OVERVIEW OF MORTGAGES

THE EQUITY OF REDEMPTION

The Rule: Every mortgage has an equity of redemption that arises at the point of contract. This equity translates to a right of redemption at the redemption date and B
(borrower) continues to enjoy it even after that date, subject only to that right being extinguished by (1) foreclosure or (2) sale.
The equity of redemption is a proprietary interest, hence although the B has surrendered title to the L, he still is a proprietor.

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Equity of rdmpt Penalty for Date or rdmpt Option to
purchase Foreclosure Duties of L when selling
early rdmpt

Clogs on the equity doctrine a mtgage differs from a sale bec. there always is an equity of redemption. Locus classicus = Samuel v. Jarrah Timber: any mtgage tt seeks to do
away w the equity of rdmpt cannot be a mtgage hence, that clause will be struck. In tt case, an option to purchase was struck down although the HL acknowledged it was a
perfectly fair bargain.
The clogs on the equity doctrine differentiates a mtgage from other ordinary contracts bec. in contract law, the court almost never invalidates a contract purely on the
substance of the contract.
Modern view = Cts would not just strike clause in absence of some unfairness bec. it is acknowledged tt Bs are no longer unsophisticated and oppressed, but in fact shop on
the mkt for good mtgages.

Option to purchase clauses Late date of redemption Solus Agreements Consolidation

After the right to redeem has arisen, the L Instead of fettering Bs right to redeem after the date of rdmpt, L may Esso This is one way
takes away tt right by exercising his option to simply make the date of redemption very late. Petroleum v. to limit Bs ability
purchase. The test is one of degree can set any date so long as equity of rdmpt Harper to redeem early
Even in the early days, cts were abit wary of not illusory or valueless (Fairclough) Garage such but does not
this doctrine (note perfectly fair bargain line Modern view = test in Fairclough too wide bec. a long date of rdmpt not clauses are breach the clogs
in Jarrah Timber) exactly valueless B enjoys lower r/i and L usually sets it lower in restraint of on equity
While not denying this doctrine, Cts tried to exchange for a long-term investment. trade clauses doctrine.
wriggle their way out by creating this myth of Knightsbridge 40 year mtgage B sought to get out in a falling. mkt for prima facie If B borrows from
the collateral contract such tt the option is r/i upheld bec. parties were of equal bargaining power. unenforceable L for 2 separate
not part of the mtgage (Kreglinger) Multiservice v. Marden even w an extreme provision of a currency unless mtgages, L
Clearer shift in judicial attitude clause would pegging mechanism + date of rdmpt postponed by 10 yrs it was still reasonable. compels B to
not be struck in the absence of upheld bec. both parties were corporate entities with ample legal advice. *Advantage = redeem both at
unconscionability (Citicorp Investment Ct can strike the same time.
[SGCA]) Penalty for early rdmpt
 o Dicta by Yong CJ. tt Cts shd be slow to Normally a mtgage w late redemption date is coupled with a penalty for this clause Effect: B cannot
intervene when businessmen have dealt early rdmpt. down for redeem unless he
at arms length, even if these involve Generally enforceable if (i) there is equal bargaining power and (ii) it is a unreasonable has enough
innovative financing schemes. reasonable pre-estimate of cost to L (similar to law on LD clauses) ness, instead capital to redeem
Fiscal Consultants early rdmpt penalty = pay full interest rate for of the higher both.
Evaluation (Sgp and Eng very different!) length of mtgage upheld. bar of S.21 CLPA
Clog on the equity doctrine not done away Hong Leong Finance v. Tan Gin Huay two old ladies + 18% late unconscionabili disallows this
with in England (recent case: Jones v. redemption interest unequal bargaining power + out of all proportion ty. practice, but
Morgan was one whr cl was struck in the with the greatest loss tt could conceivably be proved struck down even Collateral parties can
absence of unconscionability). though the high rate was industry practice. contract sort contract out of it,
But Sgp has moved away from such a There is case law tt suggests tt high r/i may be struck down even though of analysis less as they often do.
restricted view and unconscionability is the it is not late interest but ordinary interest (Cityland and Property preferred
more deciding factor. (Holdings) Ltd v Dabrah) but in tt case the principal sum was small + it nowadays
was well secured. use ROT angle
instead.

MORTGAGORS (B) RIGHTS

Lease (s.23 CLPA) Right of redemption hasnt

Only available to B in
possession.
Can only grant a lease for
max 3 years.
o Option to extend does
not flout the rule (Bank
of China v Lee Kee
Poh)
Parties can contract out of
this power.
arisen Assignment (s. 19)
Someone else steps into the shoes of B
Only arises when a mortgagor is entitled
Bec. B has a
proprietary Late payment (s. 22)
interest Only if B sues in
If B pays at any other time than the date of rdmpt, must give 3
a rdmpt action
mth notice to L.
Court-ordered sale (s. 30(1))

Power to inspect deeds as the ct thinks fit Ct generally must be satisfied tt proceeds
(s.20) sufficient to repay L
Mortgage away his equity of
rdmpt Exception: Palk v Mortgage Services

MORTGAGEES (L) RIGHTS

Foreclosure Enter into possession Appoint Receiver Exercising power of sale
Source s. 76 LTA s.75 LTA S. 24 } CLPA Extra-judicial sale (ie. private sale) Court-ordered sale
S. 29 } s.24 CLPA S 30(2) CLPA
Mtgage must be deeded or registered (by way
of s69(1))
Otherwise it will only be available if the mtgage
 expressly provides for it.

Procedur At the discretion of Must give one mth L chooses who to be the s.25 CLPA: (iv) Commence
e the Ct notice to B Receiver Mtgage money becomes due (due =/= an action
Must apply to court If thr are tenants, But thereafter, Receiver is arrears) + (for
must serve notice to agent of B (i) Notice: foreclosure
them too. o Only if no arrears or breach or sale)
o 3 mth aft notice then can sell ; or
(ii) Arrears of some interest under the
mtgage of 1 mth; or
(iii) Breach of other covenants
Advantag Adv: Bs right to redeem Dis: L usually avoids Adv: If R is negligent, L would Adv: Very powerful remedy in effect L can call for Adv: No fear of not
e/ Disadv is terminated once and it bec onerous duties not have to answer. entire debt to be paid b4 it is due B would only discharging duties
for all. are imposed have 3 mths to cough up the $. bec. Ct will
Dis: Equity dislikes it Dis: Quite extensive duties on the part of L. supervise the sale.
must give B 6 mths to
pay up Ct quite easily
moved to giving
extension
Duties of Usually only the first step. Must rent out the Ls choice of R must be 1) Duty of good faith (subjective)
L L will either sell or enter prop exercised in good faith 2) Duty to take reasonable steps (objective)
into possession. Seek best rent (Downsview Nominees v. After sale, L is trustee for proceeds.
available First City Corp Ltd)
Duties of L when exercising extra-judicial sale
Duty of good faith Duty to take reasonable steps Timing Burden of Diff in remedy Juridical basis of duty
proof
L cannot prejudice Bs To obtain true mkt value L has unfettered right to decicde when Generally Beckkett Pte Ltd - For both duties,
interests, but L is not a (fair price not enough) to sell (China & South Sea Bank). on party v Deutsche it is in equity,
trustee. Cuckmere Brick [x] Teo Siew Har [SGCA] says tt Palk is NOT making Bank AG: not tort
Tse Kwong Lam [x] public insufficient info on advert an exception bec. tt case was abt the - Duty of (Downsview)
auction + wife + knew reserve Hon Seen Ghee [x] L did judicial sale under s 30(2) L is not complaing good faith - Evidenced by the
price + sold to family biz not cooperate with B. exercising right to sell but merely . = set aside fact tt std of care
conflict of interest (COI) Lee Nyet Khiong [x] price opposing Bs app for sale (also must But for - Duty to take is not tt of
Kian Choon Investments [x] was reasonable (prob not bear in mind e extraordinary facts) duty of reasonable ordinary
private buyer - price abv e best), but still failed bec Kian Choon suggests tt L must wait to good faith, steps = negligence but
mkt valuation, but L went only advertised once + too see if neighbouring props fetch high Tse Kwong damages gross
into it hastily COI bec L was little info. price but China & South Sea wasnt Lam only negligence
to get repurchase rights. considered. suggests (China & South
tt burden Sea)
is on L.

Relevant Statutory Provisions Should Courts have general discretion to regulate the interest set by a lender?
CLPA The Problem
Part IV Many mtgages allow L to set the rate of interest throughout the period of mtgage bec. the prevailing mkt rate
s. 19 22: Rights of B will fluctuate.
 s.23: Right of B and L to lease
s. 24, 25: Rights of L extra judicial sale
requirements to be satisfied
s. 26: L sells title free of all encumbrances 1
s.30: Court-ordered sale (for B and L)
Part V
ss. 31 34: Statutory Mtgage
LTA
s.68(3): Mtgage does not transfer land only serves
as security
s. 69(1): Part IV CLPA applies to registered
mtgages
s. 73: Transfer of prop in exercise of sale
s. 75: Ls right to possession + Bs equity of
redemption.
s. 76: Ls right of foreclosure
s.80: Tacking
1 Purpose of this is to ensure tt a Purchaser need not investigate whether a L who is selling is truly entitled to exercise his power of sale. P need only be satisfied tt mtgage
money has fallen due and if L was improperly exercising the power of sale, Ps title is not affected.
The danger, however, is that B is taking on open-ended liability.
In Paragon Finance plc v. Nash, the ECA said tt there is an implied term tt every L will not exercise its discretion
to vary interest rates dishonestly, for an improper purpose, capriciously or arbitrarily.
o Further, that a lenders decision to raise r/i cannot be motivated by other than purely commercial
considerations.
However, the fear of exorbitant rates is not so great for you institutional lenders, which have a reputation to
keep.
Equitable power?
The widest exercise of a Cts discretion to strike down an Ls rate was in Cityland and Property (Holdings) Ltd v
Dabrah [1967, Ch]. Thus, it may be argued tt courts have an equitable power to rewrite the mtgage bargain.
Another measure tt some Ls take is to index the principal sum (to reduce the impact of inflation or currency
fluctuations) as in Multiservice v. Marden. The result in tt case was tt the mtgage was enforced.
But how wide this discretion is is not something that is as yet settled. Brown-Wilkinson J. in Multiservice suggests
tt an equitable challenge on r/i would only succeed if the bargain was unfair or unconscionable (and no other
ground).
Public policy
On e one hand, mtgages are very common in Sgp and represent a significant liability for ordinary families. Yet, Ls
must be protected too or the availability of loan capital will diminish.
It may be argued tt Sgp lacks legislation to protect vulnerable homeowners such as Financial Services and
Markets Act and Consumer Credit Act in UK hence our cts shd take more active role.
o H/W, it may also be argued tt since many finance their housing loans using CPF and CPF provides a more
affordable rate anyway, that the govt alr takes adequate measures to protect homeowners and nothing
extra is needed on the part of the judiciary.