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Chap. II. (vi.)

Option of purchase.

especially in Noakes v. Rice (s), where a similar covenant which extended beyond the continuance of the security was held to be invalid.

The case of Santley v. Wilde (t) has been thought to be inconsistent with the above principle, and has been disapproved by the House of Lords (u), but the true view of that case may be that there were there two separate transactions, and that the case if wrongly decided was decided, not on a wrong principle, but upon the wrong application of a sound principle (r).

In an Irish case (y), which has been approved by the House of Lords ("), where a farmer mortgaged his holding, and as part of the mortgage transaction stipulated that he would sell his holding within twelve months, employ the mortgagee as auctioneer at a certain commission, and pay him a like commission if the conduct of the sale was given to anyone else, it was held that the stipulation had no effect after redemption.

In the recent case of Bradley v. Carritt (z), in which the principle seems to have been carried farther than in any other case, the House of Lords (Lord Shand and Lord Lindley dissenting) held that a stipulation in a mortgage of shares that the mortgagor would use his best endeavours to secure that the mortgagee should always thereafter be employed as broker for the company was invalid. It will thus be seen that a collateral stipulation will be invalid not only when it is a clog on the equity of redemption, or on the mortgaged property, but also when it in any way fetters the mortgagor in the free enjoyment of his property.

Another class of cases of collateral advantage which are generally invalid is where the mortgagor agrees, as part of the mortgage transaction, to sell the equity of redemption to the mortgagee, or to give him an option of purchase within a limited period.

Accordingly the mortgagee will not be allowed to enter into a contract with the mortgagor, at the time of the loan, for the absolute purchase of the property for a specific sum in case of default in payment of the mortgage debt at the appointed time (a).

(8) (1902) A. C. 24.

(t) (1899) 2 Ch. 474.

(u) Noakes v. Rice, sup.

(x) Bradley v. Carritt, (1903) A. C.

253, per Lord Lindley.
(y) Browne v. Ryan, sup.

(z) (1903) A. C. 253.

(a) Price v. Perrie, 2 Freem. 258;

So where the mortgagor covenanted that he would, on being required to do so, convey to the mortgagee ground rents, being part of the mortgaged property, of the value of the mortgage debt, at twenty years' purchase, the covenant was held invalid (b).

So a stipulation in a mortgage of debenture stock, that the mortgagee was to have the option to purchase the whole or any part of such stock at 40 per cent. at any time within twelve months, was held void as being a clog on the equity of redemption (c).

Chap. II.

(vi.)

But care must be taken to distinguish between the last- Right of mentioned rule and a case with which it may be confounded, pre-emption. viz., an agreement by the mortgagor, in case of sale, to give the mortgagee a preference of pre-emption, which, if claimed within a reasonable time, will be enforced (d). And although at first view this may seem to be within the objection raised by equity, viz., that of giving the creditor a collateral advantage over and above his principal and interest, yet on closer inspection it will be found clear of the rule. The option of sale is still left with the mortgagor; he may redeem or sell, nor is he tied down to price; all that is stipulated for is, that if he thinks fit to sell, he shall give the mortgagee the refusal (e). Rights of pre-emption, however, are construed strictly (ƒ).

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The rule will not be extended so as to forbid an option of Subsequent purchase given to the mortgagee, not as part of the mortgage agreement for transaction, but by a subsequent and independent transaction (g), equity of redemption nor to an agreement for the purchase of the equity of redemp- valid. tion, entered into bonâ fide and subsequently to a mortgage which was made and concluded without reference to any such agreement, though followed by a subsequent agreement between the parties, that the mortgagor might have the estate on payment of principal, interest, and costs (h); nor will the rule apply to the case of a release of the equity of redemption, with

Willett v. Winnell, 1 Vern. 488; Re Edwards, 11 Ir. Ch. R. 367. See Tasburgh v. Echlin, Bro. P. C. 265.

(b) Jennings v. Ward, 2 Vern. 520. (c) Jarrah Timber, &c. Corp. v. Samuel, (1903) 1 Ch. 1, C. A.

(d) Ory v. Trigg, 9 Mod. 2; Re Edwards, 11 Ir. Ch. R. 367. See Dawson v. Dawson, Sim. 346; Cookson v. Cookson, Sim. 529.

(e) Bowen v. Edwards, 1 Rep. in Ch.

221.

(f) See cases cited supra, n. (d), and Re Edwards, 11 Ir. Eq. R. 367.

(g) Reeve v. Lisle, (1902) A. C. 461. (h) Cotterell v. Purchase, Ca. t. Talb. (Williams) 61. See Waters v. Groom, 11 Cl. & F. 684.

Chap. II. (vi.)

Sale to mortgagee.

Abandonment

a collateral agreement to reconvey on repayment of the purchasemoney (i).

A sale or release to the mortgagee of the equity of redemption will be valid if it is a fair transaction, and if it is subsequent to and independent of the mortgage transaction (). And the same may perhaps be said of a lease from the mortgagor to the mortgagee (1). In neither case will the transaction be void as a collateral advantage, but in both cases it will be invalid if oppressive or unfair.

An agreement for the release of the equity of redemption to of agreement. the mortgagee not acted on for many years was, under the circumstances, treated as abandoned (m). And in one case, where the mortgagee took a conveyance of the equity of redemption, but allowed the mortgagor to continue in possession for a considerable period, it was held that the mortgagor might redeem (n).

Inadequacy of price immaterial.

Executor of mortgagee of

term purchasing fee.

Effect of fraud.

Mere inadequacy of price is no ground for setting aside a purchase of the equity of redemption made by the mortgagee in consideration of the mortgage debt, since when no money is advanced at the time of the agreement, no advantage could be taken of the debtor's distress (o). So where the transaction was fair, though the full value was not given, the agreement was enforced (p).

It may be here incidentally remarked that, if the executor of a mortgagee of a term of years purchases the equity of redemption in fee for a small sum in his own name and for his own benefit, he will be considered a trustee for the benefit of his testator's estate (g).

A sale or release to a mortgagee of the equity of redemption will be supported, unless there is fraud or pressure (). The onus of proving fraud or misrepresentation rests on the party

(i) Ensworth v. Griffith, 15 Vin. Ab.
468, pl. 8; Gossip v. Wright, 9 Jur.
N. S. 592; Lincoln v. Wright, 4 De G.
& J. 16. See also Perry v. Marston, 2
Bro. C. C. 397; Barrell v. Sabine, 1
Vern. 268.

(k) Prees v. Coke, L. R. 6 Ch. 645;
Melbourne Banking Co. v. Brougham,
7 App. Ca. 307; Reeve v. Lisle, sup.;
Keran v. Joyce (1896), 1 Ir. R. 442.
(1) Infra.

(m) Kushbrook v. Lawrence, L. R. 5
Ch. 3.

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seeking to impeach the deed (s). The right to set the release aside may be purchased from the mortgagor or his assignee (s).

Chap. II. (vi.)

mortgagee.

Where there are circumstances of oppression and fraud, a lease Lease by from the mortgagor to the mortgagee would, of course, be set mortgagor to aside (t); and it would seem that such a lease for a long term of years (as 999 years), at a rent no higher than would be reserved on a common occupation lease if the rent were a fair rent, would be set aside even without circumstances of oppression or fraud, on the principle that the parties were not on equal terms, and that such a lease was in effect parting with the inheritance (u); in fact, any lease from a mortgagor to a mortgagee will be looked at with suspicion, especially if the latter obtains any advantage beyond his interest (x). A lease, however, for twenty-one years, at a fair occupation rent, was supported (y); and a lease will not be set aside because the value has changed in the lapse of years (≈). Where a mortgagee took a lease from the mortgagor subsequent to a puisne mortgage, he was treated as mortgagee in possession, but no objection was raised to the lease (a). Leases in nature of a Welsh mortgage stand on a different footing (b).

Restrictions

on mortgagee to prevent

equity of

The Courts, fearful of opening a door to oppression and fraud, have imposed numerous other restrictions on the mortgagee so as to prevent him from clogging the equity of redemption, as, clogging for instance, that he shall not be permitted, as a general rule, redemption. to make any charge by way of bonus or commission in consideration of the advance (c); nor to stipulate for interest at an increased rate on default (d), or for compound interest (e); nor to make any charge for his personal trouble (f); nor appoint himself the receiver (g); for he is entitled to no benefit beyond his principal, interest, and costs, and any increased remuneration for the loan which he has validly stipulated for (h).

The preceding authorities show with what jealousy equity Exception to has looked on every attempt made to counteract or oppose its general rules of equity in interference in behalf of the mortgagor; but its object being to cases of family protect him at a time when his necessities may have placed him arrauge

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ments.

Chap. II. (vi.)

What are defeasible purchases.

at the mercy of the mortgagee, cessante causâ cessat etiam lex; and therefore the general rules of equity before stated will admit of a very considerable exception in cases in which there is evidence of intention in the nature of the transaction that provision was intended to be made by the mortgagor for some branch of his family, or that the mortgage was intended by him in the nature of a family settlement (i). Thus, where the right to redeem was confined to the mortgagor during his life only, but there was an express covenant that the mortgagor might redeem at any time during his life, so that the mortgagee could not have compelled the mortgagor to redeem, and it was proved that the mortgagor had a kindness for the mortgagee, his near relative, and intended him to have the land, and that the restriction of redemption was inserted only for a particular reason, it was held (k) that redemption after the death of the mortgagor must be refused. The like doctrine governed a case () in which a man, by settlement on his marriage, reserved to himself the option of paying a sum of money, or letting the settlement stand (m). In Jason v. Eyre (n) redemption was decreed, although it might have been fairly regarded as coming within the same exception, on the ground of the transaction being intended by way of settlement or family provision; but in that case parol evidence of the mortgagor's intention was rejected, which at the present day would be clearly admissible (o).

vii.-Distinction between Defeasible or Conditional Purchase and Mortgage. With reference to the rule already considered (p), that a mortgagee will not be allowed to obtain for himself an advantage collateral to his security, mortgages must be distinguished from contracts for purchase, subject to a right for the vendor to repurchase within a limited time, or subject to a condition avoiding the conveyance if the vendor pays a specified sum at a fixed date. In such instances the vendors will be strictly kept to their contracts, which are regarded as defeasible or conditional purchases, creating only a right of

(i) Gossip v. Wright, 32 L. J. Ch. 618, a proved 71 L. J. Ch. p. 52, per Cozens-Hardy, L. J.

(k) Bonham v. Newcomb, 1 Vern. 231; reversing Newcomb v. Bonham, 1 Vern. 7.

(1) King v. Bromley, 2 Eq. Ca. Abr.

595.

(m) And see Wolston v. Aston, Hard. 511: Hampton v. Spencer, 2 Veru. 288. (n) 2 Cn. Ca. 33.

(0) Richards v. Syms, 2 Eq. Ca. Abr. 617. See infra, p. 27.

(p) Ante, p. 15.

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