matter of surprise that after the number of years during which winding-up proceedings have taken place the question has never arisen for judicial decision. It now comes before us upon the recommendation of the Master of the Rolls, that we may decide, so far as the authority of this Court can decide, what rule is to be applicable in these cases. It is some satisfaction to us that, in forming a rule upon the point, we are not fettered by any rule which obliges us to depart from what appears to be the justice of the case.

The case is, I believe, unaffected by any previous decision, for the cases which were alluded to-Kellock's case and In re the Xeres Wine Company-relate to an entirely different point, and the effect of the decisions in those cases is only this, that the right of a creditor having a mortgage security to proceed upon all his remedies at once was not taken away from him by any of the provisions of the Companies' Act.

In the present case, what we have to consider is the position of the several creditors of the company, some of whom have a right to receive interest, others having debts not bearing interest. In the first place, as it seems to me, we must consider the case under two aspects, according as there is or there is not a surplus. I apprehend that in whatever manner the dividends may have been made, whether originally in respect of capital or in respect of interest, still, inasmuch as they will all have been made in process of law, and not under any new contract or agreement between the parties, the account ultimately must, supposing there should prove to be a surplus, be taken as between the company and creditors in the ordinary way, that is, in the manner pointed out in Bowen v. Morris (1), by treating the dividends as ordinary payments on account, and applying them, in the first place, in payment of the interest due at the respective dates of declaring them, and next in reduction of principal. This disposes of all question where there is a surplus, and there is no doubt or difficulty about it.

The doubtful question is when the estate

(1) Cr. & Ph. 351; s. c. 10 Law J. Rep. (N.S.) Chanc. 356.

NEW SERIES, 38.-CHANO.

is insolvent. Now it has been admitted, very properly, that, as to interest due at the date of the winding-up, there can be no doubt. Suppose, at the date of the winding-up, a creditor has 1,000l. due to him for principal and 1007. for interest, he would prove for 1,100., and if a dividend of 10s. in the pound were declared immediately, he would be entitled to 550l., because his interest due at the date of the winding-up is just as much a debt as the principal. Suppose, at the same time, a creditor has a debt of 1,000l. which, like that of the respondents in this case, has no interest due upon it, although it carried interest, and a dividend of 10s. in the pound were declared, he would, in my opinion, be only entitled to 5007. That would obviously be the case if the Court could do what it would wish to do, namely, to realize all the assets immediately and distribute them among the creditors. It is perhaps difficult to suppose that in any case the assets could be realized so immediately, but if they consisted merely of a sum of money in the banker's hands which could be paid the next day, that would be the course of proceeding. Justice, I think, requires that that course of proceeding should be followed, and that no person should be prejudiced by the accidental delay which, in consequence of the form and proceedings of the Court and other circumstances, actually occur in realizing the assets, but that all the money of an insolvent estate, being realized as speedily as possible, should be applied equally and rateably in payment of the debts as they existed at the date of the winding-up. I think, therefore, that nothing should be allowed for interest from that date. Consequently, in the present case, this debt of 25,000l., which had no interest due upon it at the date of the winding-up, should stand as a debt for that sum, and for no more. I have already guarded myself from being supposed to say that the Court takes upon itself to alter the right of the creditors to any further extent, or to deprive the respondents of their right to interest at the full rate of 207. per cent., if and when there is a surplus to pay it. I think that as the tree falls, so it must lie. It must be ascertained what are the debts which existed at the date of the winding-up, and all dividends in the case of an insolvent estate

4 Y

must be declared in respect of the debts so ascertained. It will, of course, be understood that the rule we now lay down is applicable to all cases under the recent act where creditors' actions are stayed.

LORD JUSTICE GIFFARD.-I think it quite clear that the 170th section of the Companies' Act has no reference to the matter before us. Nor can I consider that there is anything in Kellock's case which at all affects the present question. The only argument of any force which has been adduced in favour of computing interest subsequently to the winding-up is that it has been the rule which has been adopted as to dead men's estates. For some reason or other, dead men's estates have always been assumed to be solvent, and they have been wound up on that footing; but so unjust has that been found that it has been necessary to have a positive enactment to give interest from the date of the decree to simple contract creditors whose debts do not bear interest. I think therefore that the reason of the thing is rather against the rule which has been adopted as to dead men's estates than in favour of it. As to the rule which my learned Brother has laid down, it is the rule in bankruptcy. That rule was, it has been said, Judge-made law; but it was made after great consideration, and no doubt because it works with equality and fairness between the parties; and if we are to consider convenience, it is quite clear that where an estate is insolvent, convenience is all in favour of stopping the computation of interest at the date of the winding-up. For these reasons, I am of opinion that dividends ought to be paid on the debts as they stood at the time the winding-up commenced, for when the estate is insolvent, this rule has the effect of distributing the assets in the fairest way. When the estate is solvent, the rule works with equal fairness, because as soon as it is ascertained that there is a surplus, the creditor whose debt carries interest is remitted to his original right under his contract; and on the other hand a creditor who is not entitled by his contract to interest does not get any. Another reason may be added. I do not see with what justice interest can be computed in favour of creditors whose debts carry interest when other creditors are

stayed from recovering judgment and so obtaining a right to carry interest.

Solicitors-Messrs. Davidson, Carr & Bannister, for official liquidator; Messrs. Flux, Argles & Rawlins, and Messrs. Ashurst, Morris & Co., for other parties interested.

LORDS JUSTICES.

April 16, 17.

In re THE GENERAL ROLL

ING STOCK COMPANY.

(Ex parte THE ALLIANCE BANK.)

Bill of Exchange-Collateral Securities -Appropriation.

Where securities are deposited for the purpose of securing bills, the parties may afterwards at any time, before both are insolvent and their estates are in a state of forced liquidation, deal with the securities as they please, notwithstanding that the bills have been in the mean time negotiated, if the bill-holders have no notice of the existence of the securities.

Semble-The principle of Ex parte Waring (19 Ves. 345) applies not only where there are two estates being wound up in bankruptcy, but also where the insolvent estates are those of a company in course of winding up, and of a deceased person.

The R. S. Co. advanced to M. a sum of money, in consideration of which M. accepted bills to the amount of 21,000l., and deposited shares with the company to secure payment of the bills. Shortly before these became due, it being intended to extend the period of the loan, the company wrote to M. requesting him to accept a new set of bills to replace the former set. M. accordingly accepted the new set, and gave them to the company. The former set remained outstanding and unpaid in the hands of third parties by whom they had been discounted without notice of the securities. The company was afterwards ordered to be wound up, and its estate was insolvent, as also was that of the acceptor, who had died in the mean time:-Held, that the holders of the former set had no claim upon the securities; though (semble) they would have had a

claim if the second set had never been accepted.

This was an appeal from the decision of the Master of the Rolls (reported 38 Law J. Rep. (N.S.) Chanc. 151), whereby the Alliance Bank were held not entitled to have certain securities applied in payment of their claims upon bills accepted by the company.

The facts are stated in the former report, to which we may here add that the fifth set of bills for 21,000l. was accepted by L. Murray, in accordance with an application made to him by the secretary of the Rolling Stock Company by a letter, dated the 8th of September, 1864, as follows:

"I beg to inclose you drafts for your acceptance for 21,000l., being in place of those falling due on Monday next the 12th inst., and at the same time urge upon you the necessity to duly accept and return them per return of post. Hoping you will not fail to do so," &c.

L. Murray, in returning the bills accepted, stated that he did so in accordance with the above letter. At that time, it will be seen, the bank held the 16,000l. of bills of the fourth set, upon which they founded their present claim. It was stated, though not proved, that Murray's estate was substantially insolvent, and it was admitted that the Rolling Stock Company would pay but a very small dividend on their debts.

The Alliance Bank appealed.

There was no application before the Court by any other party than the Alliance Bank.

Sir R. Baggallay and Mr. Eddis, for the Alliance Bank, contended, as in the Court below, that the case of Ex parte Waring (19 Ves. 345) was decisive in their favour, so as to give them the right to have the proceeds of the securities applied in payment of the fourth set of bills; and that it was not necessary that both the estates of drawer and acceptor should be in bankruptcy

Powles v. Hargreaves, 3 De Gex, M. & G. 430; s. c. 23 Law J. Rep. (N.S.) Chanc. 1.

Mr. Jessel and Mr. Winterbotham, Mr. Wickens, Mr. Davey, and Mr. Law

rance, for various holders of the fifth set, opposed the claim of the Alliance Bank upon the ground that the transaction of the 8th of September, 1864, had the effect of transferring the security of the shares, &c. from the fourth set to the fifth set. They argued, equally with the appellants, that Ex parte Waring applied, but, as they contended, it was in their favour, and not in favour of the appellants. The doctrine of that case was first laid down by Lord Eldon to meet a dead lock which arose in deciding the equities between two bankrupt estates. That dead lock existed with exactly the same force in such cases as the present. They cited

Trimmingham v. Maud, 38 Law J. Rep.

(N.S.) Chanc. 207; s. c. Law Rep. 7 Eq. 201.

Mr. Roxburgh, for Murray's representatives, was indifferent whether the Alliance Bank or the holders of the fifth set of bills obtained the benefit of the securities, so long as one of them, and only one, had it; but in other respects supported the contention of the appellants.

Mr. Southgate (Mr. Bagshawe with him), for the official liquidator of the Rolling Stock Company, contended, that as there was not a double bankruptcy,

Ex parte Waring, ubi supra, had no application. Rules in Bankruptcy had no application in winding-up cases. Neither the Alliance Bank nor the holders of the fifth set had any right to the securities. They supported the order of the Master of the Rolls; and relied on

Laycock v. Johnson, 6 Hare, 199; s. c. 16 Law J. Rep. (N.S.) Chanc. 350. In re the Joint-Stock Discount Company (Loder's case), Law Rep. 6 Eq. 491; s. c. 37 Law J. Rep. (N.s.) Chanc. 846.

Inman v. Clare, John. 769.

In re Barned's Bank, ex parte Stephens, Law Rep. 3 Ch. 753. Sir R. Baggallay, in reply.

LORD JUSTICE SELWYN.-The Master of the Rolls did not in his judgment in this case question the authority of the case of Ex parte Waring. On the contrary, he referred to it as still governing all cases which fall within the scope of its authority. It certainly was not the intention of the

Lord Chancellor and myself, in Ex parte Stephens, to question its authority in any way. The principle upon which Ex parte Waring proceeds appears very clearly from Lord Eldon's judgment, and particularly from two short passages to which I may refer. He says (p. 349), "If these billholders are to have payment in preference to other creditors, it must be by the effect of an equity between the two houses rather than by any demand directly in their own right upon any fund in the hands of Brickwood & Co." Again, he adds (p. 350), much in the same spirit, "Having regard to the demands of all the creditors and the bankrupts, in this circuitous way, I think the bill-holders must be paid, not as having a demand upon these funds in respect of the acceptances they hold, but as the estate of Brickwood & Co. must be cleared of the demand by these acceptances, and the surplus, after answering that demand, must be made good to Bracken & Co."

We see, then, that in these cases the claims of the bill-holders depend not upon any contract to which they are parties; for, in the case of Ex parte Waring, as in this case, the bill-holders had not, when they took the bills, even any notice of the existence of the securities the benefit of which they claimed; but their right depends upon the accidental concurrence of circumstances giving rise to such a complication as that which existed in Ex parte Waring, one which can only be solved by one particular application of the securities or their proceeds. To give rise to such a state of things there must be two insolvent estates, and there must be a forced administration of both estates. Until these circumstances concurrently exist the two persons, parties to the original contract, have a perfect right to deal with the securities, which one of them has deposited with the other, in any manner they think fit. That is what was intended to be decided, and, as I think, was decided by the Lord Chancellor in Ex parte Stephens, when he said, "The bill-holder might have raised an equity, but even then he could not raise it till he had given the person who gave the guarantee notice of his claim, and until that time they might deal with all the rights as between them and the acceptors in any way they thought fit."

Applying, then, these principles, which seem to me clearly established, to the facts of the present case, we find, in the first place, that there was here a contract between Mr. Murray and the Rolling Stock Company originally for a loan of 12,000l. and a bonus of 2,000l., which by means of the sum of 3,000l. (which has been called a fine) and some subsequent bonuses of 1,5007. and 2,500l. became raised to the sum of 21,0007., a sum which was secured by the fourth and fifth sets of bills.

Under the original contract of the 13th of March, 1863, for the 12,000l. and bonus of 2,000, Mr. Murray agreed to give his acceptances, and to deposit as a collateral security for their payment certain railway shares and other property. That is to say, the shares were a collateral security for the loan which was primarily secured by the acceptances. I need not go through the details of the subsequent transactions in respect of which the subsequent bonuses were agreed upon; but, applying the principle of Ex parte Stephens, it seems to me clear that Mr. Murray and the Rolling Stock Company, the parties to that contract, were at liberty at any time to deal with the securities, the subject-matter of the contract, as they thought fit, wholly irrespective of any claim by holders of the bills. The question which we have now to decide is, whether they have so dealt with the securities as to constitute at the date of the insolvencies a state of circumstances which can support a claim such as that which is raised upon the present occasion."

The whole question seems to me to depend upon the construction which ought to be put upon the letter of the 8th of September, 1864. That letter-[which his Lordship read]-contains a plain statement that the bills, the particulars of which are stated in the letter, were to be accepted by Mr. Murray in the place of those falling due on the 12th of September. The parties being at that time fully entitled to deal with the securities as they thought fit, and without regard to any interest existing in any bill-holder, entered into an arrangement the substance of which, I think, clearly was this: Mr. Murray was to accept (and he did accept) the fifth set of bills for 21,000l., and they were to replace the fourth set of bills. The Rolling

Stock Company after this could not possibly have a right to say that they could retain the securities as security for the fourth set of bills, for the very essence of this transaction was that they should put an end to Mr. Murray's liability on the fourth set, and they were bound in good faith and honour to do so. The agreement, if it had been put into a formal shape, would have been, that the fourth set of bills should be cancelled and should be delivered over in the cancelled state to Mr. Murray. In that case clearly it could not have been said that the security was a continuing security in respect of those bills, for they would cease to exist; and the fact that Mr. Murray subsequently failed to pay the fifth set cannot, in my opinion, revive any right in respect of the fourth set. The appellants are holders of some of the fourth set, the security in respect of which was entirely put an end to by the transaction between Mr. Murray and the company at a time when those parties were fully at liberty to deal with the security as they thought fit. Consequently, the state of things with regard to the securities, which alone could bring them within the principle of Ex parte Waring, never could arise so as to benefit the appellants.

I think, therefore, that the Master of the Rolls was quite right in refusing the claim of the appellants. That is the only point before us; and I think it would be dangerous to go further in this case, particularly when I consider the mode in which proceedings in these winding-up cases are necessarily conducted. I therefore only decide the case of the Alliance Bank and nothing more. This appeal must be refused, with costs.

LORD JUSTICE GIFFARD.-The order of the Master of the Rolls must be affirmed, although I confess I do not accede to the reasons which seem to have led his Lordship to the conclusion at which he arrived. The simple ground upon which I found the affirmance of the order is this, that the Alliance Bank ought not to be paid out of the proceeds of the security, because as between the two estates there is no contract authorizing the application of the proceeds of these securities in payment of the bills which the Alliance Bank holds. Now, I certainly have no hesitation what

ever in saying that Ex parte Waring and Powles v. Hargreaves apply to such insolvencies as exist in the present case, as between the insolvent estate which is being wound up and the insolvent estate of Mr. Murray, whose personal representative appears here admitting insolvency and submitting to be bound. I possibly should have thought that the decision of the Master of the Rolls could not stand if the matter rested entirely upon the state of things which existed when bills of the fourth set were drawn; but that state of circumstances does not exist. The letter of the 8th of September, 1864, in my opinion, created an entirely new contract. After that letter the state of facts was such that as between Mr. Murray and the Rolling Stock Company, the latter had no right to apply these securities otherwise than in payment of the bills, which were accepted on the footing of that letter. I consider that to be the only contract which affects the deposit of securities. It was made at a time when these parties were both in a position to enter into any contract they might think fit without regard to the bill-holders, and I am of opinion that it excludes the Alliance Bank.