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MORTGAGEE’S POWER OF SALE UNDER THE NIGERIAN LAW

Updated on March 23, 2016

Common law nor equity recognized any right on the mortgagee to sell the mortgaged property even if the date fixed for repayment has passed unless the power was expressly inserted. Even then the power, enabling the mortgagee to sell out of court must be carefully drafted so as to only allow the mortgagee take only what was due to him out zof the sale proceeds otherwise equity would intervene moreso when the power is not properly exercised.

The power to sell was a statutory invention first introduced into mortgage made by deed by the Lord Cranworth’s Act 1860, though in a very narrow form. A wider power to sell was provided by the CA 1881 and PCL 1959. This power, which may be varied, extended or excluded altogether by the parties is conferred on any person who for the time being is entitled to give and receive a discharge of the mortgaged money. Where the money secured by the mortgage is payable by installments, the power of sale arises as soon as the installments is due and unpaid1. The power however, does not become exercisable until one of the following events has occurred:

(a) Notice requiring payment of the mortgage money has been served on the mortgagor and default has been made in payment of the money, for three months after such service or; It is the usual practice therefore, to state in the mortgage deed that the money is due on demand. This is particularly important where the bank as mortgagee finds it necessary to exercise its power of sale, because a purchase will always wish to ascertain that a power of sale has arisen. See Okunakwe v Opara (2000) 4 NWLR ( pt 687) 334. See also Oguchi v FMB (1990) 6 NWLR (pt 156) 330.

(b) Some interest is in arrear and remains 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 which imposes an obligation upon the mortgagor. Upon fulfilling the above conditions, the mortgagee can sell by public auction or private contract and provided; there is no impropriety in the sale, the mortgagor’s equity is extinguished as soon as the contract is made. The mortgagor is as interested in the proceeds of sale in so far as they exceed the debt, the mortgagee must therefore act in good faith and with reasonable care. For the purpose of giving good and unimpeachable title to the purchaser, the power of sale must have arise and once it has arisen, a purchaser’s title will not be impeached because the power has not become exercisable in that none of the specified events has occurred or because the power has been improperly or irregularly exercised. Any person injured by an authorized, improper or irregular exercise of the power has a remedy in damages against the person exercising the power. Thus while a purchaser ought to satisfy himself that the power of sale has arisen, he need not probe further to know whether it has become exercisable. But where the purchaser bought the property with the actual knowledge that the power of sale is not exercisable or that there is some impropriety in the sale, then he would not have an unimpeachable title since he would not be deemed a bonafide purchaser.

In Bank of the North Ltd v Aliyu (1990) NWLR (pt. 613) 622, it was held that the presumption that the power of sale was exercised shall not affect the right of the purchaser or put him on enquiry whether the mandatory provisions have been complied with can be rebutted. Thus where there is irregularity abinitio such a purchaser has an inchoate title. In that case there was no evidence that the requisite notice was served on the mortgagor before the exercise of the power of sale. The court therefore declared the sale invalid because the exercise of the power of sale did not comply with the mandatory. The term bonafide in relation to a purchaser without notice was held to mean good faith, honesty, without fraud, collusion or participation in wrong doing3. Thebonafide purchaser is further statutorily protected under s.126 of the Property and Conveyancing Law and section 21 of the Conveyancing Act 1881. By virtue of section 12b of PCL the purchaser is not, either b/4 or on conveyancing concerned to see or inquire whether a case has arisen to authorize the sale, or due notice has been given, or the power is otherwise improperly or irregularly exercised. Also by virtue of section 21 of the CA 1881, a purchaser buying a mortgaged property is protected once he shows to the satisfaction of the court that: (a) the mortgagor did mortgage his property to the mortgagee / vendor (b) the loan or any instalment has become payable and that the power of sale under the mortgage agreement has arisen; (c) the power of sale was infact exercised by the mortgagee and that the title on the property passes to the purchaser. Where a mortgage is created on a land in a registration area, the mortgagee would be required to register the mortgage within the stipulated statutory period, otherwise, it will be void and a subsequent sale of the property passes void title to the purchaser. Once the mortgagee acted prudently, his motive for selling will be immaterial even if it is to spite the mortgagor. Although the mortgagee is not a trustee for the mortgagor of his power of sale, since the power is given to him for his own benefit he is a trustee of the proceeds of sale. He is expected to apply the purchase money to pay off any prior mortgages, all expenses incidental to the sale, his principal, interest and costs due under the mortgage. Finally, he is to pay the surplus, if any to the person entitled to the mortgaged property provisions of the law, which prescribes that the power of sale shall not be exercised before the stipulated provisions are met.

The exercise of the power of sale vests the whole estate of the mortgagor on the purchaser and divests the mortgagor of his title to the property5. A purchaser by reason of the sale of the mortgaged property to him, acquires a title and right of possession which is superior to the adverse possession of the mortgagor, he cannot therefore be sued in trespass. The greatest advantage of the statutory power of sale over foreclosure is that it is exercisable without any order of the court. And where the mortgagee had already embarked on its exercise upon some installment falling into arrears, he cannot be restrained from selling by the mortgagor merely paying off the arrears. Only full payment of the principal and interest can effectively restrain the mortgagee from selling.9 The mortgagee’s power of sale is not affected by attachment and sale of the mortgagor’s interest so that any purchaser of the mortgagor’s title in the property under attachment takes subject to the existing mortgage.

The court will not restrain a mortgagee from exercising his power of sale because the amount due is in dispute8. A mortgagee cannot be restrained merely because the mortgagor objects to the manner in which the sale is being arranged or 4 Person’s entitled to the mortgaged property include subsequent mortgages, and the rule is that where there are several mortgages interested in the same land, a prior mortgagee holds any surplus proceeds in trust for those latter mortgagee of whose incumbrances he has notice. Where the land is in a registration area, then registration would constitute notice. Therefore if he pays the surplus to the mortgagor he is liable to that extent to the next mortgagee where mortgage has been registered. In the absence of any other mortgagee, the mortgagee is entitled to surplus proceeds of sale. An equitable mortgagee has no power of sale, statutory or otherwise. But where there is an agreement to give a legal mortgage by the mortgagor when called upon to do so, and the court so ordered, the mortgagee becomes a legal mortgagee entitled to all remedies available to a legal mortgagee including the statutory power of sale. Also the deposit of a title deeds accompanied by a memorandum under seal will give an equitable mortgagee all the remedies of a legal mortgagee including power of sale but cannot vest legal title in the purchaser unless the memorandum under seal contains power of attorney.


8 See Bank of the North v Akintoye (1999) 12 NWLR (pt 631) 392. because the mortgagor has commenced a redemption action in court9. But once the mortgagor pays the amount owne into court, the mortgagee will be restrained from exercising his power of sale.

The statutory period within which the power of sale must be exercised or otherwise becomes extinguished is thirty years and twelve years where the power is vested in a state authority and private person respectively. Since 1978 for any sale under the mortgage’s power of sale to vest unimpeachable title in the purchaser, the Governor’s consent must now first be sought and obtained.

The Effect of Land Use Act On Mortgages

Before the advent of LUA in 1978, the law relating to mortgages in Nigeria was not very complex. This was due to the fact that the involvement of organs of government in the process of getting a mortgage concluded as well as factors that could affect the proprietary rights of the parties were less cumbersome than they have been since 1978. Until 1978, proprietary interest in land could be in the nature of a freehold or a leasehold and could be traceable to statutory, common or customary law depending on the factors that gave rise to the acquisition of the landed property by its holder.

The LUA now vests all land in the territory of each state (except land vested in the Federal Government or its agencies) solely in the Governor of each state. Each state Governor now holds such land in trust for the people of the state and is charged See Ayanlere v FMB (Nig) Ltd (1998) 11 NWLR (pt 575) 621. UBN Plc v Oharhuge (2000) 2 NWLR (pt 645) 495. A fresh accrual of right of action is however deemed to have taken place if the person in possession of the land acknowledges the mortgagee’s title to the land, or acknowledges the debt or makes part payment.

For this segment of the paper, see generally, G. A Olawoyin: Law Relating to Mortgages in Nigeria; with the responsibility for the allocation of land in all urban areas of the state to individuals and organizations for various purposes. Similar powers with respect to non-urban areas are conferred by the LUA on Local Governments. Considering that by virtue of LUA, the proprietary interest of every land owner has been reduced to a 99 years leasehold, a legal mortgage in Nigeria can now be made by way of an assignment of the entire term of the lease granted by the Governor to the landowner or by way of subdemise. By virtue of Section 22 of LUA, a mortgage relating to an interest in land can no longer be created in Nigeria without the prior consent of the Governor of the state in which the land is situated. Section 26 renders any mortgage which does not have the stamp of a Governor’s consent void. Again, where a right of occupancy is revoked by a Governor, the holder or occupier is entitled under Section 29(1) of LUA to compensation for the value of the land at the date of the relocation as regards unexhausted improvements on the land. It is however significant to note that by Section 51 of LUA, a “holder” in relation to right of occupancy does not include a mortgagee. Accordingly the Governor’s exercise of his power of revocation would prejudice the position of a mortgagee whose security is destroyed without the right to be compensated for it.

Furthermore, before the promulgation of the LUA in 1978, the common form of creating an equitable mortgage was by the deposit of title deeds. This was recognized by our courts as evidenced by the case of Barclays Bank Ltd v. Olofintuyi14. This pre-1978 position was confirmed by the Court of Appeal in Jacobson Engineering Co. Ltd. v. UBA15. See Savannah Bank of Nigeria Ltd. v. Ajilo (1989) 1 NWLR (part 97) 305. Adedeji v. NBN Ltd. (1989) 1 NWLR (part 96) 212 and Awojugbagbe Light Industries Ltd. v. Chinukwe & NIDB Ltd. (1995) 4 NWLR (part 390) 379. Since Section 22 of LUA prohibits the alienation16 of a statutory right of occupancy without the consent of the Governor, creating an equitable mortgage by mere deposit of title deeds seems doubtful. According to Prof. G.A. Olawoyin, what the section implies is that a mortgage cannot be effected without the consent of the

Governor of the State where the land is situated. The practical effect of this is that a mere deposit of title deeds is no longer sufficient to create an equitable mortgage. In the opinion of Sagay, this will now only constitute a warning to a purchaser that there is a charge on the property.However, the decision of the Supreme Court in Awojugbagbe Light Industries Ltd. v. Chinuke & NIDB Ltd18 is to the effect that an agreement to transfer and alienate land subject to the consent of the Governor is within the contemplation of Section 22(1) of LUA. In Okuneye v. First Bank of Nigeria19, it was stated that a mere delivery of title deeds ranks more or less with an agreement to create a legal mortgage. While a legal mortgage transfers title in the property to the mortgagee, an equitable mortgage by way of deposit of title deeds does not. At best, it merely constitutes an intention, perhaps a contract to execute a legal mortgage. The deposit of title deeds, in the absence of a memorandum of deposit, is part-performance of the contract to execute a legal mortgage.

In such situations, the court in Okuneye’s case made the point that an action for specific performance of the contract to execute a legal mortgage lies at the instance of the equitable mortagagee. Indeed in Jacobson Engineering Co’s case, the Court of Appeal held inter-alia that an intention to create an equitable mortgage may be inferred from the delivery of the title deeds or other relevant documents for the execution of a mortgage or for preparing a legal mortgage. There is no doubt that the LUA has cast a lot of doubts on the creation of an equitable mortgage on land in Nigeria.

CONCLUSION

This essay has examined the law relating to mortgagee’s power of sale in Nigeria. It examined the general nature of securities and the distinction between real and personal securities as a background to the exploration of the nature of mortgages as a form of real securities. The essay distinguished between legal and equitable mortgages on one hand and further distinguished mortgage from other forms of real securities such as pledge, lien and charge. The essay discusses in detail the rights of the mortgagee. The essay further discusses the effect of the Land Use Act 1978 on mortgages in Nigeria. The law relating to mortgages as stated by Professor G.A. Olawoyin is clearly a difficult aspect of our law, which has in fact been compounded by the promulgation of the Land Use Act in 1978. It is expected that the Supreme Court would in due course make judicial pronouncements that would give a clearer picture of the overall effect of the Land Use Act on certain aspects of mortgage transaction. Common law nor equity recognized any right on the mortgagee to sell the mortgaged property even if the date fixed for repayment has passed unless the power was expressly inserted. Even then the power, enabling the mortgagee to sell out of court must be carefully drafted so as to only allow the mortgagee take only what was due to him out zof the sale proceeds otherwise equity would intervene moreso when the power is not properly exercised. The power to sell was a statutory invention first introduced into mortgage made by deed by the Lord Cranworth’s Act 1860, though in a very narrow form. A wider power to sell was provided by the CA 1881 and PCL 1959. This power, which may be varied, extended or excluded altogether by the parties is conferred on any person who for the time being is entitled to give and receive a discharge of the mortgaged money. Where the money secured by the mortgage is payable by installments, the power of sale arises as soon as the installments is due and unpaid1. The power however, does not become exercisable until one of the following events has occurred: mortgagor and default has been made in payment of the money, for three months after such service or; It is the usual practice therefore, to state in the mortgage deed that the money is due on demand. This is particularly important where the bank as mortgagee finds it necessary to exercise its power of sale, because a purchase will always wish to ascertain that a power of sale has arisen. See Okunakwe v Opara (2000) 4 NWLR ( pt 687) 334. See also Oguchi v FMB (1990) 6 NWLR (pt 156) 330.

(b) Some interest is in arrear and remains 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 which imposes an obligation upon the mortgagor.

Upon fulfilling the above conditions, the mortgagee can sell by public auction or private contract and provided; there is no impropriety in the sale, the mortgagor’s equity is extinguished as soon as the contract is made. The mortgagor is as interested in the proceeds of sale in so far as they exceed the debt, the mortgagee must therefore act in good faith and with reasonable care. For the purpose of giving good and unimpeachable title to the purchaser, the power of sale must have arise and once it has arisen, a purchaser’s title will not be impeached because the power has not become exercisable in that none of the specified events has occurred or because the power has been improperly or irregularly exercised. Any person injured by an authorized, improper or irregular exercise of the power has a remedy in damages against the person exercising the power. Thus while a purchaser ought to satisfy himself that the power of sale has arisen, he need not probe further to know whether it has become exercisable. But where the purchaser bought the property with the actual knowledge that the power of sale is not exercisable or that there is some impropriety in the sale, then he would not have an unimpeachable title since he would not be deemed a bonafide purchaser. In Bank of the North Ltd v Aliyu (1990) NWLR (pt. 613) 622, it was held that the presumption that the power of sale was exercised shall not affect the right of the purchaser or put him on enquiry whether the mandatory provisions have been complied with can be rebutted. Thus where there is irregularity abinitio such a purchaser has an inchoate title. In that case there was no evidence that the requisite notice was served on the mortgagor before the exercise of the power of sale. The court therefore declared the sale invalid because the exercise of the power of sale did not comply with the mandatory

The term bonafide in relation to a purchaser without notice was held to mean good faith, honesty, without fraud, collusion or participation in wrong doing. The bonafide purchaser is further statutorily protected under s.126 of the Property and Conveyancing Law and section 21 of the Conveyancing Act 1881. By virtue of section 12b of PCL the purchaser is not, either b/4 or on conveyancing concerned to see or inquire whether a case has arisen to authorize the sale, or due notice has been given, or the power is otherwise improperly or irregularly exercised. Also by virtue of section 21 of the CA 1881, a purchaser buying a mortgaged property is protected once he shows to the satisfaction of the court that: (a) the mortgagor did mortgage his property to the mortgagee / vendor (b) the loan or any instalment has become payable and that the power of sale under the mortgage agreement has arisen; (c) the power of sale was infact exercised by the mortgagee and that the title on the property passes to the purchaser. Where a mortgage is created on a land in a registration area, the mortgagee would be required to register the mortgage within the stipulated statutory period, otherwise, it will be void and a subsequent sale of the property passes void title to the purchaser. Once the mortgagee acted prudently, his motive for selling will be immaterial even if it is to spite the mortgagor. Although the mortgagee is not a trustee for the mortgagor of his power of sale, since the power is given to him for his own benefit he is a trustee of the proceeds of sale. He is expected to apply the purchase money to pay off any prior mortgages, all expenses incidental to the sale, his principal, interest and costs due under the mortgage. Finally, he is to pay the surplus, if any to the person entitled to the mortgaged property provisions of the law, which prescribes that the power of sale shall not be exercised before the stipulated provisions are met.

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