CHAPTER XVI.

MORTGAGES.

A MORTGAGE may be defined as a debt secured on property, the legal ownership becoming vested in the creditor, while the equitable ownership remains in the debtor.

What may be Mortgaged.-Speaking generally, all kinds of property may be mortgaged, even an expectant or contingent interest. (Coombe v. Carter, 36 C. D. 348.) There are, however, certain species of property which, on the ground of public policy, cannot be mortgaged, as, for instance, half pay and the profits of an ecclesiastical benefice. Property may, moreover, be made defeasible on alienation or restrained from anticipation, and in either case cannot be mortgaged. And companies can only mortgage when and so far as they have power to do so. to do so. (Ex parte Watson, 21 Q. B. D.

301.)

Equity of Redemption.-Under the old common law a mortgage was simply a conveyance upon condition, and if the condition was not performed the mortgagee's estate became absolute, and the legal right to redeem was lost for ever. Equity, however, regarded the transaction as a mere security, and adjudged that the

breach of the condition should be relieved against, the result being that the mortgagor, though he lost his legal right to redeem, had an equity to redeem on payment within a reasonable time of principal, interest and costs. Here we have a good illustration of the maxim, "Equity regards the spirit and not the letter."

Regarding the spirit and not the letter, and viewing the transaction as a mere security, equity went further and held that the debtor could not, even by the most solemn engagement entered into at the time of the loan, preclude himself from his equitable right to redeem, for it was inequitable that a creditor should, through the necessities of his debtor, obtain a collateral or additional advantage beyond the payment of principal, interest and costs. Hence came to be established the two important principles that "once a mortgage always a mortgage," and that no clog or fetter can be imposed on the mortgagor's right or equity of redemption.

Once a Mortgage, always a Mortgage.-Once a mortgage, always a mortgage, is still a sound legal maxim, and a conveyance, though absolute in form, if intended as a security only, is redeemable. (Barton v. Bank of New South Wales, 15 A. C. 379.) Anything which is comprised in the mortgage must, when the debt is paid or the obligation is discharged, be returned to the mortgagor. It must be returned in its entirety, and no part can be retained by the mortgagee, who, when paid off, has no interest in the premises and no right to interfere with the mortgagor in his enjoyment or user of them. (Rice v. Noakes & Co., (1900) 1 Ch. 213; Salt v. M. Northampton, (1892) A. C. 1.)

Clogging the Equity. The principle that the equity

of redemption cannot be clogged is also still a sound legal principle, though the extension of the principle that the mortgagee can obtain no collateral advantage has been recently somewhat modified. A mortgagee may, provided the bargain is not unconscionable or oppressive, stipulate by the mortgage deed for a collateral advantage to himself; and if he does so there is no presumption that the mortgagor entered into the contract under pressure. (Santley v. Wilde, (1899) 2 Ch. 474.) Thus, a mortgagee of a public-house may stipulate that the loan shall continue for a period of years, and that during the security the mortgagor shall only sell beer supplied by the mortgagee. (Biggs v. Hoddinott, (1898) 2 Ch. 307; Rice v. Noakes & Co., supra.)

Sale with Right of Re-purchase.-Mortgages must be distinguished from sales with a right of re-purchase within a certain time. (Birmingham Canal Co. v. Cartwright, 11 C. D. 421.) Whether the transaction is a mortgage or sale with right of re-purchase depends on the circumstances of each case (Ex parte Odell, 10 C. D. 76); and parol evidence is admissible to show that the transaction was merely a security. (Douglas v. Calverwell, 3 Giff. 251.) The distinction is important, since, if the transaction is a mortgage, the mortgagee has a right to redeem though the time for repayment has expired; but if it is a sale, the time for re-purchase must be exactly observed. (Barrell v. Sabine, 1 Vern. 268.)

Welsh Mortgage.-A Welsh mortgage, which is now very rare, is a mortgage in which there is no condition or covenant for repayment, the main incident of the

security being possession by the mortgagee of the mortgaged property until he has repaid himself out of the rents and profits. The mortgagee cannot foreclose or sue for the debt, but the mortgagor may claim to redeem. (1 Robbins, Mort. 26.)

Mortgagor's Rights.-An equity of redemption is an estate in the land, the person entitled thereto being, in equity, the real owner subject only to the rights of the mortgagee. (Casborne v. Scarfe, 1 Atk. 603.) Formerly at common law the position of the mortgagor as owner was hardly recognised at all, but his position has been much improved by recent legislation. By the Judicature Act, 1873, s. 25 (5), he may now sue in his own name only; and by the Conveyancing Act, 1881, s. 18, he has power to make leases subject to certain restrictions.

Who may Redeem.-The equity of redemption being an estate in the land, all persons entitled to any estate or interest in it are entitled to redeem, such as, an heir, devisee, purchaser, lessee (Tarn v. Turner, 39 C. D. 456), judgment creditor (Bryant v. Bull, 10 C. D. 153), tenant for life, remainderman or other limited owner; but as regards remaindermen and reversioners they cannot redeem against the wish of the tenant for life. (Prout v. Cock, (1896) 2 Ch. 808.) Whether a person is entitled to redeem will be decided by the Court without any offer to redeem. (Nobbs v. Law Reversionary Society, (1896) 2 Ch. 830.)

Everyone who has a right to redeem may redeem any prior incumbrancer on payment of principal, interest and costs, the redeeming party being in turn liable to be redeemed by those below him, and these latter being all

liable to be redeemed by the mortgagor. The practice in an action for foreclosure is to offer to redeem all incumbrancers prior to the plaintiff, and to claim foreclosure against all subsequent incumbrancers. This rule is sometimes expressed by the phrase: "Redeem up, foreclose down."

Keeping alive Charge.-Where a person redeems and extinguishes the charge, the redemption will enure to give the next incumbrancer the priority of the redeemed mortgage. It is important, therefore, in such cases that the prior mortgage should be kept alive for the protection of the person redeeming. This may be done by a declaration to that effect. But apart from any such declaration the charge will not be extinguished if there is no intention to extinguish it, and if it is for the benefit of the person redeeming to keep it alive. (Liquidation Estates Co. v. Willoughby, (1898) A. C. 321; Gifford v. Fitzhardinge, (1899) 2 Ch. 32.)

Increase of Interest.-The right to redeem after the day named for payment is founded on the strong leaning of courts of equity against penalties and forfeitures. For the same reason it was formerly held that a provision for payment of compound interest, if the interest was not punctually paid, was invalid. But this is not so now, at least as regards mortgages of reversionary interests. (Clarkson v. Henderson, 14 C. D. 348.) So a provision for increasing the rate of interest, if not punctually paid, is invalid as being in the nature of a penalty (Fisher, Mort. 866), though the same result may be attained by reserving the higher rate in the first instance with a proviso reducing it on punctual payment. (Union Bank v. Ingram, 16 C. D. 53.) But the fines and penal