Summary

In the circumstances a mortgagee had been entitled to exercise her power of sale when she did but had breached her duties as mortgagee, since she had failed to take care to obtain the proper market price for the property.

Facts

The claimant (B) brought an action of damages against the defendant (E) in relation to E's dealings with a property comprising a public house and surrounding land. E had sold the property to B in 1998 for £290,000. Of that sum, £140,000 was to be left outstanding, secured by a first legal charge over the property, which was granted to E. After completion, B complained that she had not received a good title to the whole of the land that E had contracted to convey to her. In 2001, when the major part of the money secured by the first legal charge became payable, B declined to pay it. B then granted a 25 year lease of the property to a couple. Under the terms of the legal charge B could only exercise the power of leasing with E's consent in writing. E was not asked for, and did not give, her consent in writing to the granting of the lease. In 2002, E purported to exercise her power of sale as mortgagee by selling the property to a company (G). B sought damages for breach of contract, including any breach of E's obligations as vendor who had given a title guarantee, and also sought damages for the wrongful exercise of E's power of sale as mortgagee. B argued that (1) E had failed to convey to her all the land that she had contracted to convey and had breached her warranty that she had the right to dispose of the property in the manner purported; (2) E had acted wrongly in selling the property as mortgagee for £230,000. B argued that E was not entitled to exercise her power of sale at all and that, even if the power of sale was exercisable, E was in breach of her duties as mortgagee in exercising it as she did.

Held

(1) E had not been in breach of contract or in breach of her warranties in respect of title. The document that conveyed the property to B conflicted with the transfer document. The conveyance indicated that E's title to three particular areas of land was possessory only. In the conveyance E expressed herself to convey with limited title guarantee. That warranty was to the effect that E had the right to dispose of the property as she purported to. In the conveyance, E did not purport to do more than convey such estate and interest as she had in relation to the three disputed areas of land. So far as the conveyance was concerned there was no breach of any relevant covenant for title. It was reasonably clear that the three disputed areas of land were intended to pass under the conveyance, not under the transfer. Accordingly B could not rely on the warranty in the transfer document. (2) E's power of sale as mortgagee became exercisable, by virtue of the Law of Property Act 1925 s.103(iii) , on the grant of the lease in 2001. There had been a breach of a provision in the legal charge in the form of the grant of the lease without E's written consent, Iron Trades Employers Insurance Association Ltd v Union Land and House Investors Ltd (1937) Ch 313 distinguished. E had failed to take care to obtain the proper market price for the property at the date of the sale to G, Cuckmere Brick Co v Mutual Finance (1971) Ch 949 and Silven Properties Ltd v Royal Bank of Scotland Plc (2003) EWCA Civ 1409 , (2004) 1 WLR 997 applied. The property had not been exposed to the market and there had been no competitive bidding situation, G was the only prospective purchaser, and G's offer was 10 per cent below the sum at which the property had been valued. The market value of the property at the date of the sale was £340,000. E must account to B as if she had received £340,000 on her sale of the property.

Judgment for claimant in part.