(COURT OF APPEAL)

ABDEL AZIZ MOHAMED IBRAHIM v. MAHDI ISMAIL IDRIS

Principles

  Land Law—Mortgage agreement—Cannot be converted into a sale agreement during the time of the loan

“A mortgagee is not allowed at the time of the loan to enter into a contract for the purchase of the mortgage property.”

Advocate: Kamal El Din Abbas ………………………………. for the applicant

Judgment

Salah Eddin Hassan J. June 14, 1970 : —For sure there is no dispute about the facts. It is quite clear from the evidence recorded that the whole matter was one simultaneous transaction, i.e. the mortgage agreement with the condition that it should be converted into a sale agreement in case respondent fails to pay within three years. Despite the fact that it was one agreement it was split into two documents. The condition of sale was embodied in the document dated July 27, 1960, and one week later the mortgage transaction was registered.

In English common law it is a settled principle that “a mortgagee is not allowed at the time of the loan to enter into a contract for the purchase of the mortgage property.” I am of opinion that this is a sound principle which our courts should follow. Let us have a look into this case which was decided by the House of Lords in 1904 (Samuel V. Jarrah Timber & Wood Paving Corporation Ltd. [1904] A.C. 323). Briefly the facts of this case were as follows:

“Limited Company borrowed money upon the security of their debenture stock subject to the lender having the option to purchase the stock at 40 per cent, within twelve months; the loan to become due and payable with interest at thirty days notice on either side.

Within the twelve months and before the company gave notice of their intention to repay the loan, the lender claimed to purchase the stock at the agreed price.”

These facts are on all fours with the facts of the present case in which the mortgage agreement was attached with a condition that if the mortgagor fails to repay within three years the transaction will be converted into a sale upon the payment of £S.150.000m/ms. balance of the agreed value of the shop in dispute.

The learned advocate for the applicant has done his best to convince this court that according to the evidence recorded there were two separate and independent transactions; the mortgage agreement and later on a subsequent agreement of sale. I am afraid the evidence in the record defeats his contention and the proved facts are those I mentioned at the outset of this note.

Accordingly the common law rule enunciated above and welcomed by this court defeats this application and to repeat it again “a mortgagee is not allowed at the time of the loan to enter a contract for the purchase of the mortgaged property.” According to Lord Macnaghten:

“This rule is founded on sentiment rather than on principle. It seems to have its origin in the desire of the Court of Chancery to protect embarrassed landowners from imposition and oppression. And it was invented; I believe, in order to obviate the necessity of enquiry and investigation in cases where suspicion may be probable ai proof difficult.”

Earlier, in 1761, Northington L.C. in Vernon v. Bethell (1761) 2 Eden 113 said:

“This court, as a court of conscience, is very jealous of persons taking securities for a loan and converting such securities into purchases; and therefore, I take it to be an established rule that a mortgagee can never provide at the time of making the loan for any event or condition on which the equity of redemption shall be discharged and the conveyance made absolute. And there is great reason and justice in this rule, for necessitous men are not, truly speaking free men, but to answer a present exigency will submit to any terms that the crafty may impose upon them.”—See Samuel v. Jarrah Timber & Wood Paving Corporation [1904] A.C. 326—327.

The old established rule says “once a mortgage always a mortgage.”

Lord Macnaghten expressed the view that this rule should be modified to prevent its being used as a means of evading a fair bargain come to between persons dealing at arm’s length and negotiating on equal terms.

I do not see any reason to apply the modification in our present case, the respondent being an impecunious landowner.

This application should therefore be summarily dismissed.