CASE REVIEW: STANDARD MANUFACTURING COMPANY V STERLING BANK PLC

Case Review is a publication by the Litigation and ADR Department of Perchstone & Graeys, a leading commercial law firm based in Lagos, Nigeria. The publication analyzes decisions of the Supreme Court and Court of Appeal on various aspects of the Law as they impact on contemporary issues.
A review of the decision in STANDARD MANUFACTURING COMPANY LTD & ANOR v. 
STERLING BANK PLC (2015) LPELR-24741 (CA) 
Introduction 
Credit is the lifeblood of modern industralised economies. A few borrowers may have access to credit on an unsecured basis (depending on the extent of credit) but most may be required to give security in order to access finance. The main object of security is to protect the creditor in the event that the debtor is unable or unwilling to repay the loan. A creditor with proprietary rights is able to assert his rights over the specified property (usually land) in satisfaction of any debt obligation upon default by the debtor. An equitable mortgage is a type of security that can be given over land. The equitable mortgage is used where less formality is preferred. The mortgagee (creditor) will normally require that the title deeds or land certificate are deposited with it. 
Following a long line of judicial authorities that equitable mortgage by deposit of the title deeds should be accompanied by a written document to that effect (i.e. the memorandum of deposit), the Nigerian Court of Appeal in Standard Manufacturing Company Ltd & Anor v Sterling Bank Plc recently had course to examine the extent (if permissible) to which a memorandum of deposit is not a mandatory requirement in respect of the deposit in creating an equitable mortgage. 
Brief Statement of Facts 
The issues in dispute arose from a banker-customer relationship between the 1st appellant (Standard Manufacturing Company Ltd) and the respondent (Sterling Bank Plc). The respondent granted the 1st appellant an overdraft facility to finance its business. As security for the overdraft facility, the 2nd Appellant (the guarantor to the overdraft facility) deposited with the respondent, the original copy of the certificate of occupancy over his landed property registered. When the overdraft facility fell due and remained unpaid, it was restructured at the request of the appellants to a term loan with an agreement that the term loan will be liquidated in ten monthly installments, which the appellants still failed to repay despite repeated demands by the Respondent. 
As a result, the respondent sued the appellants at the High Court of Lagos State to claim reliefs for debit outstanding balance in respect of credit facilities granted by the respondent along with bank charges and interest. It also sought in the alternative, an order to sell the land property provided by the 2nd appellant as security to the credit facility granted by the respondent in order to liquidate the debit balance standing against the 1st appellant. At the close of trial proceedings, and exchange of final written arguments, the court delivered judgment in favour of the respondent upon which the appellants challenged the decision of the High Court before the Court of Appeal. 
Central Issue for Determination 
The principal issue brought before the Court of Appeal to decide was whether deposit of a document of title without writing or word of mouth is sufficient to create a charge on a property (i.e. an equitable mortgage). This was pertinent to determine whether a security interest (equitable mortgage/charge) was properly created over the land belonging to 2nd appellant (the guarantor) such that the respondent could obtain an order of court to sell the land in satisfaction of the outstanding debit balance. 
On the point under reference, appellants contended that they never created legal or equitable mortgage over the 2nd appellant's property and as a matter of fact, the 2nd Appellant only gave his certificate of occupancy as part and proof of his net worth (being a condition precedent to 
the grant of the credit facility) and no more. He denied charging the said property as security for the credit facility and submitted that there was no evidence before the court to show that a legal or equitable mortgage was created. The appellants finally urged the court to hold that the 2nd appellant did not create an equitable mortgage in favour of the Respondent. 
Respondent argued- in response- that it was agreed that the overdraft facility would be secured by an equitable mortgage over the 2nd appellant's property, and that it was also established by evidence that the 2nd appellant had shown an intention to mortgage his said property as security for the facility. In reply, appellants argued that the certificate of occupancy deposited by the 2nd appellant as proof of his net worth was not accompanied by memorandum of deposit or any written statement showing intention to create an equitable mortgage and therefore urged the court to overturn the decision of the lower court. 
Decision of the Court of Appeal 
In examining the mode of creating an equitable mortgage under the law, the court restated the trite position that the deposit of title deed with a bank as security for a loan, creates an equitable mortgage as against legal mortgage which is created by deed transferring the legal estate to the mortgage. The court observed (following the argument of the appellants’ that the 2nd appellant only deposited his certificate of occupancy to prove his net worth and nothing more) that the mere deposit of certificate of occupancy to the respondent bank suffices to show that it was the intention of the parties that the property which it covers is to be used as security for the facility granted. 
The Court found that there was an agreement by both parties to the transaction in dispute flowing from the offer letter provided by the respondent and which the appellants accepted by acceding to the condition of depositing the certificate of occupancy contained therein. The Court held that in cases where there is agreement to contract of this nature, memorandum of deposit is not a mandatory requirement in respect of the deposit. The deposit of the title document itself is incorporated in the terms of the offer which was accepted by the appellants and parties are bound by their agreement. Per Obaseki-Adejumo, J.C.A. held as follows: “Appellants had ample opportunity to digest the terms and conditions contained in the offer letter, Deed of Guarantee and other documents forming part of the contract for the overdraft facility. The nature of the agreement between the parties herein does not require a mandatory memorandum of deposit of the C of O to be filed separately. Equity looks at the intent rather than the form. The intention of parties regarding the transaction in dispute clearly indicated the use of the C of O of the 2nd Appellant’s property as security for the overdraft facility granted.” In light of the foregoing, the Court upheld the judgment of the lower court and resolved the issue for determination in favour of the respondent. 
Commentary 
The decision is sound and unassailable in that equitable charge, arises either from the stated intention of the parties in a loan document, or can be inferred from the presumed intention of the parties read from the instrument evidencing their agreement. It looks more to intent than form, and the Court – in the decision under reference- rightly inferred that from the terms and conditions both parties executed through the contract document which appears to have simply been described as the ‘offer letter’, as well as other documents. Equity, it is said, looks at the intent and not a mere form of creation of equitable charge through a deposit of a document of title accompanied with a memorandum evidencing the deposit, or through word of mouth. 
Put simply, it is an established rule of equity that a deposit of a document of title without writing or word of mouth may create in equity a charge upon the property to which the document relates to the extent of the interest of the person who makes the deposit. 
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Case Review - Standard Manufacturing Company v Sterling Bank Plc