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TMI Blog1929 (12) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 10,000 either in your firm or any other as you may deem fit from time to time as you may deem proper. Until my said son becomes 21 years of age, you need not hand over the principal to him, only the interest you can be paying to my family. 2. A few days later Tawker Sons gave a receipt to the plaintiff's father for this ₹ 10,000 as fixed deposit in the name of his minor son T. Krishnaji Bhat in accordance with the instructions contained in Ex. A, stating that the amount was to carry interest at 9 per cent, per annum. 3. In November, 1923, that is, four years later, the plaintiff instituted this suit against Tawker Sons, alleging that they were then involved in financial difficulties and were likely to be adjudged insolvents and also that they had committed a breach of trust by not investing the ₹ 10,000 in accordance with the trust. He claimed a preferential right over the assets of Tawker Sons to the extent of ₹ 10,000 and any interest that might be due upon it, and he prayed for the removal of Tawker Sons from their office of trustees, for the appointment of a new trustee and for an order that Tawker Sons should hand over the ₹ 10,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation of breach of trust was not urged. It had been dropped, so far as we can see, at a much earlier stage. But at a very late stage in the arguments before us it has been suggested that the breach of trust may be made out in this way. Tawker Sons as trustees were under the duty of guarding the interests of the plaintiff in the most diligent way possible; they had the option of investing this money either in their own firm or in any other firm : when they found that their own firm was in difficulties it was their duty to exercise 'their option of putting the money in some safer business. But that contention was not raised at the trial; and there is no evidence on the record to show when Tawker Sons began to be in financial difficulties, or how far those difficulties had gone at the date of the suit. In my opinion we cannot take up this question of breach of trust at this stage. We must treat the case, as it was treated at the trial, as one in which no breach of trust was seriously alleged and certainly no breach of trust was made out. 8. On that basis no wrongful disposal of the trust property has been shown; nor has any wrongful mixing of the trust property with other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets of the firm, at the time of their insolvency. Is that admitted fact, the investment of the ₹ 10,000 in Tawker Sons' business, sufficient for this purpose of tracing within the meaning of Section 63 of the Trusts Act? We must remember that this investment was permitted, and, indeed, intended, by the plaintiff's father when he created the trust. When he directed that the ₹ 10,000 was to be invested in Tawker Sons' business, should they wish so to invest it, what could he have meant except that it was to become a part of the working capital of Tawker Sons' business? If that were so, into what could it become transformed when used as working capital? It would be spent, we may suppose, on the purchase of stock or the payment of establishment or other running charges of the business or perhaps in clearing off debts and overdrafts. If that was done, what would represent the trust property now? I think it would be represented, as Mr. Srinivasa Aiyangar contended, by the stock-in-trade, the good-will of the business and the outstanding debts due to the business--in short by the assets of the firm. 9. Mr. Krishnaswami Aiyar, for the Official Assigne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that business when they were adjudged insolvents. It makes no difference that their assets represented not only the ₹ 10,000 but something else also. That does not affect the question, as is shown by the second illustration to Section 63 of the Trusts Act. 10. But Mr. Krishnaswami Aiyar has raised several interesting and ingenious objections why this principle is not applicable to the present case. He has pointed out quite rightly that, when you are tracing trust property through a chain of transformations, if you reach a stage where the relationship of trustee and beneficiary no longer exists and in its place you find only the relationship of debtor and creditor, the chain breaks and tracing can go no farther. That is quite true. He urges that in this case the chain broke at the very outset, his contention being that, when the ₹ 10,000 was invested in Tawker Sons' business, the relationship of debtor and creditor arose and superseded that of trustee and beneficiary. But I do not think that that correctly represents the position. Can we say in the words of Thesiger, L.J., in In re Hallett's Estate (1880) L.R. 13 Ch. D. 696 that nothing remained beyond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pay it back into their hands. But what happened in effect was that they held his ₹ 10,000 and he said Please keep that ₹ 10,000 on behalf of my son and invest it in your business. The result of that was that, whereas before the transaction Tawker Sons were liable to pay ₹ 10,000 to the plaintiff's father at any moment, after the transaction they held ₹ 10,000 which could not be claimed from them for eight years until the plaintiff became 21, and that ₹ 10,000 they could use in their own business. Is it not clear from that that Tawker Sons' resources, their assets, were by that transaction augmented by the ₹ 10,000? That alone would take this case out of the ruling in In re Hallett and Company: Ex parte Blane (1894) L.R. 2 Q.B. 237. I may mention here that Tawker Sons' clerk, who has been examined as D.W. 1, gave some confused evidence about the disposal of the ₹ 65,000 collected by Tawker Sons on behalf of the plaintiff's father. From one part of his evidence it appears that so much of that ₹ 65,000 had been paid out by Tawker Sons to different persons that less than ₹ 10,000 remained to be dealt wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he was only asked one question about the trust and that solitary question put to him in cross-examination was : When was this trust created? 15. But it has been argued that, notwithstanding the intention of the parties to stand towards one another in the relationship of trustees and beneficiary, the arrangement whereby the trustees were to have the use of the trust money for investment in their business is so incompatible' with the notion of a trust, that no trust can be inferred, and that the parties must be taken as standing in the relationship of debtors and creditor only in respect of the ₹ 10,000. No doubt it is a well-established principle that a trustee is to make no profit out of the trust fund, the reason for the rule being as stated in Lewin on Trusts, 13th Ed., p. 306, to keep trustees in the straight line of their duty. It is equally a principle that, if a trustee trades with the trust money, the is accountable to the beneficiary for the profits. But it is open to a settlor when creating a trust to make it advantageous to the person appointed trustee to undertake the trusteeship, and to determine the purposes for which the trust fund shall be utilised, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regards the right of the beneficial owner to follow the proceeds. 18. The judgment proceeds to show that where property has been acquired by a trustee with money, partly trust money and partly the trustee's own money, the beneficiary can no longer elect to take the property, for the reason that it has been purchased with a mixed fund and not with the trust money purely and simply, and therefore the beneficiary is entitled to a charge upon the property for the amount of the trust money laid out in the purchase. 19. The evidence of the plaintiff's witness, who is the creator of the trust, is that this sum of ₹ 10,000 was in fact used by the defendants in the purchase of show-room stock. But his evidence is not very precise on this point, for in cross-examination he appears to admit that this was an assumption made by him from the fact that a few days after the receipt of this money certain show-room stock was purchased by, the defendants. Besides, the witness appears to be speaking of a transaction which took place some time at the end of August or the beginning of September before he left the defendants' shop, where he was employed as manager and prior to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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