bank in that year realized their security for a price just sufficient to pay them the amount due. D. did not at that time complain, and her husband procured from the bank a release of a guarantee of their mortgage given by T. G., and thereupon D. got a release of a counterguarantee given by her to T. G. In April, 1905, D. commenced this action for an account against the bank on the footing that they were not entitled to charge for advances made to G. after notice of the mortgage to D. : Held by Fletcher Moulton and Buckley L.JJ. (dissentiente CozensHardy M.R.), that there was sufficient evidence to shew that the bank had not intended to appropriate the payments in discharge of the debts secured by the mortgage and that the rule in Clayton's Case did not apply. Decision of Eve J. affirmed. Clayton's Case, (1816) 1 Mer. 572, and Hopkinson v. Rolt, (1861) 9 H. L. C. 514, discussed. ON September 21, 1893, John Glaze, who was carrying on business as an ironfounder, executed a mortgage of certain property known as the Brookmore property, which included his works, to Lloyds Bank Limited to secure his overdraft on current account. The mortgage contained a covenant by John Glaze that he would pay on demand, or if no demand should be made in his lifetime then his heirs, executors, or administrators would pay on his death, to the bank "the balance then owing from the mortgagor on his current account with the bank for cheques notes or bills drawn accepted or indorsed by him or for advances made to him or for his accommodation or benefit or otherwise howsoever including interest with half-yearly rests commission and other customary charges and will also pay interest on such balance from the date of such demand or death as the case may be at the rate of 5 per cent. per annum." Then followed a conveyance of the property subject to a proviso for redemption "if all moneys herein before covenanted to be paid shall be duly paid accordingly." The deed also contained a proviso that the amount to be secured thereby should not exceed 2500l. It was made subject to a first mortgage for 2500l. which was afterwards transferred to the bank. The bank held other security for John Glaze's overdraft to the amount of 1000l. By a third mortgage dated October 19, 1895, but not in fact executed until December 2, 1895, John Glaze mortgaged the same property, together with other property, to his sister, the C. A. 1910 DEELEY v. LLOYDS BANK. C. A. 1910 DEELEY v. LLOYDS wife of Frank Deeley, to secure 3500l. expressed to be advanced by her. This deed contained a recital of the mortgage to the bank, omitting the limit of the amount thereby secured, and stated that there was then due to the bank on their security BANK. 35861. It was expressly made subject to the first and second mortgages. There was a conflict of evidence whether and at what date notice of Mrs. Deeley's mortgage was given to the bank, but Eve J. had found as a fact that notice was given on December 2, 1895. He had also found as a fact that the mortgage to Mrs. Deeley was made for good consideration. The bank did not follow the usual practice of drawing a line at the date when they received notice of Mrs. Deeley's mortgage, so as to close John Glaze's account and start a fresh one, but continued his current account without any break. The overdraft was never materially reduced. But John Glaze from time to time made payments to his account, and if these payments had been applied in discharge of the payments out by the bank, in order of date according to the rule in Clayton's Case (1), the debt secured by the bank's mortgage would have been discharged on January 6, 1896. The bank never after the date of their mortgage allowed the overdraft to exceed the limit of 3500l. for which they held security, unless John Glaze deposited fresh security for a temporary advance. The plaintiff's mortgage was itself temporarily deposited with the bank for this purpose very soon after its execution, and on at least one occasion afterwards. On many occasions John Glaze paid in moneys which he appropriated to meet special cheques or payments out, but no notice of any such appropriations appeared in the account. Early in 1899 John Glaze had become insolvent, and on March 23, 1899, the bank, having taken a transfer of the first mortgage, entered into possession of the property comprised in the mortgages, and on May 24 they sold it for 5500l., which was just sufficient to pay what was due on the two mortgages and leave a balance of 371. No complaint was made of this sale at the time, and the plaintiff's husband obtained from the bank a release of a guarantee given to them by Thomas Glaze, a brother of John Glaze, for the moneys secured by the mortgage, on the (1) 1 Mer. 572, 585. ground that the bank had been paid, out of the moneys received from the mortgage, and obtained from Thomas Glaze a release of a counter-guarantee given to him by Mrs. Deeley. It was proved that Frank Deeley had acted as solicitor and agent for John Glaze in all his transactions with the bank, and had also acted as attorney and general agent for his wife in all money transactions, and that she had through him notice of all the dealings between John Glaze and the bank. The correspondence was considered by Eve J. and Fletcher Moulton and Buckley L.JJ. to shew that these dealings, and a number of applications by Glaze or Deeley on his behalf for temporary overdrafts, were carried on and made on the understanding that an overdraft was allowed to a certain amount if 2500l. were secured. This action was commenced by Mrs. Deeley on April 29, 1905, against the bank claiming accounts as against a mortgagee in possession, on the footing of a declaration that the bank were not entitled to charge for advances made by them to the said John Glaze after they had notice of the plaintiff's mortgage. She also claimed damages for the sale of the mortgaged premises as having been made at a gross undervalue and otherwise improperly. The case came on before Eve J. on March 3, 1909, and occupied twelve days in hearing. P. O. Lawrence, K.C., Buckmaster, K.C., and W. R. Sheldon, for the plaintiff. Astbury, K.C., Stewart-Smith, K.C., and J. H. Stamp, for the defendants. EVE J., after carefully examining the evidence, stated his conclusion that the plaintiff had proved that notice of her mortgage was in fact given to the bank on December 2, 1895. He said that no one disputed that the legal result of the service of that notice was that as from that date the bank could not, as against the plaintiff, tack to their security any advances which they might subsequently make to Mr. John Glaze. But, unless the rule in Clayton's Case (1) was to be applied to the bank's account, (1) 1 Mer. 572, 585. C. A. 1910 DEELEY t. LLOYDS BANK. C. A. 1910 DEELEY V. LLOYDS Eve J. C. A. they did not need to tack any subsequent advances, for the amount due at the date of the mortgage to Mrs. Deeley had never been paid off. He examined the facts as to the account, and came to the conclusion that the rule in Clayton's Case (1) need not be applied for much the same reasons as are stated in the judgments of Fletcher Moulton and Buckley L.JJ. He then decided on the evidence that the plaintiff had not proved any impropriety in the sale and dismissed the action. The plaintiff appealed, but the only question argued on the appeal was whether the mortgage to the bank had been discharged by the rule in Clayton's Case. (1) The appeal came on for hearing on January 14, 1910. P. O. Lawrence, K.C., and W. R. Sheldon, for the plaintiff. This case falls within the rule in Clayton's Case. (1) That rule is that where a current account is kept by a creditor and communicated to the debtor in the absence of any specific appropriation by either party the payments are de facto appropriated according to the priority in order of the entries on the one side and on the other of that account: In re Sherry. (2) If the bank had desired to get rid of the application of that rule they should have drawn a line and broken the account on receiving notice of the plaintiff's mortgage. No doubt entries made by a creditor in his own books without communication to the debtor are not conclusive against the creditor, and until communication he continues to have the option of applying the several payments in any mode he thinks fit. But where a pass-book is kept for the common use of both parties, and that has been communicated to the customer, the bank is precluded from altering the account Simson v. Ingham (3); Blackburn Building Society v. Cunliffe, Brooks & Co. (4); Smith v. Betty. (5) The application of this rule brings the case within the principle of Hopkinson v. Rolt (6), which decides that where there is a first mortgage to secure present and future advances the mortgagee cannot claim priority over a second mortgagee in respect of advances made (1) 1 Mer. 572. (4) (1882) 22 Ch. D. 61, 71. (5) [1903] 2 K. B. 317, 323. (6) 9 H. L. C. 514. (2) (1884) 25 Ch. D. 692, 702. after notice of the second mortgage. That principle was applied in Bradford Banking Co. v. Briggs (1) and Union Bank of Scotland v. National Bank of Scotland. (2) In London and County Banking Co. v. Ratcliffe (3) there was a combined application of the principles of Clayton's Case (4) and Hopkinson v. Rolt (5), and it was there held that the bank had lost their security. That exactly covers this case. This is an ordinary case of a current banking account communicated to the customer, and there is no evidence of any specific agreement to appropriate. It is distinguishable from all the cases in which the rule in Clayton's Case (4) has been held to be excluded: Henniker v. Wigg (6); City Discount Co. v. McLean (7); Cory Brothers & Co. v. Owners of Turkish Steamship "Mecca." (8) Astbury, K.C., and J. H. Stamp, for the defendants. The rule in Clayton's Case (4) has nothing to do with this litigation at all. The form of the documents excludes the application of that rule altogether, that is to say, the form of the bank's mortgage, and the form in which it is recited in the Deeley mortgage. Further, the circumstances of the case and the conduct of the parties are such that not only is the principle of Clayton's Case (4) excluded, but also the principle of Hopkinson v. Rolt. (5) The circumstances under which the Deeley mortgage was made are vital to the question what was the intention of Mrs. Deeley and her husband with regard to the bank mortgage. To exclude the rule in Clayton's Case (4) it is only necessary to prove such a set of circumstances that no jury would find the appropriation presumed in that rule. Clayton's Case (4) says that only in the absence of evidence is that particular form of appropriation to be presumed. If there is any evidence at all to go to the jury as to what were the real intentions of the parties Clayton's Case (4) has no application. Here Glaze was being financed by Deeley; it was vital to Deeley to keep Glaze's business going, because that was the only mode of escaping bankruptcy, and in the particular circumstances of this mortgage (1) (1886) 12 App. Cas. 29. (2) (1886) 12 App. Cas. 53. (3) (1881) 6 App. Cas. 722. (4) 1 Mer. 572. (5) 9 H. L. C. 514. (6) (1843) 4 Q. B. 792. C. A. 1910 DEELEY v. LLOYDS |