Does Depositing Title Documents as Loan Security Establish an Equitable Mortgage?

CASE TITLE: NWACHUKWU v. NICHIM GROUP OF COMPANIES (NIG) LTD & ORS (2024) LPELR-61722(CA)

JUDGMENT DATE: 12TH MARCH, 2024

JUSTICES: JOSEPH OLUBUNMI KAYODE OYEWOLE, JCA
ABBA BELLO MOHAMMED, JCA
OKON EFRETI ABANG, JCA

DIVISION: ABUJA

PRACTICE AREA: MORTGAGE

FACTS:

This appeal is against the judgment of the High Court of the Federal Capital Territory, delivered on March 19, 2020.

​At the trial Court, the 1st and 2nd Respondents sued the 3rd and 4th Respondents, alleging that the interest rate on a loan of N25,200,000.00 was unlawful and sought various remedies. The Appellant, initially not a party to the suit, joined as the 3rd Defendant and argued that they ceased to be a guarantor to the loan on March 31, 2011, and that their title documents were not security for the loan. In their counterclaim, the Appellant sought declarations to this effect.

The trial Court granted relief (ii) of the Appellant’s counterclaim but dismissed the other reliefs, ruling that if the plaintiffs failed to meet their obligations, the defendants could exercise a right of lien or set-off on the properties deposited as loan security and accrued interest.

Dissatisfied with the judgment, the Appellant brought this appeal.

ISSUES FOR DETERMINATION:

The Court considered:

1. Whether the Appellant is a guarantor to the loan granted to the 2nd Respondent by the 3rd Respondent as of March 31, 2011 and whether the said loan is secured by landed properties.

2. Whether the trial Court was right when it calculated the outstanding principal sum at N25,200,000.00 (Twenty Five Million, Two Hundred Thousand Naira) instead of N20,100,000.00 (Twenty Million, One Hundred Thousand Naira).

3. Whether the trial Court considered and pronounced on all issues raised by the parties and effectively determined the suit.

COUNSEL SUBMISSIONS:

Learned Counsel for the Appellant contended that to ascertain whether the loan granted to the 2nd Respondent was secured by landed properties, as asserted by the 3rd and 4th Respondents, one should refer to Exhibit B8, the Guarantor’s Form executed by the 2nd Respondent, the 3rd Respondent, and Arc. Israel Rene Erieniokhale, and Exhibit B7, signed by the Appellant. He argued that while the 3rd Respondent outlined conditions precedent to drawdown in Exhibit B2, there’s no evidence these conditions were met before disbursing the loan.

Counsel emphasized that Exhibit B7, signed by the Appellant, lacked probative value as it wasn’t authenticated as required and didn’t expressly state that the properties listed would secure the loan. He argued that the Appellant himself was the security, not the properties in Exhibit B7. He highlighted inconsistencies where properties purportedly transferred to the 2nd Respondent were also held as security by the 3rd Respondent, without evidence of a tri-partite legal mortgage.

Furthermore, Counsel contested the trial Court’s decision, asserting that no evidence showed the properties were used as loan security. He argued that the Appellant’s admission in Exhibit B7 couldn’t be considered proof.

In response, Counsel for the 1st and 2nd Respondents argued that the Appellant’s liability couldn’t be claimed as the loan transaction was unlawful. He cited several cases to support the claim that the guarantor’s liability arises when the borrower defaults.

Conversely, Counsel for the 3rd and 4th Respondents maintained that the loan was secured by properties, as indicated in Exhibit B6, and that the Appellant’s attempt to disclaim knowledge of the loan was invalid, considering his admission in Exhibit B7. It was contended that the Appellant, as a guarantor, couldn’t deny knowledge of the loan.

Lastly, in response to the 3rd and 4th Respondents’ argument, the Appellant’s Counsel asserted that the Appellant shouldn’t be bound by Exhibit B8 as he wasn’t a party to the loan agreement. He argued that neither the Appellant nor the 2nd Respondent were property owners, thus challenging the validity of transferring the properties as security.

DECISION/HELD:

The appeal was dismissed.

RATIO:

MORTGAGE – EQUITABLE MORTGAGE: The position of the law as regards the deposition of title deeds as security for a loan

“The law is settled that the mere deposit of title documents with the intention that the same be taken as security for a loan creates an equitable mortgage in favour of the creditor. This legal position was restated by the Supreme Court in the case of OGUNDIANI v. ARABA & ANOR (1978) LPELR-2330(SC) at 21–22, paras. F–A, where Idigbe, JSC, held as follows:

“Now, equitable mortgages are created, inter alia, (1) by mere deposit of title deeds with a clear intention that the deeds should be taken or retained as security for the loan; (2) by an agreement to create a legal mortgage; and (3) by mere equitable charge of the mortgagor’s property.”

See also: USENFOWOKAN v. IDOWU & ANOR (1975) LPELR-3426(SC) at 7, paras. B-C; and YARO v AREWA CONSTRUCTION LTD & ORS (2007) LPELR-3516(SC) at 38–39, paras. D–A. As rightly observed by the trial Court above, the Appellant did not only execute the Guarantee Form in Exhibit B7, he listed therein three landed properties as his net worth and then deposited the title documents with the 3rd Respondent. Therefore, the Appellant’s intention that the three landed properties should be used as security for his guarantee in Exhibit B7 is not in doubt. Having done so, the Appellant’s oral testimony that the landed properties do not belong to the 2nd Respondent who took the loan, or that he did not sign a deed of tripartite legal mortgage is clearly of no moment. It is trite that oral evidence is not allowed to vary, add to or contradict the contents of a written document or agreement. See: FORTUNE INTERNATIONAL BANK PLC v PEGASUS TRADING OFFICE (GMBH) & ORS (2004) LPELR-1288(SC) at 11–13, paras. F–F; and ASHAKACEM PLC v. ASHARATUL MUBASHSHURUN INVESTMENT LTD (2019) LPELR-46541(SC) at 14–16, paras. D–D. Again, the contention of the Appellant that in one breath, Exhibits A, A1, and A2 purport to transfer title and ownership in the three landed properties to the 2nd Respondent, while in another breath, the same properties are being held by the 3rd Respondent as securities submitted by the Appellant to secure the loan is also of no moment. Whether those three properties are owned by the 2nd Respondent who took the loan or by the Appellant who guaranteed same, the law is that both the 2nd Respondent who is the debtor, and the Appellant who is the guarantor are liable and since the title documents of the three landed properties were deposited with the 3rd Respondent to secure the loan, an equitable mortgage has been created in favour of the 3rd Respondent and the 3rd Respondent is entitled to have a right of lien or set-off on same.” Per MOHAMMED, J.C.A.