mistake," added the learned Judge, "to entitle the parties to reopen contract of valuation, must be such as would entitle the parties to proceed in equity for relief. It must have been a mistake of both parties in respect of something which was material to the contract." Mr. Justice Willes declined to grant the rule in Barker v. Janson, because Irving v. Manning (1 H. L. 287) had settled that such policies were legal, and he did not wish to cast any doubt on the law so laid down. He did not therefore decide the case on the ground that it was expedient that valued policies should be conclusive.

In The North of England Iron Steamship Insurance Association v. Armstrong, L. R., 5 Q. B. 244; 39 L. J., Q. B. 81, a ship valued at £6000, but really worth £9000, was run down by another and lost, and the underwriters paid a total loss. Subsequently, in the Court of Admiralty, £5000 was recovered as damages against the ship which had run down the ship insured. The owners of the latter claimed £3000 to make up the full value of the lost ship, but it was determined that they were precluded by their valuation. It was strongly contended that the valuation was only an estoppel in an action on the policy, and could not prevent the owners from recouping their entire loss from another source. The Lord Chief Justice says, however, in giving judgment for the underwriters: "I ground my judgment upon the general proposition that where the value of a thing is stated in the policy in a manner to be conclusive between the two parties, the insurer and the insured, as regards the value, then, in respect of all rights and obligations which arise upon the policy of insurance, the parties are estopped between one another from disputing the value of the thing as stated in the policy." And his Lordship remarked that "where the policy is an open policy, and simply a policy of indemnity as to the actual value of the vessel, no difficulty would arise in such a case as this. It is only because it is a valued policy that these difficulties present themselves."

A case recently decided in the Exchequer Chamber, The African Company v. Harper, affords another illustration of the difficulties which this rule introduces into commercial affairs. The African Company carry on a trade with Africa, chiefly by means of barter. The value of the return cargoes is extremely fluctuating and uncertain, and therefore the company effects valued policies covering "the round"—that is, the voyage out and home, taking as the basis the value of the outward cargo. Early in 1869 they effected a policy in this way upon ship and cargo, valued at £13,000, out and home, for twelve months from the time of sailing from Liverpool, provided that if the voyage lasted longer than twelve months the insurance should be continued, and, if it lasted a shorter time, premium should be returned. The vessel sailed in July 1869, and on the 29th September arrived on the coast of Africa, and she discharged her outward cargo. Earry in November she loaded a homeward cargo, partly of palm oil, coffee, and gum, and partly of ivory to the value of £3000, stowed in the cabin. Before leaving Africa,

the ivory, the most valuable portion of the cargo, was taken out to be sent home by a faster vessel. The vessel sailed on her homeward voyage with a full and complete cargo, the value of which did not exceed £3500. She encountered a tornado and severe storm, and sprang a leak, which made it necessary to beach her on a desert island, named Annabona, where there were no means of repair. Notice of abandonment was given to the underwriters, and the ship and cargo, the cargo being spoilt by the water, were sold for £95, less £40, the expenses.

The owners claimed as for a total loss, and the underwriters disputed the claim, contending that it was a case of suspicion, the ship and cargo being insured for £13,000, and sold for £45. The Lord Chief Justice however said, "That is the underwriters' way of stating it. But they chose to take an insurance on a ship and cargo valued at so much, and it is their fault if it turns out that they were overvalued. No doubt these valued policies afford an encouragement to fraud, but where there is no fraud proved the underwriters cannot reopen the valuations, and they must suffer." The argument that the cargo was not such as was contemplated was met by the observation that no cargo was specified, the policy in this respect being quite open and general.

The Court made some strong remarks on " valued policies" in general. The Lord Chief Justice said, that he should be glad to have the power of putting a stop to such policies altogether, and referred, like Mr. Justice Willes in Barker v. Janson, to the case of Irving v. Manning, in the House of Lords, as establishing the doctrine that on a valued policy the valuation could not be disputed except in case of fraud. The Judges concurred in recommending underwriters not to underwrite such policies; upon which the Economist remarks that "so long as the competition for business is what it is among underwriters, we doubt if the advice will be much heeded. The agreement to sign such policies by the underwriters is for the convenience of the merchants, and is only another form of the main evil of the trade at present-an excessively low premium."

THE ALBERT ARBITRATION.

III-SET-OFF.

We have seen two great hardships which many policy-holders in the Albert have had to suffer, in addition to the mere insolvency of the concern, resulting from causes which they could not control. In the first place, they are left unassured, and they must just apply their dividends in making as good a bargain as possible with some other Company. But this process is impossible or difficult to some, and therefore unjust, in the distributive sense, to all. Secondly, many of them find that the substantial security, in which they originally invested, has been without their assent, in some cases

without their knowledge, entirely dissipated by the process of amalgamation. We have now to observe that the ordinary right of retention, or set-off, as it is called in English Law, has been denied to many of these unfortunate policy-holders. In other words, the arbitrator has ordered the payment of loans and other debts due by policy-holders, without any deduction for the amounts claimed upon the policies held in security or for the dividends upon these amounts. The harshness of this rule is shown in the fact that many policies are merely taken out as securities for loans, this being frequently made a condition of the advance by the Assurance Company. Accordingly, in very many cases where premiums and interest had been paid together for a period of years, the borrowers ceased to pay interest, and also allowed the policy to lapse, it being tacitly understood that the office should repay itself out of the surrender value of the policy. The best proof that such was the tacit understanding lay in the fact that the office did not sue for the principal or demand payment of interest. Nevertheless the arbitrator has ordered payment of such loans to the Albert case, although the debtor has irretrievably lost the fund which both parties intended should secure the payment. This practice was common in the loan business of certain Assurance Companies. The inaction of the creditor seems unintelligible, except on the assumption that payment had been operated out of the premiums paid under the policy, and perhaps in Scotland an implied discharge might be inferred from the repeated failures to ask payment of interest, which was by memorandum expressly made payable along with premium. But certainly the rule requiring a written discharge is most wholesome. It will be impressed with woful significance upon the minds of the Albert debtors.

The principle that set-off obtains only between mutual debts which are liquid, has undergone some modification, even as between solvent parties, both in England and Scotland. Although here there is no statutory authority for any departure from the most rigid principle. The Scotch Act of 1592, c. 41, is held not to exclude the equitable right which a defender has to a short delay in order to liquidate his debt; and there is no room for inferring any such exclusion from the terms of the English Act 8 Geo. II. c. 24. It is true this modified rule applies only to present debts, or debts actually due but not liquid. The usual test employed in England to ascertain whether a debt may be set off is to ask whether at the date of the demand an action could be raised to recover the debt. But, if the debt becomes due at any time before payment, it may be set off without reference to the date of the creditor's demand. Further, where parties have by agreement between themselves fixed and ascertained the amount of damages to be recovered, and the sum so fixed is in principle liquidated damages, and not in the nature of a penalty, it may form the subject of set off under the Statutes Addison on Contracts). But, in cases of bankruptcy, as all the

Statutes show that a creditor is entitled to prove, or have valued, a debt which is future, or even contingent, so also it is the common law and common sense of the matter that he is entitled to set off the value of that contingent claim against the demand of a trustee or liquidator for a liquid debt presently due to the bankrupt. He is entitled not merely to deduct from his debt the dividend which the estate might have paid upon his valued claim, but he is entitled to satisfy his claim out of his debt. In fact, the two unilateral contracts make a bilateral; and either party is entitled to withhold performance to the extent to which performance is withheld on the other side. As Professor Bell says in his Commentaries: "The immediate necessity for payment of the liquid debt is taken away by the bankruptcy; and there is no impediment to the equity which holds the one debt an extinction of the other." The rule in English bankruptcy is, that generally every claim, which is admissible to proof against the estate, is also pleadable in compensation; but there are also claims, e.g. those arising ex delicto, which though not proveable under the commission of bankruptcy, may be pleaded by way of set-off. It is true that certain claims which are admitted to proof are not pleadable in compensation: but the "mutual credit" clause which occurs in every English Bankruptcy Statute authorizes a debt not due or payable to be set off against one that is. All these debts admitted to compensation are held to have been due at the date of the petition in bankruptcy.

Before examining particular cases, let us inquire what is there in the nature of a claim to have a value set upon a life policy of assurance current at the date of a winding-up order inconsistent with the rule of law above stated? The debt no doubt becomes due only on the death of the assured, and it is contingent on the payment of premiums by the assured. But it has already been decided that the claim is one to be valued under the 158th section of The Companies Act, 1862; and when the claim is made, its value is fixed mathematically. It is not therefore a claim for unliquidated damages, although it is a claim the arithmetical amount of which requires to be calculated in terms of a legal formula supplied by Statute, which is one and the same for all claims of that nature. It requires no proof beyond the terms of the contract, nor is any account taken of special circumstances. "The necessity for a valuation of these claims against the company arises from this fact, that all the property of the company is under the winding-up order handed over for equal distribution among its creditors. Of those creditors annuitants and holders of policies are some, and the necessity of making an equal distribution of the assets of the insolvent company renders necessary also a valuation of these claims. The Legislature has determined, and in all insolvencies the same rule applies, that in the course of the administration of the estate of an insolvent company these debts shall be valued; they must be valued; you could not withhold out of the assets of

the company a large sum of money and keep it invested or in suspense to answer the claims when they arise. You must have a present value put on these future claims, and that present value represents the sum for which the claimant will be entitled to rank among the rest of the creditors" (Lord Westbury, in European Assurance Arbitration). In fact, such claims are liquidated either by consent of parties or by operation of law through the machinery of a statutory arbitration, and they might therefore fall under the rule of common law we have mentioned, which permits even damages liquidated by consent to be set off. But the winding-up of the Albert was under the Companies Act, 1862, which may be regarded either (1.) as an additional machinery for the collection of assets and payment of liabilities in cases of insolvency, which does not supersede or interfere with the ordinary rules of common law when they apply; or (2.) as a substituted machinery for these purposes, which excludes the common law in so far as it is not re-enacted. According to the first view, the question is, Does the Act exclude set-off? according to the second, Does the Act prescribe set-off? It had been established by the case of Anderson in re Agra and Masterman (L. R. 3 Eq. 337), that the right of set-off is not interfered with by a winding-up order. Before the order an acceptance of the Bank held by Anderson was overdue, and shortly after the order a bill by Anderson which was indorsed to the Bank became due. Anderson pled set-off successfully, although it was suggested that debtors of the Bank, by going into the market and buying the Bank's acceptances, might in this way pay themselves in full. The Vice-Chancellor (W. P. Wood) apparently considered that in a winding-up, set-off was admissible to a greater extent than in a bankruptcy. "Although all the property of a company being wound up is vested in the official liquidators, its position as to suits and actions is kept unaltered, and it may be dealt with just as if no stoppage had occurred, and no liquidation were in progress. That being so, I see nothing to interfere with the ordinary rights of the parties in cases of this description." Again, in the leading case of Grissell (L. R. 1 Ch. App. 528), it seemed to be the opinion of the Court that the law of partnership was to be applied in a winding-up so far as it was not excluded by the Act. Grissell, being a contributory to a company limited by shares, tried to compensate a call with an independent debt due by the company. He failed in this, but the 101st section of the Companies Act, 1862, was not sufficient for the decision. That section says indeed that an independent debt may be set off by a contributory to an unlimited company; but the Court, though pressed by the argument that this confiscation takes away the limited liability of the concern, proceeded on the principle that a partner is not to have his debt settled till the creditors are all paid. But, secondly, is set-off, except between contributories and the company in liquidation, inconsistent with the terms of the 1 See per Mellish, L.J., in Gray v. Seckham, L. R. vii. Ch. App. 686.