The claimant appealed against an order refusing him enforcement an agreement for the purchase of a one half share in a property. The judge had found the agreement to be unconscionable.
Held: The appeal was dismissed. The judge had wrongly attributed to the claimant an understanding of the amendments to the standard document for which there had been no evidence given. The doctrine that a mortgagee could not extract, under his charge, any collateral contract to purchase or stipulate for an option to purchase, any part of an interest in the mortgaged property, survived in English law but, that doctrine, against allowing anything to act as a clog on the equity of redemption, no longer serves a useful purpose in English law, and would be better if excised.
As to the former rule against a clog on the equity of a redemption, Chadwick LJ summarised the principles: ‘ (i) there is a rule that a mortgagee cannot as a term of the mortgage enter into a contract to purchase, or stipulate for an option to purchase, any part of or interest in the mortgaged property; (ii) the foundation of the rule is that a contract to purchase, or an option to purchase, any part of or interest in the mortgaged property, is repugnant to or inconsistent with the transaction of mortgage of which it forms part, and so must be rejected; (iii) the reason why the contract or option to purchase is repugnant to or inconsistent with the mortgage transaction is that it cannot stand with the contractual proviso for redemption or with the equitable right to redeem – the proviso for redemption (and, where the contractual date for redemption is past, the equitable right to redeem) requires the mortgagee to reconvey the mortgaged property to the mortgagor in the state in which it had been conveyed to him at the time of the mortgage; and (iv) it is essential, in any case to which the rule is said to apply, to consider whether or not the transaction is, in substance, a transaction of mortgage.’
Lord Phillips MR said: ‘the doctrine of a clog on the equity of redemption is, so it seems to me, an appendix to our law which no longer serves a useful purpose and would be better excised.’
Judges:
Lord Phillips of Worth Matravers MR, Pill LJ, Chadwick LJ
Citations:
Times 24-Jul-2001, [2001] EWCA Civ 995, (2001) 82 P and CR DG20, [2001] NPC 104, [2001] Lloyds Rep Bank 323, [2002] 1 EGLR 125
Links:
Jurisdiction:
England and Wales
Citing:
Cited – Pao On and Others v Lau Yiu Long and Others PC 9-Apr-1979
(Hong Kong) The board was asked whether a contract of guarantee had been obtained by duress.
Held: Lord Scarman said: ‘Duress, whatever form it takes, is a coercion of the will so as to vitiate consent. Their Lordships agree with the . .
Cited – Universe Tankships Inc of Monrovia v International Transport Workers Federation HL 1-Apr-1981
A ship belonging to the appellants had been blacked by the defendant union. Negotiations to clear the threat resulted in payment by the appellants to a welfare fund of the defendant. The company sought its refund saying that it had been paid under . .
Cited – G and C Kreglinger v The New Patagonian Meat and Cold Storage Company HL 20-Nov-1913
Mortgagor’s collateral dvantage is not a clog
The appellant woolbrokers had lent the respondent andpound;10,000 with a floating charge over its undertaking. The loan agreement provided that, for five years, the appellants would have first refusal over all sheepskins sold by the company. The . .
Cited – Credit Lyonnais Bank Nederland Nv v Burch CA 20-Jun-1996
The defendant had charged her property to secure her employer’s debt. When the bank sought repossession, she said that the charge had been affected by the undue influence and that the terms of the charge were so harsh and inconscionable that a court . .
Cited – CTN Cash and Carry v Gallaher CA 15-Feb-1993
The buyer paid a sum demanded by the seller who threatened otherwise to withdraw the credit facilities it provided to the buyer. The sum was not in fact due, but the demand had been made honestly. The buyer said the agreement was voidable for . .
Cited – Alec Lobb (Garages) Ltd v Total Oil Ltd QBD 1983
To establish that a contract was unconscionable, a party had to have made an unconscientious use of its superior position or superior bargaining power to the detriment of someone suffering from some special disability or disadvantage. This weakness . .
Cited – Noakes and Co Ltd v Rice HL 17-Dec-1901
Rule Against Clog on equity of Redemption
A mortgage of a leasehold public house contained a covenant with the mortgagee, a brewery, that the mortgagor and his successors in title would not, during the continuance of the leasehold term and whether or not any money should be owing on the . .
Cited – Reeve v Lisle and others CA 1902
The parties had entered into a series of agreements for loans, and partnerships. The defendants resisted a request by the plaintiff to be allowed, under the agreement, into partnership on a failure to repay the loan.
Held: The appeal . .
Cited – Reeve v Lisle and others HL 1902
In 1896 the plaintiffs agreed to lend andpound;5,000 to the defendant to be secured by a ship mortgage (executed later), requiring that if at any time during the period of two years the plaintiffs should elect to enter into partnership with the . .
Cited – Bradley v Carritt HL 11-May-1903
Shares in a tea company had been mortgaged to secure a loan from a broker on terms that the mortgagor would seek to ensure that the mortgagee should thereafter have sale of the company’s teas. The mortgage contained a covenant that, if the company . .
Lists of cited by and citing cases may be incomplete.
Land, Equity, Contract, Banking
Updated: 25 May 2022; Ref: scu.136162
