Mortgages

Question 1

How do we define a mortgage

Answer 1

It is the transfer or conveyance of an interest in the borrowers land. Transfer to the mortgagee with a provision or term that the mortgagee’s interest will end upon the repayment of the loan.

Question 2

What were the principles set out in seyton and Slade

Answer 2

Once a mortgage always a mortgage
The borrower will always have a right to repay and to redeem the property in full, once the loan is repaid.
Any contractual terms that try to limit or exclude the mortgagor’s rights to repay the loan will be struck out as void.

Question 3

What is the equity of redemption?

Answer 3

• It is a mortgagor right
• A borrower under a legal mortgage will always retain legal title to the estate being mortgaged
• This right allows the mortgage too be paid off at any stage, reasonable to the lender. Even if the contractual date to redeem has passed.
  Prior to 1925 the rules were different

Question 4

Thorborough v Baker

Answer 4

Any attempt to limit the time to redeem to certain people or for a limit of time is void. (Banks may want to postpone the reedamability date to earn money. A postponement isn’t illegal, but if it renders the right to redeem illusorily it will be struck down)

Question 5

Fairclough V swan Brewery

Answer 5

A pub with a lease of 77 years was mortgaged on the terms that it couldn’t be redeemed until 6 weeks before the lease expired. The postponement was too great it rendered irredeemability illusory. Also, you can only claim a 6-week lease of a pub when you are trying to redeem - which is not very valuable - so not redeemable.

Question 6

Knightsbridge Estate v Bryne

Answer 6

Contrasts with Fairclough V Swan Brewery - this case concerns a Commercial mortgage and a freehold hold as opposed to a leasehold. The borrower wanted to pay off the mortgage earlier because interest rates had fallen. The Mortgage could not be redeemed for 40 years.
In a commercial context, the law takes a relaxed view as to the postponement of the date of redemption - courts take a relaxed approach so that the terms of the contract can be fulfilled
Also, there was still significant residual value because it was a freehold - so there is no limit in time.
In a commercial context, a court will only strike down a postponement if it is repressive and unconscionable - not because of it is unreasonable.

Question 7

The right to redemption has to be free from

Answer 7

clog and fetters, however, they may make sense in a commercial context.

Question 8

Noakes and rice

Answer 8

Owner of a pub mortgaged pub to a brewery owner said they would buy all their beers from brewery even after the mortgage is redeemed. The courts said this was an impermissible clog. they should be able to redeem their pubs free from clogs and fetters. they should be able to redeem their pubs free form clogs and fetters

Question 9

Bradley v Carrit

Answer 9

The collateral advantage was limited to the life of the mortgage - unlike Noakes

Question 10

Kregliger v New Patagonia Meat &Cold storage co ltd

Answer 10

A loan was secured against companies assets. kreglinger - first right of refsalto buy any sheepskins produced by meat company over 5 years. and argued to be free from all obligations. the court said the term is valid. Inhibiting collateral advantage doesn’t extend to independent contractual terms. these are two separate contracts. A CA for the mortgagee may be upheld where it does not prevent the mortgagor from getting his land back in the same form as when it was mortgaged.

Question 11

Can you grant an option to purchase (its a type of clog) in a mortgage, even if there are two parties who are aware of what they are doing?

Answer 11

No, the authority comes from Samuel v Jarrah Timber and wood Paving Corp

Question 12

When will an option be valid

Answer 12

It will be valid if the option to purchase is in a separate and independent transaction to the mortgage (Reeve v Lisle)

Question 13

Jones v Morgan

Answer 13

The court struck the option down, because even the though the option was granted three years after the mortgage agreement, it still formed a variation of the original agreement. It needs to be a separate agreement, it is not about the timing.

Question 14

How are legal mortgages are created

Answer 14

Now you can only create a legal mortgage by charge by way of legal mortgage.

Question 15

What are formalities of creating a legal mortgage

Answer 15

LPA 1925, S 52 - All conveyance of land or any interest therein the void for the purpose of creating a legal estate unless made by a deed
S. 205 confirms that a mortgage constitutes as a conveyance of land - thus requires a deed.

LRA 2002 S.27 lists dispositions that need to be registers - A mortgage is a registrable charge. for it to have a legal effect it must be registered.

(if any of the two criteria are not satisfied equity will step in)

Question 16

What are the formalities for creating an equitable mortgage

Answer 16

LPA (MPA) 1989 S.2
It has to be in writing with the terms signed by both parties. Allowing you to create a property right that binds third parties.
If not PE may be able to help if you showed that you relied upon an assurance to your detriment. (Mackie - Conteth : it became unconscionable for the lender to deny the existence of mortgage)

Question 17

What is the definition of undue influence?

Answer 17

According to RBS V etteridge
It is when there is a relationship of trust between two individuals, one may have used their dominant position to manipulate the other party into entering the transaction.

Question 18

what will happen If someone doesn’t enter a mortgage transaction of their own free will?

Answer 18

the transaction will be void

Question 19

What is actual UI

Answer 19

Actual pressure exerted over the relevant person. This causes them to enter into a mortgage

Question 20

What is Presumed UI

Answer 20

When one person’s entry into the transaction was obtained by UI that the other person was presumed to have exerted.
A relationship of trust and confidence and the nature of the transaction calls for an explanation all helps to create the presumption of UI.

Question 21

what is an example of a relationship of trust and confidence and will have to happen if it is not a relationship of love and trust

Answer 21

Doctor and Patient, Lawyer and client and Patient and child.
Husband and wife are not presumed to be a relationship of trust and confidence. So this will have to be proved.

Question 22

what are factors to consider to determine if it is a relationship of trust and confidence

Answer 22

someone with a dominant position
Financial dependency
Ages of the client

Question 23

What is a case of :presumption of undue influence :outside of a marriage

Answer 23

Abbey v National Bank PLC V Stringer
Evil son tricked mum - he had control over her finances and he didn’t explain to her what the document meant. The court said the mortgage was tainted and thus it was set aside.

Goodchild V Bradbury
A vulnerable gentleman gave land to the nephew as a gift- the detriment that the elderly gentlemen suffered was disproportionate. Furthermore, his nephew was unable to prove that his great uncle knew what he was doing, so the law was set aside

Question 24

How to rebut the presumption

Answer 24

you have to show that the party that enjoyed the relationship did not, in fact, exert UI and show other party entered a transaction with their own freewilll

some of argued that receiving advice from a third party could suggest the person understood. However, proof of outside advice does not show that the transaction was free from UI - This is a question of fact

Question 25

The princple in Etridge

Answer 25

,,

Question 26

What did Lord Scott say in Etridge

Answer 26

There was a relationship of trust and confidence because the man had all the finances - ut there was no evidence of abuse by Mr Etridge - criticism: high threshold, must there be bullying in a marriage for thr courts to intervene.

Question 27

Who is alleged to have unduly influenced the parties

Answer 27

1. undue influence y mortgagee against the mortgagor
   Llyods v Bundy
2. Undue influence by third parties against the mortgagor
   Barclays Bank v Obrien

Question 28

When is the Lender put on inquiry

Answer 28

Barclays Bank v Obrien
A creditor is put on inquiry when a wife offers to stand surety for her husband’s debts. The transaction on its face leaves the wife financially disadvantaged and there is a substantial risk. If this is the case the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction. (Very narrow ruling - will only apply if there is an inquiry)

Question 29

Casese that do not pass the etridge test CBI Mortgages v Pitt

Answer 29

Couple aid the wanted a mortgage for a holiday home instead it was so her husband could buy shares in the market. The court said that this did not put the bank on enquiry - there was nothing to prove that this wasn’t for their joint benefit. If they lie on the form how is the bank to know?

Question 30

What steps must the banks take to ensure that the mortgage

Answer 30

Banks should not have to discover for themselves whether a wife’s consent is being procured by the exercise of undue influence. The furtherest a bank is expected to go is to take reasonable steps to explain the financial implications of the transactions - so she is aware

Question 31

What is the purpose of the protective measueres a bank is expected to take

Answer 31

it is about the bank not protecting the wife. security measure is important to ensure repayment - to help protect the economy

Question 32

Did the mortgagor recieve independent legal advice

Answer 32

Lord nichols - series of steps that helps to determine this
1. S can represent both Huband and W
2. Bank asks mortgagor to nominate an S
3. Bank supplies the S with relevant financial information so advice can be given
4. A bank must inform S of any suspicions
5. S must explain the nature and risk of the transaction to the mortgagor
(these steps are to help prevent UI in theory but the practicalities may be different)

Question 33

The right of the Mortgagee

Answer 33

the contractual right to repayment - absolute right
Palk v mortgage services funding PLC - used right to repossess - mortgagor still had to pay a mortgage during the process.
The right to possession (not an absolute right )

Question 34

Facts of Palk v Mortgage Services

Answer 34

activated their rights to the repossess house - but didn’t want to sell it immediately. the courts said they are not allowed. this is because banks have to act in good faith. They have to be repossessing the house in the hopes of getting their money back.
Lord Denning in Quennel v Maltby ‘ A mortgage will e restrained getting possession except where it is sought bona fide and reasonable for the purpose of enforcing the security and then only subject to the conditions that the courts think is fit to impose