Deeley v Lloyds Bank Ltd

APPEAL from an order of the Court of Appeal affirming a judgment of Eve J.^F2

The question raised by this appeal was whether the respondents, Lloyds Bank, Limited, in whose favour a mortgage had been executed by their customer, John Glaze, to secure his current account, were entitled as against the appellant, a subsequent mortgagee, to hold their mortgage as security for moneys becoming due to them from the mortgagor after they had received notice of the appellant's mortgage; and this question turned upon the question whether the respondents' mortgage had been discharged by the operation of the rule in Clayton's Case.^F3

The appellant was the wife of Frank Deeley, a solicitor, of Dudley, and the sister of John Glaze. Frank Deeley acted as solicitor to John Glaze in the transactions which led to this litigation, and he also acted as the agent of his wife, who left to her husband the entire management of her monetary affairs.

In 1891 John Glaze acquired certain freehold ironworks at Brierley Hill, Dudley, known as the Brockmoor Steel and Iron Works, where he carried on the business of an ironfounder, and by an indenture of mortgage dated August 28, 1891, he mortgaged these works to T. Rollason and R. Meiklejohn to secure 2500l. and interest at 4½ per cent.

In 1892 John Glaze opened an account with the respondents' Dudley branch. It was agreed that the bank should allow him an overdraft of 1000l. upon certain securities; and in the following year it was agreed that the bank should allow him a further overdraft of 2500l. upon a mortgage of the Brockmoor Works. By an indenture of mortgage dated September 21, 1893, and made between John Glaze of the one part and the respondents of the other part, John Glaze covenanted with the respondents that he would on demand, or if no demand was made in his lifetime then his heirs, executors, or administrators would on his death, pay to the respondents the balance then owing on his account current with the respondents for cheques, notes, or bills drawn, accepted, or indorsed by him or for advances made to him for his accommodation or benefit or otherwise howsoever, including interest with half-yearly rests, commission, and other customary charges, and would also pay interest on such balance from the date of such demand or death (as the case might be) at the rate of 5l. per cent. per annum. Then followed a conveyance of the Brockmoor Works to the use of the respondents in fee simple, subject to the first mortgage, and subject to a proviso for redemption on payment of all moneys by the now stating mortgage covenanted to be paid; and the mortgage contained a proviso that the amount to be thereby secured should not exceed the sum of 2500l.

By an indenture of mortgage dated October 19, 1895, and made between John Glaze of the one part and the appellant of the other part, John Glaze mortgaged the Brockmoor Works and certain book debts to the appellant to secure the sum of 3500l. and interest at 10 per cent., and this mortgage was expressed to be subject, in the case of the Brockmoor property, to the first and second mortgages above referred to. This mortgage was not in fact executed until December 2, 1895, and on that day notice thereof was duly given on behalf of the appellant to the respondents.

At the close of December 2, 1895, there was, as appeared by the bank pass-books of John Glaze, a debit balance of 3379l. odd on his current account with the respondents, which was secured to the extent of 2500l. by the respondents' mortgage, and for which the respondents held other securities valued by them at 3580l. John Glaze continued to pay in moneys to the credit of his current account, and between the close of December 2 and the close of December 21, 1895, these payments amounted to 2657l. odd, which more than extinguished the amount secured by the respondents' mortgage. Between December 21, 1895, and the close of January 7, 1896, further sums to the amount of 801l. odd were paid in to the credit of his current account, and that sum with the sum previously paid in more than extinguished the total debt of John Glaze to the respondents on December 2, 1895.

On March 23, 1899, the respondents, having in the meantime taken a transfer of the first mortgage, entered into possession of the Brockmoor Works, and on June 6, 1899, they sold the property under their power of sale for 5500l. The whole of the purchase-money was retained by the respondents, who claimed to apply it (with the exception of a small sum of 37l.) in satisfaction of the amount alleged to be due to them under the first and second mortgages respectively.

On December 7, 1899, John Glaze was adjudicated a bankrupt. No dividend had been paid in respect of his estate and the whole of the principal sum of 3500l. due under the appellant's mortgage remained due to her.

On April 29, 1905, the appellan commenced an action against the respondents claiming (among other things) the usual accounts as against a mortgagee in possession, and a declaration that in taking these accounts the respondents were not entitled to charge for advances made by them to John Glaze after they had notice of the third mortgage. The respondents by their amended defence denied that they had received notice of the appellant's mortgage on December 2, 1895, or at any date prior to November 22, 1898. George Wilkinson, who was the manager of the respondents' Dudley branch at the date of the execution of the appellant's mortgage and for some considerable time afterwards, was called by the respondents and stated that he had no recollection of having received notice of the mortgage on December 2, 1895. The Court, however, came to the conclusion that his memory was defective as to this and found as a fact that the notice was received by him on that date. The respondents also alleged that the moneys secured by the appellant's mortgage in fact belonged to Frank Deeley and that the appellant was a bare trustee of the mortgage for her husband. No money passed on this mortgage, which was mainly to secure past advances paid by Frank Deeley to the credit of John Glaze's account. Frank Deeley and the appellant, however, swore that these moneys came from the appellant's estate and were lent by the appellant to her husband. The Court, in substance, accepted their evidence and found that the allegations of the respondents were not proved.

The two remaining defences to the action, so far as material to this appeal, were in substance (a) that the facts of the case were inconsistent with the existence of any intention on the part of the respondents to appropriate in accordance with the rule in Clayton's Case^F4 the sums paid to the credit of the secured account after the date of the appellant's mortgage, and that consequently that rule was excluded; (b) that the appellant by her own acts and the acts of her husband was precluded from claiming any priority over the respondents' mortgage.

The facts relevant to these issues were as follows:— John Glaze, who was continually in need of money to carry on his business, frequently applied through Frank Deeley to the respondents, both before and after the execution of the appellant's mortgage, to allow him to increase his overdraft, but the respondents throughout refused to allow him any...