Things
to take note;
1.
Covenant
in Mortgages
2.
Drafting
the various part of a deed of legal mortgage
3.
Ethical
issues relating to mortgages.
N.B: Kindly refer
to our previous post on MORTGAGES (Part 1 & 2)
Before
we proceed the following are the vital cases in Mortgage Transaction
SUBERU
V A.I.S.L LTD (Definition
of Mortgage)
‘’A mortgage is a conveyance of
land or an assignment of chattels as a security for the payment of a debt or
discharge of some other obligation for which it is given. The security is
redeemable on payment or discharges of such debt or obligation any provision to
the contrary notwithstanding’’
RE
WHITE ROSE (Equitable Mortgage Power of Sale)
‘’An equitable mortgage under a deed
in the terms of the Memorandum, can by
virtue of the power of attorney contained in it convey to a purchaser
the legal estate in the mortgaged property without first going through the form
of calling for the execution by the mortgagor a legal mortgage’’
EKA-ETEH V N.H.D.S LTD & ANOR (CONDUCT
OF SALE)
FACT: The Plaintiff challenged the sale
of the mortgaged property on the ground that the sale was at Under-value and
for the purpose of embarrassing the Plaintiff.
HELD: ‘’Under-value
alone is not enough to vitiate the exercise of a mortgagee power of sale it
must be shown that the same was made at a fraudulent
or gross under-value .
If
there is no evidence of malafides or
collusion between the mortgagee and purchaser, the purchaser is entitled to the statutory protection afforded a
bonafide purchaser. SECTION 126(2) of
the Property and Conveyancy law and the sale to him cannot be set
aside.’’
BANK
OF NORTH V BABATUNDE (UP-STAMPING NEED NO CONSENT) & OWONIBOYS TECHNICAL
SERVICES LTD V UBN PLC
‘’Where
a consent is required in a deed of legal mortgage and such consent has been
obtained when the mortgage was originally created, no consent is required for
the up-stamping of the mortgage if a further facility is granted on it’’
NDABA
V U.B.N (Equity of Redemption)
The court held that;
‘The
right to redeem a mortgaged property is so inseparable an incident of mortgage
that it cannot be taken away either expressly or by implication, nor can such
redemption be limited to time or particular person. The right of equity of redemption
continues until mortgagor’s title is extinguished or the interest destroyed by
sale either under the process of court or by the mortgagor’’
NAB
Ltd v. UBA Plc.
‘’Even
where power of sale has arisen, the mortgagee is still NOT entitled to sell the
mortgaged property unless and until the power has become exercisable’’
UBN LTD V OLORI MOTORS LTD (Power Of Sale)
FACTS: The mortgage (bank) brought an
action in court to recover the mortgage sum and interest. While the case was
pending, the mortgagee sold the mortgage property in exercise of the power of
sale. Mortgagor sought to set aside the sale of the mortgage property on the
ground that the sale violated the principle of pendente lite and that by
instituting an action in court to recover the mortgage sum and interest, the
mortgagee could not exercise the power of sale.
HELD:
It was held at the Supreme Court that since in a legal mortgage, the right to sell the mortgage property
was independent of the court in that the mortgagee can sell without any court
order and also, since the remedies of a mortgagee are not mutually
exclusive, then the mortgagee can exercise the power of sale even if there was
an action in court provided that the
power of sale had ARISEN and was EXERCISABLE
VISIONI
LIMITED V NATIONAL BANK OF NIGERIA (Application of proceed from sale)
‘’A mortgagee has a duty to deliver to the mortgagor the balance of
the proceeds of sale of the mortgaged property, after deducting the
principal money, interests and expenses, or give it to him on demand. If the mortgagee fails to discharge this
duty, the mortgagor may
recover the balance in an action for money had and received’’
COVENANTS IN A
MORTGAGE TRANSACTION
COVENANT TO REPAY THE PRINCIPAL
AND INTEREST AT A FIXD TIME
N.B: The mortgage sum is the
principal amount advanced to the mortgagor by the mortgagee while the interest
is the sum accruing on the principal over a period of time. This covenant must
be included in a deed of mortgage.
There is a burden on the
Mortgagor in equity to re-pay the Principal and Interest. Parties must agree on
a fixed date for the re-payment.
N.B: When the Legal due date is
not included, it is payable on demand.
N.B: Where the mortgagee is a bank,
the rule is that parties are bound by the rate of interest they have agreed,
where there is no express agreement, the bank is entitled to charge interest
a) Basis of customs and usages,
or
b) On the ground that the
customers is impliedly consented where he allowed his account to be debited and
he did not protest.
N.B: The Legal due date is
important for the following reason;
a) No action can be brought until
after the legal due date elapsed
b) The Mortgagee cannot exercise
his right of sale or foreclosure until the elapse of the Legal due date.
COVENANT TO INSURE THE PROPERTY
N.B:
This covenant is to provide for what would happen in
the event of any damages or destruction to the property. This is very important
as the transaction is dependent on the mortgage property. Any damage or
destruction to the property would adversely affect the rights of the parties.
The mortgagee must ensure that
the property is insured.
N.B: Both Parties have Insurable
Interest. This covenant should contain the following;
a)
The
Insurance Company
b)
The
date of the commencement of the insurance policy
c)
The
amount of the insurance
d)
The
risk to be insured
e)
The
person to insure the property and take out the insurance policy in his name or
the name of the party.
f)
The
application of the insurance money in the event of damage, whether to use it to
reinstate the property or not.
However, under SECTION
123(1)(ii) PCL and SECTION 19(1)(ii) both provides for the Mortgagee has right
to insure and keep insured against any loss or damage by fire any building or
any effects or property of an insurable nature.. and the premises paid for any
such insurance shall be a charge on the mortgaged property or estate or
interest, in addition to the mortgage money
N.B:
The mortgagee should ensure that the clause that upon revocation of the right
of occupancy by the Governor (SECTION 29 LAND USE ACT) the compensation would
be used to pay the mortgage sum.
COVEANANT TO REPAIR
This deals with the reinstatement
of parts that have fallen into disrepairs, due to depreciation. This is usually
the Mortgagor covenant but the mortgagee may carry out repairs. The parties
should agree on who is to repair, and list out places to be repaired.
However, where the mortgagor
fails to repair, if the mortagge carries out repairs, the cost is added to the
loan.
REMEDIAL
DEVICES/CLAUSES
THSES ARE;
1.
A
trust declaration clause
2.
An
irrevocable Power of Attorney clause
N.B: That in PCL states mortgage by sub-demise
does not require remedial devices as it is automatically implied by section 112
of PCL
The
power of attorney clause:
The insertion of the power of attorney clause empowers the mortgagee to sell
the property on behalf of the mortgagor. Thus, with the irrevocable power of
attorney, the mortgagee can sell the property as an ATTORNEY.
Trust
declaration:
By this clause, the mortgagor is turned into a trustee for the mortgagee and
the mortgagee is given the power to remove the mortgagor as trustee and appoint
anyone, including itself as trustee. The clause can also provide for the
transfer of the property to the beneficiary (mortgagee).
EFFECT
OF THE CLAUSE: With
the insertion of either a trust declaration or power of attorney (irrevocable)
in the mortgage deed created by sub-demise in Conveyancing Act states, the
problem of inability to sell reversionary interest by the mortgagee would have
been cured. That is, these remedial devices are used to circumvent the
limitations of creating a legal mortgage by sub-demise in Conveyancing Act
states. This limitation is created by the fact that the mortgagor has a
reversionary interest in the mortgage property and so, the mortgagee cannot
sell the property because he does not have the entire interest in the property.
To avoid this limitation, the remedial devices are used and inserted in the
deed to give the mortgagee the power to sell without the mortgagor.
COVENANT TO CONSOLIDATE DIFFERENT MORTGAGES
This occurs where a mortgagor
uses different properties to secure a loan of money. These mortgages are
consolidated in the sense that the mortgagor will not be allowed to redeem any
of the properties without also redeeming the other securities.
N.B: The law prohibits consolidation
of mortagages (SECTION 115 PCL and s. 17 CA)
However, parties may decide to
expressly agree to it in the deed of mortgage, where the paties agree for
consolidation, the following must exist;
a)
It
must be the same mortgagor
b)
It
must be the same mortgagee
c)
The
legal due date must have passed
d)
It
must have been expressly agreed by the parties and stated in the deed of
mortgage.
COVENANT TO CREATE LEASE AND
SUB-LEASE ON THE PROPERTY
N.B: IN LAGOS STATE, Once a
Mortgage is pending and not yet discharge, the mortgagor has no right to create
any lease without the consent of the Mortgagee. See SECTION 49(1) LRL, 54 LRL
Generally, this largely depends
on whether the lease was created BEFORE OR AFTER the mortgage.
If there was a lease on the
property BEFORE the mortgage
the lease will be binding on the mortgagor and even on subsequent purchaser and
the mortgagee will not be entitled to rent.
However, where the lease is
created AFTER the mortgage,
then the determining factor is whether either party is in possession in which
case that party in possession of the mortgaged property can create a lease
binding on the other.
Section
18(1) CA, section 121(1) PCL provides thus;
A
mortgagor of land while in possession shall, as against every incumbrancer,
have power to make from time to time any such lease of the mortgage land or any
part thereof.
THEREFORE, a prudent lawyer will
include a clause where the mortgagor is in possession, that mortgagee’s consent
in writing should be first had and obtained before the mortgagor can lease or
sub-lease the property (however, such consent is not to be unreasonably
withheld in case of a responsible and respectably person).
Other
Covenant includes;
Covenant
to retain title deed
Covenant
to re-conveyance
On a Final note when a Mortgagor
conveys and its expressed to convey as ‘’BENEFICIAL OWNER’’, under SECTIONS 7(C)
of the Conveyancing Act and Section 100(1)[C[ of Property and Conveyancy Law,
Seven Covenants are implied into the Mortgage;
1.
Right
to convey
2.
Quiet
Enjoyment
3.
Freedom
from Incubrances
4.
Further
Assurance
5.
Lease
is valid and subsisting
6.
The
rents and Covenant have been paid and performed
7.
The
Mortgagor covenants to perform the condition in the lease
TO BE
CONTINUED!!!!!!!
PRAY
HARD
EAT
HARD
REST
HARD
READ
HARD……………………..READ AND SHARE……………
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