1. Jai (a) Explain THREE remedies available to a mortgage to enforce his security.

A mortgage has been defined as ‘a conveyance or other disposition of an interest in property designed to
secure the payment of money or the discharge of some other obligation. There are remedies available to a
mortgagee in order to enforce his security, so that he doesn’t suffer a loss or atleast receives the amount
of money loan to the mortgager. Three such remedies are as follows:

 One such remedy being the power of sale; statutory provisions give a mortgagee power to sell the
mortgaged property out of court, provided that the mortgage is made by deed. The goal of the
mortgagee using a power of sale is not to profit, but simply to recover the balance outstanding on
the mortgage. The power arises as soon as the date fixed for repayment has passed or, in the
case of a mortgage repayable by installments, as soon as an installment is due and unpaid, but the
power becomes exercisable under three main circumstances:
(a) Notice requiring repayment of the mortgage money has been served on the mortgagor and
default has been made in payment of part or all of it for three months thereafter; or
(b) Some interest under the mortgage is two months or more in arrears; or
(c) There has been a breach of some provision contained in the Acts or in the mortgage deed
(other than the covenant for payment of the mortgage money or interest), which should have been
observed or performed by the mortgagor or by someone who concurred in making the mortgage.
(Thus, for example, the power will become exercisable if the mortgagor is in breach of an
undertaking to keep the premises in repair.)

In Jobson v Capital and Credit Merchant Bank. In Jamaica, ss 105 and 106 of the Registration of Titles
Act 1973 govern the arising and exercise of the power of sale in relation to registered land. Section 105
provides that, where there is a default by the mortgagor in payment of principal or interest, or in the
performance or observance of any express or implied covenant, and such default continues for one month
(or for such other period as may be fi xed by the mortgage), the mortgagee ‘may give to the mortgagor …
notice in writing to pay the money owing … or to perform or observe the aforesaid covenants’ and, by s
106, if such default continues for one month after service of the notice (or such other period as may be fi
xed), the mortgagee may sell the land, or part thereof, altogether or in lots, by public auction or private
contract.

 Second remedy available can be appointing a receiver. The advantage of appointing a receiver is
that, where interest payments are in arrears, he may intercept any rents and profits from the land
and apply them towards paying off the arrears. A receiver is required by the statutes to apply any
money received by him in the following order:
(a) in discharge of rents, taxes, rates and outgoings;
(b) in keeping down annual sums and the interest on principal sums having priority to the
mortgage;
(c) in payment of his own commission and insurance premiums and, if so directed in writing by
the mortgagee, the cost of repairs;
(d) in payment of the interest under the mortgage; and
(e) if so directed by the mortgagee, in discharging the principal sum lent; otherwise, it must be
paid to the person who would have received it if the receiver had not been appointed – that
is, to the mortgagor
  Third remedy available can be foreclosing the property. Equity gives the mortgagee a
simultaneous right to foreclose the mortgage – that is, to bring an action in court in order to
extinguish the equitable right to redeem and to acquire for himself the legal and equitable title to
the property, freed from the equity of redemption. The right to foreclose does not arise until
repayment has become due at law which includes not only the case in which the contractual
redemption date has passed, but also cases in which the mortgage deed expressly provides that
repayment is to fall due on the breach of any term of the mortgage (for example, failure to pay an
installment of interest or principal) and such breach has occurred. Foreclosure is in two stages.
First, the court directs that accounts be taken and provides that, if the mortgagor pays the money
due by a fixed day (which is normally six months from the settling of the accounts), the mortgage
will be discharged, but that if the mortgagor fails to pay, a motion may be brought to make the
foreclosure absolute. [15 marks]

b) Describe the circumstances which may influence the mortgage to choose among the available
remedies.

There are certain circumstances that may influence the morgagee to retreat to such remedies inorder for
his own benefit according to the statement made at law, the mortgagee is not a trustee of the power of sale
for the mortgagor, which means that the mortgagee in his power of sale will do so in the benefit of
himself. There can arise certain situations in which the mortgagee will retreat to these remedies such as
when there is a notice sent to the mortgagor requesting payment of the mortgage that has been defaulted
in full or part for three months and more, which means that the mortgagor hasn’t paid any installments on
the mortgage for three months and over. Also, when the interest of the mortagage is in arrears for two
months and more. A mortgagee will also seek these remedies if there is a breach of some provisions
contained in the Acts or in the mortgage deed, for example if the mortgagor is expected to keep the
premises in repair and has failed to do so. The general reason why a mortgagee will use these remedies is
whereby a mortgagor (borrower) defaults on mortgage payments.

Ryan -“Now there is a principle which I will accept without qualification… that on a mortgage
you cannot by contract between the mortgagor and the mortgagee, clog, as it is termed, the equity
 of redemption so as to prevent the mortgagor from redeeming on payment of principal interest
and costs.”

Using appropriate illustrations, discuss this view in relation to the ‘equity of redemption’.
Total 25 marks

The definition of the term “mortgage” was set out by Lord Lindley in the Stanley v. Wild case, which
provides:

[A] mortgage is a conveyance of land or assignment of chattels as a security for the payment of a debt, or
the discharge of some other obligation for which it is given….[A]nd the security is redeemable on the
payment or discharge of such debt or obligation

A mortgagor is a person who borrows money for the purpose of purchasing a real property while
mortgagee is the entity that lends money to the borrower against the security of property.

The courts of equity recognized that a mortgagor’s right to redemption, specifically, the reconveyance of
the property back upon payment of the debt, is a fundamental right and is to be jealously guarded by the
courts[9].  This equitable right is present in all mortgages and can neither be contracted out nor given
away.  Moreover, this right will remain provided that the mortgagee does not take steps to enforce the
mortgage when in arrears.
Given that the mortgagor’s right to redeem is acknowledged as a fundamental right that is to be jealously
guarded, the issue then becomes: when can the equity of redemption be exercised and when is it
extinguished?
It is the mortgagor’s equitable right to redeem his property. A mortgagor should not lose
his property due to his failure of payment to the mortgagee, and if this was to be so that
the mortgagor would lose his property because of this, then this would be harsh since the
mortgagee would have the property as security. Lord Nottingham spoke on this, saying,
“In natural justice and equity, the principal right of the mortgagee is to the money, and
his right to the land is only as a security for the money.”

The equitable right to redeem is a particular right, while the equity of redemption
represents the aggregate of the mortgagor's rights. It is an equitable interest that represents
the value of the mortgagor's interest in the property after it has been conveyed to the
mortgagee as a security, and is freely transferable.

In the case of Fairclough v Swan Brewery Co Ltd [1912] AC 565

Equity of redemption means that mortgage cannot be made irredeemable

Issue
On Appeal from the Supreme Court of Western Australia, the question for the Privy Council was whether
the mortgage deed, which precluded early redemption of the mortgage and precluded the appellant from
purchasing beer from any other person during the term of the mortgage, was void as being a clog on the
equity of redemption and in terms of being an unreasonable restraint on trade.

Held
The Privy Council observed the firmly established rule that equity will not permit any term in a mortgage
to prevent or impede redemption of the mortgage. Counsel on behalf of the respondents had admitted that
a mortgage cannot be made irredeemable. In the circumstances, the provision for redemption was
nugatory and the mortgage irredeemable. Therefore, the Privy Council restored the judgment of the First
Instance judge and held that the appellant was entitled to redeem the mortgage and the provisions in the
mortgage deed which prevented the appellant from redeeming were void as being an unreasonable clog
on the appellant’s equity of redemption. After the redemption had been refused by the respondent there
was no breach of the mortgage deed by the appellant.

The basic principle is that a ‘mortgage cannot be made irredeemable’. Equity will not allow any
provisions or devices that allow this to occur. The long established rule is that a mortgagee cannot as part
of the mortgage transaction take an option to purchase the mortgaged property as this would give the
mortgagee ‘the power to extinguish the equity of redemption’.

A mortgagee cannot enter a contract to purchase interest in mortgaged property or stipulate for an option
to purchase, any part of or interest in the mortgaged property. The foundation of the rule is that a contract
to purchase, or an option to purchase, any part of or interest in the mortgaged property, is repugnant to or
inconsistent with the transaction of mortgage of which it forms part, and so must be rejected because it
cannot stand with a contractual clause for redemption or with an equitable right to redeem. The question
is whether an arrangement made after a mortgage had been granted, is “in substance and in fact
subsequent to and independent of the original bargain”.

In clogging the equity of redemption, some lenders attempt to get around the borrower’s equity of
redemption by structuring the transaction as a straightforward transfer of deed or a sale with an option to
repurchase the property for a definite amount within a definite period. In situations where the borrower
executes a deed absolute, the courts will review all of the facts and circumstances of the transaction,
taking into account the factors set out above. Where the evidence indicates that the true object of the
transaction was a mortgage and not a sale, the courts will protect the seller/mortgagor’s equity of
redemption.  This also holds true when there is an option to repurchase by the seller.  Where the seller
conveys title with an option to repurchase, the court will look at the underlying transaction in order to
determine if the conveyance was intended to be a sale or security for a debt.  In particular, equity will not
allow a mortgagee to take advantage of the financial circumstances of the mortgagor by:
 (a) excluding the mortgagor's right to redeem, for example by reserving an option to purchase the
mortgaged property; or
(b) postponing the right to redeem for an unreasonably long time; or
(c) reserving certain benefits ('collateral advantages') to be enjoyed after redemption.

In excluding the mortgagor’s right to redeem, it is whereby the mortgage has a stipulation where if
the mortgagors goes into arrears in his payments, then the house can be retained by the mortgagee
and sold off and any extra money left after deductions are made, are given to the mortgagor.

The objection to a clause postponing the mortgagor's right to redeem is the familiar one — that a
mortgage is merely a security for a loan, and a provision prolonging the security beyond the time when
the mortgagor is ready and willing to repay the loan constitutes a clog on the equity of redemption.
And, in collateral advantages, the mortgagor is able to retain his rights to the property and he is returned
to his original position, and also that there is restraint from trade where the property can’t be traded.
In the case of Kreglinger v New Patagonia Meat & Cold Storage Co Ltd [1914] AC 25
Collateral advantages and clogs on the equity of redemption.
Facts:
The appellants loaned money to the respondent meat company by way of a floating charge over the
company’s assets. One of the terms was that for five years the appellants would have the option of buying
sheepskins from the meat company. The company paid off the loan after only two years. The appellants
sought to exercise their option for the whole five year period.

Issues:
The common law treats a mortgage as a contract and so the right to redeem, or pay off, the loan depends
on the contract terms. However, in equity any unfair burdens imposed on the borrower that continue after
the date of redemption are treated with disfavour as a ‘clog’ on the equity of redemption. The respondents
claimed that the floating charge was the same as a mortgage and that the term amounted to a clog on the
equity of redemption.

Held:
The House of Lords agreed that the doctrine concerning mortgages also applied to floating charges. The
option to buy sheepskins was stipulated to be for five years. The option was not a clog but a collateral
advantage which survived after the mortgage was paid off. It was not part of the charge, but a condition
precedent to lending the money. Lord Parker said that a collateral advantage would be struck down if it
was unfair and unconscionable, a penalty clogging the equity of redemption, or was inconsistent with or
repugnant to the right to redeem. The option did not attach to any property and was a commercial
agreement negotiated at arms’ length by business people. Therefore, the term was upheld.
In summary, courts will not interfere with the transaction unless the evidence so clearly demonstrates that
one of the parties exerted undue influence on the other party and mandated that the loan transaction be
structured in such a manner as to clog the equity of redemption.