 1 Talbot v. Frere, 9 Ch. D. 568. See Watkins v. Lindsay, 5 Manson, 25. 2 See the chapter on Proof of Debts. Ex parte Boyle, Cooke, 7th ed., 542; Ex parte Prescot, 1 Atk. 230; Hankey v. Smith, 3 T. R. 507, n.; Smith v. Hodson, 4 T. R. 211; Atkinson v. Elliott, 7 T. R. 378; Marks v. Barker, 1 Wash. C. C. 178, Fed. Cas. No. 9096; Feazle v. Dillard, 5 Leigh, 30; Demmon v. Boylston Bank, 5 Cush. 194; Aldrich v. Campbell, 4 Gray, 284; Drake v. Rollo, 3 Biss. 273, Fed. Cas. No. 4066; Re City Bank, 6 N. B. R. 71, Fed. Cas. No. 2742; Jones v. Robinson, 26 Barb. 310; Re Van Allen, 37 Barb. 225; Fort v. McCully, 59 Barb. 87; Yardley v. Clothier, 49 Fed. Rep. 337; Mack v. Kitsell, 20 Abb. N. C. 293; Nashville Trust Co. v. Fourth Nat. Bank, 91 Tenn. 336; contra, Homer v. Bank of Comm., 140 Mo. 225; Oatman v. Batavian Bank, 77 Wis. 501; Kortjohn v. Bank, 63 Mo. Ap. 166. 4 Schuler v. Israel, 120 U. S. 506, 510. 5 As to the various kinds of contingent debts and liabilities, see Arbouin v. Tritton, Holt, N. P. 408; Starey v. Barns, 7 East, 435; Alsager v. Currie, 12 M. & W. 751; Russell v. Bell, 8 M. & W. 277; Ex parte Bennett, 25 W. R. 598; Hinds v. David, Harper, 423. • Supra, § 164. set off, as now in England, since they have been made provable there; and the decisions against such proof are now obsolete.1 § 266. Equitable Debts. For a like reason, equitable debts and legal debts may be set against each other. § 267. Mutuality. The debts or credits must be mutual, which means that the same fund is to be increased or diminished. In questions of mutuality, the courts endeavor, as far as practicable, to ascertain and adjust the rights of the real parties interested; and the difference of decision arises rather from different views about what is practicable, than any concerning the principle itself. Thus, one who holds the bankrupt's negotiable paper merely as agent of the owner cannot use it in set-off against a debt he personally owes the bankrupt, though he might have sued on it, or even might prove it in bankruptcy in his own name.2 In Forster v. Wilson, the defendants sued by assignees in bankruptcy had three sets of the bankrupt's notes: one they owned; another was transferred to them before the bankruptcy, for a debt, and they were to give credit for whatever 1 McDonald v. Webster, 2 Mass. 498; Sewall v. Sparrow, 16 Mass. 24; Graham v. Russell, 5 M. & S. 498; Holbrook v. Receivers, etc., 6 Paige, 220; Bemis v. Smith, 10 Met. 194; Makeham v. Crow, 15 C. B. N. s. 847; Booth v. Hutchinson, L. R. 15 Eq. 30; West v. Baker, 1 Ex. D. 44; Peat v. Jones, 8 Q. B. D. 147; could equity interfere to require it, until 2 Fair v. McIver, 16 East, 130; Belcher v. Lloyd, 10 Bing. 310; Forster v. Wilson, 12 M. & W. 191; Adams v. McGrew, Ala. 675; McDade v. Mead, 18 Ala. 214; London, etc. Bank v. Narraway, L. R. 15 Eq. 93; Lackington v. Combes, 6 Bing. N. C. 71. 8 12 M. & W. 191. See Elgood v. Harris (1896), 2 Q. B. 491. [On the subject of mutuality, see Re Wilson. 10 Morrell, 219.] they should recover on them; the third they received merely for collection. It was held that they might set off notes of the first and second classes, but not those of the third class. -- § 268. Trustee and Cestui que Trust. If a trustee is the plaintiff, such as the assignor of a non-negotiable chose in action, including the bankrupt when so suing, or the holder of a bill suing the acceptor for the benefit of the drawer, or one who holds under an express trust, a debt due from the trustee personally cannot usually be set off. But it may be set off if the plaintiff is also the cestui que trust, or if he has made himself personally responsible to his cestui que trust, who has consented to look or is bound to look to his personal credit; 2 and if an action is brought against a trustee personally, for a debt contracted in his representative character, a debt due him personally may be set off. On the other hand, the debt of the cestui que trust may be set off in such cases. The case of an assignee in bankruptcy, against whom debts of the bankrupt are set off, is the simplest illustration of the principle. So in the classes of cases already referred to, of one suing simply for the benefit of another. So debts due to and from a testator or intestate, and a debt to the testator against a legacy to his debtor. And I think the better opinion is that against an executor or administrator may be set off a debt due to the defendant from the residuary legatee or next of kin, if the proof is clear that the debts of the estate are all paid or pro 1 Boyd v. Mangles, 16 M. & W. 337; DeMattos v. Saunders, L. R. 7 C. P. 570; Wisdom v. Becker, 52 Ill. 342; Newcastle v. Bellard, 3 Maine, 369; Thomas v. Hopper, 5 Ala. 442; Harbin r. Levi, 6 Ala. 399; White v. Word, 22 Ala. 442; Bellows v. Smith, 9 N. H. 285. 2 Miller v. Franklin Bank, 1 Paige, 444; Grew v. Burditt, 9 Pick. 265; McKenzie v. Pendleton, 1 Bush, 164; Harrison v. Slone, 4 Bush, 577; Hall v. Chenault, 13 Ala. 710; Beesley v. Crawford, 19 Ohio, 126. Dupuy v. Dashiell, 17 La. 60; Wood v. 4 Agra & Masterman's Bank v. Leighton, L. R. 2 Ex. 56; Thornton v. Maynard, L. R. 10 C. P. 695; Gary v. Johnson, 72 N. C. 68; Miller v. Florer, 15 Ohio St. 148; Holliman r. Rogers, 6 Tex. 91. Granger v. Granger, 6 Ohio, 35; Nickerson v. Gilliam, 29 Mo. 456 (debt of insane ward); Stone v. Fargo, 55 Ill. 71. See Wren v. Parish, 39 S. W. Rep. 8 Wolf v. Beales, 6 S. & R. 242; 512 (Ky.). 1 vided for; but on this point there is a conflict of authority. The question in these more complicated cases is one of convenience. § 269. Legacy accruing after Bankruptcy. It was held in Cherry v. Boultbee, overruling an earlier decision, that, where a testatrix died after the bankruptcy of her legatee, and before his discharge, her executor could not retain the legacy from the assignees to meet a debt due from the bankrupt to the testatrix. It was not a case of mutual credit under the statute, because the claim on one side had no existence whatever at the date of the bankruptcy; but the right of the assignees was derived from the bankrupt by force of the law which gave them all his after-acquired property up to the time of his discharge; and it would seem that the broad, equitable doctrine of "retainer," which is quite independent of the bankrupt law, might have applied to it. The reasoning to support the decision is, that if the bankrupt should ever obtain his discharge, the debt would be barred as of the beginning of the bankruptcy, and that there should be no greater right against the assignees than there would have been against the debtor. Following this decision, it has been held that a debtor who had made a valid composition could recover a legacy afterwards left to him by his creditor upon payment of the amount of the composition only. In other words, the discharge in bankruptcy is not a mere bar to an action, like a defence of the Statute of Limitations, but the debt no longer exists. § 270. Bank Account of Trustee or Agent. -If a trustee or agent has an account with his bankers, which by its form gives notice of the trust, the bank cannot set off against the 1 Jeffs v. Wood, 2 P. Wms. 128; Ranking v. Barnard, 5 Madd. 32; Richards v. Richards, 9 Price, 219; Courtenay v. Williams, 3 Hare, 539; Cochrane v. Green, 9 C. B. N. s. 448; Jones v. Mossop, 3 Hare, 568; Williams v. Davies, 2 Sim. 461; Barrett v. Barrett, 8 Pick. 342; Megrath v. Gray, L. R. 9 C. P. 216; Bailey v. Johnson, L. R. 6 Ex. 279; Rowan v. Sharp's Rifle Co., 29 Conn. 282; 31 Conn. 1; Martin v. Overton, Mart. (La.) N. S. 586; Heavenridge v. Mondy, 49 Ind. 434. 2 Bishop v. Church, 3 Atk. 691; Medlicot v. Bowes, 1 Ves. Sen. 207; Freeman v. Lomas, 9 Hare, 109; Middleton v. Pollock, L. R. 20 Eq. 29; Whyte v. O'Brien, 1 Sim. & St. 551. 32 Keen, 319; 4 Myl. & Cr. 442. 4 Beswick v. Orpen, 16 Ch. D. 202. |