GROUP 4

WORKSHOP 1

TASK C
 A Tradition of Legal Excellence

• ISSUES
• What is the legal effect of the illegalities identified in the
memorandum of pledge between Quick Money Ways Ltd and
the Kashankus

• What is the appropriate procedure to perfect the equitable

mortgage between the parties

• What procedure can be taken in order to realize the security

in the event of default in the above circumstances
• RESOLUTION TO ISSUES
What is the legal effect of the illegalities identified in the memorandum of
pledge between Quick Money Ways Ltd and the Kashankus
Equitable mortgages shall be enforceable between parties as per section 3(5)
of the Mortgage Act,2009. Therefore this means they will be guided by the
contract between the parties.

However an illegality in contract law is a concept which indicates that a

contract is illegal, and therefore, unenforceable

Even if the other requirements of a contract are present–the offer, acceptance,

consideration, and mental capacity–a court could still deem that the contract is
illegal. Moreover, even if the parties to the contract aren’t questioning the
legality of the agreement, the court could still determine that it is illegal. If such
agreements are in fact deemed illegal, then the entire contract will be void.
CLOG ON THE EQUITY OF REDEMPTION
• Anything which obstructs the right of the mortgagor to
redeem his property is void, and such obstruction constitutes
a clog on the right to redemption.
• Requiring the borrowers to sign a transfer form in stipulation
of a default is an illegality since it would be placing a clog of
the right of the borrower to redeem the security.
• In Noakes & Co. vs Rice [1924] AC 24, it was held that
anything that blocks the rights is erroneous, so they coined
the phrase "once a mortgage, always a mortgage" and held
that a mortgage should never be irreducible. This principle
was brought to protect the interest of mortgagor.
• Any condition/provision that stops mortgagor from
redeeming his/her mortgaged property acts as a blockage
on the right of redemption.
• Section 8 (2) of the mortgage Act is to the effect that
where the mortgagor signs a transfer as a condition for the
grant of a mortgage under this act, the transfer shall have
no effect. In otherwards its void.
• Once a mortgage, always a mortgage and nothing but a
mortgage means that the mortgagee shall not make any
stipulation which will prevent redemption.
• A mortgage must not be converted into something else, if 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.
• Therefore this would render the transaction null and void.
INTEREST RATE
• A rate of 5 percent per month would mean 60 percent per
annum and this harsh and unconscionable.
• Blacks law Dictionary 7th Ed at page 1526; defines
unconscionable to mean extreme unfairness and
unconscionable as having no conscience, unscrupulous,
affronting the sense of justice, decency or reasonableness.
• Alice Okiror & Anor v Global Capital save 2004 and Anor
HCCS No 149/ 2010 held that interest charge at 12% per
month would translate to 144% p.a and was harsh and
unfair for a money lender to charge and was contrary to the
Money Lenders Act.
• Section 26(1) of the civil Procedure Act Cap 71 is to the
effect that where an agreement for the payment of interest
is sought to be enforced, and the court is of opinion that the
rate agreed to be paid is harsh and unconscionable and
ought not to be enforced by legal process, the court may
give judgment for the payment of interest at such rate as it
may think just.
• Section 89(1) of the Tier 4 Microfinance Institutions and
Money Lenders Act,2016 provides:-

• “Where a borrower or a money lender applies to Court for the

recovery of money lent or the enforcement of a money lending
agreement or security made or taken in respect of money lent,
the court may reopen a transaction if it is satisfied that;
• The interest charged in respect of the sum actually lent is
excessive
• …………………………..
• The transaction is harsh and unconscionable, or
• The transaction is such that a court of equity would give relief.”
• In Leo's Investment Limited v Turyakira and Another
Civil Suit 8 of 2020; court reopened the transaction and
found there was no lawful money lending transaction
between the parties as governed by the Act.