Samuel v Jarrah Timber and Wood Paving Corporation Ltd: HL 16 May 2004

The appellant loaned andpound;5000 to the respondent taking security of a andpound;30,000 mortgage debenture stock which would allow him to purchase any part of the stock at 40 per cent within twelve months. The company sought to repay the advance within the period of twelve months, whereupon the appellant claimed to purchase the whole of the stock at the agreed price. The company brought a redemption action, seeking a declaration that the option was void.
Held: The appeal failed. The company was entitled to the declaration. Lord Halsbury and Lord Macnaghten reached that conclusion with reluctance. If a court determined that a transaction was truly a mortgage, a court will strike down any term of the loan which prevents the mortgagor from getting back the property secured on repaying what was due to the mortgagee. A mortgage may not contain a clause that conferred on the mortgagee an option to buy the mortgaged property.
Lord Lindley said that the doctrine ‘Once a mortgage, always a mortgage’ was not confined to deeds creating legal mortgages; it applied to all mortgage transactions, and: ‘The doctrine . . means that no contract between a mortgagor and a mortgagee made at the time of the mortgage and as part of the mortgage transaction, or, in other words, as one of the terms of the loan, can be valid if it prevents the mortgagor from getting back his property on paying off what is due on his security. Any bargain which has that effect is invalid, and is inconsistent with the transaction being a mortgage. This principle is fatal to the appellant’s contention if the transaction under consideration is a mortgage transaction, as I am of opinion it clearly is.’

Judges:

Earl of Halsbury, Lord Chancellor, Lord Macnaghten and Lord Lindley

Citations:

[1904] AC 323, [1904] UKHL 2

Links:

Bailii

Jurisdiction:

England and Wales

Equity, Land

Updated: 27 June 2022; Ref: scu.219904