Chapter 4Classification and survey of types of business organisationThe problem, therefore, has been resolved by the
Etridge case at the expense of the legal adviser, if that
adviser does not understand or do what Etridgeexpects
of him or her. The cost of advice in this type of trans-
action has, for obvious reasons, risen.Mortgages
Generally
A mortgage is a type of loan. It is special because the
borrower (called the mortgagor) has not just promised
to repay the loan to the lender (called the mortgagee)
but has given him also a charge on his (the borrower’s)
property. If the borrower fails, for example, to repay the
loan, the lender can sell the property and pay himself
from the sale price. Alternatively, if the lender thinks
he can get his money back from the rents, if any, which
the property is producing he can ask the court for the
appointment of a receiver who will collect the rents until
the loan is paid off.
When buying a house, a person often gets a loan in
the form of a mortgage from a bank or building society
and charges the house as security.
Legal mortgages of land
If Alan Brown wishes to borrow money from the Barches-
ter Bank by giving the bank a legal mortgage of his (Alan’s)
private house, he will normally create a charge by way
of legal mortgage over the house. This is done by means
of a short deed stating that a charge on the land is
created.
An example of a suitable deed for Alan Brown to sign
is given in the Law of Property Act 1925. The deed may
be expanded to include other matters which the bor-
rower agrees to do, e.g. to insure the property charged,
but the basic provisions are set out in Fig 4.3. Alan
Brown will then sign the deed and his signature will be
witnessed.
The mortgage deed usually provides that the money
is to be repaid six months after the date of the deed.
However, the borrower is not expected to repay the loan
by this date. It is only put in so that the lender has all
his remedies from that date since he can regard himself
as being owed the principal sum. There is no particular
reason to have six months as the repayment date and
in fact it is not uncommon for mortgage deeds to be
drafted to provide that the mortgage money is due
immediately on the signing of the deed.
The contract of loan (or in some cases the mortgage
itself) will state the time within which the loan must be
repaid, but if the borrower is in breach of that arrange-
ment the charge is fully effective for use by the lender
after six months.
This form of charge could also be used by Alan Brown
to give as security any leases which he had, as where he
was only renting business premises under a 25-year lease
and wished to give a legal mortgage of that lease.83
THIS LEGAL CHARGE, is made the first day of June 2004 between Alan Brown of 14 River Street,
Barchester of the one part and the Barchester Bank of the other part.WHEREAS Alan Brown is seised of the hereditaments hereby charged and described in the Schedule
hereto for an estate in fee simple in possession free from encumbrances;NOW IN CONSIDERATION, of the sum of £100 000 now paid by Barchester Bank to Alan Brown (the
receipt whereof Alan Brown doth hereby acknowledge) this Deed witnesseth as follows;- Alan Brown hereby covenants with Barchester Bank to pay on the first day of December next the sum of
£100 000 with interest thereon at the rate of 10 per cent per annum. - Alan Brown as beneficial owner hereby charges by way of legal mortgage All and Singular the property
mentioned in the Schedule hereto with the payment to Barchester Bank of the principal money and interest
hereby covenanted to be paid by Alan Brown.
Figure 4.3A mortgage deed