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Priority After 1925 of Mortgages of a Legal Estate in Land
Published online by Cambridge University Press: 16 January 2009
Extract
For reasons both of space and of simplicity, the scope of this article is restricted within narrow limits. The subject to be considered is the priority of mortgages made after 1925 which affect a legal estate in land. This by itself excludes any consideration of transitional provisions or of mortgages of an equitable interest; in addition, the questions of the Middlesex and Yorkshire Deeds Registries, tacking, and conflicts between more than two mortgages will be ignored. Except where otherwise indicated, ‘mortgage’ is used as including both a mortgage and a charge.
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References
1 For the distinction between a mortgage and a charge, see post, p. 250.
2 Fisher & Lightwood, Mortgages, 7th ed. 451.
3 Bailey v. Barnes [1894] 1 Ch. 25 at 36.
4 Some of the text-books consequently do not deal with them: see e.g. Hanbury & Waldock, Mortgages, 308, 309; Cheshire, Modern Eeal Property, 4th ed. 611; Falconbridge, Mortgages, 2nd ed. 86.
5 This seems to have been due to the recognition of the impossibility of the mortgagee enlarging the term of years into a fee simple: Holdsworth, H. E. L. iii, 130. See Davidson's Precedents, 4th ed., vol. ii, pt. ii, p. 460, for a discussion of the advantages and disadvantages of such mortgages.
6 Aldridge v. Duke (1679) Rep. t. Finch 439.
7 Jones v. Rhind (1869) 17 W. R. 1091.
8 Coote, Mortgages, 9th ed. 1240. See Mason v. Rhodes (1885) 53 L. T. 322 (equitable mortgage to A, followed by two legal mortgages to B and C respectively: C had no notice of B's mortgage, and part of his loan was made for the purpose of paying off A's mortgage: held, C had priority over B to the extent of A's mortgage only). See also Hurst v. Hurst (1852) 16 Beav. 372 at 374; Re Russell Road Purchase-Moneys (1871) L. R. 12 Eq. 78.
9 Jones v. Rhind (1869) 17 W. R. 1091. Fraud, or gross negligence in failing to obtain the title deeds (see infra), would doubtless also have postponed the first mortgagee.
10 Peter v. Russel (1716) 1 Eq. Ca. Abr. 321 at 322.
11 See Dixon v. Muckleston (1872) 8 Ch. App. 155 at 160.
12 See Rice v. Rice (1853) 2 Drew. 73.
13 Rimmer v. Webster [1902] 2 Ch. 163.
14 Briggs v.Jones (1870) L. E. 10 Eq. 92 : cf. Martinez v. Cooper (1826) 2 Russ. 198.
15 Perry Herrick v. Attwood (1857) 2 De G. & J. 21.
16 Brocklesby, v.The Temperance Permanent Building Society [1895] A. C. 173; Rimmer v. Webster [1902] 2Google Scholar Ch. 163 at 173, applied in Tsang Ghuen v. Li Po Kwai [1932] A. C. 715; and see Abigail v. Lapin [1934] A. C. 491.
17 Northern Counties of England Fire Insurance Co. v. Whipp (1884) 26Google Scholar Ch. D. 482 at 487.
18 Hunt v. Elmes (1860) 2 De G. F. & J. 578 at 586, 587. See Walker v. Linom [1907] 2 Ch. 104 at 114.
19 Clarke v. Palmer (1882) 21 Ch. D. 124; Walker v. Linom [1907] 2 Ch. 104; and see Colyer v. Finch (1856) 5 H. L. C. 905 at 926, 927.
20 Manners v. Mew (1885) 29 Ch. D. 725 (loan to a solicitor by one of his clients).
21 Grierson, v.National Provincial Bank of England, Ltd. [1913] 2Google Scholar Ch. 18.
22 Cottey, v.The National Provincial Bank of England, Ltd. (1904) 20Google Scholar T. L. R. 607 (loan to a solicitor by one of his clients).
23 Northern Counties of England Fire Insurance Co. v. Whipp (1884) 26Google Scholar Ch. D. 482 (deeds kept in a safe, of which, to the knowledge of the mortgagees, the mortgagor had a key).
24 See a discussion of this difficult subject in Hanbury & Waldock, Mortgages, 323–325; Maitland, Equity, 2nd ed. 137, 138.
25 ‘Purchaser’ includes a mortgagee: Brace v. Duchess of Marlborough (1728) 2Google Scholar P. Wms. 491.
26 It was only when the equities were equal that the law prevailed, and ‘he that has Notice has no Equity at all’: Oxwith v. Plummet (1708) Gilb. Ch. 13 at 15.
27 See Att.Gen. v. Biphosphated Guano Co. (1879) 11Google Scholar Ch. D. 327 at 337.
28 Cory v. Eyre (1863) 1 De G. J. & S. 149 at 167.
29 Morgan, Worthington V. (1849) 16 Sim. 547; Berwick & Co. v. Price [1905] 1Google Scholar Ch. 632.
30 Oliver v. Hinton [1899] 2 Ch. 264. The judgments of Sir F. H. Jeune P., Rigby L.J. and Eomer J. seem to be based on notice (see Walker v. Linom [1907] 2 Ch. 104 at 114), but Lindley M.R. founds himself on gross negligence. See Ashburner, Equity, 2nd ed. 62.
31 E.g. Hudston v. Viney [1921] 1 Ch. 98.
32 Oliver v. Hinton [1899] 2 Ch. 264.
33 The Agra Bank, Ltd. v. Barry (1874) L. R. 7 H. L. 135.
34 Hewitt v. Loosemore (1851) 9 Hare 449.
35 Ratcliffe v. Barnard (1871) 6 Ch. App. 652.
36 Thus in Hewitt v. Loosemore (supra) the mortgagor was a solicitor and the mortgagee a farmer ‘unacquainted with legal forms’.
37 Rice v. Rice (1853) 2 Drew. 73 at 78.
38 Bodington, Wilkes v. (1707) 2 Vern. 599: See White & Tudor, Leading Cases in Equity, 9th ed.126–128.Google Scholar
39 Stanhope v. Earl Verney (1761) 2 Eden 81; Taylor v. London and County Banking Co. [1901] 2Google Scholar Ch. 231 at 263. See, however, Heath v. Crealock (1874) 10 Ch. App. 22.
40 Cf. Willoughby v. Willoughby (1756) 1 T. R. 763.
41 See Russell, Taylor v. [1891] 1 Ch. 8 at 14–20, where the authorities are reviewed; Coote, Mortgages, 9th ed.Google Scholar 1350. See, however, S. C. [1892] A. C. 244 at 262; National Provincial Bank of England v. Jackson (1886) 33 Ch. D. 1, and Maitland, Equity, 2nd ed.125–129,Google Scholar for the view that a lesser degree of negligence sufficed to displace an equitable mortgagee.
42 Dixon v. Muckleston (1872) 8 Ch. App. 155.
43 Maud, Layard v. (1867) L. R. 4 Eq. 397; Farrand v. Yorkshire Banking Co. (1888) 40Google Scholar Ch. D. 182.
44 Waldron v. Sloper (1852) 1 Drew. 193; Dowle v. Saunders (1864) 2 H. & M. 242.
45 In Beddoes y. Shaw [1937] Ch. 81, ‘Qui prior est tempore, potior est jure ’ was accepted as still forming the basis of the rules governing priority of equitable mortgages : see S. C. [1936] 2 All E. R. 1108 at 1110, 1111.
46 Land Charges Act, 1925, s. 10 (1).
47 ‘Charge’ is not defined, but is generally taken to include a mortgage here: see, however, p. 253, n. 35, post.
48 A limited owner's charge is an equitable charge affecting land, acquired by a. tenant for life or statutory owner under the Finance Act, 1894, or any other statute, by reason of the discharge by him of any death duties or other liabilities, and to which special priority is given by the statute: Land Charges Act, 1925, s. 10 (1).
49 Land Charges Act, 1925, s. 10 (1). This is not a very satisfactory definition. The exception of charges arising, or affecting an interest arising, under a trust for sale or settlement applies to most mortgages of equitable interests, but does not exclude mortgages of interests such as an equitable fee simple held under a bare trust or an agreement for a lease, the latter of which seems to have been held to be an interest in ‘ land' as defined by the Conveyancing Act, 1881, s. 2 (ii): Re Lake & Taylor's Mortgage (1885) 33Google Scholar W. R. 597. However, the words ‘not secured by a deposit of documents relating to the legal estate affected’ clearly imply that some legal estate must be affected for a charge to fall within the definition, and thus apparently confines the definition to equitable charges of legal estates. If this was not so, the priority of mortgages of interests such as an equitable fee simple under a bare trust, or an agreement for a lease, would be governed both by the Land Charges Act, 1925, s. 13 (2), and the Law of Property Act, 1925, s. 137 (but not s. 97).
50 Roberts v. Croft (1857) 24 Beav. 223; Ratcliffe v. Barnard (1871) 6 Ch. App. 652; Dixon v. Muckleston (1872) 8 Ch. App. 155.
1 Lacon v. Allen (1856) 3 Drew. 579.
2 Ex p. Chippendale (1835) 1 Deac. 67.
3 Ex p. Pearse (1820) Buck 525.
4 See e.g. Northern Counties of England Fire Insurance Co. v. Whipp (1884) 26Google Scholar Ch. D. 482.
5 Law of Property Act, 1925, s. 97; Land Charges Act, 1925, s. 10 (1).
6 Land Charges Act, 1925, s. 10 (1).
7 This would lead to difficulties concerning the proper date for registration; e.g. if the deeds were stolen at an unknown date (as in Whipp's Case (supra)).It would also complicate priorities even further. S. 13 of the Law of Property Act, 1925, would prevent s. 97 of the same Act from affecting priorities, but it would not exclude the operation of s. 13 (2) of the Land Charges Act, 1925.
8 E.g. Hanbury & Waldock, Mortgages, 339; Cheshire, Real Property, 4th ed. 624; 76 L. J. News. 107.
9 Land Charges Act, 1925, s. 10 (1).
10 Ibid.
11 See Woodward, Jones v. (1917) 116 L. T. 378, at 379; London County at Westminster Bank, Ltd. v. Tompkins [1918] 1Google Scholar K. B. 515.
12 (1858) 2 De G. & J. 559.
13 (1882) 21 Ch. D. 9.
14 See Housefield, Parker v. (1834) 2 My. & K. 419 at 420; Re Hurley's Estate [1894] 1Google Scholar I. R. 488.
15 Ex p. Hall (1879) 10 Ch. D. 615.
16 Russel v. Russel (1783) 1 Bro. C. C. 269.
17 E.g. a delivery of the deeds by mistake (Wardle y. Oakley (1864) 36 Beav. 27) or to enable a mortgage to be drawn up, there being no intent to create a present security (Norris v. Wilkinson (1806) 12 Ves. 192; cf. Hockley v. Bantock (1826) 1 Russ. 141) will not create a mortgage.
18 Edge v. Worthington (1786) 1 Cox 211; Pryce v. Bury (1853) 2 Drew. 41; affd. 1854–see L. R. 16 Eq. 153 n.; Carter v. Wake (1877) 4 Ch. D. 605 at 606 But as Hanbury & Waldock point out (Mortgages, 56, 57) it is hard to see how the mere receipt of deeds by a creditor is an act of part performance on his part on which he can rely to enforce the mortgage.
19 Bozon v. Williams (1829) 3 Y. & J . 150.
20 See Ex p. Nettleship (1841) 5 Jur. 733 and cases quoted in note 18 supra.
21 See e.g. London County and Westminster Bank, Ltd. v. Tompkins [1918] 1Google Scholar K. B. 515. It is a question of construction whether the mortgage was created by the deposit of the deeds or the execution of the deed : Paul v. Nath Saha [1939] 2 All E. R. 737. This question might be of importance here if the deed contained no contract to create a legal mortgage, but merely created a charge on the property.
22 ‘Mortgage’ here includes ‘charge’: Land Charges Act, 1925, s. 20 (4); Law of Property Act, 1925, s. 205 (1) (x).
23 Williams, Contract of Sale of Land, 247; 69 L. J. News. 227 : see, however, Fiaher & Lightwood, Mortgages, 7th ed. 481, note (b).
24 See Hanbury & Waldock, Mortgages, 56.
25 Land Charges Act, 1925, s. 13 (2).
26 S. 13 of the Law of Property Act, 1925, expressly preserves this last head. See post, p. 259.
27 Land Charges Act, 1925, s. 20 (8); but see post, p. 255.
28 See 69 L. J. News. 227.
29 Re Burdett (1888) 20 Q. B. D. 310; Re Isaacson [1895] 1 Q. B. 333; Re North Wales Produce and Supply Society, Ltd. [1922] 1Google Scholar Ch. 340; but the wording of the Bills of Sale Act (1878) Amendment Act, 1882, s. 9, more readily lends itself to this construction than that of the Land Charges Act, 1925. s. 13 (2).
30 Re Willis (1888) 21 Q. B. D. 384.
31 Mumford v. Collier (1890) 25 Q. B. D. 279; Kemp v. Lester [1896] 2 Q. B. 162.
32 Another line of escape appears if the equitable mortgage has been transferred for value before the legal mortgage was made. In such a case the effect of construing ‘void’ as meaning ‘voidable’ (see post, p. 255) would be to protect the equitable mortgage against the legal mortgage.
33 The Court refused to do this in Ratcliffe v. Barnard (1871) 6 Ch. App. 652, where the legal mortgagee made no examination of the bundle of deeds handed over.
34 Law of Property Act, 1925, s. 198 (1).
35 In theory, it is hard to see why a true equitable mortgage should not be registered as an estate contract rather than as a general equitable charge. The definition of a general equitable charge excludes an equitable charge which is ‘included in any other class of land charge’ (these words did not appear in the Law of Property Act, 1922, 7th Sched. 1 (1), which the Land Charges Act, 1925, s. 10 (1) replaces). However, on the basis that an equitable mortgage creates a charge which is distinct from the contract to create a legal mortgage, it may be said that it is properly registrable as a general equitable charge. In any case, the universal practice is to register such mortgages as general equitable charges, and comfort may be derived from the maxim ‘communis error facit jus’ (see e.g.Y. B. 27 Hen. 8, Pasch. pl. 22 at fo. 10 (1535)) and the rule that the settled practice of conveyancers is part of the common law : Re Ford and Hill (1879) 10 Ch. D. 365 at 370. Further, s. 21 of the Land Charges Act, 1925, provides that if a charge is registrable in two or more parts of the Act, it suffices if it is registered in one. The provisions for registration of estate contracts and general equitable charges both occur in Part V of the Act, so that no help is derived from the strict letter of s. 21; but the spirit of the section clearly requires that no penalty shall attach to registration of a land charge under only one of two alternative heads in the same part of the Act. Nevertheless, it is important to know whether such a mortgage is really a general equitable charge or not, for a sale under the Settled Land Act, 1925, or under an ad hoc trust for sale overreaches a general equitable charge but not an estate contract (Settled Land Act, 1925, s. 72 (3); Law of Property Act, 1925, s. 2 (2), (3)), and it is rather difficult to envisage an equitable mortgage being overreached so far as it imposes a charge on the estate, and not being overreached so far as it amounts to a contract to create a legal mortgage.
36 Land Charges Act, 1925, s. 20 (8).
37 Law of Property Act, 1925, s. 199 (1) (i).
38 The section goes on to except mortgages or charges of registered land or land within the jurisdiction of a local deeds registry.
39 Law of Property Act, 1925, s. 198 (1).
40 Indeed, if there are several successive registrable mortgages and none have been registered, the maxim ‘ Qui prior est tempore, potior est jure ’ has no application: the mortgages rank for priority in the reverse order of creation.
41 Land Charges Act, 1925, s. 20.
42 Land Charges Act, 1925, s. 20.
43 Re Hart [1912] 3 K. B. 6. This decision was based partly on the wording of earlier statutes dealing with the matter (see Re Brall [1893] 2 Q. B. 381) and partly on the ground that it would be ‘almost shocking’ to deprive a purchaser of property acquired in good faith: see also Re Carter at Kenderdine's Contract [1897] 1 Ch. 776 at 781. This type of construction is of respectable antiquity: see e.g. Lincoln College's Case (1595) 3Google Scholar Co. Rep. 58 b.
44 The Law of Property Act, 1925, s. 199 (1), seems to exclude a construction of the nature of Le Neve v. Le Neve (1747) Amb. 436 and Greaves v. Tofield (1880) 14 Ch. D. 563.
45 See J. M. L., 61 L. J. News. 398.
46 Arthur v. Bokenham (1708) 11 Mod. 148 at 150.
47 Ante, p. 255. One way of resolving the conflicts between s. 97 and s. 13 (2) would be to hold that as soon as a mortgage was registered, and s. 97 thus invoked, the operation of s. 13 (2) was thereby excluded. But there is nothing in either section to support this. If s. 13 (2) makes a charge void for non-registration, subsequent registration could give it retrospective validity only if there was some statutory provision to this effect, and there is not (cf. the wording of the Land Charges Registration and Searches Act, 1888, s. 12, and Hargrave v. Hargrave (1857) 23 Beav. 484 at 485). Further, s. 97 does not produce very satisfactory results by itself when only one mortgage is registered: see the text above.
48 Ante, p. 251.
49 Ante, p. 252.
50 The second mortgage is not protected by a deposit of deeds.
1 See Rivington, Law of Property in Land, 2nd ed. 311
2 Another objection to the argument that registration involves a loss of priority is that the sidenote to s. 97 (‘Priorities as between puisne mortgages’) indicates that the section applies only where there are two or more mortgages not protected by the deeds. But although the exact extent of the authority of sidenotes is unsettled, it is clearly small (see Craies, Statute Law, 4th ed. 179, 180; Maxwell, Interpretation of Statutes, 8th ed. 39), and the section itself is worded in the singular (‘every mortgage … shall rank according to its date of registration’).
3 J. W. Brunyate, note to Maitland, Equity, 2nd ed. 137: cf. the dictum by Astbury J. on another point, ‘ Apart from the simplifying statutes of 1922, 1924 and 1925 the matter would be perfectly plain ’ (Re King's Theatre, Sunderland[1929] 1 Ch. 483 at 490).
4 J. M. L. in 65 L. J. News. 489.
5 Perhaps ‘ ought to provide ’ would be more appropriate in some cases.
6 The name ‘puisne mortgage’ would thus become unsuitable, and class C (i) land charges might instead be called ‘legal mortgages’.
7 ‘ S. 97 of the Law of Property Act seems to be appropriate to pecuniary charges, and s. 13 of the Land Charges Act to other land charges ’ : J. M. L., 61 L. J. News. 429.