Jones v Morgan [2001] EWCA Civ 995

Facts

• Mr. Jones mortgaged his property to Mr. Morgan as security for a loan.
• The mortgage agreement included a clause granting Mr. Morgan an option to purchase the property at a fixed price, exercisable at any time after the loan was repaid.
• Mr. Jones argued that this clause constituted an impermissible clog on his equity of redemption and was therefore unenforceable.
• The trial court had ruled in favour of Mr. Morgan, upholding the validity of the option clause.
• Mr. Jones appealed to the Court of Appeal, challenging the clause as an undue restraint on redemption.

Issues

1. Whether the option clause allowing the mortgagee to purchase the property after repayment was a void clog on the equity of redemption.
2. Whether such a clause unfairly restrained the mortgagor’s right to redeem free of unreasonable conditions.

Decision

• The Court of Appeal held that the option clause was a void clog on the equity of redemption.
• The clause granted Mr. Morgan a significant and ongoing advantage by enabling the purchase of the property at a fixed price, regardless of its market value, even after redemption.
• The option was not necessary to protect the mortgagee’s legitimate interests.
• Any term that imposes an unreasonable or perpetual restraint on the mortgagor’s right to redeem is unenforceable.
• The judgment clarified that such post-redemption options are void unless they can be justified as reasonable and necessary.

Legal Principles

• The equity of redemption gives the mortgagor the right to regain title to the property upon repayment and must not be fettered by unreasonable restraints.
• Any term in a mortgage agreement that unduly restricts the right to redeem (a clog) is void unless reasonable and necessary to protect the security interest of the mortgagee.
• Post-redemption options in favour of the mortgagee are closely scrutinized for fairness and balance between the parties’ interests.

Conclusion

The Court of Appeal affirmed that a mortgagor’s right to redeem must remain unfettered, holding that post-redemption purchase options that operate as unreasonable restraints are void, thereby reinforcing equitable protection for mortgagors in mortgage transactions.