1. The material facts of this case are as follows: Gordhan Ambaidas died in Jane 1896, leaving him surviving, his wife Fulkor, his daughter Rukhmini, her husband Chunilal, and two grandsons, children of Chunilal.
2. By his Will, dated the 27th of May 1896, he appointed Chunilal and Fulkor his executor and executrix, and after charging his estate with the maintenance of his widow, daughter and grandsons and providing for the performance of certain funeral ceremonies, directed that his business in cotton, cotton seed, and cotton ginning, should, in order to perpetuate his name, be carried on by Chunilal so long as it could be carried on at a good profit, but should it appear that the trade would suffer so as to destroy his reputation, Chunilal should stop it. The testator then gave his widow Fulkor a life interest in all his property, with a prohibition against alienation, with remainder as to his property, which might remain over after her death to his grandsons.
3. At the time of his death the testator possessed inter alia a cotton-ginning factory at Saberagaum in the Surat District which was used in his business.
4. After his death, Chunilal and Fulkor carried on the business in the testator's name. In February 1899, having, as is found by the lower appellate Court, incurred large liabilities in the conduct of the business, they mortgaged the ginning factory with possession to the defendant Jethabhai for Rs. 13,000 and interest thereon at 9 per cent, per annum. The mortgage, in consequence perhaps of a desire on the part of Chunilal to escape liability as a mortgagor, was executed by Fulkor described 'as owner of the firm of Gordhandas Ambaidas dealing in cotton,' and Rukhmini described as 'daughter of Gordhandas Ambaidas of the same estate.' The ladies executed the mortgage by affixing their marks, and their names were written by Chunilal. The mortgage was attested by four witnesses.
5. The mortgage stated that the deceased Gordhandas had not made any Will of his property and consequently no one but the ostensible mortgagors had any right or claim to the same. The consideration was stated to be received as follows: Rs. 6,909-3-3 claimable by the firm of Motibhai Ambaidas from the firm of Gordhandas Ambaidas paid off by the defendant; Rs. 2,709 claimable by Jagjivandas Bhagwandas from the aforesaid firm paid by the defendant; Rs. 764-8-0 claimable by Motibhai Lalbhai from the said firm paid by the defendant; and Rs. 2,616-4-9 received in cash in Order to pay off other debts of the firm.
6. The lower appellate Court has found that the consideration was paid substantially as stated in the mortgage-deed; and that the defendant was deceived by the misrepresentations of Fulkor, Chunilal and Rukhmini into the belief that the Will of the testator had been destroyed.
7. In the year 1900, the defendant brought a suit on the mortgage against Fulkor and Rukhmini, Chunilal being joined as a defendant as executor under the Will. About the same time Rukhmini without joining her sons as parties sued the present defendant for a declaration that the mortgage did not affect her rights or those of her sons. Her suit was dismissed for want of parties, but in the mortgagee's suit a decree was in November 1902 passed in favour of the present defendant against Fulkor and Rukhmini, Chunilal having died pendente lite. The decree was for payment of Rs. 13,551 and interest at 9 percent, per annum and costs, and in default of payment within six months, for sale of the mortgaged property. It was confirmed on appeal to this Court. The property was sold under the decree and was purchased by the mortgagee for Rs. 11,00.0 leaving a balance due to him of upwards of Rs. 8,000. The present suit was instituted by the sons of Chunilal before the sale took place, praying for a declaration that the property was not liable to be sold under the mortgage decree, and for an injunction restraining the defendant from selling the property, or in the alternative if the sale was allowed to take place, then for a declaration that the alienation was to hold good only for and during the life-time of Fulkor, and even then was subject to the plaintiffs' right of maintenance, and that after Fulkor's death the plaintiffs were the full owners of the property.
8. As the Court of first instance, the District Court and this Court successively declined to grant an interlocutory order staying the sale, the plaintiffs added a prayer for a further declaration that the defendant has obtained by his purchase no rights against the plaintiffs' rights in the property. In the first Court the Subordinate Judge dismissed the suit, but in the District Court the decree was reversed, and a declaration was made that the alienation holds good only during the life-time of Fulkor, and is subject to the plaintiffs' right of maintenance, that the plaintiffs are the full owners of the property, and that the defendant has obtained by his purchase no rights against the plaintiffs' rights in the property.
9. From this decree the, defendant has appealed.
10. Although both Fulkor and Chunilal were joined as party defendant to the mortgage suit, it has not been contended that the estate and the beneficiaries, are bound by the mortgage decree. For the respondent it has not been suggested that the continuance of the business was unauthorized in the events which had happened. Chunilal was indeed under the Will the only person who could decide whether or not the business should be stopped.
11. It is well established that an executor carrying on the trade of his testator under a testamentary trust is liable personally to the trade creditors, and is entitled to use as a trader the trade assets of the testator. He does not violate his trust by carrying on the trade in conjunction with his co-executor who is not named as a trade trustee.
12. In Ex parte Garland (1803) 13 Ves. 410 : 1 Smith 220 : 71 R.R. 352. Lord Eldon, discussing the position of an executor carrying on his testator's trade under such a trust, said:
The case of the executor is very hard. He becomes personally responsible to the extent of all his own property, also in his person, and as he maybe proceeded against as a bankrupt, though he is but a trustee. But he places himself in that situation by his own choice, judging for himself, whether it is fit and safe to enter into that situation, and contract that sort of responsibility. As to creditors subsequent to the death of the testator it is admitted they have the whole fund that is embarked in the trade; and in addition they have the personal responsibility of the individual with whom they deal, the only security in ordinary transactions of debtor and creditor. They have something very like a lien upon the estate embarked in the trade. They have not a lien upon anything else, nor have creditors in other cases a lien upon the effects of the person with whom they deal, though through the equity as to the application of the joint and separate estates to the joint and separate debts respectively they work out that lien.
13. Ex parte Butterfield (1847) D G. 570 : 17 L.J. Bk. 10 : 11 Jur. 955. shows that the introduction into the business by the trustee executor of a co-executor not authorized to carry on the trade, does not affect the rights of the trade, creditors. In that case a sole trader directed by his Will that it should be lawful for his widow to employ 6,000 in continuing his business and he appointed her and his son executors. After the testator's death, his widow and son continued his business and became bankrupt. A person beneficially interested in the assets, which had been employed by the bankrupts, sought to prove in respect thereof against their joint estate, but it was held that to the extent of 6,000 no such proof could be allowed, for the employment of the 6,000 was authorized by the Will.
14. The nature of the trade creditors' right against the assets properly employed by a trust trader is thus stated by Sir George Jessel in In re Johnson (1880) 15 Ch. D 552:
The creditor who trusts the executor has a right to say, 'I had the personal liability of the man I trusted, and I have also a right to be put in his place against the assets; that is, I have a right to the benefit of indemnity or lien which he has against the assets devoted to the purposes of the trade.' The first right is his general right by contract, because he trusted the trustee or executor: he has a personal right to sue him and to get judgment and make him a bankrupt. The second right is a mere corollary to those numerous cases in Equity in which persons are allowed to follow trust assets. The trust assets having been devoted to carrying on the trade, it would not be right that the cestui que trust should get the benefit of the trade without paying the liabilities...the Court puts the creditor so to speak as I understand it, in the place of the trustee.
15. In Strickland v. Symons (1884) 26 Ch. 245 : 53 L.J. Ch. 582 : 51 L.T. 406 : 32 W.R. 889, Lord Selborne referring to Ex parte Garland (1), and Ex parte Johnson (3), states the principle to be that the trustee though personally liable for the debts which he contracts in the course of the business has a right to be paid out of the specific assets appropriated for that purpose, and the trade creditors are not to be disappointed of payment so far as the assets so appropriated are concerned.
16. If this principle is borne in mind, a brief re-statement of the main facts of this case will show that the plaintiffs' suit must fail.
17. Chunilal, the trust trader, in conjunction with his co-executrix Fulkor, lawfully carries on the testator's business and employs therein the trade assets. In order to pay off trade debts, he obtains money from the defendant on the security of the ginning factory used in the business. The ginning factory is worth less than the sum advanced by the defendant. The plaintiffs, as beneficiaries of the testator, seek to deprive the defendant of the benefit of the assets so come into his possession.
18. The argument advanced on behalf of the plaintiffs was really an attempt to take advantage of the fraud perpetrated on the defendant by the plaintiffs' father, who was personally liable for the debts which the defendant was induced to pay off. It was argued that the defendant took nothing by the mortgage since the ostensible mortgagors, as widow and daughter, took no interest in the property, Gordhandas having died testate: that Fulkor's interest as beneficiary under the Will was subject to a restraint upon alienation: and that, as executrix, she could only mortgage the testator's property in conjunction with her co-executor Chunilal because she had not taken out probate, and so could not act alone under Section 92 of Act V of 1881. In our opinion the existence of the mortgage-deed strengthens rather than weakens the defendant's ease.
19. The mortgage was by one member of the firm with the consent and informal co-operation of the undisclosed partner Chunilal, who had the implied authority of the testator to deal with the ginning factory in the ordinary course of business. The mortgage was, therefore, valid and binding on Chunilal as principal. See Jaggeevandas Keeka v. Ramdas Bribookundas 2 M.I.A. 487. A mortgage by a trader under a testamentary trust of the testator's factory is referable to his implied authority as a trustee, and not to his position as executor. See the judgment of May, C.J., in Devitt v. Kearney (1883) 13 L.R. 45 at p. 52.
20. We set aside the decree of the District Court and dismiss the suit with costs throughout on the plaintiffs.