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Notice of Mortgage

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NOTICE OF MORTGAGE. If, when a banker takes a charge upon a property as security for an advance, he receives notice of a charge already subsisting on the land, the banker's charge, even if it is a legal mortgage, ranks after the charge of which he had notice. When a second charge is taken, the banker should give notice of his mortgage to the first mortgagee.

If, after having taken a security, a banker receives notice that a second charge has been granted upon the same land, any advance that the banker may make, after receipt of such notice, will not be recover able out of the security in priority to the person holding the second charge. It should be particularly noted that all pay ments to credit after the notice will go to reduce the debt against that security, and all withdrawals will constitute a fresh unsecured advance. The fact that the banker's memorandum of deposit stated that the security was to cover future ad vances, or that the fixed amount which the banker agreed to lend had not all been taken, would not make any difference.

In West v. Williams (1899, 1 Ch. 132) Lindley, M.R., said : " Even if the first mortgagee has agreed to make further ad vances on the property mortgaged to him, the mortgagor is under no obligation to take further advances from him, and from no one else ; and if the mortgagor chooses to borrow from someone else and to give him a second mortgage. the mortgagor thereby releases the first mortgagee from his obliga tion to make further advances. Whatever prevents the mortgagor from giving to the first mortgagee the agreed security for his further advances releases the first gagee from his obligation to make them." In Hopkinson v. Roll (1861, 9 H.L.C. 514), the bankers contended that they had a right to make further advances after notice of a second charge, but it was held that their charge was limited to the amount of the debt at the time that they received the notice of the second charge. Lord Campbell said : " Although the mortgagor has parted with the legal interest in the hereditarnents mortgaged, he remains the equitable owner of all his interest not transferred beneficially to the mortgagee, and he may still deal with his property in any way consistent with the rights of the mortgagee. . . . The first mortgagee is secure as to past ad vances, and he is not under any obligation to make any further advances. . . The hardship upon bankers from this view of the subject at once vanishes when we consider that the security of the first mortgage is not impaired without notice of a second, and that when this notice comes, the bankers have only to consider (as they do as often as they discount a bill of exchange) what is the credit of their customer, and whether the proposed transaction is likely to lead to profit or to loss." on receipt of notice of a second charge, the account should be broken and the advance allowed to remain standing against the security, until it is repaid or some fresh arrangement is made, a new account being opened for future transactions. Any overdraft on the new account would, of course, be unsecured, unless fresh security were given. The security in such

a case should not be given up to the debtor without the consent of the second mortgagee.

The same rule applies if a banker has notice that the owner of the land, the deeds of which are lodged with him as security, has contracted to sell the land to a party who is aware of the banker's charge. After the notice has been received, all sums paid to credit discharge that security to the extent of the credits, and the subsequent debits are unsecured so far as that particu lar security is concerned.

In London and County Banking Company, Limited I!. Ratcliffe (1881, 6 A.C. 722), where a person purchased land, with notice that the title deeds were deposited with a banker as a security, James, L. J., in the course of his judgment in the Court of Appeal (of which there is no recognised report) said that the advances made after the bankers had notice of a change in the beneficial ownership were not a charge on that owner ship. It was true that there had always been a large balance due to the bankers, but according to the rule in Clayton's case the credits must be attributed to the debits in order of date, there being nothing special in the case to exempt it from the operation of that rule. If the bankers had been minded to substitute for a security on the property, a charge on the purchase money, it would have been very easy for them to do so by getting from the client a direction to the purchaser to pay them the purchase money and giving due notice of it to the purchaser ; this they had not done and they had failed to establish a charge on the property (see Hutchison, vol. iii, p. 178). In the House of Lords, Lord Blackburn said : " This, in effect, raises the question, whether anyone purchasing land, with notice that the title deeds have been deposited with a bank, is bound to inquire whether the bank has, after receiving notice of this purchase, made fresh advances on the security of the unpaid vendor's lien ; or whether the burden does not lie on the bank, advancing on the security of the unpaid vendor's lien, to give notice to the purchaser, that it has so done, or intends so to do. No case was cited in which any such point had been discussed ; but I think both convenience and principle strongly point to the burden of giving notice lying on the bank, and not on the purchaser, whose inquiries might often be annoying and impertinent." \Vhere property which was subject to two mortgages, and the first mortgagees had received notice of the second mortgage. was sold by the first mortgagees, who, after satisfying their own charge, forgot about the notice they had received, and paid the surplus of the proceeds of the sale to the mortgagor, it \vas held that they were liable to the second mortgagee for the amount of his mortgage to the extent of the surplus which remained after their own debt was discharged. See West London Commercial Bank v. Reliance Permanent Building Society (1885, 29 Ch. D. 954).

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