Vernon v Bethell

Last updated

Vernon v Bethell
A Plan of the Estate Called Jonas's Situated in the Division of North Sound in the Island of Antigua, the Property of Peter Langford Brooke, Esquire WDL647.png
CourtCourt of Chancery
Citation(1762) 28 ER 838, 2 Eden 110
Keywords
Equity of redemption, necessity

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,

Contents

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.

The case stands for the principle "once a mortgage, always a mortgage", meaning a borrower cannot contract to give up his automatic right to redeem title to his property once the debt is paid. It was a landmark decision in upholding some basic protection at common law for debtors. It also had historic significance in the principle it laid out inspired the Second Bill of Rights, proclaimed by the American President Franklin D. Roosevelt in his 1944 State of the Union Address, to promote basic social and economic rights for all citizens.

Facts

Antigua today. TurnerBeachAntigua.JPG
Antigua today.

Major James Vernon wished to pay off his debts to Mr Bethell’s estate and recover title of a sugar plantation in Antigua where he lived. Vernon had taken out a £278 mortgage on the land, and on 5 March 1729 he assigned the mortgage to Mr Bethell, to whom he sold sugar, and got from him further loans of £5000 to £6000. On 23 April 1738 Bethell requested repayment of sums owed, by then £9541 9s 1d, or the enforcement of the security by taking possession of the land, but still leave some for Major Vernon and his family. [1] On 25 August 1738 Vernon replied that he would convey possession of the land to Bethell for five guineas, and its profits, for release of the debt of £9976 1s 11d. Various other letters and statements by Bethell acknowledged that Vernon should be able to recover title if his debts were paid off. When Bethell died, his will from 19 March 1758 stated that if Vernon ceased with some ‘unjust pretences’ to defeat his title to the land and would accept £6000, then he should be given full title. The price of the land by then had risen significantly, and Vernon sought a declaration that he retained the equity of redemption, that he could get full title to his land back with debts repaid.

Judgment

Lord Henley LC held that there could be no clog on the equity of redemption, so that any restriction on the right to redeem one's property had the debt been discharged was ineffective. He held the exchange of letters between Mr Bethell and Major Vernon showed that only a security interest, and not an absolute conveyance was intended.

The Lord Chancellor, later ennobled as the Earl of Northington. Robert Henley, 1st Earl of Northington by Thomas Hudson.jpg
The Lord Chancellor, later ennobled as the Earl of Northington.

The principal question in this cause is, whether, upon the whole of this transaction, the plaintiff ought to be decreed a redemption of this Antigua estate, or that I should consider Mr. Bethell as the absolute purchaser thereof bona fide, and for his absolute benefit under deed of the 25th of August 1738.

This court, as a court of conscience, is very jealous of persons taking securities for a loan, and converting such securities into purchases. And therefore I take it to be an established rule, that a mortgagee can never provide at the time of making the loan for any event or condition on which the equity of redemption shall be discharged, and the conveyance absolute. And there is great reason and justice in this rule, for 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.

The present case, as it stands on the deed, is not that; but when it is considered with the other proofs, and particularly with the letters and books of Mr. Bethell , it seems to be very much within the mischief which the rule intended to prevent, of making an undue use of the influence of a mortgagee.

The case is this: Mr. Bethell was a West India merchant, and consignee of the produce of Mr. John Vernon's estate, and advancing him from time to time several sums of money, secured by a mortgage of anticipation at an interest of five per cent., with springing redemptions on the several loans. By the year 1738 there appears to be due to the mortgagee near £10,000, upon which Mr. Bethell applies to Mr. Vernon by letter, No. 1, and that is the only intercourse, by writing or otherwise, proved to me, concerning the deed of the 25th of August 1738. For the orders and instructions for the deed were given by Mr. Bethell to Mr. North, who only believes he sent the draft of the release to Mr. Vernon. This letter mentions the largeness of his demands, that it was no longer to be trifled with, and that therefore he must insist on having the possession, not for his own security only, but for preserving something out of the estate which might remain to Mr. Vernon and his family.

I cannot, therefore, believe, that at the time of writing this letter, Mr. Bethell intended to take in propriety and as an absolute purchase for his own benefit. Besides the consideration of the conveyance is only five guineas (which Mr. Bethell intended five shillings), and the alteration of it was Mr. North's. And though Mr. Vernon granted and released the estate, yet Mr. Bethell never released the covenant for the payment of the mortgage-money, or made it part of the consideration. The same account is kept afterwards with this difference only, the one is kept as consignee, the other as consignee and mortgagee in possession.

It was asked, if this deed was not to be an absolute purchase, what was to be the use of it? Answer, a very material one, and which answered the exigency of the letter; the easy and certain method of getting possession. Every body knows the difficulty of getting possession under a mortgage in the West Indies. But there is no difficulty in getting possession on a purchase. It was said, there was no promise of a defeasance. That is not necessary. But here is proved, in writing, a promise that the estate should be only a pledge, and that the deed should be defeasible. (Vide Spurgeon v Collier , 1 Eden, 60.)

As to the £6000, it is given on terms conditional, and must be taken by a compliance with them. Mr. Bethell negatived the plaintiff's right, and offered this as a bonus for him to negative the same. He has pursued that right, and insisted on it; therefore, if he had failed, I should have been of opinion, he could not have resorted to the £6000. (Reg. Lib. B. 1761, fol. 127.) (As to legacies upon condition not to dispute a will, vide Lloyd v Spillet , 3 P. W. 344. Powell v Morgan , 2 Vern. 90, and the cases in the notes.)

Significance

The famous phrase that "necessitous men are not truly speaking free men" was repeated in Franklin D Roosevelt's 1944 State of the Union Address to justify a Second Bill of Rights in the United States, in favour of basic social and economic guarantees.

See also

Notes

  1. “My account is swelled to so enormous an amount, that I must have possession of the Antigua estate, in order to save something for your family.”

Related Research Articles

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.

This aims to be a complete list of the articles on real estate.

<span class="mw-page-title-main">Foreclosure</span> Legal process where a lender recoups an unpaid loan by forcing the borrower to sell the collateral

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 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.

A deed of trust refers to a type of legal instrument which is used to create a security interest in real property and real estate. In a deed of trust, a person who wishes to borrow money conveys legal title in real property to a trustee, who holds the property as security for a loan (debt) from the lender to the borrower. The equitable title remains with the borrower. The borrower is referred to as the trustor, while the lender is referred to as the beneficiary.

<span class="mw-page-title-main">Extinguishment</span> Destruction or nullification of a right or contract

In contract law, extinguishment is the destruction of a right or contract. If the subject of the contract is destroyed, then the contract may be made void. Extinguishment occurs in a variety of contracts, such as land contracts, debts, rents, and right of ways. A right may be extinguished by nullifying that right or, in the case of a debt, discharged by payment in full or through settlement.

Peugh v. Davis, 113 U.S. 542 (1885), was a suit in equity for redeeming unoccupied and unenclosed city lots from a mortgage, continued from a case brought to the high court during the October 1877 term, the question then was whether certain instruments of writing, made by Peugh to Davis constituted an absolute conveyance of lots in the District of Columbia or were in the nature of a mortgage security for loan of money. The court was of opinion that, on all the facts of the case, the latter was the true construction of the transaction between the parties. Respondent defended against complainant's claim to redeem by setting up that the alleged mortgage was an absolute conveyance. This being decided adversely, held that, in accounting as mortgagee in constructive possession, he was not liable for a temporary speculative rise in the value of the tract, which subsequently declined—both during the time of such possession.

Flagg v. Walker, 113 U.S. 659 (1885), regards a case where the deeds for several parcels of land were transferred from Flagg, who was in financial difficulty, to Walker in return for paying off Flagg's debts and profits from the sale against a mortgage for other property owned by Flagg.

Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555 (1935), was a decision by the Supreme Court of the United States that ruled the Frazier–Lemke Farm Bankruptcy Act unconstitutional in violation of the Fifth Amendment. This unanimous decision was one of the Court's many rulings that overturned President Roosevelt's New Deal.

<i>Dillwyn v Llewelyn</i> English law case

Dillwyn v Llewelyn [1862] is an 'English' land, probate and contract law case which established an example of proprietary estoppel at the testator's wish overturning his last Will and Testament; the case concerned land in Wales demonstrating the united jurisdiction of England and Wales.

<span class="mw-page-title-main">English land law</span> Law of real property in England and Wales

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.

<i>Medforth v Blake</i>

Medforth v Blake[1999] EWCA Civ 1482 is a UK insolvency law case concerning the duties of a receiver and manager in the United Kingdom, over and above a duty of good faith, as to the manner in which he conducts a business.

<i>Kreglinger v New Patagonia Meat and Cold Storage Co Ltd</i>

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.

<i>Fairclough v Swan Brewery Co Ltd</i>

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.

Mortgages in English law are a method of raising capital through a loan contract. Typically with a bank, the lender/mortgagee gives money to the borrower/mortgagor, who uses their property/land/home as security that they will repay the debt and any relevant interest. If the mortgagor fails to repay, then the mortgaged property which has been used as security may be subject to various mortgagee remedies allowing them to retrieve the debt. Mortgages are an important part of English land law and property law. These concern, first, the common law, statutory and regulatory rules to protect the mortgagor at the time of concluding the mortgage agreement. Second, English law defines and restricts the process for taking possession of property in the event of default. Third, it places duties on mortgagees on the price it achieves when selling property.

<i>Knightsbridge Estates Trust Ltd v Byrne</i>

Knightsbridge Estates Trust Ltd v Byrne [1940] AC 613 is a UK insolvency law case, concerning the creation of a security interest.

<i>Holroyd v Marshall</i>

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.

<i>Santley v Wilde</i>

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.

<i>British South Africa Company v De Beers Consolidated Mines Ltd</i>

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.