[HOUSE OF LORDS.]

AND

Building Society - Borrowing - Unlimited Borrowing Powers - Banking Business - Ultra vires - Winding-up - Distribution of Assets - Priorities - Shareholders - Depositors - Trade Creditors - Money had and received - Tracing Order - Building Societies Act, 1836 (6 & 7 Will. 4, c. 32), s. 1.

A building society formed in 1851 under the Building Societies Act, 1836, and empowered by its rules to borrow to an unlimited extent, started and developed a banking business. In 1911 the society was ordered to be wound up and questions of priority arose between the outside creditors, the unadvanced shareholders, and the bank customers on current and deposit account (for convenience called the depositors). The assets were insufficient for payment of all the claimants in full but were more than sufficient for payment of the outside creditors (who were subsequently paid by arrangement) and the shareholders:-

Held, (1.) that the power to borrow must be limited to borrowing for the proper objects of the society, and that the carrying on of the banking business was ultra vires. (2.) Distinguishing In re Phoenix Life Assurance Co. (1862) 2 J. & H. 441, and Flood v. Irish Provident Assurance Co. (1910) 46 Ir. L. T. 214; [1912] 2 Ch. 597, n., that the depositors were not entitled to recover moneys paid by them on an ultra vires contract of loan on the footing of money had and received by the society to their use. (3.) Applying the principle of In re Hallett's Estate

In re Hallett's Estate (1880) 13 Ch. D. 696, that the assets remaining after payment of the outside creditors must be taken to represent in part moneys which the depositors could follow, as having been invalidly borrowed, and in part moneys which the society could follow, as having been wrongfully employed by its agents in the banking business, and (subject to any application by any individual depositor or shareholder with a view to tracing his own money into any particular asset, and to the costs of the liquidation) ought to be distributed pari passu between the depositors and the unadvanced shareholders according to the amounts respectively credited to them in the books of the society at the commencement of the winding-up.

In re Guardian Permanent Benefit Building Society (1882) 23 Ch. D. 40 considered and distinguished.

Blackburn and District Benefit Building Society v. Cunliffe Brooks & Co. (1885) 29 Ch. D. 902 overruled.

Decision of the Court of Appeal [1912] 2 Ch. 183 varied.

APPEAL from an order of the Court of Appeal affirming an order of Neville J. with reference to the distribution of the assets in the winding up of the Birkbeck Permanent Benefit Building Society. (1) The rules of the society are set out and the facts fully stated in the previous report of the case. The following summary of the facts is sufficient for the purposes of this appeal.

The society was formed in 1851 under the Building Societies Act, 1836, with rules which were duly certified and enrolled in pursuance of that Act; it was not registered under the Building Societies Act, 1874. The object of the society, as stated in rule 2, was to enable the members to raise a fund out of which they might be individually enabled, as provided by the rules, to purchase a dwelling-house or houses or other real or leasehold estate in any part of Great Britain; and rule 35 empowered the directors to borrow to an unlimited extent. From its inception the society made it part of its business to receive money on deposit from those who were willing to leave money in its hands, whether members of the society or not; and in the course of time the deposit branch of the society developed into a very extensive banking business, and the society became popularly known as the Birkbeck Bank and itself made use of this title in connection with its banking business. On June 20, 1911, an order was made for the winding up of the society. Questions of priority arose in the winding up between the outside creditors of the society, the

(1) [1912] 2 Ch. 183.

unadvanced shareholders (who were divided into two classes, A and B), and the bank customers on current and deposit accounts (hereinafter called the depositors), and a summons for directions was taken out by the liquidator against representatives of the several classes of claimants. The fund in the hands of the liquidator was not sufficient for the payment of all the claimants in full but was more than sufficient for the payment of the outside creditors (who by arrangement had been paid before the date of this appeal) and the shareholders. Neville J. held that the power to borrow should be construed as limited by implication to the objects of the society; that the exercise of this power for the purpose of carrying on a banking business was ultra vires; and that the assets ought to be applied, after paying the costs of the liquidation, first in payment of the outside creditors, and then in payment of the A and B shareholders, the balance to be divided rateably between the depositors. The depositors appealed, but eventually a compromise was come to between the depositors and the A shareholders, to which the B shareholders were not parties. The Court of Appeal (the Master of the Rolls and Buckley L.J., Fletcher Moulton L.J. dissenting) affirmed the decision of Neville J., with the result that the B shareholders took priority over the depositors.

1913. Dec. 8, 9, 10, 12, 15. Cave, K.C., and Tomlin, K.C.,for the appellant, who represented the depositors. The depositors claim to be creditors of the society and entitled as such to be paid out of the assets in priority to the shareholders. This appeal, however, relates only to the B shareholders because a compromise has been effected with the A shareholders. The Court of Appeal, on the authority of In re Guardian Permanent Benefit Building Society (1), have held that the depositors are entitled only to what is left of the assets after payment in full of the shareholders.

1. The transactions out of which the claims of the depositors arise were authorized by the rules and were not ultra vires the society. It will be said that the money obtained from the deposits was in excess of the legitimate requirements of

(1) 23 Ch. D. 440.

the society; but, having regard to the rules, which conferred an unlimited borrowing power on the society and contemplated borrowing by way of deposit, the depositors were not bound to inquire into the purposes for which the money was intended to be applied: In re David Payne & Co. (1) The banking business of the society was carried on openly and for a long period and on an extensive scale and the members knew all about it. Therefore, unless it can be said that this business was ultra vires the society and not merely ultra vires the directors, the members must be taken to have sanctioned that course of business: Houldsworth v. Evans. (2)

[VISCOUNT HALDANE L.C. referred to Laing v. Reed. (3)]

2. Assuming that these transactions were ultra vires in the fullest sense of the term, the depositors are entitled to recover on the footing of money had and received; or, 3., alternatively on the principle stated by Fletcher Moulton L.J., that the Court in distributing the assets in the winding-up will not allow any payment to the members to be made out of the assets until they have been purged of the moneys which the society through its agents improperly obtained. Where money is paid to a society upon a contract of deposit which is ultra vires, eo instanti a debt arises from the society or its agents to the depositor for money had and received by the society to his use. If a corporation gets into its hands the money of somebody else for no consideration and on no valid contract, it cannot keep the money but must pay it back; it is liable to an action for money had and received just as much as an individual is. If the decision of the Court of Appeal is right, every repayment made to a depositor was an improper payment and the society could get back every penny repaid during the last half-century. It would thus make an enormous profit out of its own wrong-doing. Some difficulty has arisen from confusing illegality and incompetence. This distinction has been clearly pointed out by Lord Cairns in Ashbury Railway Carriage and Iron Co. v. Riche. (4) Where a contract is immoral or forbidden money paid under it cannot, as

(1) [1904] 2 Ch. 608.

(2) (1868) L. R. 3 H. L. 263.

(3) (1869) L. R. 5 Ch. 4, at p. 10.

(4) (1875) L. R. 7 H. L. 653, at p. 672.

a general rule, be recovered by either party; but where there is nothing but incompetence, i.e., where it is a mere case of a contract having no binding effect on the corporation or individual, there is no rule of law which prevents the repayment of money paid under that contract. The doctrine of money had and received was propounded by Lord Mansfield in Moses v. Macferlan (1) where he says the action "lies for money which ex æquo et bono the defendant ought to refund," and is restated by him to the same effect in Sadler v. Evans (2), where he describes the action as "a liberal action, founded on large principles of equity, where the defendant cannot conscientiously hold the money."

[The LORD CHANCELLOR referred to Royal Bank of Canada v. Rex (3) and Wilson v. Church (4), affirmed sub nom. National Bolivian Navigation Co. v. Wilson (5), where Lord Esher said that this was not a mere equitable doctrine, but was a common law right.]

In many common law cases it is treated as an action of assumpsit.

The doctrine has been applied in many cases - e.g., in cases of gaming contracts - in which money paid upon a contract which is void but not immoral has been recovered as having been paid for a consideration which has wholly failed: Jaques v. Golightly (6); Jaques v. Withy and Reid (7); Tappenden v. Randall (8); Hastelow v. Jackson (9); Diggle v. Higgs (10); Shoolbred v. Roberts. (11) This doctrine applies to a corporation - Hall v. Mayor of Swansea (12) - and to an ultra vires transaction: In re Phoenix Life Assurance Co. (13), where premiums paid under a policy which was ultra vires were held to be recoverable. That has been followed by the Court of Appeal in Ireland in Flood v. Irish Provident Assurance Co. (14) Those two cases are very much in point. The doctrine of money had and received has

(1) (1760) 2 Burr. 1005.

(2) (1766) 4 Burr. 1984.

(3) [1913] A. C. 283.

(4) (1879) 13 Ch. D. 1.

(5) (1880) 5 App. Cas. 176.

(6) (1776) 2 W. Bl. 1073.

(7) (1788) 1 H. Bl. 65.

(8) (1801) 2 Bos. & P. 467.

(9) (1828) 8 B. & C. 221.

(10) (1877) 2 Ex. D. 422.

(11) [1899] 2 Q. B. 560.

(12) (1844) 5 Q. B. 526.

(13) 2 J. & H. 441.

(14) 46 Ir. L. T. 214: [1912] 2 Ch. 597, n.

been recently considered in Lodge v. National Union Investment Co. (1) and Baylis v. Bishop of London. (2) In the latter case the money was recovered from the bishop although he had paid it away.

Coming now to the building society cases, it must be remembered that they are all actions on contract; in no case was there an action for money had and received. In In re National Permanent Benefit Building Society (3) it was held that a person who lent money to a society which had under its rules no poser to borrow had no legal or equitable debt against the society and therefore could not maintain a petition for an order to wind up the society. That must mean "no legal or equitable debt upon the contract of loan." In that case there was no suggestion of any claim for money had and received. In In re Guardian Benefit Building Society (4) the Court of Appeal held (in Crace-Calvert's case) that a rule conferring upon a building society an unlimited power to borrow was void, and that persons advancing money under it could prove in the winding-up only against the assets which remained aster paying the outside creditors and the unadvanced members. That was not a logical judgment because unless the lenders were entitled as creditors the whole of the surplus belonged to the shareholders. In Murray v. Scott (5) the third appeal was from a decision following Crace-Calvert's case and this House, reversing the decision of the Court of Appeal, held that the rule was valid. Sir Horace Davey in his argument in support of the appeal took the point that, assuming the rule to be invalid, the lenders were entitled to recover on the footing of money had and received, but there was no decision on the point because, in the view taken by the House, it became unnecessary to decide it. In Blackburn and District Benefit Building Society v. Cunliffe Brooks & Co. (6) a building society which had no power to borrow was allowed by its bankers to overdraw, and certain deeds were deposited with the bankers to secure the overdraft. It was held (1.) that the overdrawing was ultra vires

(1) [1907] 1 Ch. 300.

(2) [1913] 1 Ch. 127.

(3) (1869) L. R. 5 Ch. 309.

(4) 23 Ch. D. 440.

(5) (1884) 9 App. Cas. 519, 529.

(6) (1882) 22 Ch. D. 61; (1884) 9 App. Cas. 857.

and that the bankers had no lien on the deeds, but (2.), following the principle of In re Cork and Youghal Ry. Co. (1), that they were entitled to hold the deeds as security for so much of the money advanced as had been applied in paying the lawful debts and liabilities of the company. On the form of the claim in that case no point arose or could arise whether there was a liability ab initio on the footing of money had and received by the society. In Blackburn and District Benefit Building Society v. Cunliffe Brooks & Co. (No. 2) (2), which was another action in the same matter, the liquidators of the society were held entitled to recover from the bankers all moneys which had been paid by the society to the bankers and applied by them in discharge of an ultra vires loan. That proceeded on the footing that it was unlawful for the society to repay moneys which it had no power to borrow. That is an extraordinary decision and, if it is law, it stands in the appellant's way. That decision was followed in Ex parte Watson (3) and in In re Bottomgate Industrial Cooperative Society. (4) The latter case, however, is distinguishable, inasmuch as the transactions there complained of were a direct infringement of the Act under which the society was formed: Baroness Wenlock v. River Dee Co. (5) was a mere decision that the contract itself was void.

[VISCOUNT HALDANE L.C. Why should not the principle of In re Hallett's Estate (6) be applied to this case?]

That case decides that if A. holds property of B. in a fiduciary character and pays it together with his own money into his banking account and draws money out of the account, he must be taken to have drawn out his own money in preference to B.'s. The principle of that case is really based, not upon trusteeship in the narrow sense, but upon ownership. That is to say, if property of B. is found in the hands of A., then prima facie A. is in a wide sense in a fiduciary relationship towards B., because equity affects his conscience with regard to that particular property, and B. can follow it and take it out of the hands of A. This is the view taken by Lord Lindley in his book on Partnership,

(1) (1869) L. R. 4 Ch. 748.

(2) 29 Ch. D. 902.

(3) (1888) 21 Q. B. D. 301.

(4) (1891) 65 L. T. 712.

(5) (1885) 10 App. Cas. 354.

(6) 13 Ch. D. 696.

5th ed., p. 162. In this case the parties intended to create the relationship of debtor and creditor, but, being incompetent to do so, they made in law no contract at all, and, consequently, no title passed and the money in the bank remained the money of the depositor. This result follows from the view of the transaction taken by the shareholders themselves. The principle of In re Hallett's Estate (1) has been applied in Hancock v. Smith (2), In re Mouat (3), and In re Oatway. (4 ) The depositors are entitled to succeed, first, on the principle of In re Hallett's Estate (1); secondly, on the principle of money had and received; and, thirdly, on the principle elaborated by Fletcher Moulton L.J. in his dissentient judgment. In the United States the Supreme Court has laid down the law in accordance with these principles: Central Transportation Co. v. Pullman's Palace Car Co. (5)

Clauson, K.C., and Cecil Turner, for the respondent Brougham, the official receiver and liquidator.

Upjohn, K.C., and Younger, K.C. (with them A. M. W. Wells), for the respondent Ravenscroft, who represented the B shareholders. The sole question is whether the law of ultra vires with respect to borrowing powers does not prevent the application of all the remedies which have been discussed in the course of the argument for the appellant. The summons taken out by the liquidator does not deal with the rights of individuals but with the general rights of different classes of claimants in the distribution of the assets of the society, and the question which this House has to determine is the validity of the claim of the depositors as a class to a general right of proof against the assets as a whole. The authorities establish the following propositions. 1. A building society, though not incorporated, is not a common law partnership or a mere joint adventure, but a statutory association and subject to the law of ultra vires: In re Blackburn and District Benefit Building Society (6), affirmed by this House sub nom. Walton v. Edge (7); Amalgamated Society

(1) 13 Ch. D. 696.

(2) (1889) 41 Ch. D. 456.

(3) [1899] 1 Ch. 831.

(4) [1903] 2 Ch. 356.

(5) (1891) 139 U. S. 24, at p. 57.

(6) (1883) 24 Ch. D. 421.

(7) (1884) 10 App. Cas. 33.

of Railway Servants v. Osborne (1); Chapleo v. Brunswick Building Society (2); Brownlie v. Russell (3); Lindley on Companies, 6th ed., vol. ii., p. 1233. 2. An ultra vires contract of loan is void and gives rise to no debt, subject only to the qualification that, if money paid under an ultra vires contract of loan is applied in discharge of lawful obligations of the society, to that extent there is no increase of the society's pecuniary obligations and the doctrine of ultra vires is excluded and the contract saved: In re Cork and Youghal Ry. Co. (4); In re National Permanent Benefit Building Society (5); Blackburn and District Benefit Building Society v. Cunliffe Brooks & Co. (6); In re Blackburn and District Benefit Building Society (7); Walton v. Edge (8); Blackburn and District Benefit Building Society v. Cunliffe Brooks & Co. No. 2) (9); Baroness Wenlock v. River Dee Co. (10); Murray v. Scott (11); In re Wrexham, Mold and Connah's Quay Ry. Co. (12) 3. Subject to this qualification, money paid under an ultra vires contract does not become the property of the society but remains the property of the payer, and so long as he can identify it he may trace it through any number of changes and claim it on the footing that it is and always has been his property. That is the remedy by a tracing order; but the burden of proving the identity is on the person who alleges it. 4. Apart from a tracing order there is no remedy against the society which has received the money, either by an action for money had and received, or by an action for damages or compensation for wrongfully appropriating the money paid over, or by any form of action to recover money as a debt or damages or compensation on any ground legal or equitable, because to allow any such action would be to enable the society to transgress its borrowing limits. See the cases above cited, and particularly Chapleo v. Brunswick Building Society. (2) 5. The persons, however, who have paid over their money upon an ultra vires

(1) [1910] A. C. 87, at p. 94.

(2) (1881) 6 Q. B. D. 696.

(3) (1883) 8 App. Cas. 235, at p. 248.

(4) L. R. 4 Ch. 748.

(5) L. R. 5 Ch. 309.

(6) 22 Ch. D. 61; 9 App. Cas. 857.

(7) 24 Ch. D. 421.

(8) 10 App. Cas. 33.

(9) 29 Ch. D. 902.

(10) 1885) 36 Ch. D. 675, n.; 10 App. Cas. 354.

(11) 9 App. Cas. 519.

(12) [1898] 2 Ch. 663; [1899] 1 Ch. 440.

contract of loan may have any number of remedies against individuals for breach of warranty of authority or fraudulent misrepresentation or on any other competent ground; and 6. they would be further entitled on the winding up of the society to the limited remedy granted by the order in In re Guardian Permanent Benefit Building Society (1), which is a rough kind of tracing order. It may be that the order in that case was not strictly logical because it was impossible to prove that the actual depositors before the Court were the persons entitled to the surplus funds, but it proceeded on the principle of exhaustion. In that case, as in this, it was obvious that the society had made no profits, and it was held that after all the legal claims on the fund had been satisfied, i.e., after the creditors had been paid in full and the shareholders had received back the amount of the subscriptions due to them, the surplus must belong to the depositors, because no one else had any legal claim upon it, and accordingly they were allowed to participate pari passu in that surplus. The shareholders, however, are not concerned to defend that order, but they contend that the depositors are entitled to no higher remedy. The carrying on of a banking business by the Birkbeck Society was clearly ultra vires. Either it was not authorized by the rule conferring the borrowing powers or the rule itself was ultra vires. Some case of ratification was made against the shareholders on the ground of knowledge and acquiescence, but there can be no ratification of a nullity: Ashbury Railway Carriage and Iron Co. v. Riche. (2) Then it was said that what was ultra vires was not the loan transaction, but the subsequent application of the moneys for the purposes of the banking business. But if the banking business was ultra vires, any dealing with the society in the course of that ultra vires business was also ultra vires; it is not a question of the application of the moneys. In re David Payne & Co. (3) has therefore no application.

The claim of the depositors to priority over the shareholders must be put either on property or on obligation. It cannot be put on property because no individual has attempted to trace

(1) 23 Ch. D. 440.

(2) L. R. 7 H. L. 653, at p. 672.

(3) [1904] 2 Ch. 608.

his money into the assets now in the hands of the liquidator, and there can be no right of property without identification. This issue was not raised by the summons and it was not raised by counsel in the Courts below or in opening the appeal to this House, and there is here no proof that the moneys belonged to the depositors. Nobody ever suggested that unless there could be a tracing order proper - that is, an order enabling an individual banking creditor to trace his debt into some asset of the society - any claim could be made by the depositors on the ground of property. The doctrine of tracing has never been extended so as to make it apply to the collective claims of the depositors as a class, and so to extend it would be, in substance, to increase the liabilities of the society and to prejudice the rights of legitimate creditors. Such a tracing could only be a matter of speculation, and in this particular case speculation without any real knowledge of the facts. The assets of the society in the winding-up are admittedly insufficient to satisfy the claims of the shareholders and the depositors in full, and it is impossible to say on the evidence what proportion belongs to the depositors. If it is permissible to conjecture, the probability is that the assets attributable to the banking business must have been reduced to a larger extent than the assets attributable to the legitimate business of the society, but the House is not in possession of the requisite materials to enable it to form any judgment on the matter. The right of the depositors to a tracing order must have arisen when the society was a going concern, and if their money got into the indigesta moles of the society's funds and was incapable of being traced, then, if the depositors were to be allowed to force the society to realize its funds in order to see what proportion of the total sum represented their money, as a matter of practical expediency, the society would be bound to pay the money, and that would be, in effect, to increase the liabilities of the society as the result of an ultra vires borrowing. Further, if the claim is put upon property, the depositors would be entitled in priority to the outside creditors, because the claim proceeds upon the assumption that the money paid to the society by the depositors was never the property of the society at all; but no such right is asserted by the depositors. It is impossible to give effect to the

claims of the depositors after the claims of the outside creditors and before the claims of the shareholders, because that would be to sandwich a claim based upon property between two claims based upon obligation, and such a distribution would result in giving more to those whose claims were illegitimate, because arising out of an ultra vires borrowing, than to those whose claims arose out of the legitimate business of the society. In re Hallett's Estate (1) has no application to the present case. If the appellant's contention is sound it is remarkable that the principle of that case should never have been applied in any of the building society cases. It was not applied in In re Guardian Permanent Benefit Building Society (2); but, if it had been applicable, it is inconceivable that so great a master of equity as Sir George Jessel, who took part in the decision in Hallett's Case (1) and also in the Guardian Case (2), which was decided less than three years later, should have overlooked his earlier decision. Hallett's Case (1) is confined to cases where there is a valid transaction creating a fiduciary relationship or where the circumstances are such that the old Court of Chancery would have impressed upon the person who had the property the character of a constructive trustee. To hold otherwise would be to confuse the equitable liability on the footing of fiduciary relationship with the common law liability arising from a tort. To treat an ultra vires contract of loan as a bailment or a trust is to assign a different character to the transaction and is a mere device to evade the law of ultra vires. Nor can the claim of the depositors be put upon debt or obligation, because that would be to sweep away the doctrine of ultra vires. The Court will not assist an ultra vires lender in any way which adds to the liabilities of the society. See per Lord Selborne in Blackburn and District Benefit Building Society v. Cunliffe Brooks & Co. (3) Therefore the doctrine of money had and received has no application. Lord Mansfield, who laid down the principle in the widest terms, expressly excepted the case of a debt contracted during infancy because the infant was under a disability. Exactly the same principle applies to the society in this case. The reason why the

(1) 13 Ch. D. 696.

(2) 23 Ch. D. 440

(3) 22 Ch. D. 61, at p. 71.

society cannot be bound, either directly or indirectly, to repay the money lent is that in regard to these borrowing transactions it was under a disability. Only two of the cases cited by the appellant on the doctrine of money had and received relate to ultra vires transactions, namely, In re Phoenix Life Assurance Co. (1) and Flood v. Irish Provident Assurance Co. (2), and in neither of those cases was there a borrowing. Those two cases are explicable upon the theory that, as there was no power to issue the policy, there never was any risk, and, therefore, the premiums could be recovered back as having been paid for a consideration which had failed. They raised no question of exceeding borrowing powers. In the interval between the two cases all the building society cases were decided, but in the Irish case no reference was made to any of those decisions.

Cave, K.C., replied.

The House took time for consideration.

1914. Feb. 12. VISCOUNT HALDANE L.C. My Lords, in the opinion which I am about to deliver Lord Atkinson desires me to state that he concurs.

In June, 1911, an order was made for the winding up of the Birkbeck Permanent Benefit Building Society. The society was formed in 1851, under the Building Societies Act of 1836, with rules which, with certain amendments subsequently made, were duly certified and enrolled. The object of the society, according to these rules, was to enable the members to raise a fund out of which they might be individually enabled to buy or build houses. Rule 35 conferred on the directors a power to borrow without limit, but it is clear that the power so given could not extend beyond borrowing for the legitimate purposes of the society. There were two classes of shareholders, those to whom loans were granted and those who were mere investors. Under an amending rule the investing shares were divided into two classes, "A" shares and "B" shares, differing mainly in this respect, that the "A" shares matured and were to be paid off after a certain period, while the "B" shares were permanent. The shareholder

(1) 2 J. & H. 441.

(2) 46 Ir. L. T. 214; [1912] 2 Ch. 597, n.

could, however, in either case give notice and withdraw the amount of his share.

During the earlier period of the society's existence the funds, which were derived both from shares and from loans by depositors, were laid out in mortgages to members. Later on, while the society continued its business as a building society, it began gradually to increase its deposits and to do the business of a banker. In the balance-sheet of March 31, 1910, the liabilities to shareholders are stated to amount to 1,053,728l., while the liabilities to depositors are 10,784,323l. The assets are stated to include mortgages from advanced members, loans, and property in hand, amounting to 726,610l.; money at call, short loans and advances to customers, 995,466l.; investments in various kinds of stocks, shares, and debentures, 8,740,788l.; ground rents, 433,826l.; and cash at the bankers and in hand, 1,069,753l.

The society had begun, about 1871, to call itself the Birkbeck Bank. Many of its business documents came to be so headed, and it is obvious that at the time when it was wound up it had, while still retaining its business as a building society, turned much the larger part of its enterprise into that of a bank.

My Lords, notwithstanding that the Act of 1836 does not incorporate the building societies registered under it, its provisions make it clear that such a course as the Birkbeck Society took was contrary to these statutory provisions, and the apparent action of the society in carrying on the business of banking and in borrowing for that purpose was, therefore, ultra vires, and was not in contemplation of law the action of the society. The contracts entered into for the purposes of this business were accordingly, so far as the society was concerned, void.

The questions which now arise are in substance how the liquidator is to dispose of the mass of assets in his hands. He raised these questions before Neville J. on a summons. The learned judge ordered the assets to be applied, firstly, in payment of costs; secondly, (as I gather by general consent) in paying debts properly incurred to outside creditors; thirdly, in paying the unadvanced members or shareholders the amounts due to them in respect of the subscriptions paid on their shares,

including any bonus and interest to which they were entitled by the rules; and, fourthly, in distribution of the balance among the customers of the society on deposit or current account (for brevity I shall speak of these as depositors) in proportion to the amounts standing to their credit in the books. The majority in the Court of Appeal (the Master of the Rolls and Buckley L.J. - Fletcher Moulton L.J. dissenting) took the same view. The decision of that majority was based on the following grounds.

They held, first of all, that the rule enabling borrowing did not authorize the society to engage in banking business, and that its action in so doing was altogether ultra vires. My Lords, I think that on this point there is no doubt that the Courts below were right, and that they carried their view to its proper conclusion when they held that every receipt on deposit for the purposes of such business was ultra vires. The majority went on to hold that in so far as the legitimate indebtedness of the society was not increased, for the reason that the money borrowed was applied in the payment of legitimate debts, the depositors could be treated as subrogated to the rights of these debtors, at all events to the extent of their debts, as distinguished from any securities for these debts. They also thought that if the depositors could identify their money as earmarked they could follow it under what is called a tracing judgment. But they held that unless the depositors could bring themselves within one or other of these propositions they could not claim to be creditors either at law or in equity, and that their only right was to an order such as was made in the case of the Guardian Permanent Benefit Building Society (1), which would give them the surplus assets after payment of all legitimate debts and of twenty shillings in the pound to the members or shareholders. It was the order made in that case which Neville J. had followed. Buckley L.J. referred to difficulties which he felt in understanding the decision of Sir George Jessel in the Guardian Building Society Case. (1) He was unable to see why, if the assets belonged to the society, the members were not held entitled, not only to twenty shillings in the pound, but to the share in the surplus which the rules gave them. But he considered that the

(1) 23 Ch. D. 440.

Court of Appeal were bound by the decision of the Court of Appeal in that case. For reasons to which I will refer later on, it will appear that I share the difficulty in understanding this decision which Buckley L.J. experienced.

Fletcher Moulton L.J. was of opinion that the principle which the authorities had laid down carried with it the consequence that the Court would not, even in the case of an ultra vires transaction which could give rise to no debt, as between the parties to the transaction permit the one who had wrongfully received the money to keep it merely because he was in possession of it. He thought that, as the money must be taken to have been received by the misrepresentation or carelessness of its agents, the society could not keep it as against the depositors. This seemed to him to be implied in what was laid down in the Guardian Society's Case (1), not merely in the Court of Appeal, but in the subsequent decision on appeal to the House of Lords (Murray v. Scott (2)). He held that not until the society had made restitution of this money (which was never really part of the assets) to the depositors could there be assets belonging to the society which ought to be distributed on the principle laid down by Sir George Jessel in the Guardian Society's Case. (1) To proceed otherwise would be to look at possession only, and to disregard rights of property. He therefore dissented, holding that the depositors should be paid in priority to the B shareholders. With the A shareholders a settlement had been come to, and as to their title no question was then, or is now, raised.

My Lords, the question before the House is whether Neville J. and the majority in the Court of Appeal arrived at a conclusion which was right in point of principle, apart from the authorities, and whether, if your Lordships should be disposed to differ from them, we are so bound by the authorities, and particularly by the cases decided in this House, that we are precluded from arriving at a different conclusion. It is contended for the appellants that they are entitled to succeed in recovering their deposits either on the footing of being money had and received by the society to their use, or as being money which never truly

(1) 23 Ch. D. 440.

(2) 9 App. Cas. 519.

formed part of the assets, and which can now be followed in the hands of the society's agents and the liquidator.

I propose to consider in the first place the question whether an action for money had and received would have lain against the society on the footing that although its conduct in receiving the depositors' money was ultra vires, it had become improperly, as between itself and the depositors, enriched thereby, so that the amount received was money held to the depositors' use and recoverable as a debt, independently of any right to trace and follow. Two authorities were cited in support of the argument that such an action could have been brought successfully. One of these was a judgment of Sir William Page Wood V.-C. in the case of the Phoenix Life Assurance Co. (1) The other was a decision of the Court of Appeal in Ireland which followed his judgment in Flood v. Irish Provident Assurance Co. (2) In these cases the principle of tracing was not relied on, but it was apparently held that the amount of certain premiums which had been paid in respect of policies, the issue of which was ultra vires, could be recovered as money had and received.

My Lords, if these decisions had related to the recovery of borrowed money I should find it difficult to reconcile them with principle. If it be outside the power of a statutory society to enter into the relation of debtor and creditor in a particular transaction, the only possible remedy for the person who has paid the money would on principle appear to be one in rem and not in personam, a claim to follow and recover specifically any money which could be earmarked as never having ceased to be his property. To hold that a remedy will lie in personam against a statutory society, which by hypothesis cannot in the case in question have become a debtor or entered into any contract for repayment, is to strike at the root of the doctrine of ultra vires as established in the jurisprudence of this country. That doctrine belongs to substantive law and is the outcome of statute, and cannot be made different by any choice of form in procedure.

It is, therefore, binding both at law and in equity. In the jurisprudence of England the doctrine of ultra vires must now be

(1) 2 J. & H. 441.

(2) 46 Ir. L. T. 214; [1912] 2 Ch. 597, n.

treated as established in a stringent form by Acts of the Legislature and decisions of great authority which have interpreted these Acts. This is a principle which it appears to me must to-day be taken as a governing one, not only at law but in equity. I think it excludes from the law of England any claim in personam based even on the circumstance that the defendant has been improperly enriched at the expense of the plaintiff by a transaction which is ultra vires. All analogies drawn from other systems, such as that of the Roman law, appear to me to be qualified in their application by two considerations. The first is that, broadly speaking, so far as proceedings in personam are concerned, the common law of England really recognizes (unlike the Roman law) only actions of two classes, those founded on contract and those founded on tort. When it speaks of actions arising quasi ex contractu it refers merely to a class of action in theory based on a contract which is imputed to the defendant by a fiction of law. The fiction can only be set up with effect if such a contract would be valid if it really existed. This is a point to which I shall have to return later on in what I have to say. The second consideration is that where an Act of Parliament imposes a restriction on capacity, that restriction is binding in equity as much as at law, the principles of which equity follows.

Nor does the difficulty of extending the scope of the judgments of Sir William Page Wood and the Irish Court of Appeal to cases of borrowing appear less when the foundation of the action for money had and received is investigated. Consideration of the authorities has led me to the conclusion that the action was in principle one which rested on a promise to pay, either actual or imputed by law. Moses v. Macferlan (1) is the leading case on this point. It was an action on the case for money had and received under circumstances where any notion of an actual contract was excluded. But Lord Mansfield explained how in such circumstances the law treated the defendant as being in the same position as if he had incurred a debt: "If the defendant be under an obligation, from the ties of natural justice, to refund; the law implies a debt, and gives this action, founded on the equity of the plaintiff's case, as it were upon a contract."

(1) 2 Burr. 1005.

The claim in Moses v. Macferlan (1) was one of assumpsit in the form of the common indebitatus assumpsit count. This was a form of claim which had been very gradually evolved. The researches of recent writers appear to me to have placed its origin in its true light. The basis of actions of this kind was originally tort, a writ having been framed in consimili casu under the provisions of c. 24 of the Statute of Westminster (13 Edw. 1). By degrees, out of this action on the case and as one of its forms, a new form which was soon to diverge wholly from tort, the action of assumpsit, arose. In Slade's Case (2) the judges resolved that "every contract executory imports in itself an assumpsit," with the result that it became no longer necessary or desirable to use as the remedy where money was due the action of debt, which was embarrassing because it let in the right to a "wager of law." Then came the extension of indebitatus assumpsit to cases in which it was clear that no express promise could be proved. For, as Lord Mansfield points out, the law is ready to imply a debt in such cases arising quasi ex contractu. The promise to pay which created the right of action might have been a pure fiction of law. In many cases no such promise could possibly have been established. Yet it took some time before the judges brought themselves to go so far. Starke v. Cheesman (3) was a claim on a bill of exchange by the holder against the drawer on the allegation that the drawee had refused to accept. It was held that an actual promise must be implied. But what is remarkable is the language of the judgment in which the declaration, which contained an indebitatus assumpsit count, was held good. Holt C.J. is reported to have said "that the notion of promises in law was a metaphysical (4) notion, for the law makes no promise, but where there is a promise of the party." Yet, the observation of Holt C.J. notwithstanding, a little later on this "metaphysical notion" became firmly established. For it was just the fiction of attributing a promise in a multitude of cases where in reality there was none which finally gave the action its comprehensive range, and made

(1) 2 Burr. 1005.

(2) (1602) 4 Rep. 92b.

(3) (1699) 1 Ld. Raym. 538.

(4) I.e. fanciful, as certain poets, about the same time and later, were classed as "metaphysical." - F. P.

it available even where no fact importing or implying privity of contract could be proved. The history of the action of assumpsit has been described by a writer to whom lawyers and historians alike owe much, the late Professor Ames of Harvard University, in language which shews how easily the fiction of a promise grew into part of the law. Speaking of the action of assumpsit generally he says: "In its origin an action of tort, it was soon transformed into an action of contract, becoming afterwards a remedy where there was neither tort nor contract. Based at first only upon an express promise, it was afterwards supported upon an implied promise, and even upon a fictitious promise. Introduced as a special manifestation of the action on the case, it soon acquired the dignity of a distinct form of action, which superseded debt, became concurrent with account, with case upon a bailment, a warranty, and bills of exchange, and competed with equity in the case of the essentially equitable quasi-contracts growing out of the principle of unjust enrichment." (1)

My Lords, notwithstanding the wide scope of the remedy so described, I think that it must be taken to have been given only, as I have already said, where the law could consistently impute to the defendant at least the fiction of a promise. And it appears to me that as matter of principle the law of England cannot now, consistently with the interpretation which the Courts have placed on the statutes which determine the capacity of statutory societies, impute the fiction of such a promise where it would have been ultra vires to give it. The fiction becomes, in other words, inapplicable where substantive law, as distinguished from that of procedure, makes the defendant incapable of undertaking contractual liability. For to impute a fictitious promise is simply to presume the existence of a state of facts, and the presumption can give rise to no higher right than would result if the facts were actual.

I am accordingly of opinion that while the decisions of Sir William Page Wood and of the Irish Court of Appeal to which I have referred may possibly, notwithstanding that the issue of the policies was ultra vires, be supported on the ground that they

(1) Lectures on Legal History, p. 166.

related merely to the failure of consideration for the premiums paid (a question on which it is unnecessary for me to express any opinion), they cannot be invoked as authorities for the proposition that an action for money had and received would have lain in a case of borrowing ultra vires.

It follows that the depositors in the present case will not succeed unless they are able to trace their money into the hands of the society or its agents as actually existing assets. The question is whether they are able to establish enough to succeed upon this footing. Their claim cannot be in personam and must be in rem, a claim to follow and recover property with which, in equity at all events, they had never really parted.

I proceed, therefore, to consider the case on this restricted footing. The evidence is very scanty, but it must be taken that the depositors' money was used on a large scale in acquiring the assets now in the liquidator's hands; for the value of these assets is far in excess of the contributions of the shareholders, and much of it can be due to the money of the depositors alone. The difficulty of establishing a title in rem in this case arises from the apparent difficulty of following money. In most cases money cannot be followed. When sovereigns or bank notes are paid over as currency, so far as the payer is concerned, they cease ipso facto to be the subjects of specific title as chattels. If a sovereign or bank note be offered in payment it is, under ordinary circumstances, no part of the duty of the person receiving it to inquire into title. The reason of this is that chattels of such a kind form part of what the law recognizes as currency, and treats as passing from hand to hand in point, not merely of possession, but of property. It would cause great inconvenience to commerce if in this class of chattel an exception were not made to the general requirement of the law as to title.

But the exception is not extended beyond the limits which necessity imposes. If money in a bag is stolen, and can be identified in the form in which it was stolen, it can be recovered in specie. Even if it has been expended by the person who has wrongfully taken it in purchasing some particular asset, that asset, if capable of being earmarked as purchased with the money, can be claimed by the true owner of the money. This is a principle not

merely of equity, but of the common law. It is explained in the judgment of Lord Ellenborough in Taylor v. Plumer (1), who pointed out that there was no reason why the doctrine that money could not be followed should apply to circumstances in which a broker had wrongfully invested money of his principal in purchasing securities into which it could be traced. The reason of this is plain. The broker could not in these circumstances set up as against his principal the rule which applies to what has been paid over as currency, that ordinarily transfer of possession is transfer of property. So long as the money which the principal has handed to his agent to be applied specifically, and not on a debtor and creditor account, can be traced into what has been procured with it, the principal can waive his right of action for damages for tort, and, affirming the proceeding of the broker, claim that his money is invested in a specific thing, which is his. But Lord Ellenborough laid down, as a limit to this proposition, that if the money had become incapable of being traced, as, for instance, when it had been paid into the broker's general account wish his banker, the principal had no remedy excepting to prove as a creditor for money had and received. The explanation was, of course, that a relation of debtor and creditor had arisen between the banker and his client, the broker, which precluded the notion of following the money.

That seems to be, so far as the doctrine of the common law is concerned, the limit to which the exception to the rule about currency was carried; whether the case be that of a thief or of a fraudulent broker, or of money paid under mistake of fact, you can, even at law, follow, but only so long as the relation of debtor and creditor has not superseded the right in rem. This is well put by Bramwell L.J. in Ex parte Cooke (2), who explains why the principal in Taylor v. Plumer (1) could claim the money: "Because the money was paid to the broker, not as a trustee in the strict sense of the word, so that no action at law could be maintained against him, and he would only be liable to have a bill filed against him, but was handed to him in a fiduciary character, so as not to create the mere relation of debtor and creditor between him and his principal." Thesiger L.J. in In

(1) (1815) 3 M. & S. 562.

(2) (1876) 4 Ch. D. 123.

re Hallett's Estate (1) states the principle in other words, but to the same effect: "All cases where it has been held that moneys mixed and confounded, but still existing in a mass, cannot be followed, may, I think, be resolved into cases where, although there may have been a trust with reference to the disposition of the particular chattel which those moneys subsequently represented, there was no trust, no duty, in reference to the moneys themselves beyond the ordinary duty of a man to pay his debts; in other words, that they were cases where the relationship of debtor and creditor had been constituted, instead of the relation either of trustee and cestui que trust, or principal and agent."

My Lords, it is, in my opinion, impossible to confine the right at law to follow to cases where there was a fiduciary relationship. The principle appears to me to cover all cases where the property in the money has not passed, and the money itself can be earmarked in the hands of the person who has wrongfully obtained it. A person standing in a fiduciary relation may be in this position, but it is not because of his trust or fiduciary duty. The common law, which we are now considering, did not take cognizance of such duties. It looked simply to the question whether the property had passed, and if it had not, for instance, where no relationship of debtor and creditor had intervened, the money could be followed, notwithstanding its normal character as currency, provided it could be earmarked or traced into assets acquired with it. And this appears to me to be, on ground of principle, as true of money paid under mistake of fact or on an ultra vires contract, under which no property could pass or relation of debtor be constituted, as it is true in the case of a broker or bailee.

But while the common law gave the remedy I have stated, it gave no remedy when the money had been paid by the wrong-doer into his account with his banker, who simply owed him a debt, so that no money was or could be, in the contemplation of a Court of law, earmarked. Here equity, which had so far exercised a concurrent jurisdiction based upon trust, gave a further remedy. The Court of Chancery could and would declare, even as against the general creditors of the wrong-doer,

(1) 13 Ch. D. 696, at p. 723.

that there was what it called a charge on the banker's debt to the person whose money had been paid into the latter's bank account in favour of the person whose money it really was. And, as Jessel M.R. pointed out in Hallett's Case (1), this equity was not confined to cases of trust in the strict sense, but applied at all events to every case where there was a fiduciary relationship. It was, as I think, merely an additional right, which could be enforced by the Court of Chancery in the exercise of its auxiliary jurisdiction, wherever money was held to belong in equity to the plaintiff. If so, subject to certain qualifications which I shall presently make, I see no reason why the remedy explained by Jessel M.R. in Hallett's Case (1), of declaring a charge on the investment in a debt due from bankers on balance, or on any mass of money or securities with which the plaintiff's money had been mixed, should not apply in the case of a transaction that is ultra vires. The property was never converted into a debt, in equity at all events, and there has been throughout a resulting trust, not of an active character, but sufficient, in my opinion, to bring the transaction within the general principle.

My Lords, there was another point which was decided in Hallett's Case. (1) Jessel M.R. and Baggallay L.J. held that she rule in Clayton's Case (2) did not apply so as to determine by reference to dates the appropriation of cheques drawn on the bank account, inasmuch as they considered that a person standing in a fiduciary relationship must be taken to have intended to draw cheques for his own purposes only on so much of the balance as was his. On this second point Thesiger L.J. dissented from the majority. He thought that he was bound by the decision in Pennell v. Deffell (3) and the subsequent authorities which had followed it. "Equity," he said (4), "has gone very far in aid of trust creditors when it holds that they may follow and obtain, in priority to general creditors, moneys paid to a banker, and therefore no longer existing in specie, as moneys numbered and earmarked, but converted into a debt; and it may be that the distinguished judges I have referred to may have thought that equity had gone far enough, and that, in the absence

(1) 13 Ch. D. 696.

(2) (1816) 1 Mer. 572.

(3) (1853) 4 D. M. & G. 372.

(4) 13 Ch. D. at p. 752.

of express appropriation, the general rule of appropriation of payments in and out of a banker's account should apply to that debt when forming part of a larger debt made up as to the rest of the moneys, not trust moneys, paid into the bank."

My Lords, as all the outside creditors have been paid off by consent, we have not in the appeal before the House to consider the decision in Hallett's Case (1) on this second point. And I do not desire to be taken as indicating any opinion on a question which is not before us, and to which I have only referred for the purpose of making this clear.

I now proceed to apply these conclusions to the case we have to deal with. I must begin by pointing out that the circumstances here are in material points different from those in Hallett's Case. (1) There the agent had in breach of his duty paid the money of his principal into his bank, so that it formed part of a general debt due to him on current account with the bankers. It was held that the money of the principal must be paid to him out of the debt so due. To call the right of the principal a charge on the debt, as Jessel M.R. did, was only to express compendiously, but somewhat loosely, that the indebtedness was for a single sum, of which the amount of the principal's money formed an integral part, and that the agent could not draw on account of the single sum, in which he had improperly mixed his own funds with the money of his principal, until he had made good the amount of that money.

For the purpose of the question before us the really relevant part of the judgment in Hallett's Case (1) is that which shews how the difficulty of following money into a debtor and creditor account like a banker's is got over in equity. The loan to the banker was regarded as an investment pro tanto of the principal's money, and the latter was treated as entitled to waive the breach of duty by his agent, and to claim the investment to the extent of the amount due to him as made on his behalf. The agent could not set up that any part of the money in the bank was his until he had made good his breach of duty, and in that sense there was a charge.

In the present case the investment was not made in breach of

(1) 13 Ch. D. 696.

a fiduciary duty on the part of the society, and it was actually made with the authority of the depositors. What was a material point in Hallett's Case (1), therefore, does not occur here. No doubt it was ultra vires of the society to undertake to repay the money. But it was none the less intended that in consideration of giving such an undertaking the society should be entitled to deal with it freely as its own. The consideration failed and the depositors had the right to follow the money so far as invalidly borrowed into the assets in which it had been invested, whether these assets were mere debts due to the society or ordinary securities, but that was their only right.

As to the part of the assets which was acquired with money paid by the shareholders, the case appears to me to be free from difficulty. The money paid to the society by the shareholders was paid as the consideration for the shares which were issued to them. That money, therefore, beyond question, became the money of the society. A large part of it has probably been applied ultra vires in the acquisition of the assets of the banking business. These assets can accordingly be claimed only by the society itself as belonging to it, and the shareholders have no direct title to them.

The total mass of assets which the liquidator has to distribute thus represents in part money which the depositors are entitled to follow and in part money which the society is entitled to follow. If the present value of these assets was equivalent to the total amount of such money, there would be no difficulty; the assets would be apportioned according to the sources from which they came. Does it make a difference that the value has shrunk so that the two sets of claimants cannot be paid in full? I do not think so. The position of the society is different from that of the agent in Hallett's Case. (1) The depositors have no alternative right in this case to disaffirm the transaction to the extent of claiming on the footing that their money has been applied in breach of trust. All they can do is to adopt the dealings sith the money that they handed over, under circumstances in which it never really ceased to be theirs, and claim the part of the mass of assets which represents it as belonging to them in equity.

(1) 13 Ch. D. 696.

There has been no breach of fiduciary duty on the part of the society, and it appears to me that this circumstance is material in distinguishing the consequences here from those which followed in Hallett's Case (1) on the footing that there the agent could not gain, at the expense of the principal, an advantage for himself or his general creditors by in effect setting up a breach of duty. The depositors can, in my opinion, only claim the depreciated assets which represent their money, and nothing more. It follows that the principle to be adopted in the distribution must be apportionment on the footing that depreciation and loss are to be borne pro rata. I am, of course, assuming in saying this that specific tracing is not now possible.

What is there must be apportioned accordingly among those whose money it represents, and the question of how the apportionment should be made is one of fact. In the present case the working out of a proper apportionment based on the principle of tracing not only would involve immense labour but would be unlikely to end in any reliable result. The records necessary for tracing the dealings with the funds do not exist. We have therefore, treating the question as one of presumption of fact, to give such a direction to the liquidator as is calculated to bring about a result consistent with the principles already laid down.

I think that this direction should be that, without disturbing anything that has up to now been settled or agreed, he should apportion the entirety of the remaining assets (including mortgages and loans) between the depositors and the shareholders in proportion to the amounts paid by the depositors and the shareholders respectively. In this way I am of opinion that the nearest approach practicable to substantial justice will be done. I think that this is the utmost extent to which, consistently with well-established principles, a Court of justice can go in compelling the society to restore that of which it has become possessed through its ultra vires transactions. In his dissenting judgment in the Court of Appeal, Fletcher Moulton L.J. proposed to go further, and to apply the assets in paying the depositors before the shareholders received anything. For reasons which result from what I have already stated, I think that to do this would

(1) 13 Ch. D. 696.

really be inconsistent with settled law as to the effect of ultra vires transactions. What I propose is, I think, not at variance with what this House actually decided in Murray v. Scott (1), and in such cases as Cunliffe Brooks & Co. v. Blackburn and District Benefit Building Society (2) and Baroness Wenlock v. River Dee Co. (3)

It is not the method of distribution directed in the case of the Guardian Permanent Benefit Building Society (4), where the Court of Appeal said that not only the creditors of the society, but the unadvanced members, must be paid in the first instance, and the balance only divided among the lenders from whom advances had been obtained without legal authority. But I do not think that the decision there upon this point can be upheld unless on the facts in that case no reliable attempt to trace was held to be possible. If such presumptions as to the source of the assets could have been made as I think must be made in the present case, the method of distribution adopted would not have been justifiable on the assumption that the principle I have stated is the right one. There is much force in the criticism of the judgments in that case made by Fletcher Moulton L.J. and by Buckley L.J. in the present case. The reasoning implied in those judgments appears to me to have been pushed to an extent which, unless carefully qualified, establishes, not its conclusion, but either too much or too little.

The agents of the society in the present case, unlike the Guardian Society, have acted ultra vires in the application not only of the depositors' but of the society's own money, by lending it to customers with whom it dealt as a banker and in investing it in securities for banking purposes. And we are not dealing with any question in which the shareholders are seeking to claim against the society on a footing inconsistent with their true contract as quasi partners. It is in their case, as in that of the depositors, a question only of a right to follow, and in a distribution by a liquidator based on this principle, I see no reason why either set of claimants should have priority over the other. The contest does not arise between shareholders as such and

(1) 9 App. Cas. 519.

(2) 9 App. Cas. 857.

(3) 10 App. Cas. 354.

(4) 23 Ch. D. 440.

creditors of the society. It arises between persons, each of whom claims that, so far as the point at present in dispute is concerned, certain moneys were his, and never ceased to be his, and are now represented by specific assets.

The only authorities to which I wish to make further reference specifically are Cunliffe Brooks & Co. v. Blackburn and District Benefit Building Society (1), which I have already mentioned, and the subsequent decision in Blackburn and District Benefit Building Society v. Cunliffe Brooks & Co. (2) In the first of these cases this House laid down the principle, affirming the Court of Appeal, that where securities had been deposited with bankers for overdrafts which were ultra vires the bankers could not hold the securities. That seems to have been obviously right on the facts before the House. In the subsequent case the Court of Appeal took a further step, and held that the liquidator could recover from the bankers money paid to them by the society and applied in discharge of the money which they had lent to it by way of overdraft and so lent ultra vires. My Lords, I think that decision, which was not brought before this House for review, was wrong, under the circumstances of the case, in the absence of proof by the society, who by the fact of repayment had made an admission to the contrary effect, that the money advanced by the bankers had been lost and could not be treated as repaid. The society ought, in my opinion, to have been regarded, in the absence of evidence to this effect, as having simply returned to the bankers the latter's own money. For the same reason I entertain considerable doubt whether Ex parte Watson (3) was rightly decided.

I have examined the other authorities cited by the learned counsel on both sides in the course of the argument, but except in so far as I have already referred to these authorities I do not think it necessary to comment on them. For it is only on the points which I have mentioned that I find anything in what I am about to propose that is not really in harmony with them.

I move that the judgments of the Courts below be varied so as to give effect to a declaration that, subject to matters which have

(1) 9 App. Cas. 857.

(2) 29 Ch. D. 902.

(3) 21 Q. B. D. 301.

already been settled by the consent of the parties, and subject to any application which may be made by any individual depositor or shareholder with a view of tracing his own money into any particular asset, and subject to the payment of all proper costs, charges, and expenses, the liquidator ought to proceed in distributing the remaining assets of the society between the depositors and the unadvanced shareholders on the principle of distributing them pari passu in proportion to the amounts properly credited to them respectively in the books of the society in respect of their advances at the date of the commencement of the winding-up, and that the case be remitted to the Court of first instance to apply this principle. As the appeal is one of an unusual character, and the litigation was essential for ascertaining the rights of all parties, I think we should not disturb the orders of the Courts below in regard to costs, and that the costs of all parties to this appeal should be paid out of the assets on the same footing as in the Courts below.

LORD DUNEDIN. My Lords, the facts of this case admit of being stated with extreme brevity. The Birkbeck Permanent Benefit Building Society, established in 1851 under the Building Societies Act of 1836, and having for its proper object the usual purposes of a building society, started and developed a banking business. On June 20, 1911, a winding-up order was pronounced. The outside creditors, to use a convenient term, were inconsiderable in number and value, and have been paid. There remain the claims of the bank customers or depositors and the shareholders. The exact figures are not available, but an approximate idea may be gathered from the balance-sheet of March 31, 1910, from which it appears that, in rough figures, the claims of the shareholders represented a little over one million pounds, those of the depositors 10¾ millions.

The shareholders are divided into two classes, A and B. The A shareholders made an arrangement with the depositors, and accordingly no question arises in respect of them. The B shareholders elected to stand on their legal rights. For the purposes of this case it is enough to describe the B shareholders in the terms which have become familiar through cases decided in your

Lordships' House as unadvanced shareholders, who had not at the date of the winding-up given notice of withdrawal.

On June 30, 1911, the liquidator, by summons directed against persons representative of each class of claimants, asked for directions from the Court as to how the assets were to be applied. The assets were not sufficient to pay all claimants in full, but they were more than sufficient to pay the outside creditors and the shareholders. This summons after certain amendments was finally disposed of by an order of Neville J. of November 6, 1911. By this time the arrangement already mentioned between the A shareholders and the depositors had been come to. The order ranked the claimants and directed the assets of the society to be distributed as follows:- 1. Costs of winding-up, including costs of scheme of arrangement between A shareholders and depositors. 2. Payment of outside creditors. 3. Payment to unadvanced members of all sums due, including interest and bonus. 4. Balance to depositors in proportion to sums at their credit.

This order has the effect, so far as the shareholders are concerned, of paying them in full. Against this order an appeal was taken and the order was affirmed by the Court of Appeal, Fletcher Moulton L.J. dissenting. Appeal has now been taken to your Lordships' House.

I do not propose to occupy your Lordships' time by discussing the question of whether the accepting of the depositors' money on a contract to repay was ultra vires. I think it clearly was ultra vires, and I agree with the learned judges of the Court of Appeal in the reasons they give for so holding.

The order as made is admittedly made on the authority of the order made by the Court of Appeal in the Guardian Case. (1) In it self the order obtains but scant praise from the learned judges who felt bound to pronounce it. The Master of the Rolls says that the Guardian order is binding upon him, but adds: "I feel a difficulty in discovering the principle on which it was based. It seems to me a rough and ready tracing judgment, illogical, but possessing the merit of attempting to do partial justice to the lenders." Buckley L.J. explains this illogicality in a very pertinent passage which I need not quote.

(1) 23 Ch. D. 440.

Apart from the fact that the Guardian order was framed by eminent judges - Sir George Jessel, Cotton and Bowen L.JJ. - it seems to me that its authority is somewhat scant, and, in particular, that there is no possibility of saying it has in any way received the approval of your Lordships' House. I should like to make this clear by a brief examination of the Guardian Case. (1) In the Guardian Case (1) there were two sets of questions - one as to the position of the lenders of money, the other as to the position of certain paid-up preference shareholders who had taken shares under a certain rule 32 of the society. The society in that case had by its rules a power to borrow without any limit as to extent.

The Court of Appeal held that a power to borrow without limitation as to amount was ultra vires; that consequently the lender of money had no legal or equitable claim of debt against the society; and they then made the order in question. As in question with the other shareholders they admitted the claim of the preference shareholders, but this - although valuable from another point of view in the discussion of these matters - is for the moment beside the question. The ranking under the order, therefore, was, first, outside creditors; second, shareholders; third, balance to lenders of money. The case was taken to your Lordships' House on two points - by the lenders of money as against the order postponing them, and by the ordinary shareholders as against the preference shareholders. Their Lordships in this House held that the Court of Appeal was wrong in holding that a power to borrow was ultra vires because unlimited; and no question being raised as to the borrowing having been for anything but legitimate objects of the society, the result was that the lenders became ordinary creditors, and as such ranked before all shareholders. As regards the preference shareholders, they affirmed the Court of Appeal.

Now, it appears plainly from this that the result of this was entirely to sweep away the order - not upon an expressed opinion that the order was itself wrong, but because the House affirmed the true facts to be such as to make the order inapplicable to the facts of the case. Consequently this House had really

(1) 23 Ch. D. 440.

no opportunity of considering whether the order itself was right.

It was strenuously contended, however, at your Lordships' Bar, that the Guardian order was at least inferentially approved by the House in the subsequent, but nearly contemporaneous, case of Cunliffe Brooks & Co. v. Blackburn and District Benefit Building Society. (1) This is, I think, a misconception of the case. In that case a bank had made advances to the society upon deposit of securities as in ordinary bankers' practice, the securities being held by the bank to meet the overdraft. The suit was one at the instance of the liquidator of the society to recover the securities. The Court of Appeal held that the overdraft was a borrowing and was ultra vires, but said that if the bank could shew that the moneys paid upon the overdraft, or any part of them, had been expended in paying the just debts of the society, the bank would pro tanto be entitled to the benefit of the securities. The bank appealed. The liquidator presented no cross-appeal. This House held that the decision of the Court of Appeal was right in so far as it held that an overdraft was a borrowing and was ultra vires, with the resulting consequence that the bank could not hold the securities in respect in contract.

As regards the equity which was conceded to them by the order, they pointed out that no appeal was made against that order. Now, it will be observed that this case dealt with the retention of the securities alone; and the moment that contract was gone the right to the securities was gone; for to hold them it was necessary to hold them against all the world, i.e., against the ordinary creditors of the society. But the question was not raised, and could not be raised in that litigation, of what would be the fate of a claim at the instance of the bank against the general funds in the liquidation, and if that claim was made, what would be its ranking or position as in a question with shareholders. This is clear from the mere statement of the case. But it was clearly seen by Lord Watson, who in the course of his judgment expressed himself as follows (2): "If it were possible, in the present suit, to determine the whole questions which have arisen, or may yet

(1) 9 App. Cas. 857.

(2) 9 App. Cas. at p. 871.

arise, between the parties in regard to these advances by way of overdraft, your Lordships would have many important questions to consider. But the sole object of these proceedings at the instance of the liquidators is to recover certain assets of the society, which are held by the appellants, in security of the advances made by them."

I therefore come to the conclusion that not only is the Guardian order not binding on this House, but that it does not bear with it any evidence that the question in its broad aspect was very carefully argued.

Now I think it is clear that all ideas of natural justice are against allowing A. to keep the property of B., which has somehow got into A.'s possession without any intention on the part of B. to make a gift to A. Where there is contract the solution is according to the contract, or you might say the position truly does not arise. Such are the cases of a bailment of a chattel or of a loan of money. But there are many cases where the position does arise and where there is no contract.

The case of a chattel is easy: A shopkeeper delivers an article at the house of B. in mistake for the house of A. An action would lie against B. for restitution. Such an action could easily be founded on the right of property. To use the Roman phraseology, there would be a jus in re. And where there was a jus in re there would not be, I take it, any difficulty in finding a form of common law action to fit the situation. But the moment you come to deal with what in Roman phraseology is called a fungible, and especially when you deal with money, then the jus in re may disappear, and with it the appropriateness of such common law action. The familiar case is the paying of money by A. to B. under the mistaken impression in fact that a debt was due, when in truth there was no debt due. It was to fit cases of this sort that the common law evolved the action for money had and received.

I think one cannot help feeling that this action was truly the putting of an equitable doctrine under a legal form. I am using the word equitable in a non-technical sense, for I am not suggesting for a moment that the action was borrowed from technical equity. My noble and learned friend Lord Sumner, in his

opinion, which I have had the advantage of seeing, has conclusively shewn that it was not. But being a legal form, it does not admit, in spite of Lord Mansfield's dictum that such an action was very beneficial and to be encouraged, of being stretched beyond its capacity. What concerns my view, however, is only this, that it is a contrivance which is introduced to meet an equitable idea, which idea is a wider idea than that expressed by the proposition that when there is a jus in re an action will lie, and when there is not such a jus it will not. This follows from the undoubted fact that where money is in question under modern conditions (by which I mean not put into bags or a stocking), there never will be a jus in re, there can at most be only a jus ad rem.

Viewing as I do the equity as based on inherent ideas of justice, it is, I think, very instructive to see how it is dealt with in other systems. I therefore make no apology for going to the Roman law, not as an authority, for such it is not, but as instructive as to how these matters may be dealt with, and as suggestive, as I shall afterwards shew, as to the true answer to the difficulties of the present case. The English common law has various actions which, under a classification which I understand to be really one of modern growth, are divided into actions in respect of contract and of tort. But in the Roman law the actions covering the same field are actions ex contractu and quasi ex contractu, actions ex delicto and quasi ex delicto. The class we are dealing with are obviously actions quasi ex contractu. Accordingly we find in the case of a chattel that while the action commodati covered the case where there was a contract, i.e., a bailment, there was also an action utilis where there was no contract. And coming to the case of money, while mutuum was proper loan, pro-mutuum covered the cases where money was had and received without contract, and a special form of action for the common case of the payment of a supposed but non-existing debt was known as condictio indebiti. Now, the English law, having no quasi contracts, got over the difficulty in such cases as the action for money had and received by the fiction of a contract.

It is, I think, obvious that the distinction between the fiction

of a real contract en the one hand, and the existence of a quasi contract on the other, is a distinction of a most metaphysical description. Both systems, at any rate in the case of money paid under a mistake in fact, recognize the obligation to repay where there is no jus in re. Both systems, I think, recognise the equitable rule, and proceed to carry it out according to the forms of their own development.

Now, that there is an obligation to restore, binding the defendant to pay in an action for money had and received, does not, I think, admit of doubt. The result is that it is a real debt, and as such entitled to take its place along with the debts of all proper creditors. To put an example. Suppose a sum of money was paid by A. to the credit of B. at his bankers, under the mistaken idea that a debt was due. Suppose that the next day, before A. had discovered the mistake, B. drew out the whole balance at his credit and spent the cash, and went bankrupt the same day. Can it be doubted that A. would have a claim in B.'s bankruptcy which would rank equally with all B.'s ordinary creditors?

Up to this time I have been putting cases where the recipient of the money does not receive it under an ultra vires contract. Let me now examine the position where the money is received under a contract to repay and where that contract is found to be ultra vires. That there can be no resulting proper contractual obligation is clear from the decisions of this House in Ashbury Railway Carriage and Iron Co. v. Riche (1) and Wenlock v. River Dee Co. (2) It is here that the difficulty comes in in extending the action for money had and received to such a case. For, in the first place, if that action lay it would have the effect of bringing in A., who has, ex hypothesi, no binding contract to urge against B., pari passu with the ordinary creditors of B. who have got binding contracts; and in the second, how is it possible to say that there is a fictional contract which is binding in circumstances in which a real contract is not binding? My Lords, I confess that for a person not bred to the common law to express an opinion as to the true meaning and extent of common law actions is to handle periculosæ plenum opus aleæ. But to the best of

(1) L. R. 7 H. L. 653.

(2) 10 App. Cas. 354.

my comprehension, and notwithstanding the case of Phoenix Life Assurance Co. (1), I have come to the conclusion that the action for money had and received cannot be stretched to meet the situation.

It is not, however, necessary that the claim should be one capable of being made good by action at law. It will suffice if there is an equitable remedy.

Precisely the same difficulty was felt and met in the Roman law. True, there was then no doctrine of ultra vires in the modern sense of the word. But after all the only effect of the doctrine of ultra vires is to render contracts which are ultra vires a nullity. You cannot have more than a nullity, and such a nullity was equally found in the Roman law in the case of the contracts of pupils, who were totally incapable of contracting. Now, the Roman law met the situation by recognizing that there was the super-eminent equity with which I started, and proceeded to apply it, while giving full effect to the doctrine of there being no contract. The super-eminent equity was expressed by the Roman jurists in the brocard nemo debet locupletari jactura aliena. When, therefore, the advance was made to the pupil, there was no longer, as in the case of the ordinary person, an obligation to restore - a debt taking its place along with other debts - but the pupil was bound to give up in quantum locupletior; that is to say, to give up the superfluity which he was possessing. But only a superfluity - that is to say, something which if he kept would be pure gain to him. I cite authority for what I have said:-

Dig. 13.6. "Commodati vel contra":-

"1 (Ulpian). Impuberes commodati actione non tenentur quoniam nec constitit commodatum in pupilli persona sine tutoris auctoritate, usque adeo, ut, etiamsi pubes factus dolum aut culpam admiserit, hac actione non tenetur, quia ab initio non constitit." (Cf. the doctrine that an ultra vires contract of the company cannot be ratified even by all the members.)

"3 (Ulpian). Sed mihi videtur, si locupletior pupillus factus sit, dandam utilem commodati actionem secundum divi Pii rescriptum."

(1) 2 J. & H. 441.

Dig. 26.8. "De auctoritate et consensu tutorum et curatorum":-

"5 (Ulpian). Pupillus obligari tutori eo auctore non potest. .... Sed et cum tutor mutuam pecuniam pupillo dederit vel ab eo stipuletur, non erit obligatus tutori: naturaliter tamen obligabitur in quantum locupletior factus est: nam in pupillum non tantum tutori verum cuivis actionem, in quantum locupletior factus est, dandam divus Pius rescripsit."

Pothier, the great French jurist, took the same kind of view. In his "Traité des obligations," after dealing with contracts, he goes on to consider "Des autres causes des obligations," and he puts first in this category quasi contracts. On these he comments as follows:-

"Sec. 114. Dans les contrats, c'est le consentement des parties contractantes qui produit l'obligation; dans les quasi contrats, il n'intervient aucun consentement, et c'est la loi seule ou l'équité naturelle qui produit l'obligation, en rendant obligatoire le fait d'où elle résulte."

"115. Toutes personnes, même les enfants et les insensés, qui ne sont pas capables de consentement, peuvent par le quasi contrat qui résulte du fait d'un autre, être obligées envers lui et l'obliger envers elles: car ce n'est pas le consentement qui forme ces obligations, et elles se contractent par le fait d'un autre, sans aucun fait de notre part."

I have made these citations to shew that other great systems of law have not been unable to solve the problem arising where the equity of restitution comes in contact with the doctrine of nullity of contract. Is English equity to retire defeated from the task which other systems of equity have conquered? Let us for a moment examine what the argument on the other side is. There being no contract, it is impossible, it is said, to have any obligation on the part of the society to restore what it has taken from the depositors. The only right of the depositors is a right to vindicate property; or, in other words, when you have a jus in re you can enforce it; but if the thing has so disappeared that a jus in re is no longer to be found (and this must practically always be so in the case of money), then your remedy is gone. The sole relief which equity can give is that if you can shew that

your money has paid a just debt, in that case you shall have action. This comes to this, that having got hold of property which does not belong to you, if only you are wise or lucky enough to change its form you may enjoy the proceeds unmolested. Such a plea on the face of it seems only worthy of the Pharisee who shook himself free of his natural obligations by saying Corban. In the words of technical equity it is unconscionable.

The appalling result in this very case would be that the society's shareholders having got proceeds of the depositors' money in the form of investments, so that each individual depositor is utterly unable to trace his money, are enriched to the extent of some 500 per cent. I am aware that the order under review shrinking from that result provides that when the shareholders get 20s. in the pound the rest may go to the depositors. But as to that there is to my mind no possible answer to the terse and inexorable logic of Buckley L.J. Even as it is the result is that illegitimate banking guarantees the shareholders 20s. in the pound.

But further, the whole strength of this argument lies in the idea that the jus in re represents the depositors' only right: that there can be no obligation on the other side at all. It is here that I think the importance of the action for money had and received comes in. That cannot be founded on a jus in re, for you cannot have a jus in re in currency. It shews that both an action founded on a jus in re, such as an action to get back a specific chattel, and an action for money had and received are just different forms of working out the higher equity that no one has a right to keep either property or the proceeds of property which does not belong to him.

It is the case that the common law, as I have already said, works by means of a fiction which becomes inapplicable when the money has been received under an ultra vires contract. All, therefore, that is left to it is to vindicate in forma specifica, and its forms of action fail when the thing can no longer be identified. Equity - I am now speaking of technical equity - has already found itself able, in the exercise of its auxiliary jurisdiction, as the respondents admit, to deal with the situation when the money has gone to pay a just debt. Is its action limited to that

situation? I think not. I think it can always, in the exercise of the same jurisdiction, help the common law by tracing, and can say that if the proceeds of property can be shewn to be what I have called a superfluity in the person of the recipient, then it will hold that that property is traced just as surely as if it was still in the original form. To do this is to give full effect to the doctrine of ultra vires - for the party receiving is not ordered to pay as a debt the equivalent of what he originally got, but ordered merely to surrender what he still has as a superfluity, an enrichment which, but for the original reception of the money, he would have been without.

It, therefore, in each case becomes a question of evidence. Now that the society, in the present case, has got a superfluity is obvious. The assets, shrunk as they are owing to the fall in the value of investments, are still far beyond all moneys contributed by the shareholders. But what is the measure of the superfluity? The outside creditors here were actually paid, because their claims were inconsiderable. In my judgment, they were rightly paid, under the circumstances of the actual case, and had they not been, they would stand, after expenses of the liquidation, as first in the ranking. For, in a question with shareholders, we are told that they were debts of a character which the directors had a power to make. And in a question with the depositors, they were incurred in a business, illegally carried on no doubt, as for the society, but yet one which the depositors had been willing that the directors should carry on. Now, what is the position of the shareholders? I take it to be clear that the shareholders are not creditors of the society, but are merely the persons who are entitled on a winding-up to share the assets of the society among them. This is, I think, quite settled by the decision of your Lordships' House in the case of Walton v. Edge (1), where an unadvanced member who had given notice of withdrawal was held entitled in the liquidation to be paid in full before his fellow unadvanced members who had given no such notice.

The position, therefore, comes to this. The shareholders are entitled to share among them the proper assets of the society.

(1) 10 App. Cas. 33.

But they are not entitled to be made rich at the expense of the depositors, by swelling the assets of the society by means of the proceeds of moneys which they themselves never contributed. There is a mixed mass of assets as to the precise composition of which as to source it is impossible to pronounce. Had the assets never shrunk there would be enough to pay both in full. But they have shrunk, and some one must bear the loss.

Now, there are certain situations, of which Hallett's Case (1) is an example, where the one sharing party has a right to say to the other, It is not in your mouth to say that the assets are not all mine, to the extent of my full claim. I do not think this is one of those positions. Neither party is here in any fiduciary position to the other. It is a mere question of evidence. What has happened is truly this. The directors of the society have taken the moneys of the shareholders which they had a right to receive, and the moneys of the depositors which they had not, and mixed them so that they cannot be discriminated from each other, and have put them, so to speak, in the society's strong-box, where the mixed mass is found by the liquidator. It is here, and here only, that I differ from my noble and learned friend, Lord Moulton, in his dissenting judgment in the Court below - a judgment which really follows the extremely able judgment of Bristowe, V.-C. of the County Palatine Court of Lancaster, in the Guardian Case sub nomine Crace-Calvert's Case. (2) There being no direct evidence, the only equitable means is to let each party bear the shrinkage proportionately to the amount originally contributed, and this is the judgment of my noble and learned friend on the woolsack, in which I concur.

I wish to remark, in conclusion, that it seems to me that this line of reasoning gives full effect to the doctrine of ultra vires, even in the somewhat rigid form in which it has been adopted by your Lordships' House in Ashbury Railway Carriage and Iron Co. v. Riche. (3) To go further, as the respondents' argument seeks to do, is, I think, to run the doctrine mad. It was a doctrine which was introduced in order to let societies keep their own money, not to appropriate other people's.

(1) 13 Ch D. 696.

(2) 23 Ch. D. at p. 444, n.; nom. Calvert's ca. on appeal, at p. 445.

(3) L. R. 7 H. L. 653.

I have dealt with the whole matter rather on principle than on authority. But I ought to say that I concur with the Lord Chancellor in thinking that the case of the Blackburn Society in 29 Ch.D.902 was wrongly decided, and for the reason he gives; and that I agree with Fletcher Moulton L.J. in thinking that the decision of this House in Murray v. Scott (1), being the second question in the Guardian Case (2), is really an affirmation of the principle that there may be an equity when there is no contract, for the contract under which the 30l. shares were issued before the amendment of rule 32 was made was null and void, the rule not having then been certified by the certifying barrister.

LORD PARKER OF WADDINGTON. My Lords, the Birkbeck Permanent Benefit Building Society is an association formed under and regulated by the statute 6 & 7 Will. 4, c. 32. It is not incorporated but acts through its directors, and acquires and holds property in the names of the trustees. Its objects are defined by its rules and do not, and, indeed, having regard to the statute, could not properly, include the carrying on of the business of bankers. It was, therefore, ultra vires for the society to carry on a banking business. Nevertheless for many years prior to its liquidation its directors and agents, affecting to act on its behalf, had carried on an extensive banking business popularly known as the Birkbeck Bank, and in the course of such business had received many millions of pounds on deposit or current accounts. Moneys so received are in contemplation of law borrowed moneys, and although the society had under its rules power to borrow for the purposes of its legitimate business, it, of course, had no power to borrow for purposes which were ultra vires. It is reasonably clear, having regard to the documents in evidence, that all those persons from whom the directors and agents of the society received money on deposit or current account must have been aware that the borrowing thus constituted was borrowing in the normal course and for the purposes of a banking business and not for the legitimate purposes of the society. None of such persons, therefore, can rely on the borrowing powers conferred by the society's rules.

(1) 9 App. Cas. 519.

(2) 23 Ch. D. 440.

It has been settled in the cases of National Permanent Benefit Building Society (1), Blackburn and District Benefit Building Society v. Cunliffe Brooks & Co. (2), and Wenlock v. River Dee Co. (3) that an ultra vires borrowing by persons affecting to act on behalf of a company or other statutory association does not give rise to any indebtedness either at law or in equity on she part of such company or association. It is not, therefore, open to the House to hold that in such a case the lender has an action against the company or association for money had and received. To do so would in effect validate the transaction so far as it embodied a contract to repay the money lent. The implied promise on which the action for money had and received is based would be precisely that promise which the company or association could not lawfully make. At the same time there seems to be nothing in those decisions which would bind the House, if they were considering whether an action would lie in law or in equity to recover money paid under any ultra vires contract which was not a contract of borrowing; for example, money paid to a company or association for the purchase of land which the company had no power to sell and the sale of which was therefore void, or money paid to the company or association by way of subscription for shares which it had no power to issue. In such cases the implied promise on which the action for money had and received depends would form no part of, but would be merely collateral to, the ultra vires contract. It will therefore be well to postpone consideration of such cases as the Phoenix Life Assurance Co. (4) and Flood v. Irish Provident Assurance Co. (5) till the question actually arises.

Accepting the principle that no action or suit lies at law or in equity to recover money lent to a company or association which has no power to borrow, the question remains whether the lender has any other remedies. On this point the result of the authorities may be stated as follows: First, it appears to be well settled that if the borrowed money be applied in paying off legitimate indebtedness of the company or association (whether

(1) L. R. 5 Ch. 309.

(2) 22 Ch. D. 61; 9 App. Cas. 857.

(3) 10 App. Cas. 354.

(4) 2 J. & H. 441.

(5) 46 Ir. L. T. 214.

the indebtedness be incurred before or after the money was borrowed), the lenders are entitled to rank as creditors of the company or association to the extent to which the money has been so applied. There appears to be some doubt as to whether this result is arrived at by treating the contract of loan as validated to the extent to which the borrowed money is so applied, on the ground that to this extent there is no increase in the indebtedness of the company or association, in which case, if the contract of loan involves a security for the money borrowed, the security would be validated to a like extent; or whether the better view is that the lenders are subrogated to the rights of the legitimate creditors who have been paid off. See the case of Blackburn and District Benefit Building Society v. Cunliffe Brooks & Co. (1), the case of Wenlock v. River Dee Co. (2), and the case of Wrexham, Mold and Connah's Quay Ry. Co. (3) It is still open to your Lordships' House to adopt either view, should the question actually come up for determination.

Secondly, it appears to be also well settled that the lender in an ultra vires loan transaction has a right to what is known as a tracing order. A company or other statutory association cannot by itself or through an agent be party to an ultra vires act. If its directors or agents affecting to act on its behalf borrow money which it has no power to borrow, the money borrowed is in their hands the property of the lender.

At law, therefore, the lender can recover the money, so long as he can identify it, and even if it has been employed in purchasing property, there may be cases in which, by ratifying the action of those who have so employed it, he may recover the property purchased. Equity, however, treated the matter from a different standpoint. It considered that the relationship between the directors or agents and the lender was a fiduciary relationship, and that the money in their hands was for all practical purposes trust money. Starting from a personal equity, based on the consideration that it would be unconscionable for any one who could not plead purchase for value without notice to retain an advantage derived from the

(1) 22 Ch. D. 61; 9 App. Cas. 857.

(2) 10 App. Cas. 354.

(3) [1898] 2 Ch. 663; [1899] 1 Ch. 440.

misapplication of trust money, it ended, as was so often the case, in creating what were in effect rights of property, though not recognized as such by the common law.

The principle on which, and the extent to which, trust money can be followed in equity is discussed at length in In re Hallett's Estate (1) by Sir George Jessel. He gives two instances. First, he supposes the case of property being purchased by means of the trust money alone. In such a case the beneficiary may either take the property itself or claim a lien on it for the amount of the money expended in the purchase. Secondly, he supposes the case of the purchase having been made partly with the trust money and partly with money of the trustee. In such a case the beneficiary can only claim a charge on the property for the amount of the trust money expended in the purchase. The trustee is precluded by his own misconduct from asserting any interest in the property until such amount has been refunded. By the actual decision in the case, this principle was held applicable when the trust money had been paid into the trustee's banking account. I will add two further illustrations which have some bearing on the present case. Suppose the property is acquired by means of money, part of which belongs to one owner and part to another, the purchaser being in a fiduciary relationship to both. Clearly each owner has an equal equity. Each is entitled to a charge on the property for his own money, and neither can claim priority over the other. It follows that their charges must rank pari passu according to their respective amounts. Further, I think that as against the fiduciary agent they could by agreement claim to take the property itself, in which case they would become tenants in common in shares proportioned to amounts for which either could claim a charge. Suppose, again, that the fiduciary agent parts with the money to a third party who cannot plead purchase for value without notice, and that the third party invests it with money of his own in the purchase of property. If the third party had notice that the money was held in a fiduciary capacity, he would be in exactly the same position as the fiduciary agent, and could not, therefore, assert any interest in the property until

(1) 13 Ch. D. 696.

the money misapplied had been refunded. But if he had no such notice this would not be the case. There would on his part be no misconduct at all. On the other hand, I cannot at present see why he should have any priority as against the property over the owner of the money which had, in fact, been misapplied.

It remains to mention the case of In re Guardian Permanent Benefit Building Society (Crace-Calvert's Case) (1), which has in the present case been followed by Neville J. and the Court of Appeal. It is worth while to call attention to the facts of this case, which differ in some important particulars from the facts of the case your Lordships have to decide. There the society was, like the society in the present case, formed under and regulated by the Act of 6 & 7 Will. 4, c. 32, and, according to the rules, had an unlimited power of borrowing money when required for its legitimate purposes. The Court of Appeal first decided that such an unlimited power to borrow was void, so that the society had in effect no power to borrow at all, a decision subsequently reversed in this House. (2)

The directors of the society had affected to borrow money from various lenders, but no lender was able to prove that his money had gone in discharge of any legitimate indebtedness of the society, or to trace his money into any particular asset of the society. Part of it had been applied in paying off loans previously contracted and the remainder, together with the loans so paid off, had in some way or other been used for the legitimate purposes of the society and found its way into the society's assets. The society was in liquidation, and it was treated by Sir George Jessel as fully established that its assets had been increased by, and to a large though undefined extent represented, the borrowed moneys. He therefore held that after paying thereout the costs of the liquidation and all debts and everything to which the members were entitled by way of return of capital interest and bonus, the surplus ought, "on the plainest principles of equity," to be returned to the people who advanced the money.

No doubt at first sight it is difficult to be certain as to the

(1) 23 Ch. D. 440.

(2) 9 App. Cas. 519.

principles of equity to which Sir George Jessel referred. But I think the difficulty may be solved by disentangling the equity itself from the directions by means of which the Court endeavoured to give effect to it. The equity lay in this, that it would be unconscionable for the society to retain the amount by which its assets had been increased by, and in fact still represented, the borrowed money. It would be inequitable for the society to take advantage of the misapplication by its agents of money belonging to others and held by them in a fiduciary capacity. In other words, it was the same equity as that on which a tracing order is based. I cannot, however, disguise from myself that the directions given by the Court with the object of working out this equity are open to considerable criticism, at any rate if they be treated as proper to be given in every case and not depending on the particular facts then before the Court.

Suppose that when the moneys were advanced the assets of the society were insufficient to pay the creditors of the society in full, or to pay anything to the contributories, but that, by means of the ultra vires loans, such assets had at the date of the winding-up been so increased that both creditors and contributories could be paid in full, the creditors and contributories remaining the same. Would it be in accordance with equity and good conscience that these creditors or contributories should claim to be paid in full? I cannot think that it would. It seems to me that in equity and good conscience the amount of increase in the assets due to the ultra vires borrowings ought to be restored to the lenders. Neither creditors nor contributories ought in equity to be allowed to retain an advantage derived by reason of the misapplication by the society's agents of moneys which were in the position of trust moneys. Counsel sought to explain the Crace-Calvert Case (1) in the following way. It was clear, they put it, that the money of the ultra vires lenders, or at any rate some part of it (the exact amount being unascertained), was in the mass of assets in the hands of the liquidator. If the legal claims of all persons having any possible claim on the assets were first satisfied, what then remained would clearly

(1) 23 Ch. D. 445.

represent the borrowed money. This money would, in fact, be identified as the lenders' money not by any positive evidence but by a process of exclusion. This explanation fails in at least one important respect. The legal claims of the society's members were not confined to payment of the principal of their shares with interest and bonus. The members were legally entitled to all the assets, except such part thereof as the lenders could identify as belonging in equity to them, subject, of course, to the claims of the society's creditors. Logically, therefore, it would be impossible to arrive at what in equity belonged to the lenders by first satisfying the legal claims of the creditors and members. It was said that in the Crace-Calvert Case (1) there were admittedly no profits; but why, if this be assumed, should the members be entitled to interest or bonus? It seems to me that the actual directions given in that case must be considered merely as a rough and ready way of ascertaining in the particular case before the Court the extent to which the assets had been increased by and represented this borrowed money, and not as capable of logical justification.

If the Court had, as it might have done, directed an inquiry on the point, material facts not before the Court might have been disclosed. It might have been shewn that the debts due to the ordinary creditors had really been incurred in preserving the bulk of assets in which the shareholders and ultra vires lenders were alike interested, in which case it might be equitable that these debts should be first paid out of the fund. On the other hand, it might have been shewn that these debts were incurred before the ultra vires borrowing, in which case I cannot at present see how the creditors could claim to be in a better position because of the ultra vires borrowing. And again, the true facts with regard to profits might have come out. The answer to the inquiry would have thus depended largely on the facts put in evidence. One question of principle only would, I think, have been involved. Could the society be considered as having itself been a party to any breach of fiduciary duty so as to preclude it from asserting any interest in the assets, until the ultra vires lenders had been fully repaid thereout? Or was the society in the

(1) 23 Ch. D. 445.

position of a person who had innocently received from a fiduciary agent money belonging to another and invested it with money of his own? My present opinion is that the first of these questions should be answered in the negative and the latter in the affirmative, in which case the society and ultra vires lenders would, as against the assets, rank pari passu and without any priority the one over the other. It is, however, unnecessary to decide this point, because the facts of the Crace-Calvert Case (1) are distinguishable from the facts of the case now before your Lordships.

My Lords, it is important to observe that in the Crace-Calvert Case (1) the money was borrowed for and applied to the legitimate purposes of the society, the loan being ultra vires because the society, according to the Court of Appeal, had no power to borrow at all even for its legitimate purposes. In the present case the society had power to borrow for its legitimate purposes, and the borrowing in question is ultra vires only because, to the knowledge of the lenders, it was for a purpose not authorized by the society's constitution. This distinction is, I think, of considerable importance. In the first place, if the agents of a society, having power to borrow, borrow money intending, to the knowledge of the lenders, to apply it for an illegitimate purpose, but in fact apply it for the legitimate purposes of the society, there seems no reason, either in law or in equity, why the loan to the extent to which it is so utilized should not be treated as valid. In the next place, if the money be in fact utilized for the illegitimate purpose for which it is borrowed, say the carrying on of an ultra vires banking business, to whom does this business belong? Whose are the assets and whose are the liabilities? The society cannot be a party to any transaction or series of transactions not within its powers. The society, therefore, is neither entitled to the assets nor subject to the liabilities acquired or incurred in the business. No doubt, if the business is a financial success, the directors or agents who carried it on would have to account to the society for the profits or surplus assets, for equity will not allow a director or other agent to make a profit out of his directorship or agency. It is quite

(1) 23 Ch. D. 445.

clear, however, that the society could not be entitled to anything except the profits or surplus. It could not claim to be entitled to the assets of the business, and exempt from its liabilities on any plea of ultra vires, and for this purpose the borrowed moneys would be a liability of the business.

But suppose that the illegitimate business is carried on in part only with the borrowed money and in part with money belonging to the society. Even in this case the business will not belong to the society, nor will the society be entitled to its assets or subject to its liabilities, any more than it would have been the case if the only money employed in the business had been the borrowed money. Further, the society's right in equity to take the assets subject to the liabilities if the business were successful would be similarly unaffected. But the fact that the society's own money had been employed by its directors or agents in an ultra vires business would entitle the society to an additional equity. It would be entitled, on the principles of In re Hallett's Estate (1), to follow the money as long as it or any property acquired by its means could be identified. In other words it would have exactly the same equities in this respect as the ultra vires lender, including the equity which in my opinion underlies the Crace-Calvert Case. (2) It follows from this that it would be entitled to take or claim a lien on any assets of the business acquired exclusively with its money, and to a lien or charge on any asset or mass of assets acquired partly only with its money, subject nevertheless to this, that if the ultra vires lender could establish a similar lien or charge, the two liens or charges would rank pari passu. Moreover, this right on the part of the society would not be affected by the question whether the business had been carried on at a profit or at a loss.

My Lords, the present case is not quite so simple as the one I have supposed for this reason. The legitimate business of the society included the making of loans to members to enable them to acquire houses or lands. Many such loans were, in fact, made, but it is impossible to say how far the money lent was the money of the society or the money of the ultra vires lenders. The question is whether these facts in any way affect the situation.

(1) 13 Ch. D. 696.

(2) 23 Ch. D. 445.

Of course, if the society could trace its own money into any of these loans the security for the loan would undoubtedly belong to the society, but no such tracing appears to be possible. And again, if any ultra vires lender could trace his money into any of these loans, he would not only be entitled to the security, but might claim to be a secured creditor of the society on the ground that the ultra vires borrowing was validated by the use of the money for purposes for which there was a valid borrowing power in the society, but no ultra vires lender can so trace his money. There does not appear to be any presumption of law as to whose money was utilized for the purposes of those loans. Moreover, the directors treated the loans in question as part of the banking business, and included them in the balance-sheet which was posted up in the bank premises and supplied to customers who asked for it. Under these circumstances I think the fact that those loans were within the legitimate purposes of the society cannot affect the situation in any way.

The case, therefore, presents itself in this way. Here is a mass of assets arising in the course of an ultra vires business carried on by the directors and agents of the society. There are, on the other hand, liabilities, how or for what purpose incurred is not in evidence. No one claims any interest in the assets except the ultra vires lenders, the members of the society and the creditors, in respect of the liabilities to which I have referred. The ultra vires lenders and the members are willing that these liabilities and the costs of the liquidation, which are in effect costs of administering the fund, shall be first paid. If this is done, what is left may be taken to represent in part the moneys of the ultra vires lenders and in part the moneys of the society wrongfully employed in the business. The equities of the ultra vires lenders and of the society are equal, and it follows that the remainder of the assets ought to be divided between the ultra vires lenders and the society rateably, according to the capital amount contributed by such lenders and the society respectively. This mode of distribution gives effect to all the equities of the parties, and there is in it nothing necessarily inconsistent with the decision in the Crace-Calvert Case (1), for

(1) 23 Ch. D. 445.

there the business actually carried on was intra vires, and thus belonged to the society, except in so far as the ultra vires lenders could establish any equitable claim. It depends solely on the fact that the assets for distribution being assets not of a legitimate but an ultra vires business are not the assets of the society, except in so far as they can substantiate some equity to them, and that such equity as they have can arise only from an application of the same principles to which the ultra vires lenders are themselves entitled to have recourse.

My Lords, there are two further points which arose in the course of the argument before your Lordships' House and which I desire to mention. In the first place, there is the decision of the Court of Appeal in the case of Blackburn and District Benefit Building Society v. Cunliffe Brooks & Co. (1) Speaking for myself, I am by no means satisfied that a statutory company or association whose agents have borrowed money on its behalf, though it has no power to borrow, can in no circumstances repay the loan. It may well be that if the money does not come into the coffers of such company or association, or, if so coming, it is subsequently lost, there may be no power of repayment. But if the money can be traced, or if the circumstances are such that if the society were in liquidation there would be an equity such as that to which effect was given in the Crace-Calvert Case (2), why should not the company or association repay the money so far as it is represented by assets in their hands? As at present advised, I see no reason why it should not; nor, indeed, am I satisfied that the equity to which effect is being given in this case is necessarily confined to a liquidation. It is, however, unnecessary for your Lordships to decide these points.

In the second place there is Scott's Case (3), which constitutes the basis of Fletcher Moulton L.J.'s dissenting judgment in the present case. With this judgment I find myself, in all respects except one, in substantial agreement. I agree that so far as the distributable assets represent the money of the ultra vires lenders they are not in equity the assets of the society. The distributable

(1) 29 Ch. D. 902.

(2) 23 Ch. D. 445.

(3) 23 Ch. D. 453; 9 App. Cas. 523.

assets must be purged to this extent before it can be ascertained what in equity belongs to the society. The point on which I differ is this. Whereas Fletcher Moulton L.J. was of opinion that the amount to which the assets must be purged is the amount of the moneys lent, I think the true view is that the amount to which the assets must be purged is the amount only to which they have been increased by and still represent the borrowed money. It is only in this connection that Scott's Case (1) requires consideration. My Lords, in Scott's Case (1) the society had issued 30l. preference shares which they had no power to issue, and received from the subscribers the full amount thereof. The society had subsequently obtained power to issue 1l. preference shares and had accepted a surrender of each 30l. preference share in consideration of the issue to the holder of thirty 1l. preference shares. It was held that though the latter transaction could not stand at law, yet the society were in equity bound to treat the subscribers either as holders of validly issued 1l. preference shares or as creditors for the amounts they had subscribed. It is clear that in either case they would, according to the actual decision in the Crace-Calvert Case (2), be paid before the ultra vires lenders got anything, so that the equity was not the Crace-Calvert equity.

The equity is, in the judgments of Sir George Jessel M.R. and Cotton and Bowen L.JJ., based upon the misrepresentation of the society's agent in that they had printed in the rules of the society a clause expressly empowering the issue of 30l. preference shares, though such clause had been disallowed by the barrister, and therefore did not in fact form part of such rules. The decision was affirmed by this House, Sir George Jessel's reasons being approved by Lord Blackburn. Now, undoubtedly if the agents of a society affect to borrow money in the course of a banking business, there is not only an express representation of authority, but an implied representation of (1.) a power to borrow, and (2.) a power to borrow for banking purposes, for without such powers the authority could not be given. Yet the same judges had just decided the Crace-Calvert Case (2), and clearly did not intend to go back on their decision.

(1) 23 Ch. D. 453; 9 App. Cas. 523.

(2) 23 Ch. D. 445.

I can hardly think they intended to base their decision on the particular manner in which the misrepresentation had been made. It seems to follow, therefore, that in the case of an ultra vires borrowing, the nature of the transaction precluding, as it did, the creation of a debt at law or in equity, no such equity could, in their opinion, arise as that which they held to arise in Scott's Case (1), which was an ultra vires issue of shares. I doubt, therefore, whether Scott's Case (1) can be relied on as any authority in the present case, and if so relied on it is contrary to the Crace-Calvert Case (2) and other cases which decide that no debt can arise out of an ultra vires borrowing. It is to be observed that Cotton L.J. refers to the equity as arising not only if the ultra vires transaction is brought about by the misrepresentation, but if it be brought about by "the carelessness or otherwise" of the company's agents. In other words, he seems to me to be dealing with it simply as a case of total failure of consideration from whatever cause. I am not satisfied that total failure of consideration would not have afforded ample ground for the actual decision, and, as I have already said, there is nothing to preclude this House from deciding that, under the circumstances of Scott's Case (1), an action lay at law for money had and received.

My Lords, the appeal having in part succeeded and in part failed, I think the reasonable course would be that the costs of all parties should be treated as costs of the liquidation and paid out of the assets.

LORD SUMNER. My Lords, I agree that the whole banking business of the Birkbeck Society was ultra vires; that the banking contracts of loan, which ostensibly arose in the course of it, were void; that the funds, procured alike from shareholders investing in the building society business and the customers of the banking business, have been inextricably confused and have been indiscriminately employed in acquiring assets, which cannot now be attributed to the one branch rather than to the other; and that everybody concerned - customers, shareholders, and officers - must all be taken to have known of the legal invalidity both of the acquisition of the depositors' funds and of the

(1) 23 Ch. D. 453; 9 App. Cas. 523.

(2) 23 Ch. D. 445.

disposition of any funds in a banking business. Probably very few of them knew or suspected it in fact, but the knowledge that a banking business was being carried on was common to all, and all had notice of the rules. All must equally abide by the legal consequences of this invalidity.

The depositors' case has been put, first of all, as consisting in a right enforceable in a common law action. It is said that they paid their money under a mistake of fact, or for a consideration that has wholly failed, or that it has been had and received by the society to their use. My Lords, in my opinion no such actions could succeed. To hold otherwise would be indirectly to sanction an ultra vires borrowing. All these causes of action are common species of the genus assumpsit. All now rest, and long have rested, upon a notional or imputed promise to repay. The law cannot de jure impute promises to repay, whether for money had and received or otherwise, which, if made de facto, it would inexorably avoid.

To the other difficulties of such claims I will allude shortly. There was no mistake of fact. The facts were fully known so far as was material. The rules and objects of the society were accessible to all. The only mistake made was a mistake as to the law, or that mistake of conduct to which all of us are prone, of doing as others do and chancing the law.

There was no failure of consideration. As Bowen L.J. says in the Guardian Case (1), "Those who deal with a society which professes to have power to borrow have equal means of knowledge with the society itself of the statutory powers of the company; they are put, so to speak, upon inquiry whether the company really can borrow validly or not, and if they choose to lend their money to a company which cannot properly borrow it cannot be said there is a failure of consideration. The company has got their money, it is true, but they must be taken to have known what they bought, and to have been willing to pay their money on the chance."

Further, the depositors' money was not had and received by the society, but by its officers, and receipt is an essential: Prince v. Oriental Bank Corporation. (2) If it was ultra vires for the

(1) 23 Ch. D. at p. 470.

(2) (1878) 3 App. Cas. 325.

society to take customers' accounts, that is, in the eye of the law, to borrow the money on its promise to repay, it was ultra vires for it to authorize its officers to do so on its behalf. The money - cheques, bills, and so forth - has no doubt reached the society's coffers, and thereafter has been dealt with as the depositors were willing and intended that it should be dealt with, and, so far as has appeared in this case, the officers of the society are not now chargeable. The society has the proceeds, or rather the liquidator has them, in that sense of possession which is necessary to found "tracing orders" and otherwise for the purpose of the winding-up, but it has not got them and there is no receipt of them in the sense which is necessary to raise the implication of a promise to repay that would bind the society.

In these straits, Lord Mansfield's celebrated account of the action of money had and received in Moses v. Macferlan (1) was of course relied upon. It was said that for any one to keep the depositors' money as against them would be unconscientious, while that they should get it back would be eminently ex æquo et bono, though it appeared also that conscience had nothing to say against payment of the depositors in full at the expense of the shareholders, though all alike must be deemed cognizant of the invalidity of the society's banking business. Burges and Stock's Case in Phoenix Life Assurance Company's Liquidation (2), which was relied on, is irrelevant if treated as a case of an intra vires borrowing of the amounts of the premiums in question, which seems to have been the ratio decidendi of Wood V.-C. If the decision is supposed to be that in every case where money is paid under a contract which proves to be ultra vires it may be recovered as upon a consideration that has wholly failed, I think it goes too far, for the reasons I have already given. There may have been special facts to justify such an opinion in that case, though I think not, for the effect of it must in any view have been to bind the society in fact to a contract which in law was not binding at all. The other cases cited seem to me insufficient to support the appellants' claim to any common law right. The action for money had and received cannot now be extended beyond the principles illustrated in the decided cases, and

(1) 2 Burr. 1005.

(2) 2 J. & H. 441.

although it is hard to reduce to one common formula the conditions under which the law will imply a promise to repay money received to the plaintiff's use, I think it is clear that no authority extends them far enough to help the appellants now.

Resort was then had to equity, and, as I understood it, the argument was that the action for money had and received was founded on equity and good conscience, and imported a head of equity (apart altogether from its possibly too limited application at law), namely, that whenever it is ex æquo et bono for A. to repay money which he has received from B., and would be against conscience for A. to keep it, then B. has an equity to have A. decreed to repay it. For this again Lord Mansfield's authority in the same case was invoked.

My Lords, I cannot but think that Lord Mansfield's language has been completely misunderstood. Historically, the action for money had and received was not devised by the Court of Chancery, nor was it applied there either in form or in substance. It was a form of assumpsit, already old in Lord Mansfield's time, and his own citation of earlier actions of this sort should be enough to shew, if that were necessary, that he never thought otherwise. It was said to be a "liberal" action in that it was attended by a minimum of formality, and was elastic and readily capable of being adapted to new circumstances. The action has been described as "liberal" because "the party waives all torts, trespasses, and damages." (1) In and after Lord Mansfield's time its liberality in point of practice is shewn by the fact that the plaintiff declared with a minimum of particulars and the defendant pleaded the general issue, under which he could prove almost anything (see 2 Williams' Saunders, 120, Notes to Chandler v. Vilett; Orton v. Butler (2); Owen v. Challis (3)). No doubt it gave scope (at least in days when reported cases were less multitudinous than now) for decisions to meet what is called the "justice of the case." These features attracted Lord Mansfield, chafing already at the rigidity of the older forms of action, and emulous no doubt of the adaptability and growth which characterized the doctrines of equity in his time. He, and Buller J., spoke of the action in

(1) Anon. (1772) Lofft, 320.

(2) (1822) 5 B. & Ald. 652.

(3) (1848) 17 L. J. (C.P.) 266.

somewhat varying terms from time to time (see Weston v. Downes (1); Longchamp v. Kenny (2); Sadler v. Evans (3); Straton v. Rastall (4)). Lord Mansfield, who in Clarke v. Shee (5) merely described the action as "a liberal action in the nature of a bill in equity," in Towers v. Barrett (6) says it is "founded on principles of eternal justice." In Straton v. Rastall (4) Buller J. says that "Of late years this Court has very properly extended the action for money had and received; it is founded on principles of justice, and I do not wish to restrain it in any respect. But it must be remembered that it was extended on the principle of its being considered like a bill in equity. And, therefore, in order to recover money in this form of action, the party must show that he has equity and conscience on his side, and that he could recover it in a Court of Equity." But the reported cases do not shew how, if at all, this obligation was enforced. I think it is evident that Lord Mansfield did not conceive himself to be deciding that this action was one in which the Courts of common law administered "an equity" in the sense in which it was understood in the Court of Chancery (see observations of Farwell L.J. in Baylis v. Bishop of London (7)), and the cases actually decided shew that the description of the action as being founded in the æquum et bonum is very far from being precise. Even the decision in Moses v. Macferlan (8), which has since been dissented from, for some time unsettled the law (see Smith's Leading Cases, Notes to Marriot v. Hampton (9)), and this last-mentioned case is one which illustrates the proposition that money is not thus recoverable in all cases where it is unconscientious for the defendant to retain it, for no one could doubt that Hampton's retention of the money in that case was very like sharp practice. Crockford v. Winter (10) and Martin v. Morgan (11) are instances, on the other hand, which shew that Lord Ellenborough and Dallas C.J. respectively understood that in that form of action the Court strove to do what was just and not to administer equity. With whatever complacency the Court

(1) (1778) 1 Doug. 23.

(2) (1779) 1 Doug. 137.

(3) (1766) 4 Burr. 1984.

(4) (1788) 2 T. R. 366.

(5) (1774) Cowp. 197.

(6) (1786) 1 T. R. 133.

(7) [1913] 1 Ch. 127.

(8) 2 Burr. 1005.

(9) (1797) 7 T. R. 269; 2 Sm. L. C. (11th ed.) 421.

(10) (1807) 1 Camp. 124.

(11) (1819) 1 Brod. & B. 289.

of King's Bench might regard the views expressed in Moses v. Macferlan (1), protests were very early made against it in the Common Pleas (Johnson v. Johnson (2)), and in Miller v. Atlee (3) Pollock C.B. bluntly declared the notion that the action for money had and received was an equitable action to be "exploded," and Parke B., sitting by him, did not say him nay. This episode is reported only in 13 Jurist, but it smacks of truth. Since, then, allusions have been made from time to time to the connection between this cause of action and equity or the æquum et bonum (though they are not precisely the same things), for example, in Smith v. Jones (4), Tregoning v. Attenborough (5), Rogers v. Ingham (6), Phillips v. London School Board (7), and Lodge v. National Union Investment Company (8), but I take them all to be merely descriptive of the undoubtedly wide scope of this essentially common law action. There is now no ground left for suggesting as a recognizable "equity" the right to recover money in personam merely because it would be the right and fair thing that it should be refunded to the payer.

The appellants next submitted that even though the money of the depositors might not be repayable in full, the order made by Neville J., for convenience called the Guardian order (9), was inapplicable in the present case, and, indeed, that the judgment of the Court of Appeal in Mrs. Crace-Calvert's case in the Guardian Permanent Benefit Building Society's Liquidation (9) was wrong. My Lords, I think that in any case that order is not applicable in the case now before your Lordships. There the money was borrowed by the directors, and it does not appear that the shareholders as a body were in fact cognizant of the borrowing. Here the fact that a banking business was being carried on was a matter of notoriety and even of pride. There the money, when received, was applied to the legitimate purposes of a building society, and the only business carried on was that of a building society; here the money was applied on a very large scale for the purposes of the ultra vires banking branch;

(1) 2 Burr. 1005.

(2) (1802) 3 Bos. & P. 162, at p. 169.

(3) (1849) 3 Ex. 799; 13 Jur. 431.

(4) (1842) 1 Dowl. P. C. (N.S.) 526.

(5) (1830) 7 Bing. 97.

(6) (1876) 3 Ch. D. 351.

(7) [1898] 2 Q. B. 447, at p. 453.

(8) [1907] 1 Ch. 300, at p. 312.

(9) 23 Ch. D. 440.

here, further, the shareholders' money, paid in respect of shares they held, was very largely applied in the same way. For the reasons pointed out by my noble and learned friend, Lord Parker of Waddington, I think that this substantially and sufficiently differentiates Mrs. Crace-Calvert's case.

My Lords, the majority of the Court of Appeal, while deeming themselves bound to follow and apply the Guardian Case (1), did not conceal their doubts of its correctness. Should that case come before your Lordships' House directly for review, as it clearly is open to review, I confess that I should be slow in arriving at the conclusion that I could not assent to the decision of so strong a Court. In the Guardian Case (1) assets were found, to which no doubt Mrs. Calvert's money had contributed, but which were employed in the business legitimately carried on by the society. Prima facie they were the society's assets, and out of them the unadvanced shareholders were by the rules entitled to be repaid the amount of their shares severally. So much at least was their legal right. No one could shew what particular assets were the fruits of the borrowed money. Against this legal right, who had an equity that should prevail? Not at any rate the ultra vires lenders, who had no legal right at all, who had certainly lent their money in order that it might be invested in the building society business, and who also, in the view of the Court, which I think was wrong, were to be deemed in law to have lent on the chance (doubtless, as they thought, without risk) that all would be well and that the contract would be performed. I think the order made was rightly described by Cozens-Hardy M.R. as a rough tracing order. A ruthless logic would have given all to the shareholders, principal, interest, bonus, and surplus, but this would have held the shareholders entitled to approbate the gains, while bound in law to reprobate the borrowing by which they were acquired. It is plain that Jessel M.R. thought that, by giving what was given to the shareholders, the Court had eliminated all but the proceeds of the ultra vires borrowing, and I should hesitate to reject this view, if the only alternative were to find the shareholders entitled to everything, though I recognize that it was not more than approximately exact.

(1) 23 Ch. D. 440.

My Lords, I think the present case must be decided upon equitable principles upon which there is no direct authority. Of equitable principles I hesitate to speak confidently, for did not Jessel M.R. say that the principle of the Guardian order, which has given so much trouble, was one of the plainest of them? Yet, perhaps I may say of myself, what Thesiger L.J. said of Bramwell B. in Hallett's Case (1), that "even to the mind of a common law judge the principles of law which have been applied now for some time in equity have been made perfectly plain." What ought to be done I think is clear; the only difficulty is how to describe the principle and how to affiliate it to other legal or equitable rules.

The question is one of administration. The liquidator, an officer of the Court, who has to discharge himself of the assets that have come to his hands, asks for directions, and, after hearing all parties concerned, the Court has the right and the duty to direct him how to distribute all the assets. No part of them can remain undistributed as res nullius. No one has ventured to argue before your Lordships that the shareholders take everything, to the exclusion of the depositors, and so make a huge windfall. In my opinion, if precedent fails, the most just distribution of the whole must be directed, so only that no recognized rule of law or equity be disregarded. In this case neither the shareholders nor the depositors have the better equity; the money of each has, with the consent of all, been indiscriminately applied in acquiring assets beyond as well as within the society's powers, the former in much the larger measure. The claims of each class are equal, and, I think, for the present purpose identical.

Analogous cases have been decided with regard to chattels. They differ, no doubt, because of the fact that the property in the chattels remained unchanged, though identification and even identity of the subject-matter of the property failed, whereas here, except as to currency, and even there only in a restricted sense, the term property, as we use that term of chattels, does not apply, and, at least as far as intention could do it, both depositors and shareholders had given up the right to call the money or its

(1) 13 Ch. D., at p. 722.

proceeds their own, and had taken instead personal claims on the society. In Buckley v. Gross (1), where tallow in burning warehouses melted and ran down a sewer, and a stranger collected it, Blackburn J. says: "The tallow of the different owners was indeed mixed up into a molten mass, so that it might be difficult to apportion it among them; but I dissent from the doctrine that, because the property of different persons is confused together, that entitles a third party to steal it with impunity. Probably the legal effect of such a mixture would be to make the owners tenants in common in equal portions of the mass." Again, Spence v. Union Marine Insurance Co. (2) is a case where cotton in bales belonging to different consignees was so damaged by sea perils that it arrived with marks obliterated and otherwise injured, and after delivery to the respective consignees of all that could be specifically identified as theirs, a mass of unidentifiable damaged cotton remained. There, as here, no doubt one bale, in fact, represented A.'s money and another B.'s; there, as here, all were depreciated, but probably not each in the same degree, but no one could say which bale was any particular person's property, or who, therefore, should bear the greater and who the less depreciation. The goods could not be treated as bona vacantia, they could not fall into the hands of the first person who reduced them into possession, and on principles and analogies derived from Roman law the Court treated the consignees as tenants in common of the unidentifiable cotton, in the proportion borne by the numbers originally shipped by them to the number remaining. This decision has never been questioned for nearly fifty years.

My Lords, I agree, without recapitulating reasons, that the principle on which Hallett's Case (3) is founded justifies an order allowing the appellants to follow the assets, not merely to the verge of actual identification, but even somewhat further in a case like the present, where after a process of exclusion only two classes or groups of persons, having equal claims, are left in and all superior claims have been eliminated. Tracing in a sense it is not, for we know that the money coming from A. went into one

(1) (1863) 3 B. & S. 566, at p. 574.

(2) (1868) L. R. 3 C. P. 427.

(3) 13 Ch. D. 696.

security and that coming from B. into another, and that the two securities did not probably depreciate exactly in the same percentage, and we know further that no one will ever know any more. Still I think this well within the "tracing" equity, and that among persons making up these two groups the principle of rateable division of the assets is sound. I agree in the decision proposed, both as to the order to be substituted for that of the Court of Appeal and as to the costs.