This is an extract of our The Equity Of Redemption document, which we sell as part of our Land Law Notes collection written by the top tier of Oxford students.
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The Equity of Redemption Rules protecting the mortgagor:
1. Right to Redeem
Equity gives right to pay off loan and terminate mortgage by the successful repaying of the mortgage debt. o Re Sir Thomas Spencer Wells :
? CoA: Any agreement which stipulates that there will be no right of redemption does not exist in equity
And any attempt to fetter the agreement to redemption with anything other than the payment of money is null and void. o However, it can be defeated by the mortgagee (lender) exercising the right of foreclosure or right to sale before redemption occurs.
2. Clogs and fetters on the right to redeem are not allowed
Postponement of the right to redeem o Parties will often stipulate that a mortgage can only be paid off after a certain amount of time - normally so the lender gains more interest off the mortgage
? Will also be used to try and enforce solus tie clauses - those which force the mortgagor retailers to only sell their mortgagees products. o Smith: court will generally accept postponements that have been freely bargained
? Knightsbridge Estates Trust Ltd v Byrne : C bargained to repay debt of PS310,000 by eighty half-yearly payments over 40 years. D refused to allow deviation from repayment plan.
Greene MR: o Argument is that though a postponement of the right to redeem is permitted, the length of time this is postponed must be reasonable
? But the court should not be able to tell business men whether what they have negotiated is reasonable or not o Postponement per se it not objectionable
? And it cannot be made objectionable by the presence in the mortgage deed of other provisions,
unless the totality is sufficient to enable the Court to say that the contract is oppressive or unconscionable. o But are less keen to accept postponements which deprive the lessee of the benefit of the lease:
? Fairclough v Swan Brewery Co Ltd : F mortgaged hotel lease which S said could not be paid back except in instalments over a long time. Only 6 weeks would remain on lease after all instalments made.
Lord Macnaghten: o Court will not allow the right of redemption in any way to be hampered in that which the parties intended to be a security
? Letter of bargain shows that mortgage is meant to be irredeemable, because F = no practical benefit
from the redemption as the lease will almost have expired
Thus, this mortgage is void.Smith: is far from clear that result justified - mortgagor still retains possession of land
And modern view that mortgage = security arrangement
= more that mortgagor challenging refusal to accept repayment o Not that mortgagor is losing right to benefit of land o Should rules be different for short leases than for fee simples?
2. Options to purchase land will be struck down
Samuel v Jarrah Timber : M borrowed money with a clause stipulating that L had the option to purchase a 40% stock. M signalled intent to pay off the loan, at which point L exercised his option to buy. o Lord Lindley:
? Any bargain which has the effect of preventing a mortgagor getting his property after redeeming it is invalid,
and is inconsistent with the transaction being a mortgage
It might be different depending on what the option to purchase is... o Kreglinger v New Patagonia Meat Company :
? Lord Parker:
Suppose A agrees to give B an option for one year to purchase a property for PS10,000. o And in consideration of such option B agrees to lend A
PS1000 to be charged on the property without interest,
? and be repayable at the expiration or earlier exercise of the option.
There is no inconsistency or repugnancy between the provisions of this transaction o It would have been very different if A had conveyed the property to B with a proviso that on payment of the
PS1000 there should be a re-conveyance,
? and the deed had then provided for the year's option.
There, If the mortgagor pays the moneys secured by the specified date the mortgagee comes under a contractual liability to re-convey, o and if he does re-convey he re-conveys his whole interest in the mortgaged property, thus destroying his option.
? The option, therefore, is inconsistent with and repugnant to the proviso for re-conveyance,
It may, therefore, be rejected.
The key is whether the option to purchase is a separate agreement (with separate consideration) or it is part of the mortgage o Jones v Morgan : M borrowed money from L but failed to repay anything. M then agreed to alter terms so that L would give extra time in return for a half share of the estate.
? Chadwick LJ:
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