THE MORTGAGEE’S POWER OF SALE - PROBLEMS AND SOLUTIONS

SEMINAR PAPER PRESENTED TO THE SECURED CREDIT TRANSACTION

2010/2011 LL.M CLASS, FACULTY OF LAW, UNIVERSITY OF LAGOS

BY:OMOSEDE OKPAIRU

EFE UTAKETAIWO LAKANU

TEMIDAYO ODULAJAGABRIEL ONOJASON

OLUWAPELUMI SIMPSON

SUPERVISING LECTURER: DR. OLUDAYO AMOKAYE

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, b) sell the mortgage property in satisfaction of

mortgage debt, c) appointment a receiver, d) foreclose 1 (1904) AC 323 at page 3622 Megarry, A manual of law of Real property. (4th Edition) page 460

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

3 Ashton v. Corrigan, 1871, L.R. 13 Eq. 76

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

1.3) The Power of sale- QUO VADIS NIGERIA

4 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 encumberancer5 Tse Kwong Lam v Wong Chit Sen [1983] 3 All ER 54; 6 Corbett & anr v Halifax plc [2002] EWCA Civ. 1849 [2003] 1 WLR 964 CA

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?

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 7 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.”

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.

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

10 Section 48, Land use Act, Abioye vs. Yakubu (1991) 5 NWLR pt.190, p.130.11 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.

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 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

13 1998) 5 NWLR (Pt. 551) 652

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 made by deed. If the money secured by mortgage is

14 Alliance Building Society V. Share (1952) Ch. 581 All ER 1033

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

obtainable. The sale may be by auction or by private treaty

15 Twentieth Century Banking Corporation V. Wilkinson (1977) Ch. 99 (1976) 3 All ER 361

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 exercises his power of sale bona fide for the

purpose of realizing his debt without collusion with the 16 I.O Smith: Practical approach to law of real property in Nigeria (1999) Ecowatch Publications Limited, pg 268 - 26917 S.123 (3) of Property and Conveyancing Law and S. 19 (2) of Conveyancing Act 188118 (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

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

19 See Eka-Eteh V N.H.D.S Ltd (1973) 6 S.C 18320 S.126 (1) of Property and Conveyancing Law 1959, S.21 of Conveyancing Act 1881.

Williams V 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

21 (1975) 1 W.L.R 132722 Eka-Eteh V. N.H.D.S Op. Cit. Note 1723 S.114 of Property and Conveyancing Law 1959 or S.25 of Conveyancing Act 188124 Davies V Wright (1886) 32 Ch. 22025 B. Visioni V N.B.N (1975) 1 N.M.L.R.8. See also Section 127 of Property and Conveyancing Law 195926 (1965) N.M.L.R 455

forum 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

27 (1992) 3 N.W.L.R (Pt.229) 337 at 391

collusion with the purchaser resulting in gross undervalue,

the sale cannot 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.

28 (2002) 10 NWLR (Pt. 775) S.C 401,29 (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

According to Prof. I. O Smith 30 apart from the duty of good

faith owed by the Mortgagee in exercising his power of

sale, 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

30 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 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 Lord Warring v. London and Manchester Assurance Co. Ltd (1935) Ch. 310

passes to the purchaser32. The conveyance otherwise

operates to confer on the purchaser a good legal title

enabling him to over 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 Eka-Eket 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 32 S.126 of Property and Conveyancing Law or S. 21 of Conveyancing Act 188133 Op cit. Note 17

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 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.

34 Ogundaini V Araba (1978) LRW 280 at 288

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

35 I. O Smith: (supra) Pg 86

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.

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

36 (1977) NSCC Pg. 65

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.

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:

37 (1967) NSCC Vol. 5, pg. 227

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 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

38 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 40 Section 26, Land Use Act41 I NWLR (Pt. 77) p. 305

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)

Ltd 43 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.

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

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. 3943 (1996) 6 NWLR (Pt. 456) p. 524

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 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 44 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.

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.

46 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.

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.

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

47 (1996) 6 NWLR AT PART 457

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 the consent is obtained

subsequent to entering into 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 and protect the efficiency of

mortgage transactions under the Act, the

Nigerian courts have rather held such a

48 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

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

more than that the mortgage transaction

concluded becomes 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

ii. REVOCATION AND COMPENSATION

50 Awojugbagbe Light Industries Ltd vs. Chinukwe (1995) 4 NWLR (Pt. 390) p. 37951 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.

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. This is a major set-back in

the efficacy of mortgage transaction under the

Nigerian Laws.53 Section 50(1) of the Act expressly excludes a mortgagee from the definition of a holder54 Section 29 (1) and (2)

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 Titles Act applies, such a

mortgage which ought to be registered within

55 See Cap 166 Laws of Lagos State

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

56 The issuance of a certificate of occupancy is provided under section 9 of the Act.57 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.

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

59 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

‘perfection of 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.