PART III. Div. I. SECT. 2. Debts which from their nature carry interest, must of course be CHAPTER II. paid with all arrears of interest up to the time of payment. But in the case of bond debts, the creditors will not be entitled to receive more for principal and interest, than the amount of the penalty secured (u). Bond creditors not entitled to interest beyond penalty. If interest be made by the trustees from the trust fund, the creditors will be entitled to interest. How far such a trust in a deed will prevent the Statute of Li mitations from running against debts. How the money for the payment of the debts. If any fund has been actually realized under the trusts of the deed for the payment of debts, but instead of being applied immediately in discharge of the debts, it is invested by the trustees on securities bearing interest, and the interest is accumulated. The creditors though by simple contract, will be entitled to interest on their respective debts at four per cent., as interest was actually made from their fund (x). It is settled, that a general devise or charge by will for the payment of debts out of real estate, will prevent the Statute of Limitations from running against such debts, as are not barred at the time when the will comes into operation, viz., the death of the testator (y): although a debt, upon which the Statute of Limitations has already taken effect at the time of the testator's death, will not be revived by such a direction (z). The principle of these decisions is, that the Statute of Limitations does not run against a trust, and it applies equally to a trust created by deed for the payment of debts, and whether the property subjected to the trust consist of real or personal estate. Upon principle therefore it may unquestionably be laid down (although the point does not appear to have been directly decided,) that a trust created by deed for the payment of debts generally will prevent the operation of the Statute of Limitations upon all debts, which are not barred at the time of the execution of the deed; although such a trust will not revive any debt, the right to recover which may have been previously lost by the effluxion of time (a). An assignment or conveyance in trust for the payment of debts usually is to be raised specifies the mode of raising the money for the purposes of the trust, by directing the sale or mortgage of the property by the trustees for that purpose. However in the absence of any such express direction, if the amount of the sum to be raised, and the whole scope of the deed, show, that the parties must have intended a sale, a sale will be properly made; for in expounding trusts, though created by deed, the intention of the parties is to be pursued, as much as in cases of wills (b). Thus on one occasion it was held, that a conveyance of (u) Anon. 1 Salk. 154; Burke v. Jones, 2 V. & B. 284; Hughes v. Wynne, 1 M. & K. 20. (x) Pearce v. Slocombe, 3 Y. & Coll. 84. Fergus v. Gore, 1 Sch. & Lef. 107; Hargreaves v. Mitchell, 6 Mad. 326; Hughes v. Wynne, T. & R. 307; Crallan v. Oughton, 3 Beav. 1. (z) Burke v. Jones, 2 V. & B. 275. (a) See Burke v. Jones, 2 V. & B. 281, 2. (b) Sheldon v. Dormer, 2 Vern. 310; and see Ivy v. Gilbert, 2 P. Wms. 13; Mills v. Banks, 3 P. Wms. 1 ; Shrewsbury v. Shrewsbury, 1 Ves. jun. 234; see Allan v. Backhouse, 2 V. & B. 65; Wilson v. Halliley, 1 R. & M. 590; 1 Sugd. Pow. 116, et seq. 6th ed.; et vide post, next section. Div. I. lands to the use of trustees and their heirs, until they had raised by PART III. sales or profits sufficient to pay the scheduled debts, authorized a mortgage by the trustees (c). CHAPTER II. purchaser to see to the ap plication of the money, prior to Where property is conveyed to trustees for the payment of debts Liability of a generally, they are enabled to make a good title to a purchaser, or mortgagee, who is not bound to ascertain the necessity of the sale, or to inquire as to the existence of any unpaid debts (d), or to see to the application of the purchase-money; and in case of any misappropriation of the trust fund, the creditors must seek their remedy against the trustees (e).* But the law was otherwise prior to the late act 7 & Vict. c. 76, where the trust was for the payment of some particular debt mentioned in the deed (f), or of the debts specified in a schedule (g). Although if the nature of the trust rendered it necessary, that the trustees should retain the purchase-money under their management for any time, after the sale was effected, or if the deed gave them the power of giving discharges for the purchase-money, the purchaser would not have been bound to see to its application in payment of the debts, though they were scheduled (h). And in the case alluded to Sir Wm. Grant on general grounds expressed his strong disapprobation of the doctrine, that a purchaser was bound to see to the application of the money, because the debts were scheduled (i). So an express clause, giving the trustees power to give receipts, and declaring that the purchaser shall not be bound to see to the application of the money, would clearly exonerate him from that liability even with regard to scheduled debts (k).† (c) Spalding v. Shalmer, 1 Vern. 301; and see Ball v. Harris, 8 Sim. 485. (d) Johnson v. Kennett, 3 M. & K. 631; Shaw v. Borrer, 1 Keen, 559; Eland v. Eland, 4 M. & Cr. 428; Forbes v. Peacock, 11 Sim. 152, 160; Page v. Adam, 4 Beav. 269; vide post, Ch. III. (e) Shaw v. Borrer, 1 Keen, 559; Culpepper v. Aston, 2 Ch. Ca. 115; Anon. Salk. 153; Dunch v. Kent, 1 Vern. 260; Jenkins v. Hiles, 6 Ves. 654, n.; Williamson v. Curtis, 3 Bro. C. C. 96; Doran v. Wiltshire, 3 Sw. 699, 701; 2 Sugd. V. & P. 32, et seq. 9th ed.; Jones v. Price. 11 Sim. 558; Glyn (f) Doran v. Wiltshire, 3 Sw. 701; (g) Spalding v. Shalmer, 1 Vern. 301; (h) Balfour v. Welland, 16 Ves. 151; and (k) Binks v. Lord Rokeby, 2 Mad. 227, *It was laid down on one occasion by Lord Hardwicke, that where there had been a decree in a creditor's suit for the payment of debts, which were charged generally on the estate, the purchaser could not safely pay over the money to the trustees; for the decree reduced it to as much certainty as a schedule of the debts, Lloyd v. Baldwin, 1 Ves. 173; and see Walker v. Smallwood, Ambl. 677. However it is stated by Sir Edward Sugden to be now the prevailing opinion, that the purchaser is not in such a case bound to see to the application of the money. The course is for him to apply to have the purchase-money paid into court, and then the court takes upon itself the application of the money. 2 Sugd. V. & P. 34, 9th ed. The recent act (7 & 8 Vict. c. 76) has made a material alteration in the Ꮓ 7 & 8 Vict. c. 76, s. 10. PART III. Div. I. Whether the trust be for the payment of debts generally, or of such CHAPTER II. as are scheduled, a purchaser from the trustees will not be affected by the circumstance, that more of the estate was sold than was required for the purposes of the trust (1). SECT. 2. Creditors may themselves be trustees. Trust deeds for payment of debts are favoured in equity, legal defects supplied. It was laid down on one occasion by Lord Eldon, that if the purchase were not from the original trustees, but from others, to whom they had conveyed the estate, the purchaser would be bound to see to the application of the money, though the trust were for the payment of debts generally (m). And this follows from the principle discussed in a preceding chapter, as to the effect of an unauthorized conveyance of the trust estate by a trustee (n). It is no objection to a deed of trust for the payment of debts, that the trustees are themselves creditors, who are to benefit by the execution of the trust (o). However in such a case the trustees have no power, analogous to that of executors, of preferring their own debts, but they must apply the trust fund in discharge of all the debts equally without distinction (p), unless indeed by the terms of the deed itself a priority is given to their own or any other debt (g). A trust deed for the payment of debts is favourably regarded in equity, and it will be supported, if possible, notwithstanding any technical informality which may invalidate it at law (r). For instance where a party, with power of leasing in possession, granted a lease to commence in futuro, in trust for the payment of his debts, the lease was supported by the court, owing to the nature of the trust (s). And so a covenant to stand seised of lands to the use of a person, in consideration of his paying the debts of the covenantor out of the profits of the lands, does not import such a consideration, as will be sufficient at law to raise a use in the trustee (t); but, on the principle that has (1) Culpepper v. Aston, 2 Ch. Ca. 115; (m) Braybroke v. Inskip, 1 Ves. 417. (0) See Balfour v. Welland, 16 Ves. 151; (p) Boazman v. Johnston, 3 Sim. 382; Anon. 2 Ch. Ca. 54; Child v. Stephens, 1 Eq. Ca. Abr. 141; S. C. 1 Vern. 102; see 65, n. (2). (q) Garrard v. Lord Lauderdale, 3 Sim. 1. (r) See Dunch v. Kent, 1 Vern. 260; Spottiswoode v. Stockdale, Coop. 102. (s) Pollard v. Greenville, 1 Ch. Ca. 10. (t) Lord Paget's case, 1 Leon. 194; 4 Cruis. Dig. Tit. 32, Ch. 9, s. 25, 26. The law, respecting the liability of purchasers paying money to trustees. just been stated, this would doubtless be supported in equity as a good PART III. equitable conveyance. It may also be observed here, that a trust for the payment of debts is expressly exempted from the operation of the Thellusson Act (39 & 40. Geo. III. c. 98), which restricts the period for which the income of property may be accumulated. If there be any residue of the trust estate after payment of the debts, the surplus will remain vested in the trustees for the benefit of the grantor (u). Trustees of a creditor's deed have no power to compromise suits respecting the estate without an express authority, which must be either contained in the deed, or conferred upon them at a meeting of the creditors. And if they enter into any compromise without that authority, they will be held responsible to the creditors, if it should be found to have been an improper arrangement (x). Div. I. CHAPTER II. SECT. 2. Trust for payment of debts not within the Thellusson Act. Any surplus will be in trust for the grantor. Trustees have no power to compromise suits. mit management of pro perty to an And the trustees will not be justified in committing the entire Must not commanagement of the property to an agent, although they are empowered by the deed to employ a person to make out the accounts and collect the debts. And it will not be a sufficient answer to a suit agent. against them by the creditors for an account, to say, that the accounts and vouchers are in the possession of the agent, who had gone abroad (y). 2nd.-Of Trustees for the Payment of Debts under a Devise. Upon the death of an individual the law vests his personal estate in his personal representatives, as a fund for the payment of his debts; and it is not in the power of a testator to create a special trust of his personal estate for that purpose, so as to withdraw it from the administration of his executors (z). This doctrine was denied by Lord Brougham, Ch., in the case of Jones v. Scott, when it came before him on appeal (a); but his Lordship's decision in that case was afterwards reversed by the House of Lords (b); and the doctrine, as thus finally decided, has been recognized and acted upon in subsequent cases (c). It is therefore now conclusively established, that a trust by will for the payment of the testator's debts out of his personal estate has no legal operation. Trust by will, for payment of debts out of personal estate, is inoperative. can be created A trust therefore for the payment of debts (so far as it forms the Such a trust subject of discussion in the present work) can be created by will only only of real with regard to the real estate of the testator. And a trust of this estate. description is unaffected by the statute 3 & 4 Will. IV. c. 104, which Is (u) 3 P. Wms. 251, n. (A.); Poole v. Pass, 1 Beav. 600. (x) Shepherd v. Towgood, T. & R. 379, 390. (y) Turner v. Corney, 5 Beav. 515. (z) Jones v. Scott, 1 R. & M. 255, 261. (b) Jones v. Scott, 4 Cl. & Fin. (c) Freake v. Cranefeldt, 4 M. & Cr. 499; Evans v. Tweedy, 1 Beav. 55. not affected by stat. 3 & 4 W. IV. c. 104. Div. I. CHAPTER II. PART III. makes freehold and copyhold estates assets for the payment of simple contract and other debts. For the operation of that act is expressly confined to those estates, which the person dying "shall not by his last will have charged with, or devised subject to the payment of his debts" (d). Liability of real estates to pay ment of simple contract debts at common law. A general di rection for the payment of debts will create a trust for their payment out of real estate. At common law the real estates of a deceased person were not liable to the payment of his simple contract debts, unless made so liable by his will. This rule of law was partially altered in the case of traders by the statute of 47 Geo. III. c. 74, which was repealed and amended by 1 Will. IV. c. 47. And as has been already seen, it is now wholly done away with by the recent act of 3 & 4 Will. IV. c. 104. However the courts from an early period endeavoured to give effect to a general direction by a testator for the payment of all his debts, by construing it into a trust for their discharge out of his real estates, in case of the deficiency of the personalty for that purpose (e). And as the statute 3 & 4 Will. IV. c. 104 does not alter the operation of a devise or charge for the payment of debts, the decisions, upon the effect of expressions in creating such a charge, continue binding authorities at the present day (ƒ). It has been settled by a series of cases, commencing from a very early period, and continuing down to the present time, that a general introductory or prefatory direction by a testator for the payment of debts, followed by a disposition of the real and personal estate, will amount to a trust for the discharge of the debts, if necessary, out of the real estate.-For instance, if the testator direct—“ that all his debts shall, first, or in the first place, be paid and satisfied," or uses words to that effect (g); or if a similar payment be directed, (without expressing, that it is to be made in the first place (h);) and these directions are followed by a general devise of real and personal estate; or if he make a general devise of his estate "his debts and legacies being first deducted" (i); or “being first satisfied" (k); or "after payment of his debts, &c." (1); in all (d) See Charlton v. Wright, 12 Sim. 274. (e) 2 Jarm. Pow. Dev. 644, et seq.; 1 Rop. Legs. 573, et seq.; 6 Cruis. Dig. Tit. 31, Ch. 16, s. 7, et seq. (f) See Lord Cottenham's observation in Mirehouse v. Scaife, 2 M. & Cr. 708, as corrected in Ball v. Harris, 4 M. & Cr. 269. (g) Bowdler v. Smith, Prec. Ch. 264; Troth v. Vernon, Prec. Ch. 430; S. C. 1 Vern. 708; Beachcroft v. Beachcroft, 2 Vern. 690; Hatton v. Nicholl, Ca. Temp. Talb. 110; Stangor v. Tryon, 2 Vern. 709, n.; Legh v. Earl of Warrington, 1 Bro. P. C. 511; Earl of Godolphin v. Penneck, 2 Ves. 271; Coombes v. Gibson, 1 Bro. C. C. 273; Kentish v. Kentish, 3 Bro. C. C. 157; Knightley v. Knightley, 2 Ves. jun. 328; Williams v. Chitty, 3 Ves. jur. 545; Clifford v. Lewis, 6 Mad. 33; Ronalds v. Feltham, T. & R. 418; Mirehouse v. Scaife, 2 M. & Cr. 695; Price v. North, Phill. 85; (h) Jones v. Williams, 8 Jur. 373; Clifford v. Lewis, 6 Mad. 33, 38; Finch v. Hattersley, 3 Russ. 345, n.; Walker v. Hardwick, 1 M. & K. 396, 402; Graves v. Graves, Sim. 43, 55, 6; overruling a dictum of Sir J. Leach, M. R., to the contrary in Douce v. Torrington, 2 M. & K. 606. (i) Newman v. Johnson, 1 Vern. 45. (k) Harris v. Ingledew, 3 P. Wms. 91. (1) Tompkins v. Tompkins, Prec. Ch. 397; Smallcross v. Finden, 3 Ves. 739; Withers v. Kennedy, 2 M. & K. 607; see Batson v. Lindegreen, 2 Bro. C. C. 94; Clark v. Sewell, 3 Atk. 100; Kidney v. Coussmaker, 1 Ves. jun. 440; Bridgman v. Dove, 3 Atk. 201; King v. King, 3 P. Wms. 359. |