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§ 44.

Sub-s. (1).

Property not divisible,

Trust property.

right of nomination to a vacant ecclesiastical benefice;

and, (iii.) All goods being, at the commencement of the

bankruptcy, in the possession, order or disposition of the bankrupt, in his trade or business, by the consent and permission of the true owner, under such circumstances that he is the reputed owner thereof; provided that things in action other than debts due or growing due to the bankrupt in the course of his trade or business, shall not be deemed goods within the

meaning of this section. Sub-section (1) is the same as section 15 (1) of the Act of 1869.

Although property held in trust by the bankrupt has always been held not to pass to the representative of his creditors (Winch v. Keeley, 1 T. R. 619; Copeman v. Gallant, 1 P. Wms. 314), the later statutes contained no express enactment to that effect. It will be attempted for the purposes of dealing with trust property to divide trusts into the following classes:

1. Express trusts, including trusts virtute officii.

2. Trusts in respect of property of which the bankrupt being the absolute legal owner has parted with the whole or part of the beneficial interest.

3. Trusts of agency in respect of property in which the bankrupt has not the absolute or general but only a special property

First, there is the class of express trusts where the absoluto or general legal ownership is vested in the bankrupt for the purpose of the trusts and not otherwise : in other words, where the trust is the origin of the legal ownership of the bankrupt. In these cases not even does the legal interest of the bankrupt pass to the trustee for his creditors. (Ex p. Gennys, M. & M'Arthur, 260; Ex p. Painter, 2 D. & C. 584; Carvalho v. Burn, 4 B. & Ad. 383; Houghton v. Kænig, 25 L. J. C. P. 218), and the cestuis que trust can sue the trustees in bankruptcy in the name of the bankrupt (Winch v. Keeley, ubi sup. ; Carpenter v. Marsell, 3 B. & P. 40), and it would seem that in such cases the legal estate will not pass to the trustee in bankruptcy even though the bankrupt himself may take a beneficial interest as a cestui que trust. See Webster v. Scales, 4 Doug. 7; Lewin on Trusts, 3rd ed. p. 276. Under

Express trusts.

former bankruptcy statutes it was provided, that where a

§ 44. bankrupt was a trustee, the Lord Chancellor might, under certain circumstances, order a conveyance or assignment to another trustee. Section 147 of the present Act, which is the same as section 117 of the Act of 1869, makes a similar provision, but is wider in its language : see post. So, too, property vested in bankrupts virtute officii as executors, administrators, trustees in bankruptcy, does not on their bankruptcy pass to the trustee in bankruptcy: see Ludlow v. Browning, 11 Mod. 138; Williams on Exors. 8th ed. 544.

Secondly, there is the class of trusts where, although the Trusts created bankrupt did not acquire the absolute legal ownership for the by the bankpurpose of an express trust, yet he, though retaining the legal rupt. property, has divested himself of the whole or part of his beneficial interest. In this class of trusts, if the bankrupt has parted with the whole of his beneficial interest (as where a bankrupt has sold a debt or mortgaged it to secure a debt of an amount greater at the time of the bankruptcy than the debt mortgaged) and become a bare trustee, the legal interest of the bankrupt will not pass to the trustee in bankruptcy, but remain in the bankrupt (Winch v. Keeley, 1 T. R. 619; Boddington v. Castelli, 1 E. & B. 179); but if any beneficial interest remains in the bankrupt, whether the extent of such beneficial interest be ascertained or not, the legal interest will pass to the trustee in bankruptcy, subject, of course, to the performance of the trust. (See Parnham v. Hurst, 8 M. & W. 743; Castelli v. Boddington, 1 E. & B. 66 ; Carvalho v. Burn, 4 B. & Ad. 383.) The only case in which the legal estate will not pass to the trustee in bankruptcy, if the bankrupt has a beneficial interest in the trust property, seems to be the case of express trusts and trusts virtute officiï above mentioned.

Thirdly, there is the class of trusts where the bankrupt Trusts arising trustee has not the absolute or general property, but only from employa special property, e.g., where the property is vested in the ment of bank

rupt. bankrupt as an agent, such as a factor entrusted with goods to sell for his principal, or a banker entrusted with bills for collection. Such property, if distinguishable from the mass of the bankrupt's property, does not pass to the trustee in bankruptcy, but the trustee has a right to enforce any lien or other right on the goods or other property in his possession which the bankrupt factor would have had against his principal had he remained solvent.

It is to be observed, with reference to all trust property, Trust prothat it is only property that can be earmarked which is so ex- perty must be cepted : and it has been held that money, though the proceeds distinguishof trust property if undistinguishable from the mass of the able.

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bankrupt's property, will be divisible amongst his creditors. (Whitcomb v. Jacob, 1 Salk. 161; Ludlow v. Browning, 11 Mod. 138; Scott v. Surmon, Wils. 400; Mace v. Cadell, Cowp. 232; Ex p. Hardcastle, re Mawson, 44 L. T. 523.) Courts of Equity, however, are very acute in distinguishing trust funds, and will trace them, however much their character or nature may be altered, provided that that which is found in the possession of the bankrupt trustee can be clearly identified as the fruit of the trust property. (Exp. Sayers, 5 Ves. 169; Taylor v. Plumer, 3 M. & S. 562; Ex p. Cooke, re Strachan, 4 Ch. D. 123.) Thus, if a trustee pay trust monies to his private account, in no way distinguishing or earmarking them in the account, and afterwards draws generally on them for his private expenses, his drafts would primarily be ascribed to that portion of the fund which was in every sense his own, and he would, in the absence of evidence that he intended a wrong, be deemed to have intended and done what was right, and if the acts could not in that respect be wholly justified, they would be deemed to be just to the utmost amount possible. (See Frith v. Cartland, 34 L. J. Ch. 301 ; Pennell v. Deffell, 23 L. J. Ch. 115; Re Hallett's Estate, Knatchbull v. Hällett, 13 Ch. D. 696, 707.)

The question of following trust money, or money the proceeds of trust property, has been much considered in the case of Re Hallett's Estate, Knatchbull v. Hallett, ubi sup., where it was held, that if money held by a person in a fiduciary character, though not as trustee, has been paid by him to his account at his bankers, the person for whom he held the money can follow it, and has a charge on the balance in the bankers' hands. This case seems to show that the proposition as to only following money which can be earmarked laid down in Whitcomb v. Jacob, ubi sup., and similar cases, is not good law if intended to be applied to a case where the money in question could be identified as a part either of a physical mass of money, or of a balance standing to the credit of the defaulting trustee. It is important to observe that the right to follow the money can only arise when the intermixture of it by the bailee with his own monies was wrongful. Thus Thesiger, L.J., in his judgment in the above-mentioned case of Re Hallett's Estate, 13 Ch. D. at p. 723, after stating the general proposition as to following trust property and its proceeds, says, “ As far as I can judge, the only exception to the general proposition which I have stated is not a real esception, but an apparent exception, for all cases where it has been held that moneys mixed and confounded but still existing in a mass cannot be followed, may, I think, be resolved into cases where, although there may have been a trust with reference to the disposition of the particular chattel which

§ 44. those moneys subsequently represented, there was no trust, no duty in reference to the moneys themselves beyond the ordinary duty of a man to pay his debts : in other words, that they were cases where the relationship of debtor and creditor had been constituted, instead of the relation either of trustee and cestui que trust, or principal and agent. I think it unnecessary, and to my mind it is undesirable, to give an opinion upon the case of Ex p. Dale 8. Co., until we see, upon a case properly brought upon appeal, and when it is necessary to decide the point, whether that case does or does not come within the exception to which I have referred.”

The case referred to is Ex p. Dale & Co., re West of England Bank, 11 Ch. D. 772, in which it was decided by Fry, J., that where a banking company had been employed as agents to collect money and to remit it to their employers, having received the money in cash, placed it with the other cash of the bank, and informed their employers that the money had been remitted, but before the money was actually remitted went into liquidation, such money could not be followed by the employers. This case is dissented from by Jessel, M. R., in the above case of Re Hallett's Estate, but it is to be observed with reference to the observations of Thesiger, L. J., that the course of business was for the banking company to place the actual monies received with their own other funds, and to remit by directing bankers in London, who were the agents both of themselves and their employers, to credit the latter with the amount so received, and the counsel for the employers argued their case upon the basis that the banking company did nothing wrongful in mixing the monies received for their customers with their other monies. If the intermixture of monies is wrongful, the claim or charge of the cestui que trust or principal on the mixed fund will not be reduced by reason of any supposed set-off founded on debts due from the cestui que trust or the principal to the trustee or agent guilty of the wrongful intermixture. (Birt v. Burt, cited in the note to Ex p. Dale & Co., re West of England Bank, 11 Ch. D. at p. 773.)

This presumption that the bankrupt has expended his own Presumption monies or property for his own purposes rather than trust that trustee monies or property, may be regarded as an estoppel against own money. the bankrupt which binds the trustee for his creditors. Thus, in a case where the agent of some brewers who was supplied with money by them for the purpose of purchasing barley to be converted on his premises into malt for his employers, in fact misappropriated the money so supplied to him and purchased barley or ready-made malt on credit and then

$ 44. became bankrupt, having a large quantity of such barley

and malt in his possession, but a less quantity than he ought to have had if he had properly expended the money entrusted to him, it was held that, as the agent could not have set up that he had purchased for himself and not for his employers, therefore the trustee in bankruptcy could not set this up and deny the right of the employers to the barley and malt found on the premises. (Harris v. Truman & Co., 7 Q. B. D. 340; 9 Q. B. D. 264.) It was formerly considered that the presumption that the trustee has disposed of his own property rather than the trust property, would not prevail against the ordinary presumption as to the appropriation of payment to debts in the order in which they are incurred, according to the principle laid down in Clayton's case, 1 Mer. 572 ; and therefore that when a trustee paid trustmoney undistinguished to his general account at his bankers, the monies drawn out would be applied to the monies paid in in the order in which such monies happen to have been paid in. (Pennell v. Deffell, 23 L. J. Ch. 115; Brown v. Adams, L. R. 4 Ch. 764.) But these cases have not been followed in this respect, for it was decided by the Court of Appeal, dissentiente Thesiger, L. J., that the rule in Clayton's case does not apply to the case of trust monies paid by the trustee with other monies into his banking account, but that all the trustee's drawings will be attributed to the monies not being trust monies at whatever date they were paid in. (Re Hallett's Estate, Knatchbull v. Hallett, 13 Ch. D. 696, 707.) It would seem from this case that as between two cestuis que trust, whose

money the trustee has paid into his own banking account, the rule in Clayton's case applies, so that the first sum paid in will be held to have been first drawn out. The case of Ex p. Hardcastle, re Mawson, 44 L. T. 523, in which it was held that certain monies paid by a defaulting trustee into his account could not be followed by the cestuis que trust, was decided

upon the ground that there was not sufficient evidence to identify the sums paid in with the trust funds, and not on the ground that they could not be followed if identified as paid in. "See further as to the rule in Clayton's case, not applying to fraudulent overdrawings, Lacey v. Hill, 4 Ch. D. 537.

It is further to be observed with reference to the class of perty affected

express trusts that, although the doctrine of reputed ownerby doctrine of reputed

ship applies to trust property of this class as it does to all ownership. kinds of personal property, yet the evidence requisite to bring

property of this class into the reputed ownership of a bankrupt trustee must necessarily be much stronger than the evidence requisite in other cases; for whereas in many cases the mere possession of property by a bankrupt is in itself strong

Trust pro

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