1903 EDWARD NELSON & Co., LIMITED V. Macnaghten's judgment in Government Stock and Other Securities Investment Co., Ld. v. Manila Ry. Co. (1) After default the banks had a lien upon all the goods of the company and an equitable charge upon the price of all goods sold by the FABER & Co. company, who became trustees for the banks of those goods and that money. The right of the company to sue the defendants, on October 2, 1900, for the price of goods sold and delivered was subject to the equitable charge of the banks. There could be no right of set-off under these circumstances. The result of the cases is that, in order to establish a set-off, there must be two debts presently due; they must be liquidated debts, and they must be owing between the respective parties in their own rights: see Ex parte Cleland, In re Davies (2) ; Fair v. M'Iver. (3) The right of set-off is statutory, and does not arise where, as here, one of the debts is clogged with an equitable charge in favour of third persons. The claim of the defendants is for the statutory right only; they claim no right of set-off by express contract or hypothecation. Next, the defendants are not, at any rate, entitled to set off the sum payable under their debenture which fell due on October 1, 1901, because the evidence establishes that the banks had, on September 30, 1901, given the company express notice determining their liberty to carry on their business. Any distinct intimation that the banks intended to enforce their rights is sufficient: Doe v. Price. (4) Further, the defendants, being second debenture-holders who took their debentures with notice of the first series of debentures issued to the banks and subject thereto, cannot assert or exercise any right under their debentures in derogation of the rights of the first debenture-holders; and by claiming this set-off they are asserting and attempting to enforce such a right. Spencer Bower, K.C., and Henriquez, for the defendants. In order to prevent the defendants' right of set-off, the plaintiffs must establish that there was, before October 1, 1901, an (1) [1897] A. C. 81, at pp. 86, 87. (3) (1812) 16 East, 130; 38 R. R. (2) (1867) L. R. 2 Ch. 808. 438, 442. (4) (1832) 9 Bing. 356; 35 R. R. 553. 1903 EDWARD & Co., LIMITED V. assignment by the company to them of the debt due from the defendants to the company, and that the defendants had notice of that assignment. The debentures issued to Moore & Robinson's Bank constituted, at most, an incomplete assignment. The conditions indorsed on those debentures did not FABER & Co. provide that there should be an assignment if default was made in payment of the bank's first debenture, and nothing short of the appointment of a receiver could operate as an assignment. There is nothing in those conditions to prevent the ordinary rule, as laid down by various decisions, from applying. The case is governed by the decisions in Biggerstaff v. Rowatt's Wharf, Limited (1) and Government Stock and Other Securities Investment Co. v. Manila Ry. Co. (2): see also Robson v. Smith (3); In re Roundwood Colliery Co., Ld., Lee v. Roundwood Colliery Co., Ld. (4), judgment of Lindley L.J.; In re Hubbard & Co., Ld., Hubbard v. Hubbard & Co., Ld. (5) No notice of assignment is alleged to have been, or has in fact been, given by the banks to the defendants. Notice of the appointment of a receiver must have been given to the defendants before their transactions with the company could be interfered with: Re Arauco Co., Ld. (6) If the debentures issued to the banks constituted an assignment to them, they took subject to the equities of the assignors, and the evidence shews that the company when formed agreed with E. Nelson, from whom they took over the business, to take over his debt to the defendants. Moore & Robinson's Bank had notice of that agreement when they took their debentures from the company, and the debentures subsequently issued by the company to the defendants were to secure payment of E. Nelson's debt to them. As to the right of set-off, the rule is that "where there are cross-debts accruing but not yet due, there is, independently of the legal rights of the parties, a distinct absolute equitable right that the balance only should be considered due": Watson v. Mid-Wales Ry. Co. (7), judgment of Willes J.; see 1903 EDWARD also Government of Newfoundland v. Newfoundland Ry. Co. (1), judgment of the Privy Council. The banks have, by lying by and allowing the company to carry on its business, so conducted themselves as to render it inequitable that they should be FABER & Co. allowed to resist the set-off claimed. NELSON & Co., LIMITED v. The evidence on which the banks rely does not establish an express notice to the company on September 30, 1901, to cease carrying on their business. By claiming a set-off, the defendants are not asserting or attempting to enforce any right in derogation of the rights of the first debenture-holders; they are not seeking to enforce their charge in priority to the charge created by the first debentures. [They also referred to Mercer v. Graves. (2)] O. Leigh Clare, in reply. The cases cited for the defendants depend upon their own facts, and are all distinguishable from the present. In Biggerstaff v. Rowatt's Wharf, Limited (3), and in the other cases, the continuance of the charge as a floating charge was not expressly limited as it is here. The banks, by allowing the company to continue carrying on its business, have not altered the position of the defendants in any way, and have, therefore, raised no equity against themselves; nor has the company made any contract with the defendants which could raise any equity in favour of the latter. Cur. adv. vult. June 29. JoYCE J. The defendants, Faber & Co., had dealings with E. Nelson & Co., Limited. On October 1, 1901, they owed the last-mentioned firm a sum of more than 2000. for goods supplied; but Faber & Co. held two debentures of E. Nelson & Co., Limited, each for 15007. One of these debentures had become due on October 1, 1900, and the other became due on October 1, 1901. & Co. are entitled to set off the against their debt to E. Nelson (1) (1888) 13 App. Cas. 199, at pp. 210, 211. Primâ facie, therefore, Faber (2) (1872) L. R. 7 Q. B. 499. 1903 EDWARD NELSON & Co., LIMITED V. Joyce J. ment by E. Nelson & Co., Limited, of the balance of the aggregate amount (30007.) of the two debentures. But the plaintiff banks held debentures of E. Nelson & Co., Limited, prior in date to those held by Faber & Co. They held two debentures, each of them issued in March, 1900, one for 3000l., FABER & Co. which fell due on August 1, 1900, and the other for 2000l., which fell due on August 1, 1901. Those debentures charge the undertaking of the company and all its property, and by the conditions indorsed on them it is provided that the charge is to be a floating security, but so that the company is not to be at liberty to create any mortgage or charge in priority to, or upon equality with, those debentures. Then, clause 2 of the conditions gives liberty to the company to carry on its business until default, and clause 3 provides that from and after default the debenture is to become enforceable. Under those debentures held by the plaintiff banks a receiver was appointed on October 2, 1901, who probably took possession thereupon or shortly afterwards, though I am not sure that express notice of his appointment was given to anybody except E. Nelson & Co., Limited. The banks contend that when default was made in payment of the debenture which fell due on August 1, 1900, the right of E. Nelson & Co., Limited, to carry on business determined, and that those debentures, or, at all events, the earlier one of them, ceased to be a floating charge, although there was no active intervention by the banks before the appointment of the receiver, and no formal or express notice was ever given by either of the banks to Faber & Co. before the institution of the present action or the dispute which gave rise to it; though Faber & Co. were no doubt aware of the existence of the earlier debentures in the hands of the banks. It is a general rule with respect to a chose in action that an assignee takes it subject to all the equities-in other words, whatever defence by way of set-off or otherwise the debtor would be entitled to set up against the assignor's claim up to the time of his receiving notice of the assignment he may also raise and maintain against the assignee. The nature and effect of the floating charge or security created by debentures is, in my opinion, perfectly well settled by the decided cases. See 1903 EDWARD NELSON & Co., LIMITED V. Joyce J. in particular Lord Macnaghten's judgment in Governments Stock and Other Securities Investment Co. v. Manila Ry. Co. (1), where he says: "A floating security is an equitable charge on the assets for the time being of a going concern. It FABER & Co. attaches to the subject charged in the varying condition in which it happens to be from time to time. It is of the essence of such a charge that it remains dormant until the undertaking charged ceases to be a going concern, or until the person in whose favour the charge is created intervenes. His right to intervene may of course be suspended by agreement." Again, he says: "During the period of grace, or until there is a winding-up, the company are to be free to carry on their business they are to carry it on as of right. When that period comes to an end, the charge will have its ordinary effect. Thenceforward so long as the default lasts the business will be carried on, not as of right, but by the sufferance of the debenture-holders and at their mercy." Lord Macnaghten had previously said in Tailby v. Official Receiver (2), speaking of a certain security: "It belongs to a class of securities of which perhaps the most familiar example is to be found in the debentures of trading companies. It is a floating security reaching over all the trade assets of the mortgagor for the time being, and intended to fasten upon and bind the assets in existence at the time when the mortgagee intervenes." And Lord Lindley, in the important case of Biggerstaff v. Rowatt's Wharf. Limited (3), says that it is a settled principle that, where there is a floating security, "the company can, until the debenture-holders interfere, carry on its business as if the debentures did not exist." It follows, I think, from these and other cases that such a debenture as this in the present case does not cease to be a floating security, or, to use another expression, does not become an active security, until the company has been wound up, or stops business, or a receiver has been appointed at the instance of the debenture-holders, and it follows that, even after the (1) [1897] A. C. 81, at pp. 86, 87. (2) (1888) 13 App. Cas. 523, at p. 541. |