The borrower defaulted on his mortgage with the lender taking possession of the rural property to exercise its power of sale. The purchaser refused to consent to the borrowers request that the secured land be subdivided in order to possibly achieve a better sale. The lender sold the property as one lot for a short fall.
The borrower sued the lender and at first instance was found to have acted in bad faith by:
- Selling the property as one lot rather than subdividing the land which the trial judge accepted would have led to the property being sold at a significantly higher price;
- Restricting the pool of purchasers by not advertising the lands prior use as a turf and goat farm and in misdescribing the sizes of the council approved subdivided land.
The borrower also was awarded $271,000 for the loss of his worm farm.
The Court of Appeal found that the trial judge had applied a test of negligence and reasonable care rather than the settled doctrine of a breach of good faith, which required the borrower to prove that the lenders actions were willful, reckless and therefore unconscionable.
It determined that the lengthy history of unsatisfactory dealings with the borrower entitled the lender to sell the property for a sufficient amount and to avoid courses, which would or could leave them with a residual debt and a property difficult to sell.
The lender also did not breach its duty in the advertising material because they followed their own internal advertising policies and legal advice.
No basis for a finding of breach of duty as a bailee was found by the Appeal Court to support an award for damages for the borrowers loss of his worm farm.
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