In 1896 the plaintiffs agreed to lend andpound;5,000 to the defendant to be secured by a ship mortgage (executed later), requiring that if at any time during the period of two years the plaintiffs should elect to enter into partnership with the defendant, they would relieve the defendant of liability for payment of the mortgage money, and would transfer the ship, free of the mortgage, so that it could form part of the capital of the partnership. The plaintiffs did not go into partnership, but nor was the loan repaid. A further mortgage was executed, as additional security, in June 1898. In July they made a further agreement, which, after referring to the existing mortgages, the fact that the monies were outstanding and a request from the defendant for further time for payment, gave the plaintiffs a right, for five years, to enter into partnership with the defendant, in which case the same consequences would follow as had been agreed in the April 1896 agreement. In February 1900 the plaintiffs sought to exercise the right to enter into partnership with the defendant. The defendant resisted, on the basis that the right granted by the July 1898 agreement was in the nature of a clog on the right to redeem the mortgage made in June of that year. The House was asked whether the mortgage of June 1898 and the agreement of July 1898 were, in reality, one and the same transaction.
Held: It said no. The parties to a mortgage may, by a separate, independent transaction validly agree to give the mortgagee an option over the mortgaged property, and thus may have the effect of depriving the mortgagor of his right to redeem.
Lord Macnaghten said: ‘Notwithstanding the very able and ingenious argument by [counsel for the appellant] to prove that the purpose of this document [the July 1898 agreement] was really consolidation and rearrangement of the mortgages, in my opinion it was nothing of the kind.’
Lord Lindley said: ‘In point of fact, the real transaction was not taking a mortgage security for 5000l. or getting a better security than they had. The real transaction [in July 1898] was that the mortgagees were bargaining for a share in the partnership on certain terms.’
Lord Macnaghten, Lord Lindley
[1902] AC 461
England and Wales
Citing:
Appeal from – Reeve v Lisle and others CA 1902
The parties had entered into a series of agreements for loans, and partnerships. The defendants resisted a request by the plaintiff to be allowed, under the agreement, into partnership on a failure to repay the loan.
Held: The appeal . .
Cited by:
Cited – Jones v Morgan CA 28-Jun-2001
The claimant appealed against an order refusing him enforcement an agreement for the purchase of a one half share in a property. The judge had found the agreement to be unconscionable.
Held: The appeal was dismissed. The judge had wrongly . .
Lists of cited by and citing cases may be incomplete.
Equity
Leading Case
Updated: 10 November 2021; Ref: scu.443247