System of commerce and capital

Used in exceptional circumstances, the equity of redemption was initially a timid response to a common law that "construed mortgage transaction "strictly and unsympathetically"1. Yet the use of this doctrine rapidly increased under the early guidance of the Lord chancellors Lord Nottingham and Lord Mansfield. The exception became the rule and it was decided that the principles of equity would have the power to cut down the express terms of a contract2. Never in any other branch of Judicial law has such utter disregard been shown for the freedom of contract.

Such a principle is often said to be the result of a society and economy that emphasized the importance of the ruling classes and as the significance and power of the aristocracy diminished the inevitable demise of the equity of redemption followed. However, others have said this approach focuses too much on the power of the landed classes. Instead emphasis should be placed on the law responding to an economy that was hinged on both the security of sedentary property to one that relied on a system of commerce and capital.

There have even been commentators that have suggested explanations that ignore the importance of the landed classes. Before any further advancements, the meaning of equity of redemption needs to be ascertained. Equity of Redemption is according to Thompson3, is the Equity rights of the Mortgagee as beneficial owner of the property, which includes the equity right of redemption. This equity right focuses on the essence4 of the contract rather than force strict adhesion to the letter.

Therefore if the borrower defaults in payment the property that had been conveyed to the Lender as a Lease will not be expanded into a full fee simple nor will the mortgagee retain any interest in the property because the essence of a mortgage is said to be to treat the property as a security. To give effect to this doctrine it would have been illogical for the courts to allow a collerative advantage. Such an advantage is present where the borrower regains his property but the lender retains some property, including a floating charge, in the form of a penalty.

Furthermore the courts will not enforce any contractual provisions that have the effect of restricting the equity right to redeem, a clog. The Equity of Redemption in its most interventionist form arises when the courts are more willing to interpret and recognize contractual provisions as collerative advantage or a clog. A possible explanation for the rise and fall of the equity of redemption is the importance of the feudal structure in which all echelons of society operated. Sugermann5 suggests that there was a fear that to remove the landed classes would be similar to that of the French revolution.

To prevent such chaos and anarchy the courts were anxious to preserve the stable structure of society. Because land was an expression of more than economic wealth but also social status, the courts could not allow the upper echelons of society to lose their property because of strict adhesion to the contractual terms. This would be tantamount to abandoning the current social structure. Blackstone firmly believed that the landed gentry were needed as a player within a hierarchical structure.

Burke in his celebrated Reflection on the revolution of France was convinced that to remove one chain out of the structure of society would import the chaos and anarchy that was witnessed in the revolution. Therefore the Courts adopted a wide interpretation of the doctrine of equity that refused a mortgagee the right to any interest in the property used as security. Even if the contractual term expressly allowed the mortgagee to retain some property interest, in the even of default, the court would ensure that the property was fully re-conveyed to the "rightful"6 owner.

As Lord Nottingham said in Thornborogh v Bake7 the mortgagee had a right to the money not the land. However, to completely ignore the importance of the landed classes would give an incomplete explanation as to why the equity of redemption rose and fell. The judges that formed the doctrine of equity redemption where themselves members of the landed classes. These judges shared the narrative that was common to the rest of their class. They believed that land was a sacred and that it was more than wealth but a partnership between those "who are living, those who were dead, and those about to be born" Edmund -Burke.

It was felt that the land rightfully belonged to the upper class and should be preserved as such. The judges saw the disgrace of a member of the nobility losing their inherited status. This rationale is witnessed in other parts of the law, for example the Courts were only initially willing to accept the property interest of a married woman in the form of a strict settlement, a device almost exclusive to the gentry and more to do with protecting the fathers desire for the property.

As the economy became less concerned with sedentary agriculture and the industrial revolution took over, the new middle classes and noveaux riches began to take judicial positions. This new rising classes unsurprisingly refused to protect the unearned privileged position of the landed classes. Hence, in the case of Kreglinger8 Viscount Haldale LC was un willing to offer a blanket protection of property but would only do so when the substance of the contractual provision, in this case a supposed collerative advantage, was actually intended to be part of a mortgage rather than a separate contractual agreement.

This is was a new period when the middle class, a more commercial class, wanted to protect their own interests and thus were less willing to allow equity to infringe the sanctity of a contract. Neither the judiciary of the 17th Century nor the Judiciary of the late 19th Century offered arguments that were intrinsically superior to the other, instead they responded to a change of circumstances as the upper classes became less important.

Yet it can be more convincingly argued that the rise and fall of equity redemption is less to do with the law responding to the interest of certain classes and more its reaction to changing economic circumstances. Cannadine9 shows that the economy before the end of the 19th Century was based and reliant upon land. The reliability and stability of land was an ideal asset to be used as a security. Money lenders were more willing to loan large sums because of the reliability of land as a security.

This can be seen by the grand indebtness that many members of the aristocracy incurred by the end of 19th Century, for example spectacular bankruptcy of the Duke of Buckingham who had incurred debts of i?? 1. 5 million. Although this was an exceptional case Bagehot commented that the largest land titles were all mortgaged. The economy was fuelled by what the Economist calls an "implicit faith" on the stability and reliability of land. Such loans would fuel the economy by increased investment or consumption by the landed classes.

Duke of Durham invested in coal mines by heavily mortgaging his land and Cannadine claims that many members of the aristocracy increased consumption by improving their land or rebuilding their houses. However, the late 19th Century witnessed an agricultural depression that led to the what Cannadine estimates to be a 30% plummet in the value of land across the whole country. Under such conditions it made little economic sense for the law to protect an unstable and unreliable security especially since the landed classes were themselves beginning to sell their property10.

The "implicit faith" that rested in land reached a dramatic end and instead the economy required the court to enforce a Hobbesian reliance on the sanctity of contract. The importance is that money will not be lent in a time of instability and uncertainty and when land lost its economic value the economy began to rely on the certainty of contracts being enforced. Hence in Kightsbridge the equitable doctrine of redemption is only allowed to infringe "freedom of contract" in consideration of the commercial context of the transaction, for example where the parties dealing on equal bargaining power.

Therefore, it was the changing importance of land as a security rather than the importance of the ruling class as a class that is a more convincing explanation of the rise and fall of the equity of redemption. This view is reinforced by the fact that the two competing authorities of E Spring and Thompson, whereas disagreeing to the extent of crisis and restructuring in the landed classes, both conclude that by the end of the 19th Century the landed classes were not in any less an entrenched social position.