Lewis v Love [1961] 1 WLR 261
Facts
A borrower granted a mortgage over land and, in a separate document, gave the lender an option to purchase part of it. The lender sought to exercise the option. The borrower argued that it was an invalid clog because it prevented redemption of the whole property free of the lender’s stipulated interest. The lender relied on the separate form of the option document, contending that it was not part of the mortgage bargain. The court examined the purpose of the documents and their relationship to the advance rather than their physical separation alone.
Legal Issue
Did the doctrine of clog on the equity apply where the clog was imposed by a separate agreement and not the mortgage transaction?
Held
Plowman J held the option invalid as part of the mortgage transaction. The documents formed one substantive bargain under which the borrower received the advance and the lender obtained the option. Separate paperwork did not make the option an independent transaction. Its effect was inconsistent with the borrower’s right to recover the mortgaged property on redemption. The court therefore looked beyond form to the object and purpose of the arrangement. This did not create a rule invalidating every later transaction between borrower and lender, nor prohibit a genuinely independent sale after the mortgage relationship had been considered separately on its own facts.
⭐ Legal Principle
Whether an option is part of a mortgage bargain is determined by substance, not the number of documents. A separately documented option forming part of the financing transaction can be invalid where it impedes redemption of the mortgaged property.
Significance
Lewis is a practical application of the substance-over-form approach to mortgage clogs. It helps explain why separate execution cannot be used as a simple drafting device to avoid the equity of redemption. Jones v Morgan applies related reasoning to a later variation, while Kreglinger concerns a different kind of collateral advantage. An answer should identify the transaction’s real connection and the option’s effect on the recovered security.
Common exam questions about this case
Why did the separate document not protect the option?
The loan and option were components of one substantive bargain. Their purpose and connection showed that the lender obtained the option as part of providing finance. Separating the text into different instruments did not alter how the arrangement affected the borrower’s right to redeem.
What feature made the option objectionable?
It allowed the lender to acquire part of the mortgaged land under a term integral to the mortgage bargain. The borrower would not necessarily recover the whole security free from that stipulated interest after repayment. The objection was therefore tied to redemption, not merely to the lender obtaining a benefit.
Could an independent later sale be different?
Yes. A genuine separate dealing must be assessed on its own circumstances. Lewis rejects reliance on formal separation where the substance is one mortgage bargain. It does not mean that a borrower and lender are permanently incapable of entering any other transaction involving the property.