Types of Securities

Fixed and Floating Charges: Sometimes, corporate borrowers deposited post-dated blank cheques for loans. The banks rely on s. 1(b) Dishonored cheques (offence) Act (1977 (DCA)) which makes it criminal if a cheque presented within 3 months is unpaid due to insufficient funds and the defaulting debtors will be guilty of an offence punishable with conviction and/imprisonment.

The advantages of a floating charge for lenders, like financial institutions, were explained by Lord Millett in Agnew v IRC [1].

“The floating charge is capable of affording the creditor, by a single instrument, an effective and comprehensive security upon the entire undertaking of the debtor company and its assets from time to time, while at the same time allowing the company freedom to deal with its assets and pay its trade creditors in the ordinary course of business without reference to the holder of the charge.”

Characteristically, the nature of a charge does not necessarily depend on the intentions or language of parties. Sometimes parties describe a fixed charge as a floating charge or otherwise. Thus, Millet LJ clarified that, “their ill-chosen language must yield to the substance’. 

Furthermore, Mortgage Transactions, it must be acknowledged that a mortgage is that it is a conveyance or other disposition of land to secure the payment of money or the discharge of some other obligations.

 Mortgagors are entitled to Equity of Redemption and Equitable Right to Redeem.

Often, mortgagors exercise the Equity of Redemption which is the right of a defaulting mortgagor to recover his property before a foreclosure sale by paying the principal interest and other costs that are due. This right of the defaulting mortgagor to reimburse the mortgagee and cure the default persists until the foreclosure sale.

In the case of Oriorio v Igbinovia, [2] the Court of Appeal relying on the Supreme Court decision in Ejikeme v Okonkwo [3] defined equity of redemption as “An incidental right of every mortgagor to redeem the property mortgaged, which right is so inseparable from a mortgage that it cannot be taken away by an expressed agreement of the parties, that the mortgage is not to be redeemable or that the right is to be confined to a particular description of persons [4].

In Anambra State Housing Development Corporation  Emekwe [5] the Supreme Court held that an allottee of the appellant corporation could be regarded as a mortgagor entitled to retain his equity of redemption even after the contractual date of payment had passed. This equitable principle ensures to the borrower to have a final opportunity to keep his or her property even if he or she has failed to make payments on the mortgage, until the property is sold in foreclosure proceedings.

The maxim is once a mortgage [6] always a mortgage, [7] as the right to redeem a mortgaged property   is inseparable by express or implied from the                incident                       of                 mortgage.

Final Remedies of a legal Mortgage 

The legal mortgagee is entitled to several remedies following default by the mortgagor to repay not only the principal sum but also the interest. 

The remedies are called final remedies because when successfully exercised by the mortgagee they operate to bring the mortgage to an end by discharging all the rights of a mortgagor free from the mortgage. Foreclosure This is the process where the court orders at the suit of the mortgagee or his successor-in-title that the mortgagor shall convey the land to the mortgagee unconditionally and free from any right to redeem [8]. It is immaterial that the mortgage was made merely by deposit of title deeds, [9] or was accompanied by a written memorandum [10]. The right to foreclosure flows from an order of court rather than self-help. 

However, Section 51 of the Land Use Act defines “a holder of right of occupancy” Thus, a mortgagor is excluded and unless the law is amended, could militate against enforcement of his final remedies of sale or foreclosure of the mortgaged property. The mortgagee could proceed to recover his debt under an action for money had and received for which consideration has failed. 

To Enter Upon and Take Possession of the Property

The mortgagee can enter upon and take possession of the mortgaged property from the moment the contract is concluded until the amount of the loan with the interest is received” [11]. In the case of Nigerian Loan and Mortgage Co. Ltd v Aderunmobi [12], the defendant mortgaged a land which was leased to him for 99 years to the plaintiff company. The defendant wanted to use part of the loan to build a house in fulfilment of the covenant to that effect in the lease agreement. He neither built the house nor paid the interest due on the loan. In a purported exercise of their power of sale, the company put up the land for sale by auction. The plaintiff company eventually bought the land, entered into possession and began to erect a building thereon. Both parties then realized that a mortgagee could not sell the mortgaged property to himself without a court order.

An Action in Court

A legal mortgagee can have recourse to court demanding judicial assistance in recovering the loan as well as the interest. Proceedings could also be instituted under default summons or specially endorsed writs or under undefended list. These modes of commencing actions are used when there is demand for liquidated sum to achieve speedy recovery. The property of the mortgagor may be disposed of or attached or recovered by an action in ‘Garnishee Proceedings.’ All actions to recover the debt must be after the expiration of the date fixed for repayment. 

Right of Sale 

The legal mortgagee’s remedy of sale of the mortgaged property was not so common as it is, currently. Thus, this remedy accounts for as much as about 70% of all remedies currently used by legal mortgagees in Nigeria. Most creditors, particularly financial institutions, require a clause granting power of sale in the event of default in the mortgaged deed. The purpose of sale is to help mortgagees recover the amount given out as loan as well as the interest [13]. To this effect, S. 123 of the Property and Conveyancing Law 1959 grants the legal mortgagee the power to sell the mortgaged property without recourse to the court. Once the mortgagor defaults, the power of sale arises and may be exercised on the occurrence of any one of the following conditions:

• Notice in writing requiring payment of the mortgaged money, served on the mortgagor and default has been made in the payment of all or part of the loan for three months thereafter or

• Any interest under the mortgage is two months or more in arrears or 

• A breach of some other covenant in the mortgaged deed has been committed by the mortgagor [14]

However, the provisions of Section 20 of the Conveyancing Act 1881 can be expressly excluded by providing in mortgage deeds that Section 20 of the Conveyancing and Law of Property Act 1881 shall not apply to this security and that the statutory power of sale shall be immediately exercisable by the mortgagee (usually a financial institution) or its assigns without the necessity of giving any notice in that behalf to the borrower at any time or times after the happening of any or either of the events specified hereof.

This type of clause in mortgage agreements seems like a subversion of due process created by provisions of the Property and Conveyancing Law. Notably also, by virtue of section 125 of the Property and Conveyances Law of Oyo State, 1978, the mortgagor is protected by the provision that the mortgagee shall not exercise the power of sale conferred by law until a notice requiring payment of the mortgage money has been served on the mortgagor or one or two mortgagors and the defendant has defaulted in payment of the mortgage money or part thereof for three months after such service. Consequently, parties may still exclude the operation or waive the requirement of this provision or any notice at all in the mortgage deed without breaching the Law. 

Sale of mortgaged property can be conducted by public auction or by private arrangement provided the sale was conducted bona fide. Any tinge of mala fides vitiates the sale. In Ekaette v Nig. Housing Corporation [15], UBN Ltd v Professor Ozigi [16], Bank of the North Ltd v Alhaji Muri [17], Okonkwo v Commerce Bank [18], the courts have consistently confirmed that the sale is unimpeachable even if a sale of a mortgaged property is conducted at an undervalue provided there is, good faith. As such, a mortgagee must act with reasonable care and must not be concerned with kindness or charity. But a sale to himself is invalid due to conflict of duty and interest. In ACS Ltd v Ihekwoaba [19].

Mortgages Under the Land Use Act

Ordinarily, security for credit or mortgage transactions is valueless if it cannot be realised without difficulty when the need arises. A good security must, therefore, be readily ascertainable and stable over a fairly long period of time. It must also be easily transferable without undue cost and trouble to the mortgagees, including the ability of the mortgagee to obtain safe and indefeasible title with minimum trouble and delay; and without incurring residual obligation and liabilities to third parties in the process. 

Mortgagees, especially banks and mortgage institutions have special preference for land as security for their credits resulting in the number of mortgages of land increasing in commercial importance. To enhance economic development, the ownership of all land in private citizens was extinguished and, or converted to a mere right of occupancy, following the nationalisation of land since 1978.

The validity of a mortgage under a statutory right of occupancy depends on whether, at the time of its creation, the consent of the Governor was sought and obtained [20]. The requirement of consent is indispensable to transactions under the statutory right of occupancy whether granted or deemed granted by the Governor. 

The Legal Basis of Domestic Awards on Debt Recovery

The Arbitration and Conciliation Act provides the legal framework for arbitration proceedings in Nigeria. According to Section 31 (3) of the Act, a party seeking to enforce a domestic award may, with the leave of the court, be enforced as a judgment or order of the court. The application to the court for enforcement and recognition of a domestic award is conveyed with a duly authenticated original award and arbitration agreement or a duly certified copy.

According to Order 39 Rule 4 of the High court of lagos state civil procedure rules 2012, a party seeking to enforce or remit or set aside an arbitral award can do so with a motion on notice accompanied with an affidavit. Consequently, section 31 (2) of the Arbitration and Reconciliation Act and Order 39 Rule 4(2) provides that such application should be supported with the duly authenticated original award and arbitration agreement or the certified true copies. The award is   enforced   like a   judgment   of the Court.

Though the potency of a motion on notice has been questioned as an attempt by the High court to convert an arbitration award from a foreign country to its own judgement, there is consensus is that an arbitral award has a similar status with a judgement of the court [21].

A dissatisfied party with an award can apply to the court to set aside such award. However, the dissatisfied party has to show the court that the award contains decisions exceeding the scope of the issues submitted to the panel or outside the purview of the arbitration agreement.

Challenges in Debt Recovery Process

Less Regulation in the Debt Collection Industry: In Nigeria, there is no requirement for debt collectors to be licensed. This has made room for questionable characters and sharp practices in the debt collections industry in the country. There is an urgent growing need for Nigeria to regulate the business.

Legally, apart from the Bankruptcy Act, general winding-up rules under the Companies and Allied Matters Act, and the recent Asset Management Corporation of Nigeria Act, there is no legislation regulating insolvency and debt collection in the private sector.  

Poor Record Keeping

Poor records keeping in Nigerian businesses and public registries alike makes tracking down debtors and resolving accounts difficult.

Basic information like name, contact info and payment status may be inaccurate, and many registries still store information manually, making it a hassle to find important information. Additionally, there is no single record of the persons living in Nigeria.

Some businesses have recently tried to institute training on record keeping. Also, the government is beginning to take steps towards new electronic record keeping methods, instead of manual ones. There remains a lot of work to be done.

Inadequate Public Database

When a debt goes south, you want to be able to reach the debtor quickly. Most Nigerian cities are rapidly expanding and new residential areas are springing up without much municipal control. There are literally hundreds of new streets that are not reflected in any government municipal database, so finding someone at addresses provided becomes difficult. If the person moves to a new address, it becomes more cumbersome. There is no independent corroboration of any information provided by the registrant. This makes it tough to get infallible information about an absconding debtor’s history from where a profile can be built which can be used to trace him. Also, the different government agencies in charge of public records maintain separate databases. The lack of a centralized public database makes it difficult to make a one-stop search to find anyone.

Official Secrecy and Bureaucracy

Getting information from government offices in Nigeria is like pulling teeth. The red tape involved is huge sometimes. It may take a Freedom of Information action to get information from government. No knowledge about or access to credit checks facilities. Most people would not give credit to customers if they knew such customers bad poor credit history. There are some credit bureaus in Nigeria but individuals do not have access to them except they are registered with the bureau. Again, most people do not know about them or that they can lodge complaints about unpaid debts to the bureaus.

Speed of Litigation

The court system in Nigeria is notoriously slow. A debtor with a bad defence but a good lawyer can delay your case in court for years with little or no penalties when   judgment is  eventually   entered in your favour. 

• Financial institutions should undertake rigid application processes when requested for loans. They should ensure Credit checks and trade verifications should be strenuously with strict rules regarding accounts receivables

• Creditors/Lenders should adopt measures that appear less aggressive and aimed at customers business continuity

• Creditors should anticipate debtor excuses and have simpler debt collection process in place.

• Creditors should always consider foreclosure of secured properties at a last recourse and freeze accounts to recover whatever collaterals were provided

• Loan agreements ought to be carefully worded and documented preferably by lawyers

• The banking sector should hire collection firms as they're more trained and experienced to conduct debt collection in a manner which will not affect the reputation of the bank and also not interfere with its operations

• Before instituting a matter in court for debt recovery, parties to loans should consider other amicable avenues as enumerated above to settle any issues at hand. Where the debtor, is adamant and refuses to pay up the debt then the court should be the creditor’s last resort

1. UK (2001) 28.

2. (1998) 12 NWLR (pt. 582) p. 426 at pp. 441–442.

3. (1994) 8 NWLR (pt. 362) p. 266.

4. Id at p. 297.

5. (1996) 1 NWLR (pt. 426) p. 505.

6. Ezekwesili v. Agbapuonwu (2003) 4 SCNJ.

7. Seton v. Slade (1802) 7 Ves 265.

8. Ndaba Nig. Ltd v. UBN (2007 NWLR pt. 1040) 439.

9. Ejikeme v. Okonkwo SC 129/1989.

10. James v. James (1873) L.R. 16 Eq. 153.

11. Backhouse v. Chalton (1878) 8 Ch. 444.

12. York Union Banking Co. v. Artley (1879) 11 Ch. D. 205.

13. Carter v. Wake (1877) 4 Ch. D 605.

14. Health v. Push (1881) 6 Q.B.D. 345.

15. Oluyode, op. cit., at 465.

16. (1944) 17 NWLR 136.

17. S. 19 Conveyancing Act 1881.

18. In Olori Motors v. UBN (2006) 26 NSCOR 182.

19. (1976) 6 S.C. 183.

20. (1999) 2 NWLR (pt. 176) 677.

21. (1998) 2 NWLR (pt. 536) 153.

22. (2003) 2 SCNJ 145.

23. (2004) FWLR pt. 194 at 570.

24. Oluyode, op. cit., at 475, and Mortgage Co. Ltd v. Ajetunmobi (supra).

25. Savannah Bank Ltd v. Ajilo (1989) 1 NWLR (pt. 97) p. 305.

26. (2001) LPELR-SC.45/96.