works for any act or default of the contractors, the same should be “subject ss. 38, 39. to be used" in or about the completion of the works: Held, that this was not a "dealing" within the clause, and that the value of the plant could not be set off by the employers against the sum due to them from the bankrupt contractors for breach of contract (In re Winter, Ex pte Bolland, 8 Ch. D., 225). Joint debts cannot be set off against separate debts, or separate debts against joint (Ex pte Christie, 10 Ves., 105; Ex pte Twogood, 11 Ves., 516; Ex pte Soames, 3 Deac. & Ch., 320). Neither can a debt due to a person en autre droit, as executor or trustee, be set off against one due from him personally (Bishop v. Church, 3 Atk., 691; Middleton v. Pollock, L. R. 29, Eq. 29). Where an account was kept with bankers, who became bankrupt, in the joint names of two executors, it was held, that one of them who was also residuary legatee could not set off the balance on that account against a claim by the bankers' trustee for a deficit on his own separate account (Ex pte Morier, In re Willis, Percival & Co., 12 Ch. D., 491), and distinguished from the case of Bailey v. Finch, L. R. 7, Q.B., 34, on the ground that the executor in that case was legally entitled to the monies transferred into his name as executor, and that there was a legal right to set that account against his separate account, there being no notice of any equity to countervail the legal right. If a trustee is suing on behalf of his cestui que trust, the defendant may set off a debt due to him from the cestui que trust, e.g., a holder of a bill of exchange, who had received part payment from the drawer's estate and was therefore a trustee as to that payment for the drawer, sued the acceptor : Held, that the acceptor might set off a debt due to himself from the drawer (Thornton v. Maynard, L. R. 10, C. P., 695). Where a principal is suing in respect of a contract made by a del credere agent, the defendant cannot in the event of the bankruptcy of the agent avail himself of the mutual credit clause by way of set-off, as that is intended for the settlement of transactions between bankrupts and persons dealing with them, neither can he claim the benefit of the rule in George v. Clagett, 7 T. R., 359, in such a case (Turner v. Thomas, L. R. 6, C. P., 610). A broker, who has effected policies in his own name, so as to become personally liable to the underwriters and on the other hand to be able to enforce payment against them in his own name, can, in an action, brought by the trustee of the bankrupt underwriters for the premiums, set off losses happening before the bankruptcy (Koster v. Eason, 2 M. & S., 112; Lee v. Bullen, 8 E. & B., 629, n; 27, L. J., Q. B., 161). 1 As to what is notice, see note (4) to s. 49, on p. 85, infrà. * i.e., an act of bankruptcy committed within three months next preceding the presentation of the petition, see note (5) to s. 49, on p. 86, infrà. debts. 39. With respect to the mode of proving debts, the Rules as to right of proof by secured and other creditors, the proof of admission and rejection of proofs, and the other matters. referred to in the Second Schedule, the rules in that schedule shall be observed. s. 40. Priority of debts. 40.-(1.) In the distribution of the property of a bankrupt there shall be paid in priority to all other debts,— (a.) All parochial or other local rates due from the bankrupt at the date of the receiving order, and having become due and payable within twelve months next before such time, and all assessed taxes, land tax, property or income tax, assessed on him up to the fifth day of April next before the date of the receiving order, and not exceeding in the whole one year's assessment; (b.) All wages or salary of any clerk or servant in respect of services rendered to the bankrupt during four months before the date of the receiving order, not exceeding fifty pounds; and The service required must be of some permanency, something more than weekly. It is immaterial that the wages or salary are paid every week, if the engagement for service is of a more permanent nature (Ex pte Collier, 4 Deac. & Ch. 520; 2 Mont. & Ayr. 29; Ex pte Humphreys, 3 Deac. & Ch. 114; Mont. & Bl. 413). As a rule the employment should have continued up to the time of the bankruptcy (Ex pte Gee, Mont. & Chit. 99; 3 Deac. 563; Ex pte Saunders, 2 Mont. & Ayr, 684). An agreement, that the clerk shall have some remuneration or benefit in addition to his salary, will not deprive him of his preferential claim to the latter (Ex pte Hickin, 3 De G. & Sm., 662; Ex pte Harris, De G. 165), nor absence from illness with his employer's consent (Ex pte Harris, suprà). A mate of a ship (Ex pte Homborg, 2 Mont. D. & De G., 642), and a traveller (Ex pte Neal, Mont. & McA. 194) have been held to come within the description, clerk or servant. A music master and a drill serjeant, who were engaged by a bankrupt schoolmaster to give a certain number of lessons per week to his pupils, were held not to be entitled to priority (Ex pte Walter, In re Heath, L. R. 15, Eq. 412). (c) All wages of any labourer or workman, not exceeding fifty pounds, whether payable for time or piece-work, in respect of services rendered to the bankrupt during four months before the date of the receiving order. This provision will meet such cases as Ex pte Grellier, Mont. 264; Ex pte Crawfoot, Mont. 270. The employment must be direct from the bankrupt, therefore where a colliery proprietor employed colliers who engaged their own "drawers," it was held that the "drawers were not labourers or workmen of the bankrupt (Ex pte Ball, 3 De G. M. & G. 155). (2.) The foregoing debts shall rank equally between themselves, and shall be paid in full, unless the property of the bankrupt is insufficient to meet them, in which case they shall abate in equal proportions between themselves. It is not expressly enacted that these debts shall be paid out of the first monies coming to the trustee, and the costs of the petitioning creditor, if so ordered by the Court, would have to be paid in priority to them (r. 154; see, too, Ex pte Hampson, 2 Mont. D. & De G. 462), but the trustee would not be justified in postponing payment to enable him to use the funds in his hands for the purpose of proceeding against the bankrupt under the Debtors Act (Ex pte Powis, In re Bowen, L. R. 17, Eq. 130). These preferential claims must be provided for in a composition or scheme of arrangement, otherwise it cannot be approved by the Court (s. 18 (14) ). (3.) In the case of partners the joint estate shall be applicable in the first instance in payment of their joint debts, and the separate estate of each partner shall be applicable in the first instance in payment of his separate debts. If there is a surplus of the separate estates it shall be dealt with as part of the joint estate. If there is a surplus of the joint estate it shall be dealt with as part of the respective separate estates in proportion to the right and interest of each partner in the joint estate. No transfer of a surplus from a separate estate to a joint estate on the ground that there are no separate creditors shall be made until notice of the intention to make such transfer has been gazetted (r. 215). s. 40. Whether property is the joint property of partners or the separate Joint and property of one of them depends upon the arrangements bonâ fide made by separate the partners among themselves, and not upon any lien or equity on the estate. part of the creditors. If, therefore, the partners have bond fide converted what was joint estate into separate estate the joint creditors of the firm have no equity to disturb the arrangement (Ex pte Ruffin, 6 Ves., 119; Ex pte Williams, 11 Ves., 3; Ex pte Walker, In re Walker, 4 De G., F. & J. 509), e.g., where shares in a company standing in the name of one of the partners have by agreement among the partners been converted into partnership property (In re Collie, Ex pte Manchester and County Bank, 3 Ch. D., 481; Ex pte Connell, 3 Deac., 201; 3 Mont. & Ayr., 581). If, on the other hand, the conversion is fraudulent, as where the firm and the partners are on the eve of bankruptcy, the assignment may be avoided at the instance of a joint creditor, and the property will be divisible as joint estate (Ex pte Mayon, In re Wood, 34 L. J. Bankr. 25, s. c. 13, W. R., 629; In re Kemptner, L. R. 8, Eq. 286 cf. Ex pte Peake, 1 Madd., 346). Again, where the agreement between the retiring and continuing partners can be set aside, or is executory, the conditions thereof being unperformed, then the original character of the property as joint estate is restored (Ex pte Rowlandson 1, Rose 416, 2, V. & B., 172; Ex fte Wheeler, Buck 25; Ex pte Wood, In re Wright, 10 Ch. D., 554). By articles of partnership between A. and B. the capital of which belonged to A., it was agreed that on the death of A. the partnership should be dissolved, and that B.'s share of the profits should thenceforth belong to A.'s representatives who should carry on the business, and that B. should receive from them his share of the profits up to A.'s death. A. died having appointed B. his executor who carried on the business for some months and then became bankrupt. It was held that the deed had not the effect of converting the stock-in-trade into separate estate of A., but that so much as remained in specie was joint estate, and that what had been brought in since A.'s death was the separate estate of B. (Ex pte Morley, In re White, L. R. 8, 1026). The principle of this decision was followed in Ex pte Dear, In re White, 1 Ch. D., 514; Ex pte Manchester Bank, In re Mellor, 12 Ch. D., 917, affirmed sub tit. Ex pte Butcher, In re Mellor, 13 Ch. D., 465. But where the articles provided that on the death of a partner the partnership should not be dissolved but that the business should be carried on by the survivors, it was held, that their effect was to make the joint estate of the original firm assets of the new firm, and that the joint creditors of the old firm were entitled to be paid rateably only with the new creditors (In re Simpson, L. R. 9, Ch. 572). Two persons carried on business as partners, and on becoming bankrupt alleged that the goods were by agreement the property of one of them, but the Court held that they formed joint estate (In re Rowland, L. R. 1, Ch. 421). What was the separate property of one of the partners may by agreement become joint estate (Ex pte Owen, In re Bowers, 4 De G. & Sm., 351). Any surplus of the separate estate of a man who is a partner in different firms, becoming bankrupt, is applicable to the discharge of the partnership debts of the respective firms in proportion to the amount of the debts proved against the joint estates of such firms respectively (Ex pte Franklyn, Buck, 332). If there is no joint estate, or no solvent partner who can be sued, the joint creditors may prove against the separate estates of the partners (Ex pte Sadler, 15 Ves., 52; Ex pte Bradshaw, 1 Gl. & J., 99; Ex pte Bauerman, 3 Deac., 476), but not if there is any joint estate at all, however small in amount, nor if any of the partners is not actually bankrupt (Ex pte Janson, 3 Madd, 229; Ex pte Peake, 2 Rose, 54). A joint creditor, after realising his security on the joint estate, may prove for the difference against the separate estate if there is no other joint property (Ex pte Geller, 2 Madd., 262). Proof may be made on behalf of the joint estate against the separate estate of a partner for money fraudulently drawn out by him (Ex pte Harris, 2 V. & B., 210, 1 Rose, 437; Lacey v. Hill, 4 Ch. D., 537, affirmed sub tit. Read v. Bailey, 3 App. Cas., 94). If there are no separate creditors, or if the joint creditors pay off any there may be, then the joint creditors may prove against the separate estate (Ex pte Chandler, 9 Ves., 35; Ex pte Taitt, 16 Ves., 193). A joint creditor may prove against the joint estate without giving up his security on the separate estate of one of the partners (Ex pte Peacock, 2 Gl. & J., 27; In re Plummer, 1 Ph., 56, at p. 60; Rolfe v. Flower, L. R. 1, P. C., 28). An inquiry may be directed to ascertain whether there is any joint estate (Ex pte Birley, 1 Mont. D & De G., 387; Ex pte Peake, 2 Rose, 54). When joint creditors, having the right, have elected to prove against the separate estate of one of the partners, there is a right of contribution on behalf of that estate against the separate estates of the other partners (Ex pte Willock, 2 Rose, 392; Ex pte Reid, 2 Rose, 84). For the purpose of voting, a joint creditor may prove his joint debt where a receiving order is made against one partner only (Sch. I., s. 13). s. 40. A separate creditor, who under a mistake of fact has proved against the Separate joint estate of the partnership, may have his proof transferred to the creditors. separate estate (Ex pte Vining, 1 Deac., 555). A separate creditor may prove against the separate estate without giving up his security upon the joint estate (Ex pte Shepherd, 2 Mont. D. & De G., 204, s.c., sub tit. In re Plummer, 1 Ph., 56.; see the judgment in Ex pte West Riding Union Banking Co., In re Turner, 19 Ch. D., 105, at p. 113). When joint creditors have elected to prove against the separate estate of one partner, so as to produce a surplus of joint estate, the separate creditors of that estate will be entitled to credit for the dividends paid on such proofs in the distribution of the surplus amongst the separate estates (Ex pte Reid, 2 Rose, 84; Ex pte Willock, 2 Rose, 392). So, too, the separate creditors of one partner will be entitled to a lien on any surplus of joint estate in respect of bills of exchange, drawn in the name of the firm by the other partner for a separate debt, and proved against the joint estate (Ex pte King, 17 Ves., 115; 1 Rose, 212). Proof may be made on behalf of a separate estate against the joint estate in respect of property fraudulently applied to partnership purposes, whereby the joint estate has been increased at the expense of the separate creditors of that estate (Ex pte Harris, 2 V. & B., 210; 1 Rose, 437). If it is necessary to protect the interests of the separate against the joint creditors, in the case of a separate adjudication against one member of a firm, it seems that the Court still has power to appoint an inspector (Ex pte Melbourn, In re Melbourn, L. R. 6, Ch. 835). Joint creditors are not, in the absence of any security, entitled to interest Interest. accrued due subsequently to the date of the receiving order upon their debts, unless the separate creditors have been paid in full, and the converse of the rule holds good (Ex pte Findlay, In re Collie, 17 Ch. D., 334; see also sub-s. (5), infrà). Where the members of a firm are liable collectively as a firm and also Joint and individually upon the same contract, the creditor can prove against the separate creditors. |