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High Court of Australia |
NORMAN v. FEDERAL COMMISSIONER OF TAXATION [1963] HCA 21; (1963) 109 CLR 9
Income Tax (Cth) - Equitable Assignment
High Court of Australia
Dixon C.J.(1), McTiernan(2), Menzies(3), Windeyer(4) and Owen(5) JJ.
CATCHWORDS
Income Tax (Cth) - Assessable income - Purported voluntary assignment by taxpayer of future property - Future interest on loan repayable at will - Future dividends on company shares &which taxpayer expected to acquire - Effectiveness of assignment - Whether assignment of future undeclared dividends can exclude such dividends from shareholder's assessable income - Income Tax and Social Services Contribution Assessment Act 1936-1958 (Cth), s. 44.Equitable Assignment - Future property - Choses in action - Voluntary assignment - General principles - Distinction between existing proprietary right and mere expectancy or possibility.
HEARING
Adelaide, 1962, September 25, 26;DECISION
1963, July 25.2. It is convenient to take the dividends first. It seems to be clear that throughout the year beginning on 1st July 1957 the taxpayer was a shareholder, registered in the share registers as such, in the companies declaring the dividends. As between him and the companies, he was therefore entitled to the dividends. Under s. 44 of the Income Tax and Social Services Contribution Assessment Act it is provided that the assessable income of a shareholder in a company shall include dividends paid to him by the company out of profits derived by it from any source, if he is a resident, and if he is a non-resident, from sources in Australia. If the shareholder is a trustee no doubt the operation of Div. 6 may protect him, but the taxpayer in the present case was not in that category. It seems to me somewhat difficult to know why he should not be liable to include the dividends. However, it is perhaps best at this point to turn to the other sum, that of 460 pounds added as interest. That consisted of amounts paid by way of interest on a loan in which the taxpayer occupied the position of lender. The interest accrued after 1st July 1957 although the loan had been made before that date. By a document described as an indenture, made on 21st December 1956 between the taxpayer of the one part and his wife of the other part, it was recited that the taxpayer had invested certain funds in shares in what no doubt are the companies in question and that the taxpayer was entitled to certain interests (which need not here be particularized) and he was desirous of assigning as a gift to his wife the income arising from any such investments to which he was entitled and from the interests mentioned, for her own use and benefit absolutely in the manner and for the periods thereinafter provided. And the indenture witnessed as follows: (1) The taxpayer, described in the document as the assignor, did thereby transfer and assign all his right title and interest in and to - (a) all the interest dividends and other income to which the assignor may be entitled arising from the estates and investments and assets specified in the first schedule to the documents for a period commencing on 1st January 1957 and ending on 30th June 1958. (b) all the interest derived from the assets or investments specified in the second schedule for a period commencing on 1st July 1957 and ending on 30th June 1958 - unto the assignee for her own use and benefit absolutely. Now it is to be noted that at the date of the indenture and at the opening of the year of income, viz. 1st July 1957, no interest had accrued and no dividend existed, that is to say, had been declared. In each case the subject matter of the assignment, that is, of the intention to assign, was a sum of money which did not exist but which was expected to arise with more or less confidence. In the case of the dividend, that depended upon the affairs of the companies and the course that might be taken. In the case of the interest, that depended upon the subsistence of the loan. The loan, however, might have been repaid and of course anything may have happened to affect the accrual of the interest. So far as the dividend is concerned, I think the structure of s. 44 of the Income Tax and Social Services Contribution Assessment Act 1936-1958 makes it impossible that future undeclared dividends should be assigned by the shareholder so as to exclude him from liability to include the dividends when declared in his assessable income. Section 44 and the sections which follow are framed to deal specially with the case of members of companies who are entitled to dividends. The whole question of tax upon the profits of companies is dealt with specially in the Act, including the scheme relating to rebates. It would become impossible if a shareholder could without transferring his shares assign a future undeclared dividend so as to exclude the operation of the provisions. (at p16)
3. As to the question of the alleged assignment of the interest, I have had the advantage of reading the discussion contained in the judgment of Windeyer J. of the whole subject of voluntary equitable assignments and I do not know that there is anything contained in it with which I am disposed to disagree. In the conclusion, however, that in this case there was an effectual equitable assignment of the future interest I cannot agree. I think that such a conclusion must be reached in order to support an answer favourable to the taxpayer of so much of the question in the case stated as relates to the sum of 450 pounds (sc. interest). It appears to me that the future interest was the merest expectancy or possibility, having no existence in contemplation of law. After all, it must be remembered that to escape the obligation of including the interest in his assessable income the taxpayer must show that by 1st July 1957 he had denuded himself of all right to the interest. That, I think, could not be correct. After all, there was no more than an expected right with respect to the sums and I do not think the necessary divestment of the future accrual could be made by way of gift. (at p16)
4. I think that the question in the case stated should be answered that the learned judge hearing the appeal would, upon the facts appearing in the case stated, be neither bound nor at liberty to hold that (a) the said sum of 450 pounds, or (b) the said sum of 460 pounds, did not constitute assessable income of the appellant in respect of the income year which ended on 30th June 1958. (at p16)
McTIERNAN J. The only question which is raised by the argument in this stated case is whether the indenture, exhibit 6, is effective to assign the beneficial interest in the disputed income from the taxpayer to his wife. Dividends amounting to 460 pounds are one part of the disputed income; the rest, 450 pounds, is interest. Both sums were paid in the year of income ended 30th June 1958. The taxpayer and his wife are the only parties to the indenture. He is described as assignor, she as assignee. They signed and sealed the indenture on 21st December 1956. The recital says that the assignment is a gift: in fact, it is not made for valuable consideration. The property included in the indenture is expressed to be assigned by the taxpayer to his wife for her own use for the periods mentioned in the indenture. The description of the property is contained in cl. 1. The words of description in sub-cl. (a), which need to be quoted, refer to all dividends to which the taxpayer may be entitled arising from the estates and assets specified in the first schedule. The period for which these dividends are assigned is from 1st January 1957 to 30th June 1958 inclusive. The words of sub-cl. (a) which have been mentioned apply to the dividends which appear in exhibit 7. All those dividends arose in the period from 1st July 1957 to 30th June 1958, which corresponds with the relevant year of income. These dividends amount to 460 pounds. The shares on which the dividends were paid were included in the assets of both estates mentioned in the first schedule of the indenture. The taxpayer was a beneficiary in those estates. The shares were distributed in specie and those on which the dividends had been paid had been transferred to him. The words describing the property referred to in sub-cl. (b), of cl. 1 are: all interest derived from the investment mentioned in the second schedule of the indenture. This is a deposit of 3,000 pounds with the firm therein named. Such interest is assigned to the taxpayer's wife for the period, 1st July 1957 until 30th June 1958, inclusive, which as has been stated is the period coinciding with the relevant years of income. The words of sub-cl. (b) which have been referred to apply to the sum of 450 pounds. (at p17)
2. The deposit of 3,000 pounds is part of a total loan of 4,451 pounds which was owing to the taxpayer on 30th June 1955 and kept on foot by an agreement of that date, subject to the conditions of an agreement of 7th July 1953. These agreements are exhibits 1 and 2. The result of the adoption of these conditions is that the firm by whom the loan of 4,451 pounds is owing has the right to pay it off wholly or partly at any time and the taxpayer may demand payment of it wholly or partly, but must allow to the firm at least eighteen months to pay. The loan is not for a fixed period. The stipulation as to the payment of interest in the earlier agreement applies to the sum of 4,451 pounds. The result of this is that the firm is liable to pay interest at 15 per centum on that amount from 30th June 1955 until repayment of it, but subject to the proviso that the rate is reduced to 1 1/2 per centum on any amount which the taxpayer requires it to repay during the currency of the notice of demand. Neither the taxpayer's right to demand payment nor the firm's right to repay has been exercised during the period from 30th June 1955 to 30th June 1958. (at p18)
3. Is the indenture a good assignment of the dividends arising from the assets specified in the first schedule for the period from 1st July 1957 to 30th June 1958? The dividends materialized in the sum of 460 pounds in that period. The taxpayer relies on the assignment as being an equitable assignment. Clearly, it is not an assignment which is effective at law. The dividends were not yet choses in action when they were assigned. An equitable assignment of a chose in action which does not exist when it is made is not effective unless the assignment is made for valuable consideration. The indenture is, therefore, not an answer to the Commissioner's claim that the sum of 460 pounds is assessable income of the taxpayer. (at p18)
4. The taxpayer also relies on the assignment of the interest derived from the "deposit" of 3,000 pounds, part of the loan of 4,451 pounds, as being a good equitable assignment of such interest. The stipulation as to the payment of interest on the sum of 4,451 pounds created an obligation to pay interest during the period that this sum would be owing. However, the taxpayer could not demand interest until the end of each period of twelve months. The obligation is to pay interest at 15 pounds per centum per annum subject to a possible reduction to 1 1/2 pounds per centum per annum. A present chose of action arose from the obligation, although it was not immediately enforceable. The assignment of the interest derived from 3,000 pounds, part of the sum of 4,451 pounds, is the equitable assignment of a part of that chose in action. It is not the assignment of a right of property not yet in existence. (at p18)
5. The condition of the loan that the firm is entitled to repay the whole or part of it at any time is relied upon by the Commissioner to render the interest, derived from the loan in the period for which the interest attributable to 3,000 pounds of the total is assigned, a future chose in action or merely a possibility or expectancy. In my view, that condition is not inconsistent with the obligation to pay interest on the loan as one which arose when the agreement of 30th June 1955 was made. That obligation was in existence when the indenture was made. If the firm availed itself of the condition in question after the assignment was made that would have had the effect of terminating the contract of loan. But until then the obligation to pay interest was in existence. It follows that the sum of 450 pounds into which the assigned interest materialized was the property of the taxpayer's wife, not his income. (at p19)
6. I would answer the question as to the sum of 450 pounds: "Yes", and the question as to the sum of 460 pounds: "No". (at p19)
MENZIES J. This is a case stated by Taylor J. pursuant to s. 198 of the Income Tax and Social Services Contribution Assessment Act 1936-1958 upon an appeal by H.A. Norman (the taxpayer) in respect of his income tax assessment for the year ended 30th June 1958. (at p19)
2. The only questions argued were whether it was the taxpayer or his wife who derived two items of income, one consisting of 450 pounds interest paid by a partnership and the other of 460 pounds paid as dividends by about twenty companies in which the taxpayer was a shareholder at the time when the dividends were declared and paid to him. The taxpayer claimed that neither of these sums should be regarded as his income contending that on 21st December 1956 he had voluntarily but effectively assigned them to his wife. The Commissioner contested the effectiveness of the assignment. (at p19)
3. The assignment relied upon was a deed executed both by the taxpayer and his wife whereby the taxpayer purported to assign to her four descriptions of income for terms having different starting points but all ending on 30th June 1958. The first was his income from two estates, W.A. Norman deceased and D.C. Norman deceased, in each of which he was entitled to a one-fifth share of residue. No question as to this arose in these proceedings. The second comprised dividends from the taxpayer's then holding of shares in two companies. No question arose as to these dividends. The third was the interest on the sum of 3,000 pounds being part of a sum deposited by the taxpayer on loan at interest with a firm consisting of Sale Service Limited and Car X'Change Limited which in the year of income amounted to 450 pounds. This is one item in dispute. The fourth comprised dividends from shares transferred to the taxpayer by the trustees of one or other of the two estates already mentioned subsequently to the execution of the deed of assignment. In the year of income dividends from these shares amounted to 460 pounds. This is the other item in dispute. (at p19)
4. I have stated categorically that the assignment covered four descriptions of property but I should add that in doing so I have rejected the contention advanced on behalf of the taxpayer that what I have described as the fourth category was nothing but an extension of the first. Upon my reading the deed is inconsistent with this contention for it provides that in the event of any distribution of the assets of the estates which were referred to in the first schedule of the deed "the moneys and assets received by the assignor on account thereof and the investments for the time being representing the same shall be deemed to be assets specified in that schedule" (that is, the first schedule). To my mind the effect of this is that upon a distribution occurring as it did by the transfer of shares from the trustees to the taxpayer, shares of which the taxpayer became the holder were then brought into the schedule so that dividends arising therefrom were assigned as "dividends . . . to which the assignor may be entitled arising from the . . . assets specified in the first schedule hereto", to quote the language of the dispositive clause of the deed. (at p20)
5. It is convenient to deal with the two items in dispute separately. (at p20)
6. The sum of 3,000 pounds deposited with the firm was part of a larger sum covered by two agreements of loan, the first dated 7th July 1953 and the second 30th June 1955. The second agreement was in substitution for the first but embodied the earlier agreement's terms and conditions except that the rate of interest was raised from 12 per cent to 15 per cent per annum. The borrowing firm consisted of two family companies in each of which the taxpayer was interested both as shareholder and director. On 21st December 1956 the taxpayer was a creditor of the firm in a sum of 4,669 pounds so that what was assigned by the deed of gift was the interest on part of a debt of a larger amount. The debt was for no fixed term and the firm was at liberty to repay it or any part of it at any time without notice. The lender was required to give eighteen months' notice if he should require payment of the debt or any part of it and in that event interest was from the date of the notice reduced to 1 1/2 per cent per annum. No notice in writing of the assignment was given to the firm. It is common ground that the assignment did not operate as a legal assignment of interest or the taxpayer's right to it, and the real question is whether there was an effectual equitable assignment of a right to interest. I do not think there was because what was assigned was not an existing right but was no more than a right which might thereafter come into existence and so could not be effectually assigned in equity without consideration. (at p20)
7. In general future property was not assignable at common law: Lunn v. Thornton [1845] EngR 466; (1845) 1 CB 379 (135 ER 587) but in equity after-acquired property was assignable for value according to the principles stated by Lord Macnaghten in Tailby v. Official Receiver (1888) 13 App Cas 523 but only for value notwithstanding the assignment was by deed: In re Ellenborough (1903) 1 Ch 697 If then interest that may arise under a contract has the character of a future rather than an existing right, the deed, lacking consideration, was not effective to entitle the assignee to the interest in question as and when it became due and payable. I regard interest which may accrue in the future upon an existing loan repayable without notice as having the character of a right to come into existence rather than of a right already in existence and I do not regard Earle (G. & T.) (1925) Ltd. v. Hemsworth R.D.C. (1928) 44 TLR 758; (1928) 140 LT 69, upon which Mr. Bright for the taxpayer relied, as any authority to the contrary. In that case no more was decided than that an assignment of a specific fund retained under a building contract which did not become payable until an architect's certificate was given, which happened after the date of the assignment, was a good legal assignment of a chose in action. As Wright J., the learned trial judge, said in a judgment fully approved by the Court of Appeal:- "I find there was a specific fund . . . In my judgment the retention moneys represented moneys actually earned at the date of the certificate, though in fact these retention moneys, as their name indicates, were to be held as a sort of security and in any case subject to having set off against them any cross-claims, which would reduce the amount when the final settlement came and the final certificate was issued. The retention moneys, therefore, were only future in the sense that they were not payable until some future date" (1928) 44 TLR 605, at p 609 An accruing debt arising out of contract, though not payable at the date of the assignment, was, it was held, assignable at law. One other observation upon the applicability of that case to the present may be made, that is, it is not to be assumed that every right that can now be assigned at law without consideration pursuant to s. 25(6) of the Judicature Act and corresponding legislation can also be assigned in equity voluntarily. Thus if, as seems to be generally accepted, (see Halsbury's Laws of England 3rd ed., vol. 4, par. 1003), the section extends to future debts and not merely debts not presently payable, in equity as distinct from the Judicature Act, the effectiveness of voluntary assignment remains limited to existing rights and interests. See Tailby v. Official Receiver (1888) 13 App Cas 523 and In re McArdle (dec'd) (1951) 1 Ch. 669, per Jenkins L.J. (1951) 1 Ch, at p 676 What was said in Horwood v Millar's Timber and Trading Co. Ltd. (1917) 1 KB 305 has application here. There, the question of the assignability of wages to be earned arose and Warrington L.J., speaking, I think, without any reference to the Judicature Act, s. 25(6), said:- "The assignment with which we have to deal is not the assignment of an actual debt, not the assignment of a chose in action which is in existence, but the assignment of a chose in action, wages which a man is going to earn, which may hereafter come into existence. Now the effect of that is nothing more than to create a contractual obligation between the two parties. That was stated by Lord Macnaghten in his speech to the House of Lords in Tailby v. Official Receiver (1888) 13 App Cas 523 in these terms: 'It has long been settled that future property, possibilities and expectancies are assignable in equity for value. The mode or form of assignment is absolutely immaterial provided the intention of the parties is clear. To effectuate the intention an assignment for value, in terms present and immediate, has always been regarded in equity 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.' (1888) 13 App Cas, at p 543 In other words, the real effect of such an assignment where property is not in existence is that it is carried into effect not because it passes the property, but because it is a contractual obligation binding upon the assignor, and one which can be specifically enforced if the contract and the subject-matter of it are sufficiently definite" (1917) 1 KB, at pp 314, 315 Under the contract of loan now under consideration, there was no liability for or right to interest until it began to accrue in an annual period and in 1956 the borrowers were under no liability for and the lender had no right to interest for 1958. It is not that interest for 1958 was not payable in 1956; it is that in 1956 interest for 1958 was nothing but an expectancy. It appears to me that the entries which were made in the books of the firm, clearly enough with the approval of both the assignor and the assignee, accorded with the true legal position in that the taxpayer was credited with all interest falling due upon his loan and his account was then debited and his wife's account was then credited with so much of the interest as was interest upon 3,000 pounds of the debt. To put it shortly, there were gifts of interest paid but not a gift of interest to be paid. (at p22)
8. The conclusion I have just stated makes it unnecessary for me to consider whether, if at the time of the deed the taxpayer had a right to future interest that was capable of assignment without consideration, the deed constituted a complete and perfect transfer of that right to his wife so that the second principle stated by Dixon J. in Comptroller of Stamps (Vict.) v. Howard-Smith [1936] HCA 12; (1936) 54 CLR 614, at p 622 would apply. See too In re Rose; Midland Bank Executor and Trustee Co. Ltd. v. Rose (1949) Ch 78; In re Rose; Rose v Inland Revenue Commissioners (1952) 1 Ch 499 (at p23)
9. My conclusion about interest would of itself govern the item of dividends as well but as to this I would make two additional observations: the first, the deed itself upon the construction I have put upon it treats the shares upon which the dividends were paid as property that within the expectancies of the parties would be acquired by the taxpayer during the period of the operation of the deed. A transfer of the shares would, therefore, have been a transfer of future property and would have required consideration to be effective. The assignee cannot be in anything but a worse position when the subject of the assignment is not the shares-but dividends which may arise therefrom. Secondly, I am disposed to think that s. 44(1) of the Income tax and Social Services Contribution Assessment Act requires that when the taxpayer received the dividends paid to him by the companies in which he was a shareholder, as he did, those dividends should form part of his assessable income. Of course, had he been a trustee of the shares the provisions of Div. 6 of the Act would have applied. (at p23)
10. The conclusions I have reached make it unnecessary to consider whether s. 260 of the Act applied to the deed under consideration. The point was not argued but, had I reached a conclusion in favour of the taxpayer upon the points which were argued, I am disposed to think that this case could not have been decided without considering the application of s. 260 to the deed. (at p23)
11. The question asked in the case stated should be answered "No". (at p23)
WINDEYER J. The ultimate question in this case is whether before 1st July
1957 the taxpayer had effectually assigned his right to
receive certain moneys
that would otherwise have been receivable by him and been part of his income
for the year ending on 30th June
1958. The transaction relied upon as an
assignment is a deed dated 21st December 1956. By it the taxpayer purported to
assign to
his wife, by way of gift, certain items of his income. These
included part of the interest that would become due during the year
in
question upon money lent by him to two private companies trading in
partnership, and the dividends that might come to him from
the shares he held
in certain public companies. Before examining the transaction in detail, it is
as well to consider the legal doctrines
around which the argument revolved.
(i) As to attempted assignments of things not yet in existence: (at p24)
2. As it is impossible for anyone to own something that does not exist, it is impossible for anyone to make a present gift of such a thing to another person, however sure he may be that it will come into existence and will then be his to give. He can, of course, promise that when the thing is his he will make it over to the intended donee. But in the meantime he may change his mind and when the time comes refuse to carry out his promise, even though it were by deed. A court of law could not compel him to perform it. A court of equity would not. Courts of equity never had the objections to all agreements about future interests that, until the seventeenth century, were deeply rooted in the common law. Equity did not share the view that such agreements were void on the ground of maintenance. But things not yet in existence could only be the subject of agreement, not of present disposition. And, in relation to promises and agreements, equity has been faithful to its maxim that it does not come to the aid of volunteers. For equity a deed does not make good a want of consideration. (at p24)
3. If we turn from attempted gifts of future property to purported dispositions of it for value, the picture changes completely. The common law objection remains. But in equity a would-be present assignment of something to be acquired in the future is, when made for value, construed as an agreement to assign the thing when it is acquired. A court of equity will ensure that the would-be assignor performs this agreement, his conscience being bound by the consideration. The purported assignee thus gets an equitable interest in the property immediately the legal ownership of it is acquired by the assignor, assuming it to have been sufficiently described to be then identifiable. The prospective interest of the assignee is in the meantime protected by equity. These principles, which now govern assignments for value of property to be acquired in the future, have been developed and established by a line of well-known cases, of which Holroyd v. Marshall [1862] EngR 963; (1862) 10 HLC 191 (11 ER 999); Collyer v Isaacs (1881) 19 Ch D 342; Tailby v Official Receiver (1888) 13 App Cas 523; and In re Lind; Industrials Finance Syndicate Ltd. v. Lind (1915) 2 Ch 345 are the most important. "And so", to use Maitland's words, "lawyers easily slipped into the way of saying that inequity one could make an assignment of goods hereafter to be acquired though one could not do so at law. This was a compendious way of putting the matter and was not likely to deceive any equity lawyer": Maitland, Equity, 2nd ed. (1936) p. 150. The effect of the decisions was summarized by Dixon J., as he then was, in Palette Shoes Pty. Ltd. v. Krohn [1937] HCA 37; (1937) 58 CLR 1, at pp 26, 27 These cases, however, are really beside the point in this case. We are concerned here with a purported gift, not with an assignment for value. (at p25)
4. Mr. Bright, seeking to get around some of the obstacles that lay in his
way if the transaction were held to be a voluntary assignment
of future
property, referred to one of Lord Chancellor Bacon's Maxims: Licet dispositio
do interesse futuro sit inutilis, tamen fieri
potest declaratio praecedens
quae sortiatur effectum, interveniente novo actu. He argued from this that an
ineffective assignment
of future property could become retrospectively
effective as from its date if, on the property coming into existence, the
transferor
did something to carry the assignment into effect. But that is not
the result of the maxim nor of the cases that were cited, namely,
Grantham v.
Hawley [1792] EngR 967; (1615) Hob 132 (80 ER 281); Petch v. Tutin [1846] EngR 335; (1846) 15 M & W 110 (153 ER
782); Wood and Foster's Case [1687] EngR 934; (1586)
1 Leon
42 (74 ER 39); Lunn v. Thornton
[1845] EngR 466; (1845) 1 CB 379 (135 ER 587) The contrast that those cases make between
potential property,
such
as the wool which will grow on
my sheep, or the crops
which will grow on my land, and future property, which only by a possibility
will come to me, is significant
in connexion with sales of goods. A purported
present sale of future goods operates at law as an
agreement to sell the
goods. And
if when the seller acquires them he delivers them, or in some other
way appropriates them to the
buyer, the property in them thereupon
passes.
This is the general rule. If, however, the goods were potentially the goods of
the
seller at the date of the contract, then
the property will pass as soon as
they come into existence - "are extant", in the words
of the first of the
cases mentioned above.
The application of these principles to-day is explained
in Benjamin on Sale 8th ed. (1950),
pp. 138-140; Halsbury 3rd ed. vol. 34,
pp.
64, 65 and illustrated by the cases referred to. They do not support, in fact
they contradict,
the taxpayer's contention. They
show that a purported
assignment of a thing before the thing exists can have no effect at law,
except
as a covenant or contract to
assign. The earliest moment at which the
property in the thing can actually pass is when it first becomes
extant.
Moreover the cases
deal with sales of chattels, not with purported gifts of
choses in action, which is what concerns us in
this case.
(ii) As to assignments of choses in action: (at p26)
In Lampet's Case (1612) 10 Rep 46b (77ER 994), Coke spoke of "the great wisdom and policy of the sages and founders of our law, who have provided that no possibility, right, title, nor thing in action, shall be granted or assigned to strangers, for that would be the occasion of multiplying of contentions and suits" (1612) 10 Rep, at p. 48a (77 E.R., at p. 997). It was a somewhat unsophisticated view of legal rights that led the common lawyers to classify choses in action and debts with mere possibilities, and to condemn all assignments of them as leading to maintenance. (at p26)
6. Assignment means the immediate transfer of an existing proprietary right, vested or contingent, from the assignor to the assignee. Anything that in the eye of the law can be regarded as an existing subject of ownership, whether it be a chose in possession or a chose in action, can to-day be assigned, unless it be excepted from the general rule on some ground of public policy or by statute. But a mere expectancy or possibility of becoming entitled in the future to a proprietary right is not an existing chose in action. It is not assignable, except in the inexact sense into which, again to use Maitland's words, lawyers slipped when it is said to be assignable in equity for value. (at p26)
7. The distinction between a chose in action, which is an existing legal right, and a mere expectancy or possibility of a future right is of cardinal importance in this case, as will appear. It does not, in my view, depend on whether or not there is a debt presently recoverable by action because presently due and payable. A legal right to be paid money at a future date is, I consider, a present chose in action, at all events when it depends upon an existing contract on the repudiation of which an action could be brought for anticipatory breach. (at p26)
8. The common law doctrine that debts and other choses in action were not assignable never applied to Crown debts; and, by the influence of the law merchant, bills of exchange and promissory notes were outside it. And it was never accepted in equity. "Courts of equity from the earliest times thought the doctrine too absurd for them to adopt" said Buller J. in 1791 in the course of a vigorous condemnation of it: Master v. Miller (1791) 4 TR 320, at p. 340 (100 E.R. 1042, at p. 1053). Furthermore he said that already at common law it had been "so explained away that it remains only an objection to the form of the action in any case". Blackstone had said "this nicety is now disregarded": Commentaries, ii, 442. In Balfour v. Sea Fire Life Assurance Co. [1857] EngR 853; (1857) 3 CB (NS) 300 (140 ER 756), Willes J. said that the doctrine had long been exploded "as everyone must know" (1857) 3 CB (NS), at p 308 (140 ER, at p 759) What had happened was that the common law rule came to be circumvented in various ways. One was by novation. Another was by the assignor giving a power of attorney to the assignee to sue the debtor at law in the assignor's name, without having to render an account: the history of this has been narrated at length by Mr. Bailey in learned articles in the Law Quarterly Review vols. 47 and 48. And courts of equity would come to the assistance of the assignee if the assignor refused to do whatever was necessary to enable the assignee to get the benefit of the assignment. Thus a recalcitrant assignor would be required, on having an indemnity for his costs, to permit his name to be used in an action to recover the debt; or an assignor would be restrained from receiving the debt for himself, as for example in L'Estrange v. L'Estrange [1850] EngR 876; (1850) 13 Beav 281 (51 ER 108) Because the assistance of equity was available, it was generally not needed. The common law courts recognized that an assignee might sue in the assignor's name. So that in 1849 it could be said that "the courts of law have adopted the doctrines of the court of chancery in regard to assignments of choses in action"; so much so that "In ordinary cases, where the plaintiff has an easy remedy by suing in the name of the assignor, the court (scil. the Court of Chancery) will not entertain jurisdiction, but leave the party to his remedy at law": Spence, Equitable Jurisdiction of the Court of Chancery, vol. 2, pp. 853, 854; and see Roxburghe v. Cox (1881) 17 Ch D 520, at p 526, Dicey, Parties to an Action (1870) pp. 66-72. Therefore, as the Chief Justice observed during the hearing of this case, it is somewhat misleading to say, as is often said, that before the Judicature Act the common law would not allow assignments of legal choses in action. Long before 1873 the development of common law processes and the impact of equity had pushed the common law prohibition of the assignment of choses in action back into history. Nevertheless the original doctrine survived, to this extent that, until the Judicature Act, 1873, s. 25(6), and the corresponding statutory provisions in Australia and elsewhere came into operation, an assignee of a legal debt could not in his own name bring an action against the debtor to recover the debt. The original creditor must be the plaintiff on the record. He remained in law the owner of the chose in action. What the provision of the Judicature Act, 1873, did was to render unnecessary the previous circumlocutions. Debts and other legal choses in action were made directly assignable by the statutory method. But this, while it simplified assignments, has not simplified the law surrounding them, as the argument in this case showed. (at p28)
9. It is settled that any assignment that satisfies the requirements of the
statute is valid and fully effectual although it be
voluntary. That is to say
the law now provides a means whereby the legal owner of a chose in action may
make a complete and perfect
gift of it. That being so, and as equity does not
perfect an imperfect gift, can there ever now be an effectual voluntary
assignment
unless all the statutory requirements are met? The question is not
an easy one if a purely logical answer be sought. Equity intervened
to assist
the assignments of choses in action because they were not assignable at law.
Now that they are, why, it may be asked, should
equity aid imperfect attempts
at voluntary assignments of them. On the other hand, it can be urged that the
statute provides a method
or machinery whereby assignment may be effected, but
that it does not detract from the validity of any transaction that would have
been effective in equity if it had occurred before the statute came into
operation. There is some authority for the latter proposition:
see e.g. German
v. Yates (1915) 32 TLR 52 And Lord Macnaghten's well-known words in William
Brandts' Sons & Co. v. Dunlop Rubber
Co., (1905) AC 454 are sometimes invoked
in support of it: "Why that which would have been a good equitable assignment
before the
statute should now be invalid and inoperative because it fails to
come up to the requirements of the statute, I confess I do not
understand. The
statute does not forbid or destroy equitable assignments or impair their
efficacy in the slightest degree" (1905)
AC, at p 461 But this was said in
reference to an assignment for value. I do not think that his Lordship's
remarks should be read
as qualifying the principle that equity does not
perfect imperfect voluntary assignments. If an attempt is made to assign, by
way
of gift, a chose in action assignable under the statute, then, as I see
the matter, the requirements of the statute cannot be ignored;
for the general
rule of equity is that an effective assignment occurs only if the donor does
all that, according to the nature of
the property, he must do to transfer the
property to the donee. But the weight of authority is, I think in favour of
the view that
in equity there is a valid gift of property transferable at law
if the donor, intending to make, then and there, a complete disposition
and
transfer to the donee, does all that on his part is necessary to give effect
to his intention and arms the donee with the means
of completing the gift
according to the requirements of the law: see Brunker v. Perpetual Trustee Co.
(Ltd.) (1937)
57 CLR 555 per
Dixon J. (1937) 57 CLR, at pp. 600-602; Re Smith
(1901) 84 LT 835; In re Rose (1949) Ch 78; In re Rose (1952) 1 Ch
499 I think
therefore
that, if a man, meaning to make an immediate gift of a chose in
action that is his, executes an instrument
that meets the
requirements
of the
statute and delivers it to the donee, actually or constructively, he has put
it out of his power
to recall his
gift. It is
true that until notice is given
to the debtor or person against whom the chose is enforceable at law, all
the
requirements
of the
statute have not been complied with. But the notice can be
given by the donee; and, if the donee has express
or implied authority
to give
it, I think that equity would not allow the donor to deny the right of the
donee to do so and so intercept
his gift. I reach
this conclusion with some
hesitation, for it involves some departure from the majority view in Anning v.
Anning
[1907] HCA 13; (1907) 4 CLR 1049
But it accords, it seems to me with general
principle. For these reasons I consider that, if the
debt that the
deed in
this case
purported to assign had been an existing chose in action assignable
by the statutory procedure, the
only question
would be whether
the assignor
had purported to make an absolute assignment of it, and whether he did all
that on his
part had to
be done to that end.
The difficulty is that, as will
appear, what it was sought to assign was part only of a prospectively
larger
debt.
(iii) As to assignments of part of a debt: (at p29)
10. It has been held that the statutory method of assignment is not available
for the assignment of parts of debts or choses in
action: Williams v. Atlantic
Assurance Co. (1933) 1 KB 81; Re Steel Wing Co Ltd (1921) 1 Ch 349 There were
some earlier decisions
to the contrary; but they must be taken to be
overruled. The later decisions should, I consider, be followed by this Court.
They
are in accordance with general principle. The conclusion does not depend
simply on a literal interpretation of the statutory language
and of the phrase
"absolute assignment". Before the statute an assignee was permitted to bring
his action at law in the name of the
assignor when he was seeking to recover a
whole debt assigned to him. If a debt had been broken into parts this
procedure was not
appropriate. A creditor cannot recover a debt piecemeal in a
court of law. Therefore, when part of a debt was assigned, proceedings
to
enforce the assignment had to be brought in a court of equity. And the
assignee, not the assignor, would be the plaintiff in the
suit. The assignor
(the creditor) as legal owner, the debtor and any assignees of other parts of
the debt were all necessary parties,
so that all the obligations of the debtor
and the rights of all persons interested in the fund might be established by
the decree.
This was the rule of the Chancery Court. It is still the law: see
Performing Right Society Ltd. v. London Theatre of Varities Ltd.
(1924) AC 1,
at pp 14, 20, 30, 31 As an assignment of part of a debt is still necessarily
an equitable assignment, the question arises
can it be made by way of gift;
and, if so, how?
(iv) As to whether consideration is required for the equitable assignment of
a chose in action not assignable at law: (at p30)
11. One might have expected that this would long ago have been authoritatively settled. But the question is, according to Halsbury, 3rd ed. vol. 4 p. 495, "uncertain". Lord Evershed said in In re McArdle (dec'd) (1951) 1 Ch 669 that the problem is "vexed and difficult" (1951) 1 Ch, at p 673 How vexed it is, and how diverse are the decisions, dicta and text-books, can be seen in the articles by Mr. Megarry and Professor Hollond in the Law Quarterly Review vol. 59 pp. 58 and 129 that are referred to in Halsbury and also in chap. vi of Professor Keeton's Introduction to Equity 5th ed. (1961). I do not think it necessary to discuss all the cases that were cited to us in argument, nor all those on this topic that I have read since then. I shall state the conclusions that I have reached on matters that are significant for the determination of the case before us. (at p30)
12. There are several senses in which the phrase "equitable assignment" may be used; and the question, Is consideration necessary for an equitable assignment?, does not admit of a single short answer covering all of them. (at p30)
13. If the interest to be assigned is a creature of equity, such as the beneficial interest of a cestui que trust, then, apart from any statutory provisions, an assignment of it can, of course, only be effected in equity; for the common law does not know it. Any present assignment of such an interest, that is to say of a chose in equity, is therefore necessarily an equitable assignment. Such an assignment can be by way of gift; and, except that writing is required by s. 9 of the Statute of Frauds, no formality is necessary beyond a clear expression of an intention to make an immediate disposition. In short, there is no reason at all why a person should not give away any beneficial interest that is his: the classic statement is that of Knight Bruce L.J. in Kekewich v. Manning (1851) 1 De G M & G 176 (42 ER 519); see too In re McArdle (dec'd) (2). It is, of course, necessary that the transaction should take the form of, and be intended as, an immediate transfer of the beneficial interest of the assignor, as distinct from an agreement to assign it. The distinction is critical, for consideration is always necessary to attract the support of equity to a transaction that is a contract rather than a conveyance. The judgment of Stuart V.C. in Voyle v. Hughes [1854] EngR 88; (1854) 2 Sm & G 18 (65 ER 283), puts all this clearly (at p31)
14. Turning, from assignments that are equitable because the property assigned is a chose in equity, to assignments that are equitable because the property assigned is a legal chose in action not assignable except by the aid of equity: It has been said that historically there could be no equitable assignment of a debt except for value. Whether this be correct or not as a general proposition, it never meant that there must be consideration as now understood in the law of contract. An assignment in satisfaction, or part satisfaction, of an antecedent debt was taken in equity as made for value. And this was what had happened in case after case appearing in the reports in which assignments were upheld in equity before the Judicature Act. Whether equity would then give any aid to an assignment of a chose in action made for no value at all, but as a pure gift, is less clear. There are in the reports categorical statements each way, extending over two centuries or more. In 1733 it was said in the report of Lord Carteret v. Paschal (1733) 3 PW 197 [1733] EngR 59; (24 ER 1028), that "it was admitted on all sides that if a man in his own right be entitled to a bond, or other chose in action, he may assign it without any consideration" (1733) 3 PW, at p 199 (24 ER, at p 1029) But in the second edition of Equity Cases Abridged, published the very next year, this appears: "A chose in action is assignable in equity upon a consideration paid. per cur.[1707] EngR 3; , 2 Vern. 595; but there must be a consideration. 3 Chan. Rep. 90". The last reference is to the report of Suffolk v. Greenvill (1641) 3 Chan Rep 89 (21 ER 738), where it was said of an assignment by deed of a chose in action: "The assignment was void in law, and being so ought not to be mentioned against the rule of law in a court of equity, no consideration appearing to support the same, which should make it better in equity than at law" (1641) 3 Chan Rep, at pp 90, 91 (21 ER 738) But there are later statements the other way, especially when the assignor had made his attempted gift by deed and notice of it had been given to the debtor: see e.g. Re King (1879) 14 Ch D 179 The decisions in Holt v. Heatherfield Trust (1942) 2 KB 1, and In re McArdle (dec'd) (1951) 1 Ch. 669. leave the question still uncertain. Sir Frederick Jordan, in his Chapters on Equity in New South Wales said that "although the authorities were in an unsatisfactory state, the better opinion appears to be that any sufficiently clear expression of intention to assign a legal chose in action which was not assignable at law was sufficient to assign it in equity, although there were no consideration . . ." This view was taken in New Zealand, by Barrowclough C.J., in Pulley v. Public Trustee (1956) NZLR 771 In Liverpool & London and Globe Insurance Co. v. Hartley & Ford (1927) VLR 523, at p 529 Cussen J tended somewhat to the opposite opinion. But strictly that case was one of the assignment of a possibility; and there is no doubt at all that consideration is necessary for the assignment of a possibility or expectancy - the distinction, as stated above, being between an implied agreement to assign something that may never come into existence and a present disposition of property in existence: see Re Ellenborough (1903) 1 Ch 697 It should be noticed that Glegg v. Bromley (1912) 3 KB 474, was not really a case of a voluntary assignment, for the assignment there was in satisfaction of a pre-existing debt; and that in equity would suffice. This was so, too, in Holt v. Heatherfield Trust (1942) 2 KB 1, although this has sometimes been overlooked The observations of Parker J. in Glegg v. Bromley (1912) 3 KB 474 about the need for consideration must, as Lush J. pointed out in German v. Yates (6), be read in reference to their context, which was the assignment of something not yet in existence. (at p32)
15. Professor Keeton, in the work to which I have referred above, after surveying the authorities, said: "As far as the actual decisions are concerned, they support as a whole the proposition that an assignment of a chose in action in equity before 1873 was effective if it were either accompanied by consideration or was under seal and was absolute in form, so that the assignor was as fully divested of the property as it was possible for him to be . . . The requirement of a seal in an equitable assignment seems distinctly anomalous and would appear to be an acceptance of the common law rules as to assignments between assignor and assignee". (p. 197). (at p32)
16. It seems to me that, in principle, so far as a deed has any efficacy in connexion with equitable assignments, it is not that a deed takes the place of valuable consideration where that is needed to attract the aid of equity. Rather it is that, in cases where value is not so required but a clear expression of intention is, the delivery of a deed couched in terms of present gift manifests, in the best possible way, the intention of the assignor to make an immediate and irrevocable transfer. (at p32)
17. The intervention of equity in support of assignments of choses in action has been ascribed historically, in the main, to one or other of two grounds. One is to hold men to agreements and promises which they have made for value; the other is the analogy of a trust. Story put the two somewhat together when, adopting Butler's note to Coke on Littleton (232 b), he said: "Every such assignment is considered in equity as in its nature amounting to a declaration of trust, and to an agreement to permit the assignee to make use of the name of the assignor to recover the debt, or to reduce the property into possession": Story, Equity Jurisprudence 7th ed. (1857) par. 1040. An assignment, of course, differs from a declaration of trust. And it is trite to say that an ineffectual attempt to assign property will not be rescued by equity by being construed as a valid declaration of trust: Milroy v. Lord [1862] EngR 951; (1862) 1 De GF & J 264 (45 ER 1185) Nevertheless, the analogy between the creation of a trust and an equitable assignment of a chose in action, which creates an equitable interest in the assignee, is significant. (at p33)
18. An agreement to assign will be effective as an equitable assignment if it be for value; for then equity looks on that as done which ought to be done. But this does not mean that there cannot be in equity an actual assignment of a chose in action as distinct from an agreement to assign. I think there can, and that it can be by way of gift. In such a case equity enforces the assignment, not by compelling the assignor to do something, but by refusing to allow him to act in a way inconsistent with what he has done, that is by restraining him from derogating from his gift. His conscience becomes bound, not by value received, but because, as between him and the assignee, his gift was complete. (at p33)
19. This view of the matter is in accordance with the decision of the Court
of Appeal in In re Patrick (1891) 1 Ch 82, a case concerning
a voluntary
settlement by which the settlor assigned certain debts to trustees before the
Judicature Act, 1873, came into operation.
The Court, consisting of Lindley,
Bowen and Fry L.JJ., held that there had been a complete assignment of the
debts. The decision
has been somewhat depreciated by text-writers, because
Lindley L.J. said that the assignment of the debts was complete "within the
principle of Kekewich v. Manning (1851) 1 De GM & G 176 (42 ER 519) which is
the leading case on this subject" (1891) 1 Ch 82,
at
p 87; and it has been
pointed out that Kekewich v Manning (1851) 1 De GM & G 176 (42 ER 519) was a
case of the assignment
of an equitable
chose, not of a legal chose in action.
But, as between assignor and assignee, does that make any difference? Why
should consideration
be said to be necessary to bind the conscience in the one
case when it is not necessary in the other? Before
1873 a chose in equity
and
a chose in action were both transferable in equity and only in equity. The
assignments were alike made
effective because of the
remedies that a court of
equity could provide. To speak of equity not perfecting an imperfect gift
seems
beside the point where no
gift could be made except in equity. To say
that the donor must do everything that according to the nature
of the property
is necessary
to transfer it means little when it is in law not transferable;
for equity looks to the intent not the
form. These considerations
have added
weight in the case of part of a debt; for a part of debt never was assignable
so as to be recoverable
at law even in an
indirect way. It being necessary for
the decision of this case to come to a conclusion on a vexed question, my
conclusion is that
the deed that the taxpayer executed did not fail because it
was voluntary. The whole of a debt being now voluntarily
assignable under
the
statute, it would be a strange anomaly if a part could not be the subject of
voluntary equitable assignment.
To say, "you can
give away the whole, but you
cannot give away a part, for a part you must get a price" would seem to
contradict
common sense. And
I do not think it necessary to do so.
(v) As to the facts: (at p34)
20. It is convenient to consider separately the two sums in question, the amount of 450 pounds first, that being the first matter dealt with in the stated case. (at p34)
21. The sum of 450 pounds (interest on money lent). The deed of 21st December 1956 states: "The assignor doth hereby transfer and assign all his right title and interest in and to - . . . (b) all the interest derived from the assets or investments specified in the second schedule hereto for a period commencing on the 1st day of July 1957 and ending on the 30th day of June 1958 unto the assignee for her own use and benefit absolutely . . . " (at p34)
22. The second schedule reads as follows: "The sum of three thousand pounds (3,000.-.-. pounds) deposited with the firm of Sale Service Limited and Car X'Change Limited by the Assignor." (at p34)
23. A later clause provided that the assignor should execute such documents and do such further acts as the assignee or any other person should reasonably require "for completely effectuating" the indenture. And the deed concluded: "The provisions of this indenture shall cease determine and be of no effect upon the death of either of them the assignor or assignee". (at p34)
24. To understand the second schedule it is necessary to go back to 1953. At that time, and at all material times, there were in existence two private companies. Sale Service Limited and Car X'Change Limited, which were carrying on business in partnership as motor dealers and financiers, and which it will be convenient to describe as "the partnership". Both companies had their registered offices at and were in fact managed from the office of Messrs. Norman, Waterhouse and Mutton, solicitors, the firm of which the taxpayer is a member. The taxpayer was interested in both companies. He was at all relevant times a director of Car X'Change Limited; and on 30th November 1955 he became a director of Sale Service Limited. The books of the companies were kept by him, and he drew and signed cheques for the payment of dividends and of interest. A woman typist, employed in his office, was the secretary of both companies. From time to time the taxpayer lent money to the partnership. The total amount thus owing to him varied from time to time. On 7th July 1953 he was a creditor of the partnership for 3,706 pounds for moneys lent. A document of that date, described as a receipt, acknowledges the receipt by the partnership of 3,706 pounds "as an unsecured loan", and states the conditions of the loan to be (1) that the partnership might repay this sum or any part thereof at any time without notice; (2) that the lender, the taxpayer, should not be entitled to demand or receive payment of the said sum or any portion thereof except on not less than eighteen months' notice in writing; (3) that the partnership should "pay interest at the rate of 12 pounds per cent from the date of the receipt", provided that, if the lender should give notice requiring repayment of the said sum or any portion thereof, the interest should be reduced to one and a half per cent in respect of the amount specified in the notice. The taxpayer afterwards made further loans on the same terms except that it was agreed in 1954 that the rate of interest payable on the total indebtedness should be increased from twelve per cent to fifteen per cent. Then, on 5th April 1955, the taxpayer and his wife executed a deed which may be regarded as the forerunner of the deed of 21st December 1956, the one in question in this case. The 1955 deed recited first that the amount then owing by the partnership to the taxpayer was 4,639 pounds 16s. 0d.; and that the rate of interest was fifteen per cent per annum payable yearly on 30th June in each year: and, secondly, that the taxpayer was desirous of assigning as a gift to his wife "a portion of the income (being interest arising) from the said sum of 4,639 pounds 16s. 0d. deposited by the assignor with the firm as aforesaid". The deed then went on to provide that "the assignor hereby transfers and assigns all his right title and interest in and to the income being the interest payable by the firm in respect of the sum of 3,000 pounds (being portion of the said moneys deposited as aforesaid) unto the assignee absolutely for a term of three years expiring on 30th June 1957". A copy of this document was given to the partnership, in the sense that the taxpayer's secretary-typist, in her capacity as secretary for both companies and presumably at the direction of the taxpayer, signed on a copy of the deed an acknowledgment of its receipt "as constituting notice of the above assignment". (at p36)
25. This 1955 document, it will be noticed, purports to assign the income for the years ended 30th June 1955, 1956 and 1957. From the loan accounts of the taxpayer and his wife in the ledger of the partnership it appears that in each of those years the taxpayer's account was at 30th June credited with the full amount of interest attributable to the amount of his loan, whatever it was, and that his account was at the same date debited and his wife's account credited with 450 pounds (being fifteen per cent of 3,000 pounds). A pencil notation on his loan account stated that the arrangement was for the years 1954, 1955 and 1956. This apparently means the periods beginning on 1st July in each of those calendar years and is not meant to be inconsistent with the document, which speaks of the years 1955, 1956 and 1957. The first occasion when the account of the taxpayer's wife was credited with 450 pounds was in fact 30th June 1955. Whatever was the effect of the 1955 deed, it was spent by 30th June 1957. The deed with which we are concerned, that of 21st December 1956, had come into existence, purporting to assign the interest on 3,000 pounds for the year ended 30th June 1958. At the date it was executed the amount to the credit of the taxpayer in his loan account with the firm was 4,669 pounds. (at p36)
26. No notice of the deed of 21st December 1956 was expressly given to the partnership or to its member companies, as had been done in the case of the 1955 deed. Apparently this was overlooked on the second occasion. Probably, if it was thought of at all, it was dismissed as an insignificant formality, because those concerned with the direction of the affairs of the partnership business knew all about the matter. The deed was prepared by the taxpayer and engrossed by his typist who was the secretary of the companies. The taxpayer and one of his partners were the only directors of one of the companies. And two of the three directors of the other were the taxpayer and the same solicitor partner. And this partner witnessed the signatures of both the taxpayer and his wife to the deed of assignment. It would be unreal in the circumstances to suppose that the companies constituting the partnership should be considered as having had no notice of the deed. They had: and they acted upon it, in the sense that, when the interest upon money lent by the taxpayer fell due on 30th June 1958, an amount of 450 pounds (being fifteen per cent of 3,000 pounds) was shown in the books of the partnership as credited to the taxpayer's account, then debited to his account and credited to the account of his wife in the same way as was done in earlier years while the 1955 deed was current. (at p37)
27. Nevertheless, no express notice in writing of the assignment has ever been given to the partnership, as is required by the Law of Property Act, 1936 (S.A.), s. 15, corresponding with s. 25 of the Judicature Act, 1873. The legal right to a debt passes only from the date of such notice; so that there never was as between the taxpayer and his wife a legal assignment of the debt. (at p37)
28. Moreover, quite apart from the absence of a notice in writing, this assignment is of a part of a debt. The deed, it is true, speaks of "interest derived from the sum of three thousand pounds deposited." But there was no separate fund of 3,000 pounds in which the taxpayer had an interest; and at all relevant times the amount owing to him by the partnership exceeded 3,000 pounds. The transactions between him and the partnership were simply those of lender and borrower. The legal relationship they created was that of creditor and debtor. All that, on any view, the deed assigned was therefore 450 pounds out of a prospectively larger sum for interest that would become due on 30th June 1958. As the statute is not applicable to an assignment of a part of a debt, it becomes unnecessary to consider whether an instrument which is to "cease, determine and be of no effect upon the death of the assignor or assignee" is an "absolute assignment" within the meaning of the statute. (at p37)
29. But, said the taxpayer, I do not rely upon the deed as effecting an assignment by virtue of the statute; my case is that there was an effectual assignment in equity. To this the Commissioner made two answers. First that there cannot be a voluntary assignment of an existing legal chose in action. As to that, for the reasons I have given, I do not agree. Secondly it was said a thing which is not yet in existence cannot be the subject of an equitable assignment except for consideration. That, as I have said, is undoubtedly so. It is true too that the interest, to the extent of 450 pounds, that the deed assigned was not due and payable at the date of the deed. But a contract to pay a sum of money on a future day, call it interest or what you will, calculable in amount according to conditions presently agreed, is in my view a presently existing chose in action. As between the parties to a contract of money lent at interest the borrower is simply a debtor who must pay a sum or sums (called interest) that he has, for good consideration (the forbearance of the creditor) contracted to pay to his creditor at the time or times stipulated. Why should not the creditor before the date when this debt becomes due and payable, assign his right to receive payment on the due date? He could assign the whole under the statute: Walker v. Bradford Old Bank Ltd. (1884) 12 QBD 511 Why not part in equity? What he assigns is not, it seems to me, a right to arise in the future but a present contractual right to be paid at a future date a sum of money, to be calculated in the agreed manner: cf. Lett v. Morris [1831] EngR 858; (1831) 4 Sim 607 (58 ER 227) In Brice v Bannister (1878) 3 QBD 569, Lord Coleridge CJ said "that a debt to become due is a chose in action, is clear" (1878) 3 QBD, at p 573 Interest on money lent is recoverable by action at law as a debt separate from the principal, as the common indebitatus count for interest shows: see Halsbury 3rd ed. vol. 27, p. 12. (at p38)
30. But it was urged this case is not like a case of a loan for a fixed term. What was owing might, it is pointed out, have been repaid by the partnership, or reduced below 3,000 pounds, after the date of the deed of assignment and before 1st July 1957. As a matter of law, no doubt that is so. But it does not, I think, follow that the taxpayer had for that reason no assignable right. He had a present right to be paid interest at a future date on the money he had lent, unless in the meantime the loan was repaid. The taxpayer assigned the benefit of this contract, to the extent of 450 pounds to become due conditionally in 1958, to his wife by the deed of 1956. I consider that the deed was an effectual equitable assignment. It operated, I think, upon its delivery as a deed. The assignee had notice of it and assented. It was valid and binding as between assignor and assignee. In so far as any notice to the debtor, the partnership, was necessary to perfect it in equity as against the debtor, the companies had sufficient notice of it and acted accordingly. (at p38)
31. The sum of 460 pounds (dividends from companies). I turn now to the second matter, the sum of 460 pounds. This arises under provisions of the deed whereby the taxpayer purported to assign "all his right title and interest in and to all the interest dividends and other income to which the assignor may be entitled arising from the estates and investments and assets specified in the first schedule hereto for a period commencing on the 1st day of January 1957 and ending on the 30th day of June 1958". (at p38)
32. The first schedule listed among other things the estates of the two deceased persons, relatives of the taxpayer. The taxpayer was a trustee of each estate and he had a one-fifth beneficial interest in the residue of each. The assets of each estate included shares in a number of public companies. Clause 2 of the deed states: "In the event of the distribution of the whole or any part of the assets of the estates referred to in the first schedule, the moneys and assets received by the assignor on account thereof and the investments for the time being representing the same shall be deemed to be assets specified in that schedule". (at p39)
33. Now what happened was this: Until some time in 1957 the trustees of the two estates paid to the taxpayer's wife, as his assignee, one-fifth of the income of the residues, being income to which he had been beneficially entitled. The Commissioner has admitted that this income was properly hers - and in my opinion rightly so; for as I have said above, if one thing is plain among perplexities, it surely is that a person having a chose in equity, such as a beneficial interest as a cestui que trust, can give his interest away. (at p39)
34. In May and October 1957 the trustees of the two estates made a distribution of assets comprised in the residues. They duly transferred to the taxpayer his proportion of the shares in public companies, and his name was registered as the shareholder. Thereafter when the taxpayer received dividend cheques from these companies he paid them into his wife's bank account, having first duly endorsed those which were made payable to his order. The taxpayer's wife thus received from him the dividends that by his deed he had purported to give her. He handed them over to her when he got them. But the question is not whether he performed his promise, but whether he could have been compelled by equity to do so. It is not to the point that until the distribution of the trust estates the wife, as assignee of the income of her husband's share in the residues, had received from the estates moneys that had been in part derived from the estates' ownership of the shares from which the dividends in question would later come. The question before us is not was the deed an effectual assignment of a then existing equitable interest, namely the beneficial interest of a cestui que trust in the future income of trust property. It is whether it was an effectual assignment of dividends that might be declared upon any shares of which the taxpayer became the legal owner upon the distribution of the trust estates. I overlook the fact that it may have been a matter of uncertainty whether a distribution in specie would be made. It seems to me that the position would have been no different if the shares had already belonged, legally and beneficially, to the taxpayer at the date of the deed, and had been then named in the second schedule, instead of being upon the distribution notionally brought into the first schedule by cl. 2 of the deed. The Commissioner of Taxation appears to have taken a narrower view. He has not claimed that any dividends paid upon certain shares held by the taxpayer at the date of the deed, and expressly mentioned in the first schedule, form part of the taxpayer's income. He appears to have accepted the assignment as valid in respect of those dividends. But his attitude cannot determine the question we have to decide. (at p40)
35. It comes back to this. Is a dividend that may become payable in the future upon shares presently held something that can be assigned inequity? Is it a present chose in action or a mere possibility? Is it property in existence, or something not in existence and therefore not capable of being assigned in the absence of consideration? I think it is the latter. The court will not compel directors to declare a dividend: Bond v. Barrow Haematite Steel Co. (1902) 1 Ch 353 A dividend is not a debt until it is declared. Until then it is in the eye of the law a possibility only. When it is declared it becomes a debt for which a shareholder who is on the register at the date of the declaration may sue. The companies paid the dividends to the registered holder of the shares, the taxpayer. They knew nothing of the purported assignment. Depending perhaps in some cases on their articles of association, they might have paid the dividends directly to the taxpayer's wife had they been directed by him to do so. But, in the absence of consideration, such a direction would have been merely a revocable mandate, not an assignment. Dividends that may be declared are to my mind quite unlike the interest that will become due according to an existing contract of loan if the loan be not repaid. (at p40)
36. I agree in the conclusions of McTiernan J. both as to the sum of 450 pounds and the sum of 460 pounds, and for substantially the same reasons as he has expressed. I have elaborated my reasons on some aspects because of the arguments addressed to us. (at p40)
37. I have not considered the effect of s. 260 of the Income Tax Assessment Act on these transactions. The Commissioner has not thought fit to rely upon it; and, although it was adverted to, its application was not argued. I therefore say nothing about it. (at p40)
38. I would answer the questions asked (a) Yes, subject to any question that may arise under s. 260 of the Act; (b) No. (at p40)
OWEN J. For the reasons given by Menzies J. I agree that the question asked in the Case Stated should be answered "No". (at p41)
ORDER
The question in the case, stated answered as follows:The learned judge hearing the appeal would, upon the facts appearing in the case stated, be neither bound nor at liberty to hold that (a) the said sum of 450 pounds, or (b) the said sum of 460 pounds did not constitute assessable income of the appellant in respect of the income year which ended on 30th June 1958.
Costs of the case stated reserved for the order of the judge disposing of the appeal.
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