Allen v Knight
| Jurisdiction | England & Wales |
| Judgment Date | 27 May 1846 |
| Date | 27 May 1846 |
| Court | High Court of Chancery |
English Reports Citation: 67 E.R. 915
HIGH COURT OF CHANCERY
Affirmed, 16 L. L. J. Ch. 370; 11 Jur. 572. See Hunter v. Watters, 1870-71, L. R. 11 Eq. 318; L. R. 7 Ch. 75; Mumford v. Stohwasser, 1874, L. R. 18 Eq. 563; Taylor v. London and County Banking Company [1901], 2 Ch. 256.
[272] allen v. knight. May 6, 7, 22, 23, 25, 27, 1846. [Affirmed, 16 L. L. J. Ch. 370; 11 Jur. 572. See Hunter v. Waiters, 1870-71, L. E. 11 Eq. 318; L. R 7 Ch. 75; Mumford v. Stohwasser, 1874, L. R 18 Eq. 563 ; Taylor v. London and County Banking Company [1901], 2 Ch. 256.] Four trustees sell out stock under an agreement that the proceeds shall be lent to two of them, upon equitable mortgage, by deposit of the documents of title of a copyhold estate which belonged to such two trustees in undivided moieties. The money was lent, and the documents deposited ; but afterwards, by some unexplained means, they came into the hands of one of the two trustees who had borrowed the fund, and that trustee made a second equitable mortgage on his own moiety of the estate by depositing the documents with a third person, who took them without notice of the first mortgage; that trustee afterwards became bankrupt, and the second equitable mortgagee purchased and obtained from the assignees of the bankrupt a surrender, and was admitted tenant of the bankrupt's undivided moiety, having, at the time of such purchase of the legal estate, received constructive notice of the first mortgage. In a suit by one of the trustees (the lender of the trust fund, the other having become bankrupt) for foreclosure: Held that the second equitable mortgagee, who had taken the legal estate with notice of the obligations of the mortgagor to third parties, could only hold that estate subject to such obligations, notwithstanding that he had originally taken his mortgage security without notice. That in the absence of any suggestion of a specific case, as against the Plaintiff, charging him with acts whereby the mortgagor was enabled to commit the fraud, the mere fact of the possession of the title-deeds by the mortgagor was not sufficient to postpone the claim of the first mortgagee. That the fact of the loan of the proceeds of the stock having been a breach of trust did not affect the question as between the first and second mortgagees. That the cestui gue trusts of the stock, not having been parties to or adopted the mortgage, were not necessary parties to the suit for foreclosure. The Plaintiff, William Woodgate Allen, and the Defendants, George Knight, Lewis Allen and Charles Allen, were, in October 1836, trustees under the will of one Samuel Harris, for the benefit of the family of the testator, of a sum of £1050 New £3^ per cents., which stood in their joint names as such trustees. George Knight and Charles Allen procured the stock to be lent to them upon the security of the title-deeds or documents of title of a copyhold estate at Twickenham, of which they were tenants in common, accompanied by articles of agreement, dated the 24th of 916 allen :v, knight October 1836, between G-eorge Knight and Charles Allen of the one part, and the Plaintiff and Lewis Allen of the other part, whereby George Knight and Charles Allen agreed to retransfer the stock when the same should become payable under the trusts of the will, and that the documents of title of the said copyhold estate should be deposited with Lewis Allen and the Plaintiff, and remain a security for the same and for the indemnity of the parties. [273] The deposit appeared to have been placed in the hands of Lewis Allen; but, by some means which were not explained, the title-deeds came into the hands of Charles Allen; and Charles Allen, on the 5th of May 1838, deposited the same deeds with Margaret Jellas and Charles Faircloth, in substitution for a previous security for two sums of £300, owing to them by Charles Allen, and by way of equitable mortgage of his undivided moiety of the estate. The second charge was taken by the second mortgagees without notice of the first. In June 1838 Charles Allen became bankrupt, Lewis Allen also became bankrupt. The interests of the second mortgagees, Jellas and Faircloth, became vested in the Defendants, David and Elizabeth Smith. The Defendants, David and Elizabeth Smith, purchased from the assignees of Charles Allen the equity of redemption of his undivided moiety in the estate, and in that transaction they had, through their solicitor, constructive, if not actual, notice of the first mortgage or charge of October 1836 to the Plaintiff and Lewis Allen. On the 12th of August 1844 the equity of redemption of the moiety of Charles Allen was conveyed and released by his assignees to the Defendants, David and Elizabeth Smith; and on the 5th of November 1844 the moiety of the tenements was surrendered, and the Defendants, David and Elizabeth Smith, were admitted tenants of the manor in respect of such undivided moiety. The bill, which was filed against George Knight, Lewis Allen and David and Elizabeth Smith, prayed that the sum necessary to replace the trust fund might be declared to be a charge on both moieties: of the estate, and that the Defendants might be decreed to execute to the Plaintiff a legal mortgage for the same. Charles Allen [274] died before the institution of the suit. The cestui que trusts of the stock were made Defendants. The,answer of the Defendants, David and Elizabeth Smith, insisted upon their title to priority as mortgagees of their undivided moiety, on the ground that the fraud upon them could not have been effected but from the negligence of the Plaintiff in permitting the title-deeds to come into the hands of Charles Allen ; and they submitted that such negligence was a sufficient reason for postponing the Plaintiff's charge, as to that moiety, to that of the Defendants. Mr. Wood and Mr. Kolt, for the Plaintiff, and Mr. Bound ell Palmer, for the Defendant, George Knight, who was interested in supporting the case of the Plaintiff against the Defendants, David and Elizabeth Smith, inasmuch as the effect of giving priority to the latter mortgage would be to throw the Plaintiff's charge entirely, or for the greater part, upon the moiety belonging to George Knight. The Defendants, the Smiths, have, by their acquisition of the legal estate in the moiety of the copyhold premises, comprised in the mortgage to the Plaintiff and Lewis Allen, deprived themselves of any right which they may previously have had to hold the title-deeds, as purchasers or mortgagees, without notice of the prior equitable mortgage. The Defendants' security has now become merged in or united with the equity of redemption ; and whatever the anterior priorities may have been, the charge which the Plaintiff now seeks to enforce is the first incumbrance : Toulmin v. Steere (3 Mer. 210), Parry V. [275] Wright (5 Buss. 142 ; S. C. 1 Sim. & St. 369), Brown v. Stead (5 Sim. 535), Smith v. Phillips (1 Keen, 694). The Defendants are now in the same position as the mortgagor whose estate they have purchased: Sounders v. Dehew (2 Vern. 271), Beckett v. Cordley (1 Bro. C. C. 353). They cannot exclude any incumbrance of which they have notice at the time .they took the legal estate in the mortgaged .property : Greswold v. Marsham (2 Cha. Ca. 170). The Defendants might have been deceived or defrauded by Charles Allen when he induced them to accept the equitable mortgage of his interest in the property, concealing from them the existence of the prior charge; but that is not attributable to any act of the Plaintiff. No personal negligence or misconduct is imputed: to the Plaintiff; and his SHARE, 276. ALLEN V. KNIGHT 917 security, therefore, cannot be affected by the deception which may have been practised upon the Defendants. The circumstance that the title-deeds were not in his possession, and that they came into the possession of Charles Allen, is not an answer to the Plaintiff's claim, he being only one of two mortgagees in trust for others, and therefore not entitled to the sole possession of the documents: Evans v. Bicknell (6 Ves. 173), Farrow v. Bees (4 Beav. 18). Mr. Romilly and Mr. Fisher, for the Defendants, David and Elizabeth Smith. The case of Toulmin v. Steere and the other cases of that class have no application to this case. This is not a case in which the charge has become merged in the legal estate : the Court does not treat the union of interests in the same party as a merger, unless it is intended to have that effect, or it is beneficial to the party [276] that it should be so treated : Forbes v. Moffatt (18 Ves. 384), Lord Selsey v. Lord Lake (1 Beav. 146), Lord Campion v. Oxendon (2 Ves. jun. 264). Supposing the equities of these parties to be otherwise equal, the Court will not, on the mere ground of priority in date, give effect to the Plaintiffs mortgage by taking from the Defendant the benefit of the legal estate: March v. Lee (1 Cha. Ca. 162), Higgm v. Syddal (1 Cha. Ca. 149). In this case, moreover, the equities of the parties are not equal. The negligence of the mortgagees, who took the first charge in point of date, enabled the mortgagor to deceive the Defendants by pretending to be the owner of the moiety of the estate free from incumbrance; and there is a long series of authorities which establish the proposition that, when a party has been drawn in to purchase an estate or take a security, which is the same thing, by the misconduct or misrepresentation of another, such other party is precluded from setting up a prior security or interest of his own : Watts v. Creswell (3 Eq. Ca. Ab. 515; S. C., 9 Vin, Ab. 415, pi. 24), Savage v. Foster (9 Mod. 36), Ibbottson v. Shades (2 Vern. 554), Draper v. Borlace (2 Vern. 370), Berrisford v. Milward (2 Atk. 49). Nor is it necessary, in order to postpone the party so acting, that he should have designedly or fraudulently misled the other purchaser; it is sufficient that he did so in ignorance or by mistake...
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