chapter  20
15 Pages

Debentures and the law of mortgages

In Knightsbridge Estates Trust Ltd v Byrne [1940] AC 613, a company that had secured a loan by mortgaging its property to the lender of the money argued that the provision that the mortgage would last for 40 years was void as an unreasonable restriction on the mortgagor. The court held that the mortgage constituted a debenture within the Companies Act and, therefore, was not void. Other restrictions placed upon the mortgagor may well be invalid. Thus, in Kreglinger v New Patagonia Meat & Cold Storage Co Ltd [1914] AC 25, the court recognised that requiring the borrower to sell sheepskins to the lender of finance for a period of time could constitute an unfair clog on the equity of redemption. In the event, on the facts of the particular case, it was held not to be unreasonable. The agreement provided that for five years the borrower should sell the skins to the lender so long as the lender was willing to buy at the best price offered by any other person.