CHAPTER X. Effect of repeal of the usury laws. usury laws, and that accordingly the repeal of the usury laws in 1854 (k) has virtually abrogated the rule (1). 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 (m), 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 (n), 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 (0) 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 (k) 17 & 18 Vict. c. 90. (1) See Dav. Conv. Vol. II. pt. ii. pp. 360, n.; Coote on Mortgages (5th ed.), Vol. II., p. 945; Seton, 1609. (m) 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. A. 484. (n) Mainland v. Upjohn, 41 Ch. D. 126, 136, 138. (0) 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. 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 which the Court will exercise its jurisdiction, as between mortgagor and mortgagee.' It seems indeed somewhat difficult to distinguish upon principle provisions that, if any interest shall fall into arrear, it shall forthwith be capitalized and thenceforth bear interest, from covenants by the mortgagor to pay interest at a higher rate, if not paid within a specified time after it has accrued due; which latter covenants have, as has been seen (p), been invariably regarded as imposing a penalty on the mortgagor, which will be relieved against as clogging the equity of redemption. CHAPTER X. 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 (2). 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 (); but it is 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 prin(p) Ante, p. 129. (9) Clarkson v. Henderson, 14 Ch. D. 348. (r) Per Kay, J., in Mainland v. Upjohn, 41 Ch. D. 126, at p. 143. And see inf. CHAPTER X. cipal 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. Distinction talization is limited in point of time and in consideration of forbearance. It is obvious that there is an important distinction between where capi 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 reversions. 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 before the repeal of the usury laws an exception to the general rule against compound interest appears to have been allowed in favour of mortgages of reversions. So in an old case it was held that a reservation of interest on interest in the mortgage deed during the prior life estate was not contrary to the usury laws, and ought to be supported in equity, as otherwise the mortgagee might be a great loser (s). And arrangements of (8) Howard v. Harris, 1 Vern. 190, 194. this nature have been allowed to pass without question when CHAPTER X. instruments embodying them have been brought before the Court (t). Where a mortgage of a reversionary interest contained a Proof in covenant for capitalization of interest during the life of the bankruptcy for capitalized tenant for life, and the mortgagor became bankrupt before the interest. reversion fell in, it was held that the mortgagee was not entitled to prove in the bankruptcy for so much of the aggregate sum as represented capitalized interest accrued due after the adjudication (u). bill of sale. A covenant or provision for the capitalization of interest will Avoidance of render void a bill of sale of chattels as being not in accordance with the form prescribed by the Bills of Sale Act, 1882 (x). not to call in xii.—Provisions as to Postponement of Right to call in Prin- Covenant, &c. cipal-Instalments.-Mortgage deeds sometimes contain a cove- principal. nant or proviso that the mortgagee will not call in the mortgage money before a fixed date, or before the happening of a specified event, as for instance, the death of a named person. Where a covenant to this effect is inserted in a mortgage deed, the forbearance is, according to the usual practice, made conditional upon the regular and punctual payment of the interest, unless capitalized, and upon the performance and observance by the mortgagor of the covenants and obligations on his part contained in or implied by the mortgage. The security in these cases is usually so framed as to make Form of the whole debt payable at an appointed, and not distant, date, such cases. security in with a proviso explaining the real intent of the parties for payment by instalments, or at a distant day if the payment is punctual (y). An unqualified agreement that the mortgagee will not call Effect of in the debt during the life of the mortgagor is binding, though proviso. the interest falls in arrear (z); but in settling such an agreement, the Court will insert a condition that the interest shall have been punctually paid, and, if leasehold, that the covenants have been performed (a). A proviso that the principal shall not be called in for a certain Proviso (t) Re Fane, Exp. Hope, W. N. (1888) 231; Salt v. Marquis of Northampton, (1892) A. C. 1. (u) Re Fane, Exp. Hope, sup. (x) Davis v. Burton, 11 Q. B. D. 537, C. A.; Myers v. Elliott, 16 Q. B. D. 526, C. A. And see post, p. 232. (y) Dav. Conv. Vol. II. pt. ii. p. 49; (z) Burrowes v. Molloy, 2 J. & L. 521. postponing redemption. CHAPTER X. period, or shall be payable by instalments, is generally accompanied by a corresponding covenant by the mortgagor that he will not compel receipt of the principal before the expiration of the period or the date when the last instalment becomes payable, and such a covenant is binding on the mortgagor (b). Condition strictly enforced. Giving time after default no waiver. Sale in bankruptcy before period for payment. But even in the absence of such a covenant by the mortgagor, the Court will not allow him to redeem before the day appointed for payment of the money has arrived (c): provided that the period fixed for calling in the money is not so excessive as to render the correlative postponement of the mortgagor's right to redeem oppressive to him, as where the principal was made repayable in twenty years (d). Where a second mortgage contains a covenant not to call in the principal for a fixed period, the second mortgagee will be precluded, until the expiration of that period, from redeeming the first mortgage and getting in the legal estate (e). There is no equitable relief under a proviso not to call in a mortgage debt on punctual payment of interest, if such payment falls into arrear even for a few days only (f). If, after default, interest is tendered and accepted, the mortgagee does not thereby waive his right to call in the principal (g). The case of Langridge v. Payne (h) has been erroneously supposed (i) to lay down a rule that if a mortgagee, on default in payment of interest, demands and receives payment of the interest due together with his costs, this will amount to a waiver of his right to call in the principal before the fixed time; but the judgment in that case, as reported, lays down no rule of the kind, but was clearly a mere determination of the balance of convenience until the hearing of the action brought by the mortgagee for possession of the mortgaged property (k). If the mortgagor becomes bankrupt, the mortgagee may obtain an order for sale, though the period for calling in the principal has not arrived, under a stipulation of this nature (1). (b) Re Hone, Ir. R. Eq. 65. (e) Ramsbottom v. Wallace, 5 L. J. (f) Hicks V. Gardner, 1 Jur. 541. See Roddy v. Williams, 3 J. & L. 1. (g) Keene v. Biscoe, 8 Ch. D. 201. See Williams v. Sterne, 5 Q. B. D. 409, C. A. (h) 2 J. & H. 423. (i) Coote on Mortgages (5th ed.), Vol. I. p. 246. (k) See Re Taafe, 14 Ir. Ch. R. 347; Keene v. Biscoe, 8 Ch. D. at p. 203. (1) Exp. Bignold, 3 Deac. 151. |