Courts say Banks must Act in Good Faith
Traditionally when banks reach the stage of exercising their power of sale, they have been quick to point out that they are not real estate agents and are under no obligation to get a “good price” for property being sold. This case may very well mitigate that attitude, highlighting as it does the legal requirement for financial institutions to act in good faith and to be mindful of the interests of the owner of the property.
The Claimant in this case represented the estate of a couple who created a mortgage over a small hotel. Sadly illness and ultimately death of firstly the husband and then the wife meant that their payments to the bank fell into arrears. As at August 31st, 2020, the Estate was indebted to the bank in the sum of $894, 291.70 (loan principle $353, 168.31; interest, $449, 777.98 and fees $91, 355.40) . The bank by order of the Court had been granted the power to sell the property.
The Claimant representing the estate of the deceased entered into a debt compromise agreement with the bank in the sum of $500,000.00. If the Claimant could raise the money the debt would be satisfied with that sum by an agreed date. There was an extension to the deadline. He then found a buyer willing to buy for the sum of $1,200,000.00. The Defendant bank entered into an agreement for the sale of the property with the buyer who had been sourced by the Claimant on February 17th, 2020. The bank delayed in completing the sale. The bank then withdrew the debt compromise offer on April 29th, 2020.
The Claimant sued for breach of contract in the sum of $700,000.00, the difference between the sale price and the debt compromise sum. The matter came on for determination before Justice Barry Carrington.
The learned trial judge examined provisions of the Barbados Property Act Cap. 236 and in particular Section 113 (1) which provides that a mortgagee (bank) in exercising its power of sale must act in good faith and have regard to the interests of the mortgagor owner. The Court found that there was an unwillingness to complete the sale expeditiously even though the buyer was “ready and willing”, so that the Claimant might avail himself of the debt compromise.
Justice Carrington summarized what had occurred thus:
The debt compromise did not restrict the Claimant from finding a purchaser, and did not prevent him from procuring a price in that price point. If carried through the Claimant would have netted a “windfall” after the requisite deductions and I am convinced that that realization caused the bank to change its position ad deliberately prevented the occurence of the condition regarding the payment since only the bank could effect the sale. In such cases equity must intervene to assist the mortgagors.
Thus the Court found that the bank had acted in bad faith, that the agreement for sale was signed before the withdrawal of the offer, the Defendant was bound by its terms and must complete the sale. Where the bank had entered into an agreement it could not then hinder the fulfillment of the agreement. After deducting the compromised sum of $500,000.00 plus reasonable expenses, the balance must be paid to the Claimant.
Justice Carrington also commented on the conduct of the Defendant who continued with the sale of the property even though it had joined issue with the Claimant and had submitted a counterclaim for the determination of the Court. The same was completed while the Court was still deliberating.
This case signals that the Courts are willing to rely upon principles such as “good faith” in the harsh reality of individuals having their property sold by financial institutions. They are also willing to exercise their equitable jurisdiction where justice demands it.
Claim No. CV667 of 2020 Lynette Eastmond of Eastmond & Co represented the Claimant. CV 667 of 2020.
Originally posted February 19, 2023