Mortgages 2019

Dr.
Asya Ostroukh, The University of the West Indies, Cave Hill Campus
Real Property II: Mortages

 Mortgage is “a conveyance of land ... as security for the payment of a debt or the
discharge of some other obligation” (Santley v Wilde (1899)).
 The purpose of a mortgage or charge is to provide a lender of money with security for
the debt. If the borrower fails to repay the debt, the lender can use the property to
recover the sum lent and any interest payable, which is achieved by the lender taking
the property and selling it.
 Terminology
THE PERSON WHO NEEDS MONEY BANK, BUILDING SOCIETY,

ISURANCE COMPANY, etc
BORROWER LENDER (bank, etc.)
Mortgagor Mortgagee
 The creditor (the 'mortgagee') obtains rights over the property of the debtor (the
'mortgagor'), which are exercisable in priority to the claims of the debtor's general
(unsecured) creditors.
 ‘A charge is the appropriation of real or personal property for the discharge of a
debt or other obligation. The chargee is not vested with property in the subject
matter of the charge and does not have possession of the property, but he is
entitled to realise his security in almost the same way as a mortgagee’ (Kodilinye).
 Types of mortgages (charges)
› Legal and equitable;
› Relating to freehold or leasehold .
 If a legal estate or interest can be the subject of a legal or an equitable mortgage,
an equitable interest can only be the subject of an equitable mortgage.
FORM
➢ Legal Mortgages (Kodilinye)
➢ Unregistered land: a mortgage is created by a conveyance of the mortgagor's
fee simple estate to the mortgagee subject to a condition that, upon redemption,
the property should be reconveyed to the mortgagor.
➢ Registered land: by execution of a memorandum of mortgage or charge in the
prescribed form, which must be lodged for registration in the Land Registry.
FORM
➢ Equitable mortgages (Kodilinye)
➢ By deposit of title deeds (duplicate certificate of title to registered land)
with a bank/other institution;
➢ Under the Walsh v Lonsdale principle (an agreement to grant a legal
mortgage).
➢ If the mortgagor has only an equitable interest in property, by assignment
of the interest to the mortgagee.
Rights of the mortgagor
➢ Right to redeem
➢ At law;
➢ In equity.
➢ The equity of redemption
➢ No clogs on the equity of redemption
➢Excluding the right to redeem
➢Postponement of redemption
➢Freehold cases;
➢Leasehold cases;
➢Collateral advantages for the mortgagee
➢Restraint of trade.
➢ Right to redeem
➢ At law
➢The mortgagor has to redeem (to repay the loan plus interest and recover his property) on a
fixed date (as fixed by the mortgage contract).
➢ The mortgagor has, at law, a right to redeem on that date only.
➢The legal rules do not allow him to insist on redeeming the mortgage either before or after
the contractual date (Kreglinger v New Patagonia Meat & Cold Storage Co. Ltd (1914)).
➢ At common law, if he did not pay on the contractual date, the mortgagor at one time
forfeited the land to the mortgagee and could still be sued in contract for the repayment of
the debt.
➢ The legal right to redeem was, and is, very limited.
➢ Right to redeem
➢ In equity
➢Since the purpose of the agreement was merely to provide the mortgagee
with security for the loan, as long as the advance and any interest was paid,
the mortgagee should not be able to object to redemption.
➢Originally in cases of fraud only, but later a general right to redeem in all
cases was recognised (Salt v Marquess of Northampton (1892)) .
➢Equity allows the mortgagor to redeem even after the date fixed by the
mortgage agreement for repayment has passed.
➢ Right to redeem
➢ In equity
➢Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd (2013):
“…the equitable right to redeem does not arise until the contractual redemption date
has passed ... So, under a normal form of mortgage, a mortgagor had two rights to
redeem: a legal right only exercisable on the contractually stipulated date, and an
equitable right exercisable at any time after the contractually stipulated date.”
➢ Since this right is enforceable in equity only, it is subject to the general principle
that equitable remedies are discretionary in nature and all the equitable maxims
apply.
➢In deciding whether redemption is possible, equity will look at the substance of the
agreement, not its form (Darby v Read (1675)).
➢ Right to redeem
➢ Installment mortgages
➢The modern mortgage provides for repayment by instalments over a number
of years, but usually contains a proviso that if the mortgagor defaults on the
payment of one instalment the whole sum will become due.
➢In law, the mortgagor will then have to redeem the mortgage or lose his
property for ever, but equity will moderate the rigour of this.
➢ The equity of redemption is the mortgagor's equitable interest in the property,
consisting of the sum of the mortgagor's rights in relation to the land (including
the right to redeem) after the mortgage has been created.
➢ The equity of redemption is an interest in land (Pawlett v Attorney-General
(1667)) that represents the value of mortgagor’s interest in the property after it has
been conveyed to the mortgagee as a security.
➢Equity will not tolerate any arrangement which either prevents or deters the mortgagor
from exercising his right to redeem.
➢Any burdens imposed on the mortgaged property that may continue after the
redemption are generally disregarded (the mortgage should provide security only).
➢Any provision in a mortgage which would operate to prevent the mortgagor from
redeeming will be disregarded by equity and will be void ((Toomes v Conset (1745)).
➢Samuel v Jarrah Timber & Wood Paving Co. Ltd (1904):
➢“Once a mortgage always a mortgage” (i.e. the agreement could not covertly
become something greater).
➢“…no contract between a mortgagor and a mortgagee made at the time of the
mortgage and as part of the mortgage transaction, or, in other words, as one of the
terms of the loan, can be valid if it prevents the mortgagor from getting back his
property on paying off what is due on his security. Any bargain which has that effect
is invalid, and is inconsistent with the transaction being a mortgage.”
➢ Granting the option in a separate document might avoid the rule, but
only if the option was granted some time after the mortgage (Reeve v
Lisle (1902)).
➢ “Equity seeks to protect a borrower who finds himself in financial
straits and consequently loses his bargaining power” (Kodilinye).
➢Any provision in a mortgage that attempts to postpone redemption to such an
extent that the right to redeem becomes illusory may be rendered void.
➢ The equitable right to redeem arises only once the contractual date for
redemption has passed.
➢“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” (Kodilinye).
➢Freehold cases
➢Knightsbridge Estates Trust Ltd v Byrne: a clause postponing redemption is valid,
if: (a) the mortgage as a whole is not so oppressive and unconscionable that equity
would not enforce it; and b) it does not render the equitable right to redeem
illusory.
➢The company would recover an estate of equivalent worth when it redeemed the
mortgage (“equity is concerned to see two things - one, that the essential
requirements of a mortgage transaction are observed, and the other, that
oppressive and unconscionable terms are not enforced”).
➢Leasehold cases
➢Postponement of the date of redemption is more serious in a mortgage of leasehold
property, because a lease is inherently of finite duration.
➢Fairclough v Swan Brewery Co. Ltd (1912): had the postponement been valid, the
mortgagor would, on redemption, have recovered an estate which was nearly
valueless and very different in character from the property mortgaged.
➢ Postponement of the contractual date for redemption is more objectionable in
leasehold, even where the mortgage is a commercial bargain made between
businessmen.
➢Common in certain types of commercial mortgage
➢If they are not unconscionable or contrary to competition law, they are valid whilst
the mortgage continues (Biggs v Hoddinott (1898)).
➢They will not normally endure once the mortgage is redeemed, for otherwise the
mortgagor would recover an estate encumbered in a way the estate mortgaged was
not (Bradley v Carritt (1903)).
➢An advantage will not, however, invariably end once the mortgage is redeemed
(Kreglinger v New Patagonia Meat & Cold Storage Co. Ltd (1914)).
➢An advantage will not, however, invariably end once the mortgage is redeemed
(Kreglinger v New Patagonia Meat & Cold Storage Co. Ltd (1914)).
“The question is…not whether the two contracts were made at the same moment and evidenced
by the same instrument, but whether they were in substance a single and undivided contract or
two distinct contracts ... if your Lordships arrive at the conclusion that the agreement for an
option to purchase the respondent's sheepskins was not in substance a fetter on the exercise of
their right to redeem, but was a preliminary and separable condition of the loan, the decided
cases cease to present any great difficulty.”
➢Collateral advantages may also be held to be invalid, even during the continuance of
the mortgage, if they are unconscionable or oppressive (Cityland & Property
(Holdngs) Ltd v Dabrah (1968)).
➢ It is not sufficient to show that the terms are unreasonable even if they are
extremely advantageous to the mortgagee. The agreement must be “unfair and
unconscionable” and imposed by the mortgagee “in a morally reprehensible manner,
that is to say, in a way which affects his conscience” (Multiservice Bookbinding Ltd
v Marden (1979)).
➢Restraint of trade (Kodilinye)
➢Any stipulation in a contract that imposes an unreasonable restriction on the freedom
of a person to engage in trade or to pursue a profession will be prima facie void.
➢The onus is on the mortgagee to show that the restraint is reasonable: (a) as between
the parties; and (b) in the public interest.
➢Esso Petroleum Co Ltd v Harper's Garage Ltd (1968): during the mortgage, the
mortgagors would sell only fuel supplied by Esso. The solus agreement was void as
being in restraint of trade.
Rights of mortgagor in possession
➢ Right to the rents and profits;

➢ Right to sue for trespass or any wrong done to the land;
➢ Right to grant valid leases.
Rights/Remedies of mortgagee (Kodilinye)
➢ Right to sue on the personal covenant;

➢ Right to enter into possession of the property;
➢ Right to appoint a receiver;
➢ Right to sell the mortgaged property;
➢ Right to foreclose the mortgage.
These remedies are both concurrent and cumulative.
Exception: foreclosure, once made absolute, extinguishes the other remedies.
Rights of mortgagee
➢ Right to sue on the personal covenant

➢ “As soon as the date stipulated for repayment (including the date
for payment of an instalment) has passed, the mortgagee may

sue on the covenant to recover the principal sum and any arrears
of interest” (Kodilinye).
Rights of mortgagee
➢ Right to enter into possession
➢ A legal mortgagee has a right to take possession of the mortgaged property “before the
ink is dry on the mortgage” = from the moment that the mortgage is created (Four
Maids Ltd v Dudley Marshall (Properties) Ltd (1957)), unless they have contracted
themselves out of that right.
➢ The right of the mortgagee to possession has nothing to do with default of the
mortgagor.
➢ This right may well be restricted by a term in the mortgage deed that possession will
not be taken whilst the mortgagor makes regular payments (Birmingham Citizens
Permanent Building Society v Caunt (1962)).
Rights of mortgagee
➢ Normally a mortgagee will not take possession of the mortgaged property
except for exercising their statutory power of sale after a default by the
mortgagor.
➢ It is necessary to exercise this right so that the mortgagee can sell the
property with vacant possession.
➢ Courts have a very limited discretion to refuse a possession order and
only if it is just and equitable to do so (Birmingham Citizens' Permanent
Building Society v Caunt (1962); Bank of Nova Scotia v Morrison
(1995)).
Rights of mortgagee
➢ Equity requires a mortgagee in possession to account strictly not only for what it has
actually received from the property, but also for what it ought to have received by
better management (White v City of London Brewery Co (1889)).
➢ A mortgagee who takes possession is not obliged to look after chattels left on the
premises (Davis v Finco Corp (Bahamas) Ltd (1998)).
Rights of mortgagee
➢ Right to appoint a receiver
➢ A statutory right to appoint a receiver of the property if the mortgage was made by
deed.
➢ A receiver is a person who is appointed to take charge of the mortgaged land and
either manage it (in order to produce an income to repay the debt) or sell it.
➢ The appointment must be made in writing.
➢ The receiver is the agent of the mortgagor, so the mortgagor is responsible for his
acts and omissions.
➢ The receiver may use any rents and profits from the mortgaged property to pay off
the arrears of interest payments.
Rights of mortgagee
➢ Power of sale (Kodilinye)
➢ The mortgagee has power to sell the mortgaged property, provided that
the mortgage is made by deed.
➢ The statutory power enables the mortgagee to vest the fee
simple/leasehold that belonged to the mortgagor in a purchaser.
➢ The power arises as soon as the date fixed for repayment has passed or as
soon as an installment is due and unpaid.
Rights of mortgagee
➢ Power of sale (Kodilinye)
➢ The power becomes exercisable only when:
➢Notice requiring repayment of the mortgage money has been served on the
mortgagor and there is a default in payment for three months after the notice;
➢Some interest under the mortgage is two months or more in arrears;
➢There has been a breach of some statutory provisions or obligations in the mortgage
deed other than the covenant for payment of the mortgage money or interest (e.g. to
repair).
➢ Derrick v Trinidad Asphalt Holdings Ltd (1979): the statutory restrictions
governing exercise of the power of sale may be negated or varied by the mortgage
deed.
Rights of mortgagee
➢ Power of sale
➢ Mode of sale: by public auction or by private contract.
➢ Effect of sale:
➢ Once the contract for sale is made, the mortgagor's equity of redemption is
extinguished and the conveyance passes the mortgagor's legal estate to the
purchaser (Edelweiss Chalets Condominium Association v Davis (1998);
Bloomfield v National Development Foundation of Jamaica (2004)).
➢The rights of subsequent mortgagees are extinguished, but not the rights of
prior mortgagees.
Rights of mortgagee
➢ Power of sale
➢ Protection of purchaser:
➢A purchaser needs to inquire whether the power of sale has arisen, but he
need not inquire into whether it has become exercisable or it has been
properly exercised.
➢But if the purchaser “becomes aware ... of any facts showing that the power
of sale is not exercisable, or that there is some impropriety in the sale, then ...
he gets no good title on taking the conveyance” (no fraudulent use of statutes
is allowed, Bailey v Barnes (1894); Waring (Lord) v London and Manchester
Assurance Co Ltd (1935)).
Rights of mortgagee
➢ Power of sale
➢ Application of proceeds of sale (Kodilinye)
➢Mortgagee must apply the proceeds of sale in the following order:
➢All expenses incidental to the sale;
➢The principal, interest and costs due under the mortgage;
➢The balance goes to the next subsequent mortgagee;
➢If no subsequent mortgagee, to the mortgagor.
Rights of mortgagee
➢ Power of sale
➢ The duty of the selling mortgagee
➢ The statutory provisions do not expressly impose any specific ethical
standard or code of conduct on the selling mortgagee.
➢ It has been left to the courts to supply principles governing the duties of the
mortagee in his exercise of the power of sale.
➢Is the selling mortgagee a trustee for the mortgagor?
➢Although a selling mortgagee becomes a trustee of the proceeds of sale, she is
not a trustee for the mortgagor in respect of the power of sale itself.
➢ The power of sale is given to the mortgagee for her own benefit, to enable her to
better realise her debt.
Rights of mortgagee
➢ Power of sale
➢Cuckmere Brick Co Ltd v Mutual Finance Ltd (1971), the selling mortgagee must
“pay some regard to the interests of the mortgagor when he comes to exercise the
power”.
➢ The motives of the mortgagee are not entirely irrelevant.
➢The mortgagee’s exercise of his power of sale is improper if his purpose is in no
way connected with the recovery of the debt secured by the mortgage (Quennell v
Maltby (1979)).
➢The good faith requires that a desire to recover the mortgage money must be at
least some part of his motivation.
➢But “purity of purpose” is not an essential characteristic and the exercise of his
power of sale is not necessarily invalidated by its absence.
Rights of mortgagee
➢ Power of sale
➢In exercising his power of sale, the mortgagee is entitled to give first, but not
exclusive, consideration to his own interests.
➢Palk v Mortgage Services Funding plc (1993): “common law and equity alike have
set bounds to the extent to which he can look after himself and ignore the mortgagors
interests”; the mortgagee is plainly entitled to protect his own interest, but he is “not
entitled to conduct himself in a way which unfairly prejudices the mortgagor”.
Rights of mortgagee
➢ Power of sale
➢ In recent times the courts have so raised the standard of conduct expected of the
selling mortgagee that it may now be realistic to say, even in the face of the
conventional rejection of trustee status, that the mortgagee's duty to his mortgagor
has become “analogous to a fiduciary duty”. To assert nowadays that the mortgagee
can never be a trustee of his power of sale is “probably [to] overstate the law”
(Yarrangah Pty Ltd v National Australia Bank Ltd (1999)).
Rights of mortgagee
➢ Power of sale
➢General duty of the selling mortgagee
➢The proper balance between the interests of the mortgagor and the mortgagee is
debatable;
➢ A sale at undervalue would inflict grave prejudice on the mortgagor because it
does not produce the effective value of his equity of redemption.
➢The conduct of the selling mortgagee is judged with reference to two criteria:
subjective and objective. The mortgagee must always act in good faith (1); he
must also discharge a duty of reasonable care towards the mortgagor (2).
➢The mortgagor has a valid ground for complaint if either of the two is not met.
Rights of mortgagee
➢ Power of sale
➢Subjective criterion of good faith
➢The mortgagee should not deal “willfully and recklessly...with the property in
such a manner that the interests of the mortgagor are sacrificed” (Kennedy v De
Trafford (1897)).
➢ Good faith is a “duty to act honestly and without a reckless disregard of the
interests of the mortgagor” (Cuckmere Brick Co Ltd v Mutual Finance Ltd
(1971); San Fernando Medical Centre Ltd v Republic Finance and Merchant
Bank Ltd (1995)).
Rights of mortgagee
➢ Power of sale
➢ It used to be thought that the mortgagee’s only obligation to the mortgagor was
simply “not to cheat him” (Cuckmere Brick Co Ltd v Mutual Finance Ltd (1971))
and the court would not interfere “even though the sale be very
disadvantageous”, unless the sale price was “so low as in itself to be evidence of
fraud” or there was evidence of “corruption or collusion with the purchaser”
(Warner v Jacob (1882)).
Rights of mortgagee
➢ Power of sale
➢ Caribbean cases
➢Seepersad v Colonial Life Insurance Co (Trinidad) Ltd (1990)
➢The debt collector promised the mortgagor not to sell the property if he pays
the arrears, but broke her promise. No evidence that there was any bad faith in
that case. The mortgagor could only have the property re-conveyed to him on
payment of principal, interest and costs.
➢If the mortgagee exercises his power without corruption or collusion with the
purchaser, the court ought not to interfere.
Rights of mortgagee: Power of sale: The duty of the selling mortgagee
General duty of the selling mortgagee
➢ Subjective criterion of good faith
➢ Caribbean cases
➢Alpras Investments Ltd v National Commercial Bank of Trinidad and Tobago Ltd
(1992). During the time when the summons was pending before the court, the
mortgagees sold the property, without providing the mortgagor with any account
or statement as to the amount owing to the mortgagees bad faith was established.
➢“a mortgagee who intends to exercise his powers of entry and sale must do so in
good faith. And while he is, in general, entitled to exercise such powers in a way
conducive to his best interest…he must act in good faith and not capriciously.
Furthermore, while to him it may be commercially necessary to sell the
mortgaged property primarily for his own benefit to recover the money lent, he is
not entitled to ignore the interests of the mortgagor with impunity.”
Rights of mortgagee
➢ Power of sale
➢ Objective criterion of reasonable behaviour
➢Older cases: the mortgagee must “behave... as a reasonable man would behave in
the realisation of his own property, so that the mortgagor may receive credit for
the fair value of the property sold” (McHugh v Union Bank of Canada (1913);
Falkner v Equitable Reversionary Society (1858); Marriott v Anchor
Reversionary Co Ltd (1860)).
➢Recent cases: the mortgagee “must take reasonable care to maximise his return
from the property take steps to preserve its value” (Palk v Mortgage Services
Funding plc (1993); Sterne v Victoria & Grey Trust Co (1985)).
Rights of mortgagee: Power of sale
➢ Fusion of subjective and objective criteria
➢Now the conduct of the selling mortgagee involves a fusion of subjective and
objective elements, and requires that the mortgagee should practise not only good
faith but also reasonable diligence (Cuckmere Brick Co Ltd v Mutual Finance
Ltd: “the mortgagee owes both duties”).
➢The subjective requirement of good faith relates usually to the avoidance of
conflicts of interest which may lead the court to set aside improperly transacted
sales.
➢The objective requirement of reasonable care generates a mere monetary liability
for the financial loss caused by the mortgagee’s carelessness.
➢ Mortgagee’s duty of objectively reasonable care
➢A mortgagee is a trustee of the proceeds of sale, but he is not a trustee of the
power of sale itself.
➢If at the time he wishes to sell the property the market is depressed, he is not
obliged to wait for a rise in market prices (Island Life Insurance Co Ltd v
Mangertz (2006)).
➢He is not obliged to put the property in a better state of repair in order to obtain a
higher price; nor to attempt to sell by auction before selling by private contract.
➢ Mortgagee’s duty of objectively reasonable care
➢Cuckmere Brick Co Ltd v Mutual Finance Ltd:
➢The property had the benefit of planning permissions and the adverts failed to
mention that there was planning permission.
➢The mortgagor asked for the sale to be delayed and better details advertised but
the mortgagees went ahead with the sale.
➢When exercising the power of sale the mortgagee was not merely under a duty to
act in good faith but also to take reasonable care to obtain whatever was the true
market value of the mortgaged property.
Cuckmere Brick Co Ltd v Mutual Finance Ltd:
“It is well settled that a mortgagee is not a trustee of the power of sale for the mortgagor.
Once the power has accrued, the mortgagee is entitled to exercise it for his own purposes
whenever he chooses to do so. It matters not that the moment may be unpropitious and that,
by waiting, a higher price could be obtained. He has the right to realise his security by turning
it into money when he likes. Nor, in my view, is there anything to prevent a mortgagee from
accepting the best bid he can get at an auction, even though the auction is badly attended and
the bidding exceptionally low. Provided none of those adverse factors is due to any fault of
the mortgagee, he can do as he likes. If the mortgagee's interests, as he sees them, conflict
with those of the mortgagor, the mortgagee can give preference to his own interests, which of
course he could not do were he a trustee of the power of sale for the mortgagor.”
Cuckmere Brick Co Ltd v Mutual Finance Ltd:
“It is impossible to pretend that the state of the authorities on this branch of the law is entirely
satisfactory. There are some dicta which suggest that, unless a mortgagee acts in bad faith, he
is safe. His only obligation to the mortgagor is not to cheat him. There are other dicta which
suggest that, in addition to the duty of acting in good faith, the mortgagee is under a duty to
take reasonable care to obtain whatever is the true market value of the mortgaged property at
the moment he chooses to sell it. The proposition that the mortgagee owes both duties, in my
judgment, represents the true view of the law... I accordingly conclude, both on principle and
authority, that a mortgagee in exercising his power of sale does owe a duty to take reasonable
precautions to obtain the true market value of the mortgaged property at the date on which he
decides to sell it.”
Dreckett v Rapid Vulcanizing Co Ltd (1988): applied Cuckmere Brick Co Ltd v Mutual
Finance Ltd.
➢ The mortgagor claimed that the respondent had been negligent in failing to ascertain the
current market value of the property at the time of the sale, and in failing to fix a reserve
price at the auction.
➢ The court held that the appellant had failed to show negligence on the part of the
respondent.
➢ “The instant case was conducted on the basis that the Cuckmere case should be adopted
and followed by the courts in Jamaica, and if there was any doubt on the matter I think it
should be received and followed by the courts of Jamaica.”
Adams v Workers Trust and Merchant Bank Ltd (1992):
➢ The mortgagee, having made an unsuccessful attempt to sell by public auction, sold the
property by private treaty.
➢ The mortgagee had obtained a valuation of the property, but took no steps to advertise
before selling.
➢ The mortgagee had rejected a higher offer, in the erroneous belief that it was contractually
bound to sell to the buyer.
➢ The court decided that “by advertising, the property could have been exposed to
prospective purchasers in the open market”;
➢ Because the mortgagee failed to advertise and rejected a higher offer, it had fallen short of
the standard of the duty of care owed to the mortgagor.
Paradise Manor Ltd v Bank of Nova Scotia (1985) :
➢ The mortgagee bank had advertised extensively and sought (without success) to interest
potential buyers in acquiring the site. The site was ultimately sold by private treaty after a
long time.
➢ The mortgagee bank had made every reasonable effort and had taken all of the necessary
steps to obtain a sale of the property and “took reasonable precautions to obtain the best
price reasonably obtainable at the time of the sale”.
International Trust and Merchant Bank Ltd v Gardiner (2004): in the case of a sale by
private treaty, the following pre-conditions had to be satisfied:
➢ A current market valuation of the property;
➢ A proper advertisement of the property;
➢ A sale of the property at the market value of the property or the best price reasonably
obtainable.
Daley v RBTT Bank Jamaica Ltd (2007)
➢ The absence of a current valuation in a sale by private treaty means that the bank
did not take reasonable precautions to obtain the true market value of the property.
Bank of Nova Scotia (Jamaica) Ltd v Rosegreen (2008)

➢ A valuation obtained two years prior to the sale is not current, but the bank had
acted in good faith and the sale price was only slightly below the forced sale price.
Rights of mortgagee
➢ Power of sale
➢ Mortgagee’s duty of subjective good faith
➢A sale by a mortgagee must be genuine.
➢ A 'sale' by the mortgagee to himself is not a true sale and may be set aside, even
though the price offered is the full value of the property.
➢A sale to a company in which the mortgagee is a shareholder will not necessarily
be set aside, but where the company is managed and controlled by the
mortgagee, the 'sale' may be set aside as a sham, especially where it is at a gross
undervalue.
➢The onus is on the mortgagee to show that the sale was bona fide and that he
took precautions to obtain the best price reasonably obtainable.
Rights of mortgagee
➢ Foreclosure
➢ Traditional remedy infrequently used now.
➢ A right to bring an action in court to extinguish the equitable right to redeem and to
acquire the legal and equitable title to the property, freed from the equity of redemption.
➢ Foreclosure cannot be sought before the contractual obligation to repay has been
broken (Williams v Morgan (1906)).
➢ If the property is worth more than the debt, the mortgagee is not liable to pay the
balance in value to the mortgagor.
➢ On hearing an application for foreclosure, the court will give the mortgagor a period in
which he can redeem the mortgage and will allow later mortgagees the chance to
protect their security by redeeming the prior mortgage.
Rights of mortgagee
➢ Foreclosure
➢ The mortgagor the right to ask for an order for sale instead of foreclosure (Trinidad and
Tobago; The Bahamas; Jamaica; (Barbados)).
➢ The court has a statutory power to order a sale instead of a foreclosure at the request of
any person interested (a later mortgagee or the mortgagor).
➢ The balance must be returned to the mortgagor, or paid to anyone else entitled, such as
later mortgagees.
➢ Sale may be appropriate in any case in which it produces a better financial result for the
mortgagor (Palk v Mortgage Services Funding plc (1993)).
➢ Even once a foreclosure order has been made the court may reopen the whole situation
and allow the mortgagor to redeem the property after all. (Campbell v Holyland
(1877)).
Rights of mortgagee
➢ Foreclosure
➢ Courts are reluctant to reopen foreclosure if the mortgagee had already sold the property to
someone else.
➢ A foreclosure action can be brought by any mortgagee, whether he is a first or
subsequent mortgagee or an assignee of an original mortgagee.
➢ A foreclosure order forecloses all subsequent mortgagees, but leaves intact the rights of
prior mortgagees.
➢ The court may give any subsequent mortgagees, who must be made parties to the
foreclosure action, an opportunity to redeem by paying the amount due to the
foreclosing mortgagee.
Rights of mortgagee
➢ Remedies in equitable mortgages
➢ An equitable mortgagee may not be in the same strong position
as legal mortgagee.
➢Very often an equitable mortgagee may obtain the same remedy
as a legal mortgagee, but only by a court order, while the legal
mortgagee may use some remedies without applying to the court.
➢Remedies given by the court to an equitable mortgagee are
always discretionary and subject to the rules of the equitable
jurisdiction.
Rights of mortgagee
➢ The Right to sue. The equitable mortgagee's right to sue for the money due is the same
as for a legal mortgagee.
➢ Foreclosure. Requires a court order in any event and being an equitable remedy applies
to equitable mortgages just as to legal ones.
➢ Possession. The right of an equitable mortgagee to possession is debatable.
➢ The equitable mortgagee has no such right (Barclays Bank Ltd v Bird (1954)).
➢ The equitable mortgagee does have such right (Ex parte Bignold (1834) ; Megarry and
Wade).
➢An equitable mortgagee may certainly obtain posssession on an order from the court
(Barclays Bank Ltd v Bird).
Rights of mortgagee
➢ Sale
➢The statutory power of sale applies only to mortgages made by deed.
➢If an equitable mortgage created without deed the mortgagee may still apply to the
court for an order for sale.
➢ The right of an equitable mortgagee to convey the legal estate to the purchaser is
debatable because he has only an equitable interest in the property (nemo dat quod
non habet, ReHodson and Howes's Contract (1887), but Re White Rose Cottage
(1965) expressed the view that there was no reason why the equitable mortgagee
should not be able to convey the legal estate.
Rights of mortgagee
➢ Sale (Kodilinye)
➢To avoid difficulties it has become usual to include in the deed a declaration of
trust or grant of a power of attorney that confer a separate power of sale.
➢insertion of an irrevocable power of attorney in the memorandum,
empowering the mortgagee or his assigns to convey the legal estate; or
➢insertion of a declaration of trust, whereby the mortgagor declares that he
holds the legal estate upon trust for the mortgagee, and empowering the
mortgagee to appoint someone, including himself, as trustee in place of the
mortgagor.
Rights of mortgagee
➢ Appointing a receiver
➢The statutory power to appoint a receiver applies only to equitable mortgages which
are made by deed (Imperial Life Assurance Co of Canada v M & P Investments Ltd
(1999)).
➢ Any equitable mortgagee may apply to the court for the appointment of a receiver.
➢ Disadvantages of equitable mortgages
➢ A mortgagee who accepts an equitable mortgage not made by deed may find the
remedies available to him less satisfactory than those of a legal mortgagee.
➢ To some extent these disadvantages may be overcome by the use of a deed.
➢ Maybe it is easier to create a legal mortgage (using a deed) to avoid all the problems.

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Dr.

Real Property II: Mortages

THE PERSON WHO NEEDS MONEY BANK, BUILDING SOCIETY,

➢ Right to the rents and profits;

➢ Right to sue on the personal covenant;

➢ Right to sue on the personal covenant

for payment of an instalment) has passed, the mortgagee may

Bank of Nova Scotia (Jamaica) Ltd v Rosegreen (2008)

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