Mortgage Distinguished from other Security Transactions

There are other transactions that are similar to mortgages in the sense that they grant some security for money, but they are distinguishable from mortgages. It may be parenthetically observed, that real security takes the form of pledge, mortgage or charge. Real security gives the creditor rights over a tangible or intangible asset of the debtor or of a third party.

1.  Mortgage Distinguished from Pledge

The pledge is unarguably the oldest of the secured credit devices in Nigeria, and indeed in the world. A Land pledge is, to use the language of Michelin J. in Adjei v. Dabanka (1930) 1 WACA 63 @ 66-67, a kind of indigenous mortgage by which the owner-occupier of land, in order to secure the advance of money or money’s worth, gives possession and use only of the land, to the pledgee-creditor until the debt is fully paid or discharged.

A pledge of land is thus, normally a security transaction, and is distinguishable from a lease of farmland and from land borrowing. The person who takes the land on pledge (that is to say, the creditor) is the pledgee, while the person giving the pledge (that is to say, the debtor) is the pledgor. In a pledge, physical passion and use of the land are given over to the pledgee.

The essence of pledge is the conferment on the pledgee of the possession and beneficial use of the pledgor’s interest in the land until the debt is repaid. Thus, a pledge is self redeemable. In other words, the pledgee can put the land to his own use and enjoy the profits thereof. In fact, the pledgee can recover his money from his physical use of a land. Also, the giving of possession of the land to the pledgee must take place at the time of the pledge transaction between the parties. Until possession is given, there is no pledge but only a contract to pledge which passes merely contractual rights.

There is no statute specifically regulating the mode of creating a pledge of land in Nigeria. But, though a pledge does not require any particular form for its creation, it must however take place in the presence of witnesses who share the thank offering given by the pledgee. A further requirement is that the pledgee should be shown round the boundaries of the land in the presence of witnesses.

All in all, whereas in a pledge, the pledgee only has the right to possession over the property until the debt is satisfied; in mortgages, the mortgagee acquires ownership (interest is conveyed) and the borrower usually retains possession. In Adetono v Zenith International  Bank  Plc  (2012)  All  FWLR  (Pt.  611)  1443,  NGWUTA  JSC summarized the distinction in these words:

The main difference between a mortgage and a pledge is that in the former, the general title in the property is transferred to the mortgagee subject to be by performance of the condition; whereas, by the latter, the pledgor retains the general title and parts with the possession. By mortgage, the title is transferred, by a pledge, possession is transferred.

2.  Mortgage Distinguished from Charge

A charge is a security whereby the debtor’s property is appropriated by the creditor

so that on default by the debtor, the creditor is entitled to pursue certain remedies

against it and not merely against the debtor, for the discharge of his debt or obligation: Swiss Bank Corporation v. Lloyds Bank Ltd. & Ors (1982) AC 584 at 594-5.

Unlike a pledge, a charge does not pass possession and unlike a mortgage, it does not pass any ownership-type right. It is merely the shadow, so to speak, cast by the debt upon the property of the debtor. But, though it passes neither possession nor title in the property to the creditor, the creditor has certain rights and interests of a proprietary character. The interest is proprietary because in the event of the debtor disposing of the property,  the  interest is  not extinguished but subsists  over the  res notwithstanding changes in ownership, and in the event of bankruptcy of the debtor the creditor has a right not merely to lodge proof of debt; but, also to exercise remedies against the property itself and to withdraw it to the extent from the net cast by the trustee in bankruptcy.

Additionally, a charge is a transfer of interest which creates only a right that can be enforced by court action. A charge must be in writing but no other formality or particular form of words is necessary; the only requirements is that the parties must demonstrate an intention to be liable or specially appropriated to the discharge of debt or some other obligation.

Lastly a Charge By Way Of Legal Mortgage under sections 108 & 109 of the Property and Conveyancing Law (PCL) 1959 is equivalent to a legal mortgage, since under the Property and Conveyancing Law (PCL) 1959 a legal chargee obtains a legal interest and he is also given the same protection, powers and remedies as a legal mortgagee – section 110(1) of the Property and Conveyancing Law (PCL) 1959.

The substantial differences between a legal charge (or charge by way of legal mortgage) and a legal mortgage are that:

a)   There is no conveyance, but a mere statement that the borrower, as beneficial owner, charges the lands by way of legal mortgage with the payment of the principal, interest and any other money secured by the charge; and

b)   There is no proviso for redemption. The words “as beneficial owner” introduce into the legal charge precisely the same covenants by the borrower as in the corresponding mortgage by demise.

All in all, one area of major distinction between the three security devices, that is to say pledge, mortgagee and charge, concerns possession of the land which is the subject matter of the transaction. It is of the essence of a pledge that possession is delivered. A charge does not give possession. And in a mortgage, delivery of possession is not of the essence of the transaction although a legal mortgagee has the right of immediate possession, that is, he can take possession at any time even if the mortgagor is guilty of no default.

Additionally, in the mortgage title passes to the mortgagee while the mortgagor retains the physical possession of the property, whereas in a pledge, title or legal ownership remains with the pledgor. However, in Nigeria today, a mortgage does not pass title, except perhaps if one refers only to the title to use of the land (that is to say title to usufructuary rights) rather than title in terms of legal ownership of the land.

This is because an individual does not own land any longer in Nigeria and so he cannot pass any ownership by mortgage, on the principle of Nemo Dat Quod Non Habet. In the circumstance, it may perhaps be more apt to say today that a pledge passes a possessory interest while a mortgage passes a proprietary interest. A charge too does not pass title. It does not also pass a proprietary interest but it does create such an interest.