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Tacking (an old form of “attaching”) is a legal right most usually relevant when the
common law Common law (also known as judicial precedent, judge-made law, or case law) is the body of law primarily developed through judicial decisions rather than statutes. Although common law may incorporate certain statutes, it is largely based on prece ...
resolves competing priorities between two or more
security interest In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the '' collateral'') which enables the creditor to have recourse to the property if the debtor defaults in m ...
s arising over the same asset. It is of two types: # Tacking the legal estate # Tacking further advances Tacking the legal estate refers to the holder of an equitable mortgage getting better security by obtaining legal title to the security (whether by way of mortgage or otherwise). Usually this is prompted by their discovery, after they took their security, that there is an earlier equitable mortgage over the same asset. The effect of the tacking is to postpone (i.e., demote) the rights of the first creditor to those of the second: this follows the general principle that a legal interest takes priority over an equitable one. Tacking further advances refers to the ability of a creditor (in some circumstances) to tack a later loan to security they took for an earlier loan, as in the following example: # Bank A lends a first advance to the borrower, which is secured by a mortgage over the borrower's property. The mortgage is expressed to secure this advance and any future advances. # Bank B subsequently lends other money to the borrower and takes a second ranking mortgage over the same property. # Bank A then subsequently lends a further, second advance to the borrower, relying on its original mortgage. Bank A will always have a first priority claim against the property for the full amount of its first advance. But it will be able to claim against the property in priority to Bank B with respect to its second advance only if it is permitted to ''tack'' the second advance to the mortgage that was taken at the time the first advance was made. If Bank A is not permitted to tack the second advance, then Bank B's claim in respect of the sums that it lent will have priority over Bank A's claims with respect to the second advance. The wider applications of tacking, which concern equitable claims to property more generally, are clear in the definition given by ''
Black's Law Dictionary ''Black's Law Dictionary'' is the most frequently used legal dictionary in the United States. Henry Campbell Black (1860–1927) was the author of the first two editions of the dictionary. History The first edition was published in 1891 by Wes ...
'': Separately, in the definition of '' tabula in naufragio'', ''Black's'' comments:


The common law rules

The right to tack was established by Sir Matthew Hale in ''Marsh v Lee'' in 1670, apparently as “tacking '' tabula in naufragio''”. This was relatively soon followed by another landmark case, ''Gordon v Graham''. During the nineteenth century, the authority of ''Gordon v Graham'' came to be doubted. It was questioned whether it had been correctly reported and, even if correctly reported, whether it correctly stated the law. The matter came before the
House of Lords The House of Lords is the upper house of the Parliament of the United Kingdom. Like the lower house, the House of Commons of the United Kingdom, House of Commons, it meets in the Palace of Westminster in London, England. One of the oldest ext ...
in ''Hopkinson v Rolt''. In that case, the borrower created a mortgage over his land which was expressed to "secure the sums due and which shall from time to time become due" to the bank. Later, he granted a second mortgage in favour of another creditor. Notice of the second mortgage was given to the bank. The borrower was later declared
bankrupt Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the de ...
, and a dispute arose as to the priority of the bank with respect to advances which were made under the first mortgage after it had received notice of the second mortgage. The three law lords who heard the case were divided, with a majority favouring priority for the second mortgagee. Lord Campbell, the
Lord Chancellor The Lord Chancellor, formally titled Lord High Chancellor of Great Britain, is a senior minister of the Crown within the Government of the United Kingdom. The lord chancellor is the minister of justice for England and Wales and the highest-ra ...
(with whom Lord Chelmsford agreed), opined: The dissenting judge,
Lord Cranworth Robert Monsey Rolfe, 1st Baron Cranworth, PC (18 December 1790 – 26 July 1868) was a British lawyer and Liberal politician. He twice served as Lord High Chancellor of Great Britain. Background and education Born at Cranworth, Norfolk, he ...
, was in favour of upholding the rule in ''Gordon v Graham'' as it was reported. He expressed his view in a dissenting opinion:


Actual notice

Although for years it had been supposed that it was sufficient for the first mortgagee to have either actual or
constructive notice Constructive notice is the legal fictionThe phrase "legal fiction" should not be construed to mean that the concept of constructive notice is legally invalid. that signifies that a person or entity should have known, as a reasonable person would ha ...
of the second mortgage, in ''Westpac Banking Corporation v Adelaide Bank Limited'' it was held that constructive notice was not sufficient, and that a first mortgagee could tack future advances unless it had ''actual notice'' of the second ranking security.


Effect of subordination

Where a
subordination agreement A subordination agreement is a legal document Legal instrument is a legal term of art that is used for any formally executed written document that can be formally attributed to its author, records and formally expresses a legally enforceable ac ...
places a later mortgage in higher priority than one previously granted, the validity of releases granted by the previous mortgagors will have a significant impact on the priority assigned to each of the secured debts in question. In 2014, the Court of Appeal of Newfoundland and Labrador held in ''Medoc Properties Limited v. Standard Trust Company'' that the failure by an assignee to release one of two assigned mortgages with respect to such an agreement resulted in differing priorities given to them.


Term loans and overdrafts

The common law rules relating to tacking have caused difficulty in relation to
overdraft An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. In these situations the account is said to be "overdrawn". In the economic system, if there i ...
s and revolving loan facilities because of the rule in '' Clayton's Case'', which provided that in relation to any account, payments into the account are presumed to discharge the earliest debts first. This has been held to have several effects: :* Where notice of a second mortgage is given, subsequent payments into the account are applied to reduce the overdraft existing at the time of the notice and, in effect, for the benefit of the subsequent mortgagee. :* The subsequent mortgagee takes subject to the overdraft only at that time, that is to say, not subject to future advances, and the reduction of the overdraft correspondingly improves his security. If the overdraft is paid off, then any subsequent indebtedness will be by way of future advances and the bank mortgage will be postponed entirely in relation to the subsequent mortgage, although the bank mortgage does not cease to be effective between the bank and its customer, the mortgagor. The rule is only a presumption of convenience, but in practice it is difficult to displace, and can have a devastating effect on the security rights of first mortgagees. For example, suppose a customer secures an overdraft with a mortgage against their house. Then at a time when the overdraft stands at £100,000, the customer grants a second mortgage over their house as security for a term loan to another bank. If over the following nine months, the customer was to pay £90,000 into the account and draw a further £70,000 out of the account, the amount owed to the first bank would be reduced to only £80,000, but they would only have first ranking security for a mere £10,000. For the remaining £70,000 they would rank behind the second mortgagee. Accordingly, in practice a bank will normally "break" an account when they receive notice of a subsequent charge over property which stands as security for an overdraft.


Statutory modification

Ultimately, ''Hopkinson'' was thought to cause more inconvenience than it solved, and a number of common law jurisdictions have sought to modify the position by statute.


Modification in England and Wales

The
Parliament of the United Kingdom The Parliament of the United Kingdom of Great Britain and Northern Ireland is the supreme legislative body of the United Kingdom, and may also legislate for the Crown Dependencies and the British Overseas Territories. It meets at the Palace ...
has modified the application of the common law rules in several respects: :* With respect to unregistered land, s. 94 of the
Law of Property Act 1925 The Law of Property Act 1925 ( 15 & 16 Geo. 5. c. 20) is an act of the Parliament of the United Kingdom. It forms part of an interrelated programme of legislation introduced by Lord Chancellor Lord Birkenhead between 1922 and 1925. The progr ...
enables further advances to be tacked onto a first mortgage if: :: (a) the intervening mortgagee consents, :: (b) the bank had no notice of the intervening mortgage at the time of the advance, or :: (c) the original mortgage actually obliged the bank to make further advances. :* With respect to registered land, s. 49 of the
Land Registration Act 2002 The Land Registration Act 2002 (c. 9) is an act of the Parliament of the United Kingdom which repealed and replaced previous legislation governing land registration, in particular the Land Registration Act 1925, which governed an earlier, though ...
provides that a bank may tack if: :: (a) the intervening mortgagee consents, :: (b) the bank had no notice of the intervening mortgage from the subsequent mortgagee, or :: (c) the original mortgage actually obliged the bank to make further advances and this agreement had been entered in the register prior to the creation of the subsequent charge.


Notes


Footnotes


External links

* {{cite book, title = Report on Mortgages of Land: The Priority of Further Advances, url = http://www.bcli.org/sites/default/files/LRC85-Mortgages_of_Land.pdf, publisher = Law Reform Commission of British Columbia , year = 1986, isbn = 0-7718-8506-7, which contains a discussion on the law of tacking Property law