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23 Cards in this Set
- Front
- Back
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Knightsbridge Estates Trust Ltd v Byrne
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court upheld a mortgage term preventing redemption for 40 years from the date of the loan. As the mortgage was an arm’s length commercial bargain, and the borrower had negotiated a favourable rate of interest, the court declined to intervene or find that the right to redeem had been rendered illusory.
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Kreglinger v New Patagonia Meat & Cold Storage Co Ltd
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Collateral advantages are fine as long as they are not:
1) unfair and unconsciounable 2) in the nature of a penalty clogging the euity of redemption 3) inconsistent with or repugnant to the contractual and equitable right to redeem In this case, the collateral advantage was allowed to continue after repayment of the mortgage, on the basis that it was valid as an independent arm’s length transaction "once a mortgage, always a mortgage" (Lord Parker) |
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Cityland & Property Holdings Ltd v Dabrah
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court reduced an unfair and unconscionable mortgage interest rate of 19% (which became, effectively, 38% when the borrower actually went into default) to a more reasonable level of 7%
Goff J emphasised the inequality of bargaining power in this example |
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Multiservice Bookbinding v Marden
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capital and intrest repayments were index-linked to the exchange rate of the Swiss franc; pound depreciated, and repayments rose dramatically - case was about whether index-linking the repayments to the Swiss franc was unconscionable
Key issues: - equality of bargaining power was there - borrowers were represented by independent solicitors of repute - aim of the franc linking was to ensure, for the lender, that the real value of the money was preserved - borrowers could have refused the loan and not becoming insolvent or, as in Cityland, lost their home Argument that together all the terms amounted to unconscionability was not allowed, it was just a hard bargain |
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Royal Bank of Scotland v Etridge (No 2)
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to be filled
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Cuckmere Brick Co Ltd v Mutual Finance Ltd
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to be filled
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Silven Properties Ltd v Royal Bank of Scotland plc
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to be filled
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Mortgagor
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Borrower
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Mortgagee
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Lender
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Protection for the mortgagor
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1) Postponement of redemption
2) Options to purchase 3) Collateral advantages |
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Equity of redemption: common law
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the borrower had to repay the mortgage money to the lender on the exact date specified in the mortgage deed
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Equitable right to redeem
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Allows the borrower to repay the load and redeem the mortgage after the date for redemption has passed
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Equity (general point)
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Equity recognises the borrower as the true owner. The sum total of the borrower’s rights (including, but not limited to, the equitable right to redeem) is known as the ‘equity of redemption’. The financial value of the equity of redemption is the difference between the outstanding balance on the debt and the market value of the property (this is commonly referred to as the borrower’s ‘equity’ in the property).
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Postponement of redemption
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The court will not allow a mortgage term which prevents redemption altogether (Toomes v Conset)
under the equitable rule that there must be no ‘clog or fetter’ on the equity of redemption, equity will strike down a legal date for redemption which is so far in the future as to render the right to redeem illusory : - Fairclough v Swan Brewery Co Ltd: clause in a mortgage of a 17½ year lease was struck down because it postponed the legal date of redemption until six weeks before the lease expired. The almost expired lease would have a minimal value, practically making the mortgage ‘irredeemable’ Contrast: Knightsbridge Estates Trust Ltd v Byrne: court upheld a mortgage term preventing redemption for 40 years from the date of the loan. As the mortgage was an arm’s length commercial bargain, and the borrower had negotiated a favourable rate of interest, the court declined to intervene or find that the right to redeem had been rendered illusory. |
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Option to purchase
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If a mortgage includes an option for the lender to purchase the property, that option may be void for excluding or preventing the borrower from exercising the equitable right to redeem
An option granted at the same time as the mortgage will almost certainly be invalidated (Samuel v Jarrah Timber and Wood Paving Corporation Ltd) but uch an option might be valid if given in a subsequent and independent transaction, as in Reeve v Lisle, where the court upheld a separate option granted 12 days after the mortgage Key is whether the option is part of the mortgage: court must examine the "substance" of the transaction (Warnborough Ltd v Garmite) |
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Brighton & Hove City Council v Audus
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Confirmed Warnborough v Garmite: if a composite transaction includes a mortgage as one of its elements, it is open to the court to find that the transaction’s overall character is different from a mortgage
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When can a collateral advantage be struck down?
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1) it is unconscionable
2) in the nature of a penalty 3) repugnant to the equitable right to redeem |
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Solus tie
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lender, such as a brewery or a petrol company, makes it a condition of the mortgage that the borrower only sells the lender’s products. The courts have generally only upheld these clauses if the tie does not extend beyond the mortgage’s duration. (Noakes v Rice)
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Collateral advantage: public policy
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A collateral tie, even if it is wholly independent, also risks being invalidated on public policy grounds if it is in restraint of trade. In Esso Petroleum Co Ltd v Harpers Garage (Stourport), a 21 year collateral tie was struck down for this reason, but a five year collateral tie was upheld
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Unconscionable terms
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A mortgage term will not be invalidated just because it is a hard bargain and, in determining whether the terms are unfair or unconscionable, an important factor will be the manner in which those terms were imposed.
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Unconscionable definition
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"a bargain cannot be unfair and unconscionable unless one of the parties to it has imposed the objectionable terms in a morally reprehensible manner, that is to say, in a way which affects his conscience" Browne-Wilkinson J
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Penal rate of interest
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The court also has a well established inherent jurisdiction to strike down a penal rate of interest (Holles v Wyse).
This is generally taken to mean an amount which does not relate to a genuine pre-estimate of the losses incurred by the lender as a result of the borrower’s default. FSA Handbook similarly requires that charges for arrears should not be more than a reasonable estimate of the additional administration costs incurred as a result of the borrower’s default. |
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Consumer Credit Legislation
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Covers mortgages which currently fall outside FSA regulation, such as second mortgages and mortgages for other purposes (ie those on a ‘buy-to-let’ basis)
Aimed at protecting those with low credit ratings who find it difficult to obtain finance, and are thus often taken advantage of Falco Finance v Gough -Mr Gough borrowed money secured by a mortgage, whose terms imposed a standard flat annual interest rate of 13.99%, discounted to 8.99%. Under the mortgage terms, this 5% discount was permanently lost if, at any time, the mortgage went into arrears (which it inevitably did). This dual interest rate was held to be an extortionate credit bargain under the Consumer Credit Act (CCA) 1974. It was almost impossible for any borrower to make all payments exactly on time, and the differential between the two rates had no relation to the loss that the finance company would incur as a result of a missed payment |
