Trusts for the benefit of creditors. hand, the son may rebut this evidence by declarations of the father, either contemporaneous with or subsequent to the transaction, that he intended a gift (b). 5. The question frequently arises whether a person to whom property has been transferred is bound to dispose of that property at the direction of the settlor, i.e., whether the settlor is the cestui que trust, or whether a trust has been created in favour of the creditors of the settlor. Where a deed vests property in trustees upon trust for the benefit of A., B. and C., the property in equity belongs to them; they can enforce the execution of the trust; and the settlor cannot destroy or modify it unless he has reserved a power of revocation (c). On the other hand, if a debtor puts money into the hands of A. with directions to apply it either in payment of his debts in general or of certain specified debts, A. is under no liability except to the debtor. No action can be maintained against A. by any creditor; there is no privity between them. The debtor may at any time revoke the authority which he has given to A. and recall the money placed in his hands. The case is the same in principle where the debtor, instead of placing money in the hands of A. with directions to apply it in discharge of his debts, conveys property to him in order that it may be converted into money by sale or mortgage, and the money raised may be applied in discharge of debts. A. is here a trustee, not for the creditors, but for the debtor. When A. sells and pays a creditor his demand, he does so in pursuance of the directions given to him by his principal, the debtor, from whom he has received the property, and not in discharge of any duty which he owes to the creditor. The debtor may regulate the disposition of the property as he thinks fit, may order the proceeds of it to be applied in discharge of his debts and then may revoke these orders and give fresh directions, without regard to the interests of those for whose benefit the prior orders would have operated (d). Now a deed which purports to be executed (c) P. 126, ante. (b) Cases, supra. (d) MacKinnon v. Stewart (1850), 1 Sim. (N.S.), 76, 89; Synnot v. Simpson (1854), 5 H. L. Cas. 121, 133. for the benefit of creditors may come under either of these classes. If the motive of the party who executes it is merely to promote his own convenience, the deed confers no interest upon the creditors and may be revoked or altered at the debtor's pleasure. If on the other hand the motive of the debtor was to benefit his creditors, the creditors are cestuis que trust under the deed and can enforce its provisions in their favour; and the debtor cannot alter or revoke it. The question to which of the two classes a deed belongs can only be decided by a consideration of the deed as a whole, and of the surrounding circumstances; the use of the word "trust" is not decisive. The presumption is that, whether the deed is for payment of creditors generally (e) or of specified creditors (f) it is merely intended by the debtor to direct the mode in which his property is to be applied for his own convenience. creditors But it may be apparent on the deed that the debtor When intended a bounty to his creditors, i.e., that it was intended under deed to create a trust in their favour either ab initio or under are cestuis certain circumstances or after the lapse of a certain time, que trust. (1) If the benefit intended for the creditors is not to take effect until after the debtor's death, and the property, subject to the trust for payment of debts, is conveyed by way of bounty to a third person, the creditors, upon the death of the debtor, without revoking these dispositions, become cestuis que trust under the deed. The trust until then is conditional (g). (2) Where property is transferred by A. to B. not merely for payment of creditors, but for objects which cannot be satisfied unless the deed is irrevocable, the creditors will be cestuis que trust under the deed. Thus, where A. transferred property to B. upon trust to make good divers breaches of trust committed by (e) Langton v. Ashley (1668), Nels. 126; Wallwyn v. Coutts (1815), 3 Sim. 14; 3 Meri. 707. (f) Garrard v. Lord Lauderdale (1830), 3 Sim. 1; (1831), 2 R. & M. 451; La Touche v. Earl of Lucan (1840), 7 Cl. & F. 772 ; Gibbs v. Gibbon (1841), 5 Jur. 378; Synnot v. Simpson (1854), 5 H. L. Cas. 121, where the earlier cases are referred to; Johns v. James (1878), 8 Ch. D. 744. (g) Synnot v. Simpson (1854), 5 H. L. Cas. 121, p. 141. See Lord CRANWORTH's reference to this case in Montefiore v. Browne (1858), 7 H. L. Cas. 241, p. 266; In re Fitzgerald's Settlement (1887), 37 Ch. D. 18. Trust not exhausting beneficial interest. him, it was held that the deed was irrevocable. The object of A. in executing the deed was to mitigate the penal consequences to which his breaches of trust might subject him, and that object could only be attained by giving an indefeasible interest to the persons against whom the breaches had been committed (h). (3) Where a creditor is made a party to and executes a deed whereby his debtor conveys property to a third person to be applied in liquidation of the debt due to that creditor, the deed is as to the creditor irrevocable. It is immaterial that the creditor gives nothing to the debtor as a consideration for the trust created in his favour (2). (4) Although a conveyance may be a mere mandate to an agent and therefore originally revocable, it may become irrevocable as a whole or in part where the debtor has raised an equity against himself either by his own conduct or by the obligations which he has permitted his trustee to assume. Communi cation of the deed to the creditor is not enough to make the deed irrevocable as against him (k); the creditor must either enter into obligations or forbear to assert his rights on the faith of the deed being irrevocable in order to acquire such an equity (). Where a creditor executes a deed in another capacity than that of creditor, but abstains from enforcing his legal rights against the debtor, the presumption is that he has abstained on the faith of the deed, which is therefore irrevocable as against him (m). Of course the fact that one creditor has acquired an equity gives no rights to other creditors, who have not altered their position on the faith of the deed being irrevocable. 6. It is sometimes a question whether the beneficial interest of the settlor is absolutely disposed of by the instrument creating the trust, or whether it is only disposed of so (h) New's Trustee v. Hunting, [1897] 2 Q. B. 19. (i) MacKinnon v. Stewart (1850), 1 Sim. (N.S.), 76; Cosser v. Radford (1863), 1 D. J. & S. 585. (k) Garrard v. Lord Lauderdale (1830), 3 Sim. 1, p. 13. Acton v. Woodgate (1833), 2 My. & K. 492; Browne v. Cavendish (1844), 1 J. & Lat. 606, 635; Synnot v. Simpson (1854), 5 H. L. Cas. 121, p. 139; Montefiore v. Browne (1858), 7 H. L. Cas. 241; Johns v. James (1878), 8 Ch. D. 744. (m) Montefiore v. Browne (1858), 7 H. L. Cas. 241. far as is necessary for the purpose of carrying out the trusts declared (n). In Smith v. Cooke (0), partners by a deed, after reciting the inability of the firm to pay their creditors in full, assigned their business to trustees upon trust to carry on or sell it and out of the profits and proceeds of sale to pay costs and expenses and to "pay and divide the clear residue of the said profits and moneys," among the creditors of the firm, "in rateable proportions, according to the amount of their several and respective debts." The creditors released their debts. The Court of Appeal unanimously and without doubt held that there was a resulting trust for the partners, after payment of the creditors in full. The object of the deed was, in their opinion, merely to pay the debts of the firm and devote so much of the firm property to that purpose as would be necessary. They therefore construed the trust for division of the profits and proceeds of sale among the creditors as not only describing the ratio in which the division was to take place, but also determining the limit to which the payment was to be made, i.e., "according to" was treated as meaning "according to and up to." The House of Lords unanimously and without doubt reversed this decision. They held that the deed must be construed according to its ordinary and natural meaning, and not in the light of the probable intention of the parties; and that the deed, as so construed, was a sale out and out of the business of the firm to its creditors in consideration of the creditors releasing their debts. The case would have been different if the ultimate trust had been a trust to discharge the debts, or to divide rateably in payment or towards the payment of the debts. (n) Smith v. Cooke (1891), 45 Ch. D. 38; A. C. 297; Cunnack v. Edwards, [1896] 2 Ch. 679. (0) Supra. Distinctions between private and charitable trusts. Charitable gifts do not fail for uncertainty. CHAPTER VII. CHARITABLE TRUSTS. THERE are five leading distinctions between private trusts and charitable trusts. 1. A gift to charity cannot fail for indefiniteness. 2. It does not fail because it cannot be carried out in the mode and form prescribed by the benevolent donor. 3. In the case of ancient charitable gifts, a question may arise which has no parallel in private trusts, namely, as to whether the donor intended to confer a personal benefit upon the trustees subject to the performance of the trusts. 4. Charitable gifts are, in a certain sense, not subject to the rule against perpetuities. 5. Under statutes now repealed, but capable of taking effect in certain cases, land or impure personalty cannot be left by will to charitable purposes. These topics will be considered in the order above stated. 1. A gift for charitable purposes in general will not fail (a) Mills v. Farmer (1815), 1 Meri. 55, p. 95. |