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Decisions of the Superior Courts of New South Wales, 1788-1899

Smith v. Salting [1847] NSWSupC 52

insolvency, partnership, set off

Supreme Court of New South Wales

Stephens C.J., Dickinson and Therry JJ, 7 April 1847

Source: Sydney Morning Herald, 9 April 1847, in Supreme Court Collection, Vol. 1, pp 105-106 [1]


BEFORE their Honors the three Judges.



SIR ALFRED STEPHEN, Chief Justice, pronounced judgment in this case as follows:-

This is an appeal by the plaintiffs, from so much of a decree made in Equity by His Honor Mr. Justice Therry, on the 31 st March 1846, as directs credit to be given to the defendants, in taking the accounts between them and the plaintiffs, as such assignees, for all moneys which may be due to the said defendants, under the joint and several covenant of Hosking and his then partner Hughes, dated the 20 th of April 1843. Both the members of that firm had been separately declared insolvent; and the bill here was filed by the assignees of Hosking alone, for the purpose (amongst others) of obtaining an account of all moneys received and paid by the defendants for him, arising out of advances made by them to the insolvent, on his clip of wool of the year 1843. These were secured by the said wool, and the deposit of certain deeds; which latter the plaintiffs prayed might be delivered up, and that the surplus proceeds of the wool, sold by the defendants to cover such advances, might be paid to them. The defendants admitted all the necessary facts, and that they had a surplus in hand, arising from the sale; but they claimed to set-off, against that surplus, an equal or greater amount due to them (as they maintained) by Hosking, in respect of advances to the firm, which he and his partner had, by their covenant of 20 th April 1843, jointly and severally undertaken to pay. The Primary Judge was of opinion that the defendants were entitled to that set-off; and the question for us on the appeal is, whether he was right.

The case for the appellants was very ably and elaborately argued, at the sittings after last term, by Mr. Windeyer, Mr Broadhurst, and Mr. Lowe; and for the respondents, by Mr. Foster, Mr. Donnelly, and Mr. Gordon. For the former were cited, or referred to, on the main point in debate, the following cases and authorities:-

Abbott v. Hicks, 5 B. N. C. 578; Rose v. Sims, 1 B. And Ad 521; Fletcher v. Dyche, 2. T. R. 32; Green v. Bicknell, 8 A. And E. 701; Groom v. West, same, 758; Ex parte Hanson, 18 Ves. 232; Ex parte Freeman, 1 Buck 473; Ex parte Beilby, 13 Ves. 70; Ex parte Elton, 3 Ves. 238; Ex parte Lobb, 7 Ves. 592; Ex parte Ross, 1 Buck 128; Addis v. Knight, 2 Mer. 117; Hawkins v. Whitten, 10 B. And C. 221; Arch. B. L. 110, 370, 377; and the Bankrupt Act of 6. G. IV. S.50; Sampson v. Burton, 2 B. and B. 89; Rose v. Hart, 2 Smith's L. C. 181; and lastly, the case of Young v. Bank of Bengal, 1 Moore P. C. 150. - For the respondents the following cases were relied on -

Bittleston v. Timmis, 1 M. G. And S. 389; and 2 D. And L. 817; Hanky v. Smith, 3 T. R. 507; Russell v. Bell, 8 M. And W. 277; Easam v. Cato, 5 B. and A. 867. 1 Jar. Byth. 689, 314; Atty v. Parish, 1 N. R. 104; James v. Kynnier, 5 Ves. 108; Clark v. Cort, 1 Cr. And Ph. 154; and Pearson v. Pearson, 5 B. and Ad. 861.

On the objection raised to the defendants' claim, on the pleadings, that they were bound to have alleged in their answer, that they had no notice of the insolvency, at the time when the cause of set-off accrued, the cases and authorities on either side were the following: Groom v. Mealey, 2 B.N.C. 138; Weyland v. Weyland, 2 Atk. 632; Hurst v. Parkerm 1 B. and A. 94; 1 Dan. Pr. 513; Story's Eq. P1, 678; Harris v. Ingledew , 3 P. Wms. 94; Norton v. Frecker, 1 Atk. 523; Thring v. Edgar, 2 Sim. And St. 274; and Eyre v. Dolphin, Ball and Beat 302.

Before giving the arguments, it will be necessary to state fully the circumstances, connected with the deed of 20 th April 1843, on which the claim of set-off is founded. The firm of Hughes and Hosking, long prior to the execution of that deed, were indebted to Flower, one of the defendants, (but with whom the other defendants were then unconnected,) in the sum of £10,000 or upwards, for advances made them by him; of which the repayment was secured, by mortgages over certain lands, and two vessels with their cargoes. That large sum had been reduced to £3200 or thereabouts; when Flower having entered into partnership with the other defendants, and it being agreed between them, that the amount due by Hughes and Hosking should form part of the joint assets, the deed in question was executed. It is there recited, that Hughes and Hosking had requested the new firm to advance them such sums as should the sum then due to Flower, amount to £10,000; and they covenant jointly and severally with the defendants, to pay the sum so then due to Flower, and also all such further sums as should be advanced them, by the said new firm; the same to be payable on demand. On this deed is indorsed a memorandum, not under seal, but signed by Hughes and Hosking only, to the effect that payment is to be made, out of the sale of the cargoes of the vessels, previously mortgaged to Flower, and certain other property mentioned in a letter. The date of that letter being the 29 th April, it is clear that the memorandum was not in existence, at the date (and therefore presumably, the time of the execution) of the deed, which it would seem to have been designed to control. In September following Hughes and Hosking are declared insolvent. In the interval, several transactions had taken place, between them and the defendants - moneys having been both advanced and received; - the result of which was, as sworn by Hosking, that at the time of such insolvency, the debt due them considerably exceeded the limit mentioned in the deed; nor was its amount reduced below that limit, even by the sale of the cargoes above specified. Finally, it was objected, that the defendant's claim was imperfectly asserted; for that, whereas the proviso in s. 37 allows a set-off, only, where the party had no notice of the insolvency, when he gave the credit, or the cause of his debt accrued, they should in their Answer have expressly denied such notice.

For the Respondent it was first observed, that either a mutual credit, or a mutual debt, each being within the section, would sustain the Decree; and it was contended, that this was a case of the former class. The advances were continuing, at and after the time of the delivery of the wool for sale by the defendants - who were thus entrusted with the proceeds; the amount of which, it was contemplated, (or at least it was probable,) would create a balance in Hosking's favour. All that was necessary was, that the transaction relied on should, in its nature , be one likely to end in a debt. As to the advices to Hughes and Hosking, true they were not of so much to one, and so much distinctly to the other; but they were made in consequence of and in reliance on the covenant; and were, therefore, advances of the whole to each. The covenant jointly and severally to pay, was the moving cause of these advances; and the foundation of the defendants' demand and claim. The memorandum, it was insisted, could not affect the question, even if it were binding on the defendants; for it merely provided a particular fund for payment; and left the debt , as to its nature, just where it was before. But, that memorandum was wholly inoperative. It was posterior to the deed; and was not under seal, or even signed by the defendants; there was no evidence when or why it was constructed, or how it became indorsed on the deed; and it was without consideration. With respect to the omission to deny notice, the defendants' counsel insisted that it was unnecessary in terms to do so. In a plea, it might have been necessary; but it was not in an answer: for this need never assert more, than the defendant was bound to prove. If the plaintiffs had meant to put that matter in issue, they should gave amended their bill by asserting notice; of which the proof would then (as indeed in any event) have lain upon them. The enactment as to notice, in the section, was by proviso, not exception; and there was not the same strictness, as to pleadings in equity, that prevailed at law. The fact, however, that the defendants had no notice of Hosking's insolvency, when credit was given by them, or the cause of their debt accrued, (the defendants maintained) sufficiently appeared from the answer. It was evident from the context, and the reason of the thing, that the notice to be asserted or denied was, notice of the sequestration . But the simple allegation, that the £10,000 was due at that time, involved necessarily a denial of such notice. For if, under a deed of covenant executed (as the dates on the pleadings show) six months previous, the whole debt claimed was due when the sequestration took place, notice of the sequestration at the time of such accruing due was plainly impossible.

We have considered this matter; and we are of opinion, that the objections to the decree, in the part complained of, are all untenable. We conceive, first, that it was not necessary for the defendants to deny (that is, explicitly and in terms,) that they had notice of the insolvency, at the time of the accruing of their debt. But it would seem clear that, as the defendants' counsel urged, the thing intended - of which, it is necessary that the party claiming a set-off should have had no notice, - was the sequestration . Now, the sequestration, in this case, was in September; several months after the execution of the covenant, and a time at which, according to the defendants, the whole subject of the set-off was then already in being. We incline to regard that covenant, under the circumstances, as (in the words of the enactment) the 'cause' of the debt. But, consistently with the facts alleged, it is not possible that the defendants could either then, or at the time of 'credit' given, or when the debt or any part of it was incurred, have had the notice, which it is said they should have disclaimed. Secondly, we think it quite plain that, for the reasons assigned by the defendants' counsel, the memorandum indorsed on the deed of covenant was inoperative. And, supposing that memorandum to have been effectual, for the purposes which it appears to us to have been intending to accomplish, we are disposed to think that the question of set-off, and as to the effect and operation of the covenant, would have remained the same.

Then, as to the right of set-off. We doubt if the circumstances here constituted a case of mutual credit ; for, to mutual credit, mutual trust seems to be essential. (See 2 Stor. Eq. Jur. 610, and the cases there, and in 2 Smith's L. C. 179 - and following pages.) But we have no difficulty in holding, that the case is within the 37 th section of the Insolvent Act, as one of mutual debts ; and that defendants are entitled, accordingly, under that section, to the set-off claimed by them. Concerning joint contracts, in cases of loan, Mr Justice Story says - "It seems now well established, as a general principle, that every contract for a joint loan is, in Equity, to be deemed (as to the parties borrowing) a joint and several contract; whether the transaction is of a mercantile nature or not." (2 Eq. Jur. 145.) Now, in this suit, the assignees of Hosking claim to receive a surplus, arising from the sale of his wools. But the defendants are at the same time his creditors, (as we clearly take them to be,) for much larger sums; advanced to him and his partner, under an in pursuance of an arrangement, whereby the same Hosking has specifically covenanted, for himself, to pay all such sums. Such a covenant, in our opinion, made every advance of money under it eo instant a debt, due by each of the two parties covenanting, which the defendants were entitled to set-off against each; - and which, therefore, they are entitled, on the general principles of Equity, to set-off in this suit against the assignees. We can make no effectual distinction between the advances before, and those which were made after, the execution of that covenant. All were alike advances to the same parties; and undertaken to be paid, in the same manner. But, assuming that the previous advances stand somewhat on a different footing, the moneys received by the defendants from time to time, for the firm, may be taken to have been applied in satisfaction of them; and the subsequent advances will then remain untouched.

On these several grounds, and relying on the enactment as to set-off, independently of any special jurisdiction in the Court, in a suit of this nature, we conceive the direction to the Master in this case to have been a correct one; and we therefore affirm the decree of the Primary Judge, and dismiss the appeal therefrom with costs.


[1]See also Salting v. Smith, 1848.

Published by the Division of Law, Macquarie University