Rule 2. As between a first legal mortgage and a second equitable mortgage, the first mortgage has priority unless the second mortgagee, being a mortgagee in good faith for value and without notice, has been misled by (1) the fraud or negligence of the first mortgagee in connection with the taking of the first mortgage or (2) the subsequent fraud (as distinguished from mere negligence) of the first mortgagee.

Prima facie the first (legal) mortgagee has priority. He may lose his priority by subsequent fraud on his part (j), but not by subsequent conduct amounting merely to negligence (k). Apparently, however, his conduct at the time of taking his mortgage-though it is merely negligent, or at least not fraudulent in the sense of being dishonest-may have the effect of postponing his claim if it is such that it renders possible the creation of a subsequent equally meritorious equitable claim and thus makes it inequitable on the first mortgagee's part to assert his prior claim (I).

(i) Lloyd's Bank v. Bullock, [1896] 2 Ch. 192, distinguished in Capell v. Winter, [1907] 2 Ch. 376.

(j) Ibbotson v. Rhodes, 1706, 2 Vera. 554, 18 R.C. 531 (second mortgagee before making his advance is informed by the first mortgagee that the latter has no encumbrance on the property).

(k) Northern Counties of England Fire Insurance Co. v. Whipp, 1884, 26 Ch.D. 482, 10 R.C. 507, 516 (negligence in custody of title deeds); cf. Grierson v. National Provincial Bank of England, [1913] 2 Ch. 18. If, however, the first mortgagee gives up the title deeds in order that a charge may be created by deposit of them, he will be postponed to the charge so created even though his authority be exceeded as to the amount raised. Brocklesby v. Temperance, etc., Building Society, [1895] A.C. 173.