Sale of property — Legal charge — Mortgagor leasing property without mortgagee’s written consent in breach of legal charge — Mortgagor refusing to pay sums owing under charge — Mortgagee exercising power of sale — Mortgagee having duty to obtain market value — Mortgagor complaining that sale at undervalue — Whether mortgagee failing to obtain proper market price in breach of duty — Claim allowed
The claimant contracted to buy a property from the defendant for £290,000. The sum of £140,000 was to be left outstanding, secured by a first legal charge granted to the defendant over the property.
Following completion, the claimant granted a lease of the property to a third party without first obtaining the defendant’s consent, in breach of the charge. In addition, she complained that she had not received good title to all the land that the defendant had contracted to convey to her. Consequently, she refused to pay the major part of the money secured by the charge when it became payable.
The defendant purported to exercise her power of sale as mortgagee by selling the property. The claimant contended that the sale was improper, inter alia, because it was at a serious undervalue. She commenced proceedings in the High Court, seeking a number of reliefs, including damages for the wrongful exercise of the defendant’s power of sale as mortgagee.
The defendant argued that she had been entitled to exercise her power of sale since some of the interest under the mortgage was in arrears and the claimant had granted a lease of the property without her written consent.
Held: The claim was allowed.
The defendant was not entitled to justify the exercise of her power of sale as mortagee by saying that, at the time at which she purported to sell as mortgagee, interest under the legal charge was in arrears and remained unpaid for two months after becoming due within section 103(ii) of the Law of Property Act 1925. Paragraph (ii) was directed to the non-payment of specific sums at specific times before the mortgagee’s power of sale was exercised. It would be unjust to allow the defendant to rely upon the non-payment of interest to bring herself within para (ii) when she had not asserted an implied obligation to pay interest until the hearing and had still not specified the rate of interest or the dates upon which it ought to have been paid: Mendl v Smith (1943) 112 LJ Ch 279 considered.
The defendant’s power of sale as mortgagee became exercisable, by virtue of section 103(iii) of the Act, upon the grant of a lease by the claimant to third parties without the defendant’s written consent: Iron Trades Employers’ Insurance Association v Union of Land and House Investors Ltd [1937] 1 All ER 481 distinguished.
However, the defendant had failed to obtain the proper market price for the property by accepting the first offer that she received. She was therefore liable to account to the claimant for the proceeds of sale on the footing that she was to be treated as having received not the price that was actually paid but the proper market price for the property: Silven Properties Ltd v Royal Bank of Scotland plc [2003] EWCA Civ 1409; [2003] 3 EGLR 49; [2003] 50 EG 96 applied.
Hugh Jackson (instructed by Wright Hassall, of Leamington Spa) appeared for the claimant; Paul Clarke (instructed by Canty & Co, of Birmingham) appeared for the defendant.
Eileen O’Grady, barrister