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Judgment
Leach, C.J.—The appellant was the plaintiff in the Court below. The suit was one to recover a sum of Rs. 1257-2-0 alleged to be due to
the appellant under a deed of composition entered into by respondent 2 with his creditors. Respondent 1 was sued as the trustee under the deed.
In 1930 respondent 2 who at all material times was a merchant carrying on business in Madras became financially involved and by the month of
July 1930, he owed his creditors art aggregate sum of over Rs. 88,000. There were 26 creditors altogether, 14 of them being resident in Madras
and 12 resident in Mysore. At a meeting of the Madras creditors it was agreed that they should accept a composition of four annas in the rupee. A
deed was drawn up on this basis and executed by respondent 2 in favour of respondent 1 as trustee for the creditors. Respondent 1 was himself a
creditor for a sum of over Rs. 15,000. The total amount required to pay a composition of four annas in the rupee was about Rs. 22,000.
Respondent 2 had not got the cash, but on 2nd August 1930 certain property owned by him was sold and the proceeds, Rupees 12,250, handed
over to respondent 1, as part of the Rs. 22,000 which respondent 2 was due to pay to him under the deed. Later that year, two further sums, one
of Rs. 1500 and the other of Rs. 1750 were paid to respondent 1 by respondent 2, making a total payment to him of Rupees 15,500. The Madras
creditors in due course signed the deed, but the Mysore creditors were not so ready to accept it. It is clear from the evidence that they were fully
aware of the proposal by the month of October 1930, but only two of them agreed to the arrangement then. These two signed the deed and in due
course received payments of four annas in the rupee on the amounts of their debts. The Madras creditors also received the amounts due to them
under the deed of composition. Respondent 1 admits that the appellant signified his acceptance of the deed in a letter dated 24th December 1930.
By that time, the Madras creditors, apart from respondent 1, had all been paid what was due to them under the deed, as had two of the Mysore
creditors. Respondent 1 had in his hands on 24th December 1930, a sum of Rs. 3804-4-6, which was only sufficient to pay him three annas and
nine pies on the amount due to him. He did not allocate this money to his own debt then, but kept it in a suspense account where it remained until
the month of November 1931, when he transferred it to himself. When he did this, he had notice of the appellant''s acceptance of the composition
and had that notice for nearly 12 months. As respondent 2 did not pay the balance of the Rs. 22,000 to him he was not able to make any further
payments to the creditors. Having allocated Rs. 3804-4-6 to himself there was nothing to pay to any of them. The appellant then launched a suit
against) respondent 1 as trustee and against respondent 2 as the principal debtor to recover the sum of Rs. 1257-2-0, representing a quarter of the
total amount due to him by respondent 2. He also claimed interest on this amount. The suit however failed. I might mention here that the other nine
Mysore creditors who remained unpaid, filed similar suits in the City Civil Court to recover their proportions. They met with the same fate as the
appellant and have filed appeals which have been heard together with this appeal. There are however points of difference between this case and
the other cases and it will be convenient to deal with them in separate judgments.
In the trial Court, it was contended by the appellant that respondent 2 had in fact paid to respondent 1 the whole of the Rs. 22,000. This plea
was based on an allegation that respondent 2 had handed over to respondent 1 two promissory notes for sums of Rs. 2000 and Rs. 5000
respectively. This plea has been maintained before us. The learned trial Judge however held that these promissory notes were never handed over
to respondent 1 and that all that respondent 1 received was the Rs. 15,500 which I have mentioned. We see no reason to disagree with this
finding. The learned Judge dismissed the suit as against respondent 1 on the following grounds: (1) The Mysore creditors of whom the appellant
was one, had not accepted the deed of composition; (2) the deed was an incomplete contract and gave rise to no rights and imposed no liabilities;
(3) respondent 1 was not a trustee and that he had made payments to the Madras creditors and to the two Mysore creditors as the agent of
respondent 2; and (4) he was under no duty to pay the creditors rateably and was therefore entitled to appropriate the balance of Rs. 3804-4-6,
towards his own debt. The learned Judge accordingly dismissed the suit as against respondent 1 but he decreed it as prayed against respondent 2.
The learned Judge erred in treating respondent 1 merely as an agent of Respondent 2. A deed of composition was entered into by a majority of
the creditors. This deed was signed by the respondents and under it respondent 1 received Rupees 15,500 for distribution among the creditors.
Respondent 1 was therefore clearly a trustee in respect of this sum. It must be remembered however that the deed was entered into, on the
understanding that respondent 2 would pay to respondent 1 sufficient for the payment of a composition of four annas in the rupee to all the
creditors. Respondent 1 paid the Madras creditors and the two Mysore creditors when they applied for the moneys due to them under the deed
and there can be no doubt that he hoped that at a later stage the other creditors would come in and that he would be put in funds to pay them the
amounts due to them. It became apparent in 1931 that respondent 2 was not in a position to make any more payments and it was then that he
allocated the Rupees 3804-4-6 to his own debt. We do not consider that there was any breach of trust on the part of respondent 1 in making the
payments to the Madras creditors and to the two Mysore creditors. These payments were all made before the appellant or the plaintiffs in the
other suits had signified their intention of accepting the composition. The other plaintiffs did not in fact signify their willingness to accept the
composition until a few months before the suit was filed in July 1933. That was long after the payments had been made. In Field v. Lord
Donoughmore (1841) 1 D W 227 it was held that in the case of a deed of trust for the benefit of creditors it is not absolutely necessary that every
creditor should execute the deed. A creditor could signify his acquiescence in it by other means. The Lord Chancellor (Sir Edward Sagden,
afterwards Lord St. Leonards) observed:
The principle upon which this Court acts in cases like the present, is no longer in dispute� It was argued for the defendants that Mr. Field did not
execute the deed at the proper time, and that when, in point of fact, he did execute, he did so without the assent or authority of any person
qualified to permit him. But it is not absolutely necessary that the creditor should execute the deed; if he had assented to it, if he had acquiesced in
it, or acted under its provisions, and complied with its terms, and the other side expressed no dissatisfaction, the settled law of the Courts is that he
is entitled to its benefits. The mere fact of his signature is not actually required.
But there must be actual assent to the deed. Unless the creditor in some manner expresses his willingness to accept it, he cannot claim any
benefit under it. This was emphasized in Biron v. Mount (1858) 24 Beav 642 He cannot stand idly by, but if he does some act which amounts to
acquiescence, it is sufficient. The position here is that all the creditors who had assented to the deed by November 1930, were paid what was due
to them under it and we consider that as the other creditors had not signified their intention of coming in, although they were aware of the
arrangement, respondent 1 was in the circumstances of the case justified in paying out to those who had signified their assent. Therefore we agree
that so far as the payments to the Madras creditors and to the two Mysore creditors are concerned, there was no breach of trust on the part of
respondent 1.
But the case against him does not rest Share. It is admitted that he paid himself Rs. 3804-4-6 after he had notice of the appellant''s willingness to
accept the composition and he paid himself this sum at a time when ha knew that there would be no further payments to him by respondent 2 in
order to carry out the terms of the composition deed in their entirety. In these circumstances it seems to us that respondent 1 was guilty of a breach
of trust so far as the appellant is concerned. He had no right, knowing that there was another creditor willing to accept the composition, to pay
himself the balance of the funds which remained in his hands. As a trustee, his duty was to share that balance rateably with the appellant. It was not
a case of acting without notice of the appellant''s claim. Ha had full notice of that claim. The appellant is therefore entitled to a decree aainst
respondent 1 for a proportion of the sum o� Rs. 3804-4-6. It is agreed that on this basis, the appellant will be entitled to recover from
respondent 1 Rs. 920. The appeal will be allowed as against respondent 1 and the decree of the trial Court varied by substituting as against him a
decree in favour of the appellant for Rs. 920 with interest at 6 per cent, till date of payment. As the appeal only succeeds in part, we think the
parties should bear their own costs in this Court. The appellant will be entitled to proportionate costs in the trial Court.
Nos. 46 to 51 of 1935: The judgment in these appeals must be read in conjunction with the judgment which we have delivered in C.C.C.A. No.
45 of 1935. These cases were tried together in the Court below and the appeals have been heard together with C.C.C.A. No. 45 of 1935. The
facts differ slightly from the fact that appeal. The appellants in this appeals did not signify their accept of the deed of composition until after the
trustee had distributed the whole of the money received by him from respondent 2 under the dead of composition. Therefore the appellants have
no case against respondent 1, and the appeals must be dismissed with costs in favour of respondent 1.