Adaran Ogundiani v. O.A.L. Araba & Anor (1978) – SC

⦿ CASE SUMMARY OF:

Adaran Ogundiani v. O.A.L. Araba & Anor (1978) – SC

by PipAr Chima

⦿ COURT:

Supreme Court

⦿ AREA(S) OF LAW

– Legal Mortgage;
– Equitable Mortgage;
– List pendens.

⦿ NOTABLE DICTA

* EQUITABLE MORTGAGE IS CREATED BY
Now, equitable mortgages are created inter alia, (1) by mere deposit of title deeds with a clear intention that the deed 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. In passing we think that it should be pointed out that the last of the three classes of equitable mortgage i.e. that which is created merely by a charge on the property intended as security for the loan differs considerably from the first two in respect of the remedies it confers; and the property so charged is appropriated only to the discharge of a debt or some other burden in respect of which the property stands charged. – Idigbe JSC. Ogundiani v. Araba (1978)

* WHERE MORTGAGE IS BY CHARGE TAKES NO CHARGE
In other words where the mortgage is by way of charge, and not by conveyance, the mortgagee takes no estate whatsoever in the land or in the property but he has generally only an equitable interest to be enforced by sale upon an order of court. The equitable charge simpliciter only gives a right to payment out of the property; it does not amount to an agreement to give a legal mortgage at all. The strict mode of enforcing the charge is, however, by sale (or appointment of a receiver under an order of court) but never by foreclosure. On the other hand where, as here, the agreement is to create a legal mortgage when required following a default in the terms of the agreement, the agreement may be enforced according to its terms notwithstanding that the legal mortgage when executed will also confer on the mortgagee an immediate power of sale. – Idigbe JSC. Ogundiani v. Araba (1978)

* EQUITABLE MORTGAGE TO CREATE A LEGAL MORTGAGE CAN SUE IN SPECIFIC PERFORMANCE
The equitable mortgage by agreement to create a legal mortgage, therefore, entitles the equitable mortgagee to something more than a mere right to payment out of the property or premises mortgaged; under the general principles, his remedies correspond as nearly as possible with those of the legal mortgagee. Because equity regards that as done which ought to be done the equitable mortgagee, by agreement to create a legal mortgage, can enforce the execution of a legal mortgage by suing in equity for specific performance; if successful he obtains a legal term of years and can then pursue all the statutory remedies open to a legal mortgagee. – Idigbe JSC. Ogundiani v. Araba (1978)

* FORECLOSURE PROCEEDING IS FOR EQUITABLE MORTGAGE – MORTGAGOR HOLDS LEGAL ESTATE IN TRUST
In considering the scope of the rights of an equitable mortgagee (not by way of charge) it should be borne in mind that the general rule is that foreclosure (and not sale) is the proper remedy of an equitable mortgagee (See James vs James (1873) L.R. 16 E. 153 citing with approval Pryce vs Bury at 154); and when an equitable mortgagee by deposit of title deeds and agreement to give a legal mortgage if called upon to do so takes foreclosure proceedings to enforce his security, the court usually decrees that the deposit operates as a mortgage and that in default of payments due under the mortgage the mortgagor is trustee of the legal estate for the mortgagee and that he must convey that estate to him. – Idigbe JSC. Ogundiani v. Araba (1978)

* FORECLOSURE IS A POWERFUL REMEDY FOR AN EQUITABLE MORTGAGE
The right to foreclosure is very powerful remedy in the hands of the equitable mortgagee and the vendor who takes a legal estate with notice of an equitable mortgage and therefore subject to this class of equitable interest should bear this in mind since, in certain circumstances, he may find in the end that he has bought a worthless legal estate. – Idigbe JSC. Ogundiani v. Araba (1978)

* EFFECT OF NOTICE ON PURCHASER OF AN EQUITABLE MORTGAGE
This brings us to the subject of the equitable doctrine of “Notice.” It is usually said that a purchaser of the legal estate in any property for value and without notice has an “absolute, unqualified and unanswerable defence” to any claim of a prior equitable owner or person having a prior equitable interest in the same property (see Pilcher Vs Rawlings (1872) 7 Ch. App. 259 at 269 per James L.J.). Where, however, the purchaser, as here, has notice of a prior equitable mortgage in the property in which he seeks to take a legal estate he has a duty, by himself or by his vendor, to get rid of that prior equitable interest otherwise he is taking unnecessary risk. – Idigbe JSC. Ogundiani v. Araba (1978)

* THE DOCTRINE OF LIS PENDENS
The doctrine of lis pendens prevents the effective transfer of right in any property which is the subject matter of an action pending in court during the pendency in court of the action. In its application against any purchaser of such property the doctrine is not founded on the equitable doctrine of notice – actual or constructive – but upon the fact that the law does not allow to litigant parties or give to them, during the currency of the litigation involving any property rights in such property (i.e. the property in dispute) so as to prejudice any of the litigating parties. – Idigbe JSC. Ogundiani v. Araba (1978)


⦿ PARTIES

APPELLANT
Adaran Ogundiani

v.

RESPONDENT
O.A.L. Araba & Anor.

⦿ LEAD JUDGEMENT DELIVERED BY:

Idigbe JSC

⦿ APPEARANCES

* FOR THE APPELLANT

– Chief F.R.A. Williams S.A.N (with Chief Okenla and Mr Kasumu).

* FOR THE RESPONDENT

– A.O. Sikuade.
– Olisa Chukwurah S.A.N.

⦿ CASE HISTORY

In the case in hand, the appellant (as plaintiff) claims from the first and second respondents (as defendants) jointly and severally as follows:  “(1) a declaration of title in fee simple to a piece or parcel of land with the buildings at No. 46 Akpata Street, Shomolu, Lagos State which is the subject of a Deed of Conveyance dated 12th July, 1956, registered as No. 14 at Page 14 in Volume 149 of the Lands Registry, Ibadan and legally transferred to the plaintiff by a Deed of Transfer dated 23rd January, 1967 and registered as No. 36 at Page 36 in Volume 983 of the Lands Registry, Ibadan;  or in the alternative (2) a declaration that the purported public auction sale of the said piece or parcel of land with the buildings thereon, situate and being at No. 46 Akpata Street, Shomolu, Lagos State by the second defendant company to the first defendant on or about 6th March, 1971, at Shomolu, Lagos is wrongful, illegal, void and of no effect.

In summation of the facts, the Appellant bought a mortgaged property from a mortgagor despite the loan secured on the mortgaged property having not being liquidated.

⦿ ISSUE(S) & RESOLUTION

[APPEAL: DISMISSED]

1. WHETHER THE SALE TO THE APPELLANT BY THE MORTGAGOR IS IN ORDER?

RULING:
i. Under the equitable doctrine of notice, the appellant (as purchaser) was at considerable risk when he bought the disputed property in spite of his actual notice of the Bank’s equitable mortgage therein. It was, therefore, clear on the facts in the case in hand that when the appellant bought the disputed property he, in normal circumstances, took the vendor’s legal estate therein-but it was a defective or qualified legal estate as it was-subject to the Bank’s equitable mortgage and therefore subject to all the cumulative rights and remedies of the Bank in equity as an equitable mortgagee; and as earlier on explained, these rights and remedies of the Bank extend beyond the mere right of payment of all dues under the mortgage.

ii. Now, applying the doctrine of lis pendens to the facts in the case in hand what do we find? The following salient facts emerge:
(1) Ashiru, sells the property 46 Akpata Street, Shomolu, Lagos – the subject matter of a court action and during the pendency of the said action – to the appellant in circumstances, undoubtedly, fraudulent.
(2) The sale was undoubtedly made during the pendency of the action because at the time of the sale the decision of Oyemade J. was being prosecuted by both the litigating parties who each appealed from the judgment; and an appeal is in law a continuation of the prosecution of the original cause or matter which is the subject of the appeal (See also Kinsman Vs Kinsman (1831) 1 Russ & M. 617; also 39 E.R. 236).
(3) What was pending before Oyemade J. whose decision was on appeal to the Supreme Court at the time of the sale of the disputed property by Ashiru to the appellant, was the claim of the Bank for specific performance by Ashira of his obligation under the Memorandum of Deposit of title Deeds to convey to the Bank the same legal estate in the disputed property, later purportedly conveyed to the appellant.

We are in no doubt that in the circumstances the doctrine of lis pendens prevents the effective transfer of title, that is the legal estate in the disputed property to the appellant (Ogundiani). At common law it was not compulsory to register a lis pendens. The statutes which later made registration of a lis pendens compulsory in England do not come within the definition (in the framework of our local laws) of “statutes of general application”; in any event, those statutes which require, in England, compulsory registration of a lis pendens have no force and effect in Nigeria, and particularly in Lagos, the situs of the disputed property, at the time of the sale to.Ogundiani and the trial in these proceedings (see Laws of England (Application) Law; Cap. 60, Vol. III 1959 Edition of the Laws of Western Region of Nigeria).

iii. We are in no doubt that under the doctrine of “estoppel by standing by.” Ogundiani (the appellant) is estopped from relitigating the issue relating to the vendor’s title in the disputed property which, as between Ashiru (his vendor) and Oshikoya Arawo Lawson Araba (the first respondent and purchaser from the Bank, (the second respondent) was settled in HCJ/16/71; and the learned trial Judge, in our view, rightly so held.

⦿ ENDING NOTE BY LEAD JUSTICE – Per

⦿ REFERENCED (STATUTE)

⦿ REFERENCED (CASE)

Jared v. Clements 1903 (Supra), a decision of a strong court, Collins M.R. Romer & Cozens-Hardy L.JJ.-Romer L.J. made the following observation: “A person contracts to purchase certain property. Before completion he is told of an equitable mortgage created some time before by his vendor. What is the position of the completing purchaser when he knows of this? He knows he cannot get title from his vendor unless that outstanding equitable interest is got in or destroyed; and if he completes without that equitable interest being got in or destroyed, he can only take the property subject to that outstanding interest being got in or destroyed. In order to get a good title, it is for him to see that the outstanding interest is got in or destroyed – the purchaser might have asked that the equitable mortgagee should join in the conveyance. He might have gone himself to the equitable mortgagee and asked how matters stood; or he might have done what in fact he did, and asked the vendor to get in the equitable interest …”

⦿ REFERENCED (OTHERS)

Spencer Bower in his book titled “Doctrine of Res Judicata” (the original edition, 1924) at P. 126 Article 197 states: “For the purpose of estoppel per rem judicata a ‘party’ means not only a person named as such, but also one who intervenes and takes part in the proceedings, after lawful citations, in which character he is cited to appear or who, though not nominatim a party, insists on being made so, and obtains the leave of the court for that purpose, or who being coqnizant of the proceedings, and of the fact that a party thereto is professing to act in his interests, allows his battle to be fought by that party, intending to take the benefit of his championship in the event of success.”

In Mercantile Investment & General Trust Co. v. River Plate Trust, Loan & Agency Co. (1894)1 Ch 578 at 595 said the learned Judge: “Moreover, if the claim of the plaintiff company could be regarded as one affecting land, notwithstanding that no registration of that claim had been made in Mexico, which alone could validly bind the land there, then the English Company would be entitled to say that they were purchasers of the land prior to that action, notwithstanding that their title may also not have been perfected by registration. A prior purchaser of land cannot be estopped as being privy in estate by a judgment obtained in an action against the vendor commenced after the purchase.”

Everest & Strode’s Law of Estoppel (the 3rd and current edition, 1923): “privies in estate are not bound by a judgment unless it precedes the execution of the interest which is to be estopped, and therefore a purchaser of land cannot be estopped as being privy in estate by a judgment obtained in an action against the vendor commenced after the purchase” See Everest & Strode Law of Estoppel, 3rd Edition P.56)