Chap. X. § 2 (x). Waiver of thought otherwise, and said that words could not be stronger to express the intent of the parties, that in every instance where the three and a half per cent. was tendered in time, it should be accepted, and decreed accordingly. A trustee is justified in accepting interest at the lower rate, condition by after the higher rate fixed by the mortgage has become payable by the strict terms of the contract (y). trustee. Parol agreement. Presumption of agreement. Mortgagee in possession entitled to interest at the A parol agreement for the reduction of interest secured by a mortgage deed is binding (z). An agreement for the reduction of interest on punctual payment was not presumed, where interest had in fact been for many years received at a lower rate than that reserved by the mortgage deed, against a subsequent tenant for life of the interest, who was not shown to have agreed to take less than interest at the reserved rate (a). A mortgagee in possession through the default of the mortgagor is entitled to the higher rate (b). So also, where the higher rate. mortgagee has entered into possession by arrangement with the mortgagor, though no interest was in arrear at the time of taking possession (c). Covenant for payment of interest at increased rate. Subsequent agreement in But where mortgagees assented to an order for payment out of a fund in Court, and, owing to delay in the completion of the order, the interest was not paid within the time limited for payment at the reduced rate, it was held that the mortgagees must nevertheless accept interest at the reduced rate (d). An exception to the rule that the rate of interest shall not be raised if not punctually paid has been said in an old case to exist, where there is a direct covenant for payment of the increased rate in that event (e). But this decision may be regarded as overruled by the subsequent authorities (ƒ). It would seem, however, that an exception to the rule must be consideration made in case the increased rate of interest does not constitute 49. (y) Booth v. Alington, 3 Jur. N. S. (2) Lord Milton v. Edgworth, 5 Bro. P. C. 313. (a) Gregory v. Pilkington, 8 De G. M. & G. 616. (b) Union Bank of London v. Ingram, 16 Ch. D. 53; Cockburn v. Edwards, 18 Ch. D. 449. (c) Bright v. Campbell, 41 Ch. D. 388. (d) Re Moss, Levy v. Sewill, 31 Ch, D. 90. (e) Marquis of Halifax v. Higgens, 2 Vern. 134. It is stated in Prec. Ch. that the agreement was in a separate deed: see also 15 Vin. Abr. 453; Powell on Mortgages, 963; but it is submitted that this circumstance could make no difference, as the two deeds must be considered as forming one transaction. (f) Burton v. Slattery, 5 Bro. P. C. 233. See also Stanhope v. Manners, 2 Ed, 199, n. Chap. X. part of the original mortgage contract, but is the result of subsequent and independent agreement in consideration of, and § 2 (x). compensation for, forbearance on the part of the mortgagee; in of forbearwhich case, if the compensation be reasonable, the Court will not ance. interfere (g). In a modern case (), such a stipulation was enforced as against a second mortgagee until notice that his interest was in arrear. And payment has been enforced of interest at an increased rate on purchase-money on default of payment of the money on a specified day (i). A stipulation that a commission or bonus shall be paid on default in payment of any instalment of the mortgage debt is not a stipulation to pay a higher rate of interest nor of the nature of a penalty, and will therefore be allowed (). xi. Proviso for Capitalization of Interest.-It was formerly Former rule considered in equity that, as a general rule, provisoes in mort- in equity. gage deeds or collateral agreements, entered into at the time of the loan, for converting interest into principal from time to time as it should become due, were oppressive and unjust, and tended to usury, and, consequently, could not be supported (1). As was remarked by Lord Eldon (m), "There is nothing unfair, or perhaps illegal, in taking a covenant originally, that, if interest is not paid at the end of the year, it shall be converted into principal; but this Court will not permit that, as tending to usury, though it is not usury." of such provisoes at the At the present day it seems to be a very generally received As to validity opinion that, in the absence of fraud or oppression, stipulations entered into at the time of the loan for payment of present day. compound interest would be valid, on the ground that the rule against compound interest depended wholly on its being regarded as contravening the policy, if not the letter, of the usury laws, and that accordingly the repeal of the usury laws in 1854 (n) has virtually abrogated the rule (0). (g) Brown v. Barkam, 1 P. Wms. 652. See Burton v. Slattery, sup. (h) Law v. Glenn, L. R. 2 Ch. 634. (i) Herbert v. Salisbury, &c. Rail. Co., L. R. 2 Eq. 221. (k) Credit Discount Co. v. Glegg, 22 Ch. D. 548. (1) Broadway v. Morecraft, Mosely, 248; Mitford v. Featherstonehaugh, 2 Ves. S. 445; Sir Thomas Meer's Case, (m) Chambers v. Goldwin, 9 Ves. 254, (n) 17 & 18 Vict. c. 90. Chap. X. § 2 (xi). Effect of repeal of the usury laws. The cases cited by text-writers in support of this view do not appear to be absolutely conclusive, and it seems open to question whether a covenant in a mortgage deed, not being a mortgage of a reversionary interest, that interest in arrear should be capitalized by periodical rests, and thenceforth bear interest, might not even now, except under special circumstances, be rejected as being in itself oppressive and in the nature of a penalty, thereby giving a collateral advantage to the mortgagee and clogging the equity of redemption. There is no reported decision which expressly bears on this point. But it has been incidentally stated by several learned judges (p), that the rule of equity against allowing a mortgagee any collateral advantage beyond his principal, interest, and costs, is unimpaired by the repeal of the usury laws. So in a recent case (9), Sir E. Kay, L. J., in the course of his judgment, said that, before the repeal of the usury laws, it was well settled that collateral advantages could not be insisted on by a mortgagee; so that (amongst other things) a stipulation capitalizing interest, turning it into principal, and charging interest upon it, however formally expressed, was not allowed to prevail; and he pointed out that these rules of equity were forced on the mortgagee in exercise of the "paternal jurisdiction" of the Court, thus altering the contract between the mortgagor and mortgagee by disallowing those advantages for which the mortgagee had stipulated. His Lordship then cited and commented as follows on the judgment of Lord Eldon in Chambers v. Goldwin (r) above referred to: "Lord Eldon there, although no doubt one objection he makes to these exactions was that they tend to usury, still does not rest his objection entirely upon that ground. He says, besides, that they are oppressive, and are exactions that a mortgagee is not allowed to make. It is a very interesting question indeed, and one which I certainly do not consider is at present finally settled, how far the abolition of the laws against usury has affected this jurisdiction, or the extent to (p) Broad v. Selfe, 9 Jur. N. S. 885; Barrett v. Hartley, L. R. 2 Eq. 789, 795; James v. Kerr, 40 Ch. D. 449, 460; Field v. Hopkins, 44 Ch. D. 524, 530. See Croft v. Graham, 2 De G. J. & S. 155, 161; Earl of Aylesford v. Morris, L. R. 8 Ch. 484. (9) Mainland v. Upjohn, 41 Ch. D. 126, 136, 138. (r) 9 Ves. 254, 271. See also Sir Thomas Meer's Case, cit. in Cas. t. Talb. (Williams) 40; Le Grange v. Hamilton, 2 H. Bl. 144; Barnard v. Young, 17 Ves. 47; Leith v. Irvine, 1 My. & K. 284; Blackburn v. Warwick, 2 Y. & C. Ex. 92. which the Court will exercise its jurisdiction, as between mort- Chap. X. gagor and mortgagee." § 2 (xi). The interesting question referred to by Lord Justice Kay has to some extent been answered by the judgments in the case of Bradley v. Carritt (s), from which it clearly appears that the jurisdiction has been affected by the repeal of the usury laws, and that the Court will no longer relieve against a stipulation merely on the ground of its tending to usury, unless it is otherwise oppressive, or a clog on the equity of redemption. It is difficult to distinguish on principle a stipulation capitalizing interest from a covenant to pay a higher rate of interest on default of punctual payment, which latter covenants have, as we have seen (t), been hitherto invariably relieved against as clogging the equity of redemption. But it may be that there is no longer any objection either to such a stipulation or to such a covenant, and both would seem to fall within the principle laid down in Bradley v. Carritt, that a stipulation, if not oppressive, will be valid, provided it comes to an end when the mortgage is paid off. Henderson. In one case, which has been much relied upon as affirming Clarkson v. the general validity of covenants for compound interest, certain persons, entitled to interests in funds in Court subject to a prior life interest, executed a mortgage of such reversionary interests, which contained a covenant, expressed in general terms, to the effect that all interest which should accrue due during the continuance of the security, in case the same should not be paid within twenty-one days from the same becoming due, should be capitalized and bear interest, and also a proviso that the mortgagee should forbear payment of any principal or interest until the expiration of three years from the date of the mortgage; the reversion having fallen into possession, upon petition an inquiry was directed to ascertain the amount due on the mortgage, and on the question being adjourned into Court it was held that the covenant for compound interest was good (u). this decision. This decision does not appear altogether satisfactory or Remarks on conclusive. Something may possibly have turned in that case upon the fact that it was a mortgage of a reversion (x); but it is (t) Ante, p. 137. 8) (1903) A. C. 253. (u) Clarkson v. Henderson, 14 Ch. D. 348. (x) Per Kay, J., in Mainland v. Upjohn, 41 Ch. D. 126, at p. 143. And see inf. Chap. X. § 2 (xi). Distinction where capitalization is limited in point of time and in consideration of forbearance. Mortgages of reversions. to be remarked that the covenant did not limit the capitalization of interest to the period of three years or to the continuance of the prior particular estate; also that the learned Vice-Chancellor who decided the case did not give any grounds for his decision, so that it does not seem quite clear how far the principle of the decision extends. It will be observed that, in this case, the mortgagors obtained an important advantage by the provision that the mortgagee should not be entitled to call for payment of principal or interest for three years, during which time his remedies as mortgagee were suspended; and it seems fair and reasonable that, in such a case, the mortgagee should be allowed to stipulate for payment of interest which he is precluded from enjoying or rendering productive as it accrues due. But his Honour went further than this, and apparently allowed capitalization of interest up to the falling in of the reversion, thus giving to the mortgagee an advantage which was more than correlative to the restriction imposed upon him. The terms of the mortgage deed extended to the capitalization of all arrears of interest whenever accruing due during the continuance of the security, but it does not appear from the report whether any interest had fallen into. arrear since the falling in of the reversion. It is obvious that there is an important distinction between allowing a mortgagee to capitalize interest during a term certain or determinable upon the happening of a certain event in consideration of his forbearance to require payment during that term, and allowing him to clog the equity of redemption without any corresponding advantage to the mortgagor by imposing upon the latter what, as is submitted, is in effect a penalty by way of compound interest, whenever interest may fall into arrear during the continuance of the security. And there appears to be no reported case which clearly affirms the validity of a stipulation to the latter effect. Mortgages of reversionary interests often contain covenants for capitalization of interest during the prior life interest, or for payment on the determination of such interest of an aggregate sum calculated on the footing of capitalization of interest, and its addition to the principal originally advanced, and also covenants for payment of simple interest thereafter, at a specified rate on the aggregate sum, with a corresponding proviso that the mortgagee shall not require payment of principal or interest pending the falling in of the reversion. Even |