week eighteen

Question 1

what happened in Cambridge Clothing Co Ltd v Simpson

Answer 1

Simpson took out a second mortgage with Cambridge Clothing - vendors loan. It was for 3 years with 14% interest.

Simpson sold the property two years later for $2.75million. Under the mortgage, they could not repay early. Under the PLA, a mortgagor (borrower) can repay early as long as they pay back all the interest for the total term of the contract. However, the pairs lawyers agreed for them to pay only 6 months of interest.

Simpson decided the $7,000 (6 months interest) was oppressive and alleged contract should be reopened for oppression under the CCCFA.

The HC said they have discretionary power to decide whether a contract should be reopened and secondly what orders should be made. THey must look at all circumstances, in particular the standards of commercial practice in that industry and then decide if they’re reasonable. They must also look at such other matters the Court thinks fit, e.g. delay and profit.

In this case, S was not a debtor in financial strife and didn’t have to accept the terms the creditor was going to give money on to survive financially. He sold the property for a handsome price. Both parties had business acumen. The mortgage was granted for business purposes. Both parties were on equal terms and had independent representation.

The HC held the contract was not oppressive and neither was the manner in which Cambridge exercised its right to recover interest to the end of the term. Simpson only had to pay 6 months though legally required to pay 14 months.

Question 2

what happened in Greenbank NZ Ltd v Haas

Answer 2

Haas and his wife guaranteed Transworld Investors Ltd (of which Haas was a shareholder and director) for a loan from Greenbank for a deposit to purchase a block of land to subdivide.

Transworld defaulted in paying. This was a lucrative opportunity to make a substantial profit, but Transworld didn’t have the money to make this venture work. Nevertheless it committed itself to taking out the loan but wasn’t able to compete its agreement for sale and purchase due to not having the finance.

CA held the contract was not oppressive because:
- very high finance rate does not automatically mean contract is oppressive - very high risk situation reflecting risk taken (if successful Transworld would’ve received a substantial profit)

• if conduct is within standards of commercial practice and the court finds it reasonable it is not likely to be oppressive
• high degree of risk for lender and borrower’s speculative transaction for high profit

Question 3

what happened in Buxton v Roc Mac

Answer 3

CA affirmed the approach taken in the Greenbank case that an allegation of oppressive behaviour must be supported by evidence

Question 4

what happened in Robson v Shortt

Answer 4

Mrs Robson entered into a buy back program and sold to Mr Shortt (who was a trustee of a trust who made money by doing this) for $140,000 and bought it back straight away for $170,000 (taking a $30,000 loan). Legal title was in Mr Shorrt’s name so he had an indefeasible interest but Robson did lodge a caveat.

Mrs Robson paid a $42,000 deposit for his long term sale and purchase agreement over a 25 year period. Her only income was her benefit and she immediately fell behind on her payments. Mr Shortt alleged the buy-back agreement was at an end and wanted to get the caveat off and sell the property.

Mrs Robson was advised by a legal advisor before signing the agreement but then dealt with it on her own. Shortt alleged he had “bent over backwards” to help her by calling and seeing her to explain that she was behind and what would happen if she kept falling behind. Mr Shortt after several years then decided to charge her backdated default interest and did not explain that it was backdating the interest or the basis on which it was able to do so. Shortt gave her 14 days to meet arrears. She failed to respond but Shortt kept trying to contact her and let it go on for another 12 months before cancelling.

She met with her lawyers etc. and her family were going to help but Mr Shortt and the company did not accept lawyer’s contact of this.

The HC established oppression is more likely found where there is a lack of commercial experience and/or lack of independent legal advice. an action can be oppressive even though contractually permitted e.g. a mortgagee power of sale. financial hardship is not enough to constitute oppression and they can also look at unconscionability.

HC held arguably all factors point to termination of the agreement meant an end to Mrs Robson;s right to buy back her property was oppressive within the meaning of the CCCFA 2003.

Mrs Robson arguable has a case to reopen the contract.

Question 5

what happened in GE Custodians v Bartle

Answer 5

The Bartle’s were a retired couple who owned their own home but otherwise had only modest savings and superannuation. They entered into a Blue Chip Group investment scheme in a joint venture where they would buy an Auckland apartment and Blue Chip would cover mortgage payments.

Bartle’s got a loan from GE Custodians fastdoc loan system which allowed the Bartle’s to say they were self employed and not be required to disclose details of income. The Bartle’s were referred to a solicitor who failed to point out the risks to them, like the viability depending on a good property market and viability of the Blue Chip Group. Bartle’s didn’t understand it was secured against their own house.

Property market fell and Blue Chip collapsed. The apartment was sold but only realised half the amount it was bought for..

SC held loans were not oppressive. external matters were not known to the lender, the lender acted in accordance with reasonable standards of commercial practice and the loans were made on the basis of assets alone doesn’t make the loans oppressive.

Question 6

what is the conclusion from GE Custodians

Answer 6

unless lender or its agent had knowledge of circumstances that render the lending in breach of reasonable standards of commercial practice the credit contract on which the borrower has had independent legal advice is not oppressive under Part V CCFA 2003

Question 7

what is the equity of redemption

Answer 7

the right of a mortgagor to redeem his or her property once the liability secured by the mortgage has been discharged.

equity will not allow any clogg or fetter on the equity of redemption. any provision inserted to prevent redemption on payment or performance of the debt or obligation for which security was given will not be allowed.

Question 8

what happened in Noakes v Rice

Answer 8

there was a covenant in a mortgage requiring the mortgagor to continue to buy beer from mortgagee after the mortgage was paid off. this was held to be a restriction on the right of the mortgagor to get the pub back free from the terms of the mortgage. clearly the equity of redemption is clogged and fettered on this clear mortgage.

Question 9

how is the equity of redemption covered in the Property Law Act 2007

Answer 9

s 97
(1) the current mortgagor … may redeem mortgaged property before it has been sold under a power of sale

(2) the mortgagee must, on payment to it of all amounts and the performance of all other obligations secured by the mortgage … discharge the property from the mortgage

s 98 amounts secured include interest for unexpired portion of the term
(2) for the purposes of section 97, the amounts secured by the mortgage include interest on the principal amount secured by the mortgage for the unexpired portion of the term

Question 10

what happens if you try to repay a mortgage early

Answer 10

mortgagor must be allowed to repay the mortgage early - Jay v United Building Society.

S 87 and 98 PLA 2007 provide for repayment early BUT the mortgagor is liable to pay the principal and interest then owing PLUS interest on the principal sum for the rest of the term of the mortgage.

if the mortgagee were to demand earlier payment (e.g. if you default - breach the contract) then s 98(2) does not apply

Question 11

under S 100 of the PLA 2007, s 98 is subject to Parts II and V CCCFA 2003, what questions does this raise

Answer 11

1. is a claim for all interest oppressive?

2. is it a consumer credit contract - ss 50 and 51 would apply

Question 12

what are sections 50 and 51 of the CCCFA, applying to consumer credit contracts

Answer 12

s 50 - debtor’s right to full prepayment
(1) A creditor must accept any full prepayment of a consumer credit contract from a debtor at any time

(3) a consumer credit contract must not prohibit the full prepayment of the contract.
(4) nothin in ss 97-99 PLA 2007 limit this section or section 51.

Section 51 - amount required for full prepayment

Question 13

what happens if you repay a mortgage on the due date

Answer 13

the right to redeem the mortgage arises on the due date of the mortgage. EASY!

Question 14

what happens if you repay a mortgage after the due date

Answer 14

Under s 99 PLA 2007,
(1) the current mortgagor or other person seeking to redeem the mortgaged property after the expiry of the term of the mortgage … must:

(a) either -
(i) give the mortgagee not less than 60 working days written notice of intention to redeem or
(ii) pay to mortgagee 3 months interest
AND

(b) pay to the mortgagee all other amounts secured by the mortgage

(2) subsection (1) does not apply if the mortgagee
(a) is in the possession of the mortgaged property; or
(c) has taken other steps to realise the security
(can only repay mortgage after the due date if the mortgagee hasn’t taken steps to exercise the power of sale)

Question 15

what happens if you repay a mortgage after the due date but before sale by mortgagee

Answer 15

PLA 2007 s 97 protects a mortgagor’s ability to redeem the mortgaged property at any time as long as the mortgagee has not exercised its power of sale

Question 16

what is the requirement to repay “all amounts” of a mortgage

Answer 16

s97 - the mortgagee must, on payment to it of all amounts and the performance of all other obligations secured by the mortgage, at the expense of the current mortgagor .. discharge the property from the mortgage

Question 17

what happened in Harris v ANZ Banking Group

Answer 17

the issue was what are ‘all amounts’ owing. the mortgagor claimed fees charged by the bank, including a $2700 valuation fee, $59,700 real estate agent’s commission and $16,900 legal costs, were unreasonable. the court held these were all legitimate expenses, reasonably incurred by the mortgagee in exercising its power of sale - these fees were put onto the amount the mortgagor still had to repay because of this

Question 18

who is the mortgagee

Answer 18

the lender which provides a loan to the borrower (mortgagor) and to secure that loan the lender takes out a mortgage over the borrower’s property (the mortgagee has security and the ability within the mortgage terms to sell the property and get its money back should the borrower defauly)

Question 19

what are the rights of a mortgagee

Answer 19

right to:

• transfer its interest to a third party
• proceed against the mortgagor personally under the personal covenant
• enter into possession of the mortgaged land
• exercise its power of sale

Question 20

what are the obligations of a mortgagee

Answer 20

• has obligations in relation to interest charges payable by the mortgagor
• when issuing a default notice it must comply with requirements under ss119-121 PLA 2007
• has obligations in relation to its power of sale
• has obligations when it enters into possession of mortgaged property

Question 21

what remedies does a mortgagee have

Answer 21

personal remedies - sue the mortgagor

or

proprietary remedies - enter into possession, appoint a receiver, private or registrar of HC sale

but banks are not in the business of selling properties and they don’t particularly like doing mortgagee sales so they will try remedy the situation through refinancing and negotiation first

Question 22

how can a mortgagee give notice under the PLA 2007, what does this require and what are the restrictions on it

Answer 22

give notice under PLA 2007 ss 119-127

they have to do this before they can enter into possession of the mortgaged property or exercise its power of sale.

the notice allows a final opportunity to remedy a default and to ensure the mortgagor knows exactly what they need to do to remedy the default under the loan so they can keep their property and they know that otherwise it is going to be sold.

s123 states that there shall be no contracting out of these provisions

Question 23

what is required for the mortgagee’s notice under PLA 2007 s 119

Answer 23

no amounts secured by a mortgage over land are payable by any person under an acceleration clause, and no mortgagee or receiver may exercise a power specified in subsection (2), by reason of a default, unless -

(a) a notice complying with section 120 has been served (whether by the mortgagee or receiver) on the person who, at the date of the service of the notice, is the current mortgagor; and
(b) on the expiry of the period specified in the notice, the default has not been remedied

Question 24

what is the required for the form of the mortgagee’s notice under s 120 PLA 2007

Answer 24

notice must be in prescribed form and specify:

• the nature and extent of default (how much is owing)
• the action required to remedy default (what does the mortgagor need to do - pay the money)
• the period within which the current mortgagor must remedy default (no shorter than 20 working days from date of service)
• the consequences of failure to remedy default (it needs to specifically remedy that if the mortgagor does not pay the money owed, then the property will be sold or whatever is going to happen)

Question 25

what happens if the form of notice requirements under s 120 PLA 2007 are not met

Answer 25

the mortgagee has to start again from the beginning

Question 26

what happened in HCNZ v Maori Trustee (No 2)

Answer 26

the notice set out the total sum but didn’t distinguish between the principal, the interest and any other sums that were owing.

generally this would’ve invalidated that notice because it didn’t specify the full particulars of the debt owing.

the notice was saved, and was effective, because two days earlier a demand was made which listed all the particulars.

Question 27

will the court be lenient on mortgagees with minor errors in the form or notice, give example

Answer 27

yes, e.g. if it overstates the amount due

but not major errors e.g. default made in the repayment of principal when the principal is not yet due or a gross overstatement of the amount due

Question 28

what happened in Bryers v Harts Contributory Mortgages

Answer 28

the notice read the date for remedying the default as “on or before 2 March 1999” but the notice was sent in late 1999 and meant 2 March 2000. The CA said the question was whether a reasonable recipient would have understood, notwithstanding the erroe, what the notice-giver intended to specify”

The court held this was an obvious clerical error and the notice was not invalid

Question 29

what happened in TSB Bank Ltd v Burgess. What were Mr B’s arguments and the court’s responses to them.

Answer 29

Two loans were secured by the first mortgage over Mr B’s farm. Mr B fell into arrears so TSB served a s119 notice. Mr B did not comply with the notice and TSB exercised its power of sale. The proceeds of the sale were insufficient to meet the debt owed to the bank so they commenced proceedings against Mr B personally for the shortfall. Mr B argued TSB had failed to issue a valid notice.

Mr B’s arguments:
1. the notice did not adequately inform him of the action required to remedy the default - Court found the sum to be paid must generally be specified clearly in the notice, and in this case the notice did adequately inform Mr B of the matters listed.

2. The Bank had improperly required payment of interest not yet due at the time the notice was issued and consequently included an amount in respect of which he was not in default under the Act - the court clarified that if it isn’t exact because there could be a fluctuating interest rate its fine, as long as the mortgagor is very clear as to what they have to do to pay off the loan. Here the notice should be valid because it was clearly expressed and Mr B knew the amount but didn’t pay any.
3. The Bank had failed to specify the consequences of not remedying the default - in particular the Bank had failed to record the failure to comply with the notice would result in a mortgagee sale and the Bank having the right to “accelerate” the repayment of the principal secured by the mortgage. - court dismissed since it was clear to Mr B what was going to happen.

Question 30

when can a mortgagor seek an injunction to stop the sale after the notice

Answer 30

if the mortgagee does not serve or served s defective s 119 notice and attempts to exercise power of sale, mortgagor can seek an injunction to stop sale. This will stop a new purchaser registering transfer. If the transfer gets registered, mortgagor can claim damages from mortgagee for wrongful sale. This is really delaying tactics, if the mortgagor cannot make the payments on the mortgage it is inevitable they will lose the property at some point.

Question 31

what happened in Woods v DFC NZ Ltd

Answer 31

before the expiry date on the s 119 notice, the mortgagees advertised property for sale by auction. The auction was to take place after the expiry of notice so it could’ve been pulled if the mortgagor was able to repay. Therefore it was held that advertisements are only preliminary to the exercise of the power of sale

Question 32

can a mortgagor after issuing notice under s 119 PLA 2007 enter into a contract for sale

Answer 32

S124 PLA 2007 - a mortgagee does not exercise its power of sale by entering into a contract to sell or granting an option to purchase the land (either before or after the service of the notice) AS LONG AS the contract or option is CONDITIONAL on the mortgagor not having remedied default by the expiry of the notice.

Question 33

what is the mortgagee’s duty of care under PLA 2007 s176

Answer 33

A mortgagee who exercises a power to sell mortgaged property owes a duty of reasonable care to obtain the best price reasonably obtainable as at the time of sale

Question 34

what are the 3 main points to note about the mortgagee’s duty of care under PLA 2007 s176

Answer 34

1. duty of reasonable care
2. to obtain the best price reasonably obtainable
3. at the time of sale

Question 35

who is the mortgagee’s duty of care owed to

Answer 35

• the current mortgagor
• any mortgagee under a subsequent mortgage
• any holder or any other subsequent encumbrance

Question 36

can the mortgagee contract out of their duty of care

Answer 36

no - that cannot be what the legislature intended as a matter of public policy, especially when the typical mortgagor is a consumer

Question 37

what would be the consequence if there was no mortgagee duty of care

Answer 37

they only want their money back under the loan, but this could be a lot less than the property is worth. If they didn’t have this duty of care, they could just sell it at a bargain to get their money and the mortgagor would miss out on money they could’ve received for the sale

Question 38

what types of sale do the mortgagee’s duty of care apply to

Answer 38

all 3 types: private, through registrar of the HC, through the HC

Question 39

what did Cuckmere Brick Ltd v Mutual Finance Ltd clarify?

Answer 39

the mortgagee’s duty of care is a duty of care in negligence AND an equitable duty to act in good faith - this equitable duty is wider and a more onerous obligation on a mortgagee

Question 40

what happened in Cuckmere Brick Co v Mutual Finance Ltd

Answer 40

Mr Fork was a London solicitor and property developer, one of whom’s property companies was Cuckmere. They bought a block of land, with a £50,000 mortgage to MFL. The local planning authority gave unconditional approval for construction of 100 flats to proceed so MFL thought it was a good risk to take.

Mr Fork ran into financial difficulties with his other ventures and changed to wanting to build 35 houses to develop the land more simply and affordably.

Cuckmere defaulted under the mortgage and MFL gave notice and called up the mortgage for repayment. Their power of sale then became exercisable and they took possession and sold the site for £44,000.

Cuckmere said the sale failed to mention the existence of the planning consent for the 100 flats, which would make the property more valuable, maybe up to £65,000.

The English CA held that MFL had failed in its duty to the mortgagors to take reasonable care to obtain a proper price for the land. It should’ve advertised the planning approval for 100 flats to get a higher price. They have a duty of good faith and duty to take reasonable care to obtain whatever is the true market value (under our legislation best price reasonably attainable) of the mortgaged property at the moment he/she chooses to sell it - they don’t have to wait for a higher price

Question 41

what happened in Downsview Nominees Ltd v First City Corporation

Answer 41

GEM had two debentures, one to Westpac and one to FCC (company mortgages). GEM breaches the terms of FCC’s debenture and they appointed receivers - management of the company was given to them to try meet the debts.

Russell, Gem manager’s friend, arranged for his company Downsview to purchase the Westpac debenture and appoint Russell as receiver. Russell tried to trade GEM out of trouble. FCC’s solicitors wrote to Downsview acknowledging Russell as receiver but said this approach was likely to result in damage to the shareholders of both Downsview and FCC. FCC offered to either purchase the Westpac debenture or sell it’s to Downsview so they could control the lot.

The receivership continued and resulted in substantial losses which impacted FCC. They alleged Downsview and Russell had acted in a fraudulent, reckless or negligent manner and in breach of their duties owed to a second debenture holder.

HC - Russell’s conduct of receivership breached the duty of care and was reckless

CA - a receiver and manager who elects to carry on the business of the company and trade out of the receivership owes a duty of care to subsequent debenture holders to take reasonable care in dealing with the assets of the company. Russell was in breach of duty of care.

PC - Russell was in breach of the duty to exercise his powers in good faith and for proper purposes (they had done it to get GEM manager his job back, not proper)

Question 42

what is the nature and extent of the duties owed by a mortgagee to subsequent encumbrances and the mortgagor?

Answer 42

• powers conferred on a mortgagee must be exercised in good faith for the purpose of obtaining repayment and
• powers conferred on a mortgagee may be exercised although the consequences may be disadvantageous to the borrower and
• powers conferred on a mortgagee must be exercised for the proper purpose of preserving the assets that are the security so they can be realised for the benefit of the parties with interests

Question 43

what came out of Apple Fields Ltd v Damesh Holdings Ltd

Answer 43

there is a general duty of care but “the duty of care CO-EXISTS with the equitable duty of good faith”

Question 44

what happened in Coltart v Lepionka & Co Investments Ltd

Answer 44

GLW purchased property for a subdivision, with Westpac as the first mortgagee, and granted Mr Coltart an option to purchase the homstead lot.

Lepionka Company and Lepionka Trust (Lepionka purchasers) agreed to purchase other lots.

Mr Coltart spent money on improving the property so lodged caveats to protect his interests.

The subdivision was never completed and GLW defaulted on the mortgage. Lepionka & Co Investments was formed to buy the Westpac mortgage and the mortgagee adopted GLW’s contracts with the Lepionka purchasers.

The mortgagee cancelled Mr Coltart’s option to purchase and wished to sell the property to a third party. Mr Coltart offered more than what the mortgagee would’ve got selling it by this approach.

CA - the mortgagee owed Mr Coltart a duty to act in good faith when exercising its powers of sale for the purpose of realising its secured debt and was arguable in breach of that duty. A mortgagee must use its powers for the predominant purpose of obtaining a proper price and not act in a manner which unfairly prejudices or wilfully and recklessly sacrifices the interests of the mortgagor or a party claiming through it.

The mortgagee must look out for the interests of other parties because they have the power to decide how to dispose of the property and get its money back and other parties rely on this.

The close connection between the Lepionka company (mortgagee) and purchasers placed a burden on it to prove it was bona fide and independent and free of the purchasers, which exposed it to challenge.

Court held that the mortgagee did not act in good faith towards Mr Coltart because their predominant purpose was to secure a collateral advantage for the purchasers who were related parties.

Question 45

what are the 3 aspects to the mortgagees good faith duties from the case of Coltart v Lepionka & Company Investments Ltd

Answer 45

• to act in good faith
• to act for a proper purpose
• to exercise reasonable care to obtain the best price reasonably obtainable for the property

Question 46

what happened in Tse Kwong Lam v Wong Chit Sen

Answer 46

Lam borrowed money from Sen and ran into financial difficulties. Sen gave notice to exercise his mortgagees power of sale and arranged a public auction, placing 3 advertisements in newspapers over 3 days. Sen told the auctioneer the reserve price of $1.2M.

Sen’s family company purchased at auction for $1.2M after no bids. Sen claimed $400,000 from Lam as the balance and Lam counterclaims to set aside the sale on the grounds it was improper and the purchase price was an undervalue.

After 13 years the case was brought to court and the PC finally held the mortgagee had failed in its duty to take all reasonable steps to obtain the best price reasonably obtainable, however the borrower was guilty of an inexcusable delay in bringing the counter-claim, so they were only entitled to damages rather than the sale being set aside.

The mortgagee should’ve consulted with estate agents or maybe sold in another way. Auctioneers could’ve been instructed to seek interested purchasers. Advertisements were lacking in detail and contained only the legal requirements. Potential purchasers had a short time frame, no valuation of the property or independent expert advice was obtained for determining the best sale method or reserve price. The company that purchased was related so they had an extra onus to show the sale was in good faith and the mortgagee took reasonable precautions to obtain the best price reasonably obtainable at that time.

Question 47

what happened in Apple Fields Ltd v Damesh Holdings Ltd

Answer 47

Apple Fields owned land heavily mortgaged to ANZ and Damesh. The solution when they struck financial difficulties and was agreed to was that Damesh would exercise its power of sale and sell to Parshelf 81 Ltd and ANZ would forgive a significant part of their debt to make the solution work.

After the arrangement was concluded but priot to sale, Mr Smith, a director and shareholder in Damesh, took an interest in the purchaser Parshelf 81.

The PC dismissed Apple Field’s complaint that the mortgagee had failed to take reasonable care to obtain the best price reasonably obtainable at the time of sale. The statutory duty is a duty owed to the mortgagor and the mortgagor is entitled to agree with the mortgagee on terms on which the mortgagee sells - Apple Fields initiated this solution and got a good deal out of it by ANZ forgiving a large portion of debt. Secondly, $13.7M was the market value of the land at the time of sale. Thirdly, Apple Fields benefitted from the transaction. Finally, there is no general rule that a company in which a mortgagee is interest cannot purchase the mortgaged property at a mortgagee sale.

Question 48

what happened in Agio Trustees Co Ltd v Harts Contributory Mortgages Nominee Co Ltd

Answer 48

Agio owned a high value and unique property with a first mortgage to Harts. Mr T of Harts told Agio to use his partner Ms Cameron of Realty Solutions as the real estate agent but neither her nor the company had any experience selling high value or unique properties like this one. The attempts to sell the property failed.

Harts entered into possession and appointed Realty Solutions to sell property. Mr Earwaker, the sales manager of Realty, bought the property but Agio was still liable for a significant price difference. He bumped up his price to do so but they didn’t go back to the 3rd party to see if they would want to bump up their offer.

Agio claimed Hart had breached s 176 PLA 2007 (at the time s 103A PLA 1952) and that they had breached their obligation to act in good faith.

HC held the sale to Mr Earwaker was not, in itself, a breach of Hart’s duty of good faith. However, Harts did not discharge the burden upon it when a mortgagee sells to a related party to show that it had taken all reasonable steps to obtain the best price reasonably obtainable. Appointing Cameron however was no more than a recommendation, although an inappropriate one as Mr T’s partner.

Harts was liable to Agio for breach of duty.

Question 49

what happened in Secure Financial Services Ltd v Davidson

Answer 49

Mr Thompson was the sole shareholder in both mortgagee and the party purchasing at a mortgagee sale.

A mortgagee cannot purchase a property its selling under its mortgagee sale powers unless it is a sale going through the registrar of the HC or through a court order. Where a mortgagee is exercising its powers of mortgagee sale, it can sell to a related party but has the added onus of being able to prove to the court that it has taken every step to obtain the best price reasonably obtainable at the time of sale in light of the conflict of interest.

Because of the use of independent professional real estate agents, agents being used for marketing and sale, information pack being prepared and good interest in the property (showing the marketing must be good enough), CFL had satisfied the court that as mortgagee it took reasonable steps to properly sell the property and the sale could stand.

Question 50

what legal principles (10) come out of the case law behind the s 176 duty

Answer 50

1. the mortgagee has the right to decide when to sell, taking into account its own interests, however it becomes subject to the s 176 duty as soon as it decides to sell.
2. to determine whether the duty has been complied with, the facts must be considered broadly and realistically
3. it is the time of sale that is the time for determining whether the price is the best price reasonably obtainable
4. the statutory obligation is to take reasonable care to obtain the best price reasonably obtainable
5. do not substitute other words such as “true market value” for the phrase “best price reasonably obtainable”
6. in determining “best price reasonably obtainable” regard must be had to the purpose of section 176
7. a property sold at mortgagee sale will not get as high a price as one sold in a sale by an owner who is not under any financial pressure to sell
8. special considerations apply when a mortgagee wishes to sell to a party in which the mortgagee has an interest
9. as a general rule the remedy for a breach of the s 176 duty is to set aside the sale of the property. However, if this remedy is inequitable, damages will be awarded.
10. the duty of care in negligence and the equitable duty of good faith co-exist