Equity has provisions
for the creation of mortgages. Apart from legal mortgages, equitable mortgages
were also created of both freehold and leasehold interests and customary law
interest, under the unamended common law. Creation of mortgages in equity may arise
in a number of ways. These are:
i)
By Mortgage of an Equitable Interest
Where
the right or interest was only equitable, but not legal, a mortgage of the
right created only an equitable
mortgage. An example is the mortgage by a beneficiary’s interest under a trust,
which is just a mortgage of the beneficiary’s equitable interest. Also, where
the mortgagor had already by assignment given the whole fee or legal estate to
the mortgagee so that (the mortgagor) had no legal estate left, all he could mortgage
afterwards was his right in equity to regain the property upon repayment of his
debt, in other words, his equity of redemption. Such mortgages took the form of
assignment in equity of the equity of redemption, subject to the proviso for
re-assignment on the debt being discharged.
ii)
By Contractual Agreement to Create a Legal Mortgage
This can arise, firstly, where following
the parties agreement to create a legal
mortgage as stated above, whether of
freehold or leasehold, and the agreement was drawn up; but it was discovered
that the written document was defective in form (but is otherwise valid), for
example, because the seal was not affixed to it. It thus, failed to take effect
as a legal mortgage but instead became an equitable mortgage. Under this
circumstance, Equity is deemed to have regarded as done that which ought to
have been done
(Walsh v. Lonsdale (1882) 21 Ch. D 9) by effectuating the parties’
agreement in equity.
The second instance
when an equitable mortgage might arise by contractual agreement to create a
legal mortgage is where the parties never actually presently tried nor intended
to create a legal mortgage but simply agreed to create the same in the future.
There was thus a contract or agreement to create a legal mortgage. Such
agreements had the effect of creating an equitable mortgage since by equity,
agreements for value were treated as if they were actual performance.
However, for an
equitable mortgage to result in the two instances given above, the transaction
which had been entered into had to be specifically enforceable and for this, it
had to be in writing and signed by the party giving the security or by his
lawfully authorized agent. Alternatively, that is to say in the absence of
signed writing, there must have been part performance example, the money for
which the mortgage was security must have been paid or in the case of
antecedent debt or some other obligations or liability, there must have been a
forbearance from suing or some other consideration provided by the mortgagee: Tebb
v. Hodge (1869) LR 5 CP 73.
iii)
By Deposit of Title Deeds:
An
equitable mortgage is also created where the borrower deposited the title
deeds of his land with the lender with
the intention that it should be used as security for the money advanced: Kadiri
v. Olusola (1956) 1 FSC 59 at 60-61 and Usen Fowokan v. Idowu (1974)
4 SC. 195 at 199. This is because the court treated the deposit of title deeds
as an agreement to execute a legal mortgage. Here, the element of intension
that it be used as security.