OFFICIAL ASSIGNEE OF MADRAS Vs. GSMITH

JUDGEMENT

(1.) This is an appeal from a decree of the learned Chief Justice sitting as Commissioner in Insolvency.

(2.) The facts of the case are as follows:

(3.) On the 12 October 1906 Mr. G. Smith wrote to Messrs. Arbuthnot & Co., Madras, enclosing a cheque in his favour on the National Bank of India for Rs. 627 and asked them to receive the amount in fixed deposit together with Rs. 573 which he would remit on receiving their acknowledgment--the whole amount to be treated as a fixed deposit for one year payable to Mr. G. Smith and Mrs. V. Smith, either or survivor. On the 13 October 1906, Messrs. Arbuthnot & Co. wrote in reply acknowledging the cheque, and stating that on receipt of the further sum they would, as desired, place the total amount of Rs. 1, 200 in fixed deposit for 12 months, and issue and send Mr. Smith their receipt therefor in favour of himself and Mrs. F. Smith, either or survivor. Mr. Smith did not at once remit the balance, and before he had done so, Messrs. Arbuthont & Co. became insolvents. Mr. G. Smith now claims to be repaid the Rs. 627 out of the general assets in the hands of the Official Assignee, and his claim has been allowed by the learned Commissioner on the ground that Messrs. Arbuthnot &. Co. held the Rs. 627 in a fiduciary capacity. Now, if Messrs. Arbuthnot & Co. received the sum in question in a fiduciary capacity and were under a duty to keep it separate from their own moneys and not to use it, then even though they in fact mixed it with their own moneys, it can no doubt be recovered out of the general assets of the insolvents on the principle explained by Sir George Jessel in In re Hallett's Estate (1880) 13 Ch. D. 696; 49 Ch. 415; 42 L.T.421, that where a person mixes money which it was his duty to keep separate, with his own moneys and afterwards fails, the unspent balance in his hands must be taken to include the money which it was his duty to keep separate and not to use rather than the money which he had the right to dispose of. Accordingly, it was held by the Court of Appeal in that case that on the facts in Dale's case (1879) 11 Ch. D. 772 where a cheque was sent to a bank with instructions to collect and remit the amount, and the bank collected but did not remit and afterwards failed, the proper decision would have been to allow the remitting creditor to recover the whole proceeds of the cheque out of the general assets and that the actual decision in that case was wrong. Similarly, in In re Brown Ex parte Plitt 60 L.T.R., 397, where a banker was instructed to collect a cheque and hold the proceeds on trust and the bank failed, it was held that the full amount of the cheque was recoverable out of the general assets. It must, however, be borne in mind in considering this case that a banker who receives money as a trustee is not entitled to mix it with his own and use it, and this is why it is in accordance with the principle explained in In re Hallett's Estate (1880) 13 Ch. D. 696; 49 Ch. 415; 42 L.T.421. In Faley V/s. Hill 2 H.L. 28, Lord Brougham, at page 44, points out that, if a banker were a trustee he could not use the trust money as his own without a breach of trust, and in The South Australian Insurance Company, V/s. Randell (1869-70) 3 P.C. 101 it was held by the Judicial Committee to be an indelible principle of trust property that a trustee can never make use of it for his own benefit. Mr. Heber Hart in his book on Banking , 2nd edition, page 485, quotes Cane, J., who decided In re Brown Ex parte plitt 60 L.T.R., 397, as having observed during the argument "where the debtor (the banker) is to collect and remit, there is confidence and trust. Where the debtor is to use and repay on demand there is no trust." The question in the present case appears to resolve itself into this. Upon what terms did Messrs. Arbuthnot & Co. hold the Rs. 627 collected by them pending the receipt of the balance when the whole sum was to be placed on fixed deposit.