University of Ibadan Law Journal

Creation of Mortgages under the Mortgage and Property

Law of Lagos State

Enefiok Essien*

Abstract
Effective creation of mortgage is central to its eventual
realization. For this reason, it is most desirable that all doubts
as to whether there was intention to create a mortgage should be
eliminated. Such doubt typically hovers around a mortgage said
to have been created by the mere fact of deposit of title
documents of the landed property. This is because, in the first
place, the act of deposit, without more, is of equivocal
significance, as the intention to create a mortgage by such
deposit may be rebutted by oral evidence. Besides, the creation
of mortgage security by mere deposit not only carries with it
great uncertainty but also opens a wide room for fraud and
disputes. This paper explores the Mortgage and Property Law of
Lagos State and argues that the law has put an end to the
creation of mortgage by mere deposit. The paper admits that due
to its novelty in Nigeria, the judiciary is yet to give meaning to
the statutory provisions but hopes, however, that whenever the
provisions come for judiciary scrutiny the comparative judicial
approach on similar statutory provisions in England would be
adopted.

Meaning of “Mortgage”
In the 2nd edition of his book, The Law of Mortgages, published in
1950, Waldock described as “classic”, the definition of mortgage
given by Lindley MR in Santley v. Wilde.1 There, a mortgage was

*Enefiok Essien, PhD (Birmingham), Professor of Property and Commercial

Law & Dean, Faculty of Law, University of Uyo, Nigeria; sometime
Commonwealth Study Fellow, Founding President of Society of
International Humanitarian Law Teachers. Professor Essien is also Member
of Governing Council of Legal Education in Nigeria, Governing Council of
Institute of Advanced Legal Studies, and Governing Council of the
University of Uyo, Nigeria. He may be reached at: [email protected] An
abridged version of this paper was presented by this author at a Workshop on
the Mortgage and Property Law of Lagos State 2010, organised by
2 Creation of Mortgages under the Mortgage and Property…

defined as “a conveyance of land or an assignment of chattels as a

security for the payment of a debt or the discharge of some other
obligation for which it is given”.2 Today, however, this definition
can neither be said to “exactly express the nature of a mortgage”3
nor be regarded as anything near “classic”,4 as there is no longer
any radical title which is capable of being conveyed in the strict
sense of the word. This is because as from the inception of the
Land Use Act 19785 in Nigeria, land has become vested in the
Governors of the respective states,6 and, ipso facto, impliedly
divested from the erstwhile land owners, who from thence have a
mere usufructuary right which is statutorily described as right of
occupancy.
As a definition, the one proffered by the Mortgage and Property
Law, 2010, of Lagos State, is more apt. It defines a mortgage as:7
a transfer of an interest in specific movable or
immovable property for the purpose of securing the
payment of money advanced or to be advanced by
way of loan, an existing future debt or the
performance of an engagement which may give rise to
pecuniary liability and it includes any charge or lien
on any property for securing money or money‟s
worth.

Department of Private and Property Law, University of Lagos, on November

26, 2014, at Eko Hotel & Suites, Lagos.
1
(1899) 2 Ch. 474
2
(1899) 2 Ch. 474 at 474.
3
Waldock, C.H.M, The Law of Mortgages, 2nd edn (1950), London: Stevens &
Sons Ltd/Sweet & Maxwell Ltd, p. 1.
4
Ibid.
5
. Cap.L5 vol.8 Laws of the Federation of Nigeria 2004, L5 Vol. 7 Laws of the
Federation of Nigeria 2010.
6
. S. I of the Land use Act, 1978. The Act was originally promulgated as a
Decree by the military regime (i.e. Decree No. 6 of 1978) but was, upon the
exit of the military regime and taking over of government by civilians re-
designated Act, vide Section 1 of Adaptation of Laws (Re-designation of
Decrees, Etc) Order No. 13 of 1980.
7
Section 67.
 University of Ibadan Law Journal 3

What easily stands out from both definitions is that a mortgage is a

security transaction. Both definitions also anticipate a mortgage of
“chattels” or “movable property”. However, this paper is mainly
concerned with mortgages of land. In practice, this is the kind of
mortgage most commonly encountered. At first sight, one would
expect mortgages of chattels or movables to be equally prominent
in the modern world. After all, it is a familiar feature of modern
life that such articles as cars and furniture are often bought with the
assistance of finance from a finance company; the transaction does
not appear so very different from the purchase of a house with the
aid of finance from a Mortgage House or Building Society. Why
then, is this not an aspect of the law of mortgages too? The reason
lies in legal history: In the nineteenth century, to prevent a then
prevalent social abuse, the Bills of Sale Act 1878 was passed. This
proved be unsatisfactory, as the lender too easily secured priority
over other creditors, and draconian enforcement of the security was
still possible. Hence the 1882 Bills of Sale (Amendment) Act was
passed, which had the general effect of making void all mortgages
of chattels unless an extremely cumbersome list of formalities was
observed. The rules are of very little importance in practice, since
the financing of the purchase of chattels has developed by a totally
different route, largely invented to escape the Bills of Sale Acts
themselves. In a typical hire-purchase transaction, the transaction
takes the form of a sale of the goods by the dealer to the finance
company, who then lets the goods out on hire to the individual
consumer, who, eventually, exercises his option to purchase the
goods by payment of the last installment.

At the Beginning (History of Mortgage)

The modern mortgage, and particularly some of its terminology,
can only be understood in the light of the history of mortgages.
This is particularly so because of the differing views of the
mortgage transaction taken by the courts of common law and the
courts of equity.
4 Creation of Mortgages under the Mortgage and Property…

The Common Law View

At common law, the mortgage was initially like a pledge because it
depended on the creditor/mortgagee taking possession and was
usually for a fixed term. The taking of possession by the
creditor/mortgagee was so that he applied the rents and profits to
the repayment of the principal as well as to the satisfaction of his
claim,8 or so that he took all the rents and profits by way of interest
while the whole principal remained due.9
The date on which the mortgage debt was to be repaid and
the fee simple conveyed back to the mortgagor was known as the
legal date for redemption. The timing was strict and severe. The
common law courts took the view that the mortgagor could only
request a reconveyance if, but only if, he repaid the mortgage
money on or before the legal date for redemption. If he failed to
redeem on the legal date for redemption, he lost perpetually his
right to redeem, so that the proviso for reconveyance became
inoperative. The result was that in that circumstance, the legal fee
simple became vested in the mortgagee.10 Very interestingly, if the
mortgagor turned up with the money after the legal date for
redemption he could no longer insist on redemption. In fact even
before the legal date for redemption, when the mortgagor could
repay the money and demand a reconveyance of the land, his right
to demand reconveyance was regarded as a purely personal right
which was only enforceable by a personal action against the
mortgagee, and not by an action in rem, i.e., a real action against
the land. In other words, during the mortgage, the mortgagor‟s
rights were in essence reduced to personal rights against the

8
Vivum Vadium
9
Mortuum Vadium. Though regarded as usurious and sinful in the Christian
belief, the mortuum vadium was nevertheless quite common. See: Waldock,
C.H.M, The Law of Mortgages, 2nd edn., London: Sweet and Maxwell,
1950, p. 19. The distinction between (and the names) vadium vivum and
vadium mortuum appears to have been first made (or used) by Littleton. See:
Volume 21 ER at p. 1067 where the two concepts, and why they were so
named, are explained.
10
Ramsbotham, R.L., Coote‟s Treatise on the Law of Mortgages, 9th end,
volume 1, London: Stevens & Sons Ltd., (1927) pp. 1 – 4.
 University of Ibadan Law Journal 5

mortgagee; if the mortgagee failed to reconvey on the legal date

for redemption, the sole remedy of the mortgagor was to bring a
personal action against the mortgagee for a breach of his covenant
to reconvey, and the only remedy lay in damages, and not in the
recovery of the land itself.11
At common law therefore, mortgage looked more like an
absolute conveyance than a security because, apart from the
creditor/mortgagee taking actual and immediate possession, the
risk of the debtor/mortgagor not being able to get back (or redeem)
the land was very high; and while the mortgage lasted, the
mortgagor had no proprietary right to the land.

A Timely Rescue by Equity

Equity then stepped in to modify common law both with regard to
the mortgagor‟s right to redeem the property and the mortgagee‟s
right to take possession, and both steps led to the recognition of the
mortgagor as having an equitable proprietary interest (rather than a
personal right to have the property returned), the existence of
which restricted the exercise of ownership-type rights by the
mortgagee.
To achieve the modification, the court developed the equitable
doctrine which produced the effect that, even when a special date
was stipulated for repayment, and when by contract and at law the
mortgagor forfeited his property to the mortgagee if the date
passed without payment, equity allowed the defaulting mortgagor
to redeem by afterwards discharging his obligations. This was so
even when the parties had stressed that the time for repayment was
of the essence of the transaction. In this way, Equity “completely
altered the conditions on which a creditor held his security”.12 This
prompted Maitland13 to once say of a mortgage deed that it is one
long suppressio veri, suggestio falsi, meaning that equity long ago
falsified the language of the deed by treating the conveyance as a
mere security and by turning the mortgage into little more than a
11
Fairest P.B, Mortgages, London, Sweet & Maxwell, (1980), p. 6.
12
Waldock, op. cit., at p. 21.
13
Equity, 2nd edn., p. 182.
6 Creation of Mortgages under the Mortgage and Property…

charge. Owing to the development of the equity of redemption, the

real effect of a mortgage is much the same as that of a charge and
the difference between them is mainly formal.14 As Maitland
pointed out, the mortgagor‟s conveyance is a sham, because in
spite of the conveyance the mortgagor remained the real owner of
the property until foreclosure. The gradual assimilation of
mortgage to charge is well illustrated by the new form of charge
introduced by the English Law of Property Act 1925.15
Equity regarded the mortgagor as retaining a significant
proprietary interest in the land from the date of creation of the
mortgage. This was the “equity of redemption”, which
encompassed the mortgagor‟s equitable right to redeem after the
contractual (or legal) date for redemption. So jealous was equity in
guarding the equity of redemption that the mortgagor himself was
unable, on any terms whatever, to surrender his right of redemption
to the mortgagee by any clause in the mortgage contract. Thus,
talking about the equity of redemption, Eldon LC said in Seton v.
Slade:16 “I take it to be so in the case of a mortgage, that you shall
not by special terms alter what this court says are special terms of
that contract”. The court regarded the right to redeem as a special
term .in the security contract which could therefore not be altered
or contracted out of. No wonder it has been said that “equity has
made the most conspicuous element in security the right of
redemption”.
Equity thereby made the right to redeem a larger one than was
usually given to the mortgagor by contract. It may be argued that
the intervention of equity to this extent is, by modern standards, an
interference with the parties‟ freedom of contract. However, equity
did this in order to protect the debtors/mortgagors, recognizing that
they, as “necessitous men are not, truly speaking, free men, but, to
answer to a present exigency will submit to any terms that the

14
Waldock, p. 14.
15
Section 85.
16
(1803) vol. 32 ER 108 at 111.
 University of Ibadan Law Journal 7

crafty may impose upon them”.17 The equity of redemption thus

developed into a mortgageable and transferable interest in land.18
The historical interface between common law and equity
leaves an imprint in the creation of mortgages to this day. How is
this so?: The fact that the equitable right to redeem was exercisable
even after the legal date for redemption had passed, gave it a lot
more significance than the legal right to redeem on the legal date
for redemption. To a large extent, the legal date to redeem remains
in the modern mortgage as a reminder of its historical origins. Till
today, the passing of the legal date for redemption gives rise to
most of the mortgagee‟s remedies to enforce his security.
This common law relic is today circumvented during creation
of the mortgage: the legal date for redemption is usually stated to
be a date fairly soon after the creation of the mortgage; the modern
mortgagor often finds, to his astonishment, that there is a clause in
the mortgage which requires him to repay the mortgage loan six
months after the date of the mortgage, when he had been assured
by the mortgagee that the mortgage was for a 20-year term, and, of
course, the mortgage also contained provisions for repayment over
a 20-year period! The purpose of the early choice of the legal date
for redemption is to make the mortgagee‟s remedies available from
an early date. This has for long remained a device in the creation of
a mortgage.

Reasons For/Uses of Mortgage

Mortgage arises from the need to secure the payment or repayment
of money or the discharge of an obligation, which may entail some
pecuniary liability. There are always two sides to a mortgage: to

17
Per Lord Henley in Vernon v. Bethel (1761) 2 Eden 110 at 113, vol. 28 ER
838 at 839,
18
In Western Region Traders Syndicate v. Fashugbe [1960] WNLR 51, the
court held that the first mortgage vested the legal estate (interest) in the
Syndicate and the second mortgage by the mortgagor was of the equity of
redemption; Yaro v. Arewa Construction Ltd. (2007) NWLR (Pt.1063) 333
held 6. See also the well-known passages by Lord Hardwicke in Casborne v.
Scarfe (1738) 3 Atk 603, and Lawrence L. J. in In re Sir Thomas Spencer
Wells (1933) Ch. 29 at 52.
8 Creation of Mortgages under the Mortgage and Property…

the borrower, it is a loan for the purpose of meeting his debts or of

financing his obligations; to the lender, it is an investment,
substantial or speculative. However, the element of genuine
investment is much more predominant in mortgages of land: here,
the loan is intended to continue for a considerable time and it is
often taken to finance the development, improvement or purchase
of the land or some other mega project.
It is because of the importance of mortgage to private
sector participation in economic development that mortgage law
has undergone some changes and simplification over time.
However, as one gives credit to mortgages for financing
undertakings and investments, one must not forget to give a huge
part of the credit to equity, whose jealous protection of debtors
transformed the legal incidents and increased the commercial
utility of mortgage transactions. Though equity was alert enough
to have exorcised the devil of extortion which was inherent in
common law mortgage, statutes came to give further respite.

A Further Rescue by Statute

Many statutes come into focus here, but those to mention are the
Conveyancing and Law of Property Act, 1881, a statute of general
application in Nigeria; the Statute of Frauds 1677, also a statute of
general application; the English Law of Property Act, 1925, which
though a post-1900 statute and therefore not applicable in Nigeria,
was a model for the Property and Conveyancing Law, 1959, of the
then Western Nigeria,19 which became applicable to the States
created therefrom; and the Registered Titles Law of Lagos State.20
There is also the Land Use Act 1978,21 under which the prior
consent of the State Governor is required to the creation of a
mortgage. The most recent statute directly on mortgages in Nigeria
is the Mortgage and Property Law, 2010, of Lagos State which has
amongst others, specific provisions on creation of mortgage. For

19
Cap. 100 Laws of Western Nigeria.
20
Cap. L4 Laws of Lagos State, 2003.
21
Cap.L5 vol.8 Laws of the Federation of Nigeria 2004, Cap. L5 Vol. 7 Laws of
the Federation of Nigeria 2010.
 University of Ibadan Law Journal 9

brevity, this law is herein referred to simply as the “Mortgage

Law”.

Creation of Mortgage under the Mortgage Law.

Mortgages are either legal or equitable and the Mortgage Law of
Lagos State makes elaborate provision for the creation of each
category.

Legal Mortgage
Section 15 (1) of the Mortgage and Property Law of Lagos State,
2010, states in respect of legal mortgage:
A mortgage of a right of occupancy in land shall be
created at Law either by:
(1) a demise for a term of years absolute, subject to a
provision for ceaser on redemption; or
(2) a charge by deed expressed to be by way of legal
mortgage; or
(3) a charge by deed expressed to be by way of statutory
mortgage in the forms provided under this Law.

As from the commencement of the Mortgage Law, a mortgage

cannot be created by assignment. By Section 15 (2), any purported
assignment by way of mortgage made after the commencement of
the Law shall (to the extent of the estate of the mortgagor) operate
as a demise of the land to the mortgagee for a term of year‟s
absolute, but subject to redemption. The same is provided in
Section 16 (2) in the case of leasehold.
In a mortgage by charge “by deed expressed to be by way of
Legal or Statutory Mortgage”, the mortgagee takes no actual estate
in the land at all, but under Section 17 (1) of the Mortgage Law, he
is protected in the same way as if he had a legal estate. This
provision in the Mortgage Law is similar to Sections 85 (1) and 86
10 Creation of Mortgages under the Mortgage and Property…

(1) of the Law of Property Act of England, which have received

judicial pronouncements in many cases.22

In the case of leaseholds, Section 16 (1) of the Mortgage Law

states that a legal mortgage can only be created by:
(1) a sub-demise for a term of years absolute, less
by one day at least than the term vested in the
mortgagor, and subject to a provision for
redemption; or
(2) a charge by deed expressed to be by way of
legal mortgage; or
(3) a deed expressed to be made by way of
statutory mortgage in the forms provided
under this Law; and where a licence to sub-
demise by way of mortgage is required, such
licence shall not be unreasonably refused.

Section 16 of the Mortgage Law appears to draw from Section 86

of the Law of Property Act 1925 of England. On the whole, the
demise (and sub-demise) and charge are the prescribed modes of
creating legal mortgages under the Mortgage Law.
Of the two, a mortgage created by charge has a number of
advantages over that created by demise or sub-demise. The former
enables a mortgagor, by one document, to create a mortgage over a
mixed collection of properties; in addition, the document itself is
less complex and misleading. Also, if the premises charged are
leasehold, there is no risk of the mortgage itself amounting to a
breach of a covenant against sub-letting such as is commonly
found in leases. Although Section 16 (1) of the Mortgage law
provides that “where a licence to sub-demise by way of mortgage
is required, such licence shall not be unreasonably refused”,23 most
mortgagees would prefer to steer clear of the pitfalls altogether, by
taking a mortgage by charge. It is therefore not clear what useful
22
See, e.g.: Grangeside Properties Ltd. v. Collingwood Securities Ltd. [1964] 1
W.L.R. 139; Grand Junction Co. Ltd. v. Bates [1954] 2 Q.B. 160.
23
Same is provided in Section 86 (1) of the Law of Property Act 1925, England.
 University of Ibadan Law Journal 11

purpose is served by the retention of the mortgage by demise in the

Mortgage Law of Lagos State.

Equitable Mortgage
Section 18 (1) of the Mortgage Law retains the creation of
equitable mortgage by (i) agreement to create a legal mortgage, or
(ii) mortgage of equitable interest.

(i) Where an agreement to create a legal mortgage is drawn up

but it is discovered that the written document is defective in form
e.g. by not affixing a seal (but it is otherwise valid), it thus fails to
take effect as a legal mortgage but instead becomes an equitable
mortgage. The basis for this is the court‟s power to order specific
performance of a contract to create a legal interest in land, 24 and
the rule that the defective document nevertheless showed a
contract by the parties to create a present security. Equity regards
as done that which ought to have been done25 by effectuating the
parties‟ agreement in equity.
The second instance when an equitable mortgage might arise
by agreement to create a legal mortgage is where the parties never
actually presently tried nor intended to create a legal mortgage but
simply agreed to create the same in the future. There is thus a
contract or an agreement to create a legal mortgage. Such an
agreement has the effect of creating an equitable mortgage since,
by equity, agreements for value are treated as if they are actual
performance.26 However, for an equitable mortgage to result in the
two instances above, the transaction which had been entered into
has to be specifically enforceable and for this, it has to be in
writing and signed by the party giving the security or by his

24
Basma v. Weeks [1950] AC 441, [1950] 2 All ER 146.
25
Walsh v. Lonsdale (1882) 21 Ch.D 9; Ogundiani v. Araba (1978) 6 – 7 SC, 55
at 73.
26
Again, on the maxim that equity looks on that as done which ought to be
done: Snell‟s Equity, 29th end., 2nd impression rev‟d, p. 40; Capital Finance
Ltd. v. Stokes [1968] 1 All ER 573 at 577.
12 Creation of Mortgages under the Mortgage and Property…

lawfully authorized agent, so as to comply with Section 4 of the

Statute of Frauds, 1677.27

(ii) Equitable mortgage is created where what is mortgaged is

an equitable right or interest. An example is the mortgage by a
beneficiary under a trust, which is just a mortgage of the
beneficiary‟s equitable interest.

Equitable mortgage by mere deposit of title deeds

Section 18 (1) of the Mortgage Law of Lagos State appears to
outlaw the practice of creating equitable mortgage of land by mere
deposit of title documents. The relevant part of the sub-section
states: “As from the commencement of this Law, an equitable
mortgage of a right of occupancy shall not be created by a mere
deposit of title (documents) or charge on a property except it is
accompanied by an agreement…” This provision calls to mind
Section 2 (1) of the Law of Property (Miscellaneous Provisions)
Act 198928 of England which provides: “A contract for the sale or
other disposition of an interest in land can only be made in writing
and only by incorporating all the terms which the parties have
expressly agreed in one document or, where contracts are
exchanged, in each”.
Some preliminary discussion of the English position on
creation of equitable mortgage by mere deposit after the 1989
Act29 will throw some light on the import and purport of Section
18 (1) of the Mortgage Law of Lagos State. Until the enactment of

27
This .provision is now incorporated into local statutes of some of the States in
Nigeria. See, e.g., Section 1 of the Contracts Law, Cap. 34 vil. 1 of the Laws
of Akwa Ibom State, 2000.
28
Section 2 of the 1989 Act was enacted to give effect to the substance of that
part of the Law Commission‟s Report, Transfer of Land: Formalities For
Contracts for Sale etc of Land (1987) (Law Com No. 164) which
recommended the repeal of Section 40 of the Law of Property Act, 1925, and
the abolition of the doctrine of part performance.
29
See: Essien, E., “United Bank of Kuwait v. Sahib: The Rise and Fall of
Security by Deposit of Title Documents”. (1998) Journal of International
Banking Law, Issue 2, London: Sweet & Maxwell, p. 80.
 University of Ibadan Law Journal 13

the 1989 Act30 in England, it was a common and legally

recognized practice for an owner of landed property who wished to
use the property as security for a loan of money to him, simply to
hand over his documents of title to the property to the lender, on
the understanding that upon his refund or repayment of the loan
sum to the lender, the latter would return the documents to the
borrower. The handing over of title documents created an informal
security, an equitable land mortgage or, more specifically, an
equitable mortgage by deposit of title documents. So common and
commercially convenient was the practice that the deposits were
sometimes made even before the parties thought about consulting a
lawyer.31 Indeed, even after the 1989 Act there were doubts if
security could not still be created by deposit of title documents; the
business community resigned itself to waiting till the court had the
opportunity to make a pronouncement on the matter.32 That golden
opportunity for judicial pronouncement came, and was seized
upon, in the case of United Bank of Kuwait PLC v. Sahib.33

The Beginning of the Rule

The rule that a deposit of title documents for the purpose of
securing a debt creates an equitable mortgage owes its origin to the
decision of Lord Thurlow in the 1783 case of Russel v. Russel.34
Before that year, the Statute of Frauds 1677, the object of which
was to prevent many fraudulent practices which were commonly to
be upheld by perjury, required, by Section 4, that contracts for the
disposition of land or interest in land were not enforceable unless
30
Particularly Section 2 thereof.
31
Rossdale, P., “Abolition of Security by Deposit of Title Deeds” (1996) vol.
140 S. J. p.1223.
32
Hill, G., “Law of Property (Miscellaneous Provisions) Act 1989, Section 2”
(1990) L.Q.R. 396 at 400; Bently, L and Coughlan, P., “Informal Dealings
With Land After Section 2” (1990) 10 L.S. 325 at 341; Snell‟s Equity (29th
ed., 1990), at p. 445; Cheshire and burn‟s Modern Law of Real Property
(15th ed., 1994), at p. 679.
33
[1996] 3 W.L.R. 372.
34
(1783) 1 Bro. C.C. 269, vol. 28 E.R. 1121. Also: Sunnucks, J.H.G., „“Lord
Thurlow‟s Equity‟ or „A Cuckoo in the Legal Nest‟?” (1970) 33 M.L.R. 131
– 132.
14 Creation of Mortgages under the Mortgage and Property…

there was some memorandum or note thereof in writing, and

signed by the party to be charged or by his duly authorized agent.
Some fraudulent parties to a contract started to take undue
advantage of the statute by claiming that the bargain which they
had voluntarily entered into, and out of which they derived a
benefit, was unenforceable because it was not in writing as
required by the Statute of Frauds. It was in this circumstance that
equity intervened to enforce the contact through the doctrine of
part performance, so that unmeritorious people could not, by
hiding under the Statute of Frauds, thereby use it “as an instrument
of fraud”.35 Part performance thus became applied not as a remedy
but as an equitable exigency.
The stage was thus set for the decision in Russel v. Russel, for
it was there reasoned, first, that by the deposit of title deeds,36 the
contract was sufficiently part-performed so that the sufficient part
performance took the case of the Statute of Frauds, thus rendering
writing unnecessary. In this way, the doctrine of part performance
came to be applied in the context of equitable mortgage by deposit
of title documents.37 It was further reasoned, alternatively or
additionally, that the deposit of title documents which could not be
accounted for in any other way, was evidence of an agreement to
create a legal mortgage.38
The decision in Russel v. Russel , that a mere deposit of title
documents creates an equitable mortgage, has been, and is still,
followed in many common law jurisdictions.39 The decision has,
however, met with fierce and sustained criticism almost from the
35
See, e.g. Butcher v. Stapely (1685) 1 Vern, 636, less than 10 years after the
enactment of the Statute of Frauds.
36
The deposit must be made by the owner, or all the owners, of the property,
and for the clear purpose of giving a security: Megarry, R and Wade,
H.W.R., The Law of Real Property (5th ed., 1984), at p.928.
37
Bently, L. and Coughlan, P.,. “Informal Dealings with Land After Section 2”
(1990) 10 L.S. 325 at 341.
38
Russel v. Russel, n. 7 above: Jessel, M.R in Carter v. Wake (1877) 4 CH.D.
605 at 606. The contractual foundation was emphasized in the comparatively
recent case of In re Wallis & Simmonds [Builders] Ltd. (1974) 1 W.L.R. 391.
39
E.g. in Nigeria. See Kadiri v. Olusola (1956) 1 F.S.C. 59 at 60 – 61: Usen
Fowokan v. Idowu (1975) 4 D.S.C. 195 at 199
 University of Ibadan Law Journal 15

moment of its pronouncement. Eldon L.C. described it as “a

decision much to be lamented”,40 while Sir W. Grant M.R. saw it
as resting “on very unsatisfactory grounds”,41 for “there is no case
where a man is willing to part with his title deeds, in which he will
not also be ready to sign a memorandum of two lines; specifying
the purpose, for which he had parted with them. By dispensing
with any written evidence of the contract, an opening is left for all
the fraud and perjury, which the Statute [of Frauds] was calculated
to exclude”.42 Romilly M.R., for his part, was irked by “the great
inconvenience which arises from depositing deeds without clear
written evidence of what it is to secure”.43 It cannot be denied that
security by deposit of title documents has proved a “mortgaging
system of great importance and convenience”,44 due largely to the
informality in its creation. However, it also has its great
difficulties, as shown in the judicial statements quoted above.
Difficulties that often arise include: What constitutes a “deposit”?
Does the delivery of a part only of the documents suffice? Who
made, or who has, the deposit? If, for instance, the documents are
put in the hands of the wife of the mortgagor, to keep them as
between her husband and the creditor, it would be questionable if
this would be a deposit.45 Also, the purpose or intention of the
deposit is quite frequently contentious. Even where the act of
deposit is proved, deposit itself is of equivocal significance; it is a
rebuttable evidence of a contract to mortgage, and oral evidence is
admissible to establish the purpose.46 Such oral evidence to
establish the existence and terms of the agreement to mortgage
may be fraudulently distorted or even perjured. The purpose
becomes even more difficult to ascertain where the deposit was not

40
Ex parte Haigh (1805) 11 Ves, 403, vol. 32 E.R. 1143.
41
Norris v. Wilkinson, 12 Ves. Hun. 192, (1805) vol. 33 E.R. 73 at 75
42
Ibid., at p. 76
43
Sporle v. Whayman (1855) vol. 34 E.R. 738 at 739.
44
Sunnucks, above, at 132
45
Megarry and Wade, above, at 546.
46
United Bank of Kuwait PLC v. Sahib, n. 6 above, at 383.
16 Creation of Mortgages under the Mortgage and Property…

made contemporaneously with the grant of the loan. As noted by

the Master of the Rolls, Sir W. Grant:
Where the deposit is made at the same time that the
money is advanced, there is little to be supplied with
reference to the nature of the agreement. It is obvious
that the purpose of the deposit must be to secure the
repayment of the money. The connection is not so
direct between a debt antecedentally due and a
subsequent deposit: nor is the inference so plain.47

The creation of security by mere deposit of documents thus carries

with it great uncertainty and opens a wide room for fraud and
disputes.
Section 4 of the Statute of Frauds which required some
memorandum or note in writing was later repealed by the Law of
Property Act 1925, and replaced with Section 40 of the latter Act,
which also required “some memorandum or note thereof… in
writing, and signed by the party to be charged” or by his duly
authorized agent. This statute, however, recognizes equitable
mortgage by mere deposit of title documents, for it provides, in
Section 40 (2), that “This Section (i.e. Section 40) does not affect
the law relating to part performance…”; and in Section 13, it
provides that the Act is not to affect prejudicially the right or
interest of any person arising out of or consequent on the
possession by him of any documents relating to a legal estate in
land. The recognition and protection of security by deposit was
also followed in England in other statutes, notably the Land
Registration Act 1925 and the Land Charges Act 1972.
Section 66 of the Land Registration Act 1925 allowed the
proprietor of any registered land to create a lien on the registered
land by deposit of the land certificate, such lien to be equivalent to
a lien created, in the case of unregistered land, by the deposit by a
legal and beneficial owner of the registered estate of the documents
of title. Also, the Land Charges Act 1972, Section 2 (4), excepted

47
Norris v. Wilkinson, 12 Ves. Hun. 192. (1805) vol. 33 ER 73 at 76.
 University of Ibadan Law Journal 17

any equitable charge secured by a deposit of documents relating to

the legal estate affected, from general equitable charges which
required registration under Class C (iii).

The Current Law in England

It is against the foregoing background that one must construe
Section 2 of the Law of Property (Miscellaneous Provisions) Act
1989 and its effect on the creation of security by deposit.
Admittedly, the Law Commission on whose recommendation the
Law of Property Act 1989, particularly Section 2, was enacted did
not, in its report,48 refer to the deposit of title documents by way of
security, nor suggest that the practice created a problem that
needed attention. However, the Commission report dwell
extensively on the adverse effect of lack of writing,49 which is an
outstanding feature of and a major criticism against a mortgage by
deposit of title documents. Also, it has been stated above that one
of the rationales for saying that a deposit of title documents creates
a security is the presumption that the act of deposit constitutes an
agreement, or a contract, to create a mortgage. Though the Law
Commission did not mention equitable mortgage by deposit of title
documents in those exact words, the Commission clearly intended
to include it in its proposals.
Paragraph 4.3 of the Commission‟s proposals states expressly
that “all types of contract should be within the scope of this
recommendation. Thus, contracts to grant… mortgages of land will
be included.” As a deposit of title document by way of security
takes effect as an agreement to mortgage, in logic there is no
reason why the creation of security by deposit of title deeds should
have been excepted from the Commission‟s proposals.50
48
Law Com. No. 164: Transfer of Land (1987) H.M.S.O., London.
49
Ibid., paragraphs 2.7 and 2.8. In the Commission‟s view, lack of writing
results in confusion, leads to increased disputes and litigation. Writing, on
the other hand, has “the value of the evidential function [which] cannot be
doubted”, and the evidential function assists in the prevention of fraud.
Writing also has “cautionary” and “channeling” functions: See the report,
paragraphs 2.9, 2.10, 2.11 and the authorities cited thereunder.
50
Peter Gibson L.J., in United Bank of Kuwait Plc. v Sahib, above, at p. 382.
18 Creation of Mortgages under the Mortgage and Property…

Also, part performance, the second essential part of the

rationale for the creation of an equitable mortgage by deposit of
title documents, cannot now apply, for it is inconsistent with the
new philosophy of the 1989 Act. The philosophy can be deducible
from the Law Commission report at paragraph 4.13, which says,
inter alia.
Inherent in the recommendation that contracts should
be made in writing is the consequence that part
performance would no longer have a role to play in
contracts concerning land. Without writing there will
be no contract for either party to perform.

It may be recalled that the idea that the mere deposit of title
documents constitutes an act of part performance has met with
objection on the ground that the normal rule is that part
performance can only be relied upon if done by the plaintiff and
not by the defendant, but here it is the defendant rather than the
plaintiff who part performed (by making the deposit). Besides, for
the doctrine of part performance to avail, the act ought to be such
that by its very nature it is unequivocally referable to some such
contract as is alleged.51 The deposit of title documents has never
been held to be unequivocally referable to a security as to merit the
status of part performance.52 As applied, part performance is,
indeed, “a blunt instrument for doing justice53” and only succeeds
in bringing uncertainty and confusion into the law.54 It is therefore
no surprise that section 40(2) of the Law of Property Act 1925
which recognized the doctrine of part performance as a basis of
equitable mortgage by deposit of title documents is now expressly
superseded by Section 2 of the 1989 Act.55

51
McBride v. Sandland (1918) 25 C.L.R. 69 at 78.
52
Sykes, E.I. and Walker, S., The Law of Securities (5th ed., 1993), at pp. 150 –
151.
53
Law Com. No. 164, above, at para. 1.9.
54
Ibid; also at para 5.4.
55
S.2 (8) of the Act.
 University of Ibadan Law Journal 19

Since it is clear from the report and proposals of the Law

Commission, that the intention of the 1989 Act is to do away with
deposit of title documents as security, it follows that the provisions
of the Land Registration Act 1925 and the Land Charges Act 1972,
and indeed all “earlier legislative references to rights or interests
created by deposit of title deeds”, though not particularly
mentioned in the 1989 Act, “must now be read in the light of the
Act of 1989”.56
The case of United Bank of Kuwait v. Sahib has now removed
the rigours that attended the method of mere deposit of documents
to create a security. It has also brought much needed clarity to
Section 2 of the 1989 Act. By falling back on the report and
recommendations of the Law Commission, the court has been
enabled to give a purposive interpretation to Section 2 of the 1989
Act. This is a welcome approach to statutory interpretation. It is
now clear that a deposit of title documents with intention to create
a security thereby does not suffice; not even if the deposit is
accompanied with a note or memorandum in writing. What is
required now is that the agreement itself must be in writing
incorporating all the terms which the parties have expressly agreed,
and has to be signed by both parties to the security transaction.
From when the equitable mortgage by deposit of title documents
came to an end, and the substantive question of the purpose and
terms of the transaction has been solved (by being expressly
written down), courts are no longer flooded with disputes
regarding the formal question of the interpretation of what the
parties have written down.
In England, therefore, no equitable mortgage by mere deposit
of title deeds can be created as from the 1989 Act. Similarly, under
the Mortgage and Property Law of Lagos State 2010, an equitable
mortgage of a right of occupancy cannot be created by a mere
deposit of the title deed or charge on a property except the deposit
of title deed is accompanied by an agreement to create a legal
mortgage in favour of the mortgagee/lender. Where the deposit of

56
United Bank of Kuwait PLC v. Sahib, n. 6 above, at 382.
20 Creation of Mortgages under the Mortgage and Property…

title deed is accompanied by an agreement to create a legal

mortgage, and such a legal mortgage is not executed, the
mortgagee may within thirty (30) days by an Originating Summons
bring an action in court requiring the mortgagor to execute a legal
mortgage in his favour.57 While awaiting definite judicial
pronouncement on Section 18 (1) of the Mortgage Law, there is no
doubt that taking after Section 2 of the Law of Property
(Miscellaneous Provisions) Act 1989 of England and the decisions
thereon, the Mortgage Law and Property Law signals the nunc
demitis in the creation of equitable mortgage by mere deposit of
title deeds in Lagos State.

Conclusion
The Mortgage and Property Law, 2010, of Lagos State is no doubt
innovative and developmental. It has brought further simplicity to
the creation of mortgages. The Mortgage Law expressly declares
the Conveyancing and Law of Property Act 1881 inapplicable to
mortgage transactions in Lagos State.58 The Mortgage Law has
however remained understandably silent on its relationship with
the Land Use Act 1978. It is clearly beyond doubt that the Law is
subservient to the Land Use Act for two reasons. First, in the
hierarchy of laws, the Act, being of the National Assembly, has
primacy over the Law, which is of a State House of Assembly.
Secondly, the Land Use Act has expressly stated that all other laws
are subject to it. Section 48 of the Act provides:
All existing laws relating to … title to, interest in,
land or the transfer of title to or any interest in land
shall have effect subject to such modifications
(whether by way of addition, alteration or omission)
as will bring those laws into conformity with this Act
or its general intendment.

57
Section 18 (2).
58
Section 68.
 University of Ibadan Law Journal 21

A mortgage under the Mortgage and Property Law of Lagos State

is therefore still subject to the consent of the Governor under
Sections 21 and 22 of the Land Use Act. This is so whether the
mortgage is legal or equitable, except that the Governor‟s consent
shall not be required for the creation of a legal mortgage over a
right of occupancy in favour of a person in whose favour an
equitable mortgage of the right of occupancy has already been
created with the consent of the Governor.59
When the simplified and easily understandable mode of
creating a mortgage under the Mortgage Law, one can safely say
that with regard to the creation of mortgages, it can no longer be
said that “no one, by the light of nature, ever understood an
English mortgage of real estate”.60 With the passage of time, it is
expected that the courts will infuse blood and give life to these
statutory provisions.

59
Section 22(a) of the Land Use Act. See generally, Essien, E.: Law of Credit
and Security in Nigeria, 2nd edn., Uyo: Toplaw Publishments Ltd, 2012, pp.
168-m 176.
60
Per Lord Macnaghten, in Samuel v. jarrah Timber and wood Paving
Corporation [1904] AC 323 at 326 (HL).
22 Creation of Mortgages under the Mortgage and Property…