Palk v Mortgage Services Funding Plc: CA 1993

The mortgagees had obtained an Order for possession with the intention, not of proceeding to sell the property but of waiting in the hope that the market might improve. The mortgagor was anxious that the property should be sold so that the proceeds would reduce the mortgage debt, on which interest was accruing at an alarming rate.
Held: Since the mortgagees could buy the property themselves if they wished to speculate on an increase in its value, in the interests of fairness the property should be sold. The duty to take reasonable care of the property secured requires the mortgagee to be active in protecting and exploiting the security, maximising the return, but without taking undue risks. In such a case the mortgagor might obtain an order for sale even though the proceeds of sale would be insufficient to discharge the mortgage debt.
Nicholls V-C said: ‘I have given two examples where the law imposes a duty on a mortgagee when he is exercising his powers: if he lets the property he must obtain a proper market rent, and if he sells he must obtain a proper market price. I confess I have difficulty in seeing why a mortgagee’s duties in and about the exercise of his powers of letting and sale should be regarded as narrowly confined to these two duties. In addition to the mortgaged property, a mortgagee normally has a right of recourse against the borrower personally. He may also have the benefit of a guarantee from a third party. There is no problem when the borrower or guarantor can raise the necessary money, or the security available is adequate and readily realisable. Then the borrower should arrange to pay off his debt in full. The difficulty arises when that is not possible. Then the borrower is in the mortgagee’s hands. Whether in that situation a mortgagee is at liberty to exercise his rights of leasing and sale in a way that in all likelihood will substantially increase the burden on the borrower or guarantor beyond what otherwise would be the case is not a question I need to decide on this appeal . . That he should act in such a cavalier fashion is not a proposition I find attractive. That is a question which may call for careful examination on another occasion . .’


Sir Donald Nicholls V-C


[1993] Ch 330, [1993] 2 All ER 481, [1993] 2 WLR 415, [1993] ANZ Conv R 588


England and Wales


CitedChina and South Sea Bank Limited v Tan Soon Gin PC 1990
A mortgagee’s decision on sale is not constrained by reason of the fact that the exercise or non-exercise of the power will occasion loss or damage to the mortgagor. He can sit back and do nothing. He is not obliged to take steps to realise his . .

Cited by:

CitedSilven Properties Limited, Chart Enterprises Incorporated v Royal Bank of Scotland Plc, Vooght, Harris CA 21-Oct-2003
The claimants sought damages from mortgagees who had sold their charged properties as receivers. They said they had failed to sell at a proper value. They asked whether the express appointment in the mortgage of receivers as agents of the mortgagor . .
CitedLloyds Bank Plc and others v Cassidy CA 1-Dec-2004
The defendant sought leave to appeal against orders for possession. The trial had been transcribed by the claimant. At the start of the application, a copy of the transcript was given to the judge but not the defendant despite his application.
CitedMeretz Investments Nv and Another v ACP Ltd and others ChD 30-Jan-2006
The applicant challenged the exercise of a power of sale under a mortgage, saying that the mortgagee’s purposes included purposes not those under the mortgage. The parties had been involved in an attempted development of a penthouse.
Held: The . .
CitedSilven 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 . .
Lists of cited by and citing cases may be incomplete.


Updated: 12 April 2022; Ref: scu.187033