Samuel v Jarrah Timber [1904] UKHL 2; [1904] AC 323

Key point

  • An option to purchase mortgaged shares was deemed void


  • The mortgagor company borrowed money on the security of its debenture stock
  • At the same time, it granted the lender/mortgagor an option to purchase the debenture stock at 40% of price within 12 months

Held (House of Lords)

  • The option was invalid

Earl Halsbury LC

  • ‘A perfectly fair bargain made between two parties to it, each of whom was quite sensible of what they were doing, is not to be performed because at the same time a mortgage arrangement was made between them.’
  • ‘If a day had intervened between the two parts of the arrangement, the part of the bargain which the appellant claims to be performed would have been perfectly good and capable of being enforced.’

Lord MacNaghhten

  • This case is governed by the rule that ‘a mortgagee is not allowed at the time of the loan to enter into a contract for the purchase of the mortgaged property’
  • The rule was invented to protect landowners from oppression, and he would be open to modifying the rule ‘so as to prevent its being used as a means of evading a fair bargain come to between persons dealing at arms’ length and negotiating on equal terms’
  • In the current case, the directors of a trading company were in a very different position from ‘an impecunious landowner in the toils of a crafty money-lender’, but he felt the rule should not be departed from as it was supported by a long line of precedent

Lord Lindley

  • He thought that the clogs and fetters doctrine applied, such that the option to purchase was void as a clog or fetter on the equity of redemption


  • Lord MacNaghten’s and Earl of Halsbury’s obiter views suggests that the clogs and fetters doctrine should be modified in the future when dealing with fair bargains