THE MORTGAGEE’S POWER
PROBLEMS AND SOLUTIONS
OF
SALE
-
SEMINAR PAPER PRESENTED TO THE SECURED
CREDIT TRANSACTION
2010/2011 LL.M CLASS, FACULTY OF LAW,
UNIVERSITY OF LAGOS
BY:
OMOSEDE OKPAIRU
EFE UTAKE
TAIWO LAKANU
TEMIDAYO ODULAJA
GABRIEL ONOJASON
OLUWAPELUMI SIMPSON
SUPERVISING
AMOKAYE
LECTURER:
DR.
OLUDAYO
TABLE OF CONTENTS
ABSTRACT
INTRODUCTION
CHAPTER 1: THE MORTGAGEE’S POWER OF SALE
CHAPTER 2: PROBLEMS IN THE MORTGAGEE’S EXERCISE
OF POWER OF SALE
CHAPTER 3: SOLUTIONS TO THE PROBLEMS ASSOCAITED
WITH THE MORTGAGEE’S EXERCISE OF ITS POWER OF
SALE.
THE MORTGAGEE’S POWER OF SALE - PROBLEMS AND
SOLUTIONS
ABSTRACT
In the aftermath of the global economic depression, corporations
and individuals alike are still toiling to re-position their business
stakes, and this has led to the evolution of a wide array of
financing solutions, of which collateralization is of prime concern
to lenders.
History would have us believe that trust, and not security
weighed more for bankers in considering loan applications.
Global trends now emphasise the quality of security in loan
evaluations. In Nigeria, the weak economy has led to a high rate
of loan defaults causing bankers to keep a keen eye on the
quality of security. Laws also exist which make securities
mandatory. Section 20 of the Banks and Other Financial
Institutions Act (BOFIA) stipulates that facilities exceeding
certain sums require security. It is also an offence under S. 15 (1)
of the Failed Bank's Decree for bank Officers to advance
unsecured or inadequately secured credit facilities to borrowers.
The above are some of the reasons that compel the banking
industry to pay a lot more attention to security issues. Land is
generally accepted as prime security because it is fixed, it
appreciates in value, and is an asset which may be easily
liquidated.
In enforcing the mortgage upon default by the mortgagor;
particularly by exercising the power of sale, mortgagees have had
to contend with a number of bottlenecks.
It is against this background that we shall in this paper, review
the mortgagee’s power of sale, highlight the attendant problems
and attempt to proffer solutions.
INTRODUCTION:
“No one … by the light of nature ever understood English mortgage of real
estate.”
(Lord MacNaghten in Samuel vs. Jarrah Timber and Wood Paving
Corporation1)
We will take off on the assumption that the class has certain
foundational knowledge of the different views on the concept of
mortgage. Like law itself, there is no definition to foreclose all
other definitions. Suffice to say, the essential nature of a
mortgage is that it is a conveyance of a legal or equitable interest
in property as an assurance of repayment of a loan, with a
provision for redemption2.
The law vests the mortgagor and the mortgagee alike with rights
and obligations. The mortgagor has the right to the equity of
redemption, the right to recover possession (where he parts with
same upon the mortgage), and the mortgagor in possession has
the power to make leases on the res. On the other hand, the
mortgagor has an obligation to repay the loan (principal and
interest).
The rights and powers of the mortgagee include the right to
enforce the covenant to repay, power to: a) enter into possession,
1
2
(1904) AC 323 at page 362
Megarry, A manual of law of Real property. (4th Edition) page 460
b) sell the mortgage property in satisfaction of mortgage debt, c)
appointment a receiver, d) foreclose mortgagor’s equity of
redemption. Of all these perhaps the most potent is the
mortgagee’s power of sale.
However, as with other rights of the mortgagee, over the years,
the potency of the mortgagee’s power of sale upon the lapse of the
contractual due date, has been whittled down by judicial and
statutory authorities in a bid to juxtapose and balance the
mortgagor’s equity of redemption with the interest of the
mortgagee to recover the loan (principal and interest). The
statutory power of sale is limited to only legal mortgages while an
equitable mortgagee can only apply to the Court for judicial sale.
CHAPTER ONE
THE MORTGAGEE’S POWER OF SALE
1.1) INTRODUCTION:
The ‘power of sale’ is a mortgagee's power to sell a
mortgaged property when a mortgagor is in default of
payments/repayments (subject to rules and conditions of
law). In practice, this is the remedy of the mortgagee which
is most commonly used, in conjunction with entry into
possession.
1.2) ORIGIN OF THE POWER OF SALE
In the early part of the eighteenth century while the
mortgagee
could
only
sell
or
foreclose
through
the
proceeding of the court, it was significant that the delays of
the Chancery courts were at their worst during that period.
Moreover, it was also tedious and expensive. Hence, to avoid
this problem England created the ‘power of sale’ principle,
giving the mortgagee power to sell out of court. However it
took almost 65 years for the development of this principle.
In England prior to the passing of Lord Cranworth's Act the
mortgagee only had power of sale if it was stated in the
express power in the mortgage deed3 then in Lord
Cranworth's Act 1860
a power of sale was implied in
certain cases. The sections of Lord Cranworth's Act relating
to implied powers of sale were repealed by the Conveyancing
Act, 1881.
The Conveyancing Act 1881 gave to a mortgagee whose
mortgage was made by deed a power of sale except in so far
as a contrary intention is expressed in the mortgage deed,
and subject to the terms of the mortgage deed4.
This position was further reinforced by the Law of Property
Act 1925. S. 103 of the Act further provides that a
mortgagee owes a duty of care to the mortgagor to:
i.
Act in good faith;
ii.
Take reasonable care to obtain the true market
value of the mortgaged property at the date on
which the mortgagee decides to sell5,
iii.
Ensure that the sale is genuine. A mortgagee
cannot sell to him or herself.
6
Ashton v. Corrigan, 1871, L.R. 13 Eq. 76
This provision is similar to the provisions of the Ontario Mortgages Act, R.S.O. 1914. However one
striking difference is that the length and form of notice is expressly stated to be 2 months notice in
writing and same is required to be given to the mortgagor and every subsequent encumberancer
5 Tse Kwong Lam v Wong Chit Sen [1983] 3 All ER 54;
3
4
6
Corbett & anr v Halifax plc [2002] EWCA Civ. 1849 [2003] 1 WLR 964 CA
1.3) The Power of sale- QUO VADIS NIGERIA
In Nigeria mortgages are almost always created over land as
opposed to chattels, so it is most expedient to consider the
system of land ownership in Nigeria, and its pros and cons
as affects the creation and enforcement of mortgages over
land in Nigeria.
It is no longer news in Nigeria that after 1978 (the advent of
the Land Use Act) no individual in the country or state has
absolute ownership or what could be called interest in fee
simple7.
In other words, all an individual can lay lawful claim to now
is a usufructuary right in the landed property8. But what
exactly a Right of Occupancy is, the Act does not define.9
Although it can be deduced and placing reliance on its
precursor, the Right of Occupancy is usufructuary, its exact
legal nature remains obscure. The question remains is it a
Lease, a license or a Freehold?
By virtue of Section 1 of the Act, all Lands are vested in the governor of a state and individuals only
enjoy a
Right of Occupancy, whether granted or deemed.
8 Abioye vs. Yakubu, supra.
9 But a precursor, the Land Tenure Hold (of Northern Nigeria) defines it as “a title to the use and
occupation of
land.”
7
Knowing exactly its legal nature is very important to a
mortgagee who wants to accept same to guarantee the
repayment of his loan. He should know exactly the value or
weight of what the mortgagor is willing to give him as
security. Because a mortgagee can neither acquire nor
transfer (upon default of the mortgagor) a better title than
the mortgagor has in the mortgaged property.
The Land use Act does not stipulate how a mortgage shall
be created. It rather preserves the existing laws on
mortgages10. Essentially, we can have a legal mortgage11
and an equitable mortgage12.
It must be noted at this point in time that a Mortgage
instrument may provide for the Mortgagee’s power of sale
and stipulate conditions for the exercise of that power so
that except the Mortgagee complies strictly, the sale shall be
ineffectual.
Section 48, Land use Act, Abioye vs. Yakubu (1991) 5 NWLR pt.190, p.130.
This is effected by what is essentially an absolute conveyance subject however to a proviso for
Redemption.
12 This is a charge on the property but does not convey any legal estate or interest to the creditor. The
four different
ways in which an equitable mortgage may be created are: (1) by mere deposit of title deeds with a
clear intention
that the deeds should be taken or retained by the creditor as security for a loan (2) by an agreement
to create a
legal mortgage (3) by an equitable charge on the mortgagors property and (4) by a mortgage of an
equitable
interest.
10
11
Also, it is important to note that the mortgagee’s power of sale is
distinct and separate from the exercise of power by a judgment
creditor. The power of sale under the deed of Mortgage may be
exercised by the Mortgagee notwithstanding a debt recovery
judgment in his favour and even where an appeal and a motion for
a stay of execution are pending. This is well illustratrated in the
case of Union Bank of Nigeria Plc vs. Olori Motors Co. Ltd.13 In
that case, the Mortgagee (Appellant) sued the Mortgagors
(Respondents) jointly and severally claiming the sum of N7, 947,
237.00 being the debit balance outstanding in the current
account of the 1st Respondent and N84, 9710.00 being the
balance outstanding in the loan account of the 1st Respondent.
Both the overdraft and the loan were jointly guaranteed by the
2nd & 3rd Respondents. The Court entered judgment in favour of
the Appellant and ordered that subject to any necessary consent
being obtained, the Plaintiff is at liberty to sell the properties
mortgaged by the Defendant as securities for the various facilities
granted. The Respondent filed a notice of appeal and at the same
time file a motion for stay of execution but did not serve the
processes on the Appellants. While this was going on, the
13
1998) 5 NWLR (Pt. 551) 652
appellant resorted to its power of sale under the Mortgage deed
executed b the parties and sold two of the properties. The
Respondent filed a motion before the Higjh Court seeking to set
aside the sale. The sale was set aside and the appellant appealed.
The Court of appeal now held as follows:
“the exercise of the power of sale under a mortgage deed is quite
distinct and separate from the exercise of power by a judgment
creditor to execute a judgment delivered in his favour. The two
rights are in fact governed by separate and distinct relevant laws
applicable to the exercise of each of the rights. A mortgagee can
validly exercise his power of sale of the mortgaged properties
under the deed of mortgage even if the judgment of court in his
favour does not contain any order empowering him to sell the
mortgaged properties…”
1.4) WHEN DOES THE POWER OF SALE ARISE?
As soon as the mortgage money has become due, that is as
soon as the date fixed for repayment has passed, the legal
mortgagee has statutory power, which may be varied or
extended by the parties or excluded altogether14 to sell the
mortgage property provided that the mortgage has been
14
Alliance Building Society V. Share (1952) Ch. 581 All ER 1033
made by deed. If the money secured by mortgage is payable
by instalments, the power of sale arises as soon as an
instrument is due and unpaid15
1.5) WHEN CAN POWER OF SALE BE EXERCISED?
Before the power of sale can be exercised, one of the three
conditions laid down under S.125 of Property and
Conveyancing Law 1959 or S.20 of Conveyancing Act
1881 must be satisfied. These are:
a. Notice requiring payment of mortgaged money has been
served on the mortgagor and default has been made in
payment of the money for three months after such
service; or
b. Some interest is in arrears and remain unpaid for two
months after becoming due notwithstanding that the
principal sum to be advanced instalmentally under the
mortgage deed has not been advanced in full; or
c. There has been a breach of some provision contained in
the mortgage deed or in the statute and which imposes
an obligation upon the mortgagor.
The Mortgagee may upon fulfilling the foregoing conditions, sell
the mortgaged property at any time thereafter and at any price
15
Twentieth Century Banking Corporation V. Wilkinson (1977) Ch. 99 (1976) 3 All ER 361
obtainable. The sale may be by auction or by private treaty may
be in one lot or several lots. Upon sale, the mortgagee is
empowered to execute a deed vesting title in the purchaser and if
the mortgagee exercises his power of sale bona fide for the
purpose of realising his debt, and without collusion with the
purchaser, the Court will not interfere even though the sale is
disadvantageous unless the price is so law as in itself to be
evidence of fraud.16
These conditions may arise in different forms, usually after a
default of a shorter period than those provided under the law17.
In practice, this is done by expressly providing in the mortgage
when the powers of sale are exercisable. For example, ‘the legal
right of redemption shall cease one calendar month after the due
date of this deed and in favour of a purchaser, the power of sale
shall be exercisable from that date’. It should be noted that
defects in the exercise of the power of sale over mortgaged
property would not invalidate the sale. This was recently
confirmed in the case of OKONKWO V. CO-OPRATIVE AND
COMMERCE BANK PLC18. It was held that ‘if a mortgagee
I.O Smith: Practical approach to law of real property in Nigeria (1999) Ecowatch Publications
Limited, pg 268 - 269
16
17
S.123 (3) of Property and Conveyancing Law and S. 19 (2) of Conveyancing Act 1881
(1997) 6 N.W.L.R (Pt. 507) at 50.; See also Eka _ Eket vs. Nigerian Development Society Ltd & Anor
(1973) NSCC Vol. 8, p. 373
18
exercises his power of sale bona fide for the purpose of realizing
his debt without collusion with the purchaser, the court will not
interfere, even though the sale is disadvantageous, unless the
price is so low, as in itself to be evidence of fraud’. Therefore, the
title of a purchaser obtained by a conveyance from the mortgagee
who has exercised his power of sale cannot be impeached. Any
person damnified by an unauthorized or irregular exercise of the
power of sale has the remedy in damages against the person
exercising the power. Thus, in the instant case, the allegation by
the appellant that the sale of his mortgaged property did not
comply with the Auctioneers Law of Imo State would not vitiate
the sale. The only obligation incumbent on a mortgagee
exercising his power of sale is that he should act in good faith
and obtain a proper price19 A mortgagee exercising the statutory
power of sale has power to pass the entire estate (term of years)
vested in the mortgagor to the purchaser20
1.6) FORM OF SALE
Sale may be by (a) Private treaty, (b) By auction or (c) By
tender. A mortgagee must take reasonable care to obtain the
proper market value in a bona fide sale e.g. the mortgagee
may sell to himself even indirectly as in Williams V
19
20
See Eka-Eteh V N.H.D.S Ltd (1973) 6 S.C 183
S.126 (1) of Property and Conveyancing Law 1959, S.21 of Conveyancing Act 1881.
Wellingborough Council21 and he is not liable for sale at an
under-value22
1.7) ORDER OF SALE
The Court, at the instance of anyone interested in the
mortgage money or the equity of redemption, may order
sale23. The conduct of the sale is often given to the
mortgagor because of his interest that the best price should
be obtained24 Where sale is by the mortgagee, he must
account to the mortgagor for the balance if the proceeds
exceed the amount of the loan25 Any sale by a court order
without the Governor’s consent cannot give the purchaser
any right at all in the property. He is not entitled to be
issued with a certificate of purchase, as was held in Danjara
V. Mohammed Bai26. This is in accord with the provisions
of the Land Use Act 1978.
The question of consent arises when the sale has taken
place but there is nothing in the land Use Act that makes it
mandatory for a mortgagee to seek permission from any
authority to advertise or convene an auction or other forum
(1975) 1 W.L.R 1327
Eka-Eteh V. N.H.D.S Op. Cit. Note 17
23 S.114 of Property and Conveyancing Law 1959 or S.25 of Conveyancing Act 1881
24 Davies V Wright (1886) 32 Ch. 220
25 B. Visioni V N.B.N (1975) 1 N.M.L.R.8. See also Section 127 of Property and Conveyancing Law 1959
26 (1965) N.M.L.R 455
21
22
towards exercising his right of sale or foreclosure. Musdaper
J.C.A in the case of Moses Ola and Sons Ltd V B.O.N27 said
“With respect to the learned counsel for the appellants, I
am of the view that his complaint on these grounds is
not valid. There is nothing in either the Land Tenure
Law or the Land Use Act that makes it mandatory for a
mortgagee to seek permission from any authority to
exercise his right of sale or foreclosure...A bank
possesses the potent weapon of a mortgagee t exercise
its power of sale on the only condition that it acts in
good faith (Union Bank v. Ozigi (1991) 2 NWLR (Pt.176).
The respondents are not under any duty statutory or
otherwise; to first seek the consent of any authority
before advertising the auction or sale of the mortgaged
property.
1.8) MORTGAGEE’S OBLIGATION IN EXERCISING POWER OF
SALE:
In exercising the power of sale, the law requires the
mortgagee to act in good faith and in the absence of fraud,
unfair dealing with the mortgaged property or collusion with
the purchaser resulting in gross undervalue, the sale cannot
27
(1992) 3 N.W.L.R (Pt.229) 337 at 391
be impeached by the Court even where the sale is
disadvantageous to the Mortgagor. In W.A.B LTD vs.
SAVANNAH VENTURES LTD28 the Supreme Court held that
the Mortgagee or Receiver engagedd in selling a mortgaged
property has a duty to act bona fide. In other words, the
only obligation incumbent on a mortgagee selling under and
in pursuance of a power of sale in a mortgage deed is that
he should act in good faith.
The Court of Appeal in TEMCO ENG & CO. LTD vs. S.B.N
LTD
29also
added that the law is clear that the Mortgagee in
exercising his power of sale under a mortgage has a duty to
take reasonable care to obtain the true market value, not
the best value, of the property in order to realise his security
by turning it into money when he likes, as he has a right to
do, and has no obligation to wait for a favourable moment in
the property market.
According to Prof. I. O Smith
30
apart from the duty of good
faith owed by the Mortgagee in exercising his power of sale,
28
(2002) 10 NWLR (Pt. 775) S.C 401,
(1995) 5 NWLR (Pt. 397) CA 607 @ 628, paras. G – H; see also A.C.B. Ltd vs. Ihekwoba (2003) 16
NWLR (Pt. 846) S.C 249
29
I.O. Smith : Nigerian Law of Credit (2001) @ pg 83; In England and some other common law
jurisdictions, the Mortgagee, when exercising his power of sale owes a duty to the Mortgagor to take
30
there is no judicial authority in Nigeria reflecting the
position in modern times in other common law jurisdictions
with regards to the requirement of a duty of care in
negligence. This issue is very crucial in view of the obvious
implications which the Mortgagee’s negligence may have on
the outcome of sale. The Mortgagee might have conducted a
sale in good faith, yet loss may be occasioned by an
inadvertent
insertion
in
auction
particulars
of
a
misstatement. While the Mortgagee is held liable for loss in
such situations in England and some other common law
jurisdictions, it is doubtful whether Nigerian Courts will
follow suit.
1.9) EFFECT OF SALE
When a contract for sale is entered into, the power of sale is
exercised and so long as the contract subsists, the equity of
redemption is lost31 When the sale is completed, the entire
legal estate which is vested in the mortgagor passes to the
purchaser32. The conveyance otherwise operates to confer
on the purchaser a good legal title enabling him to over
reasonable care to obtain a proper price. See Tomlin vs. Luce (1889) 43 Ch. Pg 191; Cuckmere Brich Co
vs. Mutual Finance Ltd (1971) Ch. Pg. 949; etc.
31
32
Lord Warring v. London and Manchester Assurance Co. Ltd (1935) Ch. 310
S.126 of Property and Conveyancing Law or S. 21 of Conveyancing Act 1881
reach all interests, which are capable of being overreached
(e.g. subsequent mortgages and mortgagor’s equity of
redemption). In particular, it seems that the purchaser
having taken conveyance from the selling mortgagee is
unaffected by any estate contract entered into by the
mortgagor during the course of the mortgage term. In EkaEket vs. N.H.D.S Ltd
33
the Supreme Court held that once
the mortgagee in exercise of his power of sale alienates the
mortgaged property, the purchaser who is a bona fide
purchaser for value without notice of any encumbrance is
protected. However, it should be noted that the statutory
power of sale avails only a legal mortgagee. Before an
equitable mortgagee can sell, he must obtain the order of
court. When an equitable mortgagor by deposit of title deeds
and an agreement to give a legal mortgage, if called upon to
do so, the court usually decrees that the deposit operates as
a mortgage and that in default of payments of what may be
found du, the mortgagor is a trustee of the legal estate for
the mortgagee and he must convey the estate to him34. On
the other hand an order of foreclosure absolute of a legal
mortgage vests ownership of the land in the mortgagee and
33
34
Op cit. Note 17
Ogundaini V Araba (1978) LRW 280 at 288
if the order is made absolute the mortgagee is not entitled to
account to the mortgagor for any excess. For this reason
foreclosure as a remedy is difficult to obtain.
1.10)
PROTECTION OF THE PURCHASER
The Purchaser acquires an unimpeachable title basically on
condition that the power of sale has arisen, for the statute
protects
him
and
frees
him
from
the
shackles
of
constructive notice that the power of sale has not become
exercisable - Section 21(2) of the 1881 Conveyancing
Law and S. 126 (2) PCL Cap 100, LWN, 1959. This is to
protect both the Purchaser and the Mortgagee acting in
good faith so that where the mortgagee perpetrated fraud
and sold the mortgaged property illegally or where the
purchaser bought the property with actual knowledge that
the power of sale has not become exercisable and that the
title in the property cannot pass to him, the mortgagee
would not pass an unimpeachable title to the purchaser.
Also, where the Mortgagee cannot pass a valid title to the
Purchaser may be as a result of his inability to obtain
Governor’s consent under the Land Use Act, the Purchaser
may sue to recover the purchase price paid. Sometimes, the
Purchaser does not realise that the mortgagee does not have
title until after conveyance. In such cases, the question is
whether the deed of assignment contains a covenant for
title. If it does, then the purchaser may recover damages for
breach of covenant and the measure of damages is the
purchase price paid to the Mortgagee. In the absence of a
covenant for title, the rule is caveat emptor and the
purchaser cannot recover the purchase price.35
1.11) INJUNCTION AGAINST MORTGAGEE’S EXERCISE OF
POWER OF SALE:
A mortgagor may bring an application for an order of
interim or interlocutory injunction restraining the Mortgagee
from exercising his power of sale on the following grounds:
a. Where the Power of sale has not arisen or become
exercisable
b. Where the mode of sale contemplated by the Mortgagee
deviates from the mode prescribed by the mortgaged
instrument.
c. Where the amount claimed by the mortgagee is excessive
d. Where prevailing circumstances give rise to estoppels
e. Where mortgage is a fraud or the mortgage deed is not
executed by the Mortgagor.
35
I. O Smith: (supra) Pg 86
In all of the foregoing circumstances, the courts will assume its
equitable jurisdiction in ensuring that title does not pass to the
third party without due consideration of all equities. But equity
will not assist a mortgagor who purports to stultify the
transaction or render it nugatory by claiming that he has no title
to the mortgaged property, or by setting up the rights of 3rd party
to the property, or otherwise, by relying on his own wrongful
conduct in not perfecting the mortgage. In all such cases, the
mortgagor’s application shall be dismissed by the Court.
In NIGERIAN HOUSING DEVELOPMENT SOCIETY LTD vs.
MUMUNI36, the Court held that where the Mortgagee embarks on
the exercise of his statutory power of sale consequent upon
mortgage instalment falling into arrears, he cannot be restrained
from selling the mortgaged property by the mortgagor merely
paying off the arrears; only payment in full of the principal sum
and interest can restrain the mortgagee from selling.
In KASUMU vs. SCOTT & ORS37, the Supreme Court held that
the Mortgagee’s power of sale is not affected by attachment and
sale of mortgagor’s interest and any purchaser of the mortgagor’s
title in property under attachment takes subject to the existing
mortgage.
36
37
(1977) NSCC Pg. 65
(1967) NSCC Vol. 5, pg. 227
CHAPTER TWO
PROBLEMS IN THE EXERCISE OF THE MORTGAGEE’S
POWER OF SALE
1.
THE OPERATION OF THE LAND USE ACT 1978
The operation of the Land Use Act has created a number of
likely pitfalls which if not avoided in the creation of the
mortgage will ultimately impede the mortgagee’s power of
sale when same arises. We will x-ray some of the provisions;
i.
CONSENT PROVISIONS:
The consent provisions38 of the Land Use Act have
created quite a number of pitfalls which have shut out
unsuspecting mortgagees from been able to exercise
their power of sale.
a.
Given that the responsibility to obtain consent to
alienate a statutory right of occupancy lies on the
holder
39(i.e.
mortgagor), sometimes unscrupulous
mortgagor’s deliberately neglect to obtain consent,
thereby making the mortgage prima facie void in
S.21 (prohibits alienantion of granted customary right of occupancy without the requisite consent)
and S.22
(prohibits alienation of Statutory right of occupancy-whether expressly granted or deemed granted
under S.34 (1)
(4), without the requisite consent). Savannah Bank V. Ajilo (1989) I NWLR (Pt. 77) p. 305.
39 S.22 of the LUA
38
law40, and upon default the mortgagee would not
be able to exercise his power of sale.
The Supreme Court did not have the opportunity
of espousing the cardinal principle of equity on
this issue in Savannah Bank Ltd. v Ajilo41 as the
issue was not canvassed before it, so that it would
be wrong to suggest that the decision in that case
stand for the proposition that the mortgagor can
impeach a mortgage on the ground that consent
was not had and obtained by him. The correct
proposition of the law can be found in a number
of judicial authorities in recent years42 . For
example, in Ugochukwu V. Co-operatiive and
Commerce Bank (Nig) Ltd43 it was held that it
would be unconscionable for the mortgagor to
turn around and maintain that no consent was
obtained or that such consent obtained was
flawed having received valuable consideration in
the form of a loan from the mortgagee.
Section 26, Land Use Act
I NWLR (Pt. 77) p. 305
42 See e.g Adedeji v National Bank of Nigeria Ltd. (1989) 1 (Pt. 96) p. 212; Anaeze v Anyaso (1993) 5
NLWR
(Pt. 292 p. 1 at p. 39
43 (1996) 6 NWLR (Pt. 456) p. 524
40
41
b.
Secondly there is a controversy as to whether the
requirement
of
consent
applies
to
equitable
mortgages as it applies to legal mortgages.
While section 51 (L.U.A) defines mortgages to
include “a second and subsequent mortgage and
equitable mortgage” without drawing a distinction
between different types of equitable, case law does
not espouse such clarity44.
In JACOBSON ENG CO & ANOR VS UBA LTD
45
The facts of the case are that the 1st appellant
obtained a facility from the Respondent. As
security
for
this
facility
the
2nd
appellant,
Managing Director of the 1st appellant executed a
personal guarantee in favour of the Respondent.
In
addition,
he
deposited
his
original
title
documents as further security for the facility.
Following the failure of the 1st appellant to
liquidate the debt as agreed, the Respondent filed
an action claiming the debt plus interest, a
It is also pertinent to review the provision of S. 22(1) of the L.U.A, which provides that where an
equitable mortgage has been previously created with the consent of the governor, consent will not
be
required for a legal mortgage thereon. This implies that consent is required even for equitable
mortgages.
45 (1993)3 NWLR part 283 at Page 586.
44
declaration that as an equitable mortgagee, it (the
mortgagee) was entitled to sell, and an order of
sale of the property covered by the title document
deposited. Based on this, the lower court granted
judgment in favour of the Respondent as claimed.
In an appeal to the Court of Appeal, Lagos
Division, the 1st and 2nd appellants sought to set
aside the lower court's judgment. A major plank
of their contention was that the deposit of title
documents was an equitable mortgage which
required the consent of the Governor under the
Act. As none was obtained the transaction was
null and void pursuant to section 26 of the Act.
In a considered judgment, the Court of Appeal the
court stated that after the commencement of the
Land Use Decree, whatever was created upon the
delivery of the Title deeds whether equitable or
legal mortgage, the law is the same and that is to
the effect that the bank cannot sell nor an order
be made that the bank should sell without the
consent of the Governor first had and obtained46.
Three years after the judgment another panel of
the Lagos Division of the Court of Appeal in
OKUNEYE VS FBN PLC47 held that the deposit of
a title document is an equitable mortgage not
requiring the consent of the Military Governor on
the basis that it is not an alienation, but an
agreement to alienate. In this case the appellant
had appealed the judgment of the lower court that
granted the order of sale of his property deposited
as security for loan on the premise that the
consent of the Governor was lacking.
Unfortunately, in coming to this conclusion, the
court in Okuneye did not consider at all the
Jacobson’s case with a view to distinguishing it.
Therefore, there exists two conflicting decisions of
the Court of Appeal on the same subject matter.
The Jacobson case has very far implications for the banking industry. Due to the very cumbersome
and lengthy process, and the huge costs incurred in seeking the consent of the Governor, bankers
have always had to work a very delicate balance between satisfying the requirements of the law on
one hand, and protecting their funds on the other. It is therefore common place to execute an
equitable mortgage (hitherto believed not to require consent) as a substitute for a legal mortgage for
which the cumbersome and expensive rigours of consent prevail. What the Jacobson case is therefore
saying is that irrespective of the nature or type of mortgage, the consent of the Governor is required.
47 (1996) 6 NWLR AT PART 457
46
In the circumstances it is difficult to decide which
of these authorities the lower courts would follow
today. This is because in trying to guide the lower
courts on the doctrine of stare decisis the Court of
Appeal created more confusion.
c.
Section 36 (5) provides that a deemed customary
right of occupancy over land in a non-urban area
cannot be mortgaged.
It would however appear
that improvements on such land e.g agricultural
produce growing on land may be mortgaged since
there in no express prohibition against it in the
Act48.
d.
Another
noticeable
impact of
the
L.U.A
on
mortgage transactions under this heading is what
happens
where
subsequent
to
the
consent
entering
into
is
obtained
the
mortgage
transaction? As an obiter dictum in Savannah
Bank (Nig) Ltd vs. Ajilo49, the Supreme Court of
Nigeria said consent must be obtained prior to the
mortgage. However, in order to give a human face
It would thus seem that S.21 which provides that consent must be obtained to alienate land subject
of
customary rights of occupancy only deals with actual grant of customary r of o.
49 (1989) I NWLR (pt 97) 805
48
and
protect
the
efficiency
of
mortgage
transactions under the Act, the Nigerian courts
have rather held such a mortgage transaction
inchoate rather than illegal or void.50 So, despite
the mandatory statutory consent requirement,
“first had and obtained”, the courts have held it
means
no
transaction
more
than
concluded
that
becomes
the
mortgage
inchoate
(in
complete) pending when the requisite consent is
eventually sought and obtained. Departure from
doing this would have drastically had a telling
effect on efficiency of mortgage transaction in
Nigeria.51
The consent provisions of the L.U.A have other
incidental negative impacts on the operation of
mortgages in Nigeria52
Awojugbagbe Light Industries Ltd vs. Chinukwe (1995) 4 NWLR (Pt. 390) p. 379
With this judicial activism, consent in this situation is retained as a “routine affair”. See: Omotola, J.
A: “Interpreting the Land Use Act,.” Vol 1, The Journal of Nigeria Law, (1992) p. 108.
52 One of such incidental problems is the tedious and long consent application process. Sometimes
the Governor may just refuse to give his consent without showing cause and it has been held that
an order of mandamus cannot be obtained to compel the grant of consent See Queen V. Minister of
Land and Survey, Ex-parte, the Bank of the North (1963) CCHCJ 1617/73 @ 61) . There is also the
problem of high consent fees. Presently in Lagos consent fee is as high as 22.2%, Cross River 23.6%,
Ogun 16.9% - of the property value). Furthermore, there is the problem of poor land registry
practices.
50
51
ii.
REVOCATION AND COMPENSATION
Another major upsetting provision under the Act
as
it
affects
mortgage
transactions
is
the
definition given to a “holder” of a right of
occupancy. A “holder” in relation to a right of
occupancy means, “a person entitled to a right of
occupancy”53. The unpalatable effect of this is
that although the mortgagee may have been
preserving his interest in the mortgage security
(the right occupancy and improvements there on),
although he may even be ensuring periodic
payment of stipulated rents et cetera, once the
Right of occupancy is revoked, his security is
gone and cannot be attached automatically to the
mortgagor’s interest in any changed form. So,
whereas, the mortgagor may be entitled to
compensation for the value of his un-exhausted
improvements54 on the land, our dear mortgagee
cannot lay claim to such compensation money.
53
54
Section 50(1) of the Act expressly excludes a mortgagee from the definition of a holder
Section 29 (1) and (2)
This is a major set-back in the efficacy of
mortgage transaction under the Nigerian Laws.
iii. It is important to note that the provision of the
statute
protects
purchasers
for
whom
the
Mortgagee has executed a conveyance so that if
an aggrieved mortgagor commences an action to
impeach the purchaser’s title after sale but before
conveyance, the purchaser cannot take advantage
of statutory provision.
iv. Also, since legal estate is not acquired until
Governor’s consent had and obtained, statutory
protection shall presuppose that in addition to the
conveyance to the purchaser, Governor’s consent
must have been obtained.
v.
A Mortgagee who takes mortgage in unregistered
land in a Registration area and who failed to
register as first registered owner under the
Registration of Titles Act
55cannot
in exercise of
his statutory power of sale conveys a valid title to
the purchaser. Thus in Lagos Island and some
parts of Lagos Mainland where the Registration of
55
See Cap 166 Laws of Lagos State
Titles Act applies, such a mortgage which ought
to be registered within the statutory period will be
void if it was not registered and since the title is
void, the purchaser of the mortgaged property
afterwards gets nothing.
vi. CERTIFICATE OF OCCUPANCY56
One other innovation introduced by the Act is the
issuance of a certificate of Occupancy by the
Governor of a state. It should be noted that a
certificate of occupancy is merely an evidence of a
right of occupancy for which it does not on its
own confer a title or interest in land. The Act has
not provided any conclusive means of proving
one’s entitlement to a right of occupancy.
The certificate raises a rebuttable presumptive
right of occupancy57.
This means a certificate of occupancy may be set
aside if it turns out that the holder had no right
to the land58, or in favour of a pre-1978
The issuance of a certificate of occupancy is provided under section 9 of the Act.
See: The Registered Trustees of the Apostolic church vs. Olowokemi (1987) 4 NWLR Pt 58, held No
4 (Sc), Ogunleye vs. Oni (1990) 2 NWLR (Pt 135) 745.
58 Adedeji vs Williams (1989) I NWLR (pt 99) 811.
56
57
conveyance or in favour of a deemed grantee of
right of occupancy under section 34 of the Act59.
The horror and hellish implication of this is that
where the certificate of occupancy is set aside due
to any reason, discussed/highlighted above, the
mortgagee who has accepted it as security realizes
he has burnt his own fingers. The certificate he is
holding automatically becomes “a piece of paper
having no value”60.
2. There is also the problem of our slow and porous judicial
system. Mortgagor’s file all sorts of preliminary objections
and interlocutory applications to prevent the mortgagee
who approaches the court to enforce his power of sale
from being able to exercise same. This could delay the
realisation of the Security by the Mortgagee until the
matter is finally disposed off at the Court. It could be
frustrating for the Mortgagee.
3. The complex nature of documentation of title: Nigeria,
being a common law jurisdiction, once there is a defect in
the creation of the mortgage or what we call ‘perfection of
Sir Adetokunbo Ademola vs. Amao & Ors (1982) CGSLR p.273 reported in Omotola J. A. “Cases on
the Land Use Act” p. 132
60 Per Belgore, JSC in Ogunleye vs. Oni
59
title’, the mortgage will be defeated and the Mortgagee
may not be able to sell. Moreso, in Lagos, there are
different laws that regulates land transaction – The
Registered Title Law (RTL), Registration of Instrument
Law and the Conveyancing Act covers some part of Lagos
State until the recent enactment of the new Lagos State
Mortgage and Property Law, with its own attendants
problems.
CHAPTER THREE
SOLUTIONS TO THE PROBLEMS ASSOCIATED WITH THE
MORTGAGEE’S POWER OF SALE
Having critically examined the potency of the mortgagee’s power
of sale and the problems created by the Land Use Act, an attempt
would be made to proffer some solutions to the itemised
problems so as to enable the Mortgagee effectively enforce the
Mortgage Security for the realisation of its credit to enable it
continue in business.
1. The Land Use Act as it is presently must be amended,
especially the provisions relating to Consent, Revocation
and
Compensation
and
the
rights
conveyed
by
the
Certificate of Occupancy.
2. More protection should be afforded to the Purchaser who
bought bona fide for value without any collusion with the
Mortgagee.
3. The Courts should also be proactive in its intervention in
the Mortgagee’s exercise of its power of sale. This is to guard
against
the
Mortgagor
bringing
frivolous
applications
against the Mortgagee or the purchaser so as to impeach
the sale.