Brady v Stapleton

[1952] HCA 62

HIGH COURT OF AUSTRALIA

Dixon C.J., McTiernan and Fullagar JJ.

BRADY v. STAPLETON

(1952) 88 CLR 322

19 November 1952

Fraudulent Conveyance

Fraudulent Conveyance—Bankruptcy—Goods—Shares—Alienation—Sales and transfers—Fraud—Purchasers and assignees—Bona fide for value—Notice of fraud—Trustee—Relief—Identification—13 Eliz. 1, c. 5, ss. 2, 3, 5—Bankruptcy Act 1924-1950 (No. 37 of 1924—No. 80 of 1950), s. 94—The Mercantile Acts 1867 to 1896 (Q.) (31 Vict. No. 36—60 Vict. No. 10), ss. 46, 47, 48.

Decisions

November 19. The following written judgments on the cross-appeal were delivered:-
DIXON C.J. AND FULLAGAR J. In this case Peter Michael Brady, Eileen Isobel Coward, Georgina May Beer, Thomas Mack, Nino Rodighiero (also known as Roder) and a company incorporated in Queensland under the name of Canadian Pacific Tobacco Co. Ltd. appeal to this Court against the whole of an order made by the Federal Court of Bankruptcy (Clyne J.) on 21st December 1951. The respondent, Leslie Thomas Stapleton, is the trustee of the property of Charles Coward, a bankrupt. Eileen Isobel Coward is the wife of Charles Coward, the bankrupt. Mack is a brother of the bankrupt, and it is therefore possible that his real name is Coward. The respondent cross-appealed against certain parts of the order of Clyne J. When the case was called on for hearing before this Court, counsel appeared for the appellants and applied for an adjournment. The application was opposed by counsel for the respondent, and, after argument, was refused. Counsel for the appellants thereupon intimated that he did not propose to argue the appeal, and he withdrew. The Court then proceeded with the hearing of the cross-appeal. At the end of the hearing an order was made dismissing the appeal with costs, and judgment was reserved on the cross-appeal. (at p328)

2. The matters investigated by the learned judge of the Court of Bankruptcy were complex in the extreme, but, for the purposes of the cross-appeal, it will be sufficient to state shortly the history of the matter, to indicate generally the nature of the findings of his Honour and of the order made by him, and then to proceed to the questions which arise on the cross-appeal. (at p328)

3. Early in 1947 the Commissioner of Taxation commenced an investigation into the affairs of Charles Coward, his wife, and a company named Hillman Tobacco Co. Pty. Ltd. As a result of the investigation taxation prosecutions were launched against Coward and the company, and each was ordered to pay a penalty of 10,000 pounds. In October 1949, the Commissioner issued amended assessments to Coward in respect of the income years 1942 to 1947 inclusive, the amount of tax claimed being 141,271 pounds. This sum was not paid, and on 16th December 1949 judgment was recovered against Coward for 141,150 pounds and 10 pounds 10s. 0d. costs. On 30th December 1949 a petition in bankruptcy was presented to the Supreme Court of Queensland, and on 18th January 1950 a sequestration order was made in respect of Coward's estate. The proceedings under the sequestration order were later transferred to the Federal Court of Bankruptcy, and on 16th March 1951 Mr. Stapleton, who had been appointed trustee of the bankrupt's estate, filed a notice of motion, to which the present appellants were made respondents, seeking to have set aside a large number of dispositions of property alleged to have been made by the bankrupt. These dispositions were attacked either on the ground that they were settlements made void by s. 94 of the Bankruptcy Act 1924-1950, or that they were alienations made with intent to defraud creditors within the meaning of s. 46 of The Mercantile Acts 1867 to 1896 (Q.), which reproduces the English statute 13 Eliz. 1, c. 5. (at p329)

4. Clyne J. was of opinion that none of the dispositions attacked was a settlement within the meaning of s. 94 of the Bankruptcy Act, and this view was not challenged on the cross-appeal to this Court. His Honour was of opinion, however, that certain dispositions of property to the individual appellants had the effect of creating trusts in favour of the bankrupt, and that certain dispositions to the Canadian Pacific Tobacco Co. Ltd. were alienations made with intent to defraud creditors within the meaning of s. 46 of the Queensland Acts. His Honour stated that he entirely disbelieved the evidence given by the individual appellants, and said: "I come to the general conclusion that Coward was the head and front of a daring and scandalous scheme designed to swindle the Commissioner of Taxation, that he was actively assisted in this scheme by his wife and his brother-in-law (Brady), and that Beer, Mack and Rodighiero were inert participants in the scheme". The general result of his findings was thus stated by his Honour: "I regard the respondents other than the respondent company as holding the property received by them from the bankrupt in trust for the bankrupt, disbelieving their evidence that they themselves with their own moneys purchased such property. . . . On the other hand, I regard the dispositions by the bankrupt to the respondent company as being made deliberately and fraudulently in order to put the property disposed of to the company beyond the reach of creditors, though no doubt the bankrupt would have had a substantial indirect control over this property". (at p329)

5. The property which was the subject of the challenged transactions comprised certain real estate, certain motor vehicles, certain race-horses, a large quantity of tobacco, a large number of shares in the Canadian Pacific Tobacco Co. Ltd., and certain other personal property of minor importance. The order made by Clyne J. on Mr. Stapleton's motion contains twenty-six paragraphs, each of which deals with a separate item of property. The cross-appeal relates to eleven of these paragraphs, but, in respect of the questions which they raise, these eleven paragraphs divide themselves into two groups. The first group consists of pars. 18, 21, 22, 25 and 26. The second group consists of pars. 4, 5, 6, 7, 8 and 9. In the case of the first group the question arises from the fact that the recipients of property under dispositions declared to be avoided by virtue of s. 46 of The Mercantile Acts have transferred the property to bona fide purchasers for value. In the case of the second group, which deals with certain shares in the Canadian Pacific Tobacco Co. Ltd., the question arises from the impossibility of identifying particular parcels of shares. It is necessary to deal with each group separately. (at p330)

6. Paragraph 18 of the order of Clyne J. relates to two properties known respectively as Nundah and Sunnybank. There is simply a declaration that the transfer by the bankrupt to the Canadian Pacific Tobacco Co. Ltd. "constituted a conveyance by the bankrupt made with intent to defraud creditors pursuant to the Mercantile Acts." The fraudulent conveyance is not declared to be void, and no consequential order is made. The facts found are that the bankrupt transferred these properties to the company, and that the company sold them to bona fide purchasers for value. The trustee does not complain of the declaration made, but he claims that he is entitled to a consequential order against the company. What order, if any, ought to be made is a matter which will have to be considered. (at p330)

7. Paragraphs 21 and 22 of the order relate respectively to two properties known as Cliveden Mansions and the Markwell Estate. In each case again there is simply a declaration that the purchase of the property by the company "constituted a settlement thereof by the bankrupt, and that such settlement was an alienation made with intent to defraud creditors pursuant to the aforesaid Mercantile Acts". No consequential order is made. The facts found are that the company in each case purchased the property with moneys provided by the bankrupt, and later sold the property to a bona fide purchaser for value. Again the trustee does not complain of the declaration made but does claim that he is entitled to consequential relief against the company. (at p330)

8. Paragraph 25 of the order relates to four motor vehicles, and simply declares that the transfer of these by the bankrupt to the company constituted an alienation with intent to defraud creditors. The facts appear to be that the four vehicles were transferred by the bankrupt to the company, and were later sold by the company to bona fide purchasers for value. The trustee claims that he is entitled not merely to the declaration, but to consequential relief against the company in respect of the four vehicles. (at p330)

9. Paragraph 26 of the order relates to dispositions by the bankrupt to the company of certain lots of tobacco of a total value of 4,950 pounds. It declares that these dispositions constituted alienations with intent to defraud creditors. It also orders an inquiry by the registrar of the Court of Bankruptcy as to whether any of the tobacco remains in the possession or control of the company, and orders that the company deliver to the trustee any of the tobacco found to be in its possession or control. The trustee does not complain of the declaration or of the orders contained in par. 26, but he claims that he is entitled to relief against the company in respect of any tobacco found to have been sold by it to bona fide purchasers for value. (at p331)

10. What has been called the "cross-appeal" of the trustee was instituted by notice given under rule 16 of s. III and rule 4 of s. IVA of the Appeal Rules of this Court. With regard to each of the matters dealt with in the five paragraphs of the order of Clyne J. mentioned above, the notice seeks an order that the Canadian Pacific Tobacco Co. Ltd. should pay to the trustee the proceeds of sale of the property. The notice makes an alternative claim that, in lieu of declaring the transactions in question to be fraudulent within the meaning of The Mercantile Acts, his Honour should have declared (as he did in the case of the transactions with the individual appellants) that the company was a trustee for the bankrupt of the relevant items of property, and should, on that basis, have made an order that the company account to the trustee for its disposition of the property and pay to him the value thereof. This alternative claim was abandoned at the hearing. It is the first claim only, therefore, that has to be considered. This claim is not put as a claim to "follow" or "trace" the property in question, but, in effect, as a claim for money had and received. The question which arises seems, therefore, to be whether, in the case of a transfer which offends against The Mercantile Acts, the transferee is liable at law to pay to the defrauded creditors the amount of the proceeds of a sale made by him to a bona fide purchaser for value before any steps have been taken to set the transfer aside. (at p331)

11. With regard to two of the cases in question - the cases of Cliveden Mansions and the Markwell Estate - an initial difficulty must be noticed. As to each of the other items of property, we have a straightforward case of a transfer by the bankrupt to the company followed by a sale by the company to a bona fide purchaser. But, in the cases of Cliveden Mansions and the Markwell Estate, the property was purchased by the company from a third party, the purchase money being provided by the bankrupt. Indeed, in the case of Cliveden Mansions, we seem to start even further back, because it would appear that the bankrupt sold a quantity of tobacco in order to obtain the money wherewith this property should be purchased by the company. However, in each of these two cases, the "disposition which is regarded as hit by the statute seems to be a disposition of money". On this view it might be difficult to justify the form of the declarations actually made by Clyne J. with respect to Cliveden Mansions and the Markwell Estate, though it may very well be that, as Mr. Windeyer suggested, there was a disposition of money in fraud of creditors and the money could be traced or followed into Cliveden Mansions and the Markwell Estate. The best course will be to put these two cases on one side for the moment, and consider first the general question raised. (at p332)

12. The view taken by Clyne J. is expressed in a passage in his judgement which reads as follows: "Counsel for the applicant contended that, as the respondent Canadian Pacific Tobacco Co. Ltd. had sold some of the property which, if it had not been sold, would have been struck by s. 46 of The Mercantile Acts (Q.), the Canadian Pacific Tobacco Co. Ltd. must account to the applicant for the proceeds of the sale thereof if such proceeds can be identified. In my opinion, they cannot be identified. He also contended that, if they cannot be identified, the respondent company must pay to the applicant a money sum equivalent to the amount received. I cannot accept this contention. A right to set aside an alienation under s. 46 is lost when the property alienated passes to a bona fide purchaser for value without notice of fraud. The alienation becomes good by matter ex post facto, and, if the alienation cannot be set aside, no incidental relief such as suggested can in my opinion be granted". (at p332)

13. Whether or not it be a strictly correct analysis to say that "the alienation becomes good by matter ex post facto", the result of the view taken by his Honour appears to be in accord with principle and authority. The company in this case must be taken to have received the property with notice of the fraudulent character of the assignment to it, and, if the proceeds of a sale of any of that property by the company to a bona fide purchaser for value could be identified in the company's hands, the case of In re Mouat; Kingston Cotton Mills Co. v. Mouat (1899) 1 Ch 831 would be authority for saying that the trustee would be entitled to have handed over to him any asset in the company's hands which represented the proceeds of sale: cf. Halfey v. Tait (1875) 1 VLR (E) 8 . But the learned judge has found (what is not surprising) that the proceeds cannot be identified, and his finding is not challenged. And it would seem contrary to principle to hold that there is any personal remedy against the company. (at p333)

14. The protection given by 13 Eliz. 1, c. 5, to bona fide purchasers for value extends both to the immediate assignee of the fraudulent debtor and to assignees of that assignee. And a fraudulent assignment by a debtor is not held void where the effect of so holding would be to defeat either a purchaser for value without notice from the fraudulent debtor or a purchaser for value without notice from an assignee of the debtor, whether that assignee were himself a purchaser for value without notice or not. A clear illustration of the latter case is to be found in Halifax Joint Stock Banking Co. v. Gledhill (1891) 1 Ch 31 . In that case a settlement had been made which was held fraudulent for the purposes of the statute. Under the settlement a reversionary life interest was reserved to the settlor. The settlor afterwards mortgaged his reversionary life interest to a mortgagee who advanced his money without notice of the fraudulent character of the settlement. Kay J. declared the settlement void except as to the reversionary life interest thereby created. (at p333)

15. 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 (1832) 3 B &Ad 362, at p 370 (110 ER 137, at p 140) , 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 (1844) 6 QB, at p 172 (115 ER, at p 67) (per Lord Denman C.J.). In Morewood v. South Yorkshire Railway &River Dun Co. (1858) 3 H &N 798, at p 800 (157 ER 690, at p 691) , 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" (1858) 3 H &N, at p 801 (157 ER, at p 691) . (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" (1858) 3 H &N, at p 801 (157 ER, at p 691) . Again, in Harrods Ltd. v. Stanton (1923) 1 KB 516, at pp 520, 521 , 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" (1923) 1 KB, at p 521 . The use of the word "voidable" in the judgment of Lowe J. in Thomson v. Nicholson (1939) VLR 157 illustrates the substance of the position. Cf. also In re Carter &Kenderdine's Contract (1897) 1 Ch 776 , a case under another statute. (at p334)

16. There appears to be no authority which casts any doubt on the cases cited above. And, if the position created by the statute is that which is indicated in those cases, one can find no basis for a personal liability on the part of the company in the present case. It is only on the footing that the company sold something to which it had no title or that the sale was otherwise wrongful when made, that a personal liability on the part of the company could be based. But the company, when it sold the assets in question, sold something to which it had a title, albeit a defeasible title. The sale was not wrongful when made. If the company were selling something to which it had no title, it might well be that the trustee in bankruptcy could claim to stand in the shoes of the true owner, the bankrupt, and maintain money had and received. But this is not the position. The company had a title, though a defeasible title. The defeasance has, in the event, taken place, but it cannot relate back so as to make a sale by the company wrongful and impose a personal liability on the company. (at p334)

17. It might be thought that some support for the argument of the trustee is to be found in Re Fasey; Ex parte Trustees (1923) 2 Ch 1 . In that case the debtor had transferred the whole of his assets, including the goodwill of a business carried on by him, to a company. The assignment was held to be within 13 Eliz. 1, c. 5, and it would appear from the report (1923) 2 Ch, at pp 4, 10 that the order actually made was that the company should hand over to the trustees in bankruptcy the property assigned to the company "or pay them the value thereof". The report, however, contains no discussion as to the form of the order, and the effect of such an order is doubtful. The case of Re Fasey (1923) 2 Ch 1 cannot be regarded as supporting the making of such an order as is sought in the present case. (at p335)

18. The above considerations lead to the conclusion that Clyne J. was right in refusing to declare that the assignments to the company of the property in question were void, and in refusing to make any order consequential on his finding that those assignments were within s. 46 of The Mercantile Acts. This view makes it unnecessary to consider separately the cases of Cliveden Mansions and the Markwell Estate. In none of the cases dealt with by pars. 18, 21, 22, 25 and 26 of the order of Clyne J. is there any right to the relief claimed by the cross-appeal. (at p335)

19. The second group of paragraphs in the order of Clyne J. must now be considered. These are pars. 4, 5, 6, 7, 8 and 9. They relate to six parcels of shares in the Canadian Pacific Tobacco Co. The parcels consist respectively of 6,355, 9,425, 6,500, 8,500, 1,000 and 500 shares. There appears to be no reason for distinguishing between the different parcels of shares except that each parcel formed the subject of a separate transaction between the bankrupt and Brady. The total number of shares involved is seen to be 32,280. In the case of each of the six parcels, his Honour held that Brady, receiving the shares from the bankrupt, held them as trustee for the bankrupt. In so holding, his Honour disbelieved evidence given by Brady as to the manner in which he acquired the shares, observing that, in his opinion, Brady was "an expert in the art of resourceful mendacity". The order made by his Honour declared, in the case of each of the six parcels, that Brady at all times material was a trustee for the bankrupt of the shares. The order also, in the case of each of the six parcels, directed that Brady should within thirty days pay to the trustee a sum of money. The sum to be paid, in five of the six cases, proceeds apparently on the basis that the shares are of a value of 1 pound each, but, for some reason which is not altogether clear, the sum ordered to be paid in respect of the parcel of 9,425 shares is 400 pounds. The trustee does not challenge the declarations made by the learned judge, but he submits that the proper order consequential on the declaration was, in each of the six cases, an order that the shares be transferred to the trustee. (at p335)

20. The reason which led Clyne J. to refuse to make such an order is to be found in the following facts. Apart from the 32,280 shares which are in question, Brady holds, and at all material times held, 1,300 shares, his beneficial ownership of which is not challenged. After he had received the 32,280 shares from the bankrupt, and indeed after the bankruptcy, Brady transferred 17,000 shares to Eileen Isobel Coward, so that he now holds 16,580 shares. In view of his Honour's finding that Mrs. Coward "actively assisted" in "a daring and scandalous scheme designed to swindle the Commissioner of Taxation", it may be taken that Mrs. Coward took the 17,000 shares with notice of the facts from which the trust affecting Brady's shares arose, and therefore with notice of the trust. But the difficulty is that it is impossible to identify, among the shares held by Mrs. Coward and Brady, any particular shares as being the 32,280 shares which are subject to the trust for the bankrupt. The strong probability that this difficulty is not fortuitous does not seem to help towards a solution of the problem. It was this impossibility of identification which led Clyne J. to refuse the orders which the trustee now seeks. (at p336)

21. The view that impossibility of precise identification of trust shares precludes the making of an order for a transfer of shares seems really to amount to something like an inversion of the true position. In the present case its practical effect seems to be to place the burden of identification upon the wrong shoulders. In Frith v. Cartland (1865) 2 H &M 417, at p 418 (71 ER 525, at p 526) Mr. Rolt Q.C. said, arguendo, "The trustee who mixes trust money with his own must himself distinguish them". Mr. Rolt's argument was successful, Sir W. Page Wood V-C. saying: "If a man mixes trust funds with his own, the whole will be treated as the trust property, except so far as he may be able to distinguish what is his own" (1865) 2 H &M, at p 420 (71 ER, at p 526) . In Re Hallett's Estate; Knatchbull v. Hallett (1879) 13 Ch D 696, at p 719 Jessel M.R., after quoting this passage, observed: "that is, the trust property comes first". It is essentially the same principle that Sargant L.J. (dissenting) wished to apply to a contract for the sale of 500 tons of wheat, part of a specific larger quantity, in In re Wait (1927) 1 Ch 606, particularly at p 654 . The majority of the Court of Appeal were of opinion that the goods were not "specific goods" within the meaning of the Sale of Goods Act 1893 (Imp.) (56 &57 Vict. c. 71), and that there was no room in such a case for the application of equitable doctrines. (at p336)

22. 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 (1815) 3 M &S 562 (105 ER 721) . 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" (1815) 3 M &S, at p 575 (105 ER, at p 726) . In Re Hallett's Estate (1879) 13 Ch D, at p 717 , 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 the rules 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 (1879) 13 Ch D, at pp 719, 720 he quotes again from the judgment of the Vice-Chancellor in Frith v. Cartland (1865) 2 H &M, at p 421 (71 ER, at p 527) : "If a man has 1,000 pounds of his own in a box on one side, and 1,000 pounds of trust property in the same box on the other side, and then takes out 500 pounds 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 pounds so long as a sufficient sum remains in the box". (at p337)

23. 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 (1879) 13 Ch D 696 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 (1879) 13 Ch D, at p 711 , 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 pounds 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) (1872) 7 Ch App 485, at p 487 , 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. (at p338)

24. It is to be noted that such expressions as "indistinguishable mass" - which are not technical expressions - are capable of being used in a misleading way, and are not really apt to convey the true distinction observed by equity. That distinction is well illustrated by the contrast between the case, instanced above, where a trustee has mixed trust moneys with his own and bought a horse, and the case where he has mixed trust bonds with bonds of his own. Yet a horse is an "indistinguishable mass" in one sense, and the bonds are an "indistinguishable mass" in almost the opposite sense. The horse is an "indistinguishable mass" in the sense that it is not practicable to attribute one part of him to the trust fund and another part of him to the trustee's own funds. The bonds are an "indistinguishable mass" in the sense that there is no practical reason for differentiating one bond from another and it is quite possible to take out so many bonds as will suffice to make good the trust fund. The real distinction which equity draws is between the case where it is, and the case where it is not, practicable to give effect to the rights of the cestui que trust by appropriating to him a specific severable part of the available property. (at p339)

25. Brady must be presumed, in accordance with Re Hallett's Estate (1879) 13 Ch D 696 , to have transferred to Mrs. Coward his own 1,300 shares among the 17,000 shares which he transferred to her. He ought not to be treated as having retained his own property while transferring to Mrs. Coward a parcel consisting entirely of trust shares. There should, therefore, be an order that he transfer to the trustee in bankruptcy the 16,580 shares still held by him, and an order that Mrs. Coward transfer to the trustee 15,700 of the 17,000 shares held by her. (at p339)

26. The order of the Court on the whole case should be as follows: Appeal dismissed with costs. Cross-appeal allowed, so far as it relates to pars. 4, 5, 6, 7, 8 and 9 of order of Court of Bankruptcy. Vary order of Court of Bankruptcy by deleting sub-pars. 4 (b), 5(b), 6(b), 7(b), 8(b) and 9(b) thereof, and by adding after par. 9 a new par. 9A ordering that the respondent Brady do within thirty days transfer to the applicant 16,580 shares in Canadian Pacific Tobacco Co. Ltd., a new par. 9B ordering that the respondent Eileen Isobel Coward do within thirty days transfer to the applicant 15,700 shares in the said company, and a new par. 9C ordering that said company register transfers of shares made under pars. 9A and 9B forthwith on presentation for registration. Otherwise cross-appeal dismissed. Order that appellants, Peter Michael Brady, Eileen Isobel Coward and Canadian Pacific Tobacco Co. Ltd. pay to respondent Leslie Thomas Stapleton one half of costs of cross-appeal. (at p339)

McTIERNAN J. The first question in the cross appeal by the trustee in bankruptcy arises upon pars. 18, 21, 22, 25 and 26 of the order of the Court of Bankruptcy. These paragraphs contain declarations purporting to be under the provisions of The Mercantile Acts 1867 to 1896 (Q.) which relate to fraudulent conveyances. These provisions are ss. 46, 47 and 48. They are similar to the preamble and ss. 2, 3, and 5 respectively of the statute 13 Eliz. 1, c.5. Briefly, s. 46 provides that fraudulent conveyances made to avoid the debts of others shall be void; s.47 provides for penalties; s. 48 protects estates made upon good consideration and bona fide. The declarations concern alienations of property which were made by Charles Coward. After he made the alienations he became bankrupt. The trustee in bankruptcy had the right to impeach the alienations under the provisions of The Mercantile Acts mentioned above and the Court of Bankruptcy had jurisdiction to entertain the proceedings brought by the trustee in bankruptcy under those provisions. He claims "by a higher and better title than the bankrupt himself, for the bankrupt is a party to the fraud": Ex parte Butters; In re Harrison (1880) 14 Ch D 265, at p 267 . (at p340)

2. The alienations of property which have been mentioned, deal with properties called Nundah, Sunnybank, Cliveden Mansions, Markwell Estate, four motor vehicles, namely, a Chrysler and a Buick car and two International trucks and three substantial lots of tobacco. All these assets were alienated by the bankrupt to the Canadian Pacific Tobacco Co. Ltd., so the Court of Bankruptcy found, with intent to defraud his creditors. The company was a party to the fraud. Hence, none of the alienations to the company was protected by s. 48. (at p340)

3. All the declarations made by the Court of Bankruptcy as to these alienations to the Canadian Pacific Tobacco Co. Ltd. were to the effect that the alienations were made by the bankrupt with intent to defraud creditors. To each declaration there are added the words "pursuant to the aforesaid Mercantile Acts". (at p340)

4. One of the questions which the cross appeal raises is whether the trustee in bankruptcy was entitled to any further relief in respect of the alienations of the assets with which these paragraphs deal. In respect only of the tobacco, the Court of Bankruptcy made an order in addition to a declaration under the provisions of The Mercantile Acts relating to fraudulent conveyances. The basis of this order is the trustee's equitable right to follow any of the assets which the bankrupt fraudulently alienated. The difficulty of giving the trustee further relief arose from s.48. The protection afforded by this section extended to the purchasers for value and without notice from the Canadian Pacific Tobacco Co. Ltd. "Purchasers for value from the grantee are also within the protection of the section (13 Eliz. I, c.5, s.5) if they take without notice of the fraud, for the alienation by the debtor is good until it is avoided": Halsbury's Laws of England, 2nd ed., vol. 15, p. 250, par. 462. (at p341)

5. The Court of Bankruptcy found that the sales by the company of Nundah, Sunnybank, Cliveden Mansions and the Markwell Estate were unimpeachable. Section 48 produced this result in the case of all the assets fraudulently alienated by the bankrupt to the company and sold by it to bona fide purchasers for value without any knowledge or notice of the fraud to which the bankrupt and the company were parties. The Court of Bankruptcy found that it was not possible for the trustee in bankruptcy to follow the proceeds of any sale by the company. The reason was that none of such money nor any property the company purchased with the money could be identified. (at p341)

6. The Court decided that the right to impeach an alienation obnoxious to s. 46 is lost when the property passes to a purchaser whose interest is protected by s. 48, because the alienation becomes good by reason of matter ex post facto, that is a subsequent alienation made good by s. 48. In the view that none of the alienations which were obnoxious to s. 46 could be impeached, the Court was of opinion that the relief in personam which the trustee claimed in respect of the proceeds of the sales of the assets could not be given. The trustee in bankruptcy claimed that the company should be ordered to pay to him a sum of money equivalent to the money realized upon the sales of the assets. As the basis for such relief the trustee in bankruptcy claimed he was entitled to a declaration that the alienations by the bankrupt of the assets were void as against him by virtue of s. 46 of The Mercantile Acts. (at p341)

7. As already stated, s. 46 follows s. 2 of 13 Eliz. 1, c. 5 and s. 48 follows s. 5 of that statute. Pollock C.B. said in Morewood v. South Yorkshire Railway &River Dun Co. (1858) 3 H &N 798, at p 800 (157 ER 690, at p 691) as to the word "void" in s. 2: "'Void' does not mean utterly and absolutely void, but void sub modo". Watson B. said in this case that "The 6th section of the 13 Eliz. I, c. 5 only does what justice would require" (1858) 3 H &N, at p 801 (157 ER, at p 691) . In that case, s. 6 was held to "make good" a bona fide transfer for value without knowledge or notice of fraud. The effect of the statute was described to be as follows: "A deed which, by virtue of the statute 13 Eliz. 1, c. 5, is "utterly void' only as to 'creditors and others' so soon as it is executed, is nevertheless a perfectly good deed as between the parties, and as against all persons who claim through the settlor. It is therefore in reality a deed which is voidable only, and not void" (May on Fraudulent and Voluntary Dispositions of Property, 2nd ed. (1887), p. 325). (at p342)

8. From the time the alienations were made by the bankrupt to the company the creditors were entitled to impeach them. Section 48 protected the purchasers from the company against the creditor's right to impeach the alienations. It made good the sales to them. The section does no more than protect a purchaser for value without notice: a fraudulent alienation is void against creditors subject only to estates or interests protected by s. 48. Section 48 throws no protection around the alienations by the bankrupt to the company. Littledale J. said in reference to a fraudulent assignment which was obnoxious to the statute 13 Eliz. 1, c 5.: "It was utterly void both at law and in equity against creditors. They had a right to the property which the deed purported to convey, and might enforce that right at law. The assignment was void as soon as the creditors claimed to treat it as such": Shears v. Rogers (1832) 3 B &Ad 362, at p 370 (110 ER 137, at p 140) . Stirling J. explained in In re Mouat; Kingston Cotton Mills Co. v. Mouat (1899) 1 Ch 831, at p 833 , the rights of creditors to which Littledale J. referred, in these terms: "But the rights of creditors, though they are legal, can be made available in courts of equity. There are many cases in which the Court of Chancery, prior to the Judicature Act, assisted the creditors by giving equitable remedies which are not available in courts of law". (at p342)

9. 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 (1876) 1 Ch D 636 ). The creditors rights are further explained by Stirling J. in the case of In re Mouat (1899) 1 Ch 831 . 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" (1899) 1 Ch, at pp 834, . 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 (1899) 1 Ch 831 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. (at p343)

10. 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 (1879) 13 Ch D, at p 727 . 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 p344)

11. All the shares held in the name either of Brady or Mrs. Coward are fully paid up shares and are equal in all respects. Section 74 (2) of The Companies Acts 1931 to 1942 (Q.) requires that each share in a company is to be distinguished by its appropriate number. This provision applies to all the shares in this company. But by reason of the state of the company's records, it is not possible to determine by its distinguishing number the identity of any share which the bankrupt transferred to Brady upon trust. (at p344)

12. There was not cited any case in which shares in a company were treated upon the same footing as money for the purposes of the rule in Hallett's Case (1879) 13 Ch D 696 . A share cannot be treated as currency or a fungible. I think it would be necessary to treat a share as currency or as belonging to the class of fungibles to give effect to the trustee's claim. He claims that a number of shares out of those held by Brady and Mrs. Coward be transferred, irrespective of the identity of the individual shares. Brady has not sufficient shares now in his hands to answer an order for the delivery of the total number of shares which he held upon trust for the bankrupt. "'Res fungibles' (res quae pondere, numero mensurave constant) are things which, generally speaking, occur in ordinary dealings, not separately, but only in certain quantities. Such things are e.g. money, wine, grain, eggs, apples, cigars, etc., as opposed to, say, horses, books, plots of land. A person who owes res fungibles is bound, as a rule, to supply, not individually determined things, but things determined only by reference to a class; that is to say, he is bound to supply a definite quantity of things of a definite quality, the separate things being reckoned, as between themselves, as equal": Sohm's Institutes of Roman Law, 3rd ed. (1907), p. 305. Shares in a company, even though they are all of the same class, in my opinion, are not things comparable with money or other fungibles. (at p345)

13. It is to be presumed that Brady would have transferred to Mrs. Coward all the shares to which he was beneficially entitled before he transferred any trust shares. I think this presumption can be founded upon the second rule in Hallett's Case (1879) 13 Ch D, AT PP 719, 720 . It follows that unless Brady could prove that any of the shares which he retained were his beneficial property he should be ordered to transfer all of them to the trustee in bankruptcy. The state of the company's records, it seems, makes it impossible for him to furnish such proof. However, if Brady were to deliver to the trustee in bankruptcy all the shares which he holds, it would still be necessary for the trustee to obtain from Mrs. Coward a number of shares in order to make up the total number of trust shares. It is not possible to determine individually which of the total number of shares held by Mrs. Coward are trust shares received from Brady. The impossibility of identification can hardly relieve Mrs. Coward of the equitable obligation to restore to the trustee in bankruptcy the trust shares which she received from Brady. She was not a bona fide purchaser for value and without notice. She could discharge this obligation by delivering to the trustee in bankruptcy shares equal to the number for which she was obliged to account. In my opinion, she should be ordered to deliver to the trustee in bankruptcy that number of shares. (at p346)

14. In my opinion, the trustee in bankruptcy is entitled to relief of the kind claimed in par. 4 of the notice of cross appeal. (at p346)

15. When the appeal was called on for hearing the appellants applied for an adjournment which was refused upon grounds which are not now necessary to mention. Their counsel asked leave of the Court not to attend any further. Such leave was granted. The Court then proceeded with the hearing of the cross appeal. At the conclusion of the hearing the Court dismissed the appeal and reserved judgment upon the cross appeal. (at p346)

16. In my opinion, the cross appeal should be allowed with costs and the order of the Court of Bankruptcy should be varied in accordance with these reasons. (at p346)

Orders

Appeal dismissed with costs. Cross-appeal allowed, so far as it relates to pars. 4, 5, 6, 7, 8 and 9 of order of Court of Bankruptcy. Vary order of Court of Bankruptcy by deleting sub-pars. 4 (b), 5 (b), 6 (b), 7 (b), 8 (b) and 9 (b) thereof, and by adding after par. 9 a new par. 9A ordering that the respondent Brady do within thirty days transfer to the applicant 16,580 shares in Canadian Pacific Tobacco Co. Ltd., a new par. 9B ordering that the respondent Eileen Isobel Coward do within thirty days transfer to the applicant 15,700 shares in the said company, and a new par. 9C ordering that said company register transfers of shares made under pars. 9A and 9B forthwith on presentation for registration. Otherwise cross-appeal dismissed. Order that appellants, Peter Michael Brady, Eileen Isobel Coward and Canadian Pacific Tobacco Co. Ltd. pay to respondent Leslie Thomas Stapleton one half of costs of cross-appeal.