Loan secured by legal charge over property and personal guarantee – Creditor demanding repayment under terms of loan – Repayment not made – Creditor appointing receivers and instructing them to value and market property – Property sold – Creditor issuing bankruptcy petition against guarantor for shortfall – Guarantor opposing petition on ground that property had been sold for undervalue – District judge allowing petition – High Court dismissing appeal – Court of Appeal allowing admission of new evidence – Appeal dismissed.
In March 1987 a property was valued at £800,000. In October 1988 it was revalued at £1.65m and on the basis of that valuation the creditor agreed to make a loan facility available. The loan was guaranteed by the guarantor and was secured by way of legal charge over the property. It was a term of the facility that if the value of the property decreased the creditor could recall the loan. In January 1992 the property was valued at £1.2m and the creditor demanded repayment of the loan and subsequently appointed receivers. The receivers instructed an agent to value and market the property. In February 1994 they valued the property as having an open market value of £750,000 and a forced sale value of £625,000. In June 1994 another valuation was obtained which valued the property in the sum of £1.05m In August 1994 the agent attempted to sell the property inviting offers in excess of £750,000. The property was advertised in Estates Gazette asking for offers in excess of £850,000. In October 1994 several offer were received ranging from £703,000 to £750,000. The three highest bidders were asked for their highest bids and as a result two offers were received of £714,000 and £750,000. The property was ultimately sold to the highest bidder for £740,000. The purchasers insured the property for £1.9m. The creditor then presented a bankruptcy petition for the shortfall of the loan and costs.
The guarantor resisted the bankruptcy order on the grounds that the receivers had sold the property negligently at an undervalue, and further that he had a cross-claim in respect of a breach by the creditor of an agreement to lend him personally £500,000. The district judge allowed the application for the bankruptcy order. The High Court dismissed the guarantor’s appeal. The guarantor appealed and the Court of Appeal allowed the admission of evidence that had not been before the High Court relating to the value of the property and cross-claim.
Held The guarantor’s appeal was dismissed.
1. It had not been shown by either the new evidence or the evidence that had been before the judge that there had been a negligent sale at undervalue. Even if the agents’ valuation had been pessimistic they had marketed the property in a way that was designed to, and would have, obtained the best market value.
2. Although there were letters which supported the plaintiff’s contention that a loan of £500,000 was contemplated, there was no evidence of any promise by the defendant to lend the plaintiff a facility of £500,000.
Edward Cohen (instructed byJohn Constant & Co) appeared for the appellant; David Waksman and David Quest (instrcted by Radcliffes Crossman Block) appeared for the respondent.