MORTGAGE

This is an appeal against a judgment which dismissed the Appellant’s Action for the payment of surplus money realised from the sale of mortgaged property. The 1st Appellant bought Stand No 1226 Kabwe, then known as Elephant’s Head Hotel for the sum of K 640 000 000. It paid the sum of K 440 000 000 and for the balance borrowed K 200 000 000 from the Respondent. A mortgage was executed in respect of the same property as security for the loan. In addition, the 3rd Appellant executed a Third Party Mortgage in respect of property known as Stand No 9606 Lusaka, while the 2nd Appellant provided a letter of undertaking that it would apply specified proceeds towards the loan. The 1st Appellant defaulted on the loan payments and the Respondent commenced a mortgage action for foreclosure in 1997. Judgment was entered for the Respondent in the sum of K 305 114 370. 38 and the relief of foreclosure was granted. It was stayed on conditions and when the conditions were not met, the Court granted the Respondent possession of Stand No 1226 Kabwe. In 1999, the property was sold and assigned to Tuskers Limited for K 500 000 000.

On 16 September 1999, the Respondent sold Stand No 9606 to David Schichombo at K9 000 000, following an advertisement for sale as mortgagee in possession.

The Appellants wished to have the sales set aside and claimed the difference between the estimated market value and the money due on the mortgage. The estimated market value was determined by a valuation done by the Appellants' witness, a renowned valuation surveyor. The Appellants also claimed breach of the third party mortgage and an account to be rendered for the proceeds of the sale. They alleged that Tuskers Limited bought the Kabwe property with money lent to it by the Respondent and therefore it was not an actual sale. It was argued by the Appellants that the Respondent did not obtain the proper price for the sale of Stand No 9606 in that it neglected to have the property valued before selling it and ended up selling it for K 9 000 000 when it was valued at K 79 000 000.

Held:
1. If a mortgagor seeks relief promptly a sale will be set aside if there is fraud. In this case, the sale of the two properties was concluded in 1999. The Appellants only commenced this action in 2005, about six years later even though they were aware in 1999 that the properties were sold. Therefore, the Appellants could not maintain an action to set aside the sales. Their only recourse would be for an action for damages if the Respondent was found to have conducted the sales improperly.

2. When money is lent to the buyer of property by the seller (Respondent), such a sale cannot be said to not be a sale. The fact is that the buyer bought the property and the Respondent (seller) from there on had no further interest in the property. The Respondent received the purchase price which also went to the credit of the 1st Appellant’s account on the mortgage.

3. There is no principle of law which compels a mortgagee to sell only at or above the value of the property. Much depends on what potential buyers are prepared to offer. A mortgagee is entitled to sell at a price just sufficient to recover what is due to him provided that the amount is fixed with due regard to the value of the property. The overall consideration is that the mortgagee must act in good faith in the conduct of the sale. In this case, although there was no duty to advertise the property, the Respondent did advertise the property. There was evidence on record of the various correspondence it had exchanged with various potential buyers who had responded to the advertisement before it concluded a sale with Tuskers Limited. In the circumstances, obtaining a purchase price of K 500 000 000 did not constitute either disregard of the value of the property or reckless dealing with the property on the part of the Respondent; for that is the price that the Respondent was able to obtain after applying due diligence. The Respondent acted in good faith in the sale of the Kabwe property.

4. There is no duty on a mortgagee to obtain a valuation report. The Respondent advertised the property, an act which is designed to cast the net wide so as to capture as many potential buyers as possible. This, in itself, raises the potential of obtaining a very good price. In the end, the highest price the Respondent could obtain was K 9 000 000. Therefore, low as the price may seem, it, in our view, does not demonstrate fraud on the part of the Respondent. In any event, the valuation report sought to be tendered in evidence was of no relevance because the Appellants did not have it at the time of the mortgage or at the time of the sale of the property.

5. The relationship of mortgagor and mortgagee is terminated by redemption, foreclosure, or the accounting for the proceeds of realisation, and proceedings for any of these purposes involve the taking of an account between the mortgagor and mortgagee. In such an account the mortgagor is debited with the principal and interest, and also with the costs, charges, and expenses incurred by the mortgagee in relation to the mortgage security. The ordinary form of judgment for foreclosure or redemption contains a direction that an account be taken of what is due to the mortgagee under his mortgage, and for the costs of the action; a judgment in an action to recover surplus proceeds of sale requires the like account, and also an account of the proceeds of sale. The relationship between the Appellants and the Respondent was to formally be terminated by the Respondent rendering an account to the Appellants on the sale. The sale is not one of the events that terminates the mortgage relationship. Therefore, after the sale the Respondent was required to go one step further and render an account. There being no satisfactory evidence that the Respondent had rendered a formal detailed account, the court below ought to have granted judgment and ordered that an account be rendered. The account should show a balance reflecting either what is still owing to the Respondent or what is due to the Appellants as surplus.