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:
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.