Manzi v Smith

The only evidence before his Honour were entries in the company's books of account. By several journal entries under date 22nd February 1974 Domenico Manzi and Mariana Manzi were said to be indebted to the company in the respective sums of $16,496 and $19,363 and Antonio Natale Manzi and Maria Diloreto were indebted to the company in the respective sums of $7,229 and $1,933.

By journal entry under the same date $35,859 was credited to Domenico Manzi and Mariana Manzi and applied by the company through journal entries to discharge the several debts to which I have referred. It was not shown that the appellants, or any of them, were parties to, or agreed to, these journal entries.

The propriety of these entries was challenged by the respondents. A bookkeeper who had earlier been instructed by the company to make the journal entries of 22nd February, 1974, and who had access to the company's books of account, produced an account which showed that the appellants, Domenico Manzi, Mariana Manzi, Antonio Natale Manzi and Maria Diloreto, so far from having been in debt to the company on 22nd February 1974, were in credit with the company in the respective amounts of $226, $3,152, $243 and $68.

To satisfy s. 293, so far as presently relevant, payment of money must have been made to the appellants or for their account. In fact no money was paid on the 22nd February 1974, or for that matter at all, in the sum of $35,859, but it was said that the entries in the company's books of account constituted payment of money by the company to the appellants on the 22nd February 1974.

As I have said, the appellants were not shown to be in any wise privy to the said entries in the company's books, or for that matter to have had any knowledge of them. They had certainly not adopted them.

His Honour found: "The fact is that the entries were the equivalent of payment of the accounts referred to; their effect was accordingly to extinguish the obligations to which they referred". But whilst the entries might in appropriate circumstances afford evidence against the company, they did not constitute evidence in favour of the company and against the appellants; certainly they did not constitute a payment of $35,859 on the 22nd February 1974; nor evidence of such a payment.

We were referred to cases in which a payment of money was held to have been made by means of entries in books of account. But in those cases the entries represented the agreement of the appropriate parties e.g., Eyles v Ellis [9] ; In re Harmony and Montague Tin and Copper Mining Company (Spargo's Case) [1] . These decisions, quite clearly, are not authority for the proposition for which they were advanced, namely, that a payment of money was made by the making by the company of a journal entry in the books of account without reference to, or without the agreement of, the persons said to be the recipients of the money. The company's assertions in its books of account did not establish the indebtedness of the appellants or any payment of money in discharge of that indebtedness.

1. (1827) 4 Bing. 112 [130 E.R. 710]. 2. (1873) 8 Ch. App. 407.

I am content to allow this appeal and to set aside the declarations and orders made on the liquidators' summons on the ground that there was no evidence before the Supreme Court of any payment of money by the company to the appellants of the sum of $35,859 on or about the 22nd February 1974, not was there any evidence that the appellants acknowledged any indebtedness to the company in the sums which his Honour has treated as having been extinguished by the journal entries to which I have referred.

Accordingly I have not had to consider whether the principle of mutual dealing is applicable in the particular circumstances, assuming the appellants to have been indebted to the company and the company to have been indebted to the appellants.

The liquidators will need to investigate in fact the transactions which are said to be reflected in the books of account. If in that investigation it should be found that a set-off on the part of the appellants was claimed after insolvency and that the set-off for that reason must be disallowed, to disallow it would not amount to a payment under s. 293; to disregard the set-off would leave the accounts as they were prior to the attempted set-off.

I agree for the reasons given by the Chief Justice that the entry in the company's books made by Miss Northey on the instructions of the company's secretary and accountant do not establish that the company made payments within the meaning of s. 122 of the Bankruptcy Act to the appellants on 22nd February 1974 of the sums now sought to be recovered as preferences.

The appeal, therefore, should in my opinion be allowed.

I agree that the appeal should be allowed. The entries made through the journal and the books of the company did nothing except alter the manner in which the internal accounts of the company were expressed. If there were mutual credits, mutual debts and mutual dealings before 22nd February 1974, there were the same credits, debits and dealings after that date. On the one hand there was no agreement at the time of the various dealings or subsequently that only the balance on accounts should be owed from day to day; on the other hand there was no agreement that by the alterations in the expression of the accounts made on 22nd February 1974 there should be any alteration in legal rights.

How far there were mutual debits, credits and dealings to which the provisions of s. 86 of the Bankruptcy Act might be applied, it is not for this court on this appeal to say.