CHRISTOPHER GEORGE GREENE 1

MORTGAGES

Question: Distinguish between a legal and an equitable mortgage.

Answer
A mortgage is a relationship wherein property is conveyed from one party (the mortgagor or
borrower) to another (the mortgagee or lender) in return for a loan, with a stipulation that upon
repayment of the loan the property will be re-conveyed.

Where the relationship takes the aforementioned form, it is said to be a legal mortgage; where the
relationship has the intent of creating a mortgage but not the form it is said to be an equitable
mortgage.

Creation of Legal Mortgages

A legal mortgage may be created at common law or by statute.

If created by statute it is to comply with section 26 of the Conveyancing Act 1881:

Section 26 (1) states that a mortgage must be by deed expressed to be by way of legal mortgage and
must be in the appropriate form with such variation as required, such form being that contained in
the Third Schedule to the Act.

Under Section 26 (2) there is implied or deemed to be included into the mortgage deed a covenant
providing that the mortgagee will pay to the mortgagor the principal sum and interest on a specified
date, and that if the principal sum or any part thereof remains unpaid, pay to the mortgagee interest
thereon by equal half-yearly payments. There is also implied or deemed to be included a proviso to
the aforementioned covenant providing that if the mortgagor pays the principal and interest on the
specified date the mortgagee shall reconvey the mortgaged property to the mortgagor, or as the
mortgagor shall direct.

Whether created at common law or statute, the mortgage involves the conveyance of interest in
property. Where the mortgaged property is freehold property the property is conveyed. Where the
mortgaged property is leasehold it may be effected by (1) the assignment of an unexpired term with
a covenant for reassignment upon redemption, or (2) the creation of a sub-lease of the mortgagor’s
term for at least a day less than the mortgagor’s term, with a covenant that the mortgagee’s sub-
term is to cease upon redemption.
CHRISTOPHER GEORGE GREENE 2

Creation of Equitable Mortgage

An equitable mortgage may be created in one of 3 ways:

1. Under the doctrine of WALSH v. LONSDALE (1882), where there is specifically enforceable
agreement to create a legal mortgage, but it is not executed as a legal mortgage is. This is
based on the maxim that “equity looks on that as done which ought to be done”.

2. Where there is an equitable mortgage of a legal interest. In such a case the parties intend to
create a legal mortgage, but the transaction lacks the form required to create a legal mortgage.
For instance, where the mortgagor deposits his title deeds with the mortgagee, or where the
parties make a written memorandum setting out the terms of the transaction. The principle
may be illustrated by the case of BARCLAYS BANK v. KHALIL (1972-73) ALR SL.

3. Where the interest of the mortgagor is only an equitable interest. In such a case the mortgagor
can only pass on equitable interest, and as such only an equitable mortgage is created.
CHRISTOPHER GEORGE GREENE 3

Question: What are the main features of a standard mortgage agreement?

Answer

1. COMMENCEMENT AND PARTIES – this part identifies the transaction, the parties therein and
their respective capacities (i.e. borrower or mortgagor and lender or mortgagee), and the date of
the transaction. It usually states “This mortgage is made…”

2. RECITAL OF BORROWER’S TITLE – this part contains any introductory matters necessary to
explain the reason for the conveyance and the narrative matters showing that the mortgagor has
got a good root of title to the property, his authority to convey the same, as well as identifying
any encumbrances on the property. It usually starts with “Whereas the borrower…”

3. RECITAL OF AGREEMENT TO LEND – this part contains the covenant by the mortgagee to
lend the mortgagor a specified amount as security. It usually states “And whereas the lender has
agreed to lend to the borrower…”

4. COVENANT FOR PAYMENT OF PRINCIPAL & INTEREST – this part contains a covenant by
the mortgagor to repay the principal on a specified date with interest as agreed in consideration
of the loan and if the said sum or any part thereof remains unpaid to pay interest thereon by
equal half-yearly payments. It usually states “The borrower hereby covenants with the lender…”

5. DEMISE OF MORTGAGED PROPERTY – in this part the mortgagor demises the property to the
mortgagee subject to cesser. It usually states “the borrower as beneficial owner hereby demises
to the lender…”

6. PROVISO FOR CESSER – this clause contains a proviso that if the mortgagor repays the
principal and interest as agreed the mortgagee’s interest in the property will cease. It usually
states “Provided that if the borrower…”

7. FURTHER COVENANTS BY BORROWER – in this clause the mortgagor covenants to insure

the property and to keep it in tenantable repair. This is to protect the security of the mortgagee
and ensure nothing happens to the property. It usually states “The borrower hereby further
covenants with the lender as follows…”

8. SCHEDULE – this contains a description of the mortgage property, its exact location, size and
boundaries, to ensure there is no mistake as to the identity of the property.
CHRISTOPHER GEORGE GREENE 4

9. TESTIMONIUM – This contains the attestation of witnesses and the signature and seals of the
mortgagor and mortgagee. It usually states “In witness whereof…”