CHAN. DIV.]

Nov. 17, 18, 23, and 24.

(Before SARGANT, J.)

GOLDEN BREAD COMPANY LIMITED v. HEMMINGS. (a) Vendor and purchaser-Receiver appointed of businesses-Sale as going concern-Loss in carrying on business-Liability of purchaser to indemnify vendor-Notice to purchaser.

Where completion of a contract for sale of a business as a going concern is delayed through the fault of the purchaser, and the vendor notifies the purchaser that the business is being carried on at a loss, and that he will hold the purchaser accountable therefor, the vendor is entitled to specific performance and also to an indemnity in respect of expenses properly incurred in carrying on and preserving the business as a going concern.

Shaw v. Foster (27 L. T. Rep. 281; L. Rep. 5, H. L. 321) applied.

Dakin v. Cope (1827, 2 Russ. 170) distinguished.

THIS was an action for specific performance of some contracts and for a declaration that the plaintiffs were entitled to be indemnified by the defendant against all expenditure incurred by them in carrying on and preserving as going concerns for the defendant the businesses comprised in the agreements and consequential accounts. The facts were as follows: The plaintiffs carried on business as bakers and confectioners at several addresses. On the 15th Jan. 1920, a receiver and manager of the said business was appointed in a debenture-holders' action, and on the 27th Jan. 1920, the company went into voluntary liquidation. Agreements were entered into with the defendant whereby the defendant agreed to purchase the various premises and the goodwill of the respective businesses carried on upon them, and the defendant paid a deposit. The contracts were entered into subject to the approval of the court, and it was provided that completion should take place one month after such approval had been obtained. The approval of the court was not obtained till the 26th Oct. 1920, and accordingly the date fixed for completion was the 26th Nov. 1920. Owing to the default of the purchaser the conveyances were not sent to the vendors until the 6th Jan. 1921. The plaintiffs' solicitors kept pressing for completion, and wrote in December to the defendant's solicitors and pointed out to them that the businesses had been carried on at a loss for many months past, and that they had been kept open solely for the benefit of the purchaser, and that the vendors would hold the purchaser " to strict accountability for the loss." This letter and subsequent letters to the same effect were not replied to, and finally the defendant refused to complete except on the footing that he was not liable for these losses.

The material facts of the first agreement were as follows:

The receiver and the liquidator were to sell, and the defendant to purchase at the price of 3800l. the leasehold shops and premises, No. 1, Park-parade, Harlesden; No. 1, Chippenham-road, Harrowroad, Paddington ; and No. 15, Hazel-road, Willesden, for the residue of the respective terms upon which the same were held, and subject to the respective rents, covenants, and conditions therein mentioned, together with the goodwill of the (a) Reported by L. MORGAN MAY, Esq., Barrister-atLaw.

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respective businesses of bakers and confectioners carried on thereon, and the respective tenants' fixtures, trade utensils, and plant, and machinery, except as therein mentioned; and also the freehold shop and premises, No. 91, Barretts-green-road, Willesden. The sum of 3801. was paid as a deposit.

Clause 2 of the agreement was as follows:

The purchase to be completed within one month of the approval by the court of this contract. If not then completed the purchaser to pay interest on the balance of the purchase money at six pounds per cent. or the vendors at their options to take the rents until completion without prejudice to the vendor's other rights. All rents and outgoings shall be apportioned up to the completion and added to or deducted from the purchase money as the case may require.

The master's note of what happened on the 29th July 1920, when application was made for the approval of these conditional agreements, is so far as material, in these terms:

Subject to purchaser attending before the registrar and accepting title by consent of the defendant company order as asked.

Notwithstanding the pressure brought to bear by the vendors the defendant did not attend and accept the title until the 26th Oct. 1920, when an order was drawn up under date the 29th July 1921, ordering the premises to be sold with the approbation of the judge. The order then continued:

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As

No draft conveyance having been received by the vendor's solicitors up to the 22nd Nov. 1920, they wrote a number of letters pressing for it, and in particular on the 8th Dec. 1920, wrote as folllows: We are sorry we are still without the draft conveyance. We telephoned to-day as our instructions in the matter are peremptory. . . your client is well aware the businesses which for months past have been kept open solely for his benefit have been carried on at a loss and, of course, our clients will hold Mr. Hemmings to strict accountability for the loss, certainly as from the 29th Aug., by which date the whole matter ought to have been concluded in accordance with the terms of the contract."

Alexander Grant, K.C., and Farwell for the plaintiffs.-These vendors are entitled to be indemnified against losses incurred in carrying on the businesses after the date fixed for completion. Subject to certain limitations in the event of the trade going off, a vendor in such circumstances is a trustee for the purchaser:

Shaw v. Foster, 27 L. T. Rep. 281; L. Rep. 5
H. L. 321;

Fry on Specific Performance, 6th edit., p. 638.

CHAN. DIV.]

There is a difference in the position before and after
the date fixed for completion:

Rayner v. Preston, 44 L. T. Rep. 787; 18
Ch. Div. 1; at p.
13.

Where a vendor allows the property which he has
agreed to sell to the purchaser to deteriorate he is
liable to have the purchase money reduced by way of
compensation to the purchaser :

Phillips v. Silvester, 27 L. T. Rep. 840; L. Rep. 8 Ch. 173.

The comments of Jessel, M.R., upon this case seem only to have related to whether there were facts to support the decision:

Dart's Vendor's and Purchasers, 7th edit.,
vol. 1, pp. 673, 674.

The principle has been applied in subsequent cases:
Royal British Permanent Building Society v.
Bomash, 57 L. T. Rep. 179; 35 Ch. Div. 390;
Earl of Egmont v. Smith, 6 Ch. Div. 469, at
p. 475.

The vendors sold these businesses as going concerns.
The goodwill would have been destroyed if they had
failed to carry them on and the purchaser might
have repudiated the contracts. The purchaser
ought accordingly to be liable for the losses incurred
after the date fixed for completion. There seems,
however, to be authority the other way:

Dakin v. Cope, 2 Russell, 170.

In that case no notice had been given to the purchaser that the business sold was being carried on at his risk, and in this respect the case is distinguishable from the present case for here the letter of the 8th Dec. 1920 amounted to notice of what was being done. With regard to the references to this case in the text books see:

Dart's Vendors and Purchasers, 7th edit., vol. 1, p. 657;

Williams on Vendors and Purchasers, 2nd edit., vol. 1, p. 520, note x. ;

Sugden on Vendors and Purchasers, 14th edit., p. 638.

This point was not decided in

Bennett v. Stone, 85 L. T. Rep. 753; (1902) 1
Ch. 226; at p. 236.

The principle that the vendor is in such circumstances a trustee for the purchaser, has been recognised in many cases:

Bolton Partners v. Lambert, 60 L. T. Rep. 687; 41 Ch. Div. 295, at p. 302;

Dodson v. Downey, 85 L. T. Rep. 273; (1901) 2 Ch. 620.

The vendor has been made to account for deterioration in the land sold:

Foster v. Deacon, 1818, 3 Madd. 394.

It has been held that a person beneficially entitled to shares is bound to indemnify the registered holder against calls:

Hardoon v. Belilios, 85 L. T. Rep. 573; (1901)
A. C. 118.

Galbraith, K.C. and Norman Daynes for the defendant.-Phillips v. Silvester and Earl of Egmont v. Smith (sup.) are admittedly authorities that the vendor is in a sense a trustee, and can be

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This

made liable for negligence and lack of case. does not, however, render him under any obligation to carry on a business. If he does so to preserve the goodwill, the purchaser cannot be made liable for the loss incurred in so doing:

Barsht v. Tagg, 81 L. T. Rep. 777; (1900) 1
Ch. 231.

The defendant did not know till the 8th Dec. that losses were being sustained. He cannot be liable for previous losses. But it is also contended that he is not liable at all. [SARGANT, J.-What do you suggest was the vendors' duty in this case ?] They should have informed the purchaser of the carrying on at a loss and should have obtained his instructions. The authorities only go to show that as from the date of the contract for sale the vendor shall take reasonable care of the property he is selling. There is no authority, apart from a dictum of Kekewick, J. in Bolton Partners v. Lambert (sup.) that the liability can be thrown on the purchaser for these losses:

Fry on Specific Performance, 6th edit., p. 605 Halsbury's Laws of England, vol. x., p. 313. Farwell in reply.-Dakin v. Cope (sup.) is distinguishable. It turned on two facts, one that relief in respect of carrying on the business had not been asked in the bill and in that the vendor had not shown that the purchaser knew of the loss. The vendor as a trustee is entitled to be indemnified by his cestui que trust. This right is, of course, always subject to the trustee acting reasonably. The vendor was regarded in Dakin v. Cope as a person who had acted unreasonably in carrying on the business at a loss for over two years without giving any notice of the position to the cestui que trust or asking him for instructions as to what he wished done. An ordinary trustee would not, in such circumstances be entitled to throw the loss on his cestue que trust. If Dakin v. Cope (sup.) is considered from this point of view, it is not inconsistent with the other cases. That is not this case at all. Here notice was given promptly to the purchasers by the vendors.

SARGANT, J.-In this action two points arise on two contracts for the sale of one freehold and four leasehold premises, and the goodwill of the business carried on at three of the leasehold premises. The questions, are, first, from what date interest was on the purchase money, and secondly, whether the vendors are entitled to throw on the purchaser losses incurred by them carrying on the businesses. [His Lordship then stated the facts, and after deciding the first question continued :]

CHAN. DIV.]

I think on the evidence it is established that between the 29th July 1920, and the end of the following November the purchaser was aware that the businesses were being carried on at a loss. If he did not know it personally his employee Morris had ascertained it on his behalf, and Morris' knowledge must be taken as knowledge by the purchaser himself. I accept on this point the evidence of Mr. Hayland, the manager of the plaintiffs' business, and I rely also on the admissions that were extracted from Morris, who naturally did his best to safeguard his employer's interest. Although there was a binding contract on the 26th Oct. the purchaser took no steps to get the conveyances drafted, and his solicitor admitted candidly that the delay was due to the purchaser's instructions not to hurry matters on. I am convinced that but for the plaintiffs' delay after the 26th Oct. the sale could have been completed by the 26th Nov., which on the view I have taken was the date fixed for completion. It will be noted that the period of one month after the approval of the contract was allowed by the contract for the investigation of the title as well as the preparation of the conveyances. But the title had already been accepted before the date when the contract was approved. Any delay after the 26th Nov. was, in my opinion, due to the deliberate desire of the purchaser to put off completion of the contract, partly because he was occupied with other matters, and partly because he was by then anything but enamoured with the business he had purchased. This may have been due to his knowledge that the businesses were being carried on at a loss, though it is fair to say that the purchaser did not attach much importance to their being losing businesses, but rather looked to the volume of business being done, as he thought that with his organisation he would be able to make them pay. I hold that the delay after the 26th Nov. was due to the deliberate default of the purchaser.

That

The vendors found themselves in the position of having businesses which they had sold and which were being carried on at a loss. What were they to do? On the 8th Dec. 1920, the vendors' solicitors wrote a most important letter to the defendant in these terms. [His Lordship read the letter.] letter seems to me to be a perfectly clear indication to the defendant that the three businesses not only had been, but were being carried out at a loss, and also that they were being carried on by the vendors for the account of the purchaser and to protect the goodwill of the businesses for him. From that time, therefore, the defendant undoubtedly had clear notice of the state of affairs and was bound, in my view, to tell the vendors if he wished to put an end to it. He might have told them to continue to carry on the businesses or have requested them to shut down the businesses; or he might have arranged that his own manager should take charge of the businesses. As a matter of fact he pursued a policy of masterly inactivity. The matter was again called to the purchaser's attention on the 8th Jan., but once again he did nothing. Ultimately on the 18th Jan., the present action was commenced. In the course of the action the purchaser at last woke up to the position and made an arrangement by which his own manager was put in charge of the whole businesses on the terms that from then on he was to take the profits or bear the losses of the businesses. The question, therefore, is whether the losses from the 26th Nov. to the 8th Dec., and afterwards until the 13th May, when the plaintiffs'

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manager went into possession, are to be borne by the purchaser. I ought to point out that in the letter of the 8th Dec. it was suggested that the purchaser had been for a long time aware that the businesses were being carried on at a loss. If that had been incorrect, it may be assumed that the purchaser would have written a letter repudiating any such knowledge, and in the witness box he admitted that it was a letter which ought to have been answered. In view of the construction I have put on the contract, it followed that any losses incurred up to the 26th Nov. must necessarily be borne by the vendors. I have to consider only the losses from the 26th Nov. to the 8th Dec. 1920, and afterwards. The general principle applicable here was stated by Lord Cairns in Shaw v. Foster (sup.) as being that as between vendor and purchaser, the vendor is as from the date fixed for completion a trustee of a somewhat modified kind. He says: "Under these circumstances I apprehend there cannot be the slightest doubt of the relation subsisting in the eye of a court of equity between the vendor and the purchaser. The vendor was a trustee of the property for the purchaser; the purchaser was the real beneficial owner in the eye of a court of equity of the property, subject only to this observation, that the vendor, whom I have called the trustee, was not a mere dormant trustee, he was a trustee having a personal and substantial interest in the property, a right to protect that interest, and an active right to assert that interest if anything should be done in derogation of it. The relation, therefore, of trustee and cestui que trust subsisted, and subsisted subject to the para mount right of the vendor and trustee to protect his own interest as vendor of the property."

What was the property sold here? As to the three shops in which businesses were being carried on the sale related not only to the bricks and mortar sold, but also to the three businesses sold as going concerns. In those circumstances the vendors were no more entitled to let these businesses lapse than to allow the bricks and mortar to fall into decay. If the vendors had failed to deliver bread on the rounds the whole goodwill would have been destroyed and the purchaser would have been entitled to repudiate the contract on the ground that he was not getting what he had agreed to purchase namely, these businesses as going concerns.

In such circumstances a vendor is entitled primâ facie to continue to carry out the business he has sold at the risk of the purchaser with reasonable promptitude of what he is doing. In the present case there was a delay in giving notice from the 26th Nov. to the 8th Dec.; but in my judgment that was in no degree unreasonable. On the contrary, my view is that the vendors pointed out with considerable promptitude the effect of the purchaser's delay. In view of statement made to the purchaser by the vendor on the 8th Dec., which show that the businesses were continuing to be carried on at a loss and that the vendors were looking to the purchaser to indemnify them. I have no doubt that the defendant was, by his silence, acquiescing in the status quo having continued. So that from that time forth at any rate the vendors are entitled to be indemnified by their cestui que trust, the purchaser. But I apply the principle I have referred to not only from the 8th Dec. onwards, but also to the short antecedent period from the 26th Nov. to the 8th Dec., as the vendors made no unreasonable delay in notifying

CHAN. DIV.]

the purchaser as to the position. The case of Dakin v. Cope (sup.) has been very much pressed on me. But in my judgment that case when carefully considered does not form an exception to the general rule laid down by Lord Cairns in Shaw v. Foster (sup.) that the vendor is a trustee for the purchaser of the property sold, a general rule which I think applies to the goodwill of a business sold as a going concern. In Dakin v. Cope (sup.) there was a delay in the completion of the sale of a business owing to difficulties as to title, and the vendor carried on the business for nearly two and a half years after the date fixed for completion without giving any notice to the purchaser of what he was doing, or giving him any opportunity of deciding the course to be adopted. Further, no special averment was made in the bill of these facts. The ordinary decree for specific performance was asked for and obtained, but it was drawn up so as to render the purchaser liable for losses incurred in carrying on the business. The question was whether in the circumstances it ought to be drawn up in this form. Lord Eldon, called attention to the fact that no such case was raised by the bill. It appeared also that in answer to a question he had asked in the course of the argument he was told that no notice had been given to the purchaser that the trade would be carried on at his risk. Lord Eldon did not, therefore, think it just to impose on the purchaser the loss sustained by the vendor. It was a very different case from the present one, and it stands on its own facts and does not go to the extent of deciding that, when the goodwill of a business has been sold, the vendor is not entitled to throw on the purchaser losses incurred by him in carrying on the business after the date fixed for completion, when he has acted reasonably and told the purchaser of the loss that is being incurred and given him an opportunity of saying what course should be pursued; though I do not say that a direction by the purchaser to close down the business at once must be necessarily complied with as the vendor has to consider his own position in case the purchase does not go through. Here notice was given to the purchaser that the businesses here being carried out at a loss and he kept silent and allowed the state of affairs to continue. In those circumstances he is in my opinion, liable to indemnify the vendors against these losses from that time, including the losses incurred over the short antecedent period between the 26th Nov., and the 8th Dec. 1920. There must be an inquiry as to the amount of the losses properly incurred by the plaintiffs in carrying on the businesses between the 26th Nov. 1920, and the 13th May 1921, when the defendants receiver and manager went into possession.

Solicitors: Fairchild, Greig, and Co., Sturton and Sturton.

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will of a testator (who died in 1908 domiciled in England), upon trusts for the payment of annuities to certain German nationals.

Held, that for the purpose of the Treaty of Peace Order 1919 the property right or interest of the annuitants was situated in this country and was charged by that order.

ADJOURNED SUMMONS.

This summons was issued by the trustees of a will for the determination of the question (inter alia) whether the rights and interests of the defendants Carl Steinkopff, Sophie Eugenie Augusta Steinkopff, Eugenie Marie Sophie Steinkopff, Friedrich Maack, Edward Winter, and Gerda Ihnen respectively or any of them under the will and codicil of the testator were charged by the Treaty of Peace Order 1919. The facts, which are taken from the judgment, are as follows: The testator Edward Steinkopff died in 1908, domiciled in England, leaving an English will. The trustees of the will were English trustees. By his will the testator provided that his trustees were to set aside a sum of 765,000 marks invested in the Three Per Cent. Hamburg State Loan, and the trusts of the fund were in the first place to pay annuities to nine persons for their lives. All the annuitants had died with the exception of the defendant Friedrich Maack. He was entitled to an annuity of 395 marks. The trusts of the 765,000 marks fund provided, subject to the payment of annuities, for the payment of which the interest on that fund was just sufficient, that as and when any annuitant died the income set free by his death was to be accumulated until the income, with the relative proportion of capital which would have produced the annuity had he been alive, reached a sum of 300,000 marks. That 300,000 marks (referred to in the proceedings as the Carl Steinkopff Fund) was dealt with under the will. Owing to the death of most of the annuitants the 300,000 marks were provided and constituted as a fund under an order of the court as from the 2nd Jan. 1914. The trustees were directed by the order to invest and retain a a fund of 300,000 marks at the middle market price of the day, and that fund was retained and invested and amounted to 382,000 marks. That constituted the Carl Steinkopff Fund. Thereafter the trustees were to continue to accumulate the income set free by the deaths of the annuitants until the accumulations, plus the relative proportion of capital, amounted to a fund of 100,000 marks, and that 100,000 marks was divided by the will between two people, the defendant Edward Winter and the defendant Gerda Ihnen, each of whom was entitled to 50,000 marks. That fund duly produced sufficient to provide for the two sums of 50,000 marks.

The Carl Steinkopff Fund (i.e., the 382,000 marks) was dealt with in the following manner: Carl Steinkopff, a nephew of the testator, was made tenant for life of that fund, subject to a condition in consequence of which he did not become entitled to the income in 1914. Subject to his life interest the fund belonged during widowhood to his wife, the defendant Sophie Eugenie Augusta Steinkopff, and subject to the interest of those two persons it belonged under the will to the children of Carl Steinkopff, of whom there were three, contingently on their attaining the age of thirty or marrying as to daughters. Only one of the three children was before the court on the summons.

By the Treaty of Peace Order 1919 it is provided : Sect. 1 (xvi.): "All property rights and interests within His Majesty's Dominions or protectorates belonging to German nationals at the date when the Treaty comes into force (not being property rights or interests acquired under any general licence issued by or on behalf of His Majesty), and the net proceeds of their sale, liquidation or other dealings therewith, are hereby charged .." [in manner therein set out].

W. R. Sheldon for the trustees.

Clauson, K.C. and Bryan Farrer for the German beneficiaries.

Gavin T. Simonds (Sir Gordon Hewart, A.-G. and Dighton Pollock with him) for the Crown.

Bischoff for a British national, also a beneficiary under the will.

The following case was referred to:

Re Clark; McKechnie v. Clark, 89 L. T. Rep. 736; (1904) 1 Ch. 294.

RUSSELL, J. after stating the facts relating to the interests in question under the will, continued: Now it is argued by Mr. Clauson that they are not charged by the Treaty of Peace Order, and he puts his argument in this way. He says that there is authority which is binding upon me that bonds in a foreign country are not property situate in this country; that certainly bearer bonds belonging to a foreign country are not property situate in this country for the purpose of dividing the testators' property into English assets and foreign assets. For that he cites the case of Re Clark; McKechnie v. Clark (sup.), which was a decision of Farwell, J. In that case the point was this: The testator had separated his property into classes; he had given one class to one set of trustees for certain purposes and the other class to another set of trustees. He bequeathed all his personal estate in the United Kingdom to certain persons whom he called his home trustees, upon certain trusts, and he bequeathed all his personal estate in South Africa to certain other persons whom he called his foreign trustees, upon other trusts. The question which Farwell, J. had to decide was which of those two sets of trustees was entitled to this property. The question arose concerning, amongst other things, certain bearer bonds of a waterworks company in South Africa. The learned judge held that the bearer bonds of the waterworks company in South Africa were not given to the home trustees but were given to his foreign trustees. He decided that upon this footing, that with regard to bond debts it was conceded that if they were on the same footing as simple contract debts the rule was, in construing a will, that the debts, so far as they could have a locality at all, were to be considered to be located where the debtor was resident, and for this purpose he did not see any ground for drawing a distinction between a bond debt and a simple contract debt. He accordingly held that the bonds were locally situated where the debtor was resident. I need hardly say that I cast no shadow of doubt upon the correctness of that decision, but the question which I have to determine is wholly different. These German nationals undoubtedly have a property right and interest in this trust fund. The question is whether that property right or interest is situate in this country or not. It seems to me that for the purpose of the Treaty of Peace

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Order it is situated in this country. Take the case of one of the beneficiaries, Mr. Maack-which is, perhaps, the strongest case in Mr. Clauson's favour. The annuitant is entitled to an annuity of 395 marks. What are his rights under the will? He is a beneficiary under an English will, with English trustees, and he is entitled to go to those trustees and say: 'You, the English trustees, must pay me so many marks a year out of this particular fund which the testator has designated for that purpose.' The actual state of investment of the particular trust fund appears to me to be entirely irrelevant.

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The investment could be altered from time to time, and there would be no difficulty in having the fund invested in Consols. Maack's right is a right against the trustees, a right to call on them to do their duty under the will, and if they do not, to come to the court and ask to have the estate administered according to the trusts of the will. That right seems to me to be a chose in action, and, according to the well-known principle, a chose in action must be regarded as situate in the country where it is enforceable. It appears to me that the right of all these beneficiaries is a right to go to the trustees and ask them to discharge their duty as trustees under the English will, or if they do not do that to come to the court in this country and ask to have the trusts of this English will administered by the court. The result is that, in my view, the first question asked by the summons:

Whether all or any, and which, of the rights and interests under the said will and codicil of the defendants Carl Steinkopff, Sophie Steinkopff. Friedrich Maack, Edward Winter and Gerda Ihnen respectively, or any, and which, of these are charged by the Treaty of Peace Order 1919," must be answered in this way, that all the rights and interests of these defendants are charged by the Treaty of Peace Order 1919.

Solicitors: Elkin, Henriques, and Harford ; Coward and Hawksley, Sons, and Chance; Treasury Solicitor.

Tuesday, Jan. 24. (Before RUSSELL, J.)

Re COOKE; WINCKLEY . WINTERTON. (a) Will-Power of appointment-Covenant to exercise power in a particular way-Exercise of power in accordance with covenant-Subsequent revocation— Fetter on power—Validity.

A testator bequeathed certain moneys upon trust that the income should be paid to his daughter for life and after her death that the principal should be divided amongst her surviving children in such shares as she should by will appoint and in default of appointment among her surviving children in equal shares. One son and one daughter survived her. The son married in 1905, and at the time of his marriage his mother covenanted by deed that she would irrevocably appoint to him absolutely a sum of not less than 4000l. At the same time she executed a will appointing to him a sum of not less than 40001. and he assigned the sum in question to the trustees of his marriage settlement. Some years later she executed a fresh will by which she revoked the appointment, and appointed the 60001. equally between her son and her daughter. (a) Reported by J. L. DENISON, Esq., Barrister-at-Law.