White v City of London Brewery Co (1889) 42 Ch D 237

Facts

• White mortgaged a public house to the City of London Brewery Co.
• Following White's default, the Brewery Co took possession of the property and operated it as a public house.
• The Brewery Co generated significant profits from running the business during its period of possession.
• White claimed that the Brewery Co, as mortgagee in possession, was obligated to account for the profits obtained while in possession.
• The Brewery Co argued it was entitled to retain the profits as compensation for managing the property and recovering the mortgage debt.

Issues

1. Whether the mortgagee in possession is required to account for profits generated from the mortgaged property during its possession.
2. Whether the mortgagee is entitled to retain profits as compensation for managing the property.
3. How accounting for profits by the mortgagee should be conducted under English property law.

Decision

• The court held that the mortgagee in possession must account for profits derived from the property.
• The court emphasized that the mortgagee acts as a custodian with fiduciary duties, not as an absolute owner.
• It was ruled that all income generated during possession must be applied toward reducing the mortgage debt after deducting reasonable expenses.
• The Brewery Co was required to provide a detailed account of all income and expenses, applying any surplus to the debt rather than retaining it as compensation.

Legal Principles

• A mortgagee in possession owes fiduciary duties to the mortgagor, including the duty to act in good faith and to avoid actions detrimental to the mortgagor's interests.
• The mortgagee must maintain the property, collect and account for all income, and apply net profits to the mortgage debt.
• Mortgagee rights of possession are subject to equitable principles requiring transparency and accountability.
• The balance between the rights of mortgagees and the protections of mortgagors is upheld by demanding proper financial accounting and the avoidance of self-enrichment.

Conclusion

White v City of London Brewery Co established that a mortgagee in possession must account for all profits from mortgaged property and apply the net proceeds toward the mortgage debt, ensuring fair treatment and protection of the mortgagor’s interests through transparency and fiduciary responsibility.