CHAPTER XIX. OSTENSIBLE OWNERSHIP AND AGENCY-LAND - POSSESSION OF THE DEEDS. Various rules, or various statements of the same rule, have been formulated with reference to possession of the title-deeds in contests for priority. I. In 1787 Buller, J., said: "It is an established rule in a court of equity that a second mortgagee who has the title-deeds, without notice of any prior incumbrancer, shall be preferred; because if a mortgagee lends money upon mortgage without taking the title-deeds, he enables the mortgagor to commit a fraud."1 II. In 1853 Kindersley, V. C., said: "As between two persons whose equitable interests are of precisely the same nature and quality, and in that respect equal, the possession of the deeds gives the better equity."2 III. And in 1867 Malins, V. C., said: "I have not a shadow of doubt that where there is merely an equitable mortgage unaccompanied by the legal estate in every case where the equitable mortgagee either omits to get, or, having got, gives up possession of the deeds, he must always be postponed. I decide this case on the general principle that one equitable mortgagee without possession of the deeds must be postponed to another who has that possession." 3 The first of these rules at once suggests estoppel by ostensible ownership. A mortgagee leaves the title-deeds in the hands of the mortgagor; he thus, as is said, "enables the mortgagor to commit a fraud," he enables him to pose as the unincumbered owner; upon the faith of this appearance a third person changes his position, and the mortgagee is properly estopped. For estoppel, however, it is essentially necessary that the subsequent mortgagee should have become such upon the faith of the mortgagor's possession of the deeds upon the faith of his 1 Goodtitle v. Morgan (1787), 1 T. R. L. R. 11 Eq. 316; 41 L J. Ch. 175; 762. cited in Spencer v. Clark (1878), 9 2 Rice v. Rice (1853), 2 Dr. 77; 23 L. Ch. D. 142; 47 L. J. Ch. 694; and conJ. Ch. 291. 3 Layard v. Maud (1867), L. R. 4 Eq. 397, 406; 36 L. J. Ch. 669. Dissented from in Thorpe v. Holdsmith (1868), L. R. 7 Eq. 139; 38 L. J. Ch. 194; reasserted in Hunter v. Walters (1871), sidered to be too clear for proof in Lloyd v. Jones (1885), 29 Ch. D. 229; 54 L. J. Ch. 931, which, in its terms, was thought to go too far, Re Castell, Roper v. Castell (1898), 1 Ch. 315; 67 L. J. Ch. 169. ostensible ownership of the property. All the above rules omit this factor and apply to cases in which it is absent. For example, suppose that a second mortgagee advanced his money upon the unsupported statement of the mortgagor that he was the unincumbered owner, and that afterwards the mortgagor obtained the deeds from the first mortgagee and handed them over to the second, the rules would give the second priority. But estoppel would not; for he had not, upon the faith of the deeds being in the hands of the mortgagor, changed his position. The rules associate priority mechanically with possession of the deeds. Estoppel asks: How they got there? The second rule (in some respects the best of the three) is very difficult of application because of the requirement that the equitable interests shall be "of precisely the same nature and quality." This language might be taken to mean that in addition to the fact that both estates were equitable both of them were of identical character; for example, that they were both mortgage estates. But that was not the meaning of the learned judge, for the case he had in hand was one between an unpaid vendor claiming a lien for purchase-money, and an equitable mortgagee with whom the deeds had been deposited by the purchaser. These equitable estates the learned judge held were "of precisely the same nature and quality," and he gave priority to the mortgagee because, having the deeds, he had the better equity. If this second rule (that of Kindersley, V. C.) is defective, much of the judgment in which it is found is, nevertheless, of the greatest value; and although stated by way of exception to, or modification of, the rule there laid down, it is, as the writer thinks, the best exposition anywhere to be found of the true view of the subject. The Vice-Chancellor's rule is quoted everywhere; the extracts from the judgment given below are almost never met with. The learned judge said: "I must, however, guard against the supposition that I mean to express an opinion that the possession of title-deeds will, in all cases and under all circumstance, give the better equity. The deeds may be in the possession of a party in such a manner and under such circumstances as that such possession will confer no advantage whatever." "In examining into the relative merits (or equities) of two parties having adverse equitable interests, the points to which the court must direct its attention are obviously these: the nature and condition of their respective equitable interest, the circumstances and manner of their acquisition, and the whole conduct of each party with respect thereto. And in examining into these points it must apply the test, not of any technical rule or any rule of partial application, but the same broad principles of right and justice which a court of equity applies universally in deciding upon contested rights." "Indeed, it appears to me that in all cases of contest between persons having equitable interests, the conduct of the parties and all the circumstances must be taken into consideration in order to determine which has the better equity." And after stating that the text-writers mislead, "when an opinion is expressed that the one or the other has the better equity," he adds: "If I am right in my view of the matter, neither the one nor the other has necessarily, and under all circumstances, the better equity. Their equitable interests, abstractedly considered, are of equal value in respect of their nature and quality; but whether their equities are in other respects equal, or whether the one or the other has acquired the better equity, must depend upon all the circumstances of each particular case, and especially the conduct of the respective parties. And among the circumstances which may give to one the better equity, the possession of the title-deeds is a very material one." We have still no reference, by name, to the law of estoppel; but we have conduct (the ground upon which estoppel proceeds) as the basis of decision, and we have the conduct of the prior equitable owner put forward as a reason for postponing him to a subsequent purchaser, who was misled by that conduct and changed his position upon the faith of it. That is estoppel. POSSESSION OF DEEDS A CIRCUMSTANCE. Adopting then (provisionally, and subject to a modification to be afterwards noticed) the language of Kindersley, V. C., just quoted, the next question is as to the proper weight to be attached to possession of the deeds. If we cannot say "that the possession of title-deeds will, in all cases and under all circumstances, give the better equity," in what cases and under what circumstances will it do so? Going back to 1801, we find Lord Eldon declaring that there is no ground for the postponement of the prior claimant, "unless there is fraud or concealment or some such purpose, or some concurrence in such purpose; or that gross negligence that amounts to evidence of a fraudulent intention."1 At the other extreme we have the rule of Malins, V. C., above quoted, that "in every case where the equitable mortgagee either omits to get, or, hav ing got, gives up possession of the deeds, he must be postponed." Between these, estoppel urges that (1) if, even without fraudulent intent, the first mortgagee accredits the title of the mortgagor by allowing him the custody of the deeds; and (2) if the second mortgagee be misled to his damage by such permitted custody, then the first ought to be postponed to the second. 1 Evans v. Bicknell (1801), 6 Ves. 191. The second part of this proferred rule of estoppel (that the second mortgagee must have been misled) will be easily accepted once the applicability of estoppel to the subject is admitted; but justification of the first part (the non-essentiality of fraudulent intent) will probably have to be based upon a general survey of estoppel throughout all the departments of the law, upon a recognition of the universality of the principle. The following tabulated result of the principal authorities will give at a glance a tolerably comprehensive view of the present state of the law: A. LEGAL ESTATE v. EQUITABLE ESTATE. |