WHEN A DEED OF MORTGAGE NEEDS TO BE UP-STAMPED

By section 22 of the Stamp Duty Act Cap. 191, 1958, a document is required to be stamped ad valorem within 30 (thirty) days of first execution. Where the instrument is void, unless it has been approved by a public officer, the 30 days run from the date of such approval – section 22(5) of the Stamp Duty Act.

Up-stamping of mortgages refers to the practice or process of payment of additional stamp duties on a mortgage document in transaction of the increased facility granted over an earlier mortgage. All transactions requiring the consent of the Governor under section 22 of the Land Use Act, 1978 are affected by this provision. Instruments may be stamped outside prescribed period under a heavy penalty – section 22(2)(b) of the Stamp Duty Act. Also, proper stamping is a pre-requisite of registration; an unstamped document will not be accepted for registration.(click on the pictures on left or right hand sides for more insights)

In practice, documents are normally submitted to the Stamp Duty Commissioner of the State where the land is situated for assessment. The Commissioner, after checking the consideration for which the document is made, calculates the duty payable and endorses a certificate indicating the amount. Where the document is voluntary, it must be ad valorem, as if it were a document on sale, with the substitution of the value of the property conveyed for the amount or value of the consideration for sale, and the duty must be adjudicated (that is, presented to the Commissioner for an opinion as to the amount that is to be paid) before the document is regarded as properly stamped.

Where a copy or duplicate of the document is to be fixed at the Deed’s Registry, this must be stamped with a fixed duty of 75k and the copy or duplicate will, in addition, bear a denoting fee of 39k in adhesive stamps, that is, post office stamps.

A legal mortgage is stamped at 75k per N200 or part of N200; and further advances are stamped in like manner. The duty for equitable mortgage is 30k per N200 or part of N200. Documents coming under this sub-head must be under hand only, e.g. an agreement expressed or implied to execute a mortgage. But where the equitable mortgage is accompanied by any deed or confers on the mortgage a power of sale or power of attorney, the document should be stamped as a legal mortgage.

It should however be noted that where a consent of the Governor is required in a deed of legal mortgage and such consent has been obtained when the mortgage was originally created, no consent of the Governor is required for the up-stamping of the mortgage if a further facility is granted on it – Per Amaizu JCA in Bank of the North v. Babatunde (2002) FWLR (Pt. 119) 1452 at 1469. Also, the principle that no further consent of the Governor is required for up-stamping applies even where the previous consent was granted under a law that ceases to exist – Adepate v. Babatunde (2002) FWLR (Pt. 91) 1503, where the court held that there is no legal necessity for fresh approval from the Governor under the Land Use Act, 1978 since the only difference is the enhancement of the facility from N12,000.00 (Twelve thousand naira) in exhibit 6 to N33,000.00 (Thirty three thousand naira) in exhibit 7.

The major features of stamping-up are –

1.      If the property is the same;

2.      If the parties are the same; but

3.      If the new facility if different; hence

4.      The new documents are paid to (‘up-stamp’) the document.

REMEDIES AVAILABLE TO A MORTGAGEE

The following are remedies of a mortgagee –

1.      Statutory power of sale;

2.      Appointment of a receiver;

3.      Action for order of specific performance;

4.      Taking possession of the security; and

5.      Foreclosure.

STATUTORY POWER OF SALE

Under section 19(1) of the Conveyancing Act; and section 123(1) of the PCL, every mortgagee (whether it is legal or equitable) whose mortgage is created by a deed, may enforce their security when the money becomes due by sale of the mortgaged property. Under this, the power of sale is automatic and does not require an order of court to sell.

However, the statutory power of sale will arise when the following conditions are met –

1.      The mortgage must have been created by a deed;

2.      There must be no express contrary intention against sale of the property contained in the mortgage deed; and

3.      The legal due date which is the date of redemption of the mortgage must have accrued.

Although, such power of sale must be exercisable under any of the three conditions in section 20 of C. A and section 125 of the PCL which are –

1.      Notice requiring payment of the mortgage money has been served on the mortgagor or one of several mortgagors, and default has been in payment of the mortgage money, or part thereof, for three months after such service; or

2.      Some interest under the mortgage is in arrears and unpaid for two months after becoming due; or

3.      There has been a breach of some provision contained in the mortgage deed or in the CA & PCL, and on the part of the mortgagor, or of some person concurring in making the mortgage, to be observed or performed, other than and beside a covenant for payment of the mortgage or interest thereon.

The following are reasons why a power of sale can be set aside –

1.      Where there is some corruption or collusion in respect of the sale by the mortgagee to amount to fraud; or

2.      Where the sale is at such a low value that it raises an inference that there is fraud in the sale; or

3.      Where there is evidence that the money has been paid in full; or

4.      Where the mortgagee sells to itself or to its privy.

APPOINTMENT OF A RECEIVER

This is provided under section 19(1)(iii) of the C. A and section 123(1)(iii) of the PCL.

Both provisions state that a legal mortgage has the power to appoint a receiver where the mortgagor defaults to pay. Where the mortgage is an equitable mortgage created by deed, the deed should provide for the power to appoint a receiver. This statutory right is implied in every mortgage, legal or equitable, created by a deed where the circumstances would allow the mortgagee to exercise a power of sale.

But equitable mortgages whose mortgage is not by deed must apply to court for the appointment of a receiver. In practice however, most mortgage instruments contain an express provision for the appointment of a receiver. In Adetona & Anor. v. Zenith International Bank Ltd. (2008) All FWLR (Pt 440) 796, the court defines a receiver as a person appointed by court for the purpose of preserving the property of a debtor pending an action against him or applying the property in satisfaction of a creditor’s claim whenever there is danger that in the absence of such appointment, the property will be lost, removed or injured.

ACTION FOR ORDER OF SPECIFIC PERFORMANCE

This was decided in Ogundiani v. Araba (1978) 1 LRN 280, that mere deposit of title deed as security for loan is sufficient act of part performance upon which the court will lend its powers to grant an order for specific performance in the enforcement of the mortgage security. Where the deposit is accompanied by a memorandum of deposit under seal stating the time of repayment of the loan, the rate of interest to be paid and containing an agreement by the borrower to execute a legal mortgage when required, can sell the mortgage property if there is default.

However, to pass the legal estate of the mortgagor, either a power of attorney – Labadebi v. Odulana (1973) 4 CCCHCJ 98, or a trust declaration – LCC Banking Corporation v. Goddard (1897) 1 Ch. 642 clause must be inserted in the memorandum under seal.

TAKING POSSESSION OF THE SECURITY

A legal mortgagee has a right to possession because legal estate to the mortgaged property resides in him. In law, possession follows the legal estate. In Four Maids Ltd. v. Dudley Marshall Properties Ltd. (1975) Ch. D 317 at 320, Per Harman J. held that a legal mortgagee may go into possession before the ink is dry on the mortgage.

A mortgagee is entitled to take possession without being liable in trespass – Awojugbagbe Light Industry Ltd v. Chinukwe (1995) 4 NWLR (Pt. 390) 370. As regards to this, he has to render account. In practice however, mortgagees hardly take possession of mortgaged property because of the insistence or equity on strict accountability.

FORECLOSURE

By this, the mortgagee takes the whole mortgaged property by a court order. And having taken the whole security, the mortgagee cannot also claim payment, unless the foreclosure is subsequently opened in which the mortgagor is allowed the opportunity to redeem the security – Perry v. Baker (1806) 13 Ves. 198. But where the mortgagee sells the mortgaged property after foreclosure, the mortgagee cannot re-open the foreclosure and cannot sue the mortgagor even if the proceed of sale is not sufficient to defray the outstanding mortgage sum and interest – Palmer v. Hendrie (1859) 27 Beav. v. Hendrie (1859) 27 Beav. 349; Lockhart v. Hardy (1946) 9 Beav. 349.

REMEDIES AVAILABLE TO A MORTGAGOR

These are –

1.      Contractual right or legal right to redeem;

2.      Equitable right to redeem; and

3.      Equity of redemption.

CONTRACTUAL RIGHT OR LEGAL RIGHT TO REDEEM

This is a remedy under the common law of the mortgage contract to recover his property upon discharging the obligations which the mortgage was created for in order to secure. This means that a mortgage to secure a money loan basically fixes a date for repayment which must be abided to.

Generally, the date for repayment and redemption may be suspended for any period, however long, provided that the mortgage contract is not a device to render the right as well as the equity of redemption as a cloak for an unquestionable bargain.

In practice, the period for redemption is normally short because it is an advantage to the mortgagee to place the mortgagor in default as soon as possible.

EQUITABLE RIGHT TO REDEEM

This is the right to recover his security by discharging his obligations under the mortgage despite the fact that the time fixed by the mortgage contract for the repayment or the performance of the obligation(s) has passed.

According to Lord Bramwell in Salt v. Marquess of Northampton (1892) A. C 1 at 18,

“The right to redeem in equity is therefore a right given in contradiction to the declared terms of the contract between the parties.”

In modern times, it is generally implied that the mortgagor has a right to redeem even after default on the date named for redemption – Kreglinger v. New Patogonia Meat and Cold Storage Co. Ltd. (1914) AC 25 at 50 Per Lord Parker.

EQUITY OF REDEMPTION

This is a remedy under equity in which a mortgagor must be differentiated from that which arise after the legal due date has passed. In Kreglinger v. New Patogonia Meat and Cold Storage Co. Ltd. (supra) 48, Lord Parker pointed out that equity of redemption arises simultaneously in favour of the mortgagor as soon as a mortgage is created. Equity, from the outset, treats the mortgagor as continuing to be the owner of the property which he conveyed away, subject only to the mortgagee’s interest which is not a right to the mortgage debt – Okonkwo v. CCB (Nig.) Plc. (2003) 8 NWLR (Pt. 822) 347; U. B. A Plc v. Okeke (2004) 7 NWLR (Pt. 872) 393.

DISCHARGE OF A MORTGAGE

This means that the loan including the interest has been redeemed.

The discharge of a mortgage terminates and releases the mortgagor from his obligations under the mortgage.

The discharge of a mortgage depends on the type of the mortgage and how it was created –

1.      A legal mortgage created by assignment or sub-demise is discharged by a deed of surrender, discharge, or release of the interest in the property to the mortgagor. Such a deed should as evidence of discharge be registered at the lands registry.

2.      A mortgage created by a charge by a way of a legal mortgage is discharged by a statutory receipt.

3.      A registered charge under the Registration of Titles Law is discharged when its registration is cancelled at the registry by lodging the Charge Certificate at the Land Registry (Form 6 of the registry).

4.      Equitable mortgage is discharged by a simple receipt under hand, unless payment is made to the mortgagee’s solicitor, whereby, the receipt should be by a deed, so as to protect the mortgagor or person paying the money.

5.      Where the mortgagor is a corporate entity, upon the redemption of the debt, a memorandum of satisfaction under section 204 of the Companies and Allied Matters Act (CAMA) should be filed at the Corporate Affairs Commission (CAC).

UNION BANK OF NIGERIA PLC v. OLORI MOTORS & CO. LTD & ORS (1998) 5 NWLR (PT 551) 652

FACTS OF THE CASE

The appellant sued the respondents jointly and severally claiming the sums of N7,947,273.00 (seven million, nine hundred and forty seven thousand, two hundred and seventy three naira) being the debit balance outstanding in the current account of the 1^st respondents as at 23/8/88 and N84,971.00 (eighty four thousand, nine hundred and seventy one naira) being the balance outstanding in the loan account of the 1^st respondent. Both the overdraft and loan were jointly guaranteed by the 2^nd and 3^rd respondents.

At the hearing of the matter, the respondents were represented by counsel but they failed to lead evidence in defence of the action. They also refused to call any witness to prove the counterclaim which they filed. After hearing the case, the trial Court entered judgment for the appellant as claimed. In addition, the appellant was granted interests on the amount awarded. Furthermore, the court which dismissed the respondent’s counterclaim went ahead to hold as follows “subject to any necessary consent being obtained, the plaintiff is at liberty to sell the properties mortgaged by the defendants as securities for the various facilities granted by the plaintiff”.

The respondents were dissatisfied with the judgment. They appealed to the Court of Appeal and at the same time filed a motion for stay of execution. The respondents duly paid for the service of both the notice of appeal and the motion for stay of execution. However, the processes were not served on the appellant. The trial Judge whose duty it was to fix the date for hearing of the motion retired before assigning any date for the argument of the said motion. While the respondents were trying to facilitate re-assigning the case to another Judge, the appellants without going back to the trial Court for any process towards executing the judgment against the respondents, simply resorted to its power of sale under the mortgage deed executed by the parties. The appellant proceeded to sell two of the respondents’ mortgaged properties. On becoming aware of the sale, the respondents then filed a motion on notice before the trial Court seeking to set aside the sale. After hearing the argument on the application, the trial Court, relying heavily on Vaswani v. Savalakh (1972) All NLR 922 granted the application and set aside the ruling.

Aggrieved by the ruling, the appellant appealed to the Court of Appeal.

HELD

On whether mortgagee requires order of court before exercise of power of sale, the Court of Appeal, Per Mohammed JSC, stated thus:

“the exercise of powers of sale under a mortgage deed is quite distinct and separate from the exercise of power by a judgment creditor to execute a judgment delivered in his favour. The two rights are in fact governed by separate and distinct relevant laws applicable to the exercise of each of the rights. This is because the appellant court could have validly exercised its power of sale of the mortgaged properties under the deed of mortgage even if the judgment of the lower court did not contain any order empowering the appellant to sell the mortgaged properties. In other words, the execution of the judgment of the lower court of 4/2/94 in favour of the appellant merely came through incidentally in the process of the appellant’s exercise of its right of power of sale under the mortgaged deed.”

On whether exercise of power of sale by mortgagee/Judgment creditor without recourse to Court amounts to Court process, it was stated that the issue of court process cannot arise to justify the setting aside the sale of a mortgaged property where as in this case, the sale was not done through the issue of any court process but simply through the exercise of the mortgagee’s power of sale under the mortgage deed.

Mohammed JSC, further held that:

“It is also not in  dispute from the facts averred in the respondent’s affidavit in support of their motion and the appellant’s counter affidavit that before the sale of the two mortgaged properties, the appellant did not apply nor obtain any process from the lower court which delivered the judgment in its favour on 4/2/94 in facilitating the execution of that judgment. In other words, the appellant did not have any recourse to the Registry of the lower court before selling the two mortgaged properties of the respondents. In fact all what happened in the present case is that the appellant chose to exercise its power of sale under the Mortgage Deed rather than going through the processes of execution of the judgment in its favour. In the circumstances of this case therefore, was the learned trial Judge right in applying the decision of the Supreme Court in Vaswani Trading Co. v. Savalakh & Co. (supra) in coming to the conclusion that the situation in the present case is similar to that in Vaswani’s case? The answer of course is in the negative.

The Court of Appeal thus held that the appeal succeeds and was allowed. The ruling of the lower court of 31/3/95 setting aside ‘the sale of the respondent’s mortgaged properties’ was set-aside and replaced with an order dismissing the respondent’s application.

OWONIBOYS TECH SERVICES LTD. v. UNION BANK OF NIGERIA LTD. (2003) 15 NWLR (PT 844) 545

FACTS OF THE CASE

The appellant applied for a secured loan of N50,000.00 (Fifty thousand naira). It used its landed property at Oja Iya, Taiwo Road, Illorin as collateral. A deed of mortgage was executed for this purposed with the Governor’s consent (marked as exhibit 4). Later, the loan was increased to N100,000.00 (One hundred thousand naira) and another deed of mortgage was executed to reflect this amount, which deed was accordingly upstamped (marked as Exhibit D1). Still later, the loan was increased to N200,000.00 (Two hundred thousand naira). The same procedure was followed (marked as exhibit 5). The Governor’s consent was not sought in respect of exhibits D1 and 5.

There was however, a failure of the repayment by the appellant of the facility granted. The respondent, sometime in 1988 made a demand for the repayment. As the appellant did not comply, the respondent then advertised for the sale of the mortgaged property. The respondent alleged that the appellant failed to repay the loan together with the accrued interest in accordance with the terms of the agreement. It decided to exercise its power of sale of the property as provided under the deed of mortgage. The appellant on the other hand disputed it was owing. It alleged that it discovered several multiple debits of particular cheques which when sorted out would leave it with enormous credit balance. It also contended that the Governor’s consent was not obtained for exhibits D1 and 5 and that they were null and void as a result. It then argued that since exhibit 4 has ceased to exist on the principle of merger, there was no valid mortgage upon which the power to sell its property could be exercised by the respondent. Finally, it contended that even if there was a subsisting deed of mortgage, the originally agreed interest rate could not be increased by the respondent and used to calculate its liability without both parties agreeing upon such an increase.

Consequently, the appellant instituted the action leading to this appeal against the respondent challenging, in the main, the validity of the mortgages and injunction restraining the respondent from selling the property, subject to the said mortgages.

At the conclusion of the hearing, the trial court granted the appellant’s claim. Upon appeal to the Court of Appeal by the respondent, the judgment of the trial court was reversed and the Appellant’s claim was dismissed.

The appellant was dissatisfied with the decision of the Court of Appeal and appealed to the Supreme Court. One of the issues raised by the appellant was that the respondent’s ground of appeal which challenged the ruling of the trial court in refusing to grant the respondent an amendment of its statement of defence, having been filed along with the appeal against the final decision of the trial court, without leave, was incompetent.

HELD

On application of principles of merger to mortgages, it was stated that a mere mortgage is extinguished by the taking of formal mortgage, even though the mortgage does not confer a legal estate, and the sum from then on secured is the sum mentioned in the mortgage notwithstanding that other sums were covered by the deposit. What is referred to here as ‘deposit’ is the equitable mortgage by way of deposit of the deed of conveyance to secure a loan. It should be understood that merger may take the form of a merger of estates or of a merger of charge in the land. It is the merger of charge in the land. It is the merger of an equitable mortgage with the legal mortgage in land that is reflected here. However, a mortgage is not merged by the taking of a new mortgage on the same property to cover the original debt and further advances. Thus, in the instant case, it was proper to unstamp the relevant exhibits to reflect the further advances or loans made to the appellant in consequence of the authorized mortgage transaction.

On whether Governor’s consent required for upstamping of mortgage, it was stated that where the consent of the Governor had been obtained in respect of a mortgage deed, an increase in the amount of the loan would not call for fresh Governor’s consent. The Governor’s consent has nothing to do with the amount of loan. Rather, the consent is for the alienation of the legal title in the property to the mortgagee in compliance with section 22 and 26 of the Land Use Act, 1978, for the period of the mortgage transaction. So, no further consent would be necessary just because further loans had been obtained upon the same collateral.

The appeal was thus dismissed for lacking merit.

SAMPLE SEARCH REPORT AND A COVERING LETTER

SOULBEEZ & GRAM NIGERIA LTD.

No. 43 Nedo Crescent, Abuja

08036362477, 08022534477

20^th January 2011

The Managing Director

Zubaiski Plc

No. 8, Bmara Crescent Abuja

Dear Sir,

A SEARCH REPORT CONDUCTED ON THE PROPERTY OF PRINCE BIJALO MIMZ

1.      Introduction – This is the search report of the property of Prince Bijalo Mimz lying and situated at Plot 5, Bwari square, Abuja.

2.      Date of search – This search was conducted on 18^th April, 2010

3.      Name of Borrower – Prince Bijalo Mimz

4.      Name of person giving security other than borrower – Mr. Nedu Inno

5.      Brief description of the property – The property is a mansion, situate and lying at Plot 5, Bwari square, Abuja, property designated with the Survey Plan No. AB 001 registered at the Land Registry of Oyo State.

6.      Type of title – The owner is a beneficial owner of the property subject to legal mortgage with Zenith Bank Plc.

7.      Encumbrances – There is subsisting an undischarged legal mortgage.

8.      Valuation report – The property has been valued by a registered estate valuer to worth the sum of N10,000,000.00 (Ten million naira)

9.      Conclusion/Opinion – The title is defective unless the mortgagee consents to the sale by using the purchase price to repay the outstanding loan security on the property.

_______________________

Barr. Chigozie Ezekiel

Principal partner

07034997413