Equitable mortgages of land
An equitable mortgage can arise where the lender and
borrower do not follow the procedures set out in the
section above. Where a customer wanted an overdraft
from his bank, he could formerly just leave the title deeds
of his house with the bank. This created an equitable
mortgage. However, the law relating to equitable mort-
gages and charges has been changed by United Bank
of Kuwait plc vSahib and others(1995). The bank had
obtained a charging order against the debtor’s interest in
his jointly owned home in Hampstead, London. Before
the charging order was made an organisation called
SoGenAl had made a loan to the debtor who orally
agreed to hold his title deeds in the property to the order
of SoGenAl. The court was asked whether there was
an equitable charge or mortgage in favour of SoGenAl
which took priority over the interest of the bank. The
answer was no because the old rule that a mere deposit
or oral agreement about title deeds created for the pur-
pose of securing a debt operated, without more, as an
equitable mortgage or charge had not survived s 2 of the
Law of Property (Miscellaneous Provisions) Act 1989.
This section requires that ‘A contract for the sale or other
disposition of an interest in land can only be made in
writing and only by incorporating all the terms which
the parties have expressly agreed in one document,
or where contracts are exchanged in each.’ (Emphasis
is added.) Therefore, such a written document must
accompany the deposit of title deeds. (See further, Chap-
ter 7 .)
The position of the lender is not so strong where the
mortgage is equitable. The lender cannot sell the prop-
erty but must first apply to the court for an order for sale
or if he thinks he can get his money back from the rents,
if any, which the property is producing he can ask the
court for an order appointing a receiver.
It is worth noting briefly at this point that when
considering the words ‘writing’, ‘signature’ and ‘deed’
the passing of the Electronic Communications Act 2000
should be borne in mind. Section 7, which is already
in force, allows electronic signatures to be adduced and
acceptable as evidence of a signature. However, delegated
legislation is required to make changes in legislation
such as the Law of Property (Miscellaneous Provisions)
Act 1989 to eliminate ‘paper’ requirements. The writing
and signature requirements of the Act will come to cover
electronic methods.
The borrower’s right of redemptionLawyers call this the ‘equity of redemption’ and, as we
have seen, the mortgage deed provides when the money
is to be repaid. It is usual to say ‘after six months’ in
order that the lender’s range of remedies is available
after that period. Originally, at common law, the land
used as a security became the property of the lender as
soon as the date for repayment had passed unless the
loan had been repaid by then, even if only a small amount
was still owed. However, equity allowed and still allows
the borrower the right to redeem the land and free it
from its position as a security even though the contrac-
tual date for repayment has passed and even though it
has not yet arrived.
If a person wants to repay a mortgage early, he will
normally have to give notice, say, of six months, that he
intends to do this or be prepared to pay interest for, say,
six months ahead after he has repaid the loan, so that the
lender can find another investment.
Thus, if A repays his loan on 30 June (ahead of time),
he will probably, according to the agreement, have given
notice not later than 31 December in the previous year.
If not, he will, according to the agreement, pay off the
capital plus the interest due to date on 30 June but also
interest until 31 December next.
A mortgage is also subject to the rule of restraint of
trade (see Chapter 7). It may also sometimes happen
that a mortgage may prevent repayment for a reasonable
time as regards the rule as to equity of redemption and
yet redemption may be allowed before that time because
while the mortgage term lasts unreasonable restrictions
are placed on the freedom of a person to pursue his
trade or profession.
Thus, in Esso Petroleum Co Ltd vHarper’s Garage
(Stourport) Ltd (1967) (see also Chapter 7) an agree-
ment not to repay a mortgage on a garage for 21 years
was probably not an unreasonable time in terms of the
equity of redemption rule. However, during that time
the garage owner had to sell only Esso fuels. It was decided
that the restraint on fuel sales was unreasonable and that
the mortgage could be repaid earlier, leaving the owner
of the garage free to sell other fuels.
A further right of the borrower on repayment of
the loan is that on redemption the property must be
returned to him free of any conditions which applied
while the loan was unpaid and the mortgage was in ex-
istence. Restrictions applicable before redemption arePart 2Business organisations