SIMILARITIES BETWEEN MORTGAGE DEBENTURE AND MORTGAGE

Mortgage implies a debt and a personal obligation by the mortgagor/borrower to pay it. If there is a covenant or bond for the repayment of this debt, then it is a speciality debt but if it is not, it is a simple debt. See SHIRU V. BARCLAYS BANK OF NIGERIA (1975) NMLR 148.    

One of the essential elements of mortgage is the equity of redemption. A mortgagor/borrower has the right to redeem his property that is in possession of the mortgagee by paying to the mortgagee the principal money and interest. The rate of interest to be charged by a mortgagee is now regulated in Nigeria by the Central Bank and no mortgagee can impose arbitrary rate of interest on the mortgagor.

It is not only a freehold property that can be mortgaged, a leasehold property can also be mortgaged but in some cases, the consent of the lessor must be obtained to the transaction and if there is any default on the part of the mortgagor his unexpired residue in the leasehold property with the consent of the lessor can be assigned by the mortgagee/lender to a third party. See TRANS ATLANTIC COMPANY V. BANK OF THE NORTH (UNREPORTED) SUIT NO 1/7/35/91.

DISCHARGE OF MORTGAGES

The discharge of a mortgage means that the loan plus interest has been redeemed. The mortgagee/lender is ready to release the property and return to the mortgagor documents deposited as security. The discharge of a mortgage terminates and releases the mortgagor from his obligations under the mortgage.The mode of discharge of a mortgage depends on the type of mortgage and how it was created.That is:

MORTGAGE BY COMPANIES

Section 166 of the Companies and Allied Matters Act provides that:

“a company may borrow money for the purpose of its business or objects and may mortgage or charge its undertaking, property and uncalled capital or any part thereof and issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the company or of any third party. This is done in the following ways:

COVENANTS BY THE MORTGAGOR

The mortgage should include all covenants on the mortgagor’s part as follows:

1.Punctual payment of interest

2.Insurance

3.Provisions for borrower not to redeem for certain term

4.Consolidation

5.Leasing by the mortgagor

6.Repair

TRANSFER OF MORTGAGES

Section 27 CA and 134 PC & L provide for the power of the mortgagee to transfer the mortgage or the benefit of the mortgage to a transferee by executing a Deed expressed to be made by way of statutory transfer. The consequences of such transfer are:

1)The transferee acquires the right to demand, sue for, recover, and give receipt for, the mortgage money or the unpaid part of it and interest thereon (if any) as may be due.

2)The transferee acquires the right to sue on all covenants with the mortgagee, and the right to exercise all powers of the mortgagee.

CREATING A LEGAL MORTGAGE: CONSENT

Section 22 of the Land Use Act, 1978 provides that where an equitable mortgage has been created in favour of a mortgagee and consent has been obtained, further consent is not required to a legal mortgage replacing the equitable mortgage. However, the Act does not require consent to a loan transaction nor does it make unlawful for a loan transaction to be effected without first obtaining the Governor’s consent. See OGUNDOLA V. NICON (SUPRA). But the prior consent of the Governor is required for the creation and registration of a legal mortgage or a charge by deed. See. SAVANNAH BANK OF NIGERIA LTD. V. AJILA(1989) 1 NWLR (pt 97) 305.

Apart from the legislative requirement of consent by the State Governor, consent of landlord or (sub lessor) may be required on the mortgage of a leasehold land or certificate of occupancy if there is a widely drawn covenant restricting a tenant/sub-lessee’s right to “assign, let, mortgage or otherwise part with possession of the demised property or any part thereof”.

GOVERNOR’S CONSENT

See Section 22 of the Land Use Act. A holder of a statutory right of occupancy cannot alienate his right by assignment, mortgage, transfer of possession, sublease or otherwise without the consent of the Governor. That is what Section 22 of LUA says.

Credit - olx.com.ng 

Section 26 of the same Act states that any transaction or any instrument which purports to confer on or vest in any person any interest or right over land other than in accordance with the provisions of this Act shall be null and void. See SAVANNAH V. AJILO (1989) 1 NWLR (PT. 77) 305. In this case, the Supreme Court held that the legal mortgage that was executed in favour of the bank by the respondents was declared null and void on the ground that consent of the Governor was not obtained. The Supreme Court stated in that case

GOVERNOR’S CONSENT

See Section 22 of the Land Use Act. A holder of a statutory right of occupancy cannot alienate his right by assignment, mortgage, transfer of possession, sublease or otherwise without the consent of the Governor. That is what Section 22 of LUA says.

Section 26 of the same Act states that any transaction or any instrument which purports to confer on or vest in any person any interest or right over land other than in accordance with the provisions of this Act shall be null and void. See SAVANNAH V. AJILO (1989) 1 NWLR (PT. 77) 305. In this case, the Supreme Court held that the legal mortgage that was executed in favour of the bank by the respondents was declared null and void on the ground that consent of the Governor was not obtained. The Supreme Court stated in that case that it was not canvassed before the court that the respondents, having enjoyed the overdraft from the appellant bank, cannot rely on their own failure to obtain consent to the transaction to defeat the right of the appellant bank to sell the mortgaged property. The case was never fought for the appellant bank on equitable grounds. The decision in SAVANNAH BANK OF NIGERIA LTD. V. AJILO should, therefore, not be regarded as a general principle of law and the principle of law therein should be confined to the peculiar facts of that case.

See also FEDERAL MORTGAGE BANK OF NIGERIA V. BABATUNDE (1999) 12 NWLR 632,particularly at page 683. Here, AJILO V. SAVANNAH BANK’s case was followed. It was held that a mortgagor was void for absence of the requisite consent. In UGOCHUKWU V. COOPERATIVE AND COMMERCE BANK NIGERIA LIMITED (CCB) (1996) 6 NWLR (PT. 456) 524, it was held that the holder of a right of occupancy is the one to seek the consent of the Governor. A mortgagor cannot be held to say that the transaction is void for lack of consent.

In the case of ADEDEJI V. NATIONAL BANK OF NIGERIA (1989) 1 NWLR 212,the court held that the transaction was inchoate.

In AWOJUGBAGBE LIGHT INDUSTRIES V. CHINUKWE AND ANOR (1995) 4 SCNJ 162, Section 22(a) of the Land Use Act states that consent of the Governor was not required to the creation of a legal mortgage over a statutory right of occupancy in favour of the person in whose favour an equitable mortgage over the right of occupancy had already been created with the consent of the Governor.

Section 22(b) of the Land Use Act provides that consent shall not be required to the reconveyance or release by a mortgagee to a holder or occupier of a statutory right of occupancy which that holder or occupier has mortgaged to that mortgagee with the consent of the Governor. 

to be continued with

CREATING A LEGAL MORTGAGE: CONSENT

Thank you for reading, If you find the post helpful, I’d love to hear your thoughts in the COMMENT box. Also, don't forget to LIKE and SHARE with your social media friends, family, colleagues, social members, neighbours and everyone in your world, who you think might find this information useful..Lastly SUBSCRIBE to our website via Email to get the latest updates directly in your mail box for FREE. Your email address is safe with us! SUBSCRIBE BELOW !!! ‎Send your Adverts/Listing/Press Release/Articles to emmanadebayo@gmail.com ‎ ‎

REVIEWS and CAVEAT : We hope you have found this information helpful. Please note that this information is provided for general informational purposes only and is not intended to be legal advice. No lawyer-client relationship is formed nor should any such relationship be implied. Any post, article, or comment or opinion expressed is not intended to substitute for the advice of a qualified lawyer, but that of the individual who made the contribution. If you require legal advice, please consult with a qualified lawyer. If you need assistance in contacting a lawyer, you may contact us via email emmanadebayo@gmail.com and we would be glad to match you with a lawyer who meets your requirements.  Send in all your property briefs: Request | Letting | Sale | Lease | Warehouse | Land We deliver at a swift pace! ‎ ‎ ‎

REGISTRATION OF TITLE DOCUMENT

   Under the provisions of the Land Registration Act, an instrument is a document affecting land in Nigeria whereby one party, that is, the grantor, confers, transfers, limits, charges or extinguishes in favour of another party, that is, the grantee, any right or interest in land in Nigeria, and it includes a certificate of purchase and a power of attorney under which any instrument may be exercised, but does not include a will. It should be noted that what is required to be registered is not an interest in land but merely an instrument affecting land.

STAMPING

STAMP DUTIES ACT

See the case of ILYA V. QUDUS. What is the effect or penalty of a document that is not stamped?

PROPER DOCUMENTATION AND EXECUTION

   There must be proper documentation and execution. When you execute, there would be attestation. As regards the issue of an illiterate, once one of the parties is an illiterate, Section 2(2) of the Illiterate Protection Law of Lagos State, for example, requires that the document should be read over and explained to the illiterate before his signature or mark is affixed.

PERSONS OF UNSOUND MIND

PERSONS OF UNSOUND MIND

The general rule is that persons of unsound mind cannot enter into contract except during his lucid period and provided that a receiver has not been appointed for him.

TRUSTEE

A trustee has no right to borrow money on the security of a mortgage or trust property. In other words, if you are a trustee, and you are managing buildings or property, the general rule is that even though you have legal estate, you cannot mortgage trust property. This is because it is not actually your own; it is for the beneficiaries. Equity will not allow a trustee to unduly subject the trust property to financial risk to the detriment of the beneficiaries.

CAPACITIES OF PARTIES TO A MORTGAGE

See the Infant Relief Act, 1874 that is applicable in the North, East and Lagos.It states:

“All contracts, whether by specialty or by simple contracts, entered into by infants for the repayment of money lent or to be lent is void absolutely.”

In the PCL States, a legal mortgage of land is not to be made or transferred to an infant. Such agreement shall operate as an agreement for valuable consideration to execute a proper conveyance when the infant attains full age. In the meantime, to hold any beneficial interest in the mortgage debt in trust for persons for whose benefits the conveyance was intended to be made. Where conveyance is made for persons who are of full age and also infants, it shall operate as if the infant had not been named therein.

APPOINTMENT OF A RECEIVER

Section 19(1)(iii) of the Conveyancing Act and Section 123(1) of the PCL provide for the power of the mortgagee, when the mortgage money has become due, to appoint a receiver of the income of the mortgaged property or any part of it.This statutory right is implied in every mortgage, legal or equitable, created by a deed where the circumstances would allow the mortgagee to exercise a power of sale.

The mortgage money must have become due before a receiver can be appointed.In other words, the legal due date must have expired. The remedy for the appointment of a receiver is open to both legal and equitable mortgages. The legal mortgagee himself may appoint a receiver if he has such power under the mortgage deed. If that power does not exist in the mortgage deed, he can apply to court for the appointment of a receiver. An equitable mortgagee, whose is not by deed, must apply to the court for the appointment of a receiver. The receiver though appointed by the mortgagee, is the agent of the mortgagor hence the mortgagee is not liable to account to the mortagor.

The duty of the receiver is to

TAKING POSSESSION IN MORTGAGE

Can any equitable mortgagee take possession? The answer is no. The right of entry into possession is only available to a legal mortgagee. Possession goes with legal ownership; hence a legal mortgagee is entitled to possession whether or not the mortgagor is in default of payment of the loan. But where he takes possession, he is liable to account strictly to the mortgagor for the rent/profits accruing from the property.It is for this reason that mortgagees do not find the right to possession attractive unless it is used as a preliminary to enforcing the power of sale. But in practice, mortgagees insert in the mortgage instrument a clause that exclude the rule that a mortgagee in possession or a receiver appointed by him shall account strictly

FORECLOSURE

Foreclosure is a judicial process through which the mortgagor’s equity of redemption is terminated and all the interests in the mortgagor property become vested in the mortgagee, subject to the right of other mortgages who rank in priority above him. Foreclosure is more effective when the mortgagee is in need of his capital which cannot be realised from rent or profit on the mortgaged property. An interim order called “a foreclosurenisi” is first decreed giving the mortgagor six months within which to redeem the mortgaged debt. At the expiry of the six months, the order is made absolute. All subsequent mortgagees and the mortgagor should be made parties to the action. There is no doubt that the remedy of foreclosure is available to a legal mortgagee. In Ogundaini V. Araba(SUPRA), the Supreme Court held that foreclosure is available to mortgagee in an equitable mortgage created by deposit of title deed if accompanied by an agreement by the mortgagor to give a legal mortgage when required to do so.Ideally, foreclosure, and not sale, is the appropriate remedy in an equitable mortgage (except the one created by a mere charge).

MORTGAGEE’S RIGHT OF REDEMPTION (RIGHTS OF THE MORTGAGEE)

These are means by which the mortgagee may enforce the security so as to recover the loan. There are basically four of such rights:

1.Statutory power of sale

2.Foreclosure

3.Taking possession and

4.Appointment of Receivers.

1.STATUTORY POWER OF SALE

Under sections 19 (1) of the CA and 123 (1) of the PC & L, every mortgagee (legal or equitable) whose mortgage is created be Deed may enforce its/his security after the legal due date by sale of the mortgage property. Power of sale here is automatic; the mortgagee does not require a court order before he/it can sell. However, for the mortgagee to be entitled to exercise its power of sale, the power must HAVE ARISEN and become EXERCISABLE. 

EQUITY OF REDEMPTION

   Equity of redemption is different from equitable right to redeem.Equity of redemption is the equitable interest which a mortgagor has in the land as the owner.The mortgagor can redeem his property by paying to the mortgagee the principal money and the interest that has accumulated on the principal money. Where the mortgagor has paid to the mortgagee the amount that is due, the mortgagee shall re-convey the property to the mortgagor. A Deed Of Release is usually prepared and the particulars of the document of title of the property that is being re-conveyed to the mortgagor shall be stated in the deed of release.The deed of release shall be registered in the Land Registry and from the date of registration the property of the mortgagor is free from encumbrance.

EQUITABLE RIGHT TO REDEEM

This is the right which arises after the legal date for redemption has passed.The mortgage agreement will provide a legal date within which the mortgagor should have paid.If he fails to pay on or before the legal due date, his legal right to redeem will be extinguished on that date. Before the Conveyancing Act of 1881/1882, if the mortgagor failed to pay the loan on a contractual date, he lost his right to property but was still bound to pay the debt.Equity, however,