M. J. Eka-Eteh v. Nigerian Housing Development Society Ltd and Anor (1973)

LawGlobal-Hub Lead Judgment Report

IBEKWE, AG. J.S.C. 

In his claim before the Ikeja High Court in Suit IK/201/64, the plaintiff M. J. Eka-Eteh (now appellant) claimed by his amended writ of summons as follows:

“An order setting aside the sale of the plaintiff’s property at No.3 Eka-Eteh Street, Ikate, Mushin by the 1st defendants to the 2nd defendant on the ground of fraud, irregularity, non-compliance with the provisions of the Property and Conveyancing Law and that the purported sale was not made in good faith. In the alternative the plaintiff claims from the 1st defendant the sum of 10,000 pounds being damages for wrongful sale by the 1st defendant of his property to the 2nd defendant.”

It is common ground that the plaintiff was the owner of the property situate at No.2 Eka-Eteh Street, Mushin. In consideration of Property and Conveyancing Law 2,500 pounds advanced to him by the 1st defendant in September, 1962, the plaintiff mortgaged the said property to the 1st defendant (now 1st respondent), the Nigeria Housing Development Society Limited, by way of security for the loan. It is also not in dispute that in November, 1964, the 1st defendant, in exercise of their statutory powers of sale, sold and conveyed to J. A. Adewunmi the 2nd defendant (now 2nd respondent) the property in question for 2,850 pounds. In consequence thereof, the plaintiff M. J. Eka-Eteh as mortgagor, on the 28th day of November, 1964 brought this action against the mortgagees, the 1st defendant, and also against J. A. Adewunmi, the 2nd defendant who had bought from them, claiming that the sale be set aside “on the ground of fraud, irregularity, and non-compliance with the provisions of the Property and Conveyancing Law of Western Nigeria.”

In the alternative, the plaintiff claimed damages from the 1st defendant. The case therefore turns on the regularity or otherwise of the purported exercise of the power of sale by the 1st defendant as mortgagee.

Pleadings were ordered and filed. The plaintiff in the relevant paragraphs of his amended statement of claim averred as follows:

“28. The plaintiff states that the 1st defendant has no right of sale under the said deed of mortgage and purported to sell the property to the 2nd defendant to embarrass, defraud and put the business of the plaintiff in great disorder.

29. The plaintiff will contend at the trial that the mortgage is bad and/or unenforceable for non-compliance with the Property and Conveyancing Law.
30. The plaintiff states that the alleged sale of the property was grossly below its market value.
31. The plaintiff further states that the 1st defendant either concealed his state of account from the 2nd defendant at the time of the sale or was in collusion with the 2nd defendant in selling the property improperly and at such a ridiculous price.
32. That alleged power of sale of the 1st defendant was improperly and unreasonably exercised.”

The defendants, in their statement of defence, denied all the allegations. They claimed that they acted in good faith and in accordance with the law, as they averred in the following relevant paragraphs of their statement of defence:

“11. With regard to paragraph 28 of the statement of claim, the defendants admit in so far as the 2nd defendant is the purchaser of the said property but deny other allegations therein contained, and put the plaintiff to the strict proof of them.

14. The defendants aver that at the time they exercised their power of sale:

(i) The plaintiff was and has been in breach of the terms of the mortgage deed.

(ii) That notice in due form of law and under the said mortgage deed was served upon the plaintiff.

(iii) That thereupon their power of sale arose and

(iv) That it was exercised in due form of law and without any irregularity.

15. The defendants will contend at the trial of this action that the statement of claim does not support the writ of summons and that the whole action discloses no fraud on the part of the defendants.
16. The defendants will further contend that he (sic) will rely on all legal and equitable defences available and also the Property and Conveyancing Law of Western Nigeria.”

The case then proceeded to trial. The plaintiff testified and called four witnesses including one Mr John Wood Ekpeyong, an estate surveyor who valued the property for him in 1966. It is relevant to remark here that Mr Ekpeyong admitted under cross-examination that he did not see the building in its uncompleted state in 1964 when it was sold. He only saw and valued the completed building in 1966, roughly two years after the sale. On their part, the 1st and 2nd defendants gave evidence in their own behalf; and in addition, the 1st defendants called a Mr. Charles Williams, their Chief Surveyor, who valued the property for them in 1964. The valuation report produced by this witness was received in evidence, without objection, and marked exhibit A6. It reads as follows:

“R. E. Noward, Esq.,

A. G. M.

Eka-Eteh-LM 1188

Property over the border; situated on border road of Surulere and West Region.

A very large chunk of property, but poorly constructed.

First floor incomplete and decking roof leaking badly, this is probably due to commencement of walling for a second floor-walls approximately 3 courses high. Not painted externally.

A lot of money will need to be spent on property to make it habitable 750 pounds to 1, 000 pounds.

Day Nursery on ground floor. No tenants on first floor. Reserve 2,750 pounds.

W. C. WILLIAMS.”

We wish to draw attention to the fact that, for reasons not apparent from the record, Mr Williams valuation shows only a reserve price of 2,750 pounds.

As a prelude to the review of the evidence before him, the learned trial judge considered the law applicable to the case, and relevant for the proper determination of the issues between the parties. Since this aspect of the case is not in controversy, we prefer simply to set out without comments, the following provisions of the Property and Conveyancing Law, Cap. 100 (Laws of the Western Region of Nigeria), which the learned trial judge held, are applicable to the case. Section 123 (1) (i) states:

“A mortgagee, where the mortgage is made by deed, shall, by virtue of this Law, have the following powers, to the like extent as if they had been in terms conferred by the mortgage deed, but not further (namely):

(i) A power, when the mortgage money has become due, to sell, or to concur with any other person in selling, the mortgaged property,or any part thereof, either subject to prior charges or not, and either together or in lots, by public auction or by private contract, subject to such conditions respecting title, or evidence of title, or other matter, as the mortgage thinks fit, with power to vary any contract for sale, and to buy in at an auction, or to rescind any contract for sale, and to resell, without being answerable for any loss occasioned thereby;” .

Section 126 (2) states:

“A mortgagee exercising the power of sale conferred by this Law, shall have power, by deed, to convey the property sold, for such estate and interest therein as he is by this Law authorised to sell or convey or may be the subject of the mortgage, freed from all estates, interests, and rights to which the mortgage has priority, but subject to all estates, interests, and rights which have priority to the mortgage.

(2) Where a conveyance is made in exercise of the power of sale conferred by this Law, or any enactment replaced by this Law, the title of the purchaser shall not be impeachable on the ground

(a) That no case had arisen to authorise the sale; or

(b) that due notice was not given; or

(c) whether the mortgage was made before or after the commencement of this Law, that the power was otherwise improperly or irregularly exercised; and a purchaser is not, either before or on conveyance, concerned to see or inquire whether a case has arisen to authorise the sale, or due notice has been given, or the power is otherwise properly and regularly exercised; but any person damnified by an unauthorised, or improper, or irregular exercise of the power shall have his remedy in damages against the person exercising the power.”

On a careful study of the pleadings, and on a proper evaluation of the evidence given in support of them, the plaintiff’s case rested upon the following grounds:

(1) That no case had arisen to justify the same, since the plaintiff was not in arrear at the time of the sale.

(2) Even if a case had arisen, that due notice was not given to the plaintiff.

(3) That the property was sold at a price grossly below its market value.

(4) That there would appear to be collusion between the 1st and 2nd defendants.

After weighing the evidence before him, the learned trial judge, Adegboyega Ademola J. (as he then was) made certain findings based on a careful analysis of the claims before him. The learned trial judge held that “the first defendant’s right to sell the property had arisen months before the property was sold.” Furthermore, he found that some interest under the mortgage was, in fact, in arrear at the time and, as such, notice was not necessary, as “all that the law requires, is that the interest should be in arrear and unpaid for two months after becoming due.” We are in accord with these findings of the learned trial judge, which in any case have not been challenged before us.

Later on in his judgment, the learned trial judge directed himself as follows:

“As I have held that the sale was in exercise of the power of sale conferred by section 123 (1) of Cap. 100 it follows that by section 126 (2) of the same Law, the title of the 2nd defendant cannot be impeached on the grounds of lack of due notice, or that no case had arisen for the sale, or that the power was otherwise improperly or irregularly exercised. ”

At that stage, it became manifest that the plaintiffs case had boiled down to a claim impeaching the sale on the ground that it was made at an undervalue and for the purpose of embarrassing the plaintiff; and that he claimed damages as well, in the alternative. It was also patent that the defence still denied that the sale was at an undervalue, or made for any purpose except that of realising the mortgage debt.

The learned trial judge then proceeded to analyse the evidence before him, and after reviewing the evidence relating to the sale, made the following findings:

“I find that the price 2,850 was undervalue, I find also that with more diligence on the part of the 1st defendant, a better price could have been got. I hold therefore that the power of sale was improperly exercised by the 1st defendant and the plaintiff is entitled to damages.”

That done, the learned trial judge then considered the measure of damages to be awarded to the plaintiff; but after searching in vain for the relevant factor upon which to base his assessment, he had to give up, apparently in despair, and recorded the following findings:

“As it is, I cannot award him a penny as there is no evidence before me upon which I can legitimately determine the price which would have been realised.”

Now, it is against this decision of the learned trial judge refusing to award damages that the plaintiff has appealed to this Court. And it is against the prior decision of the learned trial judge to the effect that the power of sale had been improperly exercised solely on the ground that the property was sold at an undervalue, that the 1st defendant have also brought a cross appeal to this Court.

Before arguing the appeal, Chief F. R. A. Williams, learned counsel for the appellant sought and obtained leave to substitute and argue on behalf of the appellant the following grounds of appeal.

“1. Judgment is against the weight of evidence.

2. The learned trial judge erred in law in refusing to set aside the deed of conveyance in favour of the 2nd defendant.

Particulars of Error

(a) The learned trial judge was satisfied that the property was sold at an undervalue and that accordingly the power of sale was improperly exercised.

(b) On the facts disclosed in evidence it is incontestable that the 2nd defendant had notice of the impropriety in the exercise of the power of sale.

(c) By reason of the foregoing the 2nd defendant is not protected by the provisions of section 126 of the Conveyancing and Property Law.

(d) The 2nd defendant did not plead or allege want of knowledge of the aforesaid impropriety.

In the Alternative

3. The learned trial judge erred in law in failing to award damages in favour of the plaintiff when he found that “the power of sale was improperly exercised by the 1st defendant and the plaintiff is entitled to damages.” (Page 106 lines 12 – 18).
4. The learned trial judge erred in law and on the facts in disregarding the evidence of Mr Ekpeyong merely on the ground that the plaintiff had admitted in cross-examination that the building was not completed at the time it was sold.

Particulars of Error

(a) The onus was on the 1st defendant to establish the diminution in value arising from the fact of non-completion of the building at the time of sale:

(b) The finding overlooked the fact that the 1st defendant did not prove the allegation of its valuer to the effect that a sum of 750 to 1,000 pounds was required to make the building habitable as at July 1964 (i.e. about 4 months before sale).

5. The learned trial judge erred in law and on the facts in failing to observe that in addition to the evidence of the witness Ekpeyong, there is other evidence on record from which he could base an assessment of the amount of damages.
6. The learned trial judge erred in law in failing to observe that the admission of the plaintiff that the building was uncompleted at the time of sale in 1964 went to no issue and should have been ignored.”

Similarly, Mr. H. T. O. Coker, learned counsel for the 1st respondent, sought and obtained leave to substitute and argue on behalf of the 1st respondent, the following grounds in support of their cross-appeal:

“1. The learned trial judge misdirected himself in law and on the evidence by overlooking the fact that there was no evidence that the property was sold at undervalue, the reserve price of 2,750 fixed by the 1st defendant’s valuer at the time of sale not having been proved by the plaintiff to be an undervaluation of the property and the property having been sold at a higher price and he thereby came to a wrong decision in holding that that 1st defendant had sold the property at a price grossly below its market price so as to entitle the plaintiff to an award of damages.

2. The learned trial judge misdirected himself on the evidence in holding:

(a) that the valuation of Mr. Williams is an obviously unsatisfactory assessment of the value of the property at the time of sale;

(b) that the price of 2,850 pounds was undervalue and that with more diligence on the part of the 1st defendant, a better price could have been got.

Particulars

1. There was absolutely no evidence that a better price could have been got in 1964.
2. There was no evidence that for purposes of valuation, a professional valuer must or ought to visit every floor or room of a house.
3. There was evidence that the valuer visited the house in question and saw the fabric and quality of construction and amenities and size thereof and saw the locality in which it stood.
4. There was no evidence that failure to visit every nook and corner of a house, ipso facto, rendered a valuation ‘unsatisfactory’.”

Arguing the appeal before us, Chief F. R. A. Williams, learned counsel for the appellant, referred to certain well-known principles of law applicable to a case of this nature. For instance, he submitted that, in law, the mortgagee is obliged to obtain a proper price or the true market value; that a bona fide purchaser enjoys statutory protection, in consequence of which a sale to him cannot be defeated unless he is aware of the irregularity which taints the exercise of the power of sale. Having said that Chief Williams then shrewdly contended that the present case was distinguishable in view of the very nature of the irregularity complained of – namely, that the property, according to him, was sold at a gross undervalue. This was Chief Williams’ main complaint.

When, however, the Court resumed sitting for further hearing, Mr A. L. A. L. Balogun, in the absence of Chief Williams, continued the argument on behalf of the appellant. After referring us to a number of cases, dealing with the measure and assessment of damages, Mr. Balogun, learned counsel for the appellant, invited us to apply to the present case the principle of law that once a claimant is found to be entitled to damages and what remains is only the assessment of such damages, then the court should try to assess damages even if it would mean having to make a guess.

As far as this submission goes, we do not feel that we should express an opinion at this stage, more especially in view of the fact that a far more fundamental issue, as to whether the appellant is in law entitled to damages, still remains to be determined.

Replying, Mr. H. T. O. Coker, learned counsel for the 1st respondent, relied on the familiar case of Waring (Lord) v. London and Manchester Assurance Company Limited [1935] Ch. 310 in support of his contention that undervalue alone cannot in law be a good ground for setting aside a sale. On the question of the non-assessment of damages by the learned trial judge, Mr Coker made the point that as there was a total lack of evidence on the part of the appellant as to the value of the property in 1964, it was impossible for the court to do anything for him.

On his part, Mr Femi Alokolaro, learned counsel for the 2nd defendant, took cover under the statutory protection afforded a bona fide purchaser, by S.126 (2) of the Property and Conveyancing Law, Cap. 100 (Laws of Western Nigeria). We think that he is on strong ground here.

Now, we come to consider the findings of the learned trial judge in the light of the evidence as a whole, and the arguments canvassed before us.

Dealing first and foremost with the learned trial judge’s refusal to award even “a penny” to the plaintiff, we seemed to think that there is ample justification for the course which the learned trial judge felt obliged to adopt. Having rightly reached the conclusion that Mr. Ekpeyong’s valuation had no relevance to the issue before him, the learned trial judge was left only with the valuation report of Mr. Williams, who had fixed a reserve price of 2,750 pounds on the property in question (see exhibit A6). But that was not all, for the learned trial judge also regarded Mr. Williams valuation report as unsatisfactory. The net result is that the court was left with no yardstick whatsoever, with which to measure the damages (if any) due to the plaintiff. In the circumstances, the plaintiff’s claim for damages stood like a broken reed lacking the very support which it so badly needed.

We are therefore surprised that the learned trial judge, in view of the evidence before him and his own findings thereon, was still able to hold that the price of 2,850 pounds at which the uncompleted building was sold was an undervalue and, as such, that the power of sale was improperly exercised.” This brings us to a consideration of the law applicable to this case.

We think it is now beyond controversy that undervalue alone is not enough to vitiate the exercise of a mortgagee’s power of sale. It must be shown that the sale was made at a fraudulent or gross undervalue. Indeed, it is well established that’ ‘if a mortgagee exercises his power of sale bona fide for the purpose of realising his debt and without collusion with the purchaser, the court will not interfere even though the sale be very disadvantageous, unless the price is so low as in itself to be evidence of fraud.” (See Warner v. Jacob (1882) 20 Ch. D. 220).

In Coote on Mortgages, vol. 2, 9th ed., at p. 927, the law on this point is stated as follows:

“The only obligation incumbent on a mortgagee selling under a power of sale in his mortgage is that he should act in good faith. Whether selling under an express or statutory power, he may generally conduct the sale in such manner as he may think most conducive to his own benefit, unless the deed contains any restrictions as to the mode of exercising the power, provided he acts bona fide and observes reasonable precautions to obtain ‘not the best price’ but ‘a proper price”.

We think the learned editors of this treatise have correctly stated the law and we agree with them on the point.

It is worthy of note that the mortgagee is expected to obtain “not the best price” but “a proper price”.

In the present case it is not suggested that the 1st defendant did not act bona fide and, in any case, there is no evidence of it, nor is it suggested there there was any fraud or collusion on their part, or that the sale itself was at an undervalue so gross as to be itself evidence of fraud. It, therefore, seems to us that the learned trial judge was in error when he held that the power of sale was not properly exercised. We are fortified in this view by the fact that the learned trial judge himself had, earlier on in his judgment, made the following specific findings of fact:

“I am satisfield on the evidence as a whole that there was no fraud at all, and that the price was not so low as to lead me to conclude that there was fraud.”

In view of this unequivocal finding made by the learned trial judge, we are firmly of the view that in the present case a mere undervalue (if any) is not enough to justify the finding that the power of sale was improperly exercised by the 1st defendant. It is difficult indeed, to see how it can be so found; but on close examination of the judgment of the learned trial judge, we think we can well appreciate what led him to this erroneous view. We believe that the learned trial judge was somehow misled by the decision in the case of Reliance Permanent Building Society v. Harwood-Stamper [1944] Ch. 362 upon which he had relied in reaching the decision that the 1st defendant are “fiduciary vendors”. We would only point out that that decision was based on a particular statute (the English Building Societies Act 1939) which does not apply to this country.

It is settled law that a mortgagee is not a trustee of a power of sale for the mortgagor (except as to the balance of the purchase money after a sale). It is a power given to him for his own benefit, enabling him to protect the mortgage debt. In Farrar v. Farrars Limited, in the Court of Appeal, the Master of the Rolls, in delivering the judgment of the Court, said:

“A mortgagee with a power of sale, though often called a trustee, is in a very different position from a trustee for sale. A mortgagee is under obligations to the mortgagor, but he has rights of his own which he is entitled to exercise adversely to the mortgagor. A trustee for sale has no business to place himself in such a position as to give rise to a conflict of interest and duty. But every mortgage confers upon the mortgagee the right to realise his security and to find a purchaser if he can, and if in exercise of his power he acts bone fide and takes reasonable precautions to obtain a proper price, the mortgagor has no redress, even although more might have been obtained for the property if the sale had been postponed. . .”. (40 Ch. D. 395 at p. 410).

The same view has been taken in other cases. The mortgagee must act bona fide, and should endeavour to secure a proper price. Though his primary objective is to realise the mortgage debt, nonetheless he is required to act in good faith.

The law is laid down even more strongly and more clearly in the House of Lords by Lord Herschell in the case of Kennedy v. De Trafford where he said:

“My Lords, I am myself disposed to think that if a mortgagee in exercising his power of sale exercises it in good faith, without any intention of dealing unfairly by the mortgagor, it would be very difficult indeed, it not impossible, to establish that he had been guilty of any breach of duty towards the mortgagor. It is very difficult to define exhaustively all that would be included in the words ‘good faith’, but I think it would be unreasonable to require the mortgagee to do more than exercise his power of sale in that fashion.” ([1897] A.C. 180 at p. 185).

We are also of the view that if a mortgagee selling under a power of sale takes the pains in exercising that power, to act in good faith, his conduct in regard to that sale cannot be impeached. The only obligation incumbent on a mortgagee selling under and in pursuance of a power of sale in the mortgage deed is that he should act in good faith. We, however, are conscious of the fact that in determining whether the mortgagee’s conduct in any given case comes up to the required standard or not, regard must be had to the circumstances of the particular case. Every case has to be determined on its own facts and in the light of its own circumstances.

In the present case, there is no evidence of any mala fides or collusion on the part of the defendants. It therefore follows that the sale to the 2nd defendant could not now be set aside; nor was there any case made out by the plaintiff for the award of damages in respect of the sale.

In the circumstances, the decision of the learned trial judge that the power was improperly exercised cannot stand. Accordingly, the 1st defendant’s cross-appeal succeeds and is allowed. The appeal filed by the appellant fails and it is hereby dismissed.

We order that the decision of the High Court, Lagos State, in Suit No. IK/201/64, in so far as it declared that the power of sale of the 1st defendants was improperly exercised, and in so far as it ordered the 1st respondents to pay the costs of the action to any party is hereby set aside. We order that the plaintiff’s case be dismissed with costs and this shall be the judgment of the court. We further order that the plaintiff shall pay the costs of the 1st defendants and the 2nd defendant fixed in this court at N140 and N86 respectively, and in the High Court at N80 to each defendant.

First defendants’ cross-appeal allowed; plaintiff’s appeal dismissed.

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Other Citation: (1973) LCN/1701(SC)