Bishop v Blake

A mortgagee’s power of sale must have arisen and become exercisable before it is used. A breach of a mortgage provision prohibiting the exercise of statutory or other leasing powers without written consent may satisfy Law of Property Act 1925, section 103(iii). Knowledge of a lease does not itself amount to written consent or waiver.

When exercising the power, the mortgagee must take reasonable precautions to obtain the best price reasonably obtainable at the date of sale. That normally requires proper exposure of the property to the market. A sale arranged with an interested tenant, without realistic marketing or effective testing of the price, may breach the equitable duty.

The claimant purchased a public house from the defendant in 1998. Part of the land was conveyed only with the limited title the defendant possessed, while the claimant’s title to the core property was later registered and charged to the defendant as security for deferred payments.

The claimant granted a 25-year lease without obtaining the defendant’s written consent under the legal charge. The defendant later demanded payment and sold the freehold to the tenant’s operating company for £225,000. The proceedings against the purchaser and tenants were compromised, leaving damages claims against the defendant for breach of contract and wrongful exercise of the mortgagee’s power of sale.

1. The title claim failed. The conveyancing instruments were construed together. The disputed parcels were conveyed only with such estate and interest as the defendant had, subject to a limited title guarantee.
2. The power of sale had arisen, but section 103(ii) was not satisfied because no specific interest payment had been stipulated or shown to be in arrear. The principle in Mendl v Smith (1943) LJ Ch 279 concerned interest on taking the mortgage account and did not establish the statutory condition.
3. The claimant granted the lease without written consent. Knowledge did not amount to consent or waiver. Because the mortgage prohibited statutory or other leasing powers, Iron Trades Employers’ Insurance Association v Union of House and Land Investors Ltd [1937] 1 All ER 481 was distinguishable. The breach made the power of sale exercisable under section 103(iii).
4. Following Silven Properties v Royal Bank of Scotland [2004] 1 WLR 997 and Michael v Miller [2004] EWCA Civ 282, the court assessed the mortgagee’s conduct and marketing steps. The property was not realistically marketed, and the interested tenant exercised excessive control over the sale. The equitable duty to obtain the best price reasonably obtainable was breached.
5. The proper market value was £340,000. The defendant was ordered to account as if that sum, rather than £225,000, had been received.