Mortgage Express v Mardner

A mortgagee exercising a power of sale must take reasonable care to obtain the best price reasonably obtainable at the time. Where the purchaser is an associated company, the mortgagee must demonstrate good faith and reasonable precautions to obtain that price.

A breach does not extinguish the mortgage debt. The mortgagee may recover the shortfall calculated by reference to the price which would probably have been obtained had the duty been performed, with appropriate allowances for sale costs and additional interest.

Mortgage Express repossessed residential property mortgaged by Mr Mardner and, after obtaining valuations and marketing it for three months, sold it for £68,000 to an associated company. It then claimed the outstanding mortgage shortfall and interest.

His Honour Judge Cox in Lambeth County Court dismissed the claim in its entirety. Mortgage Express appealed. The principal issues were whether it had taken reasonable care to obtain the best price reasonably obtainable and, if not, whether its breach deprived it of the whole claim or merely reduced the recoverable shortfall.

1. Appeal allowed in part. Pill LJ delivered the leading judgment. Sedley and Thomas LJJ agreed. The mortgagee had not proved that it took reasonable care to obtain the best price reasonably obtainable when selling the property.
2. A mortgagee need not obtain the highest conceivable price. Its duty is to take reasonable care to obtain the best price reasonably obtainable at the time. A retrospective valuation above the sale price does not by itself establish breach, since reasonable marketing may sometimes justify a lower sale price.
3. The sale to an associated company required the mortgagee to show good faith and reasonable precautions to obtain the best price reasonably obtainable, consistently with Tse Kwong Lam [1983] 1 WLR 1349. The surviving documents did not show what marketing efforts had actually been made. There was no narrative or oral evidence from those involved, no evidence from the selling agent and no explanation of particulars which omitted the top floor. The sale to the associated company followed within a week of the withdrawal of an earlier offer.
4. The jointly instructed valuer assessed the property at £82,500, substantially above the sale price. Once that valuation was placed before the court, an evidential burden rested on the mortgagee to justify the lower price. It failed to discharge that burden. The short three-month marketing period and the absence of evidence of active marketing reinforced that conclusion.
5. Breach did not deprive the mortgagee of all relief. It remained entitled to the difference between the mortgage debt and the price which would probably have been obtained had the duty been performed. The court used the joint valuation as its starting point and allowed for further interest and sale costs. Although the reasoning referred to £78,500, the operative order awarded the difference between the sum due and £78,000.
6. Because the mortgagee delayed for many years before commencing proceedings, interest was confined to three years at 7% simple interest. The appellants were awarded summarily assessed costs of £6,000.

1. Court of Appeal (Civil Division): The appeal was allowed in part. The county court's total dismissal of the mortgagee's claim was replaced by an award of the difference between the mortgage debt and £78,000, together with three years' simple interest at 7%.
2. Lambeth County Court: His Honour Judge Cox dismissed the mortgagee's entire claim on 12 May 2004.