security in circumstances like the above, the inhibitor was entitled to begin with the last in date, and draw from them backward in succession, until he recovered so much as would make his dividend what it would have been had there been no voluntary security. The inhibitor can neither be benefited nor injured by a subsequent voluntary security, and thus if the voluntary security be followed by adjudications, the inhibitor only draws so much as he would have been entitled to had there been no subsequent voluntary security, but not what he would have been able to draw had there also been no adjudication.2

SECT. 5.-Compensating and Joint and Cross Obligations.

3

Compensation, or set-off, takes place where two parties are mutually in the position of debtor and creditor to one another, and it has the effect of extinguishing their debts to the extent to which their amounts are common. The debts must be distinct liquid sums, and due. There is no compensation between a past debt and a future or contingent obligation. It is observed by Erskine, that compensation only takes place when the cross debts are of the same species, and that it may be "receivable in quantities of corns, or other fungibles, provided the fungibles be of the same good quality, e. g. two quantities of wheat of equally good growths." But, practically, the operation of compensation is confined to debts. Debts cannot compensate each other where the bankruptcy of one of the parties intervenes between the contraction of the debts; nor can a right of compensation be created within the sixty days before bankruptcy. (See below, p. 368.) As to questions of compensation in transactions with companies, see below, p. 364.

Cautionry. A cautioner who pays the debt he has guaranteed may rank for it on the principal debtor's estate. If a cautioner fail before the principal debtor has been discussed, the creditor may rank on his estate for a contingent debt.7 Where the cautioner and the principal have failed, the creditor is, at common law, entitled to rank for the full debt on each estate, to the effect of drawing payment, but no more.8 The practice seems to be different in England, where a creditor having received part-payment from one party can only rank for the balance on the estate of an

1

Lithgow v. Armstrong's Creditors, 10th January 1747, M. 2896.Gordon v. Campbell, App. 2d August 1842. 1 Bell, 563.-3 E. iii. 4, 14, 15.- Ibid. 15.- B. C. ii. 129. B. C. i. 348.-7 Ibid. 350.— Ibid.

other. There can be no double claim on the estate for the same debt, either by the original debtor or a person holding through him; and so a cautioner, who has not paid the debt he has guaranteed, can only claim as a contingent creditor for a dividend to be set apart to meet his claim when he shall have paid the debt. If the creditor is paid a dividend, and receives the remainder from the cautioner, the same effect will be produced, and the cautioner will not be entitled to rank.2 As to like cases in Sequestrations, see below, p. 384.

Bills. The principles of cautionry and joint obligation will hold in bills of exchange. Each party who appears on the bill however is liable in full to the holder, who can thus rank on each estate for the whole amount, to the effect of getting complete payment of his debt.3 But see the rule in Sequestrations as set forth below. In cases of cross bills compensation and cautionry are often mixed up with each other, and the extrication of the just principle of ranking is difficult and complicated. The following general principles appear to be established in this complicated species of ranking.

"Mutual Accommodation, and one Party Bankrupt.-When parties have accepted bills for each other's accommodation, and one of the parties becomes bankrupt, the solvent party having to pay both sets of bills, can only rank on the other party for the acceptances of that party, and cannot rank for the bills accepted by himself for the other party's accommodation.

"Several Obligants, and all Bankrupt.-Where there are obligants each jointly liable for the whole debt, and all are bankrupt, the creditor may rank on each estate to the full extent of his debt, to the effect of drawing from the whole of them the full debt and no more; but the one bankrupt estate has not, in such circumstances, a right to rank upon any of the others for what it may have paid, for this would be, in effect, a double ranking for one debt. When there are bills or notes which have passed between two sets of parties, and they become both bankrupt, such of the bills or notes as are in the hands of bonâ fide holders for value, rank on both estates, the right of the holders not being affected by any questions between the estates, arising out of the one having obtained more accommodation than the other.

"Exchanged Acceptances.-Acceptances, notes, or other descriptions of negotiable paper, may be exchanged. In case

1

1 Henley's B. L. 155.—2 B. C. ii. 527.—3 Th 748.

of the bankruptcy of the parties, bonâ fide onerous holders will rank on all the estates whose names appear as obligants on such paper. In England it is held that each bankrupt estate may prove against the other on such paper, but only to have a dividend set apart to be paid when that other is relieved of any liabilities it may be under for the paper it received in return for that which it gave. No rule on this subject has been clearly established in Scotland.

Deposited Bills. If a creditor holding in deposit separate bills by third parties, covering separate parts of a debt, should fail to recover from the several obligants on these bills the whole of his debt, he may rank for the whole amount on the estate of the principal obligant, to the effect of drawing the balance unpaid in dividends."*

It must be kept in view in all cases of counter-ranking, that no inequality in the respective dividends can affect the claims of the estates upon each other, a dividend standing in every case in place of the full sum due.

SECT. 6.-Ranking on the Estates of Companies and
Partners.

In England, on the bankruptcy of a company and of the partners, the estate of the company and the estates of the respective partners are kept separate. The estate of the company must meet the debts of the partnership creditors before the creditors of the partners can claim; and, in like manner, the estate of each partner is liable in the first place for his particular debts, and it is only in the case of a surplus that those of the company can rank.1 In Scotland, the company's estate is, in the first place, exclusively set aside for the creditors of the company (those of the individual partners having a claim only in case of a surplus), and, on there not being sufficient funds to meet their claims, they are entitled to rank for their respective balances on the estates of the partners. Where a company has engaged with any other company, or with an individual, in a joint adventure, the creditors of the joint adventure will be entitled to have any funds belonging to it in the hands of the company kept apart for themselves. In such a case the creditors will have their first claim on the funds of the joint adventure. They will

See the Law of Bankruptcy, &c., 26-50, where the authorities and illustrations are set forth. Smith's M. L. 602.-B. C. ii. 660. Dunlop, &c. v. Spiers, &c. 4th July 1776. M. 44610,-+ See below, p. 384.

then rank for the balance on the funds of the company with the other creditors of the company, and finally rank for the remaining balance on the estates of the partners along with their individual creditors. Where one of two partners retiring, the other carried on business in the name of the firm, it was found that there could be no separate ranking against him as a firm and as an individual. It is a general rule that in cases of bankruptcy, transactions with a company and transactions with individual partners, cannot be pleaded against each other as compensation by the company or its creditors. Thus it is held that the debt of a partner cannot be pleaded as compensation of a debt due to the company by his creditor. On the other hand, however, it is said that a company perfectly solvent may make an arrangement by which one of its partners may take the burden of a debt due by the company, and so entitle the company to plead compensation.3

SECT. 7.-Ranking of Deceased's Creditors against his Representatives.

A debt which is specifically a burden on the heritable estate of the deceased must be paid from the heritage. A moveable debt, or any simple debt not specially fixed on the heritage, is a burden on the executry,* the heir to the heritable property being liable if the moveable property be insufficient to meet it. There are various classes of heirs to the heritable property, the one being liable on the failure of another. The heir of line is first liable, then the heir of conquest, and lastly, the heir of provision.+ If one of these be specially burdened with the debt he is liable in the first place.4 Where one of the next of kin, or any other successor to the moveable property, pays an heritable debt, or the heir of the heritage pays a moveable debt, or any heir pays a debt for which he is not primarily responsible, he has recourse against the heir who is so.5 As to the order in which legatees are liable, see above, p. 110. The executor may pay the privileged debts, as above described (see p. 356), without judicial sanction. He cannot pay unprivileged debtors till the expiry of six months after the death of the debtor, and all who cite the executor within that time are on a par. The creditors of the defunct using diligence within

B. C. ii. 661.-2 Reid v. Chalmers, 10th July 1828.-3 B. C. ii. 664.See above, p. 104.- Ibid. p. 90, et seq.- E. iii. 8, 52.-5 Ibid.- See this discussed above, p. 115.

year and day after the debtor's decease are preferable to the creditors of the next of kin succeeding to him.'

The apparent heir in heritage is allowed a year and day to deliberate whether or not he shall adopt the succession with the burdens to which his ancestor may have subjected it. As a converse of this privilege, no deed by the heir executed within the year is effectual to convey or burden the estate to the prejudice of his ancestor's creditors.3 The act embraces every description of alienation, whether gratuitous or onerous. By the same statute it is provided, that all creditors of the deceased who do diligence against the real estate within three years after the death of the deceased, are preferable to those of the heir. Sequestration is a completed diligence for all concerned, which will secure the preference of the creditors of the ancestor during the three years, without their requiring to adopt special proceedings.*

Heir Three Years in Possession.-If a person has been three years in possession of an estate as heir apparent, or without having made up regular titles (see above, p. 101), his successor, who serves heir, not to him, but to his ancestor who was last infeft in the property, becomes answerable for his debts to the amount of the succession, having recourse upon his executors or other representatives, who may be primarily liable as above. If several heirs apparent have been thus successively in possession, each for three years, the next heir who serves becomes liable for the debts of all. Before the debts of the heir apparent can be paid from the estate, those of the person to whom the heir who is entering serves, and those of the heir entering, must first be paid.5 For sequestration of the estate of a deceased debtor, see below, p. 376.

CHAPTER II.

SIMPLE INSOLVENCY AND NOTOUR BANKRUPTCY.

SECT. 1.-Introductory Notice.

In England the word bankruptcy is generally used to express the process analogous to the sequestration law of Scotland,

1

1695, c. 41.- E. iii. 8, 54.-3 1661, o. 24.-E. iii. 8, 102.- See Law of Bankruptcy, &c., 112.-5 1695, c. 24. E. iii. 8, 94. S. H. S. ii. 68, et seq.