Registered First Mortgage, Unregistered Second Mortgage and a Deposit of Title Deeds

Issue. Priority depends on the nature of each interest, the registration statute and notice.

Analysis. Bank A holds a registered legal mortgage and is first in priority. Its power of sale was exercisable on default, and a purchaser from Bank A takes free of later interests if the sale is properly conducted. Bank B’s second mortgage was executed but not registered. As between Chief Ade and Bank B, the mortgage is valid; the failure to register affects its priority against subsequent dealings, not its existence. Under the applicable registration law, an unregistered instrument may be void against a subsequent registered purchaser or mortgagee for value without notice, but it remains an equitable or contractual charge against the mortgagor. Dele’s deposit of title deeds creates an equitable charge by way of mortgage; it is not a legal mortgage, but it is enforceable in equity. Between Bank B and Dele, the first in time generally prevails if the later party had notice; if Dele had no notice of Bank B, the equities must be weighed. Bank B’s stamping helps admissibility but does not equal registration.

Conclusion. Bank A is first. Bank B’s unregistered mortgage is likely prior to Dele’s later equitable charge, subject to notice. Dele’s possession of the title deeds gives him leverage but not priority over an earlier charge of which he had notice.

Issue. A mortgagee with a power of sale must account for the surplus according to the encumbrancers’ priorities.

Analysis. Bank A’s power of sale allows it to sell and apply the proceeds to its own secured debt, including principal, interest and proper costs. It must then pay the surplus to subsequent encumbrancers in order of priority, and only the balance to the mortgagor. Bank A is not entitled to keep the surplus. Bank B’s unregistered mortgage still gives it a right to be paid out of the surplus, even if it could not defeat a subsequent registered purchaser. Dele’s equitable charge also attaches to the surplus. Chief Ade’s argument that the later charges are “illegal” is wrong: unregistered charges are not criminal or void as between the parties; they are simply vulnerable in priority. Bank A should obtain a discharge or receipt from each claimant, or pay the surplus into court if there is a genuine dispute. If Bank A pays Chief Ade without protecting the encumbrancers, it may face a claim.

Conclusion. Bank A must apply the N35 million to Bank B and Dele in order of priority, with any balance to Chief Ade. Because priority between Bank B and Dele is disputed, payment into court or an interpleader is the safest course.

Issue. A mortgagee’s power of sale is fiduciary in nature and must be exercised in good faith for a proper price.

Analysis. A mortgagee is not a trustee of the power, but it must act in good faith, take reasonable care to obtain the true market value, and not sell to itself or a connected person without full disclosure. A sale at a significant undervalue to a connected company is a classic ground for challenge. If the purchaser had notice of the breach, the sale may be set aside; if the purchaser is bona fide without notice, the purchaser’s title may be protected, and the mortgagor’s remedy lies against the mortgagee for damages. The mortgagor can also challenge the accounting: the sale proceeds should be credited at the true value, not the undervalue. Bank B and Dele, as subsequent encumbrancers, have standing to complain because their surplus has been diminished.

Conclusion. The sale should be investigated. If the connection and undervalue are proved, Chief Ade, Bank B and Dele can challenge the sale or claim damages against Bank A. The purchaser’s title depends on notice; the safer remedy is usually an account against Bank A.