CHAPTER VII. SECTION II. OF A MORTGAGE OF AN EQUITY OF REDEMPTION. i.-Natures and Incidents of Mortgage of Equity of Redemption. An equity of redemption is, as will be seen hereafter (c), an estate or interest of which the mortgagor, until decree of foreclosure, is possessed of his ancient and original right, and accordingly may be the subject of mortgage toties quoties. Where successive mortgages are made of an equity of redemption, subject to a prior legal mortgage, the first mortgagee, on being paid off, becomes a trustee of the legal estate for any subsequent incumbrancers according to. their priorities, and is accordingly bound to convey the estate to the second mortgagee, who has the best right to call for it: he must not convey the estate to a subsequent mortgagee so as to alter the priorities of successive equitable incumbrancers (d). A second mortgagee may, upon the first mortgagee being paid Action to compel conoff by the mortgagor, bring an action to obtain a conveyance or veyance of assignment of the legal estate, although an actual tender has legal estate. been made to him by the mortgagor of the money due on the second mortgage, and even although a decree for redemption. has been obtained, until the time fixed by the decree for redemption has arrived, though such a course will probably fix him with costs, if the mortgagee has had his proper notice of six months before tender made (e). A loan on the security of a mortgage of an equity of redemp- Disadvantion is attended with certain serious risks and disadvantages. tages of mortgages As between mere equitable incumbrancers, it is a maxim in of equity of redemption. equity-qui prior est tempore, potior est jure (f). On this principle each mortgagee of the equity of redemption has preference according to his priority in time (g). postponed to But there is another important principle that must be borne Liability to be in mind, viz., that where equities are equal, the law must pre- subsequent vail (). The consequence is, that a mortgagee of the equity of incumbrancer who gets in redemption may be postponed to a subsequent mortgagee, who, the legal (c) See post, p. 627. (d) Sharples v. Adams, 32 Beav. 212. (e) Grugeon v. Gerrard, 4 Y. & C. Ex. 119. (f) Brace v. Duchess of Marlborough, 2 P. Wms. 491; Wilmott v. Pike, 5 Ha. 14; Jones v. Jones, 8 Sim. 633; and see Wiltshire v. Rabbits, 14 Sim. (g) See post, pp. 1236 et seq. estate. CHAPTER VII. having advanced his money without notice, afterwards (although then with notice) obtains possession of the legal estate. From this results a disadvantage and even danger in taking a mortgage of an equity of redemption, against which it is difficult to guard. Liability to be ousted by tacking. Liability to let in dower. No remedy at law for enforcing charge. Liability to foreclosure by legal mortgagee. Another disadvantage attending a mortgage of an equity of redemption is, that the first mortgagee may, previously to the second mortgage, or even subsequently to it if without notice, make further advances to the mortgagor, all of which (as also judgment or statute debts) (i), he will, as hereafter explained (k), be entitled to tack to his original mortgage in preference to the subsequent mortgagee. To guard against this mischief, it is incumbent on a person lending money on an equity of redemption, first to make inquiry of the prior mortgagee into the amount of his demand and inspect the title deeds in his possession, and, secondly, to give him express notice of the proposed mortgage. And it will be advisable, if practicable, i. e., if the first mortgagee will permit, to put notice of the second mortgage on the principal title deed, such as the conveyance to the mortgagor or the like, or on the first mortgage deed; for otherwise the mortgagor might redeem the first mortgage, and convey the legal estate to a stranger without notice, who would thus gain a preference to the prior equitable mortgagee. Another disadvantage attending a mortgage of an equity of redemption is, that if the mortgagor shall afterwards redeem and take a conveyance to himself, he will, it may be thought, let in his widow's right to dower, in preference to the equitable mortgagee. A further disadvantage is, that the mortgagee has not the legal remedy, so far as respects the estate, for enforcing payment of principal or interest, by bringing an action against the mortgagor or his tenant for recovery of possession of the mortgaged property, now substituted for the old action of ejectment, but is driven to seek relief in equity. Again, inasmuch as a second mortgagee is subject to foreclosure equally with the mortgagor at the hands of the first mortgagee, a mortgagee of an equity of redemption may find himself obliged, in order to preserve his security, to redeem the first mortgagee, and so be compelled to advance a larger sum (i) Brace v. Duchess of Marlborough, 2 P. Wms. 491. (k) See post, pp. 1219 et seq. than he had originally contemplated, or perhaps than he may then be prepared to lend. CHAPTER VII. consolidation Or, upon proceeding to foreclose, the first mortgagee may Liability to possibly be in a position to consolidate his mortgage with by legal mortgages upon other property of the mortgagor (1), in which mortgagee. case the mortgagee of the equity of redemption will have to provide for a still greater outlay in order to preserve his security, and will also be exposed to the risk of losing his security entirely, should such other property of the mortgagor prove to be an inadequate security for the mortgages made upon it. title deeds. A further disadvantage is that a mortgagee of an equity of No right to redemption is not entitled to the title deeds to the property mortgaged, which follow the legal estate into the hands of the first mortgagee. On this account, in the absence of the precaution above suggested, a mortgagee of an equity of redemption is constantly subjected to the risk of being postponed to a stranger obtaining the legal estate from the first mortgagee without such notice of that charge as would be imputed to a person taking such conveyance without requiring the title deeds. to be handed over, or their absence accounted for (m). concealment Another disadvantage, against which no prudence can guard, Fraudulent is, that the mortgagor may secretly have executed prior mort- of prior ingages of the equity. For so gross a fraud the legislature has cumbrance. enacted that his right of redemption shall be utterly lost. By the statute 4 & 5 Will. III. c. 16, it is, in effect, enacted that if any person shall mortgage any lands, and again mortgage the same lands or any part thereof to another mortgagee, and shall not discover the first mortgage to the second mortgagee, he shall have no equity of redemption against the second mortgagee, who may hold the mortgaged lands free from such equity, as if he had acquired them by absolute purchase. It will be seen that the language of the statute is confined to a second mortgage of the same lands, and that the legislature does not appear to have contemplated that other estates might be also comprised in the second mortgage. To such cases it has been held, in Stafford v. Selby (n), that the statute, being penal, does not apply, unless the property joined with the equity of redemption is so inconsiderable that its introduction into the mortgage (1) See post, Chap. XLIII. p. 855, as to consolidation. (m) See post, pp. 1340 et seq. CHAPTER VII. Liability of mortgagor or his solicitor to criminal proceedings. was palpably fraudulent, and for the mere purpose of affording a pretext for the evasion of the statute. The same case also determined that, to comply with the directions of the statute, the mortgagor must give the second mortgagee notice in writing under his hand of all the prior incumbrances; and that an assignee of the second mortgage, as well as a subsequent mortgagee redeeming the second mortgage, has the benefit of the statute; but that to entitle a second mortgagee to the advantage of the statute, he must come into Court with clean hands and free from fraud. The statute does not give a right to the second mortgagee to come actively into Court to enforce the forfeiture; and in order to bring the Act into operation, both the first and second mortgages must be, in the strictest sense, mortgages reserving a right of redemption (o). The forfeiture will not arise so long as there is a legal right to redeem, but only after the stipulated time for redemption has passed, and therefore the equity of redemption alone remains (p). By a more recent statute (g), it is enacted that any seller or mortgagor, or the solicitor or agent of such, who conceals any settlement, deed, will, or other instrument material to the title, or any incumbrance, from the purchaser or mortgagee, or who falsifies any pedigree on which the title does or may depend in order to induce him to accept the title, with intent to defraud, is guilty of misdemeanour, and also liable to an action for damages at the suit of the purchaser or mortgagee; but no prosecution is to be commenced without the sanction of the Attorney-General, or, if that office be vacant, of the SolicitorGeneral. This section, it is conceived, can only apply to the fraudulent concealment of an existing incumbrance, nor will the vendor's solicitor be criminally responsible if he suppress a mere equitable charge, which has been satisfied, or which no longer affects the title (r). Where there is a condition of sale that no title to the property sold shall be shown before a certain date, semble, that the above Acts do not apply to the omission of an incumbrance prior to that date (s). But there is no fraudulent concealment of a claim (0) Kennard v. Futvoye, 2 Giff. 81. (g) 22 & 23 Vict. c. 35, s. 24, as amended by 23 & 24 Vict. c. 38, s. 8. (r) Dart & Barb. V. & P. (6th ed.) Vol. I., p. 344. (s) Smith v. Robinson, 13 Ch. D. 148. when the person is under no obligation to disclose it, as a witness CHAPTER VII. under examination (t). Independently of statutory enactment, a mortgagor or his Liability in equity. solicitor, who fraudulently conceals an incumbrance on the property which is known to him, is liable in equity to a subsequent mortgagee or purchaser (u). Where the existence of a legal mortgage was concealed by the mortgagor from a purchaser for value, it was held that the mortgagee was entitled to a decree of foreclosure against the purchaser, and that the latter could not avail himself of a reconveyance to the mortgagor, which, having been obtained by fraud, was declared null and void (x). Where an incumbrance has been omitted from an abstract by the vendor, though through ignorance, he must pay it off, and cannot rescind the contract under the clause enabling the vendor to rescind if he declines to comply with any requisition (y). On the same principle, false or incorrect representations as to incumbrances must be made good, even where the representation is made by a stranger without any intention of fraud (z), as where the representative of a mortgagor asserted that part of the mortgage had been transferred to other property (a). expectant on term. ii.—Mortgage of Reversion expectant on Mortgage Term.- Disadvantages of A legal reversion expectant on a mortgage term must not be mortgage of confounded with an equity of redemption. A mortgage in fee, reversion therefore, after a mortgage for a term of years, will, of course, mortgage take precedence of mere equitable incumbrances upon the term. But even to a mortgage of such a nature, without some degree of precaution, a degree of hazard attaches, for the first mortgagee may continue to make advances to the mortgagor after the date of the mortgage in fee, either on his original security, or on judgment or statute security; all of which he will be entitled to tack, unless he had notice of the second mortgage; and even a subsequent mortgagee of the mere equity of redemption might obtain an advantage over the mortgagee of the legal reversion (t) Rolt v. White, 3 De G. J. & S. 360. (u) Arnot v. Biscoe, 1 Ves. Sen. 94; Evans v. Bicknell, 6 Ves. 174; Burrowes v. Lock, 10 Ves. 470; Richards v. Barton, 1 Esp. 268. See Edgington v. Fitzmaurice, 39 Ch. D. 459, C. A. (liability of directors of joint stock company). (x) Heath v. Crealock, L. R. 10 Ch. A. 22. (y) Re Jackson and Oakshott, 14 Ch. D. 851. (z) Slim v. Croucher, 1 De G. F. & J. 518. (a) Att.-Gen. v. Cox, 3 H. L. C. 240. |