ss. 36, 37. Meaning of payment of debts in full. 36. For the purposes of this Part of this Act, any debt disputed by a debtor shall be considered as paid in full, if the debtor enters into a bond, in such sum and with such sureties as the Court approves, to pay the amount to be recovered in any proceeding for the recovery of or concerning the debt, with costs, and any debt due to a creditor who cannot be found or cannot be identified shall be considered as paid in full if paid into Court. Description of debts provable in bankruptcy. PART III. ADMINISTRATION OF PROPERTY. 37.-(1.) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise, or breach of trust, shall not be provable in bankruptcy. Although damages arising out of a tort are not provable, yet if judgment has been signed before the receiving order a proof may be founded on that. The costs of such an action being a mere addition to the damages follow the same rule (In re Newman, Ex pte Brooke, 3 Ch. D., 494). In the same action some of the counts were founded on contract and others on tort-so far as it was founded on contract the action was restrained, and it was also held that if the creditor elected to proceed at law he could not prove against the debtor's estate (Ex pte Baum, In re Edwards, L. R. 9, Ch. 673). A patentee is not entitled to an enquiry as to damages against a debtor who has infringed his patent, but if he chooses to condone the infringment he may claim an account of profits and prove for the amount when ascertained (Watson v. Holliday, 20 Ch. D., 780). (2.) A person having notice1 of any act of bankruptcy available against the debtor2 shall not prove under the order3 for any debt or liability contracted by the debtor subsequently to the date of his so having notice. As to what is notice, see note (4) to s. 49, on p. 58, infrà. 2 As to what is an available act of bankruptcy, see note (5) to s. 49, on p. 86, infrà. 3 "The order" must mean the receiving order (see s. 9 (1)). As the Bill was originally printed in the House of Lords, the words "receiving order" occurred in a previous part of this sub-section, so that "the order clearly referred to the before-mentioned "receiving order," but were probably struck out in committee. (3.) Save as aforesaid, all debts and liabilities, present or future, certain or contingent, to which the debtor is subject at the date of the receiving order, or to which he may become subject before his discharge by reason of any obligation incurred before the date of the receiving order, shall be deemed to be debts provable in bankruptcy. "As was said by Lord Justice James in Ex pte Llynvi Coal and Iron Co. (L. R. 7, Ch. 28), it was the object of the Legislature to discharge the bankrupt from every possible liability. I entirely concur in that opinion. It is difficult to imagine any kind of contract (I speak of business contracts) in respect of which, if broken before, or put an end to by, the bankruptcy, a jury could not point out a fair way of estimating the damages under the direction of the Judge." (per Mellish, L.J., Ex pte Waters, In re Hoyle, L. R. 8, Ch. 562, at p. 567). Notwithstanding the comprehensive nature of the words, and the intention of the Legislature as expressed by Mellish, L.J., questions have arisen as to what debts or liabilities are provable, and amongst the decisions are the following: s. 37. An annuity payable to a widow during widowhood is capable of being Annuities. fairly estimated and is therefore provable (Ex pte Blakemore, In re Blakemore, 5 Ch. D., 372). So, too, an annuity payable to a wife under a separation deed and defeasible on certain events happening (Ex pte Neal, In re Batey, 14 Ch. D., 579, cf. Ex pte Naden, In re Wood, L. R. 9, Ch. 670). If the annuitant dies after the annuity has been valued and proof made for the amount, the trustee of the settlement having received dividends exceeding the payments made to the annuitant cannot be called upon to refund the excess (Ex pte Bates, In re Pannell, 11 Ch. D., 914). Costs of a defendant in an action of contract unsuccessfully brought Costs. against him by the debtor, although not taxed before the receiving order, are provable (Ex pte Peacock, In re Duffield, L. R. 8, Ch. 682), secus plaintiff's costs in an action of tort brought against the debtor (In re Newman, Ex pte Brooke, 3 Ch. D., 494). A covenant to pay a sum of money when requested by A. or after A.'s Contracts. death when requested by the covenantee, and in the meantime interest, is a liability provable (Ex pte Stone, In re Welch, L. R. 8, Ch. 914). A covenant to assign after-acquired chattels to secure a debt is also a liability capable of proof (Collyer v. Isaacs, 19 Ch. D., 342). But the possibility of a breach of a covenant not to revoke a will is not a provable debt (Robinson v. Ommanney, 23 Ch. D., 285, affirming, s. c. 21 Ch. D., 780). In a case of fraud or breach of trust the liability in equity of the tort- Fraud or feasor is to restore in specie the money or property misapplied, if it can be breach of ear-marked or traced, and if not, to make it good, consequently there is a right of proof commensurate with that liability (Ex pte Collie, 8 Ch. D., 807). trust. s. 37. Where a specified sum had been found due before the presentation of a petition from a promoter of a company, in respect of part of the purchase. money paid to him without the knowledge of the company, it was held to be a debt incurred by fraud and a breach of trust, and liberty was given to the company to go in and prove against his estate. In this case the liability of a trustee is said to arise from a breach of contract-a contract to perform his trust-and not from a pure tort (Emma Silver Mining Co. v. Grant, 17 Ch. D., 122, 130). Where a partner, the executor of a deceased partner, committed a devastavit by employing the assets in the business to an extent unauthorised by the trust, the representative of the estate of the deceased partner was allowed to prove against the separate estate of the executor whose affairs were in liquidation (Ex pte Westcott, In re White, L. R. 9, Ch. 626; Ex pte Butterfield, De G. 570, at p. 573). (4) An estimate shall be made by the trustee of the value of any debt or liability provable as aforesaid, which by reason of its being subject to any contingency or contingencies, or for any other reason, does not bear a certain value. (5.) Any person aggrieved by any estimate made by the trustee as aforesaid may appeal to the Court. (6.) If, in the opinion of the Court, the value of the debt or liability is incapable of being fairly estimated, the Court may make an order to that effect, and thereupon the debt or liability shall, for the purposes of this Act, be deemed to be a debt not provable in bankruptcy. (7.) If, in the opinion of the Court, the value of the debt or liability is capable of being fairly estimated, the Court may direct the value to be assessed, before the Court itself without the intervention of a jury, and may give all necessary directions for this purpose, and the amount of the value when assessed shall be deemed to be a debt provable in bankruptcy. (8.) "Liability" shall for the purposes of this Act include any compensation for work or labour done, any obligation or possibility of an obligation to pay money or money's worth on the breach of any express or implied covenant, contract, agreement, or undertaking, whether the breach does or does not occur, or is or is not likely to occur or capable of occurring before the discharge of the debtor, and generally it shall include any express or ss. 37, 38. implied engagement, agreement, or undertaking, to pay, or capable of resulting in the payment of money, or money's worth, whether the payment is, as respects amount fixed or unliquidated; as respects time, present or future, certain or dependent on any one contingency or on two or more contingencies; as to mode of valuation capable of being ascertained by fixed rules, or as matter of opinion. and set-off. 38. Where there have been mutual credits, mutual Mutual credit debts, or other mutual dealings between a debtor against whom a receiving order shall be made under this Act, and any other person proving or claiming to prove a debt under such receiving order, an account shall be taken of what is due from the one party to the other in respect of such mutual dealings, and the sum due from the one party shall be set off against any sum due from the other party, and the balance of the account, and no more, shall be claimed or paid on either side respectively; but a person shall not be entitled under this section to claim the benefit of any set-off against the property of a debtor in any case where he had at the time of giving credit to the debtor, notice1 of an act of bankruptcy committed by the debtor, and available against him.2 This is a repetition of s. 39 of the Bankruptcy Act, 1869, into which the words "mutual dealings" were, for the first time, introduced to enlarge the right of set-off then existing under the mutual credit clauses of the former Bankruptcy Acts. Prior to that Act, the rule had been laid down that "the legislature meant such credits only as must in their nature terminate in debts, as where a debt is due from one party, and credit given by him on the other for a sum of money payable at a future day, and which will then become a debt, or where there is a debt on one side, and a delivery of property with directions to turn it into money on the other; . . . but where there is a mere deposit of property, without any authority to turn it into money, no debt can ever rise out of it, and, therefore, it is not a credit within the meaning of the statute." (Rose v. Hart, 8 Taun., 499, at p. 506; 2 Sm. L. C., 8th Ed., 308). But in construing the Act of 1869, Brett, L.J., observes me that the expression 'mutual debts and credits' was int s. 38. all ordinary transactions between the two persons in their individual capacities, and that 'mutual dealings' was added to get rid of any questions which might arise whether a transaction would end in a debt or not. As was said by Malins, V.C., in Booth v. Hutchinson (infrà), the additional words were intended to give a more extended right of set-off than previously existed."-In this case it was held that a contract of sale and purchase imposed reciprocal obligations, so that in an action brought by the trustee of the bankrupt for the price the defendant could set off unliquidated damages for non-delivery (Peat v. Jones, 8 Q. B. D., 147). This case was followed in Jack v. Kipping, 9 Q. B. D., 113, where it was held that a claim for unliquidated damages in respect of fraudulent misrepresentations upon the sale of a chattel might be set off in an action for the price, as a breach of the obligation arising out of the contract and not as a personal tort. An authority to receive money, until revoked, constitutes a credit, which on the receipt of the money is converted into a debt; and if money be received in pursuance of such authority after the filing of a petition, but before notice of it to the agent, he may, in an action brought against him to recover the money by the trustee of his bankrupt principal, set off a debt due from the bankrupt to himself (Elliott v. Turquand, 7 App. Cas., 79). So, too, where bills have been remitted to a banker for collection, the proceeds may be set off or deducted from the amount due to the banker from the debtor (Naoroji v. Chartered Bank of India, L. R. 3, C. P., 444: Astley v. Gurney, L. R. 4, C. P., 714). Bankers, who were holders of some bills not then due, which they had discounted for a customer who became bankrupt, were held entitled to set off a balance due from them to the customer on his drawing account (Alsager v. Currie, 12 M. & W., 751). But when property or bills have been deposited as a security and not for the purpose of being turned into money so that the transaction will not, in its nature, terminate in a debt, it has been held that this does not come within the mutual credit clause (Young v. Bank of Bengal, 1 Deac., 622, S. C., I Moo., P. C., 150; Astley v. Gurney, suprà), but it is submitted that it would amount to a "mutual dealing" (Peat v. Jones, suprà). A large creditor of the bankrupt owed him a small sum in respect of which the bankrupt claimed a lien upon certain goods in his possession. belonging to the creditor: Held, that the creditor could set off the debt against his claim, and so free the goods from the lien (Ex pte Barnett, In re Deveze, L. R. 9, Ch. 293). A landlord who had covenanted to complete a house for his tenant was guilty of a breach of that covenant, and became a liquidating debtor : Held, that the tenant who was indebted to the estate for rent might set that off against his claim on the estate for the breach of covenant, it being a mutual dealing with reference to the house (Booth v. Hutchinson, L. R. 15, Eq. 30). Where a trustee made a claim against a landlord for tillages and cultivation on a farm worked by him for the benefit of the creditors, it was held that the landlord could not set off a claim for rent accrued due before the liquidation (Alloway v. Steere, 10 Q. B. D., 22). Plant was brought on to an employer's premises by the contractors under a contract, whereby it was agreed that, in case of the shension of the |