PPL 421 Assignment Questions and Answers

Course Code
PPL 421

Department
Law

Assignment Questions
Advantages of legal mortgage over equitable mortgage
Discuss with the aid of case laws

Advantages of Legal Mortgage Over Equitable Mortgage

A legal mortgage is the most secure form of mortgage because it transfers legal ownership of the mortgaged property to the lender until the loan is fully repaid. An equitable mortgage, on the other hand, only gives the lender a beneficial interest in the property without transferring legal title.

Below are the advantages of a legal mortgage over an equitable mortgage, with relevant case laws:

1. Stronger Security for the Lender

A legal mortgage gives the lender full legal ownership of the property, making it easier to enforce their rights in case of default. This is unlike an equitable mortgage, which only creates a charge over the property.

Case Law: London & County Banking Co v Goddard (1897) – The court held that legal mortgages take priority over equitable mortgages.

2. Priority Over Equitable Mortgages

Legal mortgages rank higher than equitable mortgages in priority. This means if the mortgaged property is sold to recover debts, legal mortgagees get paid first before equitable mortgagees.

Case Law: Westdeutsche Landesbank v Islington LBC (1996) – The House of Lords affirmed the superiority of legal mortgages over equitable ones in priority ranking.

3. Easier Enforcement of Rights

In a legal mortgage, the lender has the power of sale without needing a court order. This makes it faster and more efficient to recover debts. In contrast, an equitable mortgagee often requires court intervention to sell the property.

Case Law: Four Maids Ltd v Dudley Marshall (Properties) Ltd (1957) – The court held that a legal mortgagee has the right to possession immediately upon default, without court action.

4. Power to Appoint a Receiver

Legal mortgagees have the statutory right to appoint a receiver to manage the property in case of default. Equitable mortgagees do not have this automatic right.

Case Law: National Provincial Bank v Hastings Car Mart (1964) – It was held that legal mortgagees can appoint receivers without court approval.

5. Right to Foreclosure

A legal mortgagee can apply for foreclosure, which allows them to take full ownership of the property if the borrower defaults. Equitable mortgagees must seek a court order before they can foreclose.

Case Law: James v Morgan (1663) – The court upheld the right of foreclosure for legal mortgagees.

Conclusion

A legal mortgage provides stronger protection for lenders, ensures priority over equitable mortgages, and allows for easier enforcement of rights. It is the preferred option for securing loans against real property.