Mortgage — Sale of property — Personal obligation to pay shortfall — Date when cause of action accruing — Whether claim time-barred — Limitation Act 1980 — Appeal allowed
In 1989, the appellants defaulted on mortgage repayments in favour of the respondent. In 1990, the respondent sold the appellants’ house, but the proceeds of sale were insufficient to discharge the debt, and in 2002, the respondent brought a claim against the appellants to recover on their personal obligation to repay the shortfall. The terms of the mortgage provided only for repayment in monthly instalments, and contained no express covenant by the mortgagors to repay the whole of the balance on any specified date or in any specified event.
It was common ground that a 12-year limitation period applied to the respondent’s claim. The issue was a question of when the cause of action had accrued and whether the limitation period had expired. The respondent contended that: (i) on the sale of the house, there was a continuing liability to make monthly repayments until the debt was repaid in full; (ii) the limitation period in respect of each instalment began to run only on the date upon which that instalment fell due; and (iii) the respondent was therefore entitled to recover all the unpaid instalments for the 12 years preceding the commencement of the action. In the alternative, the respondent argued that time did not start to run against it until the amount of the shortfall had been ascertained, namely when the house was sold.
The respondent made an application for summary judgment, which was dismissed at first instance and allowed on appeal. The appellants appealed. The respondent cross-appealed against the judge’s decision to award only three years’ worth of interest.
Held: The appeal was allowed and the cross-appeal dismissed.
On a correct construction of the mortgage, a covenant to repay the balance was to be implied. Also to be implied was a term that the respondent would not enforce its rights and remedies in respect of the balance so long as the appellants paid the agreed instalments, but that, in the event of a default, the full balance would immediately become payable. The respondent was entitled to exercise its power of sale in the event of a one-month default for in the payment of an instalment. It was entitled to receive the balance of the principal sum and interest due out of the proceeds of sale. The combined effect of sections 5, 8 and 20 of the Limitation Act 1980 was that the respondent’s cause of action to recover the whole of the advance, whether by way of covenant or by simple contract, and the right to receive it out of the proceeds of sale of the house, arose on the appellants’ 1989 default. It was not necessary for the amount due to be ascertained on the sale of the house before the respondent had a right to receive it: Hornsey Local Board v Monarch Investment Building Society (1890) 24 QBD 1 applied. The cause of action was “upon a specialty” within section 8, and was also “part of the advance secured by a mortgage” within the meaning of section 20, at the date upon which the cause of action accrued. More than 12 years had elapsed since the cause of action had accrued. Accordingly, the claim for the shortfall was statute-barred.
Nigel Meares (instructed by Peter H Rollin) appeared for the appellants; John McGhee QC and Stephanie Tozer (instructed by Rosling King) appeared for the respondent.
Sally Dobson, barrister