Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676
Property law; property as a security; mortgages; mortgagee's right of foreclosure.
Facts: Pendlebury mortgaged his rural property to Colonial Mutual Life Assurance Society Ltd (CMLA). When he defaulted on the loan repayments, CMLA exercised its right of foreclosure and sold the property by auction. CMLA only advertised the land in Melbourne city newspapers, and made no effort to advertise locally. The advertisement included almost no details about the land. As a result, the land sold for much less than it was worth and the sale price was sufficient only to cover the debt to CMLA. Pendlebury sought to recover the difference between the sale price and the price that could have been received if CMLA had acted with more care.
Issue: Had CMLA acted sufficiently in the interests of the mortgagor Pendlebury when selling the land?
Decision: CMLA had been reckless and had disregarded Pendlebury's interest when selling the land. CMLA was ordered to compensate him for the loss they had caused.
Reason: When exercising a right of foreclosure, a mortgagee must not consider only their own interest and, either recklessly or wilfully, sacrifice the interests of the mortgagor. To do so constitutes a failure to act in good faith. In this case, CMLA had been reckless by not advertising the land locally and by not providing information which would inform and attract potential buyers.