Mortgagee duty to take reasonable care to sell for best price reasonably obtainable

Mortgagee duty to take reasonable care to sell for best price reasonably obtainable

The recent case of Aodhcon LLP v Bridgeco Ltd [2014] All ER (D) 50 (Mar) considered the mortgage's duty to take reasonable care to sell a mortgaged property for the best price reasonably obtainable.

What happened in the case?

The claimant company, Aodhcon, was a special purpose vehicle created for the acquisition and development of a property. In March 2008, it purchased the property for £640,000. Part of the money used for the purchase came from a loan from the Bank of Scotland, secured by a first legal charge over the property. The development did not proceed quickly and, because the loan was about to expire, Aodhcon took out a bridging loan from the defendant company, Bridgeco. The bridging loan was originally to be repaid by April 2010, but that was extended to the 7 November 2010. In late November 2010, when the bridging loan had run out, the question of selling the property was raised. The property was sold in March 2011 for £852,000. Aodhcon issued proceedings against Bridgeco.

Aodhcon submitted that, first, Bridgeco had been in breach of duty as a mortgagee to sell the property for the best price reasonably obtainable, since it had obtained a substantially lower price than the one that it ought to have obtained on sale. It contended that, had Bridgeco not breached its duties, the property would have sold for £1.25m instead of £852,000. Secondly, it submitted that Bridgeco had not credited a deposit to the loan as soon as the deposit had been received by its conveyancing solicitors, so that interest had been charged on an outstanding sum, which had been more than it ought to have been. Thirdly, it submitted that, by using the expression 'monthly anniversary', the facility fee was uncertain or ought to be construed so as to refer to the 6 May in every year, rather than the 7 May. Fourthly, it submitted that the facility fee was a penalty.

What did the court decide?

The court

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