Smith v Motor Discounts Limited

The respondent, Motor Discounts Limited, commenced an action against the appellant, Smith, to recover £2,100 based on an indenture dated 10th July 1931. In this indenture, Smith covenanted to repay the £2,100 advanced by Motor Discounts Limited at his request to the T.B. Settlement. Smith pleaded that the loan was to be secured by a mortgage of real property, with a personal covenant solely from him, and that the mortgage and the indenture were executed pursuant to this agreement. He further alleged that no entity known as the T.B. Settlement existed. Both the mortgage and the indenture contained clauses expressly excluding the operation of the Moratorium Act 1930-1931 and any amendments or future similar legislation. The respondent demurred to this plea.

The legal issues before the court were whether the personal obligation of a mortgagor under instruments collateral to a mortgage of real property was revived by the Moratorium Act 1932, despite the repeal of the Moratorium Act 1930-1931 which had rendered such obligations void. The court also considered whether the covenant in the indenture constituted a covenant by a mortgagor within the meaning of section 25(7) of the Moratorium Act 1930-1931, and whether the plea sufficiently alleged that the covenant was not a guarantee, thereby falling outside the qualification introduced by section 35(1) of the Moratorium Act 1932.

The High Court held that the personal obligation of a mortgagor arising under instruments collateral to a mortgage of real property was not revived by the Moratorium Act 1932. The Court reasoned that while the Moratorium Act 1932 repealed the earlier Moratorium Act 1930-1931, the Interpretation Act 1897 preserved the invalidity of covenants previously avoided, unless a contrary intention appeared in the 1932 Act. The Court found no such contrary intention in the provisions of the 1932 Act that would revive these collateral covenants. The Court further determined that the plea sufficiently alleged that the covenant sued upon was not a guarantee, and therefore fell within the scope of section 25(7) of the Moratorium Act 1930-1931, which invalidated such personal obligations.

Consequently, the appeal was allowed, the judgment of the Supreme Court was discharged, and the demurrer was overruled.