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United Kingdom House of Lords Decisions
You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Whiteley v. Delaney [1913] UKHL 855 (09 December 1913)
URL: http://www.bailii.org/uk/cases/UKHL/1913/51SLR0855.html
Cite as: [1913] UKHL 855, 51 ScotLR 855
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SCOTTISH_SLR_House_of_Lords
Page: 855↓
House of Lords.
(Before the
(On Appeal from the Court of Appeal in England.)
v.
Subject_Right in Security — Mortgage — Priority — Competition between Mortgagees — Form of Conveyance — Intention of the Parties.
Facts:
A. mortgaged property in Yorkshire to B. in order to secure a loan of £300. He subsequently granted a second mortgage to the respondent C, and both mortgages were recorded under the Yorkshire Registries Acts. In order to provide the money to pay off C, A's daughter D undertook to buy the property if she could find someone to advance £300 to pay off B, and she instructed E, a solicitor, to this effect. E, ignorant
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of the existence of C's mortgage, arranged for F lending the £300 on mortgage, paid off B, and obtained from him the title-deeds, and prepared three dispositions of the property—( a) B to A, (b) A to D, (c) D to F—in security. C sued F, D, and A to have it declared that in virtue of deed (a) his mortgage had priority over F's. Held that F was equitable transferee of B's first mortgage, and entitled to priority over C.
Toulmin v. Steere, 3 Mer. 210, discussed.
The majority of the Court of Appeal ( Cozens Hardy, M.R., and Buckley, L.J., Fletcher Moulton, L.J. dissenting), holding themselves bound by Toulmin v. Steere, 3 Mer.210, reversed the decision of Parker, J., and held the appellants had allowed a first mortgage over certain property in Yorkshire to become extinct.
The facts summarised above are reviewed at length in their Lordships' judgment, as in those of Parker, J., and Fletcher Moulton, L.J.
Their Lordships took time to consider their judgment.
Stripped of what is irrelevant, the events out of which the dispute has arisen may be stated as follows:— On the 2nd February 1899 Samuel Ogden mortgaged the Cross Hotel at Haworth in Yorkshire to Edward Bromley Manks (whose executors are the respondents) to secure £1800 and interest, On the 20th May 1899 Ogden mortgaged other property at Halifax in the same county, called the Gibbet Street house, to Manks to secure £500 and interest. On the 4th April 1900 Ogden mortgaged his Lower Brow property at Haworth to Ackroyd to secure £300 and interest. It is to this mortgage that the question in the present appeal chiefly relates. On the 18th July 1900 Ogden charged the Cross Hotel in Manks' favour with a further sum of £120 and interest, and on the 28th June 1901 he charged the same property in favour of Manks with a still further sum of £380 and interest. On the 16th October 1901 Ogden, by way of collateral security to Manks for the two further advances of £120 and £380, further charged the Gibbet Street house, and also made a second mortgage of the Lower Brow property, subject to Ackroyd's mortgage to Manks, to secure these further advances. This second mortgage is the title on which the case of the respondents rests. All these securities were duly registered in the Yorkshire Registry.
In the course of these transactions Manks ascertained that there was a charge on the Cross Hotel in favour of a bank, ranking by virtue of registration next after his mortgage, for £1800, and taking precedence of the further advances of £120 and £380. He then verbally arranged with Ogden that while the latter was in the usual way to pay the interest as it accrued on these three sums, the amounts so paid should not be appropriated to payment of such interest, but should be appropriated in part discharge of the principal sums of £120 and £380 until they had been wiped out. The interest on the £1800 secured by the prior mortgage to Manks was meantime to remain in arrear and increase the amount for which Manks had priority over the bank.
The learned judge who tried the action found that the payments made by Ogden prior to the 19th August 1905 were made on this footing, and that the sums of £120 and £380 were by so much reduced. On the 19th August 1905 a new verbal agreement was come to by which it was arranged, not only that future payments should be taken on account of interest, but that the past payments should be reappropriated to interest instead of to capital account. The effect of the new agreement was that the Gibbet Street house and the Lower Brow property were recharged with the amount by which the sums of £120 and £380 had been reduced. But in the interval, on the 25th March 1905, Ogden had further charged the Lower Brow property in favour of Ackroyd with £172, 18s. 11d. and interest, and this further charge had been registered. These facts were found by Parker, J., and his findings were not challenged on this appeal.
In 1907 Ackroyd was pressing Ogden for repayment, and the latter, being unable to find the money, offered to sell his Lower Brow property to his daughter Mrs Whiteley, the appellant, for £450. Thereupon, about the 12th July 1907, Mrs Whiteley and her husband saw Walshaw, a solicitor, and told him that she wanted to find someone who would advance the £300 due to Ackroyd, and that with this assistance she would buy the land. They left matters in Walshaw's hands. The latter communicated with a client of his own called Farrar, who agreed to advance £300 on a first mortgage of the land, and handed this sum to Walshaw for the purpose. Walshaw carried through the transaction on behalf of all parties excepting Ackroyd, who had his own solicitor. In his evidence at the trial he was asked whether he paid the £300 to Ackroyd's solicitor some days before Ackroyd executed a reconveyance. He replied that he did, and that he then took up the deeds. “We paid off the £300, took up the deeds, and we were satisfied that we had got the title.” “Because you had the deeds you thought you were safe?” “Yes.”
I entertain no doubt that the effect of the payment under these circumstances was to make Ackroyd a trustee of the legal estate for Farrar as transferee in equity of the mortgage to the extent of the £300 advanced by him. Now, neither Walshaw nor any of the other parties to the transaction knew of Manks' equitable security as second mortgagee, and Ogden did not disclose it.
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The intention of the parties as shown on the face of the deeds was that Farrar should have a first mortgage, and it appears to me that this was the intention throughout. From the evidence of Walshaw and the other witnesses it is clear that the former paid the £300 to Ackroyd's solicitor some three weeks prior to the execution of the new deeds, on the terms of getting the title-deeds, and so obtaining temporarily an equitable first mortgage for his client Farrar. But for the outstanding second mortgage in favour of Manks, of which Ogden, for whom also he was acting, had left him in ignorance, the course he took would have been proper. As the facts were the course adopted was a mistaken one. The deeds themselves were obviously, having regard to the recitals that the land was free from incumbrances, drafted in error. Moreover, by their terms, they purported to discharge the mortgage to Ackroyd and to affect the new mortgage to Farrar after the lapse of a day, a period which might have let in the second mortgage of Manks, which was registered, and which would therefore under normal circumstances have taken precedence of the mortgage to Farrar, which was later in date. Had Walshaw known of Manks' incumbrance he would, of course, have so framed the deeds as to keep alive the equitable transfer of Ackroyd's mortgage which Farrar had obtained at the earlier date when he paid over his £300 and took the deeds as security.
There are two inferences which I draw from the facts proved at the trial. The first is that the parties to the three deeds must be taken to have agreed on instructions to Walshaw to the effect that the transaction was to be carried out by him in such a way as to give Farrar a first and legal mortgage, and to give Mrs Whiteley the benefit of any charges she paid off. Farrar was to find £300 and she was to find £150. This, it appears, she did, partly by paying to Ackroyd through Walshaw £48, 5s. 6d., which was the amount remaining due on the latter's second security of the 25th March 1905, and partly by releasing her father from debts which he owed to her. The second inference I draw is that Walshaw was instructed to carry this agreement, and nothing short of it, into effect, and that he framed the deeds in a form which failed to accomplish it. The reason of this failure was a mistaken belief, common to himself and all the parties to the deeds excepting Ogden, that Ogden's Lower Brow property was subject to no incumbrances other than the two in favour of Ackroyd. Ogden had withheld from them all knowledge of his mortgage to Manks. If Walshaw had known of this mortgage it would have been his duty to insert into the deeds he framed provisions which would have preserved the priorities of Ackroyd for the benefit of Farrar and Mrs Whiteley respectively. I think, therefore, that Farrar and Mrs Whiteley would have been entitled to invoke the assistance of a court of equity in rectifying the deeds on the ground of common mistake. And apart from this I think that neither Ogden, whose misrepresentation had given rise to the difficulty, nor anyone claiming through him, could have insisted as against the others on a title arising from the mistaken form in which Walshaw had framed them.
So far as the transaction with Farrar is concerned, the case may be stated in another way. Ackroyd conveys to Ogden, who gets the legal fee-simple. But Ackroyd was trustee for Farrar to the extent of the £300 advanced by the latter, and Ogden knew this. Ogden must therefore be taken to have become trustee in his place. Ogden then conveys to Mrs Whiteley, who took the legal fee-simple in like manner subject to Farrar's charge, and she then makes what is-in form a fresh legal mortgage for the amount of his charge to Farrar. Farrar having thus become entitled in equity to the priority of Ackroyd's mortgage, this priority could not be taken from him without his consent. Now it is certain that Ogden could not have said that as between himself and Farrar he had destroyed the latter's equitable title, and it is equally clear that no one claiming only through him, as Manks did, could be in a better position. Unless, then, the parties to the deeds in question are to be taken to have destroyed Farrar's equitable title with his assent, he must succeed as against Manks. Now it is clear that no one so intended unless Ogden did, and if he so intended Manks can derive no benefit from his misconduct. It is said that all the parties, including Farrar, left matters in the hands of Walshaw to carry out the transaction as he thought best, and that they must abide by what he has done. But, as I have already pointed out, I think it clear that these instructions were based upon a definite agreement under which Walshaw was to frame the deeds so that Farrar should have a first mortgage. Misled by Ogden, and believing, as all other parties believed, that no other security
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This conclusion appears to me to be inevitable. Whether the question is approached on the footing that Manks could not be allowed in equity to take advantage of the wrong done by Ogden, through whom he claimed, or whether the question is approached in the light of the principle that a court of equity will not enforce instruments which have been fashioned under a common mistake, the parties to the proceedings for such enforcement being the parties who would be required by the Court to be before it if these proceedings had embraced a counter-claim for rectification, I think that the appellants, Farrar and Mrs Whiteley, are both entitled to succeed in this appeal on these grounds alone.
In the Courts below the discussion was chiefly directed to another question, on which Parker, J., decided in favour of the appellants, but Cozens-Hardy, M.R., and Buckley, L.J. (Fletcher Moulton, L.J., dissenting), overruled him. That question was whether the case was governed by the decision of Sir William Grant in Toulmin v. Steere ( 3 Mer. 210). Sir William Grant was a great master of equity, and his judgments are regarded with deep respect. But the judgment in Toulmin v. Steere has been the subject of much criticism, and the more I have examined it the more difficult have I found it to discover a principle consistently applied. The difficulty is not rendered less by the fact that less than six years previously Sir William Grant had himself, in Forbes v. Moffat ( 18 Ves. 384) stated the true principle with the lucidity of which he was a master. The decision is not an application of what was laid down in Otter v. Lord Vaux ( 2 K. & J. 650; 6 D. M. & G. 638), that a mortgagor purchasing the interest of his first mortgagee cannot derogate from his own bargain by setting up the mortgage so purchased against a second mortgagee. For in Toulmin v. Steere it was not the grantor of the second mortgage, but subsequent purchasers of the equity of redemption, whose title was interfered with, and it is far from apparent why the rule should have any application to such a case. Indeed, it is now quite plain that a purchaser from a mortgagor and the first mortgagee can always, if he chooses, keep the first mortgage alive, and so protect himself against subsequent incumbrances, whether he had notice of them or not. Such authorities as Stevens v. Mid-Hants Railway Company ( L.R., 8 Ch. A. 1064), Adams v. Angell ( 5 Ch. Div. 634), and Thorne v. Cann ( 1895, A. C. 11) in this House illustrate the distinction between such cases and those where, as in Otter v. Lord Vaux, there is a direct relation of contract with the second mortgagee.
What the Master of the Rolls and Buckley, L. J., held in the Court of Appeal in the present case does not seem to me to have been inconsistent with any of these authorities. Parker, J., had found that the manner in which the two interests had become united in Mrs Whiteley made it difficult to distinguish the case from Toulmin v. Steere, but he thought that as the effect of the subsequent authorities was that the doctrine of Toulmin v. Steere was not to be extended, it ought not to govern the ease before him. He was of opinion that Mrs Whiteley had no notice, constructive or otherwise, of Manks' mortgage. Whether this fact ought logically to form a good ground for a distinction he doubted, but it did constitute, in his view, a circumstance which, on the authorities that declared that Toulmin v. Steere was not to be extended, he was bound to take into account. Apart from Toulmin v. Steere he was of opinion that the form of the deeds was not necessarily inconsistent with an intention to keep the prior incumbrance alive, and for this he relied on the decision in Burrell v. Lord Egremont ( 7 Beav. 205), where a tenant for life, having paid off a charge, procured the inheritance to be released from it, under circumstances and in a form which appeared to exclude an actual intention to keep the charge alive, and it was yet held that no intention to merge it had been proved.
The Master of the Rolls did not, I think, dissent from the general statement of the law made by Parker, J. But he said that where the person who pays off a charge is not the tenant for life, but the owner in fee of the estate charged, the presumption is that he does not intend to keep the charge alive. He thought that in the present case there had been constructive notice, but he did not rely on constructive notice as making a difference, nor did he think that Toulmin v. Steere really turned on notice. What he held, and Buckley, L.J., agreed with him, was that Toulmin v. Steere was an authority for the proposition that in a case like the present one there was a presumption that the purchaser did not intend to keep the charge alive, and that as Toulmin v. Steere has never been expressly overruled, he ought to follow it, and hold that no intention to keep the charge alive had been established.
I think that in the case before us it is difficult, quite apart from Toulmin v. Steere, so far as the mere form of the deeds is concerned, to come to a different conclusion as to an intention to merge from that of the majority in the Court of Appeal. These deeds proceed on a plain recital that Ogden, and then Mrs Whiteley, were seized
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I mention the Yorkshire Registry Acts merely for the purpose of saying that they do not assist the respondents. For sec. 15 of the Act of 1884, which gives priority according to date of registration, provides that nothing in the section is to operate to confer on any person claiming without valuable consideration under any person any further priority or protection than would belong to the person under whom heclaims,and that any disposition of land or charge on land which if unregistered would be fraudulent and void, shall not, notwithstanding registration, be fraudulent and void in like manner. I think that it is plain that the registration of the conveyance of the 16th August 1907 to Ogden could give neither to him nor to Manks as claiming through him any advantage to be derived from the Registration Acts.
The only claim made by the respondents in their statement of claims is for a declaration of the priority of Manks' security of the 16th October 1901, and for a conveyance of the legal estate and consequential relief. I am of opinion that this claim so far as it has been controverted fails, and that Parker, J., was right in dismissing the action.
I move that the judgment of the Court of Appeal be reversed, and that of Parker, J., be restored. The respondents must pay the costs here and in the Court of Appeal.
I may add that Lord Kinnear has requested me to inform your Lordships that he concurs in this conclusion.
That ended what may be called the first chapter of the transaction. The other things happened three weeks later.
I pause here to observe that my view of the facts coincides with that taken by Parker, J., who conducted the trial, and Fletcher Moulton, L. J., in the Court of Appeal. It does not coincide with that of the Master of the Rolls or with that of Buckley, L.J. The Master of the Rolls takes the view that the £300 was paid to Ackroyd by Ogden. Buckley, L. J., thought it was paid by Mrs Whiteley, and both consequently incline to the view that the taking over of the title-deeds by Walshaw from Ackroyd was only in order to prepare the necessary deeds, and not in order to assure security to Farrar. I believe it is this difference in the view of the facts which is at the root of the divergence of opinion.
Taking, then, the facts as I hold them to be, the position of the matter at this time was that Farrar was in equity in the place of Ackroyd, and could have compelled a transference of Ackroyd's mortgage.
Now Farrar left it to his agent Walshaw to carry out what he wished by appropriate conveyancing, and here it is that the complication begins. Walshaw was not only agent for Farrar, but he was also acting as solicitor—that is, as agent—for Ogden and for the Whiteleys. Indeed it was at the instance of Ogden and the Whiteleys—induced by the fact that Ackroyd was threatening to foreclose—that any alteration in the status quo was contemplated. The alteration contemplated was that Mrs White-ley should acquire the property, and that Ackroyd should be got out of the way. But Mrs Whiteley had not money enough to get Ackroyd out of the way, and she commissioned Walshaw to find someone who would find money to effect that object. Walshaw accordingly set himself to find Farrar, to whom he proposed the granting of a loan on first mortgage. He found Farrar and paid off Ackroyd with Farrar's money and took the title-deeds. Three weeks after he had thus paid off Ackroyd he proceeded to carry out, as he thought, the instructions of all his clients in the way we know, and in a way which would have fulfilled the instructions of all of them had it not been for the existence, unknown to all except Ogden, of the second mortgage in favour of
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Mr Lawrence, in the very succinct and able argument which he addressed to the House, urged that the deeds carried out the bargain made, and that if in the event Manks got a benefit which he could hardly have anticipated it was only because the bargain made by Farrar, Ogden, and the Whiteleys was carried out in terms, and that Manks got no more than he was entitled to, because his original mortgage though a second mortgage was always on the terms that it should be a first if the existing first from any cause was wiped out. Or, as he put it, the pervading idea of the whole arrangement was that Ackroyd's mortgage should disappear, and that Farrar should hold a mortgage flowing from Mrs Whiteley.
I think that the fallacy in this view consists in ignoring the independent position of Farrar. Farrar was no party to the troubles of Ogden, who was pressed by Ackroyd, or the endeavours of the daughter Mrs Whiteley to come to the rescue of her father. He was a pure investor to whom his solicitor proposed that he should lend £300 as a first mortgage over a sufficient subject. His only idea, and that of his solicitor for him, was that the £300 should be secured. To say that this idea was swallowed up by the pervading idea as above expressed is, I humbly think, to confound the method, or effectuating a certain object with the object itself.
It appears to me, therefore, that as soon as the mistake made was discovered, and so long as no new rights to third parties had arisen on the faith of what had been done, Farrar would have been entitled to have the mistake rectified. Who could have opposed? Not Ogden, for he could not have taken advantage from his own wrongful concealment. Not the Whiteleys, for ex hypothesi they thought that what was done was giving Farrar all he had stipulated for. Not Ackroyd, for he had no interest and could not be prejudiced either way. What, then, was it in the mouth of Manks to say? The transaction was res inter alios acta as far as he was concerned. He had given no consideration for this transaction. And, further, he is only here because he is appealing to an equitable right. So that his equitable right, based upon his original contract, must needs come to this—a right to prevent equity doing, as between other parties with whom he had no concern, what equity would otherwise insist on doing. But his contract right was against Ogden alone, and if, as in a question with Ogden, the equitable right of Farrar to have the deeds reformed would have prevailed, it seems clear that there can be no equity in Manks to prevent that being done.
Actual rectification of the deeds is not necessary. It is conceded that to refuse Manks the declaration he asks is sufficient.
The result is that attained by the formal judgment of Parker, J.
This view approaches the case from rather another aspect than that which has loomed largely in much of the argument, and some of the judgments of the Court below, but I do not think it is a new view. Thus Moulton, L.J., says—(1912, 1 Ch. 753)—“It” (that is, the equitable interest of Farrar in Ackroyd's mortgage) “was in the hands of Farrar and never passed to Ogden” (by Ackroyd's reconveyance). “The consequence is that in spite of the absolute language of the reconveyance this is not a case in which the owner of the equity of redemption in fact acquired the interest of the first mortgagee by the payment off of the mortgage debt and a reconveyance of the estate.… Ogden conveyed all that he had got to his daughter, but he could not convey that which he did not possess— namely, the outstanding first charge to Farrar.” That embodies, in my view, in other words, the arguments which I have sought to express.
This view absolves me from the duty of considering whether the much—canvassed case of Toulmin v. Steere was or was not rightly decided. I confess I avoid that task with gladness. Not only was the judgment that of a great judge, but it is many years old, and only the strongest reasons should make a court of last resort upset a judgment on a point of conveyancing which has remained as authority for so long a time. So that, however the case might be decided, if it occurred now for the first time I should be inclined to hold that, if the facts of the case are identical, Toulmin v. Steere should still be followed. It is clear, however, that there has been, to say the least of it, a great reluctance on the part of judges learned in equity to extend the principle of Toulmin v. Steere beyond the limits of its own facts.
All seem agreed that in debatable cases merger takes place or not according to intention. Indeed, this seems a necessary corollary to the interposition of equity, for otherwise why not leave the parties to their position at law. The difference of opinion seems to come to a question of onus. Where law would involve merger, and where equity can save that consequence, is the onus on those who seek to say that there is merger or on those who will have the contrary? Must you prove an intention to merge, or an intention to keep alive the security?
I think, taking the cases cited as a whole, that the general view comes to this. Where by appropriate conveyancing the charge could be preserved (this excludes all cases of which Otter v. Lord Vaux is a type), then it will be for the party alleging the charge to be dead to show an intention to that effect. What have been called the presumptions arising from the continued existence of the charge being to the benefit of the person who has it paid off, as, e.g., in the case of payment by a limited owner, are just, I think, the ways of expressing the same rule. In the application of this rule to the facts of the present case all depends on whether the true payer of the charge
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Their Lordships sustained the appeal.
Counsel for the Appellants— T. H. Carson, K.C.— Tomlin, K.C. Agents— Williamson, Hill, & Company, Solicitors.
Counsel for the Respondents— P. O. Lawrence, K.C.— R. Watson— H. A. Hind. Agents— Burn & Berridge, Solicitors.