A mortgage of freehold land contained a covenant to repay the secured loan by half-yearly instalments over a period of 40 years. The mortgagors sought early redemption arguing that the contractual postponement of repayment over a 40 year period was void in equity. The respondents relied upon the mortgage constituting a debenture as defined by s.380 of the Companies Act 1929 so that s.74 applied to prevent the condition for postponement becoming invalid in equity on grounds of the length of the period.
Held: It was a debenture.
Viscount Maugham said: ‘If we begin by asking what the word ‘debenture’ means, apart from any definition, the reply must be that it has no precise meaning. Chitty J. observed in the case of Levy v. Abercorris Slate and Slab Co., that the word ‘means a document which either creates a debt or acknowledges it, and any document which fulfills either of these conditions is a debenture.’ An interesting extract from Skeat’s Etymological Dictionary (1882) will be found in a footnote to the case (p. 264). Sir Nathaniel Lindley had previously stated simply, ‘What the correct meaning of ‘debenture’ is I do not know’: British India Steam Navigation Co. v. Inland Revenue Commissioners. In Lemon v. Austin Friars Investment Trust, Ld., the same ignorance was professed in the Court of Appeal. Warrington L.J. in particular, after observing that it had been said ‘by a wiser man than himself’ that it was impossible to give an exhaustive definition of the word ‘debenture,’ went on to remark that he did not propose to incur the reproach of venturing where wise men fear to tread. The text books are agreed at least in this that no accurate definition of the word can be found. I think it sufficient to cite Buckley on the point (11th ed., p. 174). It is clear, therefore, that it was desirable to insert in any consolidation of the Companies Acts a definition of the word.
I do not think there is any strong argument for suggesting that s. 74 of the Act of 1929, or any of its predecessors, ought by reason of its nature to be confined to what may be called ordinary debentures. As we have seen, some definition was certainly desirable, and the very wide terms used by the Legislature in the Act of 1928 and reproduced in the consolidating Act of the following year seem to me to show that it was intended to give freedom of contract as regards the particular matter involved in s. 74 in relation to any securities granted on loan by a company registered under the Companies Acts. It is contended that the context otherwise requires. I am unable to find any such context.’
Judges:
Viscount Maugham
Citations:
[1940] AC 613, [1940] 2 All ER 401
Statutes:
Jurisdiction:
England and Wales
Cited by:
Appealed to – Knightsbridge Estates Trust Ltd v Byrne CA 1939
The company mortgaged properties in London to secure an advance from a Friendly Society. A clause of the mortgage provided for repayment by eighty half-yearly instalments. The mortgage further provided that if the mortgagor paid the instalments on . .
Lists of cited by and citing cases may be incomplete.
Land, Company
Updated: 06 May 2022; Ref: scu.219913