Litigation Recent Decisions 30/01/96

Liability of mortgagor after indemnity policy payment

Woolwich Building Society v Iain Roland Brown (1995).

QBD (Waller J) 13/12/95.

Whether a mortgager with negative equity was entitled to be discharged from liability for a shortfall on sale of the mortgaged property by the mortgagee on payment by insurers under an indemnity guarantee which mortgager had paid for.

Claim by the plaintiff building society against the defendant mortgager on the personal covenant on his mortgage with the society. Prior to entry into the mortgage the plaintiff notified the defendant by notice dated 26/8/88 that the maximum amount the plaintiff would consider proper to advance was £65,963 and that the amount which it was advancing exceeded this maximum amount by £21,987. Accordingly the plaintiff proposed to take security for the advance by way of indemnity guarantee from the Legal & General Assurance Society (LGAS). Under the general conditions for the advance which the plaintiff sent the defendant prior to finalisation of the mortgage and returned by him duly signed, was an explanation that any indemnity policy required would be arranged by the plaintiff and that he, the defendant, would pay the premium which would be deducted from the advance. "The additional security provided should not be confused with life assurance." The defendant fell into arrears and the plaintiff exercised its right of sale. The amount outstanding under the mortgage was £125,443, while the proceeds of sale only amounted to £52,000. The shortfall was £73,443 plus interest. The figure included that which the plaintiff had received from LGAS under the indemnity guarantee. The defendant by his defence asserted it was an implied term that the plaintiff would take out the indemnity guarantee and would assume by insurance the risk of a shortfall on the sale up to £21,988 and in the event of a shortfall would have no further claim against the defendant for the first £21,988. The defendant also applied under RSC O.14A for the determination of certain points of law as to whether he was entitled to resist LGAS's claim to be substituted to the sum it had paid to the plaintiff. The defendant also raised the point that the sale of the mortgaged property had been at an undervalue.