The debts, therefore, must be due and payable at the time of the action, and also at the trial

Braithwaite v. Coleman, 4 N. & M., 654. Hutchinson v. Reid, 3 Camp., 329. Eyton v. Littledale, 7 D. & L., 55

9. The debts, also, must be strictly mutual: hence, if a firm sue for a partnership debt, a debt due from some members of the firm could not be a set-off. If a firm be sued, they could not set-off debts due to some of them. One partner, however, may settle a debt due to the partnership by setting-off against it a debt due from himself

The Statutes only permit set-off in the case of mutually existing legal debts. But the Bankruptcy Act goes further; it allows the set-off of mutual credit, as well as of mutual debts; and mutual credit is more extensive than mutual debt

There is mutual credit, though one of the claims constituting it is not yet due, as in the case of a bond, bill, or note, payable at a future time

Thus, if a banker is indorsee of a bill of a bankrupt acceptor or indorser, and the acceptor or indorser holds an equivalent amount of the banker's notes payable on demand, there is a mutual credit, and the banker may set-off one against the other

A Bill, accepted for the bankrupt's accommodation, is within the mutual credit clause, and may, under the Bankrupt Acts, be set-off against a demand by the assignees for money had and received to their use after the bankruptcy

If a banker, however, commits a breach of trust, as, if he receives bills or notes, with orders to apply their proceeds to a particular purpose, and, instead of doing so, converts them to his own use, he could not plead set-off

10. Mutual credit and a Lien do not destroy each other

Clark v. Fell, 4 B. & Ad., 404. Ex parte Barnett, L. R., 9 Chanc. Ap. 293

11. Under the Bankrupt Act a set-off is available in all actions, whether for debt or damages

Under the term mutual credit-the credit need not necessarily be given in money. Thus, if goods be deposited with the authority to convert them into money, that may be pleaded as set-off. Thus the mutual credit must be such as was intended to terminate in a

debt. This is manifestly the same principle as applies to bills and notes not yet due

Mutual credit, however, must actually exist at the time between the bankrupt; therefore, when the defendant promised to indorse a bill to the bankrupt, in consideration of his acceptance, it was held not to be mutual credit

12. A creditor borrows money from his debtor under an express promise to repay. He may, nevertheless, plead set-off of his original debt

Lechmere v. Hawkins, 2 Esp., B. 6.

Taylor v. Okey, 13 Ves., 180.

See also Cavendish v. Greaves, 24 Beav., 163

13. Right of set-off, under the Statute, only exists where the debts are enforceable by action

Rawley v. Rawley, 1 Q. B. D., 460

On Banking Investments

12. Though a banker is bound, theoretically, to repay every one of his customers instantly on demand, yet, as no man whatever would spend all his money if it were in his own possession, but would keep a store of it, and spend it gradually, so, when he keeps it at his banker's, he will not be likely to require it all at once, but will keep a store of it there, just as he would have done if he had kept it at home; and the banker is able to trade with it in a variety of ways, if he takes care to keep by him sufficient to meet any demand his customers are likely to make on him. The different methods in which a banker trades with the money left with him by his customers, depend very much on the class of his customers, and their occupations, and the general business of the locality he lives in. He must adapt his business in such a way as may be most suitable for the class of customers he has to deal with; so that he may never fail, for an instant, to meet any demand. If his customers are chiefly country gentlemen, whose rents are remitted regularly, and who draw them only for family expenditure, he may calculate pretty accurately on the demand likely to be made on him, and he may lend out his funds on more distant securities than are proper in other cases. Such are chiefly country bankers in agricultural districts, and those at the West End of London

But when a banker does business in a trading community, who are in constant want of their money, and whose demands are much more frequent and unexpected, he must adopt a very different line of business. He must then have his funds within reach at a very short notice, and he ought to have them invested in such property as he can re-sell on a very short notice, to meet any unexpected pressure upon him. The business of such a banker will chiefly consist in discounting bills of exchange, and is of a distinct nature from that of lending money on mortgage

We must now consider the various methods in which bankers trade. They are-1st, by discounting bills of exchange; 2ndly, by advancing to their customers, on their own promissory notes, with or without collateral security; 3rdly, by means of cash credits, or, as they are sometimes called, overdrawn accounts; 4thly, by lending money on mortgage; 5thly, by purchasing public securities, such as stock or Exchequer bills

On Discounting Bills of Exchange

13. In Chap. IV., sect. 3, we have fully explained the nature and origin of bills of exchange-in the present Chapter we have only to make some practical observations on the subject

If an abundant supply of perfectly good bills of exchange were always to be had, they are, no doubt, the most eligible of banking investments, for their date is fixed, and the banker always knows the precise day when his money will come back to him. He charges the profit at the time of the advance, and he gains it, whether the customer draws out the money or not; and, in a large bank, it must often happen that drawers, acceptors, and payees are all customers of the same bank, so that when the drawer has his account credited with the proceeds of the bill, and draws out the money, so far as he is concerned, in many cases it must often happen that the cheque finds its way to some one who is a customer to the same bank, and, therefore, the bank has reaped a profit on creating a credit, which is simply transferred from one account to another. And the same results take place much more frequently by means of the system of clearing, explained in the next Section, by which all the banks that join in it, are, in fact, but one great banking institution. If it should

happen that a customer of one of the great banks draws a cheque in favour of the customer of another, the chances are that some customer of the other bank has done precisely the same in favour of a customer of the first bank, and these claims are settled by means of the Clearing House, by being set off one against the other, without any demand whatever for coin. The more perfect, of course, the clearing system, the less coin will be required. Consequently, the greater part of banking profits are now made simply by creating credits, and these credits are paid, not in cash, but in exchanging them for other credits

When a banker discounts a bill for a customer he buys it, or purchases it, out and out from him, and acquires all his customer's rights in it, that is, of bringing an action against all the parties to it, and also of re-selling it again if he pleases, or re-discounting it, and this is one of the great advantages of discounting bills, that if there be an unusual pressure for cash on the banker, he can re-sell the bill he has bought

The bills a banker, then, has bought, are his stock-in-trade. He buys them from his own customer at a certain price, and sells them again to the acceptor, just as a hosier may buy stockings from the manufacturer, and sell them to a customer

When a banker discounts a bill he writes down the full amount of the bill to the credit of his customer, and at the same time he debits him with the discount on it

The system of discounting bills is intended to be the sale of bonâ fide debts for work done, or for property actually transferred from one party to another, and there is nothing that requires more sleepless vigilance on the part of a banker than to take care that the debts he buys are genuine and not fictitious ones. When bills are offered for sale, he ought to know whose debt it is that he is buying, and he ought to be able to form some conjecture as to the course of dealing between the parties, which could give rise to the bill. Bills should not only be among traders, but only according to a particular course of trade. We will speak of real debts in the first place; and these may arise in a number of different ways. First, between traders in the same business, and, secondly, between traders in different species of business, but yet for work done. If we take the case of manufactured or imported goods, there are usually three stages they pass through-1st, from

the manufacturer or importer to the wholesale dealer; 2ndly, from the wholesale dealer to the retail dealer; and, 3rdly, from the retail dealer to the consumer. Each transfer of property may give rise to a bill; but, of these, the first two are by far the most eligible, and are most peculiarly suitable for a banker to buy; the third should only be purchased with very great caution, and but rarely

There are other cases of good trade bills, when one business requires the supply of different productions, such as a builder requires a supply of wood, lead, slates, bricks, and other materials

Hence, a bill of a wood merchant, or a lead merchant, on a builder, would be a very natural proceeding, and apparently a proper trade bill. Again, bills may legitimately arise between traders of wholly different descriptions, but yet for work done. Thus, if a builder fits up premises for a shopkeeper or merchant, a bill between the parties for the work done is a very legitimate one for a banker to discount. All these bills, therefore, follow the natural course of trade, and carry the appearance, on the face of them, of being genuine

But if a banker sees bills drawn against the natural stream of trade, it should instantly rouse his suspicion. Thus, a bill drawn by a wholesale dealer upon a manufacturer, or by a retail dealer upon a wholesale dealer, would be contrary to the natural course of trade, and should arouse suspicion. A bill drawn by a lead merchant upon a builder would be proper on the face of it, if there were nothing to excite suspicion; but a bill of a builder upon a lead merchant would be suspicious, unless it were satisfactorily explained. Moreover, bills of one person upon another, doing the same business, are suspicious upon the face of them. Thus, a bill of one manufacturer upon another, in the same business, or between one wholesale dealer and another, are evidently suspicious, because there is no usual course of dealing between them. Besides, such bills are chiefly generated in speculative times, when commodities change hands repeatedly, on speculation that the prices will rise. Bankers should be particularly on their guard against buying bills drawn against articles which are at an extravagant price, in times of speculation

As it by no means commonly happens that the drawers and acceptors of bills are customers of the same bank, the banker is