Brady v Stapleton

Brady v Stapleton - [1952] HCA 62 - HCA 1952 case summary — Zoe

[20]

The truth seems to be that, although the statute uses, and most emphatically uses, the word "void", the courts have always treated a fraudulent assignment as effective unless and until a creditor or creditors intervene by levying execution or taking legal proceedings. In Shears v. Rogers [2] , Littledale J. said: "The assignment was void as soon as the creditors claimed to treat it as such, though not until then": cf. Bessey v. Windham [3] (per Lord Denman C.J.). In Morewood v. South Yorkshire Railway & River Dun Co. [4] , Pollock C.B., in the course of argument, said: " "Void" does not mean utterly and absolutely void, but void sub modo. Here, before the question of the validity of the bill of sale arose, the property was divested out of the first assignee". In the same case Watson B. said: "In the case of a deed void as against creditors, there must be an election to avoid the deed, but before any election the property was gone out of Morewood" [5] . (Morewood was the immediate assignee of the debtor). And Bramwell B. said: "The title of the mala fide purchaser was defeasible; but before any step was taken to defeat such title the property passed" [5] . Again, in Harrods Ltd. v. Stanton [6] , Bailhache J. said: "But in my opinion until a deed of gift is set aside the donee under the deed of gift is the true owner of the goods comprised therein. It is true that the donee has a defeasible title, but unless and until the deed of gift is set aside the title is a good title". In the same case McCardie J. said: "It was an actual gift from himself to his wife, and she therefore became the owner of the goods, though it is clear that her title was subject to defeasance upon an application by the creditors of her husband under 13 Eliz. 1 c. 5 as being in fraud of creditors" [1] . The use of the word "voidable" in the judgment of Lowe J. in Thomson v. Nicholson [2] illustrates the substance of the position. Cf. also In re Carter & Kenderdine's Contract [3] , a case under another statute.

[30]

Cases in which one who has in his hands the property of another converts that property into some other form or mixes property of another with his own have been familiar both to courts of law and to courts of equity. Courts of law were concerned with legal ownership, and courts of equity with equitable ownership, but, up to a point, as is well known, the doctrines of the two systems were identical. Nothing could be clearer than the exposition of the common law by Lord Ellenborough C.J. in Taylor v. Plumer [1] . There a broker was entrusted with moneys in order that he might buy Exchequer bills for his principal. He purchased American stock and bullion, intending to abscond with it. He was, however, intercepted and made bankrupt. It was held that the American stock and bullion belonged to his principal and not to his assignees in bankruptcy. The judgment of Lord Ellenborough is very well known, but it is worth while to recall it. His Lordship said: "It makes no difference in reason or in law into what other form, different from the original, the change may have been made for the product of or substitute for the original thing still follows the nature of the thing itself, as long as it can be ascertained to be such, and the right only ceases when the means of ascertainment fail, which is the case when the subject is turned into money, and mixed and confounded in a general mass of the same description. The difficulty which arises in such a case is a difficulty of fact and not of law" [2] . In Re Hallett's Estate [3] , Sir George Jessel quotes this passage down to the words "when the means of ascertainment fail", and observes: "That is correct. Now there comes a point which is not correct, but which I am afraid only ceases to be correct because Lord Ellenborough's knowledge of equity was not quite commensurate with his knowledge of the rules of the Common Law". If all other means failed, said the Master of the Rolls, equity would impose a charge on the "indistinguishable mass". But, if it were a case of money, "equity would have followed the money, even if put into a bag or into an indistinguishable mass, by taking out the same quantity ". A little later [4] he quotes again from the judgment of the Vice-Chancellor in Frith v. Cartland [5] : "If a man has £1,000 of his own in a box on one side, and £1,000 of trust property in the same box on the other side, and then takes out £500 and applies it for his own purposes, the Court will not allow him to say that that money was taken from the trust fund. The trust must have its £1,000 so long as a sufficient sum remains in the box".

[32]

It is in these passages, and in particular in the words italicized above, that the solution of the present problem is to be found. For it would be a great mistake to suppose that the great case of Re Hallett's Estate [6] lays down a doctrine peculiar to money. On the contrary, it extends to money paid into a bank account, and so losing its identity as money, a doctrine which equity would never have had the slightest hesitation in applying to money physically existing or to any other kind of personal property to which it could, as a matter of practical possibility, be applied. And there is no difficulty, and we do not think that equity would ever have had the least difficulty, in applying the same doctrine to shares or bonds. In Re Hallett's Estate [1] , the Master of the Rolls says: "Supposing the trust money was 1000 sovereigns, and the trustee put them into a bag, and by mistake, or accident, or otherwise, dropped a sovereign of his own into the bag. Could anybody suppose that a Judge in Equity would find any difficulty in saying that the cestui que trust has a right to take 1000 sovereigns out of that bag?" Suppose the trust fund consists of 100 bearer bonds of £10 each, and the trustee puts them in a box, and later puts in 50 bearer bonds of his own of the same denomination and issue. Suppose the bearer bonds are just as indistinguishable from one another as sovereigns. Could anybody suppose that equity would find any difficulty in saying that the cestui que trust was entitled to take 100 bonds out of the box? Nor can we see any difference if the case be a case of shares, all registered in the name of the trustee and indistinguishable from one another. In In re International Contract Co. (Ind's Case) [2] , Mellish L.J. said: "One share, an incorporeal right to a certain portion of the profits of the company, is the same as another, and share No. 1 is not distinguishable from share No. 2, in the same way as a grey horse is distinguishable from a black horse". Equities are not defeated if a trustee mixes trust moneys with his own moneys and with the mixture purchases a grey horse and a black horse, or a grey horse alone. In such a case equity imposes a charge on the two horses or the one horse. But, where it is possible to give effect to the rights of a cestui que trust by simply taking out so much money or so many bonds or so many shares, the cestui que trust may elect whether he will take property in specie out of the mass or have a charge on the mass. The trustee in the present case prefers the former course.

[47]

From these cases it seems to me that the effect of the relevant provisions of The Mercantile Acts was that the fraudulent alienations by the bankrupt to the company were voidable from the beginning. Section 48 prevented the sales by the company to the bona fide purchasers for value from being void against them. That section did not operate to make good the fraudulent alienations by the bankrupt to the company. It operated only to protect the purchasers for value without notice. The right of the trustee in bankruptcy under s. 46 to impeach the fraudulent alienations by the bankrupt to the company, was not barred by s. 48. If he had impeached them while the assets were in the hands of the company, he would have had a legal right to the assets and of pursuing them with equitable remedies. He cannot actually lay hold of the proceeds of sale because they cannot be traced into the hands of the company in the shape of money or in any other form. Failing the trustee's equitable remedy in rem, the question is whether it has a remedy in personam against the company. Where the assignee from the debtor is not within the protection of s. 6 of the statute 13 Eliz. 1, c. 5, the creditors have a right not only to the property fraudulently assigned but also to any property produced by it which is in the assignee's hands (Taylor v. Coenen [1] ). The creditors rights are further explained by Stirling J. in the case of In re Mouat [2] . In this case the Court declared void under the statute 13 Eliz. 1, c. 5 the assignment of an assurance policy. The assignee had invested the proceeds of the policy upon mortgages. It was conceded for the assignee that if the proceeds existed in specie the creditors might have followed them into the hands of the assignee. The point was whether by investing the proceeds upon mortgage the power of the Court to secure the property for the benefit of the creditors was intercepted. Stirling J. said, "The property remains in the hands and under the control of the assignee, though not in the shape in which it originally was. I fail to see, on principle, why the jurisdiction of the Court to secure that fund for the benefit of creditors should be ousted. According to the law which has been laid down in the cases I have just cited, the assignments became void the moment the creditors claimed to treat them as such; and thereupon the property which was comprised in those assignments ceased, as against the creditors, to be the property of the assignee, and became assets for the payment of the creditors in such a way that they had a legal right to be paid out of those assets" [3] . The alienations from the bankrupt to the company became void as against the trustee in bankruptcy when he impeached them, but by s. 48 the sales by the company to bona fide purchasers for value had been made good. If the assets had not been assigned by the company, the trustee would, as the representative of the creditors, have had a legal right to be paid out of the assets. It seems to me that upon principle the trustee has the legal right to have the debts paid out of the money into which the company converted the assets. Stirling J. said in the case of In re Mouat [2] that the rights of the creditors can be made available in courts of equity although they are legal. It follows that the trustee in bankruptcy has a right in personam against the company to recover a sum equivalent to the proceeds of sale. As the trustee's right is also, according to Stirling J., capable of being enforced at law, an action for money had and received would lie against the company. In my opinion the trustee in bankruptcy was entitled to the relief claimed by his cross appeal in respect of the alienations of assets to which pars. 18, 21, 22, 25 and 26 respectively refer.

[49]

The remaining question in the cross appeal is raised upon pars. 4 (a), 5 (a), 6 (a), 7 (a), 8 (a) and 9 (a) of the order of the Court of Bankruptcy. Each of these sub-paragraphs contains a declaration by the Court that P. M. Brady was at all material times a trustee for the bankrupt of a certain number of fully paid up shares in the Canadian Pacific Tobacco Co. Ltd. The state of the company's records made it impossible to determine what were the correct distinguishing numbers of the shares which the bankrupt transferred to Brady and in respect of which Brady became a trustee for him. The Court of Bankruptcy determined the value of each specific number of shares in respect of which these declarations were made and ordered Brady to pay that sum to the trustee in bankruptcy in lieu of making an order for the delivery of any shares by Brady to him. He is not content with this relief and submitted that such an order for delivery should have been made. Brady transferred to Mrs. Coward a number of the shares which he had received as trustee. It appears that the total holdings of Brady and Mrs. Coward exceed the number of shares which the Court declared that Brady held on trust for the bankrupt, but that he does not hold sufficient in his own name to answer an order for the delivery of as large a number of shares as the bankrupt had transferred to him upon trust. Between the two of them, however, they hold more shares than would be sufficient to answer such an order. Mrs. Coward was not a bona fide transferee for value without notice. It was submitted in argument that the total holding of shares by Brady and Mrs. Coward could be compared with a bag of money consisting of trust money and other money such as is described in the judgment in the case of In re Hallett's Estate [1] . Upon the basis that this is a good comparison, it was submitted that the trustee in bankruptcy was entitled to lay hold of a sufficient number of the shares to satisfy his claim just as the cestui que trust would be entitled to do in respect of trust money mixed by a trustee with his own money.

At a glance

Court

Decision date

Before

Source

Judgment (55 paragraphs)

Parties