Mortgages - Clogs and Fetters and Unconscionable Terms

Question 1

Cityland Property Ltd v. Dabrah (1968)

Answer 1

Unconscionable and oppressive terms in mortgages, such as very high interest rates, can be struck down (voided).

Question 2

Multiservice Bookbinding v. Marden (1979)

Answer 2

Interest & capital can be tied to foreign currency. Although interest rates skyrocketed in this case, parties had equal bargaining power and mortgagor sought independent advice, so the agreement was not deemed unconscionable.

Question 3

Paragon Finance plc v. Nash (2001)

Answer 3

• Held that terms would be implied into agreements where there were variable interest rates.
• The implied terms would be that rates of interest would not be set dishonestly, for improper purposes, capriciously or arbitrarily, or in a way no reasonable mortgagee would do.

Question 4

Paragon Finance plc v. Pender (2005)

Answer 4

A mortgagee can still impose rates that that they find commercially necessary, even though the mortgagor would see such rates as unreasonable when compared to other mortgagees.

Question 5

Samuel v. Jarrah Timber and Wood Paving Corporation Ltd (1902)

Answer 5

A provision in the mortgage that gives the mortgagee the option to purchase the mortgaged property, or a provision that the property shall become the mortgagee’s, will be void.

Question 6

Jones v. Morgan [2002]

Answer 6

• A clause in a document stating that the mortgagee was entitled to a share of the mortgagor’s land was executed three years after the initial mortgage. It was still found to be a variation of the original mortgage and thus a part of it, so it was voided.
• A clog or fetter on the mortgagor’s equity of redemption will be unenforceable.

Question 7

Reeve v. Lisle (1902)

Answer 7

An option for the mortgagee to purchase the property is valid if it is in a separate and independent transaction, provided it does not form part of the mortgage itself.

Question 8

Warnborough Ltd v. Garmite Ltd (2003)

Answer 8

• The true nature of the agreement between the parties must be determined by the substance of the agreement, rather than the label it is given.
• What initially seemed to be a mortgage with an option to purchase for the mortgagee was in fact a complex sale and repurchase transaction, so courts did not intervene.

Question 9

Fairclough v. Swan Brewery Co Ltd (1912)

Answer 9

• Mortgaged property was on a long lease. Mortgage contract provided that the legal date or redemption arose six weeks before end of lease. The value of the lease with six weeks left to run was useless to the mortgagor.
• Any provision in the mortgage which renders the equitable right to redeem illusory may be voided.

Question 10

Knightsbridge Estates Ltd v. Byrne (1940)

Answer 10

• One of the terms of the mortgage stated that the mortgagor could not redeem the mortgage until after the end of a 40 year period.
• This term postponing redemption was upheld and the mortgagors had no right to redeem early, on the basis that it was a commercial agreement, there was nothing oppressive or unconscionable in the mortgage terms, and the mortgagor freely entered into the contract.
• Difference to Swan: right to redeem was not made illusory/not a pretence.

Question 11

Kregliner v. New Patagonia Meat Co (1914)

Answer 11

• House of Lords decided that there was no rule which prevented a lender from inserting a collateral advantage clause in its favour into the mortgage.
• Any such clause would be struck out only if it was either:
• unfair and unreasonable
• in the nature of a penalty clogging the right to redemption; or
• inconsistent with, or repugnant to, the contractual and equitable right to redeem.
• A collateral advantage that does continue after redemption may be acceptable so long as the mortgagor’s land returns to them in the same form it was mortgaged.

Question 12

Noakes & Co Ltd v. Rice (1902)

Answer 12

• Mortgagor leased a pub with the aid of a mortgage loan and agreed to mortgagee that he would buy all his beer from him for the duration of the lease, even if the mortgage was redeemed before end of lease.
• Found to be a clog on the equity of redemption. Solus agreements will be struck out if they continue after the redemption of the mortgage.

Question 13

Biggs v. Hoddinott (1898)

Answer 13

Length of time for which the mortgagor was required to buy the mortgagee’s products was limited to a period of five years. However, it was not possible to redeem the mortgage before the five years, so this term was not considered a clog on the equity of redemption.