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.
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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.
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.
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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.
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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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