The essential characteristics of a floating charge were first defined by judicial decision in the case of In re Panama, New Zealand, and Australian Royal Mail Company (m). A company incorporated with power to issue mortgages, bonds or debentures issued mortgage debentures charging the "undertaking, and all sums of money arising therefrom, and all the estate, right, title and interest of the company therein," with the repayment at a specific time of money borrowed, with interest in the meantime. It was held that the object and meaning of the debentures was that the company was entitled to carry on its undertaking and deal with its property as if no charge existed until default should be made in payment of principal or interest or the company should be wound up, that in the event of default the debenture holders might have filed a bill to realize their security, and that in the event of winding up, which happened, they had a charge upon all the property of the company, past and future, and were entitled to be paid out of the assets in priority to the general creditors

A security of this kind is now known as a floating charge. It has become a common form of security for money lent to a trading corporation and is usually but not necessarily embodied in debentures issued by the company. The term "floating" is used by way of contrast with the term "specific." A specific charge "is one that without more fastens on ascertained and definite property or property capable of being ascertained and defined; a floating charge, on the other hand, is ambulatory and shifting in its nature, hovering over and so to speak floating with the property which it is intended to affect until some event happens which causes it to settle and fasten on the subject of the charge within its reach and grasp." (n)

(k) See chapter 15, Lessee of Mortgaged Land, Sec. 142. (l) See chapter 32, Appointment of Receiver, Sec. 351. (m) 1870, L.R. 5 Ch. 318.

A floating security forms a present equitable charge (o) upon the property for the time being of the company, but it is of the essence of the charge that it should not prevent the undertaking of the company from being carried on or the property charged from being disposed of or varied from time to time in the ordinary course of business. The holders may intervene and assert their charge either immediately after default or after such further period as may be provided for in the security, and if they intervene or if the company ceases to be a going concern and is wound up, the charge becomes a specific charge upon such property within the terms of the security as the company then has (p).

(n) Illingworth v. Houldsworth, [1904] A.C. 355, at p. 358, The subject of the change need not be the whole undertaking or property of the company, but may be a particular class of assets; see the same case, sub nom. In re Yorkshire Woolcombers Associa tion, Houldsworth v. Yorkshire, [1903] 2 Ch. 284, at pp. 294-5.

(o) Evans v. Rival Granite Quarries, [1910] 2 K.B. 979, at p. 994, 999. A contract for the sale of debentures containing a floating charge is within the Statute of Frauds as regards the lands of the company. Driver v. Broad, [1893] 1 Q.B. 744.

(p) Governments Stock, etc., Co. v. Manila Railway Co., [1897] A.C. 81. At p. 86 Lord Macnaghten says: "A floating security is an equitable charge on the assets for the time being of a going concern. It attaches to the subject charged in the varying condition in which it happens to be from time to time. It is of the essence of such a charge that it remains dormant until the undertaking charged ceases to be a going concern, or until the person in whose favour the charge is created intervenes. His right to intervene may of course be suspended by agreement. But if there is no agreement for suspension, he may exercise his right whenever he pleases after default." See also Evans v. Rival Granite Quarries, [1910] 2 K.B. 979, especially at p. 994, as to the necessity for actual intervention by the holders in order to make the charge specific.

So long as the charge remains floating, and has not become specific, it is liable to be displaced by a specific security created subsequently in favour of a mortgagee, either legal or equitable (q), even though the mortgagee has notice of the charge (r). This is so even though the creation of a subsequent mortgage is prohibited by the terms of the floating charge, if the mortgagee takes without notice of the prohibition (s). On the other hand a floating charge is entitled to priority over a subsequent floating charge, unless it is provided by the earlier charge that it may be displaced by a subsequent charge (t).

It has been held in Ontario that a floating charge is not a mortgage of goods and chattels which requires to be registered under the Bills of Sale and Chattel Mortgages Act in order to be good against the creditors of the company (u).

(q) Wheatley v. Silkstone and Haigh Moor Coal Co., 1885, 29 Ch.D. 715; cf. Trusts and Guarantee Co. v. Abbott Mitchell Iron and Steel Co., 1902, 11 O.L.R. 403.

(r) In re Hamilton's Windsor Ironworks, Ex parte Pitman & Edwards, 187.9, 12 Ch.D. 707.

(s) In re Valletort Sanitary Steam Laundry Co., Ward v. Val-letort, [1903] 2 Ch. 654; Union Bank of Halifax v. Indian and General Investment Trust, 1908, 40 Can. S.C.R. 510, at pp. 520 ff.

(t) In re Benjamin Cope & Sons, Marshall v. Benjamin Cope & Sons, [1914] 1 Ch. 800.

(u) Johnston v. Wade, 1908, 17 O.L.R. 372. The judgments contain a review of the cases under the English bills of sale acts. If there is a mortgage of specific property to secure payment of the bonds of the company, such mortgage is within the bills of sale acts. National Trust Co. v. Trusts and Guarantee Co., 1912, 26 O. L.R. 279. As to the necessity for registering a floating charge un der the English Companies Acts, see case last cited, 26 O.L.R. at p. 286; Illingworth v. Houldsworth, [1904] A.C. 355.