LECTURE 5

MORTGAGES

Mortgage is a document which operates to give lender legal estate in property. It

usually provides for the reversion of the legal estate to the borrower once he repays
the loan.

TYPES OF MORTGAGES
There are two types of mortgages:
1. legal mortgage; and
2. equitable mortgage

The distinction between these two types of mortgages has great practical
significance, and it is important that solicitors should be abreast with the nature,
forms and procedures appropriate to each of them.

A legal mortgage has the following advantages over the equitable mortgage:

1. In terms of enforcement, it is easier to enforce a legal mortgage; the

equitable mortgage which is not created by Deed, the lender must obtain
an order of court before he could sell or take possession of the property
or foreclose or appoint a receiver/manager.

2. A subsequent legal mortgage or purchaser for value without notice of the

equitable mortgage takes priority over the equitable mortgage

3. It is easier to commit fraud in the case of equitable mortgage than legal

mortgage; the borrower who has deposited the original title deeds with a
bank may obtain a certified true copy of the deed from the registry for
other fraudulent purposes.

Notwithstanding the above disadvantages of the equitable mortgage, there are

circumstances when the equitable mortgage is more appropriate than the legal
mortgage. These are:

1. Where the loan is for a small amount of money, it is better to secure the
loan by equitable mortgage, which is cheaper than a legal mortgage in
terms of perfection.
 2. Where the period of repayment is short, equitable mortgage is better
because it is easier and quicker to achieve than the legal mortgage.

CREATION OF EQUITABLE MORTGAGES

An equitable-mortgage is a type of mortgage that confers equitable interest on the

mortgagee. Equitable mortgages are very useful to secure a short-term loan. In
practice, it is usual for the mortgagee at the time of creating the equitable
mortgage, to obtain the execution of a full mortgage in addition to the consent form
signed by the mortgagor. If later, the mortgagor is in default, no harm will have
been done, the full legal mortgage can then be dated, the priority of which will
have been preserved by the equitable document.
There is uniformity in the mode of creation of equitable mortgages in Nigeria; the
distinction between C.A. and P&CL States is not necessary. There are three
methods of creating equitable mortgages in Nigeria.

1. Deposit of Title Deeds

The mere deposit of title deeds with a bank with a clear intention that the deeds
should be taken or retained as security for a loan is one of the methods of creating
equitable mortgage. Always demand for original documents. The absence of
original document gives constructive notice that the originals are with third party –
Barclays Bank v. Ashiru. The practice is that the mortgagor executes a
memorandum of deposit that contains the terms of the loan. The memorandum of
deposit may be executed under hand or as a deed. It is better that the memorandum
is executed as a deed because the bank will then be able to enforce their statutory
power of sale of the mortgaged property notwithstanding that the bank is an
equitable mortgagee. The difference between a sale by a legal mortgagee, and
equitable mortgagee who is obliged the power of sale is that, the equitable
mortgagee, unlike the legal mortgagee, cannot convey to a purchaser a legal title,
and here lies the problem of the equitable mortgagee, even when the mortgage is
created by deed.
The solution to this problem is that the mortgagee should insert in the
memorandum of deposit, a power of attorney clause or a trust declaration.

2. Agreement to create a legal mortgage

This is the second method of creating equitable mortgages. There are two legal
consequences of the deposit of title deeds as security for a loan: firstly, there is an
implied agreement by the mortgagor to execute a legal mortgage, and secondly, it
amounts to part performance. Therefore, even if the deposit is not supported by
evidence in writing, in the face of evidence that the deposit was meant to secure a
loan, the court may decree specific performance in favour of the mortgagee. In
practice, the memorandum of deposit will usually include in it the right of the
mortgagee to call on the mortgagor to execute the legal mortgage. Based on the
principle that equity looks as done, that which ought to be done, where the
mortgagor is in default of payment of the loan, the court will in an action by the
mortgagee compel the mortgagor to execute a legal mortgage in favour of the
mortgagee.
3. Mere charge of the mortgagor’s property
This is the third method of creating equitable mortgage. It is different from the
other two methods of creating equitable mortgage in respect of the remedies it
confers. Under this mode of creation, no interest is conveyed to the mortgagee,
and the property charged is appropriated only to the discharge of a debt or some
other burden in respect of which the property stand charged. The difference
between equitable charge and the other types of equitable mortgage is illustrated
as follows: Suppose a man signed a written contract, by which he simply agreed
that he thereby charged his real estate with fifty pounds to A., what would be the
effect of it? It would be no agreement to give a legal mortgage, but a security by
which he equitably charged his land with payment of a sum of money, and the
mode of enforcing it would be by coming into court of equity to have the money
raised by sale or mortgage; that would be the effect of such a simple charge. On the
other hand the party might agree that having borrowed a sum of money, he would
give a legal mortgage when called upon. That agreement might be enforced
according to its terms, and the court would decree a legal mortgage to be given and
would also foreclose the mortgage unless the money is paid.

4. Equitable Mortgage of Land in Lagos State

Equitable mortgage of land in Lagos State (if the land is covered by certificate of
occupancy) is by a charge or deposit of Title Deeds coupled with an Agreement to
create a legal mortgage. See section 18 of Mortgage and Property Law of Lagos
State, 2012. Where the mortgage is of an equitable interest, it can only be created
by assignment with ceaser on redemption.

CREATION OF A LEGAL MORTGAGE

The Form of Legal Mortgage depends on where the land is situate in Nigeria.
There is no common form. It is wherever you have land, the law you observe.

1. Conveyancing Act States

There is no statutory provision governing the mode of creation of a legal mortgage
in these States, therefore, the applicable law is still the common law subject to
modifications introduced by the Land Use Act, 1978. Since no freehold interest in
land can be acquired in Nigeria, the relevant law is that applicable to the creation
of a legal mortgage of a leasehold interest. At common law, a legal mortgage of a
leasehold interest may be created by either of two ways:

a. by the assignment of the entire leasehold interest of the mortgagor

subject to a provision for ceaser on redemption; or
b. by sub-demise with a proviso for redemption when the loan is
redeemed.

The difference between a legal mortgage created by assignment and sub-demise is

that where it is by assignment there is no reversionary interest in the mortgagor,
but under the sub-demise, there is a reversionary interest in the mortgagor. There
are advantages here. It is better to use a sub-demise where covenants are onerous
for in that case the mortgagee will not become liable for mortgagor’s covenants by
way of privity of estate. You should reject assignment.

Thus, in the rest of the country excluding the former Western Nigeria, the lender
takes the unexpired residue of lease or Certificate of Occupancy less few days. If
you give him all the unexpired residue, that is an Assignment. But if you give less
few days it is sub-demise.

2. Property and Conveyancing Law States

In the former Western Nigeria, they use a law different from others. Under PCL
two methods are permitted (1) sub-demise for term of years absolute less few days,
(2) by a charge by deed expressed by way of legal mortgage – section 109.

3. Lagos State

Section 15 of the Mortgage and Property Law, Lagos State 2012, provides that the
legal mortgage of a Certificate of Occupancy shall be created by a demise for a
term of years absolute subject to a ceaser on redemption; or by a charge by deed
expressed to be either by way of Legal mortgage or by way of Statutory mortgage
in the forms provided by the Law.
Section 16 of the Mortgage and Property Law Lagos State, 2012 provides for the
creation of legal mortgage of a leasehold interest. The section provides that such
mortgage shall be created by: sub-demise for a term of years absolute less by one
day and subject to a provision for redemption; or by charge by deed expressed to
be by way of legal mortgage; or by charge by deed expressed to be by way of
statutory mortgage as provided by section 49 and Form 1 of the Schedule II to the
Law.

In summary, there are four ways of creating a legal mortgage in Nigeria. That is
by assignment (C.A. and Lagos States only), by sub-demise (C.A.; P&CL and
Lagos States), by a legal charge (P&CL and Lagos States only); and a charge by
Statutory Mortgage under section 49 of Mortgage and Property Law Lagos State,
2012. When acting as solicitor in a mortgage transaction, it is expected that you
should advise the parties on the legal consequences of each of them. Here are
three important issues to be noted.

1. A comparism of a legal mortgage by assignment with a legal mortgage

by sub-demise

Between a legal mortgage created by assignment and that created by sub-demise,

banks prefer the sub-demise. Two reasons have been advanced for this practice,
they are:

a. Where a legal mortgage is created by assignment, there is no

privity of contract between the Governor who granted the
certificate of occupancy to the mortgagor and the bank, but
there is privity of estate and the burden of restrictive covenants
that run with the land in equity bind the bank, and the bank is
bound to observe and perform such covenants. This situation
opens the bank to liability for breach of covenant. But the
position is different where the legal mortgage is created by sub-
demise, here, there is neither privity of contract nor estate and
the bank is not open to any liability for breach of covenant(s).

b. The second advantage of the sub-demise is that it is common to

all States in Nigeria, hence there is uniformity, which is
attractive to the banks that have branches all over and scattered
in all the jurisdictions.
Notwithstanding the advantages of the legal mortgage by sub-demise over that
created by assignment, the sub-demise suffers a technical problem in respect of the
rights of the bank to enforce its security. The problem is that the mortgagor did not
convey his reversionary interest to the bank, thus when the bank is enforcing the
security, they cannot sell that reversionary interest. This problem does not exist in
the case of a legal mortgage created by assignment. The solution to this problem
depends on where the property is located. In the C.A. States it is a matter of
construction of the mortgage deed. The mortgage deed should provide for either or
both of the following two clauses:

a. A power of attorney is inserted in the mortgage deed. By this

clause, the bank in consideration of the mortgage sum is
appointed attorney with authority to deal with the entire interest
(including the reversionary interest) of the mortgagor. Such a
power of attorney is irrevocable until the loan is discharged,
and in the event of a default by the mortgagor, the bank as
attorney can sell the legal estate following the authority
conferred on them under the clause.
b. Alternatively or in addition to the above, the mortgage deed
may provide for a trust declaration. By this clause the
mortgagor declares himself a trustee of the property in favour of
the bank, and that he would convey it as the bank directs, and
that it shall be lawful for the bank to remove him as trustee and
appoint new trustees to replace him and also to make a
declaration vesting all his estate (including his reversionary
interest) in the new trustees.

These clauses are not necessary in the P&CL states because statute already solve
the problem. Section 112(1) of the P&CL provides that the mortgage term shall
merge in the leasehold reversion and the bank can validly sell the entire interest of
the mortgagor, including his reversionary interest. This provision simplifies the
documentation of the legal mortgage by sub-demise under the P&CL States. See
also, section 17 Mortgage and Property Law Lagos State, 2012 for a similar
provision in respect of Lagos State.

2. The Distinction between a legal mortgage by assignment/sub-demise

and a legal charge or Statutory Charge
The main distinction between the legal mortgage created by assignment/sub-
demise and a legal charge is that, in the case of assignment/sub-demise, the
mortgagor conveys either the whole or part of his interest in the property to the
bank. But the mortgagor in a legal charge, otherwise called a statutory mortgage,
does not convey any interest in the property to the bank. This is without prejudice
to the right of a legal chargee (the bank) to enjoy the same rights as the mortgagee
of a legal mortgage created by assignment or sub-demise. See section 17
Mortgage and Property Law Lagos State, 2012.

There are four advantages of the legal charge over assignment/sub-demise, they
are:
a. The legal charge is a shorter and simpler form of creating a
legal mortgage.

b. Where the head lease prohibits the assignment of the property,

it may still be charged without liability.

c. It is more appropriate where the mortgagor is charging several

properties, if the mortgage were by assignment/sub-demise,
each of the properties would have to be conveyed by a separate
instrument.
d. The discharge of a legal charge is quite simple; it is effected by
a statutory receipt.

One shortcoming of the legal charge is that unlike the deed of release that is
registrable; the statutory receipt by which a legal charge is discharged, is not
registrable.

Drafting of Mortgage:-

Equitable Mortgage:- For securing a short term loan a short form of equitable
charge such as a memorandum of deposit of title deeds may suffice. To secure
powers of a full mortgage you may adopt the practice of some banks of obtaining
at same time the execution of a full mortgage as well as an equitable charge but
leaving the former undated – Anukwu v. Standard Bank. But in Barclays Bank v.
Ashiru [1978]1 LRN 266 it was not followed. The bank only collected
memorandum of deposit and title deeds. After collecting the money, he was called
upon to sign deed of mortgage. He was sued for specific performance. Using
delaying tactics Ashiru appealed to Supreme Court. The SC ordered specific
performance. Ashiru refused to sign. Registrar of court signed on his behalf. To
delay time, Ashiru challenged that to the Supreme Court. The case lasted for over
10 years.

How must the memorandum be prepared – Equitable mortgage – You ensure

the originals of title deeds have been secured. Time of payment specified. Rate of
interest – if it is omitted, he’ll get equitable rate which is 4%. State that borrower
shall execute a legal mortgage whenever asked to do so. You may search precedent
books for guidance – see e.g. Kelly Precedent Form 19. The memorandum may
also specify length of notice to be given by borrower if he wishes to pay after date
has expired. In the absence only reasonable notice is required. Reasonable notice
in this circumstance in Fitzgerald Trustees v. Mellersh [1892]1 Ch 385 is held to
be reasonable time to enable mortgagee search archives to bring out document
unlike legal mortgage which is 6 months notice or interest of 6 months in lieu.

In preparing memorandum can we adopt deed method? Yes, it could be done that
way – Ashiru’s case. When mortgage is prepared by deed whether legal or
equitable it has advantages conferred by section 123 of PCL, section 19 CA. The
sections give automatic power of sale and right to appoint receiver. Give
mortgagee irrevocable power of attorney to sell as agent of mortgagor, unlike in
Ashiru’s case. This power of attorney cannot be revoked at will.

If you go by declaration of trust in your favour i.e. the holder of land is holding in
trust for you as mortgagee, you can then appoint another trustee by deed so that the
trustee can sell and confer right on the buyer, collect his cost and pay the
mortgagee the loan.

LEGAL MORTGAGE:
Commencement – THIS MORTGAGE DEED is made This … day of … 20
Parties – BETWEEN FM of … (the lender) of the one part and EF of … (the
borrower) on the other part.
The expression ‘the borrower’ and ‘the lender’ shall where the context so admits
include those claiming through and under them including their successors in title.
Background – you can put it as ‘background’ or put “WHEREAS.” You tell us
background to this transaction. Look at facts to draft the recitals. You should state
that EF is desirous of a loan. Agreement to get loan should be recited. You should
state that Governor’s consent and consent of lessor have been duly obtained.
Testatum:- ‘Now This Deed made in pursuance of the agreement and in
consideration of the principal sum paid by the lender to the borrower (receipt of
which the borrower acknowledges) witnesses as follows:-
 1. The borrower hereby covenants with the lender to pay to the lender on
the 1st day of December Next the principal sum with interest thereon
from today at the rate of 16% per annum and also if the said principal
sum or any part thereof is not so paid to pay to the lender interest on
the principal sum at the time being hereby secured at rate of 16% in
advance by equal half yearly payment on every 1 st day of June and 1st
day of December every year. You can choose it to be monthly or
quarterly by whatever period you choose, please put the date. If you
are buying from public auction, look at the Date when power of sale
arises. In this case is 1st day of December. Who specifies the date?
Conveyancers. If they agree on say 20 years. Specify 2 months or 6
months. Your legal right to redeem the property is transferred to the
mortgagee. The property is at mercy of lender. Equity comes in to
preserve his right to redeem at anytime because once a mortgage
always a mortgage. But if by one default you refuse to pay the
installment, equity will not help you because he who comes to equity
must come with clean hands. If you fix the 20 years agreed. You have
created problem for lender – Twentieth Century Banking Corp v.
Wilkenson [1977] Ch 99 – the loan was repayable over 15 years.
Draftsman put the exact time of the 15 years i.e. October 1988. It was
joint loan. The bank wanted to enforce security. The court held their
money was not due. See Federal Administrator Gen v. Paul Cardoso
[1973]1 All NLR 169 at 174 – the Supreme Court said the mortgagor
has two types of right. One legal and other equitable. The equitable
starts when the date you specify expires. There is his legal right to
redeem within a specified date. It is equitable right to redeem on any
date thereafter.
2. The borrower as beneficial owner demises to the lender the mortgaged
property for all residue now unexpired of the term granted by the lease
Less 3 days.” This is called the charge clause or conveyance clause.
Proviso for redemption in this clause is that “But if the borrower pays
to the lender in full the Principal Sum, Interest and other money
payable under this deed then the said sub-term shall cease and become
merged and extinguished in the reversion immediately expectant on
it.” The sub term here refers to the residue of lease less 3 days in the
main clause.

The covenants implied from covenant for title ‘As beneficial owner’ are
unqualified in this case. The use of the expression imports 7 covenants i.e. the
usual 6 and an undertaking that all future covenants relating to the lease will be
performed.
If no other term is agreed upon, this is Okay i.e. it is enough to create a mortgage
charge. ‘Other money’ in the proviso refers to other money which will accrue as a
result of the mortgagor’s failure to insure or keep it in substantial repairs.

The borrower covenants with lender and it is expressed and agreed as follows:
You should direct your mind as to how security has been maintained and will
remain maintained i.e. covenant for repair. The mortgagee should insist that
mortgagor retains security in good repairs. There should be a right reserved for
mortgagee or his agents to inspect the security and suggest right things to be done
i.e. covenant of inspection.

Another is insurance covenant. Individuals take risk over their property. In a

transaction of this nature, the property should be insured. In taking insurance of
this nature, the mortgagee can insure own interest for not more than 2/3 of the
value – section 130 PCL. The owner can insure in full. Here there may be two
policies- where you have 2 policies, none will be protected fully. In this regard,
the mortgagee should ensure that the mortgagor insures the property in their 2
names. The mortgagor pays the premium. Where there is accident, the mortgagor
reinstates the property with whatever money he has – See Insurance Act; section83
of Fire Protection Metropolitan Act 1774 and Mumford v. Wheeler. But what if the
property outgrows its insurance policy? i.e. where the money paid by insurance
policy is not enough to rebuild the property. Who pays the balance? But the bank
is not interested in the property being reinstated but in its loan repaid. To ensure
this, put irrevocable power of attorney by which mortgagor gives mortgagee the
right to collect the policy money on his behalf and dispose of it as he deems fit. By
this method, the bank is protected. However, there is a problem here. The law i.e.
Insurance Act and section 83 of the Act of 1774 also give mortgagor power to ask
for reinstatement of his property. Therefore, this supersedes the power of attorney.
To protect the bank here, he should also sign an undertaking not to exercise his
right under the Acts i.e. power to ask for reinstatement of his property. See Section
42 Mortgage and Property Law Lagos State, 2012 on application of Insurance
proceeds.

Covenant to induce punctual payment of interest is another covenant that you

should provide for in your deed of mortgage. How do you ensure this? If you put
penalty say ask him to pay 16% instead of 15% if he does not pay on time i.e.
penalty and is not enforceable it is not good if a penal clause is inserted whereby
rate of interest payable by mortgagor is increased if there is delay in payment.
This of course cannot be done directly for if covenant provides for interest at rate
of 15% but that if it is not paid punctually then it is to be 16%, the court will treat it
as a penalty and relieve the mortgagor from it by allowing him to redeem on
repayment of principal and interest at 15%. To avoid the consequence, the clause
should stipulate that the rate of interest shall be 16% but where mortgagor pays
punctually payment at 15% shall be accepted.

Another covenant is postponement of redemption. You can state that you don’t
want redemption until anytime you feel like e.g. 5 years, 10 years etc. This can be
of advantage. How long can they make the arrangement certain. If you read case
law here once a mortgage always a mortgage is the maxim and that you cannot
deprive the mortgagor from exercising his equity of redemption. See
Knightsbridge Estate Trust Ltd v. Bryne [1937] Ch 441; or [1940] AC 613 – there
is no law that period has to be short or long. In this case the period was 40 years.
The Court of Appeal held it was good. It is a contract between parties and so court
should enforce it. The House of Lords did not disturb the holding. Each case
should be looked at on its own merit. See also Multi Service Banking Ltd v.
Marden [1979] Ch 84 – 10 years was held to be good. See also Esso Petroleum
Ltd v. Harper’s Garage [1968] AC 269 – A mortgagor agreed to buy only
mortgagee’s product for 20 years. Also agreed, to redeem only by installment, for
21 years. Held, he could redeem before 21 years in public interest.

Another covenant is that of restriction on letting by mortgagor. The mortgagor

retains possession of property and can therefore lease out. After specified date
fixed in memorandum, he becomes an equitable owner and so cannot validly let.
But he could on failing to meet short date grant lease by section 121 PCL; section
18 CA and section 33 Mortgage and Property Law Lagos State, 2012. This is only
when the mortgagor has possession. Mortgagees restrict his right to grant by
insisting that he should not let out without the mortgagee’s consent. But in Rhodes
v. Dalby [1971]2 All ER 1144, a mortgagor can grant a licence for permission to
use property for 3 years on ground that any time he needs it, it would be returned
back. It was held a gentleman’s agreement does not breach that restriction. But if
you are to act for bank – say that during the continuance of this security the
mortgagor shall not without the consent in writing of the mortgagee grant or agree
to grant any lease or tenancy of the mortgaged property or any part of it or accept
or agree to accept any surrender of any lease or tenancy of it.

Another covenant is power of sale. Power of sale is vested in mortgagee by

operation of law. Once mortgage is by deed and you make it proper in law, you
can sell without recourse to court. Thus, you do not need to put any covenant in
the deed granting power of sale – section 123, 125, 135 PCL, sections 19, 20, CA
1881; and sections 35, 37 Mortgage and Property Law Lagos State, 2012.
But there is qualification to power of sale. Statute gives mortgagee whose
mortgage whether legal or equitable is by deed and contains no contrary intention a
power of sale if the power arises. Thus for the power to arise the following three
conditions must exist:

a. the mortgage must have been created by a deed;

b. there must be no contrary intention against sale in the mortgage deed;
and
c. the legal due date, which is the date of redemption of the mortgage
must have passed.

Notwithstanding that the power of sale has arisen the mortgagee is not entitled to
sell the mortgaged property unless the power has become exercisable. Before the
power can be exercised one of 3 conditions laid down by section 125 PCL or
section 20 CA must be satisfied – these are:

a. notice requiring payment has been served and there has been default for 3
months after this notice or

b. some interest under the mortgage is 2 months or more in arrears or

c. There has been a breach of some provision contained in the CA or PCL as

the case may be or in the deed itself i.e. some covenants must have been
broken.

Under section 37 Mortgage and Property Law Lagos State, 2012, the conditions
are similar except that the first two conditions are merged to state: notice requiring
payment has been served and there has been default to pay the sum or some
interest under the mortgage for 2 months or more

As draftsman you may elect to reject these conditions i.e. you can give power of
sale even where the conditions are not satisfied. See Form 19 Kelly 15 th Ed. which
is designed to avoid section 125 PCL and section 20 CA. He says “section 20 of
CA 1881 shall not apply to this deed and the statutory and other powers of sale and
appointing of receiver shall arise on the date of this deed and shall be exercised by
mortgagee without notice to the mortgagor immediately on the happening of any
one or more of the following events …” See sections 19(2) and (3) of the
Conveyancing Act, 1881. Similarly, UDO UDOMA J.S.C. (as he then was) in
N.H.D.S. v Mumini [1977] 2 S.C. 57 at 78-79 held that: the exclusion of section 20
of the Act from the mortgage deed was certainly a competent and lawful exercise
of the statutory power conferred by the Conveyancing Law and Property Act,
1881. It is however, better to comply with the statutory provision.

Testimonium:- In witness of which …

Schedule:- This describes the property.

Attestation: - “Signed, sealed and delivered by the named borrower in the
presence of…” In some documents it is only the borrower that signs.
Consent: I consent to the within written transaction dated … sign. Governor of ….
Section 22 of LUA on consent. Failure to state that governor’s consent was
obtained in the deed will not invalidate the deed if in fact it has been obtained. It is
however advisable to state such fact in the deed – Savannah Bank v. Ajilo; see also
Adedeji v. National Bank Nigeria Ltd CA decision [1989] part 96 1 NWLR 212 –
A party should not rely on his wrong to obtain a remedy against another party. It
upheld principle in Solanke v. Abed. Before the courts can exercise their statutory
rights to vest the property unto you, you must prove consent had been obtained –
Danjara v. Mohammed Bayi [1965] NMLR 455.
Stamping: It is stamped ad valorem.
Registration: A Deed of Mortgage must be registered as it is an instrument within
the meaning of the Land Instrument Registration Law. If a company is involved,
you have to register at Company’s Registry.

The Conduct of the Sale

Where the mortgagee’s power of sale has arisen and becomes exercisable,
the sale is either by auction or private treaty. In the conduct of the sale, the
mortgagee is not deemed to be the trustee of the mortgagor; he is not bound to sell
at a particular price provided he acts in good faith. A sale at under value is not
proof of bad faith, but where the mortgagee sells to himself, nominee, or persons
interested, the court may infer bad faith. In Eka-Eteh v N.H.D.S. Ltd and
another [1973] All N.L.R. 555 the plaintiff challenged the sale of the mortgaged
property by the first defendant (mortgagee) to the second defendant on the ground
that the sale was at under-value and for the purpose of embarrassing the plaintiff.
It was held: Under-value alone is not enough to vitiate the exercise of a
mortgagee’s power of sale, it must be shown that the same was made at a
fraudulent or gross under-value; also if having regard to the circumstances of the
particular case, a mortgagee exercises his power of sale in good faith his conduct
cannot be impeached. So since there is no evidence of mala fides or collusion on
the part of the defendants, the second defendant is entitled to the statutory
protection afforded a bona fide purchaser by s. 126(2) of the Property and
Conveyancing Law and the sale to him cannot be set aside.

Application of the Proceed of Sale

Section 21(3) of the C.A.; section 127 of the P&CL and section 39 MPL Lagos
State provides that:

The money which is received by the mortgagee, arising from the sale will be
applied to:
1. discharge of prior encumbrances to which the sale is not made subject,
2. pay all costs, charges, and expenses, properly incurred by him, as incidental
to the sale or any attempted sale, or otherwise
3. discharge of the mortgage money, interest and costs,
4. pay other money, if any due under the mortgage
5. pay the residue of the money so received to the person entitled to the
mortgaged property, or authorized to give receipts for the proceeds of the
sale thereof.

This means that notwithstanding that the mortgagee is not trustee of the mortgagor
for the conduct of the sale; he is trustee of the mortgagor for the proceeds of the
sale. The distribution of the proceeds is clearly spelt out in this section. The
practice is that where money is left after the discharge of prior encumbrances;
costs, charges, and expenses, properly incurred by him; and the mortgage money,
interest and costs; the balance is passed to the mortgagor unless there is a second
mortgagee who is entitled to the balance as person entitled to the mortgaged
property and authorized to give receipts.

DISCHARGE OF MORTGAGE

On date of mortgage, you have to submit all the original documents of title to
property thereby making him an Equitable mortgagee of deposit. On date of
discharge all documents must be returned including deed of charge – Rock v.
Robinson [1911]4 Ch 11. It is the duty of mortgagee on being paid, to return all
deeds of documents including deed of reconveyance of the mortgage property to
the mortgagor.

The qualification to the conveyance clause is stated in the clause. The legal Estate
left him after the specified date had passed and is picked up by mortgagee. But
supposing he pays back, how do you revert to the mortgagor – see Re Moor
[1912]2 Ch 105 – where it was held that on repayment of money secured on a
leasehold property by sub-demise a surrender was necessary for the mortgagee had
a legal term i.e. the only way to return it is by preparing a deed of surrender.

On discharge all document and vacated deed of mortgage (when the mortgage is
discharged, the dead deed is referred to as vacated deed of mortgage) must be
returned to the mortgagor. In Rock v. Robinson it was held that a mortgagor has a
right to demand for the deed to be returned back to him. The deed of surrender is
also known as deed of reconveyance and is stamped ad valorem. It also has to be
registered under land instrument regulation law and by section 22 LUA discharge
of mortgage does not require Governor’s consent.

In the former Western Nigeria and Lagos State, the position is different. Section
135 PCL and 41 MPL Lagos State – a mortgage may be discharged by a receipt
under hand endorsed on or annexed to the mortgage deed. You don’t have to
bother about form of the receipt. It is provided in precedent number 2 of third
schedule for PCL; or Form 5 in Schedule II of MPL Lagos State. However it must
comply with the following:
a. It must be endorsed on or written at the foot of or annexed to the mortgage
deed

b. It must state name of person who pays the money e.g. received from John

c. It must be executed by the chargee by way of legal or Statutory mortgage or

the person in whom the mortgage is vested and who is legally entitled to
issue the receipt for the money.

The receipt has same effect as deed of surrender or reconveyance. It has to be

stamped ad valorem. However, a receipt or endorsed on or annexed will not be
accepted for registration because it may not conform to the size of the paper
required for instrument. Though the receipt is useful in equitable mortgage since it
does not pass any legal interest to the mortgagee, if it is a legal mortgage, even in
the former Western Nigeria, it is better to execute deed of surrender.

The receipt operates as a transfer where the money is paid by a person not entitled
to equity of redemption e.g. if person who pays the money is not the mortgagor
himself, it puts the person who pays in the shoe of the mortgagee.

The mortgagor may have covenanted that he will not call off the mortgage within a
specified time. If you are ready for discharge, even if deed contains such onerous
covenant, you can approach the court to help you discharge it. Section 75 PCL or
section 5 CA gives court statutory right to accept money on behalf of mortgagee
and issue you with a discharge certificate and invite the mortgagee to come and
collect his money. In Queen v. Ministry for Lands and Survey Exparte Bank of
North [1963] NNLR 58 – the Minister had requested that the mortgagor should go
to court and clear himself by paying the money and collect discharge certificate. In
Multi Service Banking v. Marden – the court said that what could seem as harsh
covenant in the deed of mortgage can be solved by the above method i.e. payment
into court.

If the mortgage is done under MPL Lagos State, you have to discharge in the
prescribed form 5 – Maclean v. Inlaks. You have to complete and file with
Registrar with evidence that you have paid the money outstanding and shall on the
production of these documents cancel the charge and such charge shall cease –
section 55 of Land Registration Law Lagos State, 2015.

Another way of discharging mortgage is where the property having charged is

being sold to a purchaser whose money is to be used to pay for a subsisting
mortgage, it is better to make mortgagee a party – see Ogundaini v. Araba [1978]1
LRN 208 – where the Supreme Court held that the only way to destroy the
mortgage here is by making the mortgagee a party.