ties, but it has done, and is still doing, most excellent work, and never during the whole of the sixty years during which the system has been in operation has the staff been more efficient than it is to-day. The recently published annual report of the Local Government Board gives details of the work done by the audit staff, from which it appears that accounts of 815 Urban District Councils and their officers were audited by the District Auditors, as were also those of 669 Rural District Councils, 47 Port Sanitary Authorities, 110 Joint Boards for Sanitary Purposes, 60 Isolation Hospital Committees appointed under the Isolation Hospitals Acts, 1893 and 1901, 241 Joint Committees appointed wholly or in part by District Councils, and certain other miscellaneous authorities. At present Municipal Borough Accounts are not subject to this audit, except so far as there are transactions under the Education Acts; but in a few cases

special Acts have been passed bringing certain boroughs under this audit, and in this way the boroughs of Tunbridge Wells, Bournemouth, Southend, and Devonport are brought under the same system as Urban District Councils. Of the smaller authorities, the District Auditors audited during the

past year the accounts of 6,650 Parish Councils, 400 parish meetings for parishes not having Parish Councils, and 113 Joint Committees of those authorities, the audit in each case including the accounts of the officers of the local authority. Five hundred Parish Councils and 5,300 parish meetings had no accounts during the year ended 31st March 1905. By

far the most numerous of all local bodies are the overseers

of the poor, which are, by the way, also the most ancient of all existing local authorities. The District Auditors have audited the half-yearly accounts of the receipts and payments of the overseers of the poor of about 15,000 parishes in respect of the poor rates collected by them, and the books of the rate collectors and assistant overseers. In addition, they have also audited the accounts of certain corporation rates levied and collected by overseers of the poor under the provisions of local Acts, and the accounts in respect of lighting, special expenses, and separate burial rates collected by overseers. With such experience as this it cannot be said that the audit staff, if properly organised and controlled, cannot adapt itself to the audit of any accounts which might be brought under its control. The effectiveness of this system of audit may be judged from the fact that a fairly large percentage of disallowances and surcharges were appealed against and decided by the Local Government Board. In the case of the Metropolitan Borough Councils there were 50 such appeals; in the case of Town Councils there were 95, nearly all of which related to education expenditure; in the case of Urban District Councils there were 470, and of Rural District Councils 350; whilst Parish Councils, though fairly numerous, were only 158. Overseers of the poor made 964 appeals. Thus it will be seen that the strict supervision which this audit brings to bear on the accounts

of local authorities resulted in a moderately large per centage of items being questioned and considered on their merits by the great Central Department which has supreme jurisdiction over all these matters.

The Priorities of Debentures and Garnished Debts.

(From The Solicitors' Journal.)

THE decision of Walton, J., in the recent case of Cairney v. Back (1906, 2 K.B. 746) is an interesting addition to the authorities on the respective priorities of debenture-holders and execution creditors. Prima facie debenture-holders come in front of execution creditors in consequence of the rule that such creditors take subject to all equities (Re Standard Manufacturing Co., 39 W.R. 389; 1891, 1 Ch., at p. 641), and this priority seems to prevail over any process issued by the execution creditor unless, possibly, it has resulted in the actual receipt by the creditor of assets of the company in satisfaction of his debt. This was the case in Robson v. Smith (43 W.R. 632; 1895, 2 Ch. 118), where a garnishee order had been made absolute, and the garnished debt had been paid to the garnishor before any receiver had been appointed on behalf of the debenture-holder, though the debtor had notice of the debenture. The debenture-holder sued the debtor to recover payment of the amount on the ground that it had been improperly paid to the garnishor, but Romer, J., rejected the claim. This was upon the ground that, until the debenture-holder intervened, the company was to be treated as continuing to carry on its business, and the receipt of the garnished debt by the garnishor was a receipt of assets of the company while the debentures still remained only a floating security.

But if the garnishor has not actually obtained payment of the garnished debt, it seems that his diligence gives him no priority over the debenture-holders, and, upon their intervening, all the assets, including the garnished debt, belong to them. This rule was laid down with regard to execution creditors generally in Davey & Co. v. Williamson & Sons (46 W.R. 571; 1898, 2 Q.B. 194). "The rights of the execution creditor," said Lord Russell, C.J., are subject, not only to the legal, but also to the "equitable, rights of the debenture-holders. The sheriff

ແ cannot merely by seizing affect the rights of third "persons to which property was subject when in the hands "of the debtor, unless, indeed, such third persons have "debarred themselves from the assertion of such rights." | And the rule was in that case held to apply so as to prevent the execution creditor from obtaining priority, notwithstanding that the debenture-holders had not actually intervened. The seizure of the company's effects by the sheriff was not a dealing with them in the ordinary course of business, and it did not remove the goods from the scope of the charge created by the debentures. And upon the same principle it may be that even after a sale by the sheriff, and the payment of the proceeds to the execution creditor, he would remain liable to refund the amount to the debenture-holders, notwithstanding Robson v. Smith (supra); although if there has been no actual realisation of the goods, but a payment by the company to the sheriff for the purpose of avoiding realisation, the judgment creditor would be under no such liability: Robinson v. Burnell's Vienna Bakery Co., Lim. (52 W.R. 526; 1904, 2 K.B. 624).

In regard to garnished debts the question has been raised whether the garnishee order has the effect of transferring the garnished debt to the garnishor so as to remove it from the assets of the company. Even if this were so it does not follow that it would also be withdrawn from the scope of the debenture charge, for, as with any other execution, it would not be a dealing with the assets in the ordinary course of business. But in fact the garnishing of the debt does not operate as a transfer of it. If so, the garnishor would become a creditor of the garnishee, and it was held in Re Combined Weighing and Advertising Machine Co. (38 W.R. 67, 43 Ch.D. 99) that this was not the case. "What," said Cotton, L.J., there, "does a garnishee "order do? It is not an assignment of the debt due by the "garnishee to the debtor; it merely gives the garnishor a "lien upon that debt." And consequently the lien in favour of the garnishor is subject to any prior equitable charges to which the garnished debt is subject. Hence, a garnishee order nisi does not give priority over debenture-holders who do not intervene by the appointment of a receiver until after the order has been made. In Norton v. Yates (54 W.R. 183; 1906, 1 K.B. 112) a garnishee order nisi was made on the 17th of January 1905, and on the 19th of January an order was made in a debenture-holders' action appointing a receiver. held by Warrington, J., that the debenture-holders were entitled in priority to the garnishor. In accordance with Re Combined Weighing and Advertising Machine Co. (supra) he pointed out that the debt was not transferred by the garnishee order, and that the priority of the debentureholders was not displaced. "The debt remains the property

It was

"of the judgment debtor, and such right as the garnishor "has over it is subject to all the rights and equities "attaching to it in the judgment debtor's hands." Moreover, although the assets are not, so long as the debentures "float," subject to a specific charge in favour of the debenture-holders, yet, as the learned Judge further held, they are subject to a general charge which prevents a prior charge being created. So soon as the debenture-holders claim the property, this general charge becomes a specific charge and has the same priority as the previous general charge. "Debentures create a general charge capable of "becoming a specific charge on the happening of certain "specific events, but a charge existing before the happen"ing of those events."

In the present case of Cairney v. Back (supra) the garnishee order had been made absolute before the appointment of a receiver by the debenture-holders, but Walton, J., held that this had no effect in excluding their priority. On the 15th of June 1906 a creditor of the Consolidated Mines, Lim., obtained judgment, and on the same day he served a garnishee order nisi on the company's bank to attach the balance of their current account, which exceeded the amount of his debt. On the 25th of June the order was made absolute, and on the 29th of June a receiver was appointed on behalf of a debenture-holder of the company. The bank paid the money into Court, and an issue was directed to determine the title to it. It seems, however, that the principle which has been stated above applies equally whether the garnishee order is nisi or absolute. It depends upon the consideration that the order does not operate as a transfer of the debt, and in Re Combined Weighing and Advertising Machine Co., Lim., where this was laid down, the garnishee order had in fact been made absolute. Walton, J., accordingly pointed out that it would have made no difference in Norton v. Yates (supra) if the garnishee order in that case had been made absolute before the receiver was appointed. Moreover, the making the order absolute does not carry the case as far as Robson v. Smith (supra), where the debt had actually been paid to the garnishor, even if that can be treated as a decision in favour of the garnishor. But the decision was in favour of the garnishee and not of the garnishor, and it does not follow that the garnishor would be allowed to retain as against the debenture-holder the money so received. There is, indeed, sufficient uncertainty still left about the rights of the various parties interested under such circumstances to suggest that we are by no means at the end of the decisions on the subject. It seems, however, for the present to be settled that a garnishor who has obtained an order absolute, but has not received payment under it, does not thereby acquire any priority over debenture-holders.

After-Acquired Property of Bankrupts.

(From The Solicitors' Journal.)

At

THE recent decision of Neville, J., in Official Receiver v. Cooke (1906, 2 Ch. 661) calls attention once again to the illogical distinction which exists with regard to the real and personal after-acquired property of a bankrupt. first the rule was laid down by the Court of Appeal in Cohen v. Mitchell (38 W.R. 551, 25 Q.B.D. 262) that the after-acquired property of a bankrupt was subject to his disposition until the trustee interfered to claim it, and no distinction between real and personal estate seems to have been contemplated. "Until the trustee intervenes," said Lord Esher, M.R., "all transactions by a bankrupt after "his bankruptcy with any person dealing with him bond "fide and for value "-as to the necessity of their being for value see Re Bennett-" in respect of his after-acquired "property, whether with or without knowledge of the "bankruptcy, are valid against the trustee." But in Re New Land Development Association and Gray (40 W.R. 295, 551; 1892, 2 Ch. 138) Chitty, J., while admitting that this statement, taken literally, was wide enough to include all property, declined to apply it to real estate, upon the ground of the conveyancing difficulties which might arise if the legal estate were to be held to vest at first in the bankrupt and then to shift to the trustee upon the intervention of the latter. The Court of Appeal affirmed the decision upon the ground that the title acquired through the bankrupt would not be forced upon a purchaser, and so the point decided by Chitty, J., had not to be determined; but in the course of the argument remarks fell from the Court which indicated that the real distinction was between property which passed by conveyance and property which passed by delivery. "I have never yet," said Lindley, L.J., "heard it suggested by anybody that "the doctrine had the slightest application to real estate, 'which passes by conveyance and not by delivery."

The natural result of this remark, as well as of the difficulty adverted to by Chitty, J., would have been to throw leaseholds into the same category as freeholds, but in Re Clayton and Barclay's Contract (43 W.R. 549; 1895, 2 Ch. 212) that learned Judge held that chattel interests in land must be left to be governed by the rule in Cohen v. Mitchell. Possibly, he said, some of the reasons given in Re New Land Development Association and Gray might apply with somewhat diminished force to the case of a chattel interest, but he did not consider that there were any reasons justifying a further limitation on the general proposition laid down in Cohen v. Mitchell. "The language "of the Court of Appeal is large enough to include all 'property. It is certainly large enough to include

"chattel interests in land, and I consider that I ought to "apply it to such interests." We thus have the result that, while the suggested distinction can only be satisfactorily based upon the difference between property which passes by conveyance and property which passes by delivery, yet it has been so applied as to put freehold and leasehold property into different categories. The exception established by Re New Land Development Association and Gray as regards freeholds was followed by Farwell, J., in Bird v. Philpott (1900, I Ch. 822), and by Kekewich, J., in London and County Contracts, Lim. v. Tallack (57 W.R. 408).

The recent case of Official Receiver v. Cooke (supra) appears to be the first in which attention has been called to the unsatisfactory nature of the distinction which has been established by the cases. After quoting from the judgment of Chitty, J., in Re Clayton and Barclay's Contract (supra), Mr. Justice Neville said: "Now there he "draws a distinction between a leasehold interest in real "estate and a freehold interest in real estate which I "confess I find very great difficulty in understanding on "any broad principle. It is quite true that in one case "you are dealing with a chattel or personal estate, and in "the other with real estate. But why there should be a "distinction between real and personal estate in this "regard I confess I do not think has been satisfactorily "explained by the decisions which have been cited to me." The question, however, in Official Receiver v. Cooke did not relate to this distinction, but to the distinction between equitable interests and legal interests in real estate, and the learned Judge held that he could not exclude equitable interests from the rule in Re New Land Development Association and Gray.

The circumstances in Official Receiver v. Cooke were as follows: Preston, who had been adjudicated bankrupt in 1893 and had not obtained his discharge, had adopted successively the names of Birkett and Redgrave. After he had changed to the latter name he employed one Sharpe to transact business for him in the name of Birkett. Through Sharpe he agreed to purchase a house at Barnet for £3,200, and this money was found by Preston and a conveyance taken from the vendor to "Birkett." Subsequently, by an indenture between "Birkett " and "Redgrave," Preston purported to take a lease of the house for ninety-nine years to himself in the name of Redgrave, and then in the same name he mortgaged the house by subdemise to the defendant Cooke to secure £1,750 advanced by Cooke. Cooke acted honestly throughout. In 1902 Preston was again adjudicated bankrupt, and the fraud was discovered. The Official Receiver, as the trustee in the first bankruptcy, claimed that upon the conveyance of the property to "Birkett" the legal estate would have passed

to Preston but for the bankruptcy, and that, under the bankruptcy, it vested in the trustee; and that if in fact it did pass to Sharpe, yet he was a trustee for Preston, and the equitable interest taken by Preston would equally vest in his trustee. But if the trustee took only an equitable interest, it was important to trace the subsequent dealings with the legal estate. If Sharpe, under the name of Birkett, was legal owner, and if he executed the lease to "Redgrave" for ninety-nine years, then a legal term was created, and also, by the mortgage, a legal sub-term was created in Cooke. Upon this view of the facts, Cooke would have been entitled to priority by virtue of this legal estate. The learned Judge, however, held upon the evidence that, while the original conveyance operated to vest the legal estate in fee in Sharpe, yet the lease was not in fact executed by him, so that the question which he had to determine related only to the equitable interest in the property.

If the distinction established by Re New Land Development Association and Gray (supra) could have been confined to the legal estate in freeholds, then the equitable interest

taken by Preston would have been subject to his disposi

tion, and he would have created an effectual charge in favour of Cooke. But Neville, J., did not consider that any such further refinement could be introduced. No distinction has been suggested in the cases between an equitable and a legal interest in real estate, and in the learned Judge's opinion it was proper “to treat the matter "at present as lying between the broad divisions of pro"perty, real estate on the one hand and personal estate "on the other hand," although he intimated a desire that the subject might receive discussion in the Court of Appeal, and that it might thus be put upon a more satisfactory footing. It is too probable, however, that such discussion would only perpetuate the present state of affairs, and it is to be hoped that the attempt to deal with the matter by legislation, which has been made in recent sessions, will in the near future prove successful.

being a decrease of 19. The total number of commercial failures recorded during the 50 weeks of the present year is 8,071; the total number recorded in the corresponding 50 weeks of last year was 8,687, showing a decrease of 616.

The number of Bills of Sale, including Re-registrations, filed in England and Wales for the week ending Friday, Dec. 14th, was 168. The number in the corresponding week of last year was 161, showing an increase of 7. The total number filed during the 50 weeks of the present year is 7,373; the total number filed in the corresponding 50 weeks of last year was 8,115, showing a decrease of 742.

Debentures.

The Mortgages and Charges registered by limited companies in England and Wales during the week ending Friday, Dec. 14th, amounted to £2,300,154, by way of addition to £1,586,160, previously issued by the same companies. The amount registered in the corresponding week of last year was £760,048, showing an increase of £1,540,106. The total amount registered during the 50 weeks of the present year was £75,844,044 (in addition to the issues in previous years by the same companies), as compared with £75,989,431 for the corresponding 50 weeks in 1905, showing a decrease of £145,387.

The Profession in Scotland.

Personal.

Mr. James Haldane, Chartered Accountant, of the firm

and Wales.

ACCORDING to Kemp's Mercantile Gazette, the total number of commercial failures recorded in England and Wales during the week ending Friday, Dec. 14th, was 150, viz.:New Bankruptcy Proceedings published in the London Gazette, 82; Deeds of Arrangement registered, 68. The respective numbers in the corresponding week of last year were:

Edinburgh, who died recently, aged seventy-five, left personal estate amounting to £82,734.

Bankruptcy Reform.

A meeting of the East of Scotland Bankruptcy Reform

Square, Edinburgh, on the 12th inst, Mr. H. W. Hunter, Chairman.

Mr. J. Wright Forbes, advocate, delivered a lecture on the "Law relating to the Punishment of Fraudulent "Debtors, and the Rights of Ordinary Trade Creditors in "Liquidations of Limited Companies." At the outset the lecturer referred to the state of the law prior to the passing of the Debtors Act, 1880, which abolished imprisonment for debt, alluding especially to the Act of Grace as a means of preventing innocent debtors being kept in prison by vindictive creditors. He pointed out that when the Legislature proposed to abolish imprisonment for debt, and thereby to remove a powerful deterrent against the reckless and dishonest incurring of debt, it had to face the problem of making provision for the fair protection of creditors without putting undue burdens on debtors. After a brief allusion to the harsh treatment meted out to debtors in early times, and explaining the common law of Scotland in regard to fraudulent bankrupts, Mr. Forbes criticised the Debtors Act of 1880, and minutely examined the provisions dealing with the punishment of fraudulent debtors. The Act, he said, was experimental, and the experience of twenty-six years had shown that it had failed to attain the objects aimed at. It was not a well-considered measure. It failed, because (1) the persons who framed it did not fully apprehend the law they proposed to amend, (2) the wording of the Act was defective, (3) the procedure prescribed for prosecutions was cumbersome and ineffective. Considering that since its birth there had been a general consensus of opinion by those most interested in condemning the provisions of the statute dealing with fraudulent debtors, it was amazing that no amending Act had yet been passed. He then detailed suggested amendments for more effectually dealing with wilful and fraudulent debtors. The second part of the lecture was devoted to a short exposition of the law in regard to the liquidation of limited companies and the rights of

creditors.

Book Debts and Bankruptcy.

In moving the adoption of the report and accounts of the Guardian Society of Scotland (Lim.), at Edinburgh on the 12th inst. for the year ending 31st October 1906, the Chairman, Mr. H. W. Hunter, said the recovery of claims during the past year had been extremely satisfactory as far as the subscribers were concerned, the amount recovered being equal to 15s. 4d. per £1 of the total sum dealt with during

the year, compared with 14s. 11d. last year. The disputed cases undertaken by the society had in all cases been successfully contested in the Courts where legal proceedings had been necessary, but many of these cases had been settled by the assistance of the society alone. The directors had again to point out the danger to merchants handing claims to parties who professed to recover them without charge, and merchants might well ask the question, "Are the numerous bankruptcies of small traders not in some measure due to this practice?" There were many small traders who, at certain times of the year, owing to the difficulty of getting in their book debts, were unable to meet their liabilities. His attention had been directed to a society established in England for the recovery of claims and winding up of estates, supported by the principal merchants of the district. The assets of that society now amounted to £22,000 and the gross income to £6,900, and if the merchants in this district would combine, he saw no reason why such a society should not be built up in Edinburgh. The directors were pleased to observe that the East of Scotland Bankruptcy Reform Association, now composed of 200 of the principal firms of the city, had taken up vigorously the subject of the reform of the bankruptcy laws of Scotland.

At Clerkenwell County Court recently a jury, having heard only one side of a case, interposed with the remark that they were quite satisfied as to the correctness of the statements made.

The opposing counsel: This expression of opinion is premature, and I am entitled to have my case heard. Judge Edge agreed. Addressing the jury, his Honour said he would tell them a little story. A certain monarch King James I., he believed it was—found himself disturbed at what he considered to be the slowness of legal proceedings, so he determined to sit himself in the King's Bench Division. He heard plaintiff's case, and was so satisfied that he was prepared to give judgment immediately in his favour. The Lord Chief Justice reminded his Majesty that he should hear defendant's case before giving judgment. He did so, and at the close exclaimed, "I don't know which to believe, and I will never sit in the Court again." His Honour added that he thought the story would be of some service to the jury. They should be content to hear both sides before expressing an opinion.

Counsel on both sides having agreed to leave the decision of the case to his Honour, the jury were discharged.