Palk v Mortgage Services Funding plc

Palk v Mortgage Services Funding plc [1993] Ch 330

CONSENT – MORTGAGES – MORTGAGEES’ POWERS AND DUTIES – REPOSSESISON – SALE OF LAND

Facts

In 1990 A borrowed £300,000, secured by a mortgage over the house he owned jointly with his wife, B. A’s company then went into insolvent liquidation. A and B decided to sell the house and in March 1991 a sale was negotiated for £283,000, the amount required to redeem the mortgage being £358,587.

The mortgagees declined to agree to the sale as they had obtained a suspended order for possession and wished to let the property until the housing market improved. However, the sum due under the mortgage was increasing by around £43,000 per year and letting the property was likely to produce only £13,000 to £14,000 per annum. A and B applied for an order for sale. The application was dismissed at trial and B appealed.

Issues

The Court of Appeal were required to determine whether the discretion afforded to the courts under s.91(2) LPA permitted an order for sale where there was no prospect of redeeming the full amount owing under the mortgage and where the mortgagee was not in breach of any duties owing to the mortgagor.

Decision/Outcome

In allowing B’s appeal, the Court of Appeal held that the discretion given to the court by the s.91(2) LPA is not subject to any preconditions; the fact that the mortgagee is not in breach of any duty it owes to the mortgagor is merely one of the circumstances that may be taken into account. Moreover, it was just and equitable to order a sale as unfairness and injustice would otherwise follow. Finally, it was found that to direct a sale in such circumstances did not run counter to the established practice of the court.