Chapter 13 Scenario questions

. Mel purchased a lease of a pub. Mel mortgaged the pub to Pint Co., a brewery, in order to finance the purchase. The mortgage deed contained a covenant under which Mel promised only to sell beer supplied or sourced through Pint Co. for the first 10 years of the 20-year mortgage. What is the status of this covenant? Select one of the following.

This covenant amounts to a collateral advantage in favour of the mortgagee and, after Kreglinger v New Patagonia Meat & Cold Storage Co. Ltd (1914), the court will be swift to find such a covenant void.

This covenant amounts to a collateral advantage in favour of the mortgagee but, after Kreglinger v New Patagonia Meat & Cold Storage Co. Ltd (1914), collateral advantage covenants are valid and enforceable.

This covenant amounts to a collateral advantage in favour of the mortgagee but, after Kreglinger v New Patagonia Meat & Cold Storage Co. Ltd (1914), whether this covenant is void depends on the court's assessment of the bargaining positions of the parties.

This covenant does not amount to a collateral advantage in favour of the mortgagee. Such covenants are commonplace and have never been regarded as a clog on the equity to redemption.

. Nico, an independent sole trader, entered a mortgage with a large-scale, commercial lender. It was a term of the mortgage that, should Nico wish to redeem the mortgage before the stated 30-year period, he would be required to pay a sum equivalent to 10 years' interest to the lender. What is the status of this clause? Can it be enforced? Select one of the following which most accurately reflects the position.

Under the authority of Multiservice Bookbinding v Marden (1979), the mortgage lender may have extracted a hard bargain from Nico, but the clause will stand, is valid and enforceable.

Any term of a mortgage that prevents or restricts the mortgagor's right to redeem the mortgage, such as this term, will be automatically struck down as void.

Where a clause is shown to be oppressive or unconscionable rendering the right to redeem illusory, it will be void. Where there appears to be an imbalance in bargaining power between the parties to a mortgage, as here, this would likely lend a court to strike down this clause.

The case of Knightsbridge Estate's Trust Ltd v Byrne (1939) demonstrates that a clause which has the effect of postponing the mortgagor's right to redeem the mortgage will be valid if it can be said to have been freely agreed and freely negotiated between the parties. Nico was well-aware of the terms to which he was agreeing and both parties were aware this was commercial context.

. Pearl decided that she wanted to become a property tycoon and set out to start a property portfolio. Sadly, she lacked the skills for the job and soon came unstuck. She had purchased a property, The Grand, for £250,000 with the assistance of a mortgage from Get Rich Lenders Ltd but soon fell into arrears on the mortgage payments. Get Rich Ltd took possession of The Grand in January 2020 and sold it to Ron in February for £200,000. The asking price had been £400,000 after speculation that planning permission might be sought in relation to the land but the market had been cold for some time and so Get Rich accepted the first offer it received. Ron later applied for and was granted planning permission to convert The Grand into 20 flats and the property has just sold on the open market for £600,000. Pearl is unhappy at the sequence of events but what legal avenues are open to her? Select one of the following.

On the facts, Pearl has no room for complaint. Get Rich Ltd, as experts in their field and knowing the market, were entitled to sell the land to the first buyer and within one month. The fact planning permission was later granted for the land is irrelevant.

On the facts, Pearl has no room for complaint. Get Rich Ltd can sell the land as and when they like and to whomsoever they wish and on whatever terms.

On the facts, Pearl can sue Get Rich Ltd for its failure to apply for planning permission prior to the sale of the land. Had it done so, the price it could have obtained on sale to Ron would have been vastly in excess of that, in fact, generated. Pearl can sue for the difference between the price received and the price the property with planning permission would have secured.

On the facts, Pearl may be able to argue that Get Rich Ltd has breached a number of duties placed on it when selling mortgaged land (Cuckmere Brick Co v Mutual Finance (1971)) including not obtaining a fair price for the land; selling too quickly; and not taking reasonable care in the conduct of the sale.

. Stevie lives with her father Trevor in a property, The Bluebell, legal title to which is in their joint names. Stevie went to great lengths to persuade Trevor to join her in borrowing £200,000 from Immediate Money Ltd by way of a mortgage secured against The Bluebell. The loan was for Stevie's home business. Stevie escorted Trevor to the offices of Immediate Money Ltd to complete the relevant documentation. Stevie has fallen into arrears on mortgage instalments and the lender is seeking possession and sale of the land to realize its debt. Might Trevor be able to escape liability under the mortgage? Which one of the following most accurately reflects the position here?

Both Stevie and Trevor were consenting adults entering into a mortgage agreement with their eyes open. The mortgage will therefore stand, a possession order will be granted to Immediate Money Ltd, and the property sold.

In persuading Trevor to enter the mortgage and escorting him to the bank, it seems Stevie has exerted undue influence on Trevor which has tainted the mortgage. There is nothing on the facts to suggests the lender has followed the Etridge Protocol to avoid being fixed with notice. It is likely the mortgage will be set aside on the grounds of undue influence.

In persuading Trevor to enter the mortgage and escorting him to the bank, it seems Stevie has exerted undue influence on Trevor which has tainted the mortgage. However, in inviting Stevie and Trevor to the offices to sign the relevant documentation, it seems the lender has done enough to avoid being fixed with notice of the undue influence. Any claim by Trevor based on undue influence will therefore likely fail.

Stevie has seemingly committed fraud on the bank and the police will want to question her. Criminal charges could be laid for her dishonest behaviour.

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