Kreglinger v New Patagonia Meat Company [1914] AC 25

• Under the terms of a mortgage, the mortgagee was to have the right of first refusal on products produced by the mortgagor.

• Mortgagor claimed that this collateral advantage could not have effect once the debt was repaid as this would infringe the principle of redemption.

• HL rejected this, overturning its previous position and enforce freely made contractual obligations instead.

• It ruled that collateral advantages continue to operate once the debt is repaid except where:

  1. It is unreasonable/unfair; or

  2. If it operates as a penalty, clogging equity of redemption; or

  3. Is repugnant to the right to redeem (per Lord Parker). 

Lord Parker

• There is no reason why a term of a mortgage agreement should be invalidated on grounds not applicable to other types of mortgage.

• Unconscionability, duress and undue influence (and nowadays the protection under UTCCR, UCTA and consumer credit legislation) are adequate protection for borrowers against exploitation. 

Viscount Haldane LC

• The rules on not clogging mortgages have turned into technicalities capable of defeating their actual purpose. 

Lord Mersey

• The rule of equity on redemption has to be strictly confined lest it wander into areas it ought not to enter, like “an unruly dog”. 

RELATED CASES

• Jones v Morgan