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Mortgages, EXAM QUESTION
CLOTHES AND FETTERS
RIGHTS OF MORTGAGOR…
Mortgages
Rights of Mortgagor
- Right to exercise redemption of property (Right to Redeem)
- Its a right of the mortgagor to redeem the property without any hindrances
- MGOR has legal right to redeem mortgage on legal date of redemption where MGOR enjoys equitable right to redeem at any time until equity of redemption is removed by sale/foreclosure
- Must be no 'clogs/fetters' in form of provisions that are disadvantageous to MGOR that causes delay/postpone/prevent redemption of property by MGOR
A) Prevention of redemption by Option to Purchase:
- Situations where MGEE retains option to purchase effectively preventing MGOR from redeeming property upon repayment
Samuel v Jarrah Timber & Wood (1904):
- Any option granted at the same time with the mortgage inevitably exposes the MGOR to possibility that the option may be exercised forcefully (can exclude redemption)
[any option given at the same time with mortgage may allow MGOR for option to purchase forcefully]
Reeve v Lisle (1902):
- Agreement entered separately for the option was valid as the MGOR still has the choice not to agree
Warnborough Ltd v Garmite Ltd (2004):
- Court must examine substance of transaction to assess true nature of bargain which parties made and whether in light of bargain there was unconscionable dealings
B) Mortgagee unduly postponing redemption:
- Postponement is possible but can't be heavily in favour of MGEE where courts will consider it invalid + unenforceable
Biggs v Hoddinot (1898):
- Facts: A 5-year mortgage restricted the MGOR to buying beer only from the MGEE during period of the mortgage with no redemption possible for 5 years (delaying redemption)
- Held: 5-year term reasonable
Noakes v Rice (1902):
- Facts: Mortgage of lease of a public house - clause that MGOR purchase beer from MGEE's brewery for the whole term of the lease (not just term of mortgage)
- Held: Clause was clog as it continued after mortgage (effectively delaying redemption even after mortgage ended but lasting for the whole term of the lease
Kreglinger v New Patagonia Meat & Cold Storage (1914) per Parker LJ:
- Facts: Mortgage attached to separate agreement - MGOR meat company would offer sheep skins to MGEE for 5 years if MGEE wished to buy at market price. After 2 years MGOR intended to redeem the mortgage and commitment to offer the skins
- Held: 5-year term reasonable and valid, MGOR cannot redeem as both were separate agreements
- Collateral agreements can only be struck down if:
- (i) clause is unfair/unconscionable (both parties not on equal footing)
- (ii) clause in nature of penalty ont he equity of redemption
- (iii) collateral advantage is inconsistent with contractual/equitable right to redeem
- Right to protection against disadvantageous terms
- The mortgagor is protected against any right
Multiservice Bookbinding Services v Marden (1979):
- Facts: Mortgage terms agreed of Swiss Franc which after a while jumped in value against pound - MGOR ended up paying more than expected
- Held: May be unreasonable but not O & U which is the test. Parties were on equal bargaining power, both had independent legal advice. Its a bad bargain for MGOR which can be maintained based on doctrine of sanctity of contract
Cityland & Property (Holdings) Ltd v Dabrah (1968):
- Facts: D intended to buy freehold house he was in occupation. Took loan from landlord who wanted to evict him with interest of 57%
- Held: O and U as parties are not on equal bargaining power. Usual market rate of interest is 7% and a rate fo 10% and above is O & U
Paragon Finance plc v Nash & Staunton (2002):
- Treshold for courts intervention requires that the challeged interest must be grossly exorbitant
- There's implied duty of part of MGEE not to be unreasonable/dishonest with the rates
Paragon Finance plc v Pender (2003):
- MGEE should not be prevented from raising interest rates for genuine commercial reasons as long as rates are not grossly exorbitant are not rained improperly
- Right to be free from undue influence
Barclays Bank v O'Brien (1993):
- Facts: C signed the mortgage documents and accompanying letter stating that she was told that morgage was taken over matrimonial home. She did not read either letter. Money involved was higher than amount expected, D forced her to sign
- Held: mortgage not enforceable against C due to UI
Royal Bank of Scotland v Etridge (No.2) (2001):
- Facts: Concerned wives who had charged their matrimonial homes to secure their husband's liability
- Held: Whether bank exercise legal right against the wife depended on whether wife had equity set aside the transaction
- And whether at time of value, did bank have; and actual/imputed/constructive notice of the wife's equity
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Rights of Mortgagee
- Rights to sue MGOR on personal covenant to repay mortgage
- Mortgage is a contract between MGOR and MGEE. MGEE can sue MGOR on personal capacity based on contractual rights
- MGOR has contractual obligation to repay sum borrowed by certain date together with accrued interest
- Right of little use if MGOR has no funds other than those tied up with secured property
- This right often used along with rights the MGEE has under possession proceedings against MGOR
William's & Glyn's Bank v Boland (1981):
- If there's conflicting 3rd party rights over property, may be better for mortgagee to pursue personal remedy (based on mortgage contract - contractual remedies
Palk v Mortgage Services Funding plc (1993):
- If MGEE has secured a sale of property and the proceeds of sale are insufficient to discharge debt, MGEE can pursue a personal remedy in respect of balace debt that is due
Alliance & Leicester plc v Slayford (2000):
- Wilkinson v West Bromwich Building Society (2005) - since remedies / rights are cumulative, MGEE can avail themselves of other remedies alongside personal remedy
- Right to take Possession of Property
- Possession is sort if MGOR is in breach of mortgage agreement
- Possession can be taken by mortgage;
- to ensure income from property (e.g. where property is generating rental income) used to pay off mortgage debt OR
- as prelude to sale (right to sell) to pay off the mortgage debt
- When possession is exercised by MGEE, there's option of relief for MGOR when property is a 'dwelling house' - Relief under statute
(i) Application by mortgagee for possession of dwelling house
- Mortgagee must have applied for possession under court order in the first place for MGOR to be entitled under S36
Ropaigealach v Barclay's Bank plc (2000):
- Facts: H + W jointly charged their home to bank and subsequently fell into financial difficulties. Bank notified that auction will happen in 3 weeks. H + W were away and didn't receive notice. Bank took possession of property under common law (not by court order)
- Held: AJA did not inhibit MGEE's right of possession under common law-MGEE can take possession in common law if property not occupied
- H + W precluded from applying for court's discretion under S36 as there's not application to the court by the mortgagee for possession
"Dwelling House" - Royal Bank of Scotland v Miller (2001):
- Whether its a dwelling house or not per S36 AJA is determined by reference to state of premises at time the order for possession was sought
(ii) Exercise of discretion by court to suspend, adjourn or postpone possession
(iii) If MGOR would be likely to be able to pay within a reasonable time
- Would court take into account to exercise discretion? There must be 'realistic evaluation' by court based on evidence
"Likely to be able to pay" - Effort by MGOR - Bristol and West BS v Dace (1998):
- The court has no discretion to make an order if there's no prospect of MGOR making reasonable attempts to actually repay accumulated arrears let alone meet future payments
"Likely to be able to pay" - Prospect of employment - Town & Country BS v Julien (1991):
- In granting postponement of possession, courts must consider the hope that at some time in the future, MGOR mau secure highly paid employment
"Likely to be able to pay" - Possible windfall - Hasting & Thanet Building Society v Goddard:
- In assessing the financial situation of MGOR, speculative windfalls in consideration like winning of pools (lottery) or receiving large legacy
-
"Reasonable Time"
Cheltenham & Gloucester BS v Norgan (1996):
- Facts: Courts were faced with a question as to what is "reasonable time" in S36
- Held: Court has discretion under 1970 + 73 Acts to capitalise on the arrears of mortgage payments and to spread them over remaining term of mortgage, if circumstances of the case justify it. Here, reasonable time was whole period of the mortgage
Royal Trusts Co of Canada v Markham (1975):
- A finite period must be stipulated by the end of which arrears must be paid off together with payments that would normally be expected under the mortgage
-
- Right to Sell the Premise (Statutory Piower of Sale - POS)
- Another way of recovering the whol sum due and ending the mortgage occurs when the MGEE seeks to exercise his POS
- Most mortgage will have an express POS and is exercisable in accordance with its terms
- Subject to any provisions in the mortgage itself, MGEE can sell the mortgaged property and use funds to satisfy mortgage debts if 2 conditions are satisfied:
1. Section 101 LPA 1925 (POS must arise):
- POS is implied into every mortgage made by deed unless contrary intention is expressed
- Since legal mortgage must be by deed, this power is in every mortgage
- POS arises when 3 conditions are satisfied under S101(1):
S101(1):
- Mortgage mortgage must be by deed
- Mortgage money must have become due
- No contrary intention is expressed in the deed
- Once these 3 steps are satisfied, only can apply S103
2. Section 103 LPA 1925 (POS must become exercisable):
- POS is exercisable when ANY of the 3 conditions of S03 are satisfied:
- MGEE has served notice requiring payment of the mortgage money and MGOR is in 3 months default or arrears since notice was served OR
- Interest under the mortgage is in arrears and unpaid for 2 months after becoming due OR
- MGOR has breached some covenant / provision of the mortgage deed (other than the covenant to pay) or some provision of the LPA
-
Introduction
- A pledge of land as security for repayment of loan
- Transaction where an interest in property (land/business) is transferred as security for a loan
- Governed by both contract law and property law
Law on Mortgages
- Main emphasis of Law of Mortgages
- Mortgagor regains fullest interest when seeking the mortgage
- Mortgagee has suitable remedies if there's a default in repayment by mortgagor
- Legal title of mortgaged property stays with mortgagor throughout the mortgage term
- The mortgagee only takes security interest over land and is entitled to return of his capital + later interest
- Equity of Redemption - policy "once a mortgage always a mortgage"
Grange Side Properties v Collingwoods Securities (1964):
- Mortgagor is entitled to reconveyance of his property if he repays full sum under mortgage even if legal date of redemption has passed
Parties in a Mortgage
Mortgagor (MGOR):
- Person who borrows money
- Retains legal title in property and will remian in occupation of the property + has right to redemption
Mortgagee (Financier, MGEE):
- Person who lends the money (i.e. person who gives the money)
- Acquires a proprietary interest in the property + is a secured creditor
EXAM QUESTION
- CLOTHES AND FETTERS
- RIGHTS OF MORTGAGOR (WHETHER THE RIGHTS OF MGOR AND MGEE ARE BALANCED OR NOT - ARE THEIR PROTECTIONS EQUAL BC MGOR HAS MORE PROTECTION THAN MGEE)