Summary

For the purposes of the Limitation Act 1980 s.8 and s.20, the date at which a building society's right accrued to recover the shortfall of a mortgage advance from the mortgagors was the date when the mortgagors defaulted in the monthly instalment payments.

Facts

The appellant building society (B) appealed against a decision ((2004) EWCA Civ 1063, (2004) C.P. Rep. 42) that their claim to recover a shortfall from a mortgage advance was time barred by the Limitation Act 1980 s.20(1). The respondent mortgagors (W) had entered into a mortgage agreement with B and had defaulted on the repayments after only two months. B had obtained an order for possession. However, because of a decline in the property market B had only been able to sell the property a year later and had been left with a shortfall of £23,921.92. W had heard nothing regarding the shortfall from B for 12 years. However, they were then served with a claim for £46,865.99 and costs, which represented the shortfall on the sale with interest. W submitted that B's claim was time barred by the Limitation Act 1980 s.20(1), the right of B to receive money secured by a mortgage having accrued when they defaulted and B became entitled to recover its advance. B contended that (1) s.20 of the 1980 Act did not apply because at the date the action was brought the money owing was not secured by a mortgage. The claim was an action on a specialty debt under s.8 of the 1980 Act which was being brought within 12 years of when the cause of action had accrued; (2) the cause of action had arisen when the property was sold and the shortfall was quantified. B submitted that the default had given it neither a cause of action nor a right to receive the money in respect of the outstanding capital. The mortgage deed contained a clause that incorporated statutory powers under the Law of Property Act 1925 s.101 enabling B to exercise powers of sale on default but neither that clause nor anything else in the mortgage said that the advance became repayable. Section 105 of the 1925 Act did not say that the mortgage advance must have fallen due for the proceeds of sale to be applied in discharge of the mortgage money. If the mortgage money had not fallen due even after exercise of the power of sale there was no limitation period on the shortfall as such. There would be separate limitation periods for each instalment from when each became due. The artificiality of such a result could be avoided if a term was implied in the mortgage that upon sale the capital became due.

Held

(1) For limitation purposes, ordinarily time would run from the moment when a cause of action designated by the appropriate rule had arisen. It would be strange if B could then stop time running by its own act in exercising the power of sale. If therefore, the cause of action when it arose was a claim to a debt secured on a mortgage, s.20 of the Act did not cease to apply when the security was subsequently released, Bristol and West Plc v Bartlett (2002) EWCA Civ 1181 , (2002) 33 EG 97 (CS), applied. (2) The position as between lender and borrower was regulated by the mortgage deed, which set out a list of situations in which the power of sale might arise. That implied that until such an event occurred, the power could not be exercised and the money was not repayable. The power of sale was exercisable when the payment of the money had been demanded in writing. It would be a highly unreal construction of the mortgage deed to imply that the demand for payment did not imply or create a personal debt. Although mortgages came laden with old equitable doctrines which meant that the legal effect of a document sometimes had to be qualified it did not mean that they were subject to special rules of construction. The document had to be construed in the same way as any other conveyancing transaction. Even if the appropriate limitation period had been the 12 years prescribed by s.8 of the 1980 Act for an action on specialty, the cause of action had arisen when the demand for payment was made more than 12 years before the instant action was brought and the claim would have been statute barred. The mortgage deed had given B the right to demand payment at any time after one month from the date of the mortgage. For the purposes of both s.8 and s.20 of the 1980 Act, time had begun to run well before B had taken possession of the house, and B was statute barred from bringing its claim in action.

Appeal Dismissed.