Where privity of contract dividends paid to him on the excess over the reduced proof must be refunded or brought into account (»). It was held in Loader's Case (s), that where the dividends received by the bill-holder on the two estates together exceeded the amount subsequently realized upon the security, the bill-holder was not entitled to the proceeds of the securities. It is submitted that this is wrong; the bill-holder is entitled to the proceeds of the securities, whether realized before or after the proofs, which ought to be reduced (). 12. The bill-holder must not have any independent right of his between bill- own to have the security so applied. Where there is privity of contract between the bill-holder and the parties to the agreement for specific appropriation, it creates a right totally distinct from that which he obtains under the rule (u). holder and parties. Where securities insuffi cient. Misappropriation of part of the security. Joint adventure. 13. The rule applies, although the securities in the hands of the depositees are insufficient to meet the whole of the demand (x). 14. It was held that where the acceptor has realized part of the security and applied it to his own use, his lien upon the security is reduced by the amount so realized, and that the right of the billholder can only attach upon the amount of the lien (y). The reasoning on this point was approved but not followed by Sir John Cross (). The contrary was, however, decided in (a), but the reasons in the judgment are very difficult to follow. In principle, the bill-holder can have no claim, except by working out the equities existing between the parties at the time of the bankruptcy, in relation to the contract for appropriation. It is clear that the drawer had a right to the return of his securities, or to be allowed the value of them if sold in working out the contract. This right was not destroyed by the insolvency of the parties (b). Neither Exp. Parr (y), nor Exp. Hobhouse (≈), was cited in Exp. Carrick (a). 15. The rule also applied, although the drawer and acceptor of the bills of exchange were two firms engaged in a joint adventure for buying and selling goods; but the right of the bill-holder must be subject to the rights of the joint creditors (if there are any) of the aggregate of the two firms, to have the proceeds of the consign (r) Exp. Hobhouse, 2 Deac. 291; Powles v. Hargreaves, 3 De G. M. & G. 457; Re Barned Bkg. Co. 19 Eq. 7; 10 Ch. 198; Exp. Prescott, 4 D. & C. 23. (8) 6 Eq. 491, M. R. (t) See Eddis, 41. (u) Exp. Copeland, 3 D. & C. 199; 2 M. & A. 177. (x) Powles v. Hargreaves, sup. (y) Exp. Parr, Buck, 191. (2) Exp. Hobhouse, sup. (a) Exp. Carrick, 2 De G. & Jo. 208. (b) Inman v. Clare, John. 781. ments applied as part of the aggregate estate (c), where the drawing and accepting houses were identical. 16. The principle was independent of the rule in Chancery (d), Mason v. Bogg inapplicable. under which a secured creditor was entitled to prove for the whole of his debt, and at the same time to realize the security (e). balance is 17. In Exp. Waring (f), the balance was against the acceptor Where the upon the general account, and it was said in Hickie & Co.'s against the Case (g), that the rule did not apply where the balance on the drawer. general account was in his favour; but this view has been controverted by the writer on the rule (h), on the ground that the property specifically appropriated should be applied in the first instance for the particular purpose for which it was deposited (i). This, it is submitted, is correct, for the right of the bill-holder depends upon the equities between the parties in relation to the particular contract for appropriation alone. The equities between the parties on the general account must be matter of proof between the estates (j). The rule in Exp. Waring does not apply in Scotch bankruptcies (k). (c) Exp. Dewhurst, 8 Ch. 965; 21 W. R. 874. And see Exp. Imbert, 1 De G. & J. 152. (d) Mason v. Bogg, 2 My. & Cr. 443. (e) Re Barned's Bkg. Co. sup. (f) 19 Ves. 345; 2 Gl. & J. 404; 2 Rose, 182. (g) 4 Eq. 226, M. R. (i) Inman v. Clare, sup. (k) Royal Bank of Scotland v. Commer- 552 CHAPTER XLVI. MORTGAGE OF DEBTS AND SUB-MORTGAGES. Sub-mortgage. law. ALL debts, secured and unsecured, may form the subject of mortgages. Unsecured debts can rarely afford a satisfactory security; but it not unfrequently happens that a mortgage is itself transferred by way of security by the mortgagee, thus giving rise to what is called a sub-mortgage (a). Before the Jud. Act, the right of suing at law for a debt could not, as a general rule, have been transferred. The exceptions Exceptions as were: negotiable securities, as bills of exchange and promissory to suing at notes (b), bail bonds (c), replevin bonds (d), railway mortgages and bonds (e), life policies (ƒ), marine policies (g) (under which the assignee can sue in his own name, but the underwriter may set off any debt due to him by the assured () ), bills of lading under the Bills of Lading Act if endorsed (i), and see generally (k). Legal debts. Legal debts are mortgaged by assignment with power of attorney. The mortgage, therefore, of a legal debt (i.e., of a debt conferring a right of action at law) was effected by means of an assignment with a power of attorney, enabling the assignee to use the name of the assignor, so as to avail himself, for his own benefit, of the assignor's right of action; and such power of attorney, being an Power of authority coupled with an interest, is irrevocable (7). attorney irrevocable. necessary in In regard to the power of attorney, the assignment of a legal But not debt differs from that of a merely equitable chose in action, such as equitable an interest in a trust fund, in assigning which a power of attorney assignments. is useless, and ought not to be, though it sometimes is, inserted (m). bond. If a bond is the subject of assignment, not only should the Mortgage of instrument itself be given up to the assignee, but notice of such assignment should be given to the debtor, to prevent his payment of the bond debt to the original obligee, which, in default of such notice, would be valid and discharge the security (n). Under the old bankrupt laws, a debt passed to the assignees of Notice of assignment. the bankrupt, unless notice of the assignment had been given by the particular assignee to the debtor (o). So, a promissory note, not payable to order, indorsed to the creditor, passed to such assignees, if notice had not been given by the creditor to the maker (p). But a mere lien, by deposit of an instrument, was not affected by the bankruptcy of the depositor, though the debt secured by such instrument passed through failure of giving notice to the debtor (q). As to the necessity of notice on the assignment of debts, however, an exception was made of those which were secured by negotiable instruments (r); and, as against the assignees in bankruptcy, notice of the assignment of a debt was required only to be given to the person from whom the trader was to have received payment, though he were not the original debtor (s). But now choses in action are not within the order and disposition Now choses clause in bankruptcy (†). (2.) Sub-mortgage. Where there is a sub-mortgage, the security will comprise: first, the personal covenant of the sub-mortgagor; secondly, the transfer of the original mortgage debt and mortgaged property, subject to (1) See inf. p. 805. (m) 2 Dav. Conv. 1124, ed. 3; 572, ed. 4. (n) Ryall v. Rowles, 1 Ves. S. 367; 1 Atk. 177. (0) Buck v. Lee, 1 A. & E. 804. (p) Belcher v. Campbell, 8 Q. B. 1. (a) Gibson v. Overbury, 7 M. & W. 555. See Hawthorn v. Newcastle R. Co. 3 Q. B. 734; Barton v. Gainer, 4 Jur. N. S. 715, Exc. And see Green v. Ingham, (r) Exp. Price, 13 L. J. Bky. N. S. 15; (s) Gardner v. Lachlan, 6 Sim. 407; 4 My. & Cr. 129. See Holt v. Dewell, 4 Ha. 446; Exp. Waithman, 2 M. & Ay. 364. (t) Sup. p. 495. in action not in order and disposition. Frame of submortgage. mortgage. Frame of sub- redemption, with the benefit of the power of sale, and other powers and remedial clauses contained in the original mortgage; thirdly, a power of sale enabling the sub-mortgagee to dispose of the original mortgage debt and security. If the sub-mortgagee as assignee of the original mortgagee sell under the power of sale in the mortgage, he will be enabled by the terms of the power to give receipts to purchasers, which will be effectual discharges so far as regards the mortgagor and those claiming under him; but a further and special receipt clause will be proper in order to exonerate the purchaser from the necessity of seeing that the submortgagee, after satisfaction of the debt secured by the sub-mortgage, pays the balance to the original mortgagee (u). Whether power of sale passes. Protection of assignee of debt against obligation to realise. Vice-Chancellor Kindersley suggested in a judgment (x) what would be the effect on the power of sale of a simple transfer by way of sub-mortgage-whether it would have the effect of transferring the power of sale, or of destroying or suspending it (a). When, as in well-drawn deeds, the power of sale is expressly made exerciseable by any person entitled to receive and give a receipt for the mortgage money, the transfer of the mortgage, though by way of sub-mortgage only, would no doubt generally carry with it the power of sale. On every assignment of a debt by way of security, it is essential that the assignee should be specially protected against the obligation which-whether by analogy to a mortgagee in possession who is bound to account for what he might have received but for his own default (y); or to a creditor who, by giving time to the principal debtor, discharges the surety (2)-would otherwise attach to him to get in the debt in due course, under penalty of being charged with the loss in case any arise through his default (a). Exp. Mure (a) was followed in Williams v. Price (a), though a doubt was intimated whether all the principles there stated should be adopted. A similar liability would no doubt attach to the mortgagee of any chose in action which should be lost or impaired in value by his omitting to get it in at the proper time, and should always be guarded against by a clause protecting the mortgagee against involuntary losses; but it is obvious that there is (u) 2 Dav. Conv. 691, 692, ed. 3; 138, ed. 4. (x) Cruse v. Nowell, 2 Jur. N. S. 536, V. C. Kindersley. (y) 2 Dav. Conv. 638, n. (g), ed. 3; 90, ed. 4. 42. (z) See Gurney v. Seppings, 2 Ph. 40, (a) 2 Dav. Conv. 692, ed. 3; 140, ed. 4; Exp. Mure, 2 Cox, 63; Williams v. Price, 1 S. & S. 581. |