C. A. 1897 NEW, GARRARD'S TRUSTEE these presents Now this Indenture witnesseth that in pursuance of such desire and in order to effectuate the same and for the special reason and consideration hereinbefore recited PRANCE & he the said C. C. Prance as beneficial owner doth hereby convey" &c. The fact that this deed had been executed was not communicated to any of the co-trustees of Prance, or to any of the beneficiaries, or to any of his creditors. The defendant, Hunting, was at the date of the deed the principal clerk in the accountant's department of the firm. V. HUNTING. In January, 1896, the plaintiff commenced the action against Hunting, Prance, and other defendants interested under the deed as stated in the report of the case in the Court below (1), seeking to have the deed declared void as against the plaintiff, on the ground that the deed and the trusts thereof were revocable, and were in fact revoked by the bankruptcy of Prance; and in the alternative, on the ground that the deed was a fraudulent preference within the meaning of s. 48 of the Bankruptcy Act, 1883. With regard to the deposits of share certificates before mentioned, it appeared that in February, 1894, Prance instructed a clerk in the employ of the firm to place in boxes respectively containing the respective securities and papers of the trust estates of which he was trustee certificates of shares in a limited company belonging to the firm, with in each case a memorandum of deposit, signed by Prance and the firm, by which it was declared that the certificates of shares bearing certain numbers were thereby deposited as further and additional security for the moneys due to the trust estate. These certificates and memoranda, together with all the securities and papers connected with the trust estates of which Prance was trustee, were afterwards placed in one box labelled "Prance's Trusts." The certificates of the shares and the memoranda remained at the date of the bankruptcy in the custody and control of Prance, and the deposit of the certificates did not in any case. appear to have been communicated to the persons interested in the trust estates. The plaintiff by his statement of claim claimed the shares as part of the estate of the bankrupts on (1) [1897] 1 Q. B. at p. 610. the ground that what had taken place with regard to them was not effectual to vest any title to them in Prance as trustee for the trust estates, and that the deposits were void as fraudulent transfers or assignments under sub-s. 1 (b) of s. 4, and s. 47 of the Bankruptcy Act, 1883, or as being by way of fraudulent preference under s. 48 of the Act. The plaintiff's counsel admitted in the Court below that the facts with regard to these deposits were substantially identical with those of the case of Middleton v. Pollock (1), and that in that court the case was concluded by that decision. At the trial the plaintiff's counsel proposed to read the shorthand notes of Prance's public examination in the bankruptcy proceedings as being evidence against him; but the learned judge refused to allow them to be read, on the ground that he was defending the action in a representative capacity as trustee, and his answers were not evidence against his beneficiaries. (2) The learned judge gave judgment for the defendants both as to the deed and the share certificates. Muir Mackenzie and R. Harington, for the plaintiff. The first question is whether the deed was revocable, for, if it was, it was revoked by the bankruptcy of Prance. The principle deducible from the authorities is that, where a debtor makes a conveyance of property upon trust for distribution among creditors, to which the creditors are not parties, until the fact of the execution of the deed is communicated to a creditor or the deed is acted upon, it is a mere revocable mandate, and the trustee is merely the agent of the grantor, and not a trustee for the creditors: Garrard v. Lord Lauderdale (3); Acton v. Woodgate (4); Johns v. James (5); In re Ashby (6); Gibbs v. Glamis (7); Synnot v. Simpson. (8) This case falls within that principle. [They also cited on this point Smith v. Hurst. (9)] Secondly, the deed is void as being a fraudulent preference (1) 2 Ch. D. 104. (2) [1897] 1 Q. B. at p. 611. (3) (1830) 3 Sim. 1. (4) (1833) 2 My. & K. 492. (5) (1878) 8 Ch. D. 744. (6) [1892] 1 Q. B. 872. (7) (1841) 11 Sim. 584. (9) (1852) 10 Hare, 30. C. A. 1897 NEW, PRANCE & GARRARD'S TRUSTEE V. HUNTING C. A. 1897 NEW, GARRARD'S TRUSTEE v. HUNTING. within s. 48 of the Bankruptcy Act, 1883. The persons interested in the trust estates in the cases where a breach of trust had been committed were "creditors" within the meaning of PRANCE & that section, for they could prove in the bankruptcy under s. 37, sub-s. 3: Ex parte Kelly (1); In re Paine, Ex parte Read. (2) The deed was executed with the view of giving them a preference over the other creditors. The necessary consequence of the deed was such a preference, and the grantor must be taken to have intended the necessary consequence of his own act. Assuming that his motive was the desire to protect himself from the penal consequences of the breaches of trust which he had committed, nevertheless, if, in order to do that, he intended to prefer certain creditors over others, the deed falls within the section as being made with a view to prefer those creditors. Ex parte Taylor (3) is distinguishable, for in that case there was actual pressure and a threat of proceedings. [They also cited on this point Ex parte Ball. (4)] Thirdly, it is submitted that the learned judge had no discretion to refuse to admit the answers given by Prance upon his examination in the bankruptcy. Sect. 17, sub-s. 8, of the Bankruptcy Act, 1883, makes such answers evidence against him. It is submitted that this Court should allow them to be read now for the purpose of shewing what Prance's view was in executing the deed. Fourthly, with regard to the deposits of share certificates, it is contended that what took place did not amount to a good declaration of trust or pass any interest in the shares. The shares remained in Prance's control, and the transaction was never communicated to the beneficiaries. There was no bonâ fide intention to pass the interest in the shares. In Middleton v. Pollock (5) it was held that a transaction substantially identical with that which took place in the present case constituted a good declaration of trust, and was not void as not being bonâ fide within 13 Eliz. c. 5. That decision is in direct conflict with the previous decision in Wilson v. Balfour. (6) It is (1) (1879) 11 Ch. D. 306. (4) (1887) 35 W. R. 264. contended that the case was wrongly decided, and it is not binding on this Court. [A. L. SMITH L.J. In Wilson v. Balfour (1) the memorandum stated that the bonds had been deposited with the defendant, which was not the case, and the ground of the decision was that the whole thing rested in intention.] Upjohn, Clayton, and P. Van Neck, for the defendants, were not called upon. LORD ESHER M.R. The first question is whether the deed executed by Prance was or was not revocable. In deciding that question great assistance is derivable from what was said by Turner V.-C. in Smith v. Hurst. (2) He there said: "Many of the cases upon voluntary deeds were cited and commented upon in the argument of this case: and I have thought it right, therefore, to examine the authorities upon the subject. They appear to me to result in this, that, in cases of deeds vesting property in trustees for the benefit of particular persons, the deed cannot be revoked, altered, or modified by the party who has created the trust: but that in cases of deeds purporting to be executed for the benefit of creditors, the question whether the trusts can be revoked, altered, or modified, depends upon the circumstances of each particular case. It is difficult at first sight to see the distinction between the two classes of cases; for in each of the classes a trust is purported to be created, and the property is vested in trustees; but I think the distinction lies in this: in cases of trust for the benefit of particular persons, the party creating the trust can have no other object than to benefit the persons in whose favour the trust is created, and, the trust being well created, the property in equity belongs to the cestui que trusts as much as it would belong to them at law, if the legal interest had been transferred to them; but in cases of deeds purporting to be executed for the benefit of creditors, and to which no creditor is a party, the motive of the party executing the deed may have been either to benefit his creditors or to promote his own convenience; and the Court there has to examine into the circumstances, for the purpose of ascertaining (2) 10 Hare, 30. (1) 2 Camp. 579. C. A. 1897 NEW, PRANCE & GARRARD'S TRUSTEE V. HUNTING. C. A. 1897 what was the true purpose of the deed; and this examination does not stop with the deed itself, but must be carried on to what has subsequently occurred, because the party who has PRANCE & created the trust may by his own conduct, or by the obligations NEW, GARRARD'S TRUSTEE V. which he has permitted his trustee to contract, have created an HUNTING. equity against himself. Each case of the latter description Lord Esher M.R. being thus governed by its circumstances, any further examination of the authorities would, I think, be useless." Now what are the circumstances of this case? The defendant Prance had committed breaches of trust with regard to some of his clients. He appears to have had various creditors, and he makes a conveyance, not in favour of his creditors generally, but in favour of particular persons only, who are sufficiently earmarked by the deed-namely, the persons with regard to whom he has committed the breaches of trust. Taking the rule to be as laid down by Turner V.-C., that of itself prevents the deed from being revocable, and makes the trustee appointed by the deed a trustee for the particular persons in whose favour the deed was executed. But there is a further reason why the deed should be considered irrevocable. The breaches of trust which Prance had committed might, when discovered, render him subject to various penal consequences. Application might be made to strike him off the rolls, or he might be liable to prosecution. What had he obviously in view when he executed this deed? It would be no answer, of course, to proceedings of a penal nature against him by the persons whom he had defrauded, but it might have a material effect on the punishment inflicted upon him. At all events, he seems to have thought that the consequences to himself might be mitigated if he were, as far as possible, to put those persons in the same position as if he had not committed the breaches of trust and he could not do that, unless he meant to give them an absolute interest in the estate which he was conveying, and to make the person to whom he was conveying it a trustee for them. Under these circumstances it is obvious that it could not be his intention to reserve to himself any right or possibility of undoing what he was doing, and that he intended that it should be irrevocable. |