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Response to 6 year rule

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Headnote 100044201 - Mortgages - Banking and Financial Services - Limitation - Sale of mortgaged properties by mortgagee in possession - Mortgagor claimed that sales were at undervalue and that mortgagee had wrongly paid proceeds to another chargee - Whether undervalue claim statute- barred - Limitation Act 1980 ss 2, 8, 36 - Raja v Lloyds TSB Bank plc - Chancery Division - Mr M Tugendhat QC (sitting as a Deputy High Court Judge) - 19.04.00

FACTS

The claimant, R, owned four properties charged to the defendant bank and subject to further charges. In 1987 the bank demanded repayment of facilities granted to R and when R failed to pay obtained possession orders in respect of the properties. Three of the properties were sold in 1989, 1990 and 1991. R issued proceedings in 1997 on the basis that the proceeds of sale should have discharged his indebtedness leaving a surplus. Further the sales were at undervalues. The bank's case was that it had credited R with the proceeds of sale to the extent to which its charges had priority and that R remained substantially indebted to the bank. That indebtedness was the subject of a counterclaim. The master struck out the statement of claim and R appealed.

ISSUES

(1) Whether the claim for damages arising out of the alleged sale at an undervalue was statute-barred.

(2) Whether the bank misapplied the proceeds of sale by paying the subsequent chargee.

HELD (dismissing the appeal)

(1) A mortgage by deed was a specialty under s 8 of the Limitation Act 1980 but the duty on a mortgagee to obtain a proper price did not arise under the deeds of charge but in equity (Downsview Nominees Ltd v First City Corp Ltd [1993] AC 295, Medforth v Blake [1999] 3 WLR 922; NLC 299059007). The period of limitation was not therefore 12 years under s 8. The claim for damages for breach of the duty in equity corresponded with the remedy for breach of a duty of care in tort. The court would therefore apply the six year limitation period in tort under s 2 by analogy under s 36 of the 1980 Act (Coulthard v Disco Mix Club Ltd [1999] 2 All ER 457; NLC 299033503 and Companhia de Seguros Imperio v Heath (REBX) Ltd [1999] 1 All ER (Comm) 750; NLC 299035601 followed). Accordingly the undervalue claim was statute- barred.

(2) There was no authority for the proposition that a mortgagee was bound to recover all that he was owed out of the proceeds of sale before paying them over to the encumbrancer next in order, or that he owed a duty not to disadvantage the mortgagor. Section 105 of the Law of Property Act 1925 created a trust over the proceeds of sale but did not oblige a mortgagee to exhaust his remedies against the proceeds of sale.

Stephen Barbour, Barrister

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Copyright Croner.CCH Group Ltd trading as CCH.New Law

(posted 8721 days ago)

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