CREATION OF EQUITABLE MORTGAGE

   An equitable mortgage is a type of mortgage created under the rules of equity. It confers equitable interest on the mortgagee. Equitable mortgage is more suitable for short-term loans. Equitable mortgage is not as secure as legal mortgage, but in practice the mortgagee protects itself by requesting that the mortgagor at the time of creating the equitable mortgage sign a legal mortgage and consent Form, which is kept aside until the mortgagor is in default of repayment and the mortgagee will perfect the legal mortgage to enable it exercise the statutory power of sale. If the mortgagor is not in default, and he successfully pays back the loan, the legal mortgage becomes useless.

Modes of creating equitable mortgages in Nigeria are uniform, except for the RTL areas. Distinction between CA State and PCL State is therefore not necessary here. There are five(5) modes of creating equitable mortgages in Nigeria (seeOgundaini v. Araba[1978] 1 LRN 280; [1978] NSCC 334),namely –

1. Deposit of Title Deed With an intention to create mortgage– mere deposit of title deeds with a bank with a clear intention that the deeds should be retained as security for a loan is one of the methods of creating equitable mortgage.There are two legal consequences of the deposit of title deeds as security for a loan:

a.There is an implied agreement by the mortgagor to execute a legal mortgage in favour of the mortgage.

b.It amounts to part performance.

And based on the principle in Walsh V. Lonsdale (1882) 21 Ch D. 9, to the effect that equity looks as done that which ought to be done, where the mortgagor is in default of payment of the loan, the court will, in an action by the mortgagee, compel the mortgagor to execute a legal mortgage in favour of the mortgagee. In Russel V. Russel (1783) 1 BRO CC 269, it was held that a deposit of title deeds of property for the purpose of security is not only evidence of an agreement to mortgage the property but also a sufficient act of part performance which makes the agreement enforceable.

There must be a clear intention that the deed should be taken or retained as security for a loan. Mere deposit of title deed with a bank without the requisite intention makes the deposit equivocal, and so is not enough. There must be proof that the deposit is intended as security for a loan.

See British And French Bank Ltd. V. S. O. Akande (1961) ALL NLR849. If the memorandum of deposit is under deed, statutory power of sale is possible even though it is an equitable mortgage.

2.Deposit of Title Deed accompanied by an agreement (in writing or under seal) to

execute a legal mortgage at a later date– This is an agreement to createa legal mortgage. The owner of a legal estate may agree in writing in addition to deposit of title deeds, to create a legal mortgage in favour of a creditor. In such a case, once the lender advances the money, whether or not the agreement is under seal, equitable mortgage is created. The equitable mortgagee can enforce the agreement by an action in equity for specific performance, on the principle in Walsh v. Lonsdale that equity regards as done that which ought to be done. See Yaro v. Arewa Construction Ltd (2008) All FWKR (pt 400) 603; Carter v. Wake (1877) 4 Ch. D. 605; Ogundaini v. Araba (supra)

3. Mortgage of an equitable interest

4. Equitable Charge of the Mortgagor’s Property– this is a mere equitable charge of the

Mortgagor’s property. This does not create an estate (proprietary right), which may rest in the mortgagee by way of specific performance, but merely gives a right to repayment of the debt or other discharge of other obligation/burden in respect of which the property stand charged. What do we mean by equitable charge? An equitable charge is a security for a debt taking effect only in equity because either the chargor has only an equitable interest or the charge is made informally (without a deed).The security can only be realised through sale or appointment of receiver under an order of court. See Ogundaini v. Araba (supra). This is because an equitable chargee cannot himself exercise a power of sale or appoint a receiver in the absence of a deed

5. Inchoate legal mortgage. 

See Savannah Bank V Ajilo

To be continued with THE DIFFERENCE BETWEEN EQUITABLE CHARGE AND THE OTHER TYPES OF EQUITABLE MORTGAGES

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