Mortgage Problem Question
We are asked to advise the Mortgagor (T) if each and every term in the mortgage
agreement is binding on him or will be struck off as VOID based on the facts of this
case. We must also assess if the Mortgagee (RDB) will be able to take possession
and sell the mortgaged property, as well as how the sale proceeds would be
distributed.
A mortgage of land is the conveyance or transfer of an interest in land as security
for the payment of a debt or the discharge of some obligation. Mortgage is both a
contract between lender(Red Dragon Bank) and borrower(Theo) and it amounts to
the grant of a proprietary right by the mortgagor (T) to the mortgagee (RDB) ,
both parties may have rights in contract and rights in property.
On the facts, T granted RDB a forty-year legal mortgage over the property.
Whatever the contract says, a borrower (T) under a legal mortgage always retains
paramount legal title to the estate they are mortgaging.
Equity’s determination to ensure there were ‘no clogs or fetters on the equitable
right to redeem’ was the means by which it gave substance to the equity of
redemption and turned, what formerly comprised a transfer of title, into what, in
substance, was limited to security for a debt; requiring the mortgage to be
repayable and the security preserved so that it could be returned in the same
state it was when given.
, (a)
i. Does the first mortgage agreement amount to Oppressive and unconscionable
terms as interest rate is variable? We can argue that as this is between a small
farm and a bank, and the fact that T borrowed 95% of the purchase price from
the Red Dragon Bank which RDB in return has the discretion to increase the
monthly interest rate may constitute an unequal bargaining position as per Jones
v Morgan. Thus, RDB had taken advantage of Theo (exploited the mortgagor.
Does this shock the conscious of the court?
Cityland Holdings v Dabrah, Mortgagee exploited his dominant bargaining
position by imposing a term in a “morally reprehensible manner”. Collateral
advantages may also be held to be invalid even during the continuance of the
mortgage if they are unconscionable or oppressive
Is it grossly exorbitant? T may want to rely on statutory protections under
Consumer Credit Act 1974@ by CCA 2006 which aims to protect borrowers with
low credit rating.
Applying Falco Finance v Gough , we can argue that RDB’s discretion to increase
the monthly interest rate ‘for any reason whatsoever, and at any time
throughout the term of the mortgage was contrary to the requirement of good
faith, taking into account T’s weak bargaining position. It was held in Paragon
Finance v Nash that a lender’s discretion to vary interest rates was subject to an
implied term not to exercise that discretion for an improper purpose, arbitrarily or
capriciously and the rates charged are not grossly exorbitant.
However as this is a commercial mortgage and T is also a businessman, thus not
inexperienced as per Carrington v Smith . The courts appear reluctant to
intervene in commercial agreements as the parties have equal bargaining power.
We are asked to advise the Mortgagor (T) if each and every term in the mortgage
agreement is binding on him or will be struck off as VOID based on the facts of this
case. We must also assess if the Mortgagee (RDB) will be able to take possession
and sell the mortgaged property, as well as how the sale proceeds would be
distributed.
A mortgage of land is the conveyance or transfer of an interest in land as security
for the payment of a debt or the discharge of some obligation. Mortgage is both a
contract between lender(Red Dragon Bank) and borrower(Theo) and it amounts to
the grant of a proprietary right by the mortgagor (T) to the mortgagee (RDB) ,
both parties may have rights in contract and rights in property.
On the facts, T granted RDB a forty-year legal mortgage over the property.
Whatever the contract says, a borrower (T) under a legal mortgage always retains
paramount legal title to the estate they are mortgaging.
Equity’s determination to ensure there were ‘no clogs or fetters on the equitable
right to redeem’ was the means by which it gave substance to the equity of
redemption and turned, what formerly comprised a transfer of title, into what, in
substance, was limited to security for a debt; requiring the mortgage to be
repayable and the security preserved so that it could be returned in the same
state it was when given.
, (a)
i. Does the first mortgage agreement amount to Oppressive and unconscionable
terms as interest rate is variable? We can argue that as this is between a small
farm and a bank, and the fact that T borrowed 95% of the purchase price from
the Red Dragon Bank which RDB in return has the discretion to increase the
monthly interest rate may constitute an unequal bargaining position as per Jones
v Morgan. Thus, RDB had taken advantage of Theo (exploited the mortgagor.
Does this shock the conscious of the court?
Cityland Holdings v Dabrah, Mortgagee exploited his dominant bargaining
position by imposing a term in a “morally reprehensible manner”. Collateral
advantages may also be held to be invalid even during the continuance of the
mortgage if they are unconscionable or oppressive
Is it grossly exorbitant? T may want to rely on statutory protections under
Consumer Credit Act 1974@ by CCA 2006 which aims to protect borrowers with
low credit rating.
Applying Falco Finance v Gough , we can argue that RDB’s discretion to increase
the monthly interest rate ‘for any reason whatsoever, and at any time
throughout the term of the mortgage was contrary to the requirement of good
faith, taking into account T’s weak bargaining position. It was held in Paragon
Finance v Nash that a lender’s discretion to vary interest rates was subject to an
implied term not to exercise that discretion for an improper purpose, arbitrarily or
capriciously and the rates charged are not grossly exorbitant.
However as this is a commercial mortgage and T is also a businessman, thus not
inexperienced as per Carrington v Smith . The courts appear reluctant to
intervene in commercial agreements as the parties have equal bargaining power.
