Avoiding the Pitfalls Inherent in the Mortgagee's Power of Sale

Abstract

Introduction

Despite the remark by Lord Macnaghten that "no one by light of nature ever understood an English Mortgage of real estate",¹ we know that Mortgage is a form of security created by contract, conferring an interest in property defeasible (i.e. annullable) upon performing the condition of paying a given sum of money, with or without interest or performing some other condition.² Lindleys, M. R. on the other hand had defined a mortgage as a conveyance of land or an assignment of chattels, as security for the payment of a debt or the discharge of some other obligation for which it is given.³

The definition of a mortgage by Lindley, M. R. refers to the mode of creating a legal mortgage at common Law and under the English Conveyancing and Law of Property Act, 1881. The modes of creating a legal mortgage have grown beyond that in recent years. It is now valid to create a legal mortgage by charge expressed to be by way of legal mortgage.⁴ Such a mortgage, when created does not convey title to the mortgagee. It merely represents an agreement between the mortgagee and the mortgagor that the mortgagee shall be entitled to look to the proceeds of the asset charged to discharge the indebtedness. The definition of a mortgage in Tyler's book⁵ is wide enough to cover mortgage created by way of charge and is therefore, preferred.

A lender may advance money to a borrower on the borrower's, personal recognisance and rely on his genuine promise to repay. If the borrower fails to pay, his promise can only be enforced by an action for the debt in a court of law. But even then, the debt may not be realised if the borrower has no assets or, if there are, the value will not be sufficient to defray the debt in full.

Because of the difficulty experienced by lenders in recouping money advanced to borrowers, they always insist on the borrowers giving security for money lent. If the lender were to be sure that the debtor will honour its indebtedness when due, there would have been no need for security since there is always a promise of payment in all credit transactions. Experience has taught the lender that the same humble borrower who came cap in hand