Madhavan Nair, Officiating C.J.
1. The plaintiffs are the appellants. They are the sons of one Subba Rao, brother of the first defendant: Defendant's 2 to 7 and 10 are the sons and grandsons of the first defendant, arid they form members of a joint Hindu family. Eighth defendant is the son-in-law of the first defendant. Ninth defendant is the trustee appointed under the trust deed Ex. B dated 6th January, 1926, which will be referred to presently, executed by defendants 1 to 8 in favour of the ninth defendant.
2. The plaintiffs' father and the first defendant effected a partition in 1903. Some properties were divided and some were kept joint. The joint properties were in the possession of the first defendant. The plaintiffs' father died in 1912. After his death, the plaintiffs and the first defendant referred to arbitration various matters in dispute between them regarding the joint properties and mesne profits. Generally stated, the arbitrator was asked (see Ex. A) to divide the undivided properties, to settle the difference in drawings between the first defendant and the plaintiffs' father and to adjust the differences which may be found payable by one party to the other by way of equalising the shares, etc. In dividing the properties the entire Lanka lands, as already arranged, were to be left to the first defendant, for which ten shares of the Imperial Bank were to be allotted to the share of the plaintiffs jointly. This was given effect to by the arbitrator and it was decided by him that the first defendant should pay to the plaintiffs jointly Rs. 2,700 with interest and to the second plaintiff Rs. 1,500 plus interest. The reference to arbitration, Ex. A was made on 29th September, 1919, and the award, Ex. G was passed on 13th June, 1926. The correctness of the sums due to the plaintiffs under the award is not disputed. In the suit out of which this appeal arises the plaintiffs claim the amount awarded to them under Ex. G together with mesne profits on the properties from 1918 to 1926. Plaintiffs 1 and 2 claim Rs. 3,224-10-11 and the second plaintiff claims Rs. 2,518-4-9.
3. As stated already, on 6th January, 1926, a trust deed was executed by defendants 1 to 8 in favour of the ninth defendant. The eighth defendant had been carrying on trade in conjunction with the first defendant, his sons and grandsons and they bad incurred debts, some jointly and some individually. Under the trust deed defendants 1 to 8 handed over all the immovable properties which they owned jointly and separately to the ninth defendant to discharge their debts. The trust deed after authorising the ninth defendant to determine the amounts due by defendants 1 and 8 jointly and individually to outsiders and to discharge the said two kinds of, debts according to the respective circumstances, stated as follows:
You are hereby further authorised to settle all the matters in dispute between the said Lakshminarasimha Rao Sowcar (first defendant) and others and Venduri Bapanayya (eighth defendant) and also to settle the accounts either after the discharge of debts jointly and severally due by them or after they had adjusted the matter with the creditors. Until all these affairs are settled none of us shall raise objections to the authority and power hereby conveyed to you.
4. Demands to pay the money due to them under the award were made to the ninth defendant by the second plaintift's mother and second plaintiff under Exs. D and J dated 31st July, 1926 and 8th August, 1926, respectively and by the first plaintiff under Ex. C dated 14th April, 1927. The trustee, ninth defendant, did not reply to these notices; nor did he comply with the demands. In the suit, claim is made against the defendants personally as well as against their family properties, to direct the ninth defendant to pay the suit amount by sale of the trust properties in Schedule A, and if he does not do so, to sell all or some of the trust properties in item 1 of the schedule to realise the suit amount, and for costs.
5. The learned Judge granted a decree to the plaintiffs for the suit amounts together with interest against the first defendant personally and against defendants 1 to 7 and 10 from their family properties and against the family properties of all these defendants remaining unsold in the hands of the ninth defendant. Decree was refused against defendants 8 and 9 and their properties.
6. In the appeal, a decree is claimed by the appellants personally against defendants 8 and 9 and against the trust property. The personal decree claimed was not seriously pressed. The substantial argument urged is that the trust property should have been first made liable for the payment of the plaintiffs' debts. In this connection it is necessary to mention that one special aspect of the appellant's argument is that Ex. III should be declared invalid as against them. Ex. III is a sale-deed of item 5 of the suit property which belonged to the first defendant and which was entrusted with the ninth defendant under the trust deed along with the other properties. He sold this property to the eighth defendant for a sum of Rs. 14,500 on 12th May, 1917.
7. The main argument urged in the appeal is that the trustee cannot settle the accounts between the defendants 1 and 8 until he has discharged all the debts due to others including the debts due to the plaintiffs and that the said sale Ex. III to the eighth defendant is invalid. This is the subject-matter of issue 6. The learned Judge overruled this contention, as well as the contention that the sale deed is not supported by consideration. The question whether the sale in favour of the eighth defendant by the ninth defendant is invalid or not, for the reasons alleged by the plaintiffs, will depend on a construction of the document, Ex. B, provided they are able to show that they can take advantage of it. In support of their case the respondents did not rely so much on the terms of the document as on the general question whether in law the plaintiffs are entitled to take advantage of the trust deed at all alleging that it was never communicated to them.
8. In the lower Court, it was also urged that the award was not binding on defendants 1 to 7. The learned Judge held that it was binding on them and on their behalf this has not been disputed before us.
9. The view of the learned Judge that the property in the trust deed is not liable for the suit debt was based on various grounds: (1) that these debts did not exist at the time of the trust deed as they came into existence only on the date of the award which was after the date of the trust deed; (2) that these debts being settled by adjustment between the parties did not come under the description "sums due under the accounts" and therefore did not fall within the scope of the award; (3) that the suit claims were barred by time; (4) that defendants 8 and 9 were not parties to the award; and (5) that the plaintiffs cannot take advantage of the trust deed because it was not communicated to them. As already stated, the last ground was the only one which was seriously urged in appeal by the learned Counsel for the respondents. It appears to us that the learned Counsel was right in not pressing the other grounds. There is no meaning in saying that these debts did not exist at the time of the trust. It is true that the trust deed came into existence before the arbitrator made the award, but the reference to arbitration was long before the execution of the trust deed. That the trustee, ninth defendant, actively co-operated with the arbitrator in deciding what amount was due to the plaintiffs from the first defendant, appears to be clear from the evidence. Though he did not settle the dispute between the plaintiffs, and the first defendant, it was he who after examining the account books sent the statement Ex. N for the information of the arbitrator. The Lanka lands which the first defendant got under the award were included in the trust deed as the property of the first defendant and though it was decided that these Lanka lands should be allotted for the share of the first defendant before hand, in paragraph 7 of the award the arbitrator specifically states that according to the arrangements entered into between the parties the Lanka lands should be allotted to the share of the first defendant. It therefore came within the scope of the award. To say that before the award was passed the Lanka lands were allotted by mutual agreement to the first defendant and therefore did not come under the award is in the circumstances meaningless. Evidence shows that the ninth defendant agreed to sell this property to the Zamindar of Chellapalle (see Ex. K), and to assure the Zamindar of a complete title to the property the ninth defendant sent the fee and the stamps, to the arbitrator and asked him to expedite the award. The suit debts due to the plaintiffs did already exist and what the award did was only to specify the exact amount after looking into the accounts and by mutual adjustments. To say therefore that these debts did not exist at the time of the trust is to assert an argument which is not convincing. Taking the evidence as a whole with reference to the arbitration, the award and the trust deed, we have no doubt that the suit debts did exist at the time of the trust deed, the only question being whether under the trust deed these debts should be discharged before the property under Ex. III was sold by the ninth defendant to the eighth defendant. If these debts were barred by limitation at the time of the award, how could the learned Judge give a decree against defendants 1 to 7 as per the award? It appears to us that amongst the grounds on which the lower Court's decision is based the only one that requires examination is whether the plaintiffs can avail themselves of the trust deed, and if they can, whether their debts and the debts of the other creditors have got to be paid before the ninth defendant could sell the property included in the trust deed to the eighth defendant.
10. It is argued that the plaintiffs cannot avail themselves of the trust deed in this case because it was not communicated to them. In this connection the following well-known decisions and a few others not very material were brought to our notice, namely, Biron v. Mount (1857) 24 Beav.642 : 53 E.R. 506, Field v. Lord Donoughmore (1841) 58 R.R. 253, Nicholson v. Tutin (1855) 2 K.&J. 18 : 69 E.R. 676, In re Baber's Trusts (1870) L.R. 10 Eq. 554, Re Carrr: Ex parte Jacobs (1901) 85 L.T. 552, Doe v. Jones (1830) 10 B. & C. 459 : 109 E.R. 521, Ellis & Co. v. Cross (1915) 2 K.B. 654, Synnot v. Simpson (1854) 101 R.R. 81 and Johns v. James (1878) 8 Ch. D.744. We have read these dicisions carefully. it is not necessary to discuss them as the gist of these decisions is succinctly stated in the well-known books of authority to which it will be advantageous to refer. The law applicable to the case has been thus succinctly stated in White and Tudors Leading Cases, 9th Edition, Volume II, at page 826:
Where, therefore, a legal transfer of property has been made to trustees, for payment of the debts of the owner, the creditors bieng neither parties nor privies thereto, the creditors do not thereby become cestui que trust, and the trustees are mere mandatories. Until the mandate has been acted upon the owner of the property, who alone stands towards the trustees in the relatiion of cestui que trust, can recall the money and authority at pleasure. it is an arrangement by the debtor for his own convenience only, and there is no privity between the agent and the creditors....
Where, however, a trust in favour of creditors has been communicated to the creditors--a fact, it seems, which must be clearly proved it can no longer be revoked by the settlor, because the creditors, being aware of such a trust, might have been thereby induced to a forbearance in respect of their claims, which they would not otherwise have exercised; and a fortiori will this be the case when the deed has been acted upon. The communicatiion may be proved by the creditors having executed the deed, by their having acted upon it, or being party or privy to it.
More or less to the same effect is the statement of the law in Halsbury, Vol. II. page 443, para. 606, and in Godefroi on Trusts, V Edition, pages 72 and 73. In the course of discussion on the question in Lewin on Trusts, 13th Edn. at page 548, the following statement appears:
It is not necessary that the creditor, to entitle himself to the benefit of the deed, should execute it, but it will be sufficient if he assent to it or acquiesce in it, or act upon its provisions, and comply with its terms. But the creditor must do some act to testify his acceptance of the deed, and not merely stand by and remain passive.
It is thus clear that in order to enable the plaintiffs to take advantage of the trust deed and claim payment of the debts, since they were not actual parties to the trust deed they have to prove that the trust deed Ex. B was communicated to them in the sense explained above; and to find out whether there has been such communication, evidence in the case will have to be examined.
11. Before examining the evidence, however, we will deal with the argument of the Advocate-General that it was not open to the contesting defendants to raise this question at all. The plaintiffs in their plaint distinctly claim to take advantage of the trust deed. They state at the end of para. 5, "And as defendants 1 to 10 disclosed to the plaintiffs and others the execution of the said trust deed and assured the plaintiffs and other creditors from the very beginning that the debts due to the plaintiffs and others would be discharged by giving effect to the said trust deed, the plaintiffs and other creditors have not taken any action against the Majeti people till now". In spite of such explicit statement the contesting defendants did not say that the trust deed was not communicated to the plaintiffs and so they cannot take advantage of it. With reference to what is stated in para. 5 of the plaint, no doubt the 9th defendant in his written statement stated that it is highly improbable that he would have disclosed the contents of the trust deed to the plaintiffs or assured them of his discharging the debts clue to them, as they were not in the position of creditors on the date of the execution of the said deed of trust. This passage does not contain any denial of the communication of the trust deed to the plaintiffs. What is very important is that there is no issue on the question whether the plaintiffs are disentitled from claiming from the trustee their debts under the award as the trust deed was not communicated to them. In these circumstances there is a good deal of force in the contention of the learned Advocate-General that the lower Court should not have made the want of communication of the trust deed to the plaintiffs one of the grounds for its decision. But this objection does not seem to have been raised at the time when the evidence was adduced, for we find, though the question whether the trust deed was communicated to the plaintiffs has not been directly put to the witnesses, a good deal of evidence has been adduced which has more or less a direct bearing on the question. As the evidence has been allowed to go in unchallenged, we have to deal with it and consider how far on the evidence, such as it is, the finding of the learned Judge can be supported.
12. It may be stated that there is no reliable evidence of direct communication to the plaintiffs of the creation of the trust to pay off the debts of the creditors. But there is ample evidence to show that it was well known amongst the creditors, including the plaintiffs, that a trust deed had been executed and that the plaintiffs expected payment by the trustee of the debt due to them from the first defendant. The plaintiffs were not consulted; but the first plaintiff says that he had no objection for the trust and that he was asking defendants 1, 8 and 9, after the trust, to pay his debt. Although there is no evidence of direct consultation, we may well believe that the plaintiffs were informed, after the execution of the trust deed, that there was no fear with respect to the payment of their debts and that it would be paid by the ninth defendant. This is the gist of the evidence of P.W. 2 on this point. Evidence shows clearly that the ninth defendant was evincing considerable interest in the passing of the award. The arbitrator, P.W. 3, says that the ninth defendant, before passing the award, told him that he would pay plaintiffs 1 and 2 on behalf of the first defendant soon after the passing of the award and that after the passing of the award he (ninth defendant) said that he had Rs. 2,700 with him, that he would issue a cheque and that the arbitrator might take it. This piece of information was communicated to the maternal uncle of the second plaintiff but he refused to take it unless the whole amount mentioned in the award was given. The ninth defendant does not deny that he made the offer of Rs. 2,700, but he says that it was so done on account of the possession which he had of an ornament - kulikiturai - and that he did not offer to pay as a trustee. Why should the ninth defendant take any interest in the passing of the award at all if it was not contemplated that the debt of the plaintiffs under the award should be paid by the trustee? He was only waiting for the passing of the award before he began the discharge of his duties under the trust. The ninth defendant-trustee says that he consulted some lawyers in March or so of 1926 and that they told him that he need not pay the debts as they were not in existence at the time of the execution of the trust deed What was the need for consultation at all if it was not understood by the persons concerned that the plaintiffs' debt should be discharged by the trustee? Evidence shows that everybody knew of the existence of the trust and of the object with which the trust was created and that the plaintiffs expected - we think they must have been given to understand - that their debt under the award would be discharged by the trustee. The trustee himself must have thought that he had to discharge the debt though the lawyers advised him to the contrary. In the course of his evidence the trustee says, "I had no authority to sell the properties of one of the parties to liquidate the private debts of the other party. I could sell either party's separate properties for the joint debts irrespective of his share of that liability." This was the way how he understood the significance of the trust deed. He did not pay, not because the trust deed was not communicated to the plaintiffs, but in his opinion under the trust deed he had no authority to pay the debts of the plaintiffs. Whether the opinion of the lawyers or his own opinion is right or wrong would of course depend upon the construction of the trust deed. Evidence shows that the plaintiffs acquiesced in the trust deed of which they must have been informed and they wanted that effect should be given to its terms. It is in this connection that it is important to notice that demands were made by the plaintiffs of the ninth defendant for payment of the trust immediately after its creation (see Exs. D and J). The award is dated 13th June, 1926, and the notice of the second plaintiff, Ex. D, was sent to the ninth defendant on 31st July, 1926, and he was addressed as the trustee of the estate property. This was followed by Ex. J on 8th August, 1926. It is significant that to none of these notices did the ninth defendant send a reply though immediate payment was requested. It is clear that they would not have sent these notices to the ninth defendant unless they had been made to understand that they could take advantage of the trust deed and as soon as their debts were ascertained by the award they issued their demands. They had no objections to the trust. In fact they acquiesced in it; what they wanted was that their debt should be paid by the trustee; and the trustee does not send a single word in reply. He might well have said if his case was true that the plaintiffs could not avail themselves of the trust deed because they were not parties to it and the existence of the trust deed was not communicated to them. This he did not do. Evidence goes further. Apart from the particular suit debt in question under the award, the first plaintiff was amongst the biggest creditors. The ninth defendant says, "Apart from the Imperial Bank first plaintiff was the biggest creditor." What is important to notice is that it appears that in discharge of the obligation under the trust the first plaintiff was paid Rs. 33,000 under the trust by 24th January, 1926. Three days after, a trust of Rs. 10,000 was discharged and the Rajapet factory was also sold to the first plaintiff. All these took place in pursuance of the trust deed. We are well convinced that the trust deed was acted upon between the trustee and these creditors and if that is so there can be no question of the direct communication of the trust. Reading the evidence as a whole we are firmly of the opinion that the creditors of the first and the eighth defendants knew of the execution of the trust, that the plaintiffs must have been given to understand that they would be paid their suit debt by the trustee, that it was why the ninth defendant took such an interest in the passing of the award, and that was also why he did not reply to the notices of the plaintiff. We are also further convinced that in various particulars so far as the plaintiffs were concerned the trust was performed. In these circumstances we think the trust deed was communicated to the plaintiffs in the sense explained in the extract quoted above. It therefore follows that the plaintiffs can avail themselves of the trust deed and ask the trustee to pay their debts first if the terms of the trust deed authorise them to make such a request.
13. We have already quoted the particular term of the trust deed under which the trustee is "authorised to settle the matters in dispute between the said Lakshminarasimha Rao Sowcar and others and Yenduri Bapanayya and also to settle the accounts either after the discharge of debts jointly and severally due by them or after they had adjusted the matter with the creditors." It is clear from this that the power to settle the matters in dispute between the first defendant and others and the eighth defendant would arise only "after the discharge of the debts jointly and severally due by them or after they had adjusted the matters with the creditors." The suit debt is a debt due by the first defendant. It follows from the term of the trust deed that it is only after the settlement of these debts that the trustee has authority to settle the dispute between the first defendant and the eighth defendant. It was in settlement of the dispute between the first defendant and the eighth defendant that Ex. III was executed by the trustee in favour of the eighth defendant. According to the trust deed he could execute this document only after the plaintiff's claim has been settled. The trustee's understanding of the document which he gave expression to in his evidence is erroneous; and it was not seriously argued by the respondents' learned Counsel that under the terms of the trust deed, if the trust deed can be availed of by the plaintiffs, the plaintiffs have no right to ask for a discharge of the debts before the settlement of the disputes between the first defendant and the eighth defendant. In these circumstances we would hold that so far as the plaintiffs' claim is concerned they are entitled to say that Ex. III, inasmuch as it was executed before the discharge of their debts, is invalid against them and would not be binding on them. The declaration asked for by the plaintiffs should be granted. But it is stated by the Advocate-General that if the debts of the appellants can be paid from out of the other properties of defendants 1 to 10 against which they have got a decree they do not desire to give effect to the declaration that Ex. III is invalid. We would therefore add to the decree given in favour of the plaintiffs by the lower Court that the plaintiffs in order to realise their debts remaining unpaid after proceeding against the properties mentioned in the lower Court's decree can proceed against the Ex. III properties; but if their debts have been otherwise realised by proceeding against the other properties then no action should be taken by them against Ex. III properties. For the above reasons the lower Court's decree will be modified in the manner indicated above. The appellants are entitled to their costs of this appeal and also to their costs in the Court below.
14. The case having been set down for being spoken to this day, the Court made the following
15. There will be no order as to costs against the ninth respondent. The memorandum of objections is dismissed. No costs.