Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949 (CA...

Facts

• Cuckmere Brick Co Ltd granted a mortgage to Mutual Finance Ltd to secure a loan.
• The mortgagor defaulted, giving the mortgagee the right to exercise its power of sale over the mortgaged property.
• Mutual Finance Ltd sold the property, but Cuckmere Brick Co Ltd alleged that the mortgagee had not obtained a proper price.
• The allegation focused on the mortgagee's insufficient marketing of the property and failure to inform potential buyers about its development potential, which was material to its market value.
• The court found that the mortgagee had failed to take reasonable steps to achieve the best possible price by not adequately marketing the property or highlighting its full potential.

Issues

1. Whether a mortgagee exercising the power of sale is obligated only to act in good faith or must also take reasonable steps to secure a proper (market) price.
2. Whether the mortgagee in this case breached their duty by failing to adequately market the property and disclose its development potential to prospective buyers.

Decision

• The Court of Appeal held that a mortgagee owes a duty of care to the mortgagor to take reasonable steps to secure a proper price for the mortgaged property, extending beyond acting in good faith.
• It was found that Mutual Finance Ltd breached this duty by failing to inform potential purchasers about the property's development potential, thus not achieving a proper market price.
• The mortgagee was held liable for the loss suffered by the mortgagor as a result of this failure.

Legal Principles

• A mortgagee exercising the power of sale must not merely act in good faith, but must also take reasonable care to obtain a proper price for the property.
• The duty to obtain a proper price is a legal obligation rather than a purely moral one.
• Failure to meet this duty can result in the mortgagee being liable for any loss suffered by the mortgagor.
• The mortgagee must consider all relevant factors, including marketing efforts, the property’s potential, and prevailing market conditions, and must avoid conflicts of interest, such as sales at an undervalue to related parties.

Conclusion

Cuckmere Brick Co Ltd v Mutual Finance Ltd established that mortgagees exercising a power of sale must take reasonable steps to secure a proper price for the property, reinforcing this as a core duty and providing protection for mortgagors against sales at an undervalue.