P, mortgagor, had a collateral agreement with D, mortgagor, that it would use D as a brokerer for all its deals and that failing this it would pay D the commission to which it would have been entitled had it brokered the deal. The property mortgaged in this case is shares in P’s company. HL, by a majority, held that this collateral advantage was a clog on redemption and therefore the collateral agreement did not stand.
Lord Macnaghten (bare majority): He draws the distinction between collateral advantages that expire with the repayment of the debt and those that continue afterwards. The former are enforceable, and the latter, as a clog on redemption, are invalid. In this case, even though the shares in th company are returned in the same condition and at the same value, there is an atmosphere of danger about using them and requiring delicate handling lest they induce legal action by D.
Lord Lindley (minority): On the facts, the collateral agreement cannot be said to have inhibited the right to redeem as the shares are unaffected.