Santley v Wilde [1899] 2 Ch 474 is a decision of the English Court of Appeal in relation to the legal nature of a mortgage, and to what extent a provision in a mortgage may be struck down as a fetter or "clog" on the equity of redemption.[1][2][3][4][5]
The court held on the facts that a provision giving the lender a share of the profits of the operations of the theatre company granting the mortgage was not repugnant to the equity of redemption, and was valid.
Facts
The mortgagor was a woman who held a ten-year lease of a property, and she wished to borrow £2,000 to carry on a theatre. The mortgagee agreed to lend her that sum repayable over a period of five years, plus interest, and in addition he was to receive one-third of the profits of the theatre from the date of the mortgage to the end of the lease (i.e. beyond the date when the mortgage would have been fully repaid).
Court of Appeal
Sir Nathaniel Lindley MR
The lead judgment was given by the Master of the Rolls, Sir Nathaniel Lindley. His decision is remembered as much for the important statements that he made about the nature of a mortgage under English law as for the decision on the issue at hand.
At the outset of his judgment he expressed the view:
‘a mortgage is a conveyance of land or an assignment of chattels as a security for the payment of a debt or the discharge of some other obligation for which it is given. This is the idea of a mortgage: and the security is redeemable on the payment or discharge of such debt or obligation, any provision to the contrary notwithstanding. That, in my opinion, is the law.’
He then expounded:
‘Any provision inserted to prevent redemption on payment or performance of the debt or obligation for which the security was given is what is meant by a clog or fetter on the equity of redemption and is therefore void. It follows from this that "once a mortgage always a mortgage";’
He held that the provision relating to the share of the profits was not a clog upon the equity of the redemption. He felt that, given the limited security a mortgage over a ten-year lease offered, it was a reasonable bargain and did not unduly fetter the right of the mortgagor to redeem. The giving of a share of the profits was not repugnant to the nature of the security.
It is also cited with approval by leading texts, Fisher & Lightwood's Law of Mortgage[1] who described it as 'the classic description of a mortgage', and Cousins on the Law of Mortgages.[2]
Most of the approval of the case relates to the principles that it enunciates. The actual decision on the merits was strongly criticised by Lord Macnaghten and Lord Davey in Noakes v Rice [1902] AC 24. It was criticised by Lord Macnaghten again in Bradley v Carritt[1903] UKHL 1, a case in which Nathaniel Lindley (by then: Lord Lindley) also sat, and which he dissented but also conceded "Santley v Wilde was a difficult case, and it may have been wrongly decided, although I do not think it was."[6] The case was similarly criticised in British South Africa Company v De Beers Consolidated Mines Ltd [1912] AC 52.
Footnotes
1 2 Wayne Clarke (2019). Fisher & Lightwood's Law of Mortgage (15thed.). LexisNexi. paras 1.3 and 1.7. ISBN978-1-4743-1294-3.
1 2 Edward F. Cousins, Ian Clarke QC and Stuart Hornett (2017). Cousins on the Law of Mortgages (4thed.). Sweet & Maxwell. paras 1-01 and 1-05. ISBN978-0-414-03436-5.
Maxims of equity are legal maxims that serve as a set of general principles or rules which are said to govern the way in which equity operates. They tend to illustrate the qualities of equity, in contrast to the common law, as a more flexible, responsive approach to the needs of the individual, inclined to take into account the parties' conduct and worthiness. They were developed by the English Court of Chancery and other courts that administer equity jurisdiction, including the law of trusts. Although the most fundamental and time honored of the maxims, listed on this page, are often referred to on their own as the 'maxims of equity' or 'the equitable maxims', it cannot be said that there is a definitive list of them. Like other kinds of legal maxims or principles, they were originally, and sometimes still are, expressed in Latin.
A mortgage is a legal instrument of the common law which is used to create a security interest in real property held by a lender as a security for a debt, usually a mortgage loan. Hypothec is the corresponding term in civil law jurisdictions, albeit with a wider sense, as it also covers non-possessory lien.
Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.
In finance, a floating charge is a security interest over a fund of changing assets of a company or other legal person. Unlike a fixed charge, which is created over ascertained and definite property, a floating charge is created over property of an ambulatory and shifting nature, such as receivables and stock.
In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property which enables the creditor to have recourse to the property if the debtor defaults in making payment or otherwise performing the secured obligations. One of the most common examples of a security interest is a mortgage: a person borrows money from the bank to buy a house, and they grant a mortgage over the house so that if they default in repaying the loan, the bank can sell the house and apply the proceeds to the outstanding loan.
The equity of redemption refers to the right of a mortgagor to redeem his or her property once the debt secured by the mortgage has been discharged.
Vernon v Bethell (1762) 28 ER 838 is an English property law case, where it was affirmed that there could be no clog on the equity of redemption. In justifying this rule, Lord Henley LC made the famous observation that,
necessitous men are not, truly speaking, free men, but, to answer a present exigency, will submit to any terms that the crafty may impose upon them.
English land law is the law of real property in England and Wales. Because of its heavy historical and social significance, land is usually seen as the most important part of English property law. Ownership of land has its roots in the feudal system established by William the Conqueror after 1066, but is now mostly registered and sold on the real estate market. The modern law's sources derive from the old courts of common law and equity, and legislation such as the Law of Property Act 1925, the Settled Land Act 1925, the Land Charges Act 1972, the Trusts of Land and Appointment of Trustees Act 1996 and the Land Registration Act 2002. At its core, English land law involves the acquisition, content and priority of rights and obligations among people with interests in land. Having a property right in land, as opposed to a contractual or some other personal right, matters because it creates priority over other people's claims, particularly if the land is sold on, the possessor goes insolvent, or when claiming various remedies, like specific performance, in court.
Kreglinger v New Patagonia Meat & Cold Storage Co Ltd[1913] UKHL 1 is an English property law and UK insolvency law case, concerning whether an exclusivity agreement for buying sheepskins, that accompanied a loan, frustrated the borrower's right to pay off and discharge its debt.
Brown v Raindle (1796) 30 ER 998 is an English land law case, concerning co-ownership of land. It confirmed that equity will not, in copyhold land for example, generally allow a widow the right to remain in a property where a mortgage remains in arrears.
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Fairclough v Swan Brewery Co Ltd, is a land law case, in which the Privy Council held that restrictions on the right to redeem a mortgage are void. The equity of redemption means that borrowers are able to sell or obtain new mortgage finance promptly and without impinging on other dependent transactions.
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Knightsbridge Estates Trust Ltd v Byrne [1940] AC 613 is a UK insolvency law case, concerning the creation of a security interest.
Buchler v Talbot[2004] UKHL 9 is a UK insolvency law case, concerning the priority of claims in a liquidation. Under English law at the time the expenses of liquidation took priority over the preferred creditors, and the preferred creditors took priority over the claims of the holder of a floating charge. However, a crystallised floating charge theoretically took priority over the liquidation expenses. Accordingly the courts had to try and reconcile the apparent triangular conflict between priorities.
Cukurova Finance International Ltd & Anor v Alfa Telecom Turkey Ltd[2009] UKPC 19, P.C., [2012] UKPC 20, [2013] UKPC 2, [2013] UKPC 20, [2013] UKPC 25 and [2014] UKPC 15 were a series of judicial decisions of the Judicial Committee of the Privy Council, one of which is a leading case on the remedy of appropriation for security interests that was introduced into United Kingdom law under the Financial Collateral Arrangements (No.2) Regulations 2003, which implemented the Financial Collateral Arrangements Directive. Together with its related appeals on preliminary and subsequent issues, it has defined the scope of the remedy, as well as what equitable relief may be available.
Bank of Montreal v Stuart is a decision of the Judicial Committee of the Privy Council on appeal from the Supreme Court of Canada. It deals with the principle of undue influence in relation to contracts, in the particular context of dealings between spouses. Decided in 1910, the case continues to be cited in the courts in Canada and in England and Wales.
Holroyd v Marshall (1862) 10 HLC 191, 11 ER 999 was a judicial decision of the House of Lords. In that case the House of Lords affirmed that under English law a person could grant a mortgage or other security interest over future property, i.e. property that they did not actually own at the time of granting the charge. Prior to decision, the generally accepted principle under English law was that pursuant to the nemo dat rule it was impossible for a person to convey a security interest in property which they did not own at the time of granting the charge.
A Welsh mortgage is a now-obsolete form of mortgage which could be created under English law. Welsh mortgages were also used in other common law countries, including Ireland and Canada. The main differences between a Welsh mortgage and a conventional mortgage were that:
British South Africa Company v De Beers Consolidated Mines Ltd [1910] 2 Ch 502 is a judicial decision of the English Court of Appeal relating to the conflict of laws, and clogs upon the equity of redemption.
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