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Palk v Mortgage Services

[1993] Ch 330

Case summary last updated at 09/01/2020 17:52 by the Oxbridge Notes in-house law team.

Judgement for the case Palk v Mortgage Services

P fell into arrears with his mortgage to D and D sought possession. The property was in negative equity, and D intended to rent it out for some years before selling it. P resisted possession on the grounds that the courts should apply s.91(2) of LPA 1925 so as to order a sale. CA found for P, saying that it would be just to exercise the s.91(2) power in these circumstances: Since mortgagees have to account for all rental incomes/profits to the mortgagor, and the amount by which the mortgagor would owe would increase more than the rental incomes would produce, it would be unfair not to insist on a sale. 
Sir Donald Nicholls VC: The court must exercise its discretionary power under s.91(2) where failure to do so would be manifest unfairness. Factors that influence his decision regarding fairness: (1) The likelihood that the amount rental incomes will produce will be less than increased amount P will owe; (2) The only reason behind the scheme is the speculation that property prices may rise (this is distinct from cases where there is a factor specific to one property); (3) the liability of P would continue indefinitely, which is too oppressive. (4) The amount P would still owe after sale (due to negative equity) is less than she would end up owing if the bank continue its plan to rent and later sell. In conclusion, the risk of loss to P is disproportionate to the potential for greater debt repayment that the bank might gain 

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