Notice of Assignments and Charges.

123

name merely as a trustee. Mrs. Robson subsequently got Holyoake to execute a deed by which he purported to transfer the stock to her in compliance with his undertaking, and she applied to have the transfer and her name registered as owner, which the Company refused.

Mrs. Robson having moved for a mandamus to compel the registration of the transfer and of her name as owner, the mandamus was refused by the House of Lords on the ground that (it being admitted that the rights of the parties could not be affected by the transfer executed after Mrs. Robson had notice of the infirmity of her title) Robson's equitable title could not prevail against the earlier equitable title of the Company. A certificate of shares or stock is merely a solemn affirmation under the seal of the company that a certain amount of shares or stock stands in the name of the person therein mentioned. Anyone dealing with the registered owner ought to know that he might or might not be the beneficial owner, and that, if he was not, by taking from him an equitable assignment he would not get a title which would bind the beneficial owner. When in the first instance Holyoake represented that he was the beneficial owner of this stock, Robson had only to go with his authority to the Company and to require a transfer into his own name, and he would have ascertained the truth. It is the common practice for a trustee to hold the indicia of property, and the Company by issuing the certificates to Holyoake and registering him as owner had made no representation that he was beneficially entitled to the stock, and were in no way estopped from asserting their own beneficial title.1

Notice of Assignments and Charges.

Let us next consider the propriety of giving notice of assignments and charges.

Although notice is not necessary in order to make the title of the assignee of a chose in action or of an equitable interest in property complete, yet it is in all cases advisable that he should give immediate notice to the debtor or trustee or other person liable, for until such notice be given, it is evident that the debtor or trustee may innocently pay the debt or transfer the stock to the transferor, or to another party to whom the transferor may have fraudulently transferred his right over again.

Oral notice of a formal and precise character is sufficient, but

The Court of Ex. Ch., revg. the Q.B., had held that the Company were estopped. As to estoppel, see post, pp. 145-164. As to a company under the Comps. Act, 1862, not being bound in ordinary cases to take notice of equitable interests in shares or stock, see post, p. 125.

2 See per Lord Macnaghten in Ward v. Duncombe (1893) A.C. 369, at 392.

general statements in casual conversation are not; and formal notice should be given in writing, in order to prevent any question as to priority.1

Priority by Notice.

In the case of an equitable assignment of a chose in action, notice was regarded in Courts of equity as so important as to lead to the establishment of the equitable rule that priority of notice gives priority of equity.

Apart from that rule, "an assignee of an equitable interest from a person capable of disposing of it has a perfect equitable title, though the title is no doubt subject to the infirmity which attaches to all equitable titles; and that infirmity is not and cannot be wholly cured or removed by notice to the trustees."2

But according to that rule, an assignee of a chose in action who takes his assignment without notice of an earlier assignment, and gives notice to the trustees in whom the fund is legally vested,3 or to the assignor's debtor (as the case may be), gains by giving such notice a better equitable right than an earlier assignee who has given no such notice.

The reasons given for the rule appear to be that, until the assignee gives notice, he has not done everything towards taking possession that the subject admits, or all that he can to make his title secure, and he enables the assignor, by thus allowing him to remain apparently the equitable owner, to commit a fraud and deceive innocent third persons.5

It has been doubted, however, by very high authority whether the rule rests upon any satisfactory principle, and whether it has not produced at least as much injustice as it has prevented. At any rate the principles upon which it is said to be founded are not so clear or so convincing that the rule ought to be extended to a new case."

Robbins on Mortgages, II, 1257.

2 Per Lord Macnaghten in Ward v. Duncombe (1893) A.C. at 392.

3 Foster v. Cockerell (1835), 3 Clark and Finnelly's Rep. 456, H.L.

* Marchant v. Morton (1901) 2 K.B. 829.

5 The cases which establish the rule are discussed and criticized at length by Lords Herschell, L.C., and Macnaghten in Ward v. Duncombe (1895) A.C. 369, at 376, et seqq.

"Lord Macnaghten, ibid, at 391, 393, 394. Stirling, J., in Stephens v. Green (1895) 2 Ch. at 152, said that Ward v. Duncombe "shows how difficult it is to determine the principles on which the rule is based;" and in Re Wasdale (1899) 1 Ch. at 167, referred to Lord Macnaghten's observations as to the rule not being extended as of the greatest weight. Cozens-Hardy, J., in Lloyd's Bank v. Pearson (1901), 1 Ch. at 872, accepted Lord Macnaghten's judgment as a guide, but did "not profess to be able to discover any definite principle upon which the rule is founded."

Priority by Notice. Notice to Companies.

125

As the exact principle upon which the equitable doctrine of priority by notice rests is not easy to ascertain, it is sometimes very difficult to say whether in a particular case the doctrine applies.1 The rule itself, however, is clearly established, and nothing short of an Act of Parliament can alter it; so that in cases to which it is applicable, it must prevail. "Priority in such a case depends simply and solely on priority of notice."2"

Notice to Companies under the Act of 1862.

With regard to the assignment of the shares or stock of a company registered under the Act of 1862, section 30 of that Act has an important bearing on the question of notice. It enacts that: "No notice of any trust, expressed, implied, or constructive, shall be entered on the register, or be receivable by the registrar."

The effect of the section is:

1. To relieve the company from taking notice of equitable interests in shares and stock.3

2. To preclude persons claiming under equitable titles from converting the company into a trustee for them.4

1. An illustration of the first proposition seems to be afforded by the case of Simpson v. Molson's Bank,5 although that was not a decision on the language of the Companies Act. There, the Bank was incorporated under a Canadian statute which provided that: “The bank shall not be bound to see to the execution of any trust whether express, implied, or constructive, to which any of the shares of the bank may be subject." A testator's shares in the defendant Bank were transferred by entry to his executors, viz. A. and B., for transmission," the executors having first left with the Bank a copy of the will. Under the will, A. was entitled to a share of the residue for life only, with remainder to his issue. The executors afterwards executed, and the Bank registered, a transfer of some of the bank shares to A., who disposed of them so as to defeat the rights of the remaindermen. The latter claimed damages from the Bank, on the ground that the will gave notice of their rights, and that it was the duty of the Bank not to disregard

1 See per Channell, J., in Marchant v. Morton (1901) 2 K.B. at 831.

2 Per Lord Macnaghten, (1893) A.C. at 391.

3 See Buckley on the Comps. Acts, 7th ed. 96; Soc. Générale de Paris v. Tram. Union Co. (1884), 14 Q.B.D. 425, C.A., where the effect of s. 30 was much discussed: aff. sub nom. Soc. Générale v. Walker (1885), 11 A.C. 20, 30, H.L.; and per Fry, L.J., in Bradford Bank v. Briggs (1885), 31 Ch. D. at 28; and per Lord FitzGerald in S.C. (1886), 12 A.C. at 40; but of. per Lord Halsbury, L.C., ibid. at 31-32. See also Lindley on Comps. 6th ed. Î, 660.

4 Buckley on the Comps. Acts, 96; and see n. ' post, p. 126.

them, but to refuse to register the transfer to A.; but the Privy Council held that by virtue of the enactment above cited the only question with which the Bank was concerned was that of legal title; that it was thereby relieved of the duty of making inquiry; that it had no notice that a breach of trust was intended or was being committed, and therefore that it did no wrongful act in registering the transfer.

2. From the second proposition-that the effect of s. 30 is to preclude persons claiming under equitable titles from converting the company into a trustee for them-it follows that as between successive equitable assignees of shares or stock, the better equitable right will be obtained by priority of charge, not by priority of notice to the company.1

Notice to Incumbrancers.

So far we have been considering the effect of giving notice to trustees, or to debtors, or to companies. Let us now turn our attention to the importance of giving notice to mortgagees or other incumbrancers. The effect of giving notice to them, it will be observed, is not to gain priority over advances already made by such prior incumbrancers, but to preserve priority over any advances which may be made by them in the future.2

It was decided by the House of Lords in 1861 in the case of Hopkinson v. Rolt, that a first mortgagee whose mortgage is taken to secure what is then due and also further advances, cannot claim the benefit of his security for further advances in priority to a second mortgagee of whose mortgage he had notice before the further advances were made, even where the second mortgagee had notice of the first mortgage.

"The first mortgagee is secure as to past advances, and he is not under any obligation to make any further advances. He has only to hold his hand when asked for a further loan."4

The principle of the case is this:-" The owner of property does not, by making a pledge or mortgage of it, cease to be owner of it any further than is necessary to give effect to the security which he has thus created."5

The same principle was applied by the House of Lords in the

Soc. Générale de Paris v. Tram. Union Co. (1884), 14 Q.B.D. 425, C.A.; aff. sub nom. Soc. Générale v. Walker (1885), 11 A.C. 20, H.L.; Lindley on Comps. 6th ed. I, 633–634.

2 This distinction is well illustrated by the case of Bradford Bank v. Briggs (1886), 12 A.C. 29, post, p. 129.

39 H. L. Cas. 514.

+ Per Lord Campbell, L.C., ibid. at 534-535.

5 Per Lord Blackburn in Bradford Bank v. Briggs (1886), 12 A.C. at 36.

Effect of Notice to Prior Incumbrancer.

127

London and County Bank v. Ratcliffe (1881),1 where a dispute arose between a mortgagee and a purchaser of land sold subject to the mortgage. In that case Batten, a builder, a customer of the London and County Bank, made an equitable mortgage by depositing with the Bank some title deeds of land, accompanied by a written memorandum that they should be security for the existing and also the future general balance of his account. Batten afterwards contracted, with the knowledge of the Bank, to sell a valuable portion of the land to Ratcliffe, who had notice of the terms of the equitable mortgage. The purchase money was to be paid by instalments, and Batten stipulated in the usual way to make a good title. On the 2nd May, 1873, when the Bank received notice that the contracts of sale had been signed, Batten's overdraft amounted to £1,800, and shortly afterwards Ratcliffe paid an instalment of £1,500, £1,100 being paid direct to the Bank, and £400 with their concurrence to Batten. Batten's overdraft was thus reduced to £700. After that date Batten conveyed to Ratcliffe the land purchased, after receiving from him the balance of the purchase money, which exceeded £700, and which Batten paid as well as other sums into the Bank. The Bank continued the account, and without giving any notice to Ratcliffe, made fresh advances to Batten, so that on the general balance there was always a debt due to the Bank. Batten, having become bankrupt, the Bank as equitable mortgagees sued Ratcliffe, claiming a charge upon his property, and that he might be declared trustee of it to the extent of such charge; or else a charge upon the purchase money, which they alleged he had no right to pay to Batten without inquiring as to the state of his account.

The Court of Appeal and the House of Lords disallowed this claim, and held that the case was subject to the general rule respecting appropriation of payments in the case of a banking account, where all the sums paid in form one blended fund, the parts of which have no longer any distinct existence-a rule commonly known as the rule in Clayton's Case2—viz., that neither party having made an appropriation, the law presumes that it is the first sum paid in that is first paid out, and it is the first items on the debit side of the account that are discharged or reduced by the first items on the credit side. Consequently the various payments made by Batten to his credit after 2nd May, 1873, had entirely extinguished his debt of that date to the Bank-viz., the £1,800-the subsequent debt having been created by advances after that date. The Bank was under no obligation to make those subsequent advances, and it was held that when the mortgagor

1 6 A.C. 722; 51 Law Journal Rep. Chancery, 28.

2 (1816) 1 Merivale's Rep. 572; Tudor's Leading Cases on Mercantile Law 2nd ed. 1.