Purchaser from a mortgagee protected despite irregular exercise of power of sale (LPA s.104(2))
Kezia mortgaged her freehold warehouse in Bradford, England, to Northvale Bank plc by a legal charge. The legal date for redemption has passed, so the statutory power of sale has arisen, and the charge does not vary the statutory conditions on its exercise. When Kezia's interest payments were only one month in arrears, and without serving any notice requiring payment, Northvale sold the warehouse at full market value to Omar, who acted in good faith and knew nothing of the circumstances of the default. Kezia now wants the sale to Omar set aside.
Which of the following best describes the position?
Choose one answer to see the reasoning.
Worked answer
Correct answer B: The sale stands, as Omar's title cannot be impeached on the ground that no case had arisen to authorise the sale; Kezia may claim damages from Northvale.
THE RULE TO REMEMBER
A purchaser from a mortgagee exercising the statutory power of sale takes good title even if the power was not yet exercisable; the mortgagor's remedy is damages against the mortgagee.
Purchaser from a mortgagee protected despite irregular exercise of power of sale (LPA s.104(2))
The statutory power of sale arises under s.101 LPA 1925 once the mortgage money is due, which is why it had arisen here. Section 103 then provides that it must not be exercised unless, for example, a notice requiring payment has been served and three months' default has followed, or interest is two months in arrears, or there is a breach of another provision of the mortgage. None of those had occurred, so Northvale exercised the power improperly. However, s.104(2) provides that where a conveyance is made in exercise of the statutory power, the purchaser's title is not impeachable on the ground that no case had arisen to authorise the sale or that due notice was not given, and the purchaser is not concerned to inquire. Omar, who bought in good faith without knowledge of the irregularity, therefore takes good title. Kezia's remedy, under s.104(2), is in damages against Northvale as the person who exercised the power improperly.
Why A is wrong: The power had arisen; its premature exercise is an irregularity that s.104(2) prevents from impeaching the purchaser's title.
Why C is wrong: Section 104(2) provides that a purchaser is not concerned to see or inquire whether a case has arisen to authorise the sale.
Why D is wrong: Section 104(2) gives a person damnified by an unauthorised or improper exercise a remedy in damages against the mortgagee.
Why E is wrong: The statutory power of sale is exercisable without a court order; s.104(2)(c) also protects the purchaser if any required leave was not obtained.
A little more practice done.
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