Fyfe and Others v Garden and Others

 Fyfe and Others v Garden and Others

TRUSTS: SUCCESSION; Wills

HOUSE OF LORDS

VISCOUNT MAUGHAM, LORD MACMILLAN, LORD PORTER, LORD SIMONDS AND LORD GODDARD

19, 20, 22, 23 NOVEMBER 1945, 15 FEBRUARY 1946

Charities – Bequest of money on educational trusts – Asset consisting of debt payable to testator under agreement for dissolution of partnership – Business to

be carried on by other partners – Testator entitled under agreement, on breach of certain conditions, to wind up business and repay himself his debt – Assets

of business, at time of testator’s death, including equity of redemption of business premises – Whether testator’s rights under agreement “a charge or

incumbrance affecting or to affect land” – Charitable Uses Act, 1735 (c 36), s 3.

By his will made on 4 May 1878, in testator bequeathed, after the death of his wife, “out of such part of my personal estate as may legally be bequeathed for

charitable purposes,” a legacy of £40,000 upon trusts for the advancement of education in Aberdeenshire. The testator died on 15 January 1879, and the

widow died in 1943. One of the assets of the testator’s estate at his death was a sum of £32,293 16s 10d, representing the balance of a sum payable under an

agreement dated 20 September 1877, for the dissolution of a partnership. Under this agreement, the testator retired and the other partners were to carry on the

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business, and the sum in question was left by the testator in the business by way of loan. Under cl 11 of the agreement, on breach of any condition of the loan,

the testator was authorised to demand repayment of the whole amount then owing and, in default of payment, to enter the premises where the business was

carried on and to wind up the business, or to continue it as long as might be found necessary or expedient in order to wind it up beneficially and thereby to

effect repayment to himself of the amount due to him. At the time of the testator’s death, the assets of the business included the equity 􀂭 366􀀉 of redemption

of the premises in which the business was carried on. The question to be determined was whether, by reason of cl 11 of the agreement, there was at the

testator’s death an equitable assignment or charge affecting land (viz, the equity of redemption of the business premises) with the result that the sum due to the

testator under the agreement could not legally be bequeathed for charitable purposes, by reason of the Charitable Uses Act, 1735, s 3 (which was still in force

at the testator’s death):—

Held – Upon its true construction, cl 11 of the agreement did not create any charge, nor did it effect an equitable assignment; it merely gave to the testator a

right to payment out of a fund to be ascertained in the future and, at the time of payment, the fund might not consist of the proceeds of sale of the business

premises since they might have been disposed of long before. Therefore, the testator’s interest in the outstanding debt was not secured by a charge or

incumbrance affecting land within the meaning of the Charitable Uses Act, 1735, s 3, and it could, at the time of his death, be legally bequeathed for charitable

purposes.

Decision of the Court of Appeal (Lord Greene MR and Luxmoore LJ, MacKinnon LJ dissenting), sub nom Re Nicol, Nicol v Nicol ([1944] 2 All ER 181)

reversed.

Notes

The House of Lords reverse the Court of Appeal, holding that the agreement by the testator did not create any charge upon the partnership property, which

consisted partly of land. The testator could, therefore, make a legal bequest of his interest in the loan, since it was not secured by a charge or incumbrance

affecting land within the Charitable Uses Act, 1735, which, having been long repealed, will probably not come before the courts again for consideration

As to Meaning of “Land” in the Mortmain and Charitable Uses Acts, see Halsbury, Hailsham Edn, Vol 4, pp 138, 139, para 181; and for Cases, see

Digest, Vol 8, pp 266–273, Nos 280–400.

Cases referred to in opinions

Re Corcoran, Corcoran v Riddell (1892), 62 LJCh 267, 8 Digest 274, 418, 67 LT 754.

Re Hamilton, Cadogan v Fitzroy [1896] 2 Ch 617, 8 Digest 274, 419, 65 LJCh 815, 75 LT 113.

Tailby v Official Receiver (1888), 13 App Cas 523, 20 Digest 334, 770, 58 LJQB 75, 60 LT 162.

Governments Stock & Other Securities Investment Co v Manila Ry Co [1897] AC 81, 10 Digest 761, 4758, 66 LJCh 102, 75 LT 553.

Re Florence Land & Public Works Co, Ex p Moor (1878), 10 Ch D 530, 10 Digest 750, 4692, 48 LJCh 137, 39 LT 589.

Re Colonial Trusts Corpn, Ex p Bradshaw (1879), 15 ChD 465, 10 Digest 746, 4665.

Re Dawson, Pattisson v Bathurst [1915] 1 Ch 626, 8 Digest 273, 391, 84 LJCh 476, 113 LT 19.

Ashworth v Munn (1880), 15 ChD 363, 8 Digest 273, 397, 50 LJCh 107, 43 LT 553.

Attree v Hawe (1878), 9 ChD 337, 8 Digest 272, 384, 47 LJCh 863, 38 LT 733.

Reeve v Whitmore, Martin v Whitmore (1863), 4 De GJ & Sm 1, 7 Digest 119, 689, 3 New Rep 15, 33 LJCh 63, 9 LT 311.

Appeal

Appeal by the trustees of the charity from a decision of the Court of Appeal (Lord Greene MR and Luxmoore LJ MacKinnon LJ dissenting), reported sub nom

Re Nicol, Nicol v Nicol ([1944] 2 All ER 181). The facts are fully set out in the opinion of Viscount Maugham.

R F Roxburgh KC and W L Blease for the appellants, the trustees of the charity.

Harold Christie KC and William Geddes for the residuary legatees.

Edward Ackroyd for the present trustees of the will.

Their Lordships took time for consideration

15 February 1946. The following opinions were delivered.

VISCOUNT MAUGHAM. My Lords, the question raised on this appeal is whether an asset of a testator, consisting of a sum of £32,293 16s 10d, payable to

him under a certain agreement, fell within the Charitable Uses Act, 1735, s 3 (which was still in force at the date of his death), and was, therefore, one which

he could not lawfully bequeath for charitable purposes. The estate is under administration by the court in the County Palatine of Lancaster and the question

has been raised by petition addressed to that court.

􀂭 367􀀉

The testator, Robert Nicol, died on 15 January 1879. He left surviving him (i) his widow who lived for a further 65 years and died on 31 January 1943;

(ii) three brothers and two sisters, named in his will as his residuary legatees, whose legal personal representatives are respondents to this appeal. The

appellants are the persons in the will appointed by the testator to act as trustees of a legacy of £40,000, bequeathed by the testator on the death of his widow

upon trusts for the advancement and promotion of education in the city and county of Aberdeen. The question before your Lordships is whether the proceeds

of a certain asset belonging to the testator at his death may be resorted to in order to make up the £40,000 or whether resort to those proceeds for that purpose

is prohibited by the Statute of Mortmain which was then in force. If the testator had died after the enactment of the Mortmain and Charitable Uses Act, 1891,

the question would not have arisen owing to the change in the law as to gifts of impure personalty for charitable purposes effected by that Act. This is

probably the last case in which your Lordships will be asked to consider the effect of the long repealed Charitable Uses Act, 1735.

the relevant words of that statute are contained in sect 3. They are as follows:

‘… all gifts, grants, conveyances, appointments, assurances, transfers and settlements whatsoever, of any lands, tenements, or other hereditaments,

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or of any estate or interest therein, or of any charge or incumbrance affecting or to affect any lands tenements, or hereditaments … to or in trust for any

charitable uses whatsoever, which shall at any time from and after the said June 24, 1736, be made in any other manner or form than by this Act is

directed and appointed, shall be absolutely, and to all intents and purposes, null and void.’

For some years before September 1877, the testator had carried on the business of a textile manufacturer, embroiderer, merchant and warehouseman in

co-partnership with one William Devonshire Ryde at Ashenhurst Works, Blackley, in the county of Lancaster, under the style or firm of “Cowlishaw Nicol &

Co” and in co-partnership with the said William Devonshire Ryde and one Charles Edward Smith in the United States of America, under the style or firm of

“Nicol Cowlishaw & Co.” The business had prospered and the testator’s interest in it was a large one. He wished to retire, and on retirement to leave the sum

of £35,000 (the balance of a much larger sum due to him) on loan at interest to his partners William Devonshire Ryde and Charles Edward Smith. The terms

agreed upon were contained in the agreement which must now be stated.

By the agreement, which was dated 20 September 1877, and made between the testator of the first part, William Devonshire Ryde of the second part and

Charles Edward Smith of the third part, after reciting that arrangements had been made for the dissolution of the partnerships therein mentioned and, by an

agreement of even date therewith, for the continuation of the said businesses by the said W D Ryde and C E Smith in partnership with other persons, and for

the introduction into the said businesses of capital, which, with the capital of the said W D Ryde in such new businesses, would amount to £45,000 at the least,

and for the continuation of such capital in the said businesses, and for payment of sums equal to one half the profits of such new partnership to the testator as

thereinafter mentioned, it was agreed that both the partnerships should cease and determine from 1 January 1878, and that the testator should not participate in

the profits of the said businesses after 30 June 1877, nor be liable for the losses incurred therein as from that date and the said agreement contained among

others the following clauses:

‘Cl. 1. That both the said partnerships heretofore subsisting between the said parties hereto shall cease and determine from Jan. 1, 1878.

Cl. 2. That the said Robert Nicol on the terms and for the considerations herein agreed to be paid or secured doth hereby agree that the said William

Devonshire Ryde and Charles Edward Smith shall from such date take and enjoy all the estate share right and interest of him the said Robert Nicol of

and in all the property stock in trade debts goodwill contracts credits and effects of the said copartnership business as their own absolute property.

Cl. 6. That the said William Devonshire Ryde and Charles Edward Smith shall pay to the said Robert Nicol for his share and interest in the said

partnership property stock in trade debts goodwill contracts credits and effects the sum of £63,390 2s. 9d. of which the sum of £28,390 2s. 9d. part

thereof shall be paid by instalments of not less than £5,000 each on or before June 30, 1878, together with interest at the rate of £10 􀂭 368􀀉 per cent.,

per annum on the said sum of £63,390 2s. 9d. or so much thereof as shall for the time being remain unpaid from June 30, 1877, to the said June 30,

1878, and that no instalment may be paid unless 6 months previous notice in writing has been given to the said Robert Nicol his executors or

administrators. The said Robert Nicol shall lend and advance to the said William Devonshire Ryde and Charles Edward Smith the sum of £35,000 the

balance of the said sum of £63,390 2s. 9d. as from June 30, 1878 at the rate of £10 per cent. per annum on condition that the capital employed in the said

businesses by the said William Devonshire Ryde and Charles Edward Smith or any other person or persons carrying on the said businesses shall not

amount to less that the sum of £45,000 in the whole (irrespective of the said sum of £35,000) during such time as the said sum of £35,000 or any part

thereof shall remain due and owing to the said Robert Nicol and shall employ the whole of the said capital in the said businesses to the best advantage.

Cl. 7. That the interest on the said sum of £35,000 or so much thereof as shall for the time being remain unpaid shall be paid half yearly on Dec. 30

and June 30 in every year the first payment thereof to be made on Dec. 30, 1878.

Cl. 8. That the said william Devonshire Ryde and Charles Edward Smith shall carry on and conduct the said businesses in the most efficient manner

and promote the prosperity thereof to the utmost extent of their ability and that during the period aforesaid the said William Devonshire Ryde and

Charles Edward Smith shall not engage directly or indirectly in any other business occupation or employment or in any speculation whatsoever and

shall accurately and faithfully keep proper account books and all other documents showing the mode of carrying on such businesses and the profits and

losses thereof and shall have proper valuations of stock and stocktakings made on the Saturday nearest July 1 in every year the first of such stocktakings

to be made on the Saturday nearest July 1, 1878, so as to show the true value of the said stock and the state of the said businesses and from time to time

when required furnish the said Robert Nicol his executors administrators or assigns with true copies of the said stocktakings and balance sheets.

Cl. 9. That the said William Devonshire Ryde and Charles Edward Smith will not do any act or incur any liability except in the usual course of

business by which the partnership property or their several shares therein may be liable to be seized or taken in execution or prejudicially.

Cl. 11. That it shall be lawful for the said Robert Nicol his executors administrators or assigns and any person or persons to be appointed by him or

them from time to time (so long as the said sum of £35,000 or any part thereof shall remain owing to him or them) during the usual business hours to

enter upon the premises where the said businesses shall be carried on or any part thereof and to inspect and examine the mode of conducting and

carrying on the said businesses. And all books of account stock books ledgers receipts papers and writings in the possession or power of the said

William Devonshire Ryde and Charles Edward Smith kept for the purposes of their said businesses and to take copies thereof or extracts therefrom in

order to ascertain the true state thereof and if thought necessary or desirable may at any time whilst the debt due to the said Robert Nicol or any part

thereof shall be unpaid have the stock taken in the usual manner and that if upon any inspection or examination or stocktaking it should appear to the

said Robert Nicol his executors administrators and assigns that the joint capital of the said William Devonshire Ryde and Charles Edward Smith and

such other partners to be introduced by them as aforesaid is reduced to the sum of £40,000 or less or in case of the breach of any of the conditions herein

contained it shall be lawful for the said Robert Nicol his executors administrators or assigns by notice in writing to be given to the said William

Devonshire Ryde and Charles Edward Smith or left at their place of business to require repayment of the whole amount then owing to the said Robert

Nicol his executors administrators of assigns And in default of payment at the time named in such notice the said Robert Nicol his executors

administrators or assigns and any person or persons of his or their appointment shall in case his debt or any part thereof shall then be unpaid have full

power and authority to enter upon the premises where the said businesses may be carried on and either forthwith to discontinue the said partnership

businesses and to wind up the same and dispose of all the stock property and effects thereof or to continue such businesses as long as may be found

necessary or expedient in order to wind up the same beneficially and as the attorney or attorneys and in the names of the said William Devonshire Ryde

and Charles Edward Smith to collect the debts and goods and effects owing or belonging to the said concern and give discharges for the same and to

repay himself or themselves the whole amount of principal and interest then due to him or them under or by virtue of these presents and in case of

deficiency to sue for and recover the same from them in any way he or they may think proper.

Cl. 12. That in the event of the said William Devonshire Ryde and Charles Edward Smith or either or them dying or otherwise quitting the said

partnership businesses or any of them the capital of such partner or partners shall not be withdrawn from the said partnership so as to reduce the capital

thereof below £50,000 irrespective of the said sum of £35,000 so long as the same or any part thereof shall be owing to the said Robert 􀂭 369􀀉 Nicol it

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being the intention of the said parties hereto that the amount due to him shall have priority and take precedence over the claims of the said William

Devonshire Ryde and Charles Edward Smith or their respective representatives.

(Cl 13) Ryde and Smith undertook to pay to the testator on 1 January in each year a sum equal to one half of the clear profits of the business towards

repayment of the £35,000. (Cl 14) The payment of the £35,000 might be “accelerated” by mutual consent. (Cl 15) This clause contained mutual covenants for

further assurance. (Cl 16) So far as the parties could lawfully so declare, all the stipulations and provisions of the agreement relating to Ryde and Smith were

to be “applicable so far as may be to any partner or partners for the time being” of Ryde and Smith or either of them. (Cl 17) If Ryde and Smith should

observe and perform all the agreements and conditions of the agreement, the testator agreed not to call in the debt until 30 June 1884.

A memorandum of even date signed by the testator, Ryde and Smith was endorsed on the agreement, providing (cl 1) that Ryde and Smith should be

jointly and severally liable for the due payment of the whole sum of £63,390 2s 9d; (cl 2) that the powers given to the testator by cl 11 of the agreement were

to apply to the whole sum of £63,390 2s 9d, and not merely to the sum of £35,000.

It was in the light of these agreements that the testator on 4 May 1878, made his will. By it the testator appointed executors and trustees and made divers

dispositions of several parts of his estate, including bequests and a devise for life to his wife Mary Edla Nicol, and gave his residuary real and personal estate

to his trustees upon trust for sale and conversion and out of the proceeds to pay certain legacies, including a pecuniary legacy of £1,000, out of such part of his

personal estate as might legally be bequeathed for charitable purposes, to the treasurer for the time being of the Royal Infirmary of the city of Aberdeen in

Scotland for the benefit of that charity. From and after the death of his wife the testator bequeathed out of such part of his personal estate as might legally be

bequeathed for charitable purposes (and as should remain after paying or providing for the before mentioned legacy of £1,000 to the treasurer of the Aberdeen

Infirmary) to the persons who should at the time of the decease of his wife hold certain offices or positions in connection with the city of Aberdeen (which he

proceeded to enumerate) and to hold the same upon trust to invest and with the like power to vary the investments and to pay and apply the annual income

thereof in perpetuity for the advancement and promotion of education in the city and county of Aberdeen.

At the date of the death of the testator, the partnership was being carried on by W D Ryde and C E Smith and four new partners at works called the

Ashenhurst works. These premises were in mortgage for an amount of £20,000, secured to the testator by a mortgage dated 3 July 1875. At the date of the

death, £2,706 3s 2d had been paid in reduction of the debt of £35,000, but the balance, viz, £32,293 16s 10d, remained owing upon the terms of the agreement.

The mortgage for £20,000 was still outstanding at the testator’s death, and it is not disputed that such part of his estate as is referable to it could not lawfully be

bequeathed for charitable purposes. The sum of £32,293 16s 10d was paid off during the lifetime of the testator’s widow and was represented at her death by

pure personalty: but, if the validity of the bequest is to be determined by the facts existing at the death of the testator, this circumstance is irrelevant.

The judgment of Sir John Bennett V-C, so far as it relates to the subject of this appeal, was to the effect that cl 11 of the said agreement gave to the

testator a charge upon the partnership property and that, as the partnership property included real estate, the sum of £32,293 16s 10d owing to the testator as

aforesaid was charged upon land and, therefore, came within the mischief of the said statute and, accordingly, could not be applied in the payment of a

charitable legacy. Upon appeal from the decision of the Vice-Chancellor to the Court of Appeal (Lord Greene MR, MacKinnon and Luxmoore LJJ), the

judgment was affirmed by a majority (Lord Greene MR and Luxmoore LJ, MacKinnon LJ dissenting). Lord Greene MR and Luxmoore LJ rejected the

submission that the nature of the testator’s rights under the said agreement fell to be determined at the date of the death of his widow and held that their nature

had to be ascertained at the date of the testator’s death. They were prepared, if necessary, to draw the inference that at that 􀂭 370􀀉 date the said agreement

was binding on all the said six partners, but held that in any case it was effective against the interests of the said W D Ryde and C E Smith. They found

nothing in the said agreement except cl 11 thereof which created any estate or interest in, or charge or incumbrance affecting, the equity of redemption in the

said Ashenhurst works (which was the only real property which the partnership was shown to have owned) but they construed cl 11 as creating such a charge.

They held that it created no floating charge, but was an equitable assignment of such part of a fund which was to come into existence at a future date as would

be sufficient to satisfy the testator’s claim, that such a contingent charge operated from the date of its creation upon each and every partnership asset, including

the said equity of redemption, and that its operation could not be postponed until the happening of the contingency.

Mackinnon LJ dissented, and held that, although cl 11 purported to give rights as to the assets of the partnership, it was a clause in a contract to which

only the testator, the said W D Ryde and the said C E Smith were parties, and that, for anything that was proved, the said agreement might only impose a

personal joint liability upon the said W D Ryde and C E Smith, with a purported charge or security upon the assets of the new partnership which was, in fact,

no charge or security at all. He felt himself in a position to defeat what he described as the unrighteous claim of the respondents based on the Act of 1735

which had long since rotted in its grave. There is no direct evidence that the four new partners who joined William Devonshire Ryde and Charles Edward

Smith ever ratified the agreement of 20 September 1877. The majority of the Court of Appeal were prepared to draw the inference that they did; but

Mackinnon LJ, as stated, declined to do so. For my part, I should be inclined to share the doubts he expressed on this matter, but some fresh evidence has been

discovered on the point and has been by consent admitted. That evidence is, in my opinion, sufficient to establish that the new partners did in fact ratify the

agreement, and I do not think it necessary to say anything more on this point.

It was argued by counsel for the appellants that the testator’s rights under the agreement of September 1877, were such that the directions in his will

ought to be construed as making the death of the widow, not the death of the testator, the time at which the character of the assets constituting the residuary

estate ought, for the purpose of the Charitable Uses, Act, 1735, to be ascertained. At that date, the particular asset the subject of dispute was represented by

pure personalty, and the investments representing it could lawfully be used for the purpose of making up the bequest of £40,000. The appellants relied on a

decision of North J in the case of Re Corcoran, which was considered and explained in Re Hamilton. This argument was carefully considered in the judgment

of Lord Greene MR and Luxmoore LJ and the distinction between the present case and that of Re Corcoran was clearly pointed out. I am content to say, on

this point, that I accept the view of the Court of Appeal, and do not think I can usefully add anything to it.

The question then is: Was there at the date of the testator’s death in 1878 an equitable assignment or charge affecting the real estate, viz, the equity of

redemption of the Ashenhurst works (and the other assets of the partnership), arising by virtue of cl 11 of the agreement? Or is the appellants’ view correct

that the only assignment or charge effected by the clause related to a fund to be derived by the dissolution of the partnership and that there was no present

assignment or charge created in respect of the “stock, property and effects” of the business as from the date of the agreement? This obviously was a future

fund which could not come into existence unless there was a winding up of the business.

My Lords, it is not in dispute that there cannot be an equitable charge on, or assignment of, a future asset unless and until it comes into existence. On the

other hand, it is well settled that when the asset comes into existence, if there has been an assignment for value of that asset in terms present and immediate,

equity regards the assignment “as a contract binding on the conscience of the assignor and so binding the subject-matter of the contract when it comes into

existence, if it is of such a nature and so described as to be capable of being, ascertained and identified”: see per Lord MacNaghten (13 App Cas 523 􀂭 371􀀉

at pp 543, 546) in Tailby v Official Receiver. I cannot improve on the language of Lord Macnaghten’s much admired speech; but I will add one remark which

is amply justified by the many authorities on this subject, namely, that in order that there should be held to be an equitable charge or assignment, the intention

to create such a result must be reasonably clear, though no particular form of words is necessary for that purpose. The absence of words indicating a present

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assignment or charge, such as existed in Tailby v Official Receiver is, however, an important circumstance in considering whether the intention is made out. It

would have been very easy in an elaborate agreement such as that of 20 September 1877, to have qualified the express terms of cl 2, as the result of which the

Ashenhurst works were to become the “absolute property” of the remaining partners.

My Lords, a word must be said as to how the problem before us should be approached. There are authorities to be found in which the judges seem to

have considered the question whether the Charitable Uses Act, 1735, s 3, had been infringed in the light of the old maxim ut res magis valeat quam pereat

after transposing the two verbs. That, however, has long been abandoned; and I propose to travel the narrow road which lies before us with an endeavour to

construe the language of cl 11 as if the statute did not exist and with an entire disregard of the consequences which may follow.

It is an unfortunate circumstance that the clause is defective where it deals with the events which may follow on a notice to require the partners to repay

the whole amount then owing to Robert Nicol or his representatives. In default of payment, they are to have the power to enter upon the business premises and

either to discontinue the partnership businesses and to wind up and to dispose of all the stock, property and effects (which of course involves the collecting of

the debts and goods) or to continue the business in order to wind up the same beneficially and to collect the debts, goods and effects and to repay themselves

the amounts then due. This is not a true alternative, but the same thing expressed with a little difference in the use of rather inaccurate language. In either

case, not a word is said as to creditors of the business, whose debts might well have accrued before Robert Nicol left the firm or might have become due for

goods subsequently supplied to the partnership and not yet paid for; and the draftsman can hardly have been unaware that any creditors of the firm would have

had the power, if Robert Nicol had attempted to step in, to invoke the assistance of the Bankruptcy Court. In this state of muddle, I can only come to the

conclusion that Robert Nicol became a creditor of the firm under the deed for the sum of £35,000, payable by instalments, with a power in certain events to

cause the immediate winding up of the firm in a legal manner, and, as part of that process, in the case of insolvency to pay the preferential debts and then to

distribute the balance among the creditors. His own debt would not rank in front of the latter and might indeed be postponed to them. It is sufficient to say

that under cl 11 Robert Nicol or his representatives are to have a right to payment out of the moneys arising as the result of the winding up. He is to have

priority over the claims of the remaining partners, but the clause is not designed to give him priority for his loan over any creditors of the partnership, though

he might be entitled to rank pari passu with ordinary creditors of the business for debts accrued after he left the firm. Complete liquidation appears to be

contemplated, and the real estate or the leaseholds would have to be sold just as much as the stock, machinery and effects of the firm. Real estate, if any, of

the firm is covered by the general phrase “stock, property and effects,” and it is not, I think, suggested that the equitable assignment or charge contended for

does not apply equally, if it exists, to all the different descriptions of property of the firm for the time being.

One thing is quite clear, viz, that, in any event, the business as a whole is to be carried on by the remaining partners in the most efficient manner, with all

kinds of precautions to safeguard the rights of Robert Nicol while any part of his debt is outstanding (cl 8, 9). The suggested equitable charge on all the assets

would, therefore, inevitably be of the nature of a floating charge, ie, it would be a floating security on all the assets of the partnership, leaving the partners free

to dispose of any of those assets by sale or otherwise in the ordinary course of business. In other words it would attach in a dormant manner to all the subjects

of the charge in their varying condition from time to 􀂭 372􀀉 time, but would cease to float (or to slumber) and would “crystallise” as soon as Robert Nicol or

his representatives intervened under cl 11: see Governments Stock & Other Securities Investment Co v Manila Ry Co, per Lord MacNaghten ([1897] AC 81, at

p 86), and cases there cited. In the case of an issue of debentures, there is the strongest reason for implying, even from rather doubtful language, that such a

charge exists before the debentures become due according to their terms; for, if it does not, the debenture holders will have no claims in liquidation in priority

to ordinary creditors. But there must be some indication of the intention to create a floating charge. That circumstance will appear from a perusal of the

decision in Re Florence Land Co and by observing the change of opinion of Jesssel MR, in the circumstances of that case. See also Re Colonial Trusts Corpn.

There is no indication of such an intention in the language of cl 11. The main reason for implying an intention to create a floating charge in the case of a

debenture issue does not exist here; and I am unable to imagine any probable event in which the rights of Robert Nicol would have been improved by giving

him a floating charge on the assets of the partnership, whilst such a charge might have been an element to be considered if it were alleged in possible

circumstances that he remained a sleeping partner, which of course was not the intention. For these reasons, in addition to those clearly stated in the Court of

Appeal, I have come to the opinion that there was no floating charge in the usual sense created by cl 11.

The judgment of the majority in the Court of Appeal, after the rejection of the argument that there was an intention to create a floating charge, continued

as follows ([1944] 2 All ER 181, at p 188):

‘The position at the death of the testator was that, if at the date when the testator’s powers under cl. 11 came to be exercised the partners still owned

the equity of redemption in the Ashenhurst works, the proceeds of sale of that equity would constitute part of the fund and the statute would apply. We

do not think that the operation of the statute can be defeated where there is a contingent charge of this character. The position in this respect appears to

us to be analogous to the case of a floating charge. In that case it cannot be stated one way or the other that when the charge crystallises there will be

any land comprised in it. It may or may not be so according as the event turns out. The very point was dealt with by LORD COZENS-HARDY, M.R.,

in Re Dawson. He said ([1915] 1 Ch. 626, at p. 636): “This court put the more simple case of an individual who covenants to pay £10,000 twelve

months hence and to charge any real estate which at that time he may have in payment of it. Could it possibly be said that pending the twelve months

there was not even a contingent charge upon the real estate? Any charge or interest whether it be contingent or not is quite sufficient to satisfy the

statute.“’

My Lords, with the greatest respect I am unable to agree with the view expressed in the first sentence. As I have pointed out, the proceeds of sale of the

Ashenhurst works, if still the property of the firm, just like any other assets of the partnership existing at the time mentioned, would be applicable in

discharging the partnership debts as above mentioned and the costs of liquidation. The balance (if any) would consist of money, and would be payable to the

partners in the firm. It may well be that, after the testator’s powers under cl 11 came to be exercised, creditors would have an equitable charge of some kind

on the fund to be realised by the winding up: but that is not a material circumstance, for the question under consideration relates to the position at the death of

the testator. Nor can I follow the observation that the position “appears … to be analogous to the case of a floating charge.” For the reasons already given,

there could not be a floating charge on the Ashenhurst works, unless it also attached to all the other effects for the time being of the partnership; and that view

has already been rejected by the majority of the Court of Appeal for, as it seems to me, good and sufficient reasons.

The Court of Appeal relied upon the dictum of Cozens-Hardy MR, in Re Dawson: but his remark does not, I think, throw any light upon the matter; for it

appears to be dealing with a different case in which the debtor in terms is purporting at a future date to give a charge upon any real estate he then has, and is

not purporting to give a present charge on his existing real estate; and, I repeat, the equitable charge or assignment for which the respondents contend must be

in existence at the date of the testator’s death if it is to bring the Charitable Uses Act, 1735, into operation. Moreover, the language is 􀂭 373􀀉 obscure, since

the judge does not say that the covenantor possesses any real estate and, if not, a charge cannot exist (in such a case) until the covenantor has acquired some

real estate after giving the covenant. Would there then be an existing charge? The hypothesis gives rise to some curious speculations. It could not be a

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floating charge. For myself, I doubt whether the court would hold as a matter of construction that the real estate possessed at the end of the twelve months

could be subject to a charge before that date. At any rate we have here quite different words to deal with.

In the case we have before us, I must conclude that there is no sufficient ground, in the absence of any words of present assignment or charge, to accept

the view that cl 11 gives or was intended to give anything more than a right to payment out of a fund to be ascertained in future events, a fund which might not

be composed (inter alia) of the proceeds of sale of the Ashenhurst works, since those works might have been disposed of long before.

For these reasons I must come to the conclusion that the appeal must be allowed.

LORD MACMILLAN. My Lords, in 1878 Robert Nicol, a Manchester manufacturer of Scottish origin, made his will and thereby bequeathed, after the

death of his wife, “out of such part of my personal estate as may legally be bequeathed for charitable purposes,” a legacy of £40,000 to the holders at the time

of his wife’s death of certain offices in the city of Aberdeen, the income to be applied for the advancement and promotion of education in the city and county

of Aberdeen. Robert Nicol died in 1879, survived by his widow, who died in 1943, whereupon the legacy became payable. The sole question in the case is

whether a particular item included among the testator’s assets at his death was personal estate which could legally be bequeathed for charitable purposes. The

trustees of the testator have in their hands funds representing this item of the original estate and it has now to be decided whether they can utilise these funds

towards payment of the above-mentioned charitable bequest.

In 1878, when the testator made his will, and in 1879, when it became effective on his death, there was in force the Charitable Uses Act, 1735. That Act

was repealed by the Mortmain and Charitable Uses Act, 1888, but by sect 13(1)(b) the repeal was expressly declared not to affect any instrument executed

before its passing. Your Lordships are now invited, in 1945, fifty-seven years after its repeal, to enforce the provisions of the statute of 1735 in favour of the

residuary legatees of the testator and to the detriment of his charitable bequest.

The Act of 1735 has a long history behind it, beginning with the first Statute of Mortmain [Statute De Viris Religiosis] in 1279, and it was the successor

of a series of enactments of increasing severity designed to defeat the evasions which the ingenuity of conveyancers devised. The purpose of the legislation

was originally to prevent the loss of the incidents of feudal tenure which resulted from the gift of lands in mortmain to religious communities, but it was

subsequently maintained in the interest of free commerce in land. The Act of 1735 is entitled “An Act to restrain the disposition of lands, whereby the same

become unalienable” and it proclaims its purpose in an elaborate preamble which recites the prevalance of the increasing “public mischief” of:

‘… large and improvident alienations or dispositions made by languishing or dying persons, or by other persons, to uses called charitable uses, to

take place after their deaths, to the disherison of their lawful heirs.’

Sect 1 of the statute enacts that from and after 24 June 1736:

‘… no manors, lands, tenements, rents, advowsons, or other hereditaments, corporeal or incorporeal whatsoever, nor any sum or sums of money,

goods, chattels, stocks in the public funds, securities for money, or any other personal estate whatsoever, to be laid out, or disposed of in the purchase of

any lands tenements, or hereditaments, shall be given, granted, aliened, limited, released, transferred, assigned, or appointed, or any ways conveyed or

settled to or upon any person or persons, bodies politic or corporate, or otherwise, for any estate or interest whatsoever, or any ways charged or

incumbered by any person or persons whatsoever, in trust, or for the benefit of any charitable uses whatsoever [except in comformity with certain

prescribed requirements.]’

Sect 3, which is the section specially relevant to the present case, provides that:

‘… all gifts, grants, conveyances, appointments, assurances, transfers, and settlements whatsoever, of any lands, tenements, or other hereditaments,

or of any estate 􀂭 374􀀉 or interest therein, or of any charge or incumbrance affecting or to affect any lands, tenements, or hereditaments, or of any

stock, money, goods, chattels, or other personal estate, or securities for money to be laid out or disposed of in the purchase of any lands, tenements, or

hereditaments, or of any estate or interest therein, or of any charge or incumbrance affecting or to affect the same, to or in trust for any charitable uses

whatsoever, which shall at any time from and after the said June 24, 1736, be made in any other manner or from than by this Act is directed and

appointed, shall be absolutely, and to all intents and purposes null and void.’

These are wide words and I shall now proceed to consider whether the particular item of the testator’s estate with which this appeal is concerned falls within

them.

The testator, until his retirement in 1877, carried on business as a manufacturer in co-partnership with one Ryde at Ashenhurst Works, Blackley, in the

county of Lancaster, and in co-partnership with Ryde and one Smith in the United States of America. On his retirement the testator entered into an agreement,

dated 20 September 1877, with Ryde and Smith for the dissolution of both partnerships as at 1 January 1878. Ryde and Smith, who were to carry on the

business with new partners, thereby undertook to pay to the testator the sum of £63,390 2s 9d for his share and interest in the dissolved partnership. Of this

sum it was stipulated that £28,390 2s 9d should be paid off in yearly instalments of £5,000 and the balance of £35,000 should be left on loan with Ryde and

Smith, on condition that they and any partners associated with them should maintain the capital employed in the business at a specified figure. In reduction

and repayment of the loan of £35,000 the testator was entitled to receive yearly a sum equal to one half of the clear profits of the businesses. Interest at 10 per

cent was payable to the testator on the whole balance outstanding due to him from time to time. The testator was given a right so long as any part of his loan

of £35,000 remained unpaid to enter the premises where the business was carried on and to inspect the books of account. If the capital apart from his loan

were found to be below the stipulated minimum, or any other breaches of the conditions of the agreement were found to have been committed, the testator was

empowered to give notice calling for payment of the whole amount remaining due to him. In default of payment the testator was authorised:

‘… to enter upon the premises where the said businesses may be carried on and either forthwith to discontinue the said partnership businesses and

to wind up the same and dispose of all the stock property and effects thereof or to continue such businesses as long as may be found necessary or

expedient in order to wind up the same beneficially [and thereby to effect repayment to himself of all sums due to him].’

Of the sum of £63,390 2s 9d due to the testator under the dissolution agreement, £32,293 16s 10d remained payable to him at the date of his death. The

question is whether this sum was personal estate of the testator which he might legally bequeath to charitable purposes or whether the statute of 1735 has the

effect of rendering it unavailable for the satisfaction in part of the charitable bequest of £40,000 contained in his will. I remind myself that the question is not

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what the charity can take under this will, but what was the interest of the testator at the time of his death in this item of his estate. Comprised in the assets of

his Manchester partnership at the date of the dissolution was the equity of redemption of the partnership’s premises, known as the Ashenhurst works, which

had been mortgaged for £20,000. Did the agreement of dissolution of 1877 confer on the testator an interest in or a charge upon this equity of redemption for

the sums due to him under the agreement and, in particular, for the sum of £32,293 16s 10d due to him thereunder at his death? If so, then this sum being an

interest in or a charge upon land could not, under the statute of 1735, be bequeathed by him to charity.

The cases upon the Act of 1735 to which the attention of the House was drawn show that the courts, in their interpretation and application of the Act,

went a very long way indeed, almost “into extravagant consequences,” as Phillimore LJ, said ([1915] 1 Ch 626, at p 641) in Re Dawson, Pattison v Bathurst,

one of the last of these cases, when he found himself driven to accept a conclusion which “may almost seem grotesque” (ibid, p 640). Counsel for the

appellant charitable trustees was not prepared to challenge the soundness of these decisions, though none of them is binding upon this House, but preferred to

distinguish them and show that they were inapplicable to the present case. He maintained, and, indeed, it was agreed, that there was no case precisely in point.

There 􀂭 375􀀉 could not well be, seeing that the question turns on the precise effect of a very special agreement. I think it is reasonable to approach the

question with a disinclination to extend at this time of day the application of a rule of law which Parliament abrogated more than half a century ago.

If the testator had been at his death a partner in the Manchester firm and his estate had included his share and interest in the assets of the partnership

business, including the equity of redemption of the firm’s premises, than a bequest by him of his share in the partnership for charitable purposes would have

been null and void under the Act of 1735, according to the decision in Ashworth v Munn, In that case (15 Ch D 363, at p 368), James LJ withdrew some

expressions which he had used incidentally in Atree v Hawe (9 Ch D 337, at p 346) and:

‘… which seem to indicate that we thought the cases had gone to the extent of saying that no share in a partnership which had land for the purposes

of the partnership, or real property, or impure personalty, as part of the assets or capital, was hit by the statute …’

Although James LJ withdrew what he had previously said obiter, the fact that he did make such a statement is an indication that the point was at least prima

facie arguable. Ashworth v Munn, however, has no application to the present case, for here the testator had ceased to be a partner of his former firm before his

death and all his former interests in the firm had merged in his rights under the dissolution agreement. His position at his death was simply that of a contract

creditor under that agreement, which gave him the right to certain payments in money, with certain rights for enforcement of payment.

As I see it, the only question then is whether the right of enforcement conferred upon the testator by the clause of the agreement which I have quoted

above, and which, in the event of default, entitled him to enter upon the premises of his former business and realise its assets (including the equity of

redemption of the Ashenhurst works) for the purpose of effecting payment of his debt, constituted in the testator’s person an interest in or a charge upon land

(to wit the aforesaid equity of redemption) within the meaning of the statute. I am of opinion that it did not. I observe, in the first place, that the words of the

agreement do not in terms create any charge. In the next place, Ryde and Smith were under no obligation to retain the equity of redemption of the premises;

they were at perfect freedom to part with it whenever they should think it expedient to do so and to dispose of it free of any charge in favour of the testator.

This feature is no doubt characteristic of what is known as a floating charge, and counsel for the respondents maintained that this was what the agreement

created. But I agree with Lord Greene MR, for the reasons which he assigns ([1944] 2 All ER 181, at p 188), that this is not so and that Re Dawson is

therefore inapplicable. No direct or immediate charge whatever was created by the agreement. Moreover, no priority or preference was thereby conferred

upon the testator over other creditors of the business.

The majority of the Court of Appeal based their decision on the ground that, in their view, the agreement effected an equitable assignment of the equity of

redemption of the Ashenhurst premises, tantamount to a charge thereon in the testator’s favour. The very special, and not very apt, language of the agreement

does not, in my opinion, compel or justify such an interpretation, and I share the view of its import which the noble and learned Lord on the Woolsack has

expressed. Even if the matter were in doubt, I should not be disposed to strain the reach of this obsolete statute, in the absence of any precedent precisely in

point. I do not think that the case comes fairly within the mischief of the Act.

I am accordingly in favour of allowing the appeal.

LORD PORTER. My Lords, I find myself in agreement with the opinions which your Lordships have expressed and concur in the result.

LORD SIMONDS. My Lords, the question raised in this appeal is whether as asset forming part of the estate of Robert Nicol, who died on 15 January 1879,

could lawfully be bequeathed by him for charitable purposes. Inasmuch as he died when the Charitable Uses Act, 1735, was in force, he could not do so if that

asset was an estate or interest in land or a charge or incumbrance affecting or to affect any land. The answer to be given to this question is the same answer

that must have been given had it fallen for decision shortly after the 􀂭 376􀀉 testator’s death. The fact that soon after that event the law was altered by the Acts

of 1888 and 1891 is an irrelevancy which does not induce in me a wish to decide this case in one way or a reluctance to decide it in another.

I have said, my Lords, that the same answer must be given now as would have been given long ago, and this involves the rejection of an argument which

was urged upon the House, that the character of the asset must be determined not at the death of the testator, but at the date when the legacy became payable,

an event which the interposition of a life estate in favour of the testator’s widow postponed for more than sixty years. Upon this part of the case I so fully

concur in what has been said by the majority of the Court of Appeal that I will add nothing. Nor do I think it necessary to say anything upon the aspect of the

case which led MacKinnon LJ to deliver a dissenting judgment—not, I hope, from any want of respect for his opinion, but because, since the case was before

the Court of Appeal, further evidence has been discovered and adduced which would in any case make the view held by him untenable. The single question is

whether the asset that I must now describe was, at the testator’s death, of such a character as to be covered by the Charitable Uses Act, 1735, s 3.

In 1877, the testator carried on business at Ashenhurst Works, Blackley, in county of Lancaster, and in the city of Manchester and in London in

partnership with one Ryde, under the style of Cowlishaw Nicol & Co, and the testator and Ryde also carried on business in America in partnership with one

Smith, under the style of Nicol Cowlishaw & Co. In the same year, arrangements were made for the dissolution of these partnerships and for the continuation

of the businesses by Ryde and Smith in partnership with other persons, and on 20 September 1877, a formal agreement was made between the testator of the

first part, Ryde of the second part and Smith of the third part to carry these arrangements into effect. The provisions of this agreement have been so fully

stated by my noble and learned friend, Lord Maugham, that I need not repeat them. It is sufficient to say that, under the agreement and a memorandum of the

same date indorsed thereon, the sum of £63,390 2s 9d was payable to the testator in the manner therein provided. Of this sum £31,096 5s 11d had been paid or

secured to him before his death, at which date the sum of £32,293 16s 10d was still owing to him. One further fact only need be stated. At the death of the

testator, the partnership property included the equity of redemption in the freehold property known as the Ashenhurst works.

My Lords, I agree with the appellants’ contention that the rights which the testator might otherwise have had upon the dissolution of his partnerships were

superseded by the agreement of 20 September 1877. The single question is what was the nature of his contractual rights under that agreement at the date of his

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death. I do not think that any principle of law or equity is involved. The question appears to me to be purely one of construction of an agreement, the

language of which is well calculated to puzzle and confuse.

The Court of Appeal has rejected the contention that, upon its true construction, the agreement created such a charge in the nature of a floating charge in

favour of the testator, that at his death it could be said that he had a charge upon partnership property which included land. My Lords, I have felt much doubt

upon this point, but, while I was in the course of preparing my opinion, I had the privilege of reading that of my noble and learned friend on the Woolsack, and

by it I have been satisfied that the agreement cannot fairly be read as creating a present charge in favour of the testator. I will, therefore, content myself with

saying that upon this point I concur in his reasons and conclusion.

But the Court of Appeal, while rejecting the view that the agreement created a charge upon land, yet held that it operated as an equitable assignment of

such part of a fund to come into existence at a future date as would be sufficient to satisfy the testator’s claim. This may be so. But it is the next step which I

find myself unable to take. It is said that, since the partnership property at the death included land, and the fund to be established by a sale of such property, if

it took place at the death, would therefore include proceeds of sale of land, the statute must apply. I think that the short answer to this is that at the death the

event, upon the happening of which such a fund could be established, had not happened. It could not, therefore, be predicated of the testator’s rights at that

moment that they included an interest in land. There is no 􀂭 377􀀉 doubt that an equitable interest may be presently created by contract: there is no commoner

way of creating such an interest. But it remains a question of construction whether the contract creates a present interest in property then existing or merely

operates, if and when a certain event happens, to create an interest in the property which shall at that date be existing. In the former case, even though the

interest may be in a sense contingent, I should hold, consistently with authority, that the statute applied. But in the latter case I see no reason for saying that

there is any interest, contingent or other, in land until the event in question has happened. The distinction between the two classes of case is well brought out

in Reeve v Whitmore, per Lord Westbury LC (4 De GJ & Sm 1, at p 18). It is, I think, into the latter category that the present case falls. Here, too, I find

myself so fully in agreement with my noble and learned friend that I will not embark upon further examination of a document such as your Lordships are not

likely again to consider.

I concur in the motion that the appeal should be allowed.

LORD GODDARD. My Lords, I have had the advantage of reading the opinion of my noble and learned friend, Lord Maugham, with which I entirely agree.

But as we are differing from the majority of the Court of Appeal on grounds different from those expressed by MacKinnon LJ who dissented, I will add a few

words of my own. The whole question depends on whether cl 11 of the agreement of 20 September 1877, conferred on the testator any estate or interest in

land or conferred any charge therein in his favour. The object and intention of the agreement is perfectly clear. The testator was minded to retire from a

partnership in a manufacturing business of which he had hitherto been a member. He agreed to leave a part of his capital in the business as a loan to the

remaining partners on certain conditions and at 10 per cent interest. The loan was to be repaid by annual sums equal to one half of the clear profits of the

business. Cl 11, which for this purpose is the most important, gave the testator the right of entering on the business premises and inspecting the mode of

conducting the business and all the books and other documents. On breach of any condition of the loan, or if the capital was reduced to a certain sum or less,

the testator was entitled to wind up the partnership business “or” (so the agreement is worded, though it appears to me that “and” would have been the more

appropriate word to use), to continue the business as long as may be found necessary or expedient in order to wind it up. Thus, it was expressly contemplated

that the business was to continue and be carried on as heretofore. If it had been found necessary or convenient, it could have been moved to other premises,

and the firm could have disposed of the equity of redemption that they possessed. Certainly no words are used which appear to impose any charge or

assignment, present of future. True, it is expressly stated in cl 12 that the intention of the parties is that the amount due to the testator should have priority over

the claims of the remaining partners, but this provision does not appear to me to confer any additional right on the testator. As a creditor of the firm, he was

entitled to be paid the money he had lent before his debtors took anything. Suppose something had happened which amounted to a breach of one of the

conditions so that the testator became entitled to exercise his right of winding up the business. If the assets of the firm proved sufficient to pay its debts, no

difficulty would arise. The debts, including that due to the testator, would be discharged and the balance, if any, would go to the existing partners. If the firm

proved to be insolvent, bankruptcy proceedings would probably have been taken by some creditor. In that case, I do not see how the testator could have

proved as a secured creditor. Indeed, as he was entitled to receive one half of the profits by way of repayment, in my opinion his debt, by reason of sect 5 of

Bovill’s Act, 1865, replaced by sects 2 and 3 of the Partnership Act, 1890, would have been postponed to that of other creditors. In no case could he have got

a preference over other creditors. In my opinion, therefore, what the agreement gave him was a right or power to wind up the partnership in certain events, but

did not confer upon him any charge or interest in the assets. Nor do I feel able to construe cl 11 as effecting an equitable assignment. It does not appear to me

to confer on the testator any greater right to payment than was possessed by any other creditor of the partnership, though it does give him a method of

enforcing his right by allowing him to wind up the partnership without 􀂭 378􀀉 having first to obtain judgment. As I have already said, in the event of

insolvency, his position would have been less favourable than that of other creditors. I am accordingly of opinion that the Charitable Uses Act, 1735, has no

application to the present case, and I would allow the appeal.

Appeal allowed.

Solicitors: Sharpe, Pritchard & Co agents for Alsop, Stevens & Collins Robinson, Liverpool (for the appellants); Hill, Dickinson & Co (for the respondents).

C StJ Nicholson Esq Barrister.

[1946] 1 All ER 379