once a mortgage, always a mortgage

A maxim which stresses the principle that, in equity, a mortgage is intended solely as security for a loan and not as a means to secure a collateral advantage for the mortgagee. In other words, once the mortgagor has paid back his debt to the mortgagee, the purpose of the mortgage has come to an end and the property should be released unencumbered (Seton v Slade (1802) 7 Ves Jun 265, 273, 32 Eng Rep 108; Jones v. Horton & Horton, Inc., 100 F.2d 345 (5th Cir. Tex 1938)). "The principle is this – that a mortgage must not be converted into something else; and when once you have come to the conclusion that a stipulation for the benefit of the mortgagee is part of the mortgage transaction, it is but part of his security, and necessarily comes to an end on the payment off of the loan", Noakes & Co Ltd v Rice [1902] AC 24, 33–4, [1900–3] All ER Rep 34 (HL) (Wiltse v Excelsior Life Insurance Co (1916) 29 DLR 32, 35 (Alta. CA Can); Russo v. Wolbers, 116 Mich App 327, 323 N.W.2d 385 (1982); Jones on Mortgages (8th ed.), § 1326). Thus, if a company lends money on condition, for example, that the mortgaged property is used only for the sale of the mortgagee’s products, he cannot insist on this tie continuing when the mortgage is redeemed, or prevent redemption for fear of losing that tie. However, the mortgagee may be able to sustain a collateral agreement if: (i) it is part of a separate and later agreement; (ii) it can be demonstrated that the advantage is not unfair and unconscionable; (iii) it does not create a penalty preventing the redemption of the mortgage; and (iv) it is not inconsistent with or repugnant to the right to redeem (Reeve v Lisle [1902] AC 461 (HL); Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25, 53, 61 (HL); Peugh v. Davis, 6 Otto 333, 96 US 332, 24 L Ed 775 (1877)).

    In the US, some jurisdictions take the view that a collateral advantage should be enforceable when the transaction is entered into by experienced business people who are legally represented (Ringling Joint Venture II v. Huntington Nat'l Bank, 595 So.2d 180 (Fla App 1992)).  See also equity of redemption, option, solus agreement.

Terms in bold are defined elsewhere in the Encyclopedia.
Further explanation of the style of reference material is provided in the User Guide (available to subscribers).