It having been decided in equity that a mortgagee takes subject to any earlier claim of which he has actual notice, another step was inevitable, otherwise he would take care not to learn of outstanding equities. Equitable claims are therefore held to be good against a mortgagee who would have known of them if he had acted as a prudent mortgagee acts, that is, if he had made the usual search of title. The mortgagee is obliged not only to be honest but also to be diligent (p). This is the equitable doctrine of constructive notice. Actual notice does not, constructive notice does, involve the question as to the negligence or diligence of the mortgagee

Constructive notice means that the circumstances surrounding the taking of a mortgage are such as to induce the court to treat the mortgagee who in fact has no actual notice of an earlier charge as if in fact he had actual notice. The circumstances which will affect a mortgagee with constructive notice are (r) :

(0) Le Neve v. Le Neve, 1747, Amb. 436, 2 Wh. & T.L.C. Eq. 187, 18 R.C. 774. A purchaser with actual notice of a prior claim, completes the purchase at his peril. Jared v. Clements, [1903] 1 Ch. 428; an extreme case, because the purchaser was convinced by the production of a forged receipt that the prior equitable mortgage had been paid off. Of course a purchaser or mortagee prima facie takes subject to an earlier legal claim whether he has notice of it or not. As to what is actual notice, see Harrington v. Spring Creek Cheese Mfg. Co., 1904, 7 O.L.R. 319, at p. 325.

(p) Cf. Maltland, Equity and the Forms of Action, pp. 118, 122 ff.

(q) This is strikingly illustrated by Kettlewell v. Watson, 1882, 21 Ch. D. 685, in which it was held that where the total purchase price of a small lot was £42 the purchaser was not affected with constructive notice of an existing equitable right although he had made. no search of title and no enquiry about the title deeds and had employed no solicitor.

(a) His knowledge of facts which would naturally suggest the existence of the earlier change (s).

(b) His failure to make the enquiries which ought reasonably to have been made by him where, if he had made such enquiries, the existence of the earlier charge would have been disclosed to him (t).

(c) Any knowledge received or failure to make enquiries, by his agent as such (u) in connection with the taking of the mortgage, which if the knowledge had been received or the failure had been made by the mortgagee himself would have amounted to actual or constructive notice to him of the earlier charge (v). Notice to the principal in these circumstances is sometimes called imputed notice (w).

(r) Cf. Strahan, Law of Mortgages, 2nd ed., pp. 66 ff.; H. A. Smith, Principles of Equity, 4th ed., pp. 346 ff. In England the law as to notice is now in part declared by the Conveyancing Act, 1882, s. 3. As to the extent to which the statute has changed the law, see Bailey v. Barnes, [1894] 1 Ch. 25, at p. 35, 18 R.C. 510, at p. 519; Taylor v. London and County Banking Co., [1901] 2 Ch. 231, at pp. 258, 259; 2 W. & T.L.C. Eq. 207 ff.

(s) Oliver v. Hinton, [1899] 2 Ch. 264, at p. 268 (knowledge of the fact that the deeds are not in the possession of the mortgagor, but in that of a third person); Hunt v. Luck, [1902] 1 Ch. 428 (knowledge that the rents are being paid to a third person).

(t) Patman v. Harland, 1881, 17 Ch.D. 353, 21 R.C. 752 (constructive notice of a restrictve covenant contained in a deed forming part of the claim of title); Imray v. Oakshette, [1897] 2 Q.B. 218 (constructive notice of the contents of a deed, notwithstanding that by the contract the purchaser was precluded from requiring production of the title deeds).

(u) As to what is meant by the mortgagee's agent "as such," see Thome v. Heard & Marsh, [1895] A.C. 495, at p. 501.

(v) A solicitor who acts for both mortgagor and mortgagee is the agent of the mortgagee so that his knowledge will usually be imputed to his principal, but if the agent is intending to commit a fraud upon the principal which would be frustrated if the facts were able claim, it is only in certain circumstances that mere negligence will postpone a legal claim (y).