At what point is a mortgagor's right to redeem lost?

In this case1, the court considered a mortgagor's right to redeem, and when that right is extinguished.

Following the mortgagor's failure to repay the loan when due, the mortgagee auctioned the mortgaged property and entered into an agreement for sale of the property to the mortgagor. It also entered into a back-up agreement for sale to a third party at a lower price. The mortgagor failed to settle the purchase, resulting in the mortgagee cancelling the contract and pursuing the contract with the third party.

The mortgagor sought an injunction restraining the mortgagee from settling the contract with the third party on the grounds that:

• it had a right to redeem the mortgage pursuant to section 81 of the Property Law Act 1952; or
  
  
• alternatively, the mortgagee breached its duty of care owed to the mortgagor to obtain the best price reasonably obtainable for the property.

When is a mortgagor's right to redeem extinguished?

Section 81(1) of the Property Law Act states:

"A mortgagor is entitled to redeem the mortgaged land at any time before the same has been actually sold by the mortgagee under his power of sale, on payment of all money due and owing under the mortgage at the time of payment".

The meaning of the words "actually sold" was considered in this case, and the court followed Howson v Little2 in determining that a conditional sale is an actual sale for the purposes of section 81(1). Accordingly, the mortgagor's right to redeem was lost when the conditional contract was entered into with the third party.

What about the duty to obtain the best possible price?

The court noted that a mortgagee has a duty in exercising its power of sale to take reasonable care to obtain the best price reasonably obtainable as at the time of sale pursuant to section 103A of the Property Law Act and to the decision in Apple Fields Limited v Damesh Holdings Limited (referred to in the Spring 2003 issue of Financial Services Quarterly).

However, conceding that it was strongly arguable in this case that the mortgagee was in breach of its duty, the court decided that such a breach does not go to the question of the mortgagee's right to sell, but only to the amount obtained as a result of that right that can be compensated for by an award of damages.

1 Bhana v Westpac Banking Corporation (High Court, Auckland CIV-2003-404-4520, 10 September 2003, Venning J)

2[1948] NZLR 1073

Enquiries and information

For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.