This section is from the book "Real Property, An Introductory Explanation Of The Law Relating To Land", by Alfred F Topham. Also available from Amazon: The New Law Of Property.
(1) As between Equitable Mortgagees. - If a tenant of land creates several equitable charges on his land, the mortgagee who obtained his charge first has a right to be paid first. The maxim "Qui prior est tempore potior est jure," applies.
Thus A in 1890 by writing charges his land with the payment to B of £500. In 1895 A deposits the title deeds of the land with his bank to secure an overdraft. B has a right to be paid his £500 before the bank gets anything (o).
This means that when two or more persons have advanced money to the same mortgagor without knowing that the mortgagor has made or is making other mortgages, then, if one of the lenders has taken the precaution of acquiring the legal estate in the land, he will be paid first, although his mortgage was later in point of time.
The rule is that as between several mortgagees of the same land, the mortgagee who has the legal estate has priority, provided that when he lent his money, he had no notice of the other mortgages.
This gives rise to a curious doctrine called " Tacking."
Tacking. - The priority given to the mortgagee who has the legal estate extends, not only to the money originally advanced on the legal mortgage, but also to all other moneys advanced by the same mortgagee afterwards, provided he does not know of the other mortgagees when he makes the further advances.
Thus, Fitzgerald, as in the form on p. 224, mortgaged his land worth £800 to Moses for £500, and conveyed the legal estate to Moses on the 6th of March, 1907.
In June, 1907, Fitzgerald mortgaged the same land to his aunt for £200.
In October, 1907, Fitzgerald fraudulently mortgaged the same land again to Moses for a further £200, Moses having no notice of the mortgage to the aunt. Fitzgerald has become
(o) Unless B was negligent in allowing A to retain the deeds.
bankrupt and the land is not sufficient to pay off all the mortgages.
Both Moses and the aunt are innocent persons who have been defrauded by Fitzgerald, consequently each has an equal equity to be repaid out of the land; but as Moses has the legal estate, he can claim to be paid the whole of his £500 and his £200 with interest and costs, before the aunt gets anything. Moses is said to "Tack" his last mortgage on to his first mortage.
A legal mortgagee has no right to tack any advances which he makes after having notice of the other incumbrances.
Thus, if in October, 1907, Moses had known that the aunt had advanced a further £200 on the land, he must bear the consequences of his own folly in trusting Fitzgerald to such an extent.
If a person who has advanced money on an equitable mortgage afterwards discovers that there are several other mortgages on the same land, he should immediately try to get the legal estate. For the rule as to tacking applies not only to a first mortgagee, hut extends to any mortgagee who gets the legal estate, even though he gets the legal estate after he knows of the other mortgages, provided he had no notice of them when he lent his money.
Thus, if after the mortgage to his aunt, Fitzgerald had borrowed another £200 from his bank on the security of an equitable charge on the land, and the bank did not know of the mortgage to the aunt when they lent the money. As soon as the bank hear of the mortgage to the aunt they will probably buy in the first mortgage from Moses for £500 and his interest and costs, and will then tack their £200 charge to Moses' first mortgage and thus practically destroy the aunt's charge (p).
Note especially that the point of time when notice is material, is the time when the money was advanced on mortgage.
(p) See Brace v. Duchess of Marlborough (1728), 2 P. W. 490.
A mortgagee cannot take advantage of this rule if (when he lends his money he had constructive notice of C's mortgage. That is, if he did not actually know of it, but would have known if he had taken all proper precautions.