Mortgage under general law (old system)

Mortgage under general law (old system) is a transfer of the legal interest in the mortgagor’s land to the mortgagee. The mortgagor retains the right to have the land transferred back upon repayment of the debt (i.e. the right of redemption). To be enforceable, all formal requirements for dealing with the land must be satisfied e.g. in writing, created by Deed. If the mortgagor enters into any subsequent mortgages, he can only offer an equitable mortgage based on his right of redemption.
A Torrens System mortgage takes effect as a charge over the land for the debt secured. The mortgagor retains the legal interest as registered proprietor of the land but the mortgagee also has a legal interest pursuant to the charge. The charge confers certain rights upon the mortgagee in event of default by the mortgagor including right to possession where mortgagor defaults on repayment of principal or interest. See ss. 132, 67 and 137 RPA. The mortgage must be in a registrable form and validly executed. Once registered, the mortgagee becomes the RP of a legal interest in the land although there is no transfer of the fee simple. The parties’ interest is indefeasible subject to s69 RPA.
As the mortgagor retains the fee simple interest, he can create subsequent mortgages over the land which can be registered like the first mortgage. Priority of more than one mortgage is determined by date of registration.
Mortgagor can discharge a mortgage by registration of a Discharge of Mortgage upon payment of the required “payout” amount (which would include legal and other costs).
No.3
mortgage – see above and Santley v Wilde (WS p424).
equity of redemption – the right of a mortgagor in law to redeem his property once the liability secured by the mortgage has been discharged.
equitable mortgage – an equitable mortgage arises where all legal requirements of the transfer or registration of an otherwise legal mortgage are not met or where parties clearly intended to create a mortgage but another transaction was used. Equity looks at the substance and not form of the transaction to treat it as a mortgage and allow the mortgagor to redeem. Unregistered mortgages will be regarded as equitable mortgages under the Torrens System: Barry v Heider (WS at p427). These mortgages are discharged on receipt of payment for the full debt obligation.
No.4
Go through facts provided concerning 15-year mortgage (repayable not before 5 years) and trade tie between Shear Genius & Paulo, issues to be discussed and conclusion on whether clog on equity of redemption – at WS 437-440

FURTHER QUESTIONS

Q1
(a) Yes. But Noel has already conveyed his legal interest in the fee simple to Ashby and has nothing left to convey to Beatrice. The subsequent Deed creates an equitable mortgage in favour of Beatrice (as mortgagee).
(b) Yes. Although the legal requirements are not met, where Fitzchrome advances money to Rev. Folliot who hands over his title deed in exchange as security for the loan, these actions have been held to be evidence of a voluntary (parol) agreement to enter into an equitable mortgage and constitutes part performance of the contract. Same under Torrens System – see Theodore v Mistford (WS p427).
(c) Maybe. Equity looks to the substance not form of the transaction and can treat a transaction as a mortgage and allow the mortgagor to redeem even when a different type of transaction is utilised. G’s land has a registered mortgage in favour of Dylan. If G’s land was conveyed as security for the loan from Salmon, with the agreement that if the loan were repaid by G the land would be reconveyed, it is an equitable mortgage (fee simple already transferred to Dylan). Here, there is no evidence of an agreed obligation for G to repay S the principal or interest for his “loan”. A Court would likely find that the transaction between G and Salmon was an agreement for sale & re-purchase, NOT a loan/mortgage. Facts here are a simplified version of Gurfinkle v Bentley (1966) 116 CLR 98. See further WS p425.
Q2
(a) Yes, total restriction on mortgagor therefore a clog on the equity of redemption because the mortgagee can prevent the mortgagor from recovering the mortgaged fee simple estate by exercising its option to purchase. If it is something entered into subsequent to and independent of the mortgage (with no element ofunconscionability), then it is not a clog & provision will be valid: see cases at WS p433.
(b) No. A mere right of pre-emption is not a clog. If the mortgagor decides to sell at a given price, the mortgagee must be given the first right to buy at that price. Here the mortgagee can’t compel the mortgagor to sell and his right to redeem is not fettered.
(c) An “all monies” clause in Modular Design Group (with different facts) was found to be a clog and therefore void. But as Santow J noted, the collateral advantage sought by the assignee – being an unsecured creditor seeking to claim security through the all monies clause – was a clog on the equity of redemption and unconscionable: see WS p434. In a standard all monies clause, where what is expressed as secured are debts owed to the mortgagee only (as in this case), such a clause will not operate as a clog.
(d) Yes. The trade ties restraint clearly makes the hotel a less valuable proposition on redemption of mortgage than it was prior to the mortgage. The covenant is not enforceable post-redemption : see Toohey v Gunther WS p435. Such a clause would constitute exclusive dealing (prohibited under the Competition and Consumer Act Cth or Fair Trading Act SA).
(e) No. The restraint to sell exclusively to the mortgagee for 3 years is not inherently attached to the property which was subject to the mortgage but on the business to sell exclusively to the mortgagee provided it matched the best price otherwise available. InKreglinger v New PatagoniaWool (WS p453), the House of Lords said that there is no rule in equity which precludes a mortgageefrom stipulating for any collateral advantage, provided such collateral advantage is not either unfair or unconscionable, or in the nature of a penalty clogging the equity of redemption, or inconsistent with or repugnant to the contractual and equitable right to redeem and held that the option (for the mortgagee) to purchase the sheepskins exclusively for five years was separate from the main contract and not void, given that the purpose of the clog on equity of redemption rules was chiefly to preclude unconscionable bargains.

REAL PROPERTY ACT 1886 – SECT 67
67—Instruments not effectual until registration
No instrument shall be effectual to pass any land or to render any land liable as security for the payment of money, but upon the registration of any instrument in manner herein prescribed, the estate or interest specified in such instrument shall pass, or, as the case may be, the land shall become liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified in such instrument or by this Act declared to be implied in instruments of a like nature.
REAL PROPERTY ACT 1886 – SECT 132
132—Nature of mortgage and encumbrance, and procedure in case of default
Every mortgage and encumbrance under this Act shall have effect as a security, but shall not operate as a transfer of the land thereby charged and in case default be made in the payment of the principal sum, interest, annuity, or rent-charge, or any part thereof thereby secured, or in the observance of any covenant therein expressed or implied, and such default be continued for the space of one month, or for such other period of time as may therein for that purpose be expressly limited the mortgagee or encumbrancee may give to the mortgagor or encumbrancer notice in writing to pay the money then due or owing on such mortgage or encumbrance, or to observe the covenants therein expressed or implied, as the case may be, and that sale will be effected if such default be continued, or may leave such notice on the mortgaged or encumbered land, or at the usual or last known place of abode in South Australia of the mortgagor or encumbrancer.
REAL PROPERTY ACT 1886 – SECT 137
137—Power of mortgagee to enter, take possession, distrain, let, or bring action for recovery of land
The mortgagee or encumbrancee, upon default in payment of the principal sum, interest, annuity, or rent-charge, secured by any mortgage or encumbrance, or any part thereof, may enter into possession of the mortgaged or encumbered land and receive the rents and profits thereof, or may distrain upon the occupier or tenant of the land under the power hereinafter contained, or may from time to time let the said land for any term not exceeding one year, or may bring an action for recovery of the land either before or after entering into the receipt of the rents and profits, or making any distress as aforesaid, and either before or after any sale of the land shall be effected under the power of sale given or implied in his mortgage or encumbrance.
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