Understanding The Mortgagee's Power To Sell A Mortgaged Property: Key Lessons From Akindele v. Abe (2021) 17 NWLR (Pt. 1804) 1

Introduction

One of the common areas of dispute in commercial transactions is the right of a Mortgagee to exercise its power of sale of a mortgaged property following the Mortgagor's failure to repay a loan. In the case of Akindele v. Abe (2021) 17 NWLR (Pt. 1804) 1,  the Supreme Court squarely addressed this issue. A Mortgagor challenged the exercise of the power of sale on the ground that the Mortgagee could no longer exercise that power, having already filed a lawsuit to recover the debt. However, the Supreme Court rejected the challenge and, in doing so, clarified the circumstances in which a Mortgagor can successfully challenge a Mortgagee's sale.

This article analyses the Supreme Court's decision and highlights the lessons business owners and borrowers should take from its reasoning.

Facts of the Case

The 1st Respondent was the customer of Polaris Bank (3rd Respondent), while the 2nd Respondent was the spouse of the 1st Respondent and the owner of the property at No. 12 Bello Street, Aiyedere, Ketu-Lagos. The 1st Respondent obtained a loan from Polaris Bank and used the Certificate of Occupancy of the 2nd Respondent's property as collateral for the loan. The parties executed a tripartite mortgage agreement dated 7 February 1999 to secure the loan.

Given the 1st Respondent's failure to repay the loan within the agreed timeline, Polaris Bank filed a lawsuit against the 1st and 2nd Respondent at the High Court of Lagos State for the recovery of the debt, and the Court delivered judgment in the Bank's favour. The Bank levied execution of the judgment against the 1st and 2nd Respondents' movable properties, but this was not enough to liquidate the debt. The Bank then secured the leave of the Court to attach and sell the immovable property of the 1st and 2nd Respondents.

However, before securing leave to sell the immovable property of the 1st and 2nd Respondents, the Bank reached a compromise with the 1st and 2nd Respondents, under which they agreed to repay the loan before June 2004. The 1st Respondent failed to repay the loan as agreed, and the Bank granted the 1st and 2nd Respondents another extension till October 2005, failing which it would exercise its power of sale under the tripartite mortgage agreement.

When the Respondents failed to repay the loan in October 2005, the Bank sold the property to a third party (the Appellant) on 8 November 2005. Based on the sale of the property to the third party, the 1st and 2nd Respondents filed a lawsuit at the High Court of Lagos State against the Bank and the third party on the grounds that the Bank lacked the power to sell the property under the tripartite mortgage agreement since it had already filed a lawsuit to recover the debt. The Respondents further argued that the Court should set aside the sale of the property because it was sold at an undervalue to the third party.

The High Court of Lagos State dismissed the Respondents' lawsuit and upheld the Bank's sale of the property to the third party. They appealed to the Court of Appeal, which upheld their appeal by setting aside the High Court's judgment and nullifying the Bank's sale of the property. The Court of Appeal held that the Bank had waived its right to sell the property under the tripartite mortgage agreement by granting the Respondents an extension of time within which to repay the debt.

Aggrieved, the third party appealed to the Supreme Court, and the Supreme Court set aside the Court of Appeal's judgment and upheld the sale of the property by the Bank to the third party.

Summary of the Supreme Court's Decision

The Supreme Court held that there were five remedies available to a Mortgagee to exercise to recover a debt from a Mortgagor who refuses to repay the debt, and that the Mortgagee was at liberty to exercise any or all of the five remedies at the same time. Therefore, the Supreme Court held that the Bank had the power to sell the property under the tripartite mortgage agreement, notwithstanding that it had commenced a lawsuit to recover the debt from the Respondents and had granted them an extension of time to repay the debt.

Honourable Justice Okoro, JSC, at Page 23 Paragraphs D-F, held as follows:

“There appears to be a consensus between the parties in this appeal that there are five remedies available to the mortgagee to exercise in its bid to recover its money from the mortgagor. The five remedies are:

1. Right to sue the mortgagor for recovery of debt under the mortgagor's personal covenant to repay the loan;
2. Right to enter upon and take possession of the mortgaged property;
3. Right to appoint a receiver of the rents and profits emanating from the mortgaged property;
4. Right to an order for foreclosure; and
5. Power of Sale.

See p.A. Oloyede: Nigeria Law of Conveyancing, pages 168-177.

The position of the law as regards the above remedies is that they are cumulatively available to the mortgagee and not exclusive. The mortgagee is at liberty to engage any of the options available to it at any particular point in time.”

Regarding the Respondents' claims that the sale of the property should be set aside since it was sold at an undervalue, the Supreme Court held that the mere fact that a Mortgagee sold a property at an undervalue would not be enough to set aside a sale to a bona fide purchaser for value. The Supreme Court further added that all that was expected of the Mortgagee was that it act in good faith regarding the sale, and that once the Mortgagor could not establish fraud on the part of the Mortgagee, the sale would not be set aside.

Honourable Justice Okoro, JSC, at Page 25 Paragraphs B-E, held as follows:

“On the argument by the learned counsel for the 1st and 2nd respondents that the property was sold at an undervalue, I need to restate the law on the point which is that the mortgagee in exercise of its power of sale in a mortgage deed is only enjoined to act in good faith and in the absence of fraud, unfair dealing with the property or collusion with the purchaser resulting in gross undervalue, the sale will not be impeached or set aside. The law is trite and beyond controversy that undervalue alone is not enough to vitiate the exercise of a mortgagee's power of sale. It must be shown that the sale was made at a fraudulent or gross undervalue.”

Given the Respondents' inability to establish fraud or collusion between the Bank and the Appellant, the Supreme Court upheld the sale and confirmed the Appellant's title as a bona fide purchaser for value.

Key Takeaways from the Supreme Court's Decision in Akindele v. Abe

1. A Mortgagee has five available remedies to recover a debt from a Mortgagor who refuses to repay the debt, and it can decide to exercise any or all of the remedies against the Mortgagor. Therefore, the mere fact that a Mortgagee has exercised one of its five remedies against a Mortgagor doesn't preclude it from exercising the remaining four remedies against the Mortgagor.
2. An allegation that the Mortgagee sold the mortgaged property at an undervalue will not be enough ground for the Court to set aside a sale of the property to a bona fide purchaser for value.
3. A Mortgagor who intends to successfully challenge the sale of a mortgaged property must establish bad faith, fraud, or collusion between the Mortgagee and the purchaser.
4. Where a Mortgagor is experiencing financial difficulties, the prudent course of action is to negotiate with the Mortgagee at the earliest opportunity to jointly arrange the sale of the mortgaged property at an agreed price, rather than leaving the Mortgagee to handle the sale of the property to a third party.
5. A Mortgagee's agreement to extend the repayment deadline does not constitute an abandonment or waiver of its enforcement rights. The Mortgagee remains entitled to exercise its full range of remedies if the extended deadline passes without repayment.

Conclusion

The Supreme Court's decision in Akindele v. Abe (2021) 17 NWLR (Pt. 1804) 1 reaffirms that Nigerian law strongly protects the enforcement rights of Mortgagees. The decision should give lenders added confidence in the reliability of mortgage security as a credit tool and, conversely, should serve as a clear warning to borrowers who assume that commencement of litigation by the Mortgagor or negotiating repayment extensions will shield their properties from sale.

For borrowers facing repayment difficulties, the practical lesson is that early, good-faith engagement with the lender is far preferable to litigation or delay. A Mortgagor who takes the initiative to negotiate a structured sale or a consensual repayment plan retains a degree of control over the outcome. One who waits for the Mortgagee to act will find that the law provides the Mortgagee with multiple, simultaneous avenues for enforcement and that the Courts will protect a bona fide purchaser once the sale is done.

Business entities and individuals should therefore carefully evaluate their financial capacity before pledging the titles of their properties as collateral, and should seek legal advice promptly if they anticipate difficulties in meeting their repayment obligations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.