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The Rights of The Parties to a Mortgage Transaction: Rights of the Legal Mortgagee


The rights of parties to a mortgage are derived from both common law (and equity) and statute and they vary according to whether the mortgage is legal or equitable. The rights of a mortgagee differ from those of a mortgagor. The rights of a mortgagee are otherwise referred to as the remedies available to a legal mortgagee. These include:


1.               Right to Take Possession of the Mortgaged Property


A legal mortgagee has a right or remedy to enter upon and take possession of the

mortgaged property until the amount of the loan with interest is recovered. The right to possession does not depend upon any default on the part of the mortgagor.

Besides, the court has held in Awojugbagbe Light Industries Ltd v. Chinukwe & Anor (1993) 1 NWLR (Pt. 270) 485, that a mortgagee exercising his right to possess after the expiration of his tenant’s lease or his agent who entered and took possession of the mortgage property in the exercise of his rights under the mortgage agreement is not liable in damages for forcible entry, because the right to posses the property has become vested in the mortgagee.

A mortgagee who takes possession becomes the manager of the property in which the mortgagor still has a beneficial interest. He therefore has to account to the mortgagor. He must account not only for all the rents and profits actually received, but also for all those he should as a prudent man of business have received during the period he had been in possession. He has to keep the property in a good state of repairs and if it is a leasehold property, pay all present and future rents to prevent for forfeiture and thus to preserve the property.

There  is  a  view  that  the  equitable  mortgagee  should  also  have  the  right  of possession under the rule in Walsh v. Lonsdale (1881) 21 Ch. 9. The prevalent view, however is that the equitable mortgagee has no legal right to possession of the land. In Barclays Bank Ltd v. Bird (1954) Ch. 274 at 280 HARMAN J. said that, “the only limitation on the equitable mortgagee is that he has no right to possession until the court gives it to him. He is entitled to take out a summons asking for possession. He may however, have such right conferred on him in the mortgage deed.


2.               The Right or Power of Sale by the Mortgagee:

The  mortgagee’s  power  of  sale  may  be  conferred  on  him expressly  by  the

mortgager  by  a  stipulation  to  that  effect  in  the  mortgage.  Apart  from  an  express

conferment by the mortgagor, the mortgagee’s power or right of sale may be derived

from statute. Section 19(1) of the Conveyancing Act, 1881 provides that:


A mortgage, where the mortgage is made by deed, shall by virtue of this Act, have the following powers, to the like extent as if there had been in terms conferred by the mortgage deed, but not further (namely):

i.       A power, when the mortgage has become due, to sell, or to concur with any other person in selling, the mortgaged property, or any part thereof, either subject to prior charges or not, and either together or in lots, by public auction or by private contract,… with power to vary any contract for sale and to buy in at an auction, or to rescind any contract for sale and to resell, without being answerable for any loss occasioned thereby.

Section 125 of the Property and Conveyancing Law, 1959 of Western Nigeria

is similar to the above provision.

The right or power of sale is activated once the time for redemption has reached

and the  mortgagor fails to redeem the  mortgaged property. In such cases, the  law

empowers  the  mortgagee  to  sell.  The  case  of  Ekaeteh  v.  Nigeria  Housing

Development Society & Anor (1973) 6 SC 183, shows that the duty of the mortgagee

when  selling  the  mortgaged  property  is  the  same  as  in  England:  that  of  taking

reasonable precaution to act bona fide to obtain a true market value, a proper price and this need not be the best price.

But, there are three conditions that must exist before a sale by the mortgagee becomes valid; they are:

a.     The mortgagee must give notice to the mortgagor that he is in default for three months.

b.    There must be some arrears of interest for at least two months, which the mortgagee must also notify the mortgagor.

c.     There must have been some breach of the mortgage covenant (a formal agreement).

These are provided for in section 125 of the Property and Conveyancing Law

1959 & section 19 of the Conveyancing Act 1881. Once these conditions are satisfied, any purchaser of the mortgaged property buys as a bona fide purchaser for value without notice: Okonkwo v. Cooperative and Commerce Bank Plc (1997) 6 NWLR (Pt. 507) 50.

It should be noted also that in selling the mortgage property, the mortgagee can adopt any of the following:

a.     Auction

b.     Private treaty

c.     Tender


The following question has always arisen – whether the mortgagee in selling the mortgaged property requires the consent of the Governor? With respect to this issue, it is instructive to note that there is nothing in the Land Use Act that makes it mandatory for the mortgagee to seek permission from any authority to exercise his right of sale or foreclosure. This view has been affirmed by Musdafer JCA in the case of Moses Ola &

Sons Ltd v. Bank of the North & Anor (1992) 3 NWLR (Pt. 229) 377 at 391 and he

said thus:


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With respect to the learned counsel to the appellant and 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 to exercise its power of sale on the only condition that he acts in good faith. 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 mortgage property.

Particularly, section 22 of the Land Use Act makes no such stipulation. The case of Union Bank of Nigeria Ltd v. Ozigi (1991) 2 NWLR (Pt. 176) 677 (CA) is also instructive in this regard.

3.               The Power or Right to Appoint a Receiver:

The power to appoint a receiver of the mortgaged property may be derived from

an express provision to that effect in the mortgage. Secondly, by virtue of section 19(1) of  the  Conveyancing  Act,  1881  and  section  123(1)(iii)  of  the  Property  and

Conveyancing Law, 1959, the mortgagee’s power to appoint a receiver is statutory.


A receiver appointed by the mortgagee is generally under the mortgagee’s control: he can, at the mortgagee’s direction, insure the mortgaged property, and needs the mortgagee’s written authority even to execute necessary repairs, and as stated earlier, he can only exercise leasing powers if the mortgagee delegated such powers to him. Also, he may be removed or replaced by the mortgagee, just as he is appointed by him. The philosophy behind the appointment of a receiver is to protect the mortgaged property, especially the interest of the mortgagee. A receiver may be appointed in two ways:

a.  By a Deed of Mortgage:


Under this method of appointment, the mortgagee will be authorized by one of the clauses in the mortgage agreement to appoint a receiver. Thus, whether the mortgage is by deed or not, the mortgagee may appoint a receiver if the power to do so is expressly reserved in the mortgage instrument and the event for its exercise as specified in the mortgage (example default in payment) has to occur, thus making the express powers of appointment exercisable.

b. By the Court:


Where the issue of receiver is not contained in the Mortgage Deed, then the mortgagee can go to court for the appointment of a receiver: Inter Contractors Nigeria Ltd v. UAC (1988) 2 NWLR (Pt. 76) 303; Inter Contractors Ltd v. NPFMB (1989) 4 NWLR (Pt. 91) 62 and section 390 of CAMA 1990 (now Laws of the Federation 2004).

These cases are to the effect that where a receiver is to be appointed by the court for the mortgagee, then that receiver must first apply to the court and seek the leave of court for that appointment. In such cases, the court will consider the merits and demerits of the appointment.

The reason for this was stated in Fasaki v. Fasaki (1994) 4 NWLR (Pt. 340) 31, to the effect that the receiver has no interest in the property and therefore allowing him to enter as a receiver without the leave of court will not be favourable and fair to the mortgagor. However, Schedule Six of CAMA, says that if the mortgage involves a company, there is no need for leave of court.

Generally, the court will appoint a receiver under the following circumstances:


i)                If the interest payable under the mortgage is in arrears: Strong v. Carlyle (1893) 1 Ch. 268

ii)              Where the mortgagor breaks any of his obligations under the mortgage, example default in payment of the principal.

iii)            If the mortgaged property would be in jeopardy if it is allowed to be in the possession of the mortgagor until the hearing of the action.

iv)            Where the mortgaged property is derelict.

The receiver can also be liable in negligence. Therefore, a receiver must act in good faith. The case of Nwoga v. NIDP & Babington Ashaye (2000) (CA, Lagos) is instructive in the regard. The court will however, not grant an application for appointment of a receiver where the amount of the property is so small that there is nothing likely to be recovered.


4.               The Right of Foreclosure:

The right of foreclosure mainly avails the equitable mortgagee. Foreclosure is the judicial process by which the mortgagor’s equitable right to redeem is extinguished and the mortgaged property is rested absolutely in the mortgagee. Unlike a sale which is aimed at recovering the money owed to the mortgagee, foreclosure is aimed at obtaining the mortgagor’s property for the mortgagee.

Foreclosure can only be made by the court. A foreclosure order is normally granted in two phases: the first is an order foreclosure nisi which directs account to be taken of what is due to the mortgagee under the mortgage, including interests and cost and specifies the time, normally six months, after which if the mortgagor does not pay to the mortgagee what is certified an order for foreclosure absolute will be granted.

Foreclosure is an equitable remedy and being an equitable remedy it goes with the twin sister maxims of equity.

a)     He who comes to equity must come with clean hands,

b)    He who seeks equity must do equity


In foreclosure, the transaction is seeked to be foreclosed after the court of equity has scrutinized the actions and conscience of the mortgagee. In other words, the mortgagee must not be guilty of any encumberance. Finally, in an application for foreclosure, the court has a discretionary power to order a sale instead of foreclosure at the request of the mortgagor or any person interested either in the mortgage money or in the right of redemption.

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