In-Depth Notes on Land Law and Security Interests

Introduction to Security

  • Security interests arise in the context of debtor-creditor relationships.
  • Commonly associated with loans, they can also occur in non-loan contracts, such as sales where credit is extended.
  • Example: A seller may offer credit to boost sales; a buyer may become a creditor by prepaying for goods.

Types of Security Interests

  • Real Security: Related to physical assets.
  • Personal Security: Based on the individual's promise to pay.
Real Security Types
  1. Title-Based Security:
    • The debtor transfers the title of the asset to the creditor while retaining possession.
  2. Possession-Based Security:
    • The debtor transfers possession to the creditor but retains title of the asset.
  3. Hypothecation:
    • No transfer of title or possession; a derivative right is granted to the security holder.
Types of Real Security Instruments
  • Mortgage, Pledge, Common Law Lien, Charge, Equitable Lien, CPO Modified Mortgage.
  • Some security interests are consensual; others arise by operation of law.

Vendor and Purchaser Relations

  • In land sale contracts, various security interests arise for both vendor and purchaser.
  • For the Vendor:
    • Granted a common law lien for possession of the land until paid.
    • Retains an equitable lien even if possession is transferred.
  • For the Purchaser:
    • May recover deposits upon valid contract termination. Incentives lead to equitable liens for deposit recovery.

Introduction to Mortgages

  • Mortgages are the primary security over land, being immovable assets.

  • Lenders (mortgagees) secure their interests without needing possession initially.

  • Key Roles:

    • Mortgagor: Borrower/Security Giver.
    • Mortgagee: Lender/Security Holder.
Common Law and Equity Rules on Mortgages
  • Traditionally, title transfers to the mortgagee; however, there's a promise to reconvey upon redemption.
  • The mortgagor must redeem at a particularly fixed date, historically, leading to harsh outcomes.

Equitable Right to Redeem

  • Equity provides mortgagors the right to redeem post-contractual date.
  • This right facilitates solutions for situations after the contractual redemption period.

Distinguishing Rights

  • Equity of Redemption: Arises at the outset of the mortgage, recognizing the mortgage as merely a security interest.
  • This grants the mortgagee an estate in the land until foreclosure occurs.
Legal Mortgages and Formal Requirements
  • Must comply with statutory requirements (Conveyancing and Property Ordinance).
    • Typically requires a deed for enforceability; agreements outside need to fulfill specific criteria to yield equitable mortgages.
Creation of Equitable Mortgages
  • Can arise through part performance, evidenced through actions like title deed deposit—considered valid even if formalities are unmet.
  • Accommodates other assets like shares.

Second Mortgages and Rights

  • The second mortgagee can receive an equity of redemption from the mortgagor, subject to written compliance under statutory regulations.
  • Future mortgages may be developed as the security interest can allow multiple encumbrances on the same asset.

Charges Versus Mortgages

  • A charge does not involve title transfer; it creates a derivative interest, distinguishing it from a mortgage, which entails title-related remedies.
  • Charges emphasize agency powers in recovering money owed, particularly notable in practical scenarios.
Floating Charges
  • A flexible and modern approach allows security over stock in trade, crystallizing upon defined events, thus maintaining operational fluidity for the borrower.
Mortgagor’s Protection
  • Mortgagors have protections, including contractual remedies related to notice, misrepresentations, and statutory regulations.

Doctrine of Clogs on Redemption

  • Prevents ‘clogs’ or fetters on the equity of redemption, originating from historical usury laws that aimed to limit exploitative lending practices.
  • Classical case: Samuel v Jarrah Timber illustrates how these clogs can invalidate unfair agreement terms regarding mortgages.

Legal Evolution of Clogs Doctrine

  • Critics propose that the doctrine may favor a mortgagor avoiding agreements made.
  • Courts maintain the clogs doctrine, despite its contentious nature.

Collateral Advantages and Clogs

  • Modern analysis considers terms that might inhibit or extend beyond the redemption right, adjusting perspectives on fairness and commercial integrity.

Extortionate Credit Bargains

  • Regulated by specific laws, deals exceeding prescribed interest rates or deemed grossly exorbitant can be scrutinized for fairness in judicial review.

Conclusion

  • Understanding landlord and mortgage laws require interpreting various provisions under statutory legislation while balancing parties' lawful rights and conduct in dealings.
  • Awareness of historical influences helps illuminate current practices and doctrines applied in modern contexts.