Here is the law report on this case:(posted 8680 days ago)SKIPTON BUILDING SOCIETY v (1) BRATLEY (2) JOHN ROBERT STOTT (2000)
A failure by a mortgagee to obtain the best price reasonably obtainable on the sale of the mortgaged property did not release a guarantor from liability, but only reduced that liability pro tanto. The correct measure of damages for such a failure was not the loss of the chance of obtaining a better price, but the difference between the price achieved and the price which could have been obtained.
Appeal by the second defendant ('Stott') against the decision of Mr Recorder Duggan by which he gave judgment for the claimant building society ('the Society'), in the sum of #14,930.58, which was #2,500 less than the Society claimed. The issue raised on appeal was a determination of what rights the lender of money secured by a property mortgage had against a guarantor of the loan, when the lender had exercised its right to sell the property as mortgagee. The Society was the mortgagee of commercial premises. Stott was one of the guarantors of the mortgagor's liability to the Society under the mortgage. Upon the Society appointing administrative receivers in respect of the premises, an offer of purchase in the sum of #122,500 was received directly from the owners of an adjoining property. That offer was accepted by the Society in January 1995, but the sale was not completed until April 1995, at which time the balance on the mortgage account exceeded #135,000. The Society brought proceedings against, inter alia, Stott to recover the amount of the shortfall. Stott contended, and the judge found, that the Society was in breach of its duty to obtain the best price reasonably obtainable in that: (i) it failed to advertise the premises; and (ii) it failed to take sufficient account of the fact that the value of the premises was affected by a special interest purchaser. Stott contended that the effect of the Society's breach was to release Stott from all further liability. The judge rejected that contention, on the basis that the breach was a breach of a warranty only, and not a breach of condition, but held that the negligence of the Society had caused the loss of a real chance of obtaining a better price, to which he ascribed a value of #2,500. This led him to reduce accordingly the amount for which he gave judgment in favour of the Society. Stott appealed, renewing his argument that the effect of the Society's breach was to release him from liability under the guarantee.
HELD: (1) A creditor's failure to obtain the proper value of a security which he sold did not amount to variation in the terms of the debtor's contract which entitled the guarantor to be discharged in toto, but only reduced pro tanto the amount for which the guarantor was liable. (2) The judge had been wrong to calculate the amount of that reduction on the basis of the loss of a chance. The proper measure was the difference between the price actually achieved and the price which could reasonably have been obtained. In the instant case the net proceeds of a sale at the best price reasonably obtainable would have been sufficient to discharge the amount due on the mortgage account.
Appeal allowed.
Michael Mulholland instructed by Farleys for Stott. Paul Brook instructed by Walker Foster for the Society.