Mortgages — SQE1 Land question
A worked single-best-answer question on mortgages, with why each wrong option is wrong — the way SQE1 traps candidates.
Edwin mortgaged a large site to Forth Bank plc. He has defaulted and the bank's power of sale has become exercisable. Edwin tells the bank that if it waits six months he expects to obtain planning permission for housing, which would greatly increase the site's value. The bank instead decides to sell immediately, instructs reputable agents, markets the site properly and sells at its current market value.
Is the bank in breach of any duty to Edwin?
- AYes, because a mortgagee selling must obtain the best price that could be achieved at any time.
- BNo, because a mortgagee may choose when to sell and is not obliged to wait for a better market or obtain planning permission, provided it takes reasonable care to obtain the true market value at the time of sale.
- CYes, because a mortgagee owes the mortgagor a duty to act in his best interests when selling.
- DYes, because the bank had been told of the planning application and so had to pursue it.
- ENo, because a mortgagee owes the mortgagor no duties at all in exercising its power of sale.
Show answer and reasoning
Rule: A mortgagee may choose the timing of sale but must take reasonable care to obtain the true market value at the time it sells.
- A The duty is to take reasonable care to obtain the true market value at the time the mortgagee chooses to sell. (wrong rule)
- C The mortgagee may act in its own interests in deciding whether and when to sell, subject to the duty of care on the sale itself. (wrong rule)
- D There is no duty to apply for or await planning permission before selling, as Silven Properties confirms. (right rule, wrong facts)
- E The mortgagee does owe a duty of good faith and a duty to take reasonable care to obtain the true market value. (wrong rule)
Source: Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949; Silven Properties Ltd v Royal Bank of Scotland plc [2003] EWCA Civ 1409