No. II. EQUITABLE MORTGAGE BY THE DEPOSIT OF TITLE DEEDS 1. Parties. 2. Testatum reciting deposit. 3. Agreement to execute a legal mortgage on request. 4. Covenant from mortgagor to pay 5. That until a legal mortgage is 1. ARTICLES OF AGREEMENT indented and made Parties. this day of A.D. 185 BETWEEN (mortgagor), of, &c., of the one part, and (mortgagee), of, &c., of the other part. (b) be created. (a) An equitable mortgage by the deposit of title-deeds may be created by How an parol, as well as by a written agreement; but the latter is the best course of equitable proceeding, as it not only affords more satisfactory proof of the transaction, but mortgage may also entitles the depositary to his costs out of the estate of the depositor, in case the latter becomes a bankrupt, which he would not be entitled to where the agreement was by mere word of mouth, which becomes an important matter where the depositor is a person amenable to the bankrupt laws: (Ex parte Brightwell, 1 Swanst. 3; S. C., Buck, 148; Ex parte Sikes, Buck. 349; Ex parte Trew, 3 Mad. 372; Ex parte Robinson, 1 Dea. & Ch. 119; Ex parte Thorpe, 1 Mont. & Ayr. 441.) (b) Where an agreement accompanies the title deeds, it must be stamped as Mortgage an actual mortgage, as the General Stamp Act (55 Geo. 3, c. 184) directs, that agreement will any agreement, contract or bond, accompanied with a deposit of title-deeds for require the making a mortgage, &c., of any lands, estate or property, comprised in such same stamps as title deeds, or for pledging or charging them as a security, shall bear the same ad valorem stamp as on actual mortgage. But if an actual mortgage be after- mortgage. wards made, a common 17. 15s. deed stamp will be sufficient to cover it at whatever time it may happen to be executed: (2 Hughes Pract. Mort. 176.) an actual No. II. Equitable he Deposit of with Agreement 2. WITNESS, that the said (mortgagor) hath this day deposited with the said (mortgagee) the title deeds and writings specified in Mortgage by the schedule hereunto annexed, and relating to all that freehold Title Deeds, estate [HERE DESCRIBE parcels shortly] situate, &c., for securing to execute a to the said (mortgagee) on demand the sum of 2,560, this day Legal Mortgage. advanced by the said (mortgagee) to the said (mortgagor), with interest for the same, at the rate of 51. for every 1001. by the year. (c) Testatum reciting deposit. Equitable mortgage by Russell v. (c) It was formerly considered that an equitable mortgage by deposit of title deeds would not confer a lien on the lands; all that the courts would recognise deposit of deeds in securities of this nature was, that when title deeds were deposited by a would formerly party as a security for money advanced by him, the depositor could not maintain have created no trover against him at law for their recovery, unless he paid the money for which lien upon the they were pledged; nor obtain relief in equity except upon the same terms lands. (Keys v. Williams, 3 You. & Coll. 60); and although the pledgee had the power of retention until payment, he had no direct power over the estate itself, nor was a subsequent purchaser, even with notice, in any manner affected by his claim. Thus the law seems to have stood until the case of Russell v. Russell (1 Bro. C. C. 269), which came before Lord Thurlow some time in the year 1783. In that case a lease was pledged with the plaintiff by a person who afterwards became a bankrupt, and the pledgee filed a bill for a sale. The case was originally heard before the Lords Commissioners of that day. The plaintiff's claim was opposed by the assignees, who insisted that it was against the law of the land; for that the effect of allowing it would be to charge the land, without writing, which was against the 4th section of the Statute of Frauds. Lord Loughborough, however, said, that the delivery of the lease was a delivery of the title to the plaintiff for a valuable consideration; that the court had nothing to do but supply the legal formalities; and that in all such cases the contract was not to be performed, but was executed; and Ashurst, Lord Commissioner, having observed that it was open to explanation upon what terms the lease was delivered, an issue was directed to try whether the lease was deposited as a security for the sum advanced by the plaintiff to the bankrupt, and the jury having found that it was, on the case afterwards coming before Lord Thurlow on the equity reserved, his lordship ordered the lease to be sold, and the plaintiff paid his money. From this and other cases since decided, all bearing upon the same point, it appears to be now established, that a deposit of title deeds by a debtor in the hands of a creditor, or of some third person in his behalf, although unaccompanied by any written memorandum, or even by a verbal communication, is evidence of the agreement to make a mortgage, which will be enforced by a court of equity, against a depositor and all claiming under him, with notice actual or constructive, of such deposit having been made: (see Featherstone v. Fenwick, 1 Bro. C. C. 270; Harford v. Carpenter, ib.; Ex parte Wetherall, 11 Ves. 398: Ex parte Haigh, ib. 403; Ex parte Mountfort, 14 Ves. 606; Ex parte Kensington, 1 Ves. & Bea. 79: Ex parte Coombes, 1 Rose, 286; Ex parte Hooper, 1 Mer. 7; Casherd v. Ward, 6 Pri. 411; Ex parte Martin, 2 Mont. & Ayr; see also 12 L. T. 357: Coote Mort. 217, 225, 230, 2nd edit. : Stor. Eq. Jur. 1020; 3 Dav. Con. 157; 2 Hughes Pract. Mort. 161; and see also Ex parte Wright, 19 Ves. 258; Bozon v. Williams, You. & Jerv. 150; Fector v. Philpotts, 12 Pri. 197.) Equitable An equitable mortgage effected by a deposit of title deeds, will be good even mortgage by deposit of deeds as against the Crown, provided such deposit was made before the depositor good again the became a debtor to the Crown by record or specialty. Nor will the validity of Crown, when? a deposit of this kind be affected by the depositor becoming a bankrupt between 3. IN CONSIDERATION WHEREOF, the said (mortgagor) doth hereby covenant, agree and undertake, whenever thereunto re No. II. Equitable Mortgage by the Deposit of Title Deeds, with Agreement the time of making the pledge and executing an actual mortgage, unless the to execute a deposit was voluntarily made to secure an antecedent debt, and so close in point Legal Mortgage. of time upon the act of bankruptcy, as to constitute a fraudulent preference; but if the latter could be proved, then it seems the depositary would lose his Covenant from lien, and upon petition be compelled to deliver up the title deeds: (Ex parte mortgagor to Aynsworth, 3 Mont. & Ayr. 451.) pay principal In order, however, to constitute an equitable mortgage, it is essential that and interest on there should be an actual delivery of the deeds. A mere verbal agreement to make a deposit of this kind has been holden insufficient: (Ex parte Combe, re To render Beavan, 4 Mad. 259; Ex parte Coming, 9 Ves. 117.) demand. mortgage valid And even if there is an actual deposit, still if the deeds were delivered under there must be such circumstances as to raise an inference that they were not left with a view an actual of giving the depositary a lien upon them, but for some other purpose, such delivery. delivery will not create an equitable mortgage (Lucas v. Dorien, 1 J. B. Moore, If left for other 29; Rebell v. Phillpotts, 7 L. J. Rep. (N. S.) Ch. 237; Mountfort v. Scott, 3 purposes, no Mad. 34; Will. Eq. Mort. 21.) Still the oath of the depositor is not sufficient equitable lien to support the inference that the deposit was not intended as a security; for will attach upon where it appeared that certain copies of court-roll had been left for several years the lands. with a firm of bankers by a bankrupt who kept a running account there during that time, and two of the clerks swore to the fact of the copies having been deposited as a security, it was held that a good equitable mortgage was created, although the bankrupt swore positively that they were left with the bankers for safe custody only: (Will. Eq. Mort. 22; Ex parte Barnes, re Stratton, 6 Jur. 655; see also Hiern v. Mill, 13 Ves. 114.) But notwithstanding an agreement to deposit, without an actual delivery, will Exception to the be insufficient to create an equitable mortgage, still the rule is not so inflexible rule respecting as to admit of no exceptions; for if a party has only a partial interest in the deposits. property, so that it is not in his power to make a deposit of the title-deeds, a memorandum showing his intention to create the equitable lien will suffice; (Ez parte Furley, 1 Mont. D. & D. 683; Mathews v. Partwright, 3 Atk. 347; Will. Eq. Mort. 25.), It is doubtful, however, whether a court of equity would give effect to a security of this kind, where it would tend to the prejudice of other parties interested in the property; as, for example, where the depositor has only an interest in the deeds as one of several partners, and the property comprised in such deeds belong to the partnership firm: (Ex parte Broadbent, 4 Dea. & Ch. 3.) A copyholder may effect an equitable mortgage by a deposit of his copies of Copyholder. court-roll: (Ex parte Barnes, re Stratton, 6 Jur. 655; see also Ex parte Werner, re Cooke, 1 Rose, 286; Winter v. Lord Anson, 3 Russ. 483; Whitbread v. Jordan, 1 You. & Coll. 325; Lewis v. John, G. Cooper, Eq. Ca. 8); as may also a lessee by depositing his lease (Doe d. Pitt v. Hogg, 4 Dow. & Ry. Lessee. 226), and this notwithstanding it contains a covenant not to assign without licence; as may also the owner of railway, bridge and navigation, shares by Holder of the deposit of the share certificates. And a lien may be created upon property railway shares. of the latter kind, without any deposit of the certificates; provided the owner write to the secretary of the company, and direct a transfer of them. No deposit will in any case create a lien beyond the estate of the depositor No person can in the property to which the deeds relate. If, therefore, a tenant for life deposit create lien the title-deeds of the inheritance, his life estate only will be charged (Williams v. beyond his Medlicot, 9 Pri. 495); and the like rule holds, where a husband deposits the estate in the title deeds of freehold property, which he only holds or is entitled to in right of his wife, which will only be binding on such estate as he takes in that right: (Bates v. Danby, 2 Atk. 207.) And where a person takes no estate at all, he can create no lien whatever. If, therefore deeds are delivered to a person for a particular purpose, and not lands. A person taking no estate can create no lien. No. II. quested by the said (mortgagee), and at the cost of him the said Equitable (mortgagor), his heirs or assigns, to execute a good, valid and Mortgage by the Deposit of Title Deeds, with Agreement Mortgagee by depositing title deeds can only create a lien to to execute a by way of lien, and à fortiori, if he obtains them surreptitiously, a deposit by Legal Mortgage. him to a third party will create no lien either on the deeds, or on the lands to which they relate, and the rightful owner will be entitled to recover them without paying any portion of the debt for which they were deposited: (Jackson v. Butler, 2 Åtk. 306; Bell v. Taylor, 8 Sim. 216.) But although a party taking no interest in the lands can create no lien by depositing the deeds, the deposit creditor may do so by delivering them over as a security to a third party: (Wallwyn v. Assignees of Shepherd, 4 Ves. 119: Ex parte Smith, 2 Dea. & Ch. 271); as may also the mortgagee of title deeds which he holds in that character: but in all such cases, the lien is only binding on the original depositor to the amount of the sum for which he originally deposited them, and the subsequent depositary would be bound to deliver up the deeds upon receiving payment of that sum, without any regard to the amount which he himself may have paid upon them: (Ex parte Smith, sup.; see also Hobson v. Melland, 2 Moo. & Rob. 342.) the extent of his mortgage debt. Whether it is essential to that all the title deeds should be deposited. Questions have frequently arisen as to whether it is necessary that all the title-deeds should be deposited in order to create an equitable mortgage; and create this lien in Ex parte Weatherall it was referred to as an undecided point. In that case the title-deeds related only to a moiety of the estate, but as there was an agreement for the security of the entirety, Lord Eldon considered that the point did not call for adjudication. In another case (Ex parte Pearse, 1 Buck. 525), part of the title-deeds had been deposited with one creditor, and part with another; and the question was, whether these two creditors were to be considered as equitable mortgagees by force of their respective deposits, and if they were, which of them was to be entitled to a preference. Lord Eldon was of opinion that neither the one nor the other of them had an equitable mortgage. The facts of the case were as follows:-Price being indebted to Pearse in 420l., promised to him a security; and, to enable him to prepare a mortgage, sent him all the title-deeds belonging to a certain estate, except the immediate conveyance to himself in fee, which he retained, and afterwards deposited with Protheroe, another creditor, as a security for a debt due to Protheroe, and promised to send him the other title-deeds. Lord Eldon considered it was not the intention of the one that he should have a mortgage until an actual one was executed to him; and that the other was not to have the equitable mortgage till he got possession of the whole of the deeds. The ground of this decision therefore seems to have been, that the intention of the parties was not fulfilled, and that consequently there was no complete contract with either. This distinction seems to have been also recognised in a still more recent case: (Ex parte Arkwright, 3 Mont. D. & D. 129.) There it appeared that the depositors, who had become bankrupt, applied to the depositees for a loan of 15,000l., representing that they were entitled to certain securities of the value of 35,540l., which they offered to deposit with the depositees as a security, and also to give their joint promissory note as a further security. The proposals having been agreed to, the bankrupt sent to the depositees a list or schedule of the several securities, purporting to be a list of twelve parcels of deeds, relating to twelve different estates, accompanied by a letter in which the bankrupts stated that they had enclosed the particulars of certain deeds of property which they had deposited with the depositees as a security for their note. With the list, the bankrupts also deposited the key of a box, which was stated to contain the several securities, and on the receipt of this list and the promissory note, the 15,000l. were advanced, and within a week the depositees received the box containing the securities. Upon opening the box it was found to contain twelve separate parcels or bundles, numbered so as to correspond with the several numbers specified in the list, each bundle containing securities and documents relating to the several subjects mentioned under the No. II. Equitable effectual mortgage in fee-simple in possession of the said estate, for securing the repayment of the said sum of 2,5601. and interest as aforesaid; such mortgage deed to contain the usual powers of Mortgage by sale, indemnity to purchasers, and other clauses incidental to an ordinary mortgage assurance, as the said (mortgagee), his executors, corresponding numbers in the list. On the depositors becoming bankrupt, a petition was presented by the depositees, praying the usual declaration and direction, as in the case of an equitable mortgage, and that the assignees might be ordered to deliver to the petitioners all deeds and documents in their possession relating to the property in question. It appeared in evidence that the bundle of deeds numbered "8" in the list or schedule transmitted from the bankrupt to the petitioners, only included one deed relating to one of the estates, which was an old paid-off mortgage; and that at the time of the deposit all the other deeds relating to that property, including all the modern deeds and conveyances by which the bankrupts became interested in the estate, were in the possession of the bankrupt's solicitors, who claimed a lien on them for the payment of their law charges, and that the assignees had, after the bankruptcy, obtained possession of such deeds by satisfying the lien. The Chief Judge (Sir K. Bruce) said he considered the letter and schedule taken together to amount to an equitable charge on the property in question, the Deposit of Title Deeds, with Agreement to execute a Legal Mortgage. And in another case (Ex parte Chippendale, 1 Dea. 67; 2 Mont. & Ayr. 299), Ex parte where it appeared, on the petition of an equitable mortgagee for the usual order Chippendale. of sale, that the bankrupts had only deposited one deed, namely, the conveyance to themselves, leaving the rest of the title-deeds in the hands of their solicitors, who had no lien upon them, but for safe custody only, the court said that this was not, as in the case Ex parte Pearse (above alluded to), a case of splitting the deeds, where the bankrupt intended to give two securities to different creditors, and that the whole right of the bankrupts to this property was under the conveyance to themselves, under which they derived a new title, and which conveyance was actually deposited with the petitioners. The question is, whether what was done in the case is not evidence of an agreement on the part of the bankrupts to give the petitioners a mortgage of their estate, and there is nothing here to counteract the evidence of the intention of the bankrupts to do so; an intention which is sufficiently apparent by the deposit of the principal conveyance with the petitioners. The retention of the other deeds by the solicitors must be considered as for the benefit of those who might become legally or equitably interested in the property. will create an Whether a deposit of title deeds for the purpose of preparing a legal mort- Whether a gage, will make a good equitable mortgage, is a subject upon which the deposit of deeds authorities are somewhat conflicting. In Re Brunde (Pre. Cha. 275); in Brizeck for the purpose v. Manners (Mo. 284); in Ex parte Bulteel (2 Cox, 243); and in Morris v. of preparing a Wilkinson (12 Ves. 192), it was held that a delivery of deeds, in order that a legal mortgage mortgage might be prepared from them, should not create an equitable mortgage. Lord Kenyon, however, in Edge v. Worthington (1 Cox. 121), and Lord equitable one. Eldon also, in Ex parte Bince (1 Rose, 374), decided directly the contrary. In the latter case Lord Eldon said, that the principle of equitable mortgages was, that the deposit of the deeds was evidence of the agreement, but if they were deposited for the express purpose of preparing the security of a legal mortgage, that was stronger than an implied intention. And the rule laid down by Lord Kenyon and Lord Eldon, in the cases above alluded to, has been supported by more recent decisions (Hockley v. Bantock, Russ. 141; Keys v. Williams, 3 You. & Coll. 62); so that whatever opinions might formerly have been entertained, it seems to be now established, that a deposit of deeds, for the purpose of preparing a legal mortgage, will create a valid equitable mortgage; and that the lands to which such deeds relate wlll thereby in equity become onerated with the charge: (see 2 Hughes Pract. Mort. 166.) |