A mortgagee selling as mortagee in possession must ‘take reasonable care to obtain the true value of the property at the moment he chooses to sell it’ and obtain the best price for the property reasonably obtainable on the open market. However, Salmon LJ said: ‘No doubt in deciding whether he has fallen short of that duty the facts must be looked at broadly, and he will not be adjudged to be in default unless he is plainly on the wrong side of the line’.
It is not a duty breach of which is actionable without proof of damage. In default of provision to the contrary in the mortgage, the power of sale is conferred upon the mortgagee by way of bargain by the mortgagor for his own benefit and he has an unfettered discretion to sell when he likes to achieve repayment of the debt which he is owed. There is no obligation on a mortgagee to delay a sale in order to get a higher price, and the best price reasonably possible does not necessarily equate with true market value.
Salmon LJ said: ‘a mortgagee in exercising his power of sale does owe a duty to take reasonable precautions to obtain the true market value of the mortgaged property at the date on which he decides to sell it. No doubt in deciding whether he has fallen short of that duty the facts must be looked at broadly, and he will not be adjudged to be in default unless he is plainly on the wrong side of the line.’ and
‘It is well settled that a mortgagee is not a trustee of the power of sale for the mortgagor. Once the power has accrued, the mortgagee is entitled to exercise it for his own purposes whenever he chooses to do so. It matters not that the moment may be unpropitious and that by waiting a higher price could be obtained. He has the right to realise his security by turning it into money when he likes. Nor, in my view, is there anything to prevent a mortgagee from accepting the best bid he can get at an auction, even though the auction is badly attended and the bidding exceptionally low. Providing none of those adverse factors is due to any fault of the mortgagee, he can do as he likes. If the mortgagee’s interests, as he sees them, conflict with those of the mortgagor, the mortgagee can give preference to his own interests, which of course he could not do were he a trustee of the power of sale for the mortgagor.’
Cross LJ said: ‘A mortgagee exercising a power of sale is in an ambiguous position. He is not a trustee of the power for the mortgagor, for it was given him for his own benefit to enable him to obtain repayment of his loan. On the other hand, he is not in the position of an absolute owner selling his own property but must undoubtedly pay some regard to the interests of the mortgagor when he comes to exercise the power.
Some points are clear. On the one hand, the mortgagee, when the power has arisen, can sell when he likes, even though the market is likely to improve if he holds his hand and the result of an immediate sale may be that instead of yielding a surplus for the mortgagor the purchase price is only sufficient to discharge the mortgage debt and the interest owing on it. On the other hand, the sale must be a genuine sale by the mortgagee to an independent purchaser at a price honestly arrived at.’
Salmon LJ, Cross LJ
[1971] Ch 949, [1971] 2 All ER 633, [1971] EWCA Civ 9, (1971) 22 P and CR 624, [1971] 2 WLR 1207
Bailii
England and Wales
Cited by:
Cited – Newport Farm Ltd and 22 others v Damesh Holdings Ltd and others PC 7-Jul-2003
(New Zealand) The clamaints alleged that mortgagees had failed to take proper steps to obtain the best price on selling their properties as mortagees. The common law duty had been encapsulated in the 1952 Act. Here, however the landowners had . .
Cited – Re Charnley Davies Ltd (No 2) ChD 1990
An administrator owed a duty to the company over which he was appointed to take reasonable care to obtain the best price that the circumstances, as he reasonably perceived them to be, permitted, including a duty to take reasonable care in choosing . .
Cited – Roger Michael and others v Douglas Henry Miller and Another ChD 22-Mar-2004
Property had been sold by the respondents as mortgagees in possession. The claimants said the judge had failed to award the value of the property as found to be valued, and had not given a proper value to a crop of lavender.
Held: In . .
Cited – Raja v Austin Gray (A Firm) CA 19-Dec-2002
A mortgagee is at all times free to consult his own interests alone as to whether and when to exercise his power of sale. The relationship and duties owed by the receiver are equitable only. Peter Gibson LJ said: ‘(1) A mortgagee with the power of . .
Cited – Bell v Long and others ChD 16-Jun-2008
Land had been sold by administrative receivers appointed under a charge. The owner said that the lands had been sold at an undervalue.
Held: The action failed. The claimant could not show any breach of duty or that the assessments made were . .
Cited – Silven Properties Ltd and Another v Royal Bank of Scotland Plc and Others CA 21-Oct-2003
The claimants complained that the receivers appointed by the bank had failed to get the best price for properties charged to the bank and sold, in that they had failed to obtain planning permissions which would have increased the values of the . .
Cited – Meah v GE Money Home Finance Ltd ChD 18-Jan-2013
Claims by mortgagor for compensation from his mortgagee for having sold the mortgaged property at allegedly an undervalue. . .
Cited – Foreprime Properties Ltd v Cheval Bridging Finance Ltd CA 10-Nov-2015
Leave to appeal against rejetion of a claim that the respondent mortgagee had failed to secure the best price on realising the property charged. . .
Lists of cited by and citing cases may be incomplete.
Land
Leading Case
Updated: 02 November 2021; Ref: scu.184561
