Kreglinger v New Patagonia Meat Co Ltd [1914] AC 25

This case is a landmark decision in English property and insolvency law, particularly
regarding collateral advantages in loan agreements. Here's a breakdown of the key
points:
Facts:
 Kreglinger (lender) provided a loan to New Patagonia Meat Co Ltd (borrower)
secured by a floating charge on the borrower's assets.
 A floating charge gives the lender a general claim on the borrower's assets,
which crystallizes upon a specific event (e.g., insolvency).
 In addition to the loan, the agreement included a separate clause granting
Kreglinger the right to purchase sheepskins from the borrower for five years.
Issue:
 Could Kreglinger enforce the exclusivity clause for buying sheepskins even after
the loan was repaid by New Patagonia?
Holding:
 The House of Lords overturned the lower court's decision and ruled in favor of
Kreglinger.
 The court held that the exclusivity clause was a separate contractual right,
independent of the mortgage itself.
 Although the right of redemption (paying off the loan and regaining control of
assets) is fundamental in mortgages, it didn't extend to this separate agreement
for buying sheepskins.
Significance:
 This case established that collateral advantages, like exclusive purchase rights,
could be included in loan agreements and remain enforceable even after the loan
is repaid.
 The decision clarified the distinction between the right of redemption and freely
negotiated contractual terms.
 However, the court acknowledged limitations. The clause wouldn't be valid if it
were:
o Unreasonable or unfair
o Operated as a penalty on the borrower
o Clogged the equity of redemption (made it excessively difficult to redeem
the mortgaged property)