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L. C.


In re


been thus incurred, and claim the surplus for the benefit of the shareholders? Can the shareholders be allowed to say to the bond- and L. J. G. holders, "It is true that the debts have been cleared off by means of your money, but you are not the persons who have cleared them off, and you are not to receive the benefit of it, for we are the persons to receive the benefit ?" The proper course to be taken seems to me to be this: that, so far as the Company have adopted the proceedings of their directors by allowing these moneys to be raised on the issue of these debentures, and so far as the money raised by the issue of the debentures has been applied in paying off debts which would not otherwise have been paid off, those who have advanced the moneys ought to stand in the place of those whose debts have been so paid off. It is not simply that the bondholders stand as assignees of the debts, which, no doubt, have not actually been assigned, but it has been represented by the directors that the persons who lent their money on these acknowledgments were lending their money for the purpose of clearing off the debts; in fact, that they were to be put in the position of assignees of the debts.

Therefore what we propose to do is to make this order: Let the order of the Vice-Chancellor be varied, and-Declare that the receipt and expenditure by the directors of the Company, in payment of any sums recoverable from the Company of moneys advanced on or procured by means of the deposit of the alleged bonds, was pro tanto an adoption by the Company of the transactions; and, having regard to the representations contained in the alleged bonds, the moneys so expended constituted debts owing from the Company. Inquire whether the Company had the benefit of any, and what, expenditure in payment of any sums recoverable from the Company of any, and what, sums advanced on, or procured by means of, any, and which, of the deposits of the alleged bonds, and whether any, and which, of the sums so expended still remain unpaid by the Company. The costs to be as in the original order. No costs of this application, except that the official liquidator will take his costs out of the estate.


I think it of importance to state clearly in this case that it is not intended by the Court to throw the slightest doubt on the

L. C.

and L. J. G.



decision come to in the case of Chambers v. Manchester and Milford Railway Company (1), and, from the course which the matter took in the Court below, I think it is also important to say that there is no ground whatever for the argument that a contract or instrument which fails in a Court of Law by reason of its illegality, can, nevertheless, be enforced in equity, because money has been paid and received in respect of that contract. Equitable terms can be imposed on a Plaintiff seeking to set aside an illegal contract as the price of the relief he asks; but as to any claims sought to be actively enforced on the footing of an illegal contract, the defence of illegality is as available in a Court of Equity as it is in a Court of Law; and it is for that reason, among others, that the declaration made by the Court below has been varied.

Now, as regards the present case, I am of opinion that the evidence was quite sufficient to throw on the Company the onus of proof that there was fraud; but there has been no attempt to give evidence of fraud.

That being so, what the case amounts to is this:-Documents were given under the seal of the Company. Those documents represented that the Company was indebted to Mr. David Leopold Lewis in the amount there stated; they were given for the purpose of being deposited by him as security for advances to be made; and if the representations in them had been true, those who advanced their money on the deposit would have been assignees of the debts actually owing from the Company to Lewis, and the transaction would have been perfectly legal.

Now, in this case the representations in the alleged bonds are either true or false, or partly true and partly false. In so far as they are true the transactions are legitimate, for Mr. Lewis could assign his debt or debts. On the other hand, in so far as they are false, there was fraud on the part of the directors of the Company. The representations on the face of the alleged bonds purported to be representations by the Company, and induced the loans, and were made in order that the loans might be obtained. In so far, therefore, as the Company has had the benefit of those loans for its legitimate purposes, it must be taken to have adopted the (1) 5 B. & S. 588.

transaction. It cannot be heard to say the contrary, and to that extent must be held liable. For these reasons I concur in the order which the Lord Chancellor has read.

L. C.

and L. J. G. 1869



Mr. Jessel applied for his costs of the appeal, as his client represented a class, and had been selected in order to obtain a decision, RAILWAY Co. which was absolutely necessary for the administration of the


Their Lordships refuse to give the costs, as the appeal had only succeeded in part.

Solicitor for the Shareholders in the Railway Company: Mr. Alfred Jones.

Solicitors for Overend, Gurney, & Co.: Messrs. Young, Jones, & Co.

Solicitors for the London, Hamburg, &c. Bank: Messrs. Deane & Chubb.

Solicitors for other parties: Messrs. Stevens, Wilkinson, and Harries. Messrs. Wansey & Bowen.


3 P


L. J. G.


July 16.


Bankers' Account-Following Trust Fund-Appropriation of Payments—

A solicitor being entrusted with £5000 belonging to the Plaintiff, his client, for the purpose of investing it on mortgage, paid it to his general account at his bankers, and never applied it to the purpose intended. Before his death, which happened about eighteen months afterwards, the solicitor drew out various sums exceeding the sum of £5000, together with the balance previously standing to his credit, and also paid in considerable sums, so that the balance at the time of his death standing to his credit was £2700. The Plaintiff filed a bill against his administrator claiming the balance at the bankers as trust money, and moved for an injunction to restrain the administrator and the bankers from dealing with the fund.

Held (reversing the decision of James, V.C.), that the sums drawn out by the solicitor must be appropriated to the sums paid to his credit in the order in which they had been paid in, and the injunction was refused. Pennell v. Deffell (1) considered.


was an appeal from an order of Vice-Chancellor James. William Hale, late a solicitor at Bristol, acted professionally for the Plaintiff, Sarah Brown, as well as for her late husband. On the 29th of October, 1868, the Plaintiff entrusted Hale with a sum of £5000 that he might invest it on mortgage of an estate in Wales, which he said he had found for her. She paid him this sum by a cheque, which Hale sent to his bankers, Messrs. Drummond, accompanied by a letter, in which he simply requested them "to place it to his credit." Messrs. Drummond accordingly placed the sum to his general account.

The money was never invested by Hale, but drawn out as occasion required and appropriated to his own use. He died in May, 1869, and the Defendant, T. C. Adams, one of his creditors, took out administration to his estate.

The present bill was filed against Adams and Messrs. Drummond, alleging that the sum of £5000 was still standing to the credit of the account of William Hale, and praying that Adams might be declared a trustee of it, and that the Defendants might be restrained from drawing or parting with that sum.

The Defendant, Adams, made an affidavit in which he said that

(1) 4 D. M. & G. 372.

he had inspected the bankers' account, the result of which he stated to be as follows:

"From such account it appears that the balance which, on the morning of the 29th of October, 1868, was standing to the credit of the said William Hale upon his said account, was the sum of £4063 7s. 1d., and that only £1 16s. 10d. was drawn out on that day, but that since such sum of £5000 was paid into the said bank as aforesaid, various sums in small and large sums, amounting together to very much more than £5000, namely, to the sum of £18,847 4s. 4d., excluding the said sum of £1 16s. 10d., were drawn out by the said W. Hale, for his own purposes; and further sums in large and small sums, amounting together to the sum of £12,533 11s. 6d., excluding the said sum of £5000, have been received by the said Messrs. Drummond to the credit of the said banking account, so that at the date of the decease of the said William Hale, there was standing to the credit of the said banking account the sum of £2747 17s. 5d. sterling, and the said sum of £5000 so paid to his account as aforesaid did not consist of or comprise any part of the said sum."

The Plaintiff having moved for an injunction, the Vice-Chancellor made an order that the Defendant, Adams, might be restrained from drawing out the balance standing to the credit of the account till the hearing or further order; with liberty to Messrs. Drummond to move to pay the balance into Court in another suit which had been instituted for the general administration of Hale's estate. The Defendant, Adams, appealed from this order.

Mr. Kay, Q.C., and Mr. Roberts, for the Appellant:

The bill is founded on a statement that the sum of £5000 still remains standing at Messrs. Drummond's; but that is not the case. The sum in question was paid in to Hale's general account, and his drawings not being specifically appropriated to any account, the ordinary rule must apply, and the earlier drawings must be appropriated to the earlier payments to that account. If that is done it will appear that the £5000 was drawn out long before the death of Hale. Clayton's Case (1): Pennell v. Deffell (2): Frith v. Cartland (3).

L. J. G.





(1) 1 Mer. 572.

(2) 4 D. M. & G. 372.

(3) 2 H. & M. 417.

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