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8 44.

Rule in Waring's case.

strangers to effect an equitable administration of the estates of the drawer and acceptor of a bill where both are insolvent, seems to be an extension of the principle which led a Court of Bankruptcy, even without express enactments, to appropriate the joint estate primarily to meet the joint liabilities, and vice versá as to separate estate and separate liabilities.

That the rule that the appropriation of joint estate primarily to meet joint liabilities is founded, like the rule in Waring's case, on the equities of the partners as between themselves, and not on any quasi lien which the joint creditors have on the joint property, seems proved by the fact that agreements between the partners altering the character of partnership property, and converting it into the separate estate of one of the partners, if made bona fide and previous to the commission of any act of bankruptcy, is binding on the trustee in bankruptcy. (Ex p. Ruffin, 6 Ves. 119.)

Where, however, two firms engaged in a joint transaction for the purchase of goods for sale on joint account to be paid for by the proceeds of bills drawn by one firm upon the other, it was held that although the rule in Waring's case applied so as to entitle the bill-holders to have the cotton, which happened to be in the hands of a trustee of the estate of one of the firms, specifically appropriated to meet the bills, yet that this right was subject to the right of the joint creditors of the combined firms to have the cotton, which was part of the joint estate of the combined firms, applied to the payment of their debts. (Ex p. Dewhurst, re Leggatt, L. R. 8 Ch. 965.)

Bill-holders who have had the benefit of the rule in Waring's case are not thereby precluded from proving for the balance after deducting the amount realised by the appropriated securities, against the estates of the drawer and acceptor pari passu with the other creditors (City Bank v. Luckie, L. R. 5 Ch. 773—778), but it is for the balance only that they can prove, and when the benefit is received after proof, the proof must be proportionately reduced, and the dividends on the excess returned. (Re Barned's Banking Co., ex p. Joint Stock Discount Co., L. R. 10 Ch. 198.)

The rule in Waring's case has never been applied except in the case of holders of bills of exchange, but there seems no reason why it should not be extended to all cases where a joint administration of the two insolvent estates is impossible without it, and it is submitted that this always is so where there are two or more insolvents liable in respect of the same contract and one of the insolvents has deposited with another securities to meet the joint liability. Thus in Ex p. Smart, re Richardson, L. R. 8 Ch. 220, the rule in Waring's case was applied in favour of the drawer and holder of a bill, although

§ 44. the insolvent depositor of the securities was not a party to the bill, but only liable to the drawer for the price of goods sold by the drawer to the depositor, and paid for by bills in respect of which the drawer was covered by the deposit of short bills.

The doctrine of Ex p. Waring does not apply to a case where the bills drawn by one of the insolvent firms upon the other have not been accepted, nor in any other case in which the holder of the bills has no right of double proof entitling him to prove against each of the insolvent estates (Vaughan v. Halliday, L. R. 9 Ch. 561 ; see, however, Sheppard v. Harrison, L. R. 5 H. of L. 116), nor where a consignor directed his consignee to place the invoice price of goods to his credit, and the bills drawn against them to his debit, such a direction not amounting to an appropriation of the goods to protect the bills. (Ex p. Banner, re Tappenbeck, 2 Ch. D. 278.) Where, however, the consignor directs the consignee to apply the proceeds of goods in a particular way, the consignor still remains the owner of the goods, and his direction may amount to an appropriation : ibid. per Mellish, L. J., at p. 289.

But it is not in every case where there is a double insolvency and a double right of proof that this doctrine is applicable; there must also be something which the administrator of one insolvent estate is entitled to call upon the administrator of the other insolvent estate in whose possession it is to realise for the purpose of meeting their common liability. (Ex p. Lambton, re Lindsay, L. R. 10 Ch. 405.) It is not necessary for the application of the rule in Waring's case that there should be judicial insolvencies. It is sufficient if both the estates which are being administered are really insolvent (Powles v. Hargreaves, 3 De G. M. & G. 430; In re The New Zealand Bank, L. R. 4 Eq. 226 ; Ex p. Alliance Bank, re General Rolling Stock Co., L. R. 4 Ch. 423); but they must both be under judicial administration. (Re Yglesias, L. R. 10 Ch. 635.) On the administration of solvent estates by a Court the rule is not applicable, and therefore the mere fact that a company is being wound up by the Court is not sufficient to cause the Court to apply the rule if the company being wound up be not proved insolvent. (In re The New Zealand Bank, ubi sup.)

It was stated by Lord Cranworth, in Powles v. Hargreaves, Quære, ap: ubi sup., that the order in Ex p. Waring as drawn up,

rule in Ex p. tinctly provided for the case of the short bills deposited being Waring to equal or more than sufficient or being insufficient, and ex- cases where pressly provided that if insufficient the parties holding the appropriated

“dis- plication of

§ 44.

acceptances were to prove for the deficiency;" and ever since

that decision the rule in Ex p.Waring has been applied even property in

to cases where the security was deficient, and the persons who sufficient to meet the debt. had the benefit of the rule had to prove for a deficiency. But

Lord Selborne, in the recent case of The Royal Bank of Scotland v. The Commercial Bank of Scotland, 7 App. Ca. 366, a case in which the question to be decided was merely whether the rule in Ex p. Waring applied to an administration in Scotland, while holding that it did not, expressed an opinion that the reasons assigned by Lord Cranworth to justify the extension of the rule to the case of a deficient security were unsatisfactory if applied to the contract before him, and appeared to overlook the fact that, when the whole benefit of a deficient security is given to the bill-holder, the estate of the bankrupt acceptor may lose some part of the indemnity to which, by the contract, he is entitled. It seems quite possible now that, even in English administrations, the application of the rule in Ex p. Waring will be limited to cases where the

security is sufficient. Trusts arising Lastly, then, there is the third class of trusts, where the from employ- bankrupt has not the general, but only a special property, ment of bank. rupt.

c.g., where property is vested in the bankrupt as an agent, such as a factor, &c.

Such property, so long as it or its proceeds remain distin

guishable from the mass of the bankrupt's property, will not pass Factors.

to the trustee of the creditors. Thus, it was formerly laid down that if a bankrupt factor had sold goods and the price was not yet paid, or bills given for the price, neither the right to recover the price nor the bills would pass to the trustee in bankruptcy, but if the bankrupt factor received the price of the goods sold by him, his principal must, unless the money so received was earmarked, prove for the amount pari passu with the other creditors. ( Whitcomb v. Jacob, i Salk. 160; Godfrey v. Furzo, 3 P. Wms. 187; Taylor v. Plumer, 3 M. & $. 562; Ex p. Sayers, 5 Ves. 168 ; Scott v. Surmon, Wils. 400.) But in Ex p. Cooke, re Strachan, 4 Ch. D. 123, it was held that money paid by a broker into his banking account, could be followed by a customer. See Re Hallett's Estate, Knatchbull v. Hallett, 13 Ch. D. 696, and ante, p. 166. It has been said (Taylor V. Plumer, 3 M. & S. 1562, 575) that the reason why money, the proceeds of goods deposited with a factor, passes on the bankruptcy of the factor to the trustee in bankruptcy, is that money intermixed with other monies cannot be distinguished; but it would seem from the cases of Frith v. Cartland, 34 L. J. Ch. 301, and Pennell v. Deffell, 23 L. J. Ch. 115, that this is not so, and that the true reason why the Court of Bankruptcy will not appropriate to the principal money so received and intermixed by the § 44. factor is that, according to the ordinary course of business between merchants and their factors, the former voluntarily become the creditors of their factors in respect of the monies so received, whereby the monies, although the proceeds of goods received on trust, lose their trust character.

It is always to be remembered that, although goods in the hands of an agent may be easily distinguishable, they may yet, on the bankruptcy of the agent, pass to his trustee if the principal has permitted the agent to have a possession not consistent with the ordinary usages of trade, and raising a reputation of ownership in the bankrupt. Goods bought by the bankrupt with the proceeds of property deposited with him can be followed by the cestui que trust if such goods can be identified, even though the purchase of them is a breach of the trust. (See Taylor v. Plumer, 3 M. & S. 562; Ex p. Sayers, 5 Ves. 168.)

So, too, in the case of bills remitted to a banker by a Bankers. customer, it is established that if they are not remitted for a particular purpose, but in the nature of discount, they pass on the bankruptcy of the banker to the trustee in bankruptcy (Ex p. Sargeant, i Rose, 153); but if remitted for a particular purpose they continue the property of the remitter, notwithstanding the bankruptcy. (Parke v. Eliason, 1 East, 544 ; Thomson v. Giles, 2 B. & C. 422.)

As to the application of this rule to what are termed “ short Short bills. bills,” it has long been settled that if a party place in his banker's hands bills not yet due, the property continues in the party paying them in, for, as it is well known that bankers receive bills as factors or agents in order to obtain payment of them when due, they do not pass to the trustee in bankruptcy of the bankers. (Thomson v. Giles, ubi

sup.; Giles v. Perkins, 9 East, 12; Ex p. Barkworth, 27 L. J. Bank. 5; 2 De G. & J. 194; Ex p. Twogood, 19 Ves. 229; Ex p. Pease, Buck, 525; 19 Ves. 25.) In all these cases with reference to bills held by bankers, the question to be decided is one rather of fact than of law, that is, whether the bills were received by the banker, as agent, or as purchaser. The fact that the banker has entered the bills as cash, or that he has allowed the customer to draw against the bills, or that the customer has endorsed the bills, is not, in itself, sufficient on the bankruptcy of the banker to entitle the trustee to hold the bills as against the customer. The test in such cases would seem to be whether the amount, or price of the bill, constituted an immediate debt due to the customer from the banker upon the receipt of the bill.

payer cannot

§ 44.

(Thomson v. Giles, 2 B. & C. 422; Ex p. Twogood, 19 Ves. 229;

Ex p. Pease, Buck, 525; 19 Ves. 25.) Money paid Where a person pays money into a bank to be applied in a in for

specific specific manner, and the banker stops payment before taking purpose. any steps towards applying it to the purpose,

the recover the money paid, but has merely a right of proof as a general creditor. (In re Barned's Banking Co., ex p. Massey, 39 L. J. Ch. 635.) Aliter where the banker has, by applying it as directed, ceased to be merely a debtor of his customer in respect of the money so paid in. (Farley v. Turner, 26 L. J.

Ch: 710.) Johnson v. In the case of Johnson v. Robarts, L. R. 10 Ch. 505, the facts Robarts.

were as follows:- The plaintiffs paid to their bankers, Wilde & Co., on the 11th December, the sum of £2,422, partly in cash and partly in bills, falling due, some in March and some in April following, for the purpose of meeting acceptances of the plaintiffs, payable at Robarts & Co., in London, on December 13th. Wilde & Co., on the same day, sent up

the bills in question, together with some cash and cheques, and asked Robarts & Co. to pay the acceptance of Johnson, coming due on the 13th, and to debit them with the amount. Robarts & Co. acknowledged the receipt of Messrs. Wilde's letter, but did not honour the acceptances of the plaintiff. It was held that there was no specific appropriation of the bills so forwarded by Wilde & Co. in the hands of Robarts & Co. to meet the plaintiff's acceptances, but that Robarts & Co., who were large creditors of Wilde & Co., were entitled to retain the bills. This decision seems distinguishable from Farley v. Turner, both on the ground that the bills, being paid in to Wilde & Co. in the nature of discount, were never specifically appropriated as between the customer and his bank, and also because there was no specific appropriation as between the banks themselves; whereas in Farley v. Turner, where the question was one merely between the customer and the assignee in bankruptcy of the country bankers, the money paid to the country banker in order that part of it might be remitted to London to meet bills payable there, although, at one time, a mere debt from the country banker to the customer had, before the bankruptcy, assumed a shape in which it could be

earmarked as the proceeds of the customer's money. Bankers' lien. It must always be remembered, with reference to securities

deposited with bankers as bankers by a customer, that they have a general lien on them for the amount of their general balance, unless there be an express contract, or circumstances that show an implied contract, inconsistent with lien. Lord Kenyon says, in Davis v. Bowsher, 5 T. R. 491 :—" Bankers have a general lien on all securities in their hands for their general balance, unless there be evidence to show that any

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