Types of Mortgages

Introduction:

This note will discuss the two types of mortgages: legal and equitable.

Legal Mortgage:

This is a mortgage created in accordance with the form and manner prescribed by law. In Section 3(1) of the Mortgages Act, 1972 (N.R.C.D. 96), it is provided that:

(1) A mortgage is not enforceable unless

(a) it is evidenced by a writing signed by the mortgagor or by the agent of the mortgagor

authorised by the mortgagor in writing to sign,…

In Tradex Resources Foundation v. Cal Bank Limited and Sq. Leader Ebo Bartels, Civil Appeal No. H1/18/2018, the Court of Appeal stated that:

A major requirement of law for the creation of a legal mortgage is that it must be in writing signed by the mortgagor or his agent authorised in writing to sign on his behalf.

A similar position was espoused by Professor Kludze in Modern Principles of Equity at page 371 as follows:

The only formal requirement for the creation of a legal mortgage is a writing signed by the mortgagor or by his agent authorised in writing to sign on his behalf.

A similar position was also espoused by Da Rocha and Lodoh in Ghana Land Law and Conveyancing (2nd Edition) at pages 222-223.

Equitable Mortgage:

In the case of Tradex Resources Foundation V. Cal Bank Limited and Sq. Leader Ebo Bartels (supra), an equitable mortgage was defined as follows:

A mortgage which is created without the formalities required for a legal mortgage is considered an equitable mortgage.  An equitable mortgage is thus a transaction that has the intent but not the form of a mortgage and that a Court of Equity will treat as a mortgage.

For instance, a mortgage that is enforceable despite not being in writing is considered an equitable mortgage. In Section 3(1)(b) of NRCD 96, it is provided that:

(1) A mortgage is not enforceable unless

…

(b) it is excused from the necessity of a writing by the operation of the rules of equity, including the rules relating to fraud, duress, hardship, unconscionability and part performance, or

This provision was commented on by the Supreme Court in the case of Agnes Osei v. A-Life Co. Ltd. and First Atlantic Civil Appeal No. H1/35/2014, as follows:

…equitable mortgages are created in the situations catered for under Section 3 (1) (b) of NRCD 96. This is where though there is no writing as has always been required for the creation of an interest in land, the absence of writing is excused because of the presence of factors which the law of equity would step in to pronounce as creating a mortgage, for the sake of preventing injustice.

 

Clearly, therefore, the provisions in Section 3 (1) (b) of NRCD 96 are meant to settle with statute the thrust of the law of equity regarding situations where there is no writing

Summarily, as a general rule, a mortgage is created if it is in writing and signed by the mortgagor or his agent. However, under the rules of equity, a mortgage can be created despite the absence of writing.