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How Equitable Mortgage is created?

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Now, equitable mortgages are created inter alia, (1) by mere deposit of title deeds with a clear intention that the deed should be taken or retained as security for the loan; (2) by an agreement to create a legal mortgage and (3) by mere equitable Charge of the mortgagor’s property. In passing we think that it should be pointed out that the last of the three classes of equitable mortgage i.e. that which is created merely by a charge on the property intended as security for the loan differs considerably from the first two in respect of the remedies it confers; and the property so charged is appropriated only to the discharge of a debt or some other burden in respect of which the property stands charged.

– Idigbe JSC. Ogundiani v. Araba (1978)

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FORECLOSURE PROCEEDING IS FOR EQUITABLE MORTGAGE – MORTGAGOR HOLDS LEGAL ESTATE IN TRUST

In considering the scope of the rights of an equitable mortgagee (not by way of charge) it should be borne in mind that the general rule is that foreclosure (and not sale) is the proper remedy of an equitable mortgagee (See James vs James (1873) L.R. 16 E. 153 citing with approval Pryce vs Bury at 154); and when an equitable mortgagee by deposit of title deeds and agreement to give a legal mortgage if called upon to do so takes foreclosure proceedings to enforce his security, the court usually decrees that the deposit operates as a mortgage and that in default of payments due under the mortgage the mortgagor is trustee of the legal estate for the mortgagee and that he must convey that estate to him.

– Idigbe JSC. Ogundiani v. Araba (1978)

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EFFECT OF NOTICE ON PURCHASER OF AN EQUITABLE MORTGAGE

This brings us to the subject of the equitable doctrine of “Notice.” It is usually said that a purchaser of the legal estate in any property for value and without notice has an “absolute, unqualified and unanswerable defence” to any claim of a prior equitable owner or person having a prior equitable interest in the same property (see Pilcher Vs Rawlings (1872) 7 Ch. App. 259 at 269 per James L.J.). Where, however, the purchaser, as here, has notice of a prior equitable mortgage in the property in which he seeks to take a legal estate he has a duty, by himself or by his vendor, to get rid of that prior equitable interest otherwise he is taking unnecessary risk.

– Idigbe JSC. Ogundiani v. Araba (1978)

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MORTGAGEE WILL ENTER POSSESSION ONCE MORTGAGOR’s PAYMENT OF INSTALLMENT IS IN ARREARS

In Robertson v. Cilia, (1956) 1 W.L.R. 1502, there a mortgagee applied by summons to the court for an order for pos-session of the mortgaged property on the ground that payment of instalments was in arrear. The mortgagor applied for the case to stand over generally. After certain interlocutory proceedings, the summons was adjourned into court in order that it might be determined to what extent the court had power to stand over generally a summon of that nature. At the time of the hearing, all arrears of instalments due under the mortgage had been paid up, but the right to repay by instalments had lapsed; and it was admitted that owing to general credit restrictions the mortgagor would not be in a position to redeem within any foreseen time. It was held that, an order for possession should be made as the mortgagee was entitled to possession, and in those circumstance, there was no power to stand the matter over generally without the consent of the mortgagee nor would it be a reasonable exercise of power to stand it over for a period when there was no prospect that the mortgagee would be in a position to make an acceptable offer. (See also Hinkley and South Leicester Permanent Benefit Building Society v. Freeman, (1941) Ch.32).

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MORTGAGEE TO GIVE NOTICE BEFORE RESALE

In line with the provisions of section 125(1) of the Property and conveyancing Law, a mortgagee shall not exercise his power of sale unless and until a notice requiring payment of the mortgage money has been served on the mortgagor or one of several mortgagors and default has been made in payment of the mortgaged money or of part thereof for three months after such service. See B.O.N. Ltd. v. Aliyu (1999) 7 NWLR (Pt. 612) 622, where this court held that “the requirement of the law is that notice of intention to sell a mortgage property must be sent to the mortgagor as the words “shall not” are mandatory and not advisory. Consequently, any sale of any mortgage without the requisite notice is invalid ab initio and cannot convey any title to a subsequent purchaser”.

– Augie JSC. Bank v. TEE (2003)

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BAD FAITH ON THE PURCHASER OF MORTGAGE PROPERTY

The law of sale by auction or auction sale protects the purchaser and that is the basis of the principle of law that a mortgagor’s right essentially is in damages. The law has an important qualification and it is that the purchaser must have bought the mortgaged property in good faith, that is bona fide and not in bad faith, that is mala fide. The sympathies of the law on the purchaser will vanish the moment the court comes to the conclusion that the purchaser bought the property in bad faith. Bad faith on the part of the purchaser is a matter of fact to be deduced from the totality of the purchasing or buying conduct of the purchaser. Bad faith taints or better still, destroys a mortgage sale and therefore the property in the sale.

– Niki Tobi JSC. Okonkwo v. Cooperative Bank (2003)

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A MORTGAGEE HAS A POWER OF SALE AS OF RIGHT IN THIS INSTANCE

A mortgagee, unless where a contrary intention is shown, has a power of sale provided: (a) the mortgage was made by deed; and (b) the mortgage money is due, that is the legal date for redemption has passed. Where the money is payable by installments, the power of sale arises as soon as any installment is in arrears.

– L.A. Ayanlere v. Federal Mortgage Bank of Nig. Ltd. (1998) – CA/K/186/96

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