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Santley v Wilde [1899] 2 CH 474

Collateral advantages and presumptions about oppressive conduct.

Facts:

The owner of a lease of a theatre wanted to carry on a theatre business there and took out a mortgage of £20,0001 in order to do this, secured against the lease, over five years. The mortgage also required that she also paid one third of the net profits to the lender until the end of the mortgage term.

Issues:

A mortgage is a conveyance of land as security for the payment of a debt. If the borrower fails to repay the debt, the lender can possess the property in satisfaction of the debt and any interest payable. However, equity protects the right of the borrower to redeem the mortgage and end it once the debt has been paid. Equity forbids any ‘clog’ on the equity of redemption, which includes any provision which is unconscionable. The mortgagor argued that the term regarding sharing profits was a ‘clog’.

Held:

The court found for the mortgagee. The mortgage could still be paid off in five years. Consequently, this provision was not a clog on the equity of redemption. There was no suggestion of fraud. The theatre business was unpredictable and if it failed the borrower would probably lose the money advanced. Therefore, asking for a share of profits was reasonable. A mortgagee was free to obtain any collateral advantage for himself beyond the repayment of the debt and interest provided it was not unconscionable or oppressive. There was no automatic presumption that a collateral advantage was obtained under pressure. Each case had to be decided according to its own circumstances.


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