Samuel v Jarrah Timber [1904] AC 323

• Plaintiff, mortgagor, borrowed from Defendant, mortgagee, in an agreement that gave Defendant the option to buy the mortgaged stock within 12 months of the mortgage commencing.

• HL held the option to buy invalid as an impediment to redemption. 

Earl of Halsbury LC

• He is bound by authority due to “a principle of equity, the sense or reason of which I am not able to appreciate”.

• He believes such an agreement as this is “perfectly sensible” and ought to be, but is not, allowed by law.

Lord Macnaghten

• He says that he is bound by 150 years of precedent, but criticises the rule on redemption and collateral advantage as allowing escape from fair bargains. 

Lord Lindley

• An option to buy is only valid where it doesn’t form part of the mortgage agreement but is separate (Reeve v Lisle). Again, he criticises the situation.

  • Also, the validity of a contractual term should not depend on whether it is framed as part of the mortgage agreement or as a separate one: it is a purely artificial distinction with no substantive merit. 

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