## Facts

- Mr. Hallett, acting as a trustee and solicitor, misappropriated trust funds by depositing them into his personal bank account, where they were mixed with his own money.
- Upon Mr. Hallett’s death, the beneficiaries sought to recover the misappropriated trust funds from his estate.
- The key issue before the court was whether the beneficiaries could trace the trust funds into the mixed personal account and recover them in priority to Hallett’s general creditors.
- The court was also required to decide the extent of the beneficiaries’ claim over the mixed funds and whether they could recover the original trust property or instead impose a lien on the account.

## Issues

1. Whether beneficiaries can trace misappropriated trust funds into a mixed account held by a trustee and assert priority over other creditors.
2. Whether beneficiaries have an equitable right to choose between recovering the original property or claiming a proportionate share of the mixed fund by way of a lien.
3. How the “first in, first out” presumption applies to withdrawals from a mixed account containing both trust and trustee's own funds.

## Decision

- The court confirmed that beneficiaries may trace misappropriated trust funds into a trustee’s mixed account if the funds remain identifiable.
- It ruled that beneficiaries, upon tracing, can elect either to claim the original trust property or assert a lien for a proportionate share of the mixed fund.
- The court adopted the “first in, first out” rule, presuming that withdrawals from the mixed account are taken from the trustee’s own funds first, thereby protecting the traceable trust monies for the beneficiaries’ benefit.
- The decision established that these remedies apply even when trust and non-trust funds are indistinguishably mixed.

## Legal Principles

- Beneficiaries have an equitable right to trace misappropriated trust property into its proceeds or substitutes, provided the trust funds are identifiable.
- Tracing is an equitable remedy distinct from common law restitution, enabling beneficiaries to assert claims even against mixed assets.
- The “first in, first out” presumption favors the beneficiary, attributing withdrawals from a mixed fund to the trustee’s personal funds before trust funds.
- Beneficiaries have the option to elect between claiming the original property or asserting a lien for a share of a mixed fund where identification of specific trust assets is lost.
- Trustees owe a fiduciary duty not to mix trust property with personal assets and to account fully to beneficiaries.

## Conclusion

Re Hallett’s Estate clarified the equitable rights of beneficiaries to trace and recover misappropriated trust funds, established the protective “first in, first out” rule for mixed accounts, and provided beneficiaries with the critical option to claim the original property or a lien, shaping the modern approach to equitable remedies and fiduciary accountability in trust law.

Re Hallett's Estate (1880) 13 Ch D 696