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 12th 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 13th 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. 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. 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.
4. We think the case must be dealt with as the learned Commissioner has dealt with it on the footing that Messrs. Arbuthnot & Co. mixed the proceeds of the cheque with their own moneys, as there is no evidence to the contrary, and the statement made by the Official Assignee at the hearing that the proceeds were carried to a suspense account is not in any way inconsistent with such a mixing. We also agree with the learned Commissioner that this sum of Rs. 627 cannot be regarded as having been placed in fixed deposit so as to disentitle Mr. Smith to withdraw it before the expiry of the fixed period or to enable him to claim interest on it; but does it follow that because it was not hold by Messrs. Arbuthnot & Co. on fixed deposit, they were not entitled to use it as their own, but were under a duty to keep it separate from their own moneys until they received the balance and placed the whole sum on fixed deposit so as to render the doctrine of In re Hallett's Estate (1880) 13 Ch. D. 696; 49 Ch. 415; 42 L.T.421 applicable? The learned Commissioner has in effect answered this question in the affirmative by finding that this money was held by Messrs. Arbuthnot & Co. in a fiduciary character, and not in such circumstances as to give rise to the ordinary relation between banker and customer. Now, it is to be observed that Mr. Smith's letter of 12th October 1906 says nothing as to the manner in which the proceeds of the cheque were to be dealt with after collection, pending the remittance of the balance to make up the Rs. 1,200. After that time it was, of course, to be used by Messrs. Arbuthnot & Co. as their own; but even before that time it is contended for the appellant on the authority of Foley v. Hill 2 H.L. 28, that Messrs. Arbuthnot & Co. were entitled to use it and that the relations of Mr. Smith and Messrs. Arbuthnot & Co. in respect to it were merely those of debtor and creditor. In that case, Lord Cottenham, L.C., says "money, when paid into a bank, ceases altogether to be the money of the principal; it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it. The money, paid into the banker's, is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker's money." In an earlier case (Devaynes v. Noble Slech's Case 1 Mer., 530 at p. 240), Sir William Grant, M.R., had laid it down, generally, that money paid into a banker's becomes immediately a part of his general assets and he is merely a debtor for the amount; and in the later case of Burdick v. Garrick (1869-70) 5 Ch. 233 at p. 240; 39 L.J. Ch. 369, Lord Hatherley, L.C., after citing Foley v. Hill 2 H.L. 28, observes "a mere banker who takes charge of his customer's money is not in any fiduciary relation whatever to him with respect to the particular coins or notes deposited, because it is the ordinary course of trade to make use of them for his own profit. He does make use of them, and he invests the money deposited with him, and his customer does not require from him those very coins or exchequer bills which he deposited with him." The effect of these authorities which are not referred to in the learned Commissioner's judgment is, if we understand them rightly, that in the ordinary course of his trade a banker is entitled to use moneys paid into his bank as his own unless, of course, there is what amounts to a direction to the contrary as in the two cases referred to in the learned Commissioner's judgment. We cannot find any such direction in Mr. Smith's letter of the 12th October 1906, which merely says "I request you will be good enough to receive the amount in fixed deposit together with Rs. 573 which I shall remit no sooner I receive an acknowledgment for the enclosed." Under these circumstances, we are constrained with great respect to differ from the conclusions arrived at by the learned Commissioner that the moneys in question were held by Messrs. Arbuthnot & Co. in a fiduciary capacity and we must set aside the learned Commissioner's order and dismiss the application. We also set aside the order as to costs but do not consider it necessary to make any fresh order.