ROYAL INSURANCE Co. v. WATSON, H.L. for the purpose of arriving at the balance of the profits or gains for that year. I am of opinion that it cannot. I think that when the substance of the transaction is looked at, it really was a sum employed as capital in the adventure or concern. The payment was not made merely as the result of a contract of service with the former manager of the Queen Insurance Company, but it was made in pursuance of a bargain entered into between the Royal Insurance Company and the Queen Insurance Company, which bargain contained the terms on which the Royal Insurance Company was to become possessed of the business of the Queen Insurance Company. It could not be disputed for a moment that the price paid to a company, whose concern was bought by another company, would not be expenditure which would be set against the gains of the year in which the payment was made. It would obviously be capital expenditure, and although in this case the payment was a payment to be made under that agreement to the former manager of the Queen Insurance Company, when the matter is looked at in its substance and essence, I do not think that payment differs from such a payment as I have alluded to. I think it was equally a payment made in pursuance of the obligation contained in the contract by which the business of the Queen Insurance Company was purchased, and therefore is properly capital expenditure. That is enough for the decision of the case, and I do not intend to express any opinion upon any other point; but in consequence of observations which were made in the Court below I desire to guard myself on certain points, and to state that I do not express any opinion upon them, but desire to leave myself perfectly free hereafter if they should arise. To my mind, the case is not necessarily the same as if this were a payment made to a person employed by the company for the purpose of determining his service, and substituting somebody else in his place-quite apart from any such agreement as existed in the present case between the Royal Insurance Company and the Queen Insurance Company-a mere part of an arrangement made between the company and one of their employés. In my opinion this is not such a case. I desire to say nothing to prejudice the decision, if such a case arose. Again, the view has been expressed that no expenditure can be charged in any year, or in any one of the three years the average of which is taken, unless that expenditure can be shewn to have been expenditure relating wholly to the earnings made in one of the three years or in each of them. That again is a point upon which I desire to leave myself entirely open to act as may seem fit after argument, if the question should arise. I base my judgment exclusively upon the point to which I have called attention. LORD MACNAGHTEN.-I am of the same opinion. I think this payment was a payment on account of capital, and being so it cannot be deducted. I also desire to make the same reservation as my noble and learned friend with regard to the other questions which have been mentioned. LORD SHAND.-If this had been a case of a voluntary agreement between the manager of an insurance company and the company, for the payment to him of a salary for so many years, to last for a definite time, but with power to the company at any time they might think fit to terminate the service by making the payment at once of a capital sum, I think there would have been much force in the argument that such a payment might properly form a deduction from gross profits, in striking the balance liable to income tax; and I should make the same observation as to a case in which there has been wrongful dismissal of a person having an engagement for a term of years, and who succeeds in obtaining damages on that account. But this case seems to me to be entirely different. I agree with your Lordships in thinking that in this question as to income tax the sum which is proposed to be deducted in striking the balance of the profits and gains was a payment of capital, and must be debited to capital and not deducted from the income of the year. The Queen Insurance Company in parting with their business ROYAL INSURANCE Co. v. WATSON, H.L. stipulated that they should have allocated amongst their shareholders a certain amount of new stock to be created. But they further stipulated that the company purchasing their business should undertake a responsibility which in the end has resulted in the payment of 55,8461. Ss. 5d. We do not see what the motive was which induced them to make this stipulation. It may be that they were themselves bound to their manager under an agreement lasting for a period of time, and that they desired to get rid of that obligation, and have it transferred to the purchasing company. It may be that they were so satisfied with his services that they desired to reward the manager who was leaving their employment. But, however that may be, they did stipulate that there was to be a money advantage given to their manager on leaving their employment. That was, as it seems to me, clearly an obligation undertaken by the Royal Insurance Company to make a payment in consideration of acquiring the business of the Queen Insurance Company. That, I think, was a payment of capital, and therefore not a proper deduction from profits. I desire to add, following upon what my noble and learned friend Lord Herschell has said, that for my part I should have very great doubts of the ground of judgment which I see has been stated by several of the learned Judges who have already considered this case, founded upon the view that expenditure which is made in one year must, if it is to be deducted for the purposes of income tax, have reference to profits made during that year. I should have very great difficulty indeed in adopting the reasoning on that subject which is to be found in the judgments in the Court below. On these grounds I am of opinion that this judgment should be affirmed. LORD DAVEY.-I agree that the payment to the manager which was in question in this appeal did in fact form part of the consideration for the purchase of the Queen Insurance Company's business and connection; and that being so, the point is sufficient for the decision of the In these circumstances I do not case. find it necessary to say anything, and I say nothing upon the other points which have been opened to us, but which have not been fully argued before us. Appeal dismissed. Solicitors-G. L. P. Eyre & Co., agents for Garnett, Tarbet & Co., Liverpool, for appellants; Solicitor of Inland Revenue, for respondent. [Reported by J. Eyre Thompson, Esq., Barrister-at-Law. HAWKINS, J. THOMAS v. JENNINGS AND ANOTHER. Landlord and Tenant-Tenant's Fixtures-Consent to Removal after Expiration of Tenancy-Subsequent RefusalAction to Recover Value of Fixtures-Rights of Parties. As between landlord and tenant an agreement by the landlord that the tenant shall be at liberty to leave tenant's fixtures on the premises after the expiration of the tenancy, and to sever and remove them after they have thus become part of the freehold, may, in the event of the landlord's subsequent refusal to permit severance and removal, give the tenant a right of action for the value of the fixtures. But such an agreement gives the tenant no such right of action against the landlord's mortgagees who have in the meantime entered into possession under a prior mortgage. This action was originally set down for trial before Hawkins, J., and a special jury, but the jury, having found a verdict. upon a single issue, were by agreement discharged, and the Judge proceeded to try the case alone. The plaintiff, formerly lessee of a house and gardens, claimed from the defendants, mortgagees of the lessor, delivery up of greenhouses and forcing-houses, admittedly tenant's fixtures, and removable THOMAS v. JENNINGS. during the tenancy, but which had been permitted to remain after its expiration, or their value and damages for their wrongful detention; and alternatively damages. for being wrongfully prevented from removing the same. By his statement of claim the plaintiff alleged that Alfred Welch (the lessor) consented and agreed to permit the plaintiff to leave the fixtures and chattels on the premises after the expiration of the term with the view of their being purchased by Alfred Welch or by an incoming tenant, and failing such purchase that the plaintiff should be entitled to remove the same. By their defence the defendants denied the alleged agreement and the lessor's right to make it. They set up the Statute of Frauds, and alleged that tenant's fixtures left annexed to the premises and not removed at the expiration of the tenancy formed part of the freehold. The jury found that an agreement had been arrived at between the lessor and the plaintiff in the terms set out in the statement of claim. The lease expired on March 25, 1893. The mortgage under which the defendants entered into possession on February 8, 1894, was dated June 24, 1890, and the agreement found by the jury was made subsequent to the date of the mortgage. Channell, Q.C., and Claude C. M. Plumptre, for the plaintiff.-The agreement was binding on the lessor, and it is equally binding on the defendants his mortgagees, because they could always have called upon the plaintiff to attorn tenant to them. By not doing so they clothed their mortgagor with the authority of landlord. Relying on the lessor's promise not to assert his commonlaw right, the plaintiff, in ignorance of the existence of the mortgage, left the fixtures on the premises after he had delivered up possession, in the full belief that if they were not taken by an incoming tenant he might sever and remove them. Here the mortgagees, the defendants, allowed the mortgagor to act as owner, and are bound by what he did, since in agreeing to allow the fixtures to remain, and to their subsequent removal unless taken by an incoming tenant, he was doing what he had a perfect right to do. He had their implied authority, which ought to be regarded as authorising him as mortgagor in possession to agree with the plaintiff as he did-see per Lindley, L.J., in Gough v. Wood [1894], Sanders v. Davis [1885],2 Moreland v. Richardson [1857],3 and Torrey v. Burnett [1875].4 Crump, Q.C., and Rolland, for the defendants.-The mortgagor was clothed with no authority by his mortgagees; he was not in any sense their agent. If the agreement found by the jury be even regarded as a grant of a licence to enter premises and sever fixtures at a future date, it would be bad, not being under seal Wood v. Leadbitter [1845] and Ruffey v. Henderson [1851].6 The common-law principle that fixtures annexed to the freehold by a tenant during his tenancy become the property of the landlord if they are left on the premises after the expiration of the tenancy, applies here-Maryport Hematite Iron and Steel Co., In re [1891].7 The fact that the mortgagees did not call upon the plaintiff to attorn tenant, and did not put in a receiver when the mortgage was executed, has not deprived them of their common-law right to the fixtures found annexed to the freehold when they did enter. Cur, adv. vult. The following written judgment was delivered on August 12, 1896: HAWKINS, J.-This action came on for trial in Middlesex before me and a special jury on March 12 last. During the trial it was agreed that the only question which the jury should be asked to deal with should be whether such a contract was made as stated in the third paragraph of the statement of claim, and that the jury when they had found their verdict on that issue should be discharged, and the rest of the case tried by me alone on further consideration. This course was followed, (1) 63 L. J. Q.B. 564, 567; [1894] 1 Q.B. 713, 720. (2) 54 L. J. Q.B. 576; 15 Q.B. D. 218. (5) 14 L. J. Ex. 161; 13 M. & W. 838. (6) 21 L. J. Q.B. 49; sub nom. Roffey v. Henderson, 17 Q.B. 574. (7) 61 L. J. Ch. 227; [1892] 1 Ch. 415. THOMAS v. JENNINGS. and in the result I took time to consider the judgment I am now about to pronounce. The material facts were as follows, and I so find : On April 12, 1872, one Alfred Welch, being the owner in feesimple of "the Manor House," gardens, &c., situate at Southall, Middlesex, demised the same to Edward Weston for a term of twenty-one years from March 25, 1872. In the said lease is contained a covenant on the part of the lessee on the termination of that demise "peaceably and quietly to leave, surrender, and deliver up unto the said Alfred Welch " the demised premises," together with all landlord's fixtures and all erections and buildings to be erected and built on the said demised premises, or any part thereof." On September 17, 1879, Weston, the lessee, assigned the residue of his term to the plaintiff Thomas, who thereupon entered upon the premises and paid rent, and became tenant to Welch. During the said term, after the said assignment, and before the execution of the mortgage hereinafter mentioned, the said Thomas erected and built upon the demised premises a vinery with shed adjoining, a peach house and forcing house, four top lights to a pit, and a sundial. These it is not disputed were tenant's fixtures, which, in the ordinary course and in the absence of express stipulations to the contrary, might have been removed by the tenant during the term of tenancy. In the month of September, 1890, a correspondence was opened by Mr. Thomas with Mr. Welch with reference to these fixtures. In the first letter, dated September 4, after stating that he had only two years and a half to run before the expiration of his lease, Mr. Thomas writes thus: "I should also wish to ask you whether, on the expiration of my lease, and presuming the property to be unlet, you would allow the greenhouses, &c., which belong to me to remain so that they could be taken by an incoming tenant, or that I should be at liberty to remove them if he did not take them." In reply to this Mr. Welch requested to know what fixtures Mr. Thomas proposed to remove, but no arrangement was then come to. So matters remained until the beginning of March, 1893, when Mr. Thomas, having had a list and valuation made of the fixtures, sent a copy of it to Mr. Welch. By the letter which contained the list Mr. Thomas requested to be informed if Mr. Welch would take any of the items, as time was running short. In fact, the lease was about to expire on the 25th of that month. In reply to this letter Mr. Welch, on March 11, wrote to Mr. Thomas a note containing this paragraph: "Meanwhile allow me to say that you need not tie yourself to the 25th in removing anything belonging to you, as you are quite welcome to send your workmen on the premises of the Manor House at any time whilst it is in my possession and unlet." Interviews were had during that month and before the lease expired by Mr. Thomas and his valuer with Mr. Welch. Mr. Thomas's memory was very imperfect as to them. He remembered only that Mr. Welch said the fixtures might be taken by an incoming tenant, but he did not remember anything being said about leaving the fixtures on the premises at the end of the term. Mr. Newall, the valuer for Mr. Thomas, however, said that Mr. Welch told him the things could be removed (this must have meant after the expiration of the lease), though nothing was said about the time when the removal was to be, and that there would be no difficulty in the houses being taken away as soon as suited the plaintiff's convenience. Mr. Welch did not deny this, and added, "I very likely said what I wrote." The jury, upon this correspondence and evidence, found that an agreement was come to between the parties as alleged in the statement of claim-namely, that "the said Alfred Welch consented and agreed to permit the plaintiff to leave the said fixtures and chattels on the said premises after the expiration of the said term, with the view of their being purchased by the said Alfred Welch or by an incoming tenant, and failing such purchase that the plaintiff should be entitled to remove the same." It will be observed that no time within which such removal should take place is named in the statement of the contract as set out in the pleadings. The letter, however, of March 11 refers to "any time whilst it (that is, the Manor House) is in my pos THOMAS v. JENNINGS. session and unlet." It seems to me obvious that would be the limit of a reasonable time; and that, I have no doubt, was the intention of both parties, who probably never thought of or contemplated any interference by the mortgagees hereinafter mentioned. Relying on the said agreement, Mr. Thomas quitted the premises at the expiration of the lease, leaving behind him the fixtures in dispute still annexed to the freeholds, and so they have remained down to the present time. I must now state the case as it was presented for and against the defendants. On June 24, 1890, Welch mortgaged the demised premises, subject to prior incumbrances, to the defendants Jennings and Finch, to secure a sum of 6977. 2s. Ild. and interest; and they, on February 8, 1894, duly appointed the defendant Ellis to be the receiver of the rents, &c., of the mortgaged property under the provisions of section 24 of the Conveyancing and Law of Property Act, 1881, and he on that day entered into possession of the premises on their behalf, and has held such possession for them ever since. No reletting of the premises took place between the time of the plaintiff's quitting and the month of March, 1895. In that month a proposed new tenant opened negotiations with Mr. Ellis on behalf of the mortgagees for taking the house, but he was not willing to purchase the fixtures at the price put upon them by Mr. Thomas's valuer. Mr. Thomas then determined to remove them, and on March 12, 1895, through his solicitor, Mr. Houlder, by letter of that date requested Mr. Ellis to inform him when it would be convenient for him so to do. Mr. Ellis, acting for the other defendants, declined to give his permission to such removal, except under conditions that 30%. should be deposited to make good damage which would be occasioned by the removal, and that the removal should be under his control, and that all should be cleared away within a week. These conditions were not assented to by the plaintiff, and under these circumstances the defendants refused to permit the plaintiff to remove any of the fixtures, denying his right to do so, or to enter on the premises for that purpose. It was agreed that I should finally and absolutely and without appeal settle the principle upon which the damages shall be assessed if the defendants are liable in this action. This I do by stating that the amount of damages should be arrived at by ascertaining first of all what would be the value of the materials of the fixtures on the premises when and as severed from the freehold, for the purpose of reerecting them elsewhere-having regard to their age and condition-minus the cost of severing them (if severed by the mortgagees), and minus also the amount of the reasonable cost of making good as far as possible the damages and cost occasioned to the premises in severing the fixtures, storing the materials, carrying them away, and any permanent damage (if any) occasioned to the premises which cannot be made good. Had this been an action against Mr. Welch for non-fulfilment of his agreement to allow the plaintiff to remove his fixtures after the expiration of his term, and while Mr. Welch had possession of the premises, I should have been of opinion that a binding contract, such as stated in paragraph 3 of the claim, might be established between them without any writing at all. For such a contract cannot be properly described as a contract for the sale of goods or chattels under section 17 of the Statute of Frauds; nor could it be correctly described as "a contract or sale of an interest concerning lands," within the meaning of section 4 of that statute; for tenant's removable fixtures while annexed to the freehold are not goods and chattels, and the right to sever and remove them from the freehold to which they are attached does not give the tenant an interest in the freehold itself. This has been conclusively_established by the cases of Hallen v. Runder [1834] and Lee v. Gaskell [1876]. It is only when severed from the freehold that they become goods and chattels, and it is only when the tenant has no longer a right so to sever them that they become permanently parts of the freehold itself. strongly disposed to agree in the argument of the defendants that, if the contract found by the jury was sought to be (8) 3 L. J. Ex. 260; 1 Cr. M. & R. 266. I am |