Noakes v Rice [1902] AC 24

Facts

  • Noakes was a publican who mortgaged his public house to Rice, a brewery.
  • The mortgage agreement included a stipulation requiring Noakes to purchase beer exclusively from the brewery.
  • The brewery sought to enforce this beer supply obligation even after Noakes sought to redeem the mortgage.
  • The House of Lords considered whether the brewery could require the exclusive beer purchase to continue after redemption of the mortgage.

Issues

  1. Whether a collateral stipulation in a mortgage, such as an exclusive beer purchase agreement, can remain enforceable after redemption of the mortgage.
  2. Whether such collateral agreements, if extending beyond the mortgage period, constitute a clog on the equity of redemption.
  3. To what extent the doctrine of clogging the equity of redemption restricts the enforceability of ancillary or commercial arrangements tied to mortgage agreements.

Decision

  • The House of Lords held that collateral stipulations in mortgage agreements must terminate upon redemption.
  • It ruled that the brewery’s attempt to maintain a perpetual beer supply obligation after repayment of the mortgage debt was unenforceable.
  • The court found the stipulation to be a clog on the equity of redemption, as it unfairly burdened the mortgagor beyond the life of the mortgage.
  • Stipulations that extend beyond the mortgage’s duration and are inextricably linked to the mortgage are not permissible in equity.

Legal Principles

  • Collateral stipulations in mortgages must not survive redemption and should not impose obligations on the mortgagor after the loan is repaid.
  • The doctrine of “clogging the equity of redemption” prevents lenders from attaching conditions that would restrict or undermine the right of the mortgagor to reclaim unencumbered ownership on payment of the debt.
  • Mortgage terms must be fair, proportionate, and restricted to the period of the mortgage; extended or perpetual collateral conditions are viewed as inequitable and void.
  • The House of Lords affirmed that all obligations linked to the mortgage must be extinguished upon redemption.

Conclusion

The decision in Noakes v Rice [1902] AC 24 established that collateral stipulations tied to a mortgage cannot survive redemption; any attempt to enforce obligations beyond repayment constitutes an impermissible clog on the equity of redemption, reinforcing fundamental equitable protections for mortgagors.

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