Frederick Gurah SAMPSON’s thoughts…SECURITY WITHOUT SECURITY  – Lessons for all banks, and other similar institutions

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Banks and Specialized Deposit Taking institutions (SDTIs) exist to provide financial solutions to their customers. In doing so, they largely take deposits and grant credit facilities to Customers. Credit Facilities come in several forms/types ranging from Contingent Liabilities (Bid Guarantees, Bank Guarantees, Performance Guarantees, Advanced Payment Guarantees, and Retention Guarantees), to Loans, Overdrafts, Finance Lease, Import Finance Facility, Issuance of Letters of Credit (LC), Standby Letters of Credit (SBLC) among other services. For a Bank or SDTI to engage in all these services, means that such services are permissible activities under the legislation regulating banks and SDTIs under section 18 of the Banks and Specialized Deposit Taking institutions Act, 2016 (Act 930).

Whatever facility a Bank or SDTI gives in line with its permitted activities/services, there is the need for collateral security to be taken in order to secure the Bank or SDTI in the event of default. This is simply what is called Collateral Security. Before giving out the facility, the Bank or SDTI may take a security from the Borrower or Customer. This is to ensure that in the event of a default, the Bank or SDTI has something to fall on, because at the core, the funds being given to customers or borrowers are depositors funds and so the Bank cannot be seen to be giving monies to customers without any security to support or fall on in the event of default.

Taking Security

When a financial Institution grants a facility or loan, the security they may request for or take comes in several forms. Except in a few instances, where a Bank or SDTI may decide to lend clean, i.e. giving a loan without a security.

The securities the Banks or SDTI may take, in this regard may be in the form of a Legal Mortgage (bilateral or tripartite), Debenture (Fixed or Floating), Liens, etc.

A Mortgage is basically a charge/encumbrance over a landed property used as a security for the repayment of or the performance of an obligation. Indeed, section 1(1) of the Mortgages Act 1972 (N.R.C.D 96) defines it thus “A mortgage for the purposes of this Act is a contract charging immovable property as security for the due payment of a debt and the interest on the debt or for the performance of any other obligation for which it is given, in accordance with the terms of the contract”. Subsection 2 continues thus “A mortgage is an encumbrance on the property charged, and does not, except as provided by this Act, operate so as to change the ownership, right to possession or any other interest, whether present or future in the property charged.”

By this we see that, a Mortgage as a security is only a charge and does not operate as a transfer of property from the Mortgagor to the Mortgagee unless otherwise provided. The law under section 3 of the Mortgages Act requires that, ordinarily a Mortgage must be evidenced in writing and signed by the parties especially mortgagor (the person creating the Mortgage or the owner of the property), unless it is excused from this requirement by operation of law or customary law. It is communis opinio among all lawyers that customary law knows no writing. A Mortgage therefore is an encumbrance or a charge over the immovable property and it operates in such a manner that the owner (Mortgagor) is unable to lawfully deal with the property in accordance with the ownership rights because the mortgagee has acquired an interest in the property.

Another form of security is a Debenture. A Debenture as a security is however a charge over moveable properties used to secure the due performance obligation which in this case is usually the payment of monies lent. These charges could either be fixed or floating charges. Section 90(2) of the Companies Act, 2019 (Act 992) provides that “Subject to subsection (2)” a floating charge is an equitable charge over the whole or a specified part of the undertaking and assets of the company both present and future”. A fixed charge is one that is created over a specific asset of the company. Until crystallization, the Company that has created the floating charge is not precluded from dealing with the assets the subject of the charge. Crystallization is the process where a floating charge becomes a fixed charge.

A security could also be a Guarantee, whether Corporate or Personal Guarantee. A Guarantee is usually an undertaking by a third party to secure the due repayment or performance of an obligation of a Borrower. It is a corporate guarantee if such security is provided by a Company (legal entity) and it is personal if it is given by an individual (natural person).  There is also the option of a Counter Guarantee which by its effect is a Guarantee that is issued usually by insurance companies as a security for a Guarantee issued by a bank or SDTI.

When the financial institution as a lender takes the security, it does not end there. The Law imposes certain obligations on the parties in order to perfect the securities in order for it to be enforceable when there is a default.

Perfection of Security

Under the law, documents that are used to secure the performance of an obligation or payment of a loan must be registered unless the law provides otherwise. It is the registration of the security, whether it is a Legal Mortgage, Debenture, or a Guarantee that makes the security a security properly so called and hence enforceable. This means that if a financial Institution gives out a loan, takes security and fails and/or refuses to register it, that security is, or becomes, a ‘worthless piece of paper’ before the law. In this piece we shall examine the law on this all important subject since it is the most important part of taking a security to secure the performance of an obligation.

The Companies Act, 2019 (Act 992) provides that if a company creates a security/charge, it must be registered, otherwise the security created is void and of no legal effect. Section 110 thereof provides “A charge, other than a charge specified in subsection (5) created by a company after the commencement of this Act is void so far as a security on the property of the company, is conferred by that charge, unless the particulars prescribed in this section together with the original or a certified copy of the instrument by which the charge is created or evidenced, are delivered in the prescribed form to the Registrar for registration within forty-five days after the days of the creation of the charge”. It is seen from this current law, a departure from the old Companies Act 1963 (Act 179) in the sense that Act 179 gave only twenty-eight days for such registration.

It is the view of the writer that the twenty-eight days under the old law, was not only over-ambitious but unrealistic, seeing as the registration process is usually preceded by Stamping, which subject shall be discussed presently. The effect of the above quoted section is that, if a Company that created the charge or the one who has an interest fails to register it, then in law there is no security at all, meaning that, in the event of a default, that security cannot be relied on by the financial institution. This however, does not mean that the person who secured the transaction with the void security is relieved of the obligation under the transaction. Section 110 (3) of the Companies Act provides thus “This section shall not affect a contract or an obligation for repayment of the money secured by the contract or obligation”, Sub section 4 makes the import clearer when it says that “When a charge becomes void under this section, the money secured by the charge shall immediately become payable despite a provision to the contrary in the contract”. This is the legal position in relation to securities created by or in favour of companies, to which we shall return in much detail.

Perfection of securities, whether Mortgages, Debentures, Guarantees is divided into two major stages, there is the Stamping requirement and then the Registration aspect. The registration under the Companies Act is just one of the registration requirement, there is also the registration requirement at the Collateral Registry as well as the requirement under the Land Title Registry if the security is over an immoveable property.

Stamping of Securities

Stamping is the making of an impression on a legal document, by the appropriate authority (in this case Ghana Revenue Authority) in accordance with law and for which duty a tax or duty is exacted.

Stamping of securities is governed by the Stamp Duty Act 2005 (Act 689). It is trite that stamping is the first stage towards the perfection process. That is to say, before a security is registered whether at the Company’s Registry or Lands Registry, it has to be assessed and stamped before it is submitted for registration. The stamping involves payment of the appropriate fees as assessed and payment made to the Ghana Revenue Authority (GRA). In effect, stamping is a sine qua non to registration. Section 14 of the Stamp Duty Act 2005 (689) provides that “An instrument or title shall not be registered or entered in the registry of instruments that affect land or in the land title registry unless (a) that instrument or document containing particulars of title is stamped; or (b) the instrument or document is stamped under section 10 with a particular stamp denoting that it is not chargeable with duty

The law is that a security document relating to any matter or thing done or to be done in Ghana must be stamped in order to be enforceable or be used for anything in Ghana. Stamping is where the security document is submitted to the stamping authorities for assessment to be made and then payment of the stamp duty fee effected by the person registering same. The current law is that stamp duty is assessed either at 0.5% of the facility amount on the primary security created and 0.25% on the facility amount on any other additional security created. So when there is a security evidencing a mortgage, bond, debenture, covenant, guarantee or lien it shall be treated as an instrument which is ‘stampable’ under the Stamp Duty Act.

Section 25 of the Stamp Duty Act provides that “A writing evidencing a mortgage, bond, debenture, covenant, guarantee or lien shall be treated as an instrument which shall be stamped in accordance with this Act”. Aside stamping being a condition precedent to registration, if a document that is subject to stamping is not stamped, same cannot be used in civil proceedings in the court of law since it will have an effect on the admissibility of the document.  See the case of Lizori Limited v. Evelyn Boye and School of Domestic Science and Catering (2013) 67 GMJ 66 SC, a case that discussed the effect on admissibility of unstamped document.

The law requires that, the stamping must be done within two (2) months after the security has been created  in Ghana and if same is created outside Ghana, stamping must be done within two (2) months after being received in Ghana. One wonders why the Stamp Duty Act gives two (2) months to stamp a security, yet the old Companies Act gave only twenty-eight (28) days, when stamping is a condition precedent to registration. One could argue that it makes more ‘sense’, that the new Companies Act will increase the number of days for registration from twenty-eight (28) days to forty-five (45) days, although the writer thinks that it would have been better if the number of days allowable for registration was more having regard to the number of days under Stamp Duty Act.

Registration of Securities

Under the Companies Act

Once the security is created, the law requires same to be registered. After the security has been stamped in accordance with law, the next stage is submission of the documents to the Companies Registry for registration. Registration is where the particulars and copies of the said document is submitted to the various Registries for them to note the interest of the Lender in the property. As earlier indicated, our Companies Act requires every company that creates a security or a charge over its assets to register same. This is because, if the registration is not effected, the security created is void and of no effect as a security, it may not be enforceable, as mentioned above.

It must be noted that, the duty to register is principally on the company creating the charge or security. But the law was prudent to add that the security could be registered by anyone who has an interest in the charge or security created. When a person other than the creator of the charge registers the security, the person can recover the fees incurred from the person who created the security. Section 114(2) of the Companies Act 2019, (Act 992) provides that “A company shall send to the Registrar for registration the particulars required to be sent under sections 110 to 113, but registration of the particulars of the charge may be effected on the application of a person interested in the charge (emphasis mine). And so Section 114(2) says that “Where registration is effected on the application for a person other than the company, that person is entitled to recover from the company the amount of the fees payable to the Registrar for the registration.” It must be noted that the reason why a financial institution will go through all these is to secure the performance of an obligation i.e. repayment of the loan. Since without registration the security is void and unenforceable, it behoves on the financial institution to take the needed steps to register. The writer makes the analysis that, if he takes a facility from a bank and creates a legal mortgage of a landed property, he will for mischievous reasons not be in a haste to register it. This is because, if it is not registered and there is a default, the Bank or SDTI cannot take or realize the security.

This is why in practice, we see the lenders rather take a keen interest in registering the securities. We shall examine in due course how the courts have treated unregistered securities at the time of enforcement under Ghana law, which is the core of this piece. Let me hasten to add that, aside the fact that failure of registration makes the security void and unenforceable, it is also an offence for which the company and every officer may be liable to pay an administrative penalty of Six Thousand Ghana Cedis. Section 114(4) says that “Where a company defaults in sending to the Registrar the particulars requiring registration as required by this section, the company and every officer of the company that is in default is liable to pay the Registrar, an administrative penalty of five hundred penalty units unless the particulars have been duly submitted for registration by any other person”. According to law i.e. Fines (Penalty Units) Act, 2000 (Act 572) as amended by the Fines (Penalty Units) (Amendment) Instrument, 2005 (LI 1813), one penalty unit is Twelve Ghana Cedis (GHS12.00).

It is said that to every rule, there is an exception; this is applicable in registration of securities. It is not all securities that are subject to registration. The law itself provides exemptions. Under Section 110 (5) the law says that “This section shall not apply to a pledge of, or possessory lien on, goods, or to a charge, by way of pledge, deposit, letter of hypothecation or trust receipt, of bills of lading, dock warrant or any other document of title to goods, or of bills of exchange, promissory notes or any other negotiation securities for money”.

Due to the fact that registration may not in all cases be completed within the time specified by law, in this case forty-five (45) days, the law makes room to accommodate late registration after the forty-five (45) days. A person who is unable to register a security under the Companies Act within the forty-five days, can apply to the High Court under section 118 of the Act for extension of time within which to register the charge after the forty-five (45) days. The Court must be convinced that, the omission to register within the forty-five (45) days was due to some inadvertence or due to just and equitable reasons and such late registration will not be prejudicial to the position of the creditors or members of the company. In practice, the application for such extensions will be served on the person creating the charge and the Registrar of Companies. The Courts in the absence of any valid opposition (which opposition is rare) will grant the application to register. In the case of Re Ghana Timber Marketing Board’s Application; Ghana Timber Board v. Ashanti Curl & Lumber Products Limited [1968] GLR 931, a party opposed the application for extension of time, but the court dismissed the opposition and granted leave for the registration of the security.

Registration under the Borrowers and Lenders Act, 2008 (Act 773)

The Borrowers and Lenders Act, 2008 (Act 773), was enacted inter alia to provide the legal framework for credit, to improve standards of disclosure of information by borrowers and lenders, to prohibit certain credit practices, to promote a consistent enforcement framework related to credit. It has been said by scholars that the purpose of this Act was to ensure an easier means to enforce credit securities.

This Act also requires that, when a security or charge is created, it must also be registered. Section 25(1) similarly states that “A borrower or a person interested in a charge shall register a certified copy of a charge or collateral created by the borrower in favour of and a lender with the Collateral Registry within twenty-eight days after the date of the creation of the collateral or charge” This requirement is not mutually exclusive with the registration requirement under the Companies Act. Indeed subsection 2 of section 25 is authoritative on this when it says, “Where a charge is created by a company, the requirement to register charges with the Collateral Registry under this section shall be in addition to the requirement under section 107 of the Companies Act, 1963 (Act 179) to register charges with the Registrar of Companies” (Note that the Companies Act mentioned here should be read as Section 110 of the Companies Act, 2019, (992)). The Borrower who created the charge is required to register the charge, but the lender who has an interest in the charge can also take steps to register same. The effect of a failure to register is the same as we saw in the Companies Act, the security becomes void and unenforceable. Section 25(3) says that “A charge which is not registered in accordance with subsection (1) is of no effect as security for a borrower’s obligation for repayment of the money secured and the money secured shall immediately become payable despite any provision to the contrary in any contract”

Unlike the Companies Act, which relates to companies or artificial persons, the Borrowers and Lenders Act is applicable to both legal and natural persons. It is only when a charge is registered thereunder that the charge can be enforced as a security. If the charge is subject to registration and it is not registered, the person in whose favour it was created cannot rely on it or enforce it. In lending to Borrowers, when the security is a lien over cash for instance in an investment or a savings account, the writer takes the view that, as long as there is no third party right arising, failure to register will not be inimical when there is a default because the money is already held (lien/security) in the possession of the lender, who can access it to defray the obligation since there is a document creating a charge over the money. The challenge comes in when there is a third party right through for instance, a court judgment as against the lender who had the security in its favour but failed to register. What happens in such a case is what we shall discover in the Court of Appeal decision in the Best Point Savings and Loans Limited (BPSL) case which shall be discussed below.

Under the Lands Registry

In addition to registration under the Companies Act and Borrowers and Lenders Act, any security created over landed or immovable property in Ghana shall be registered with the Lands Commission. Thus, if documents which have been stamped are in relation to immovable properties, then they must as of necessity be registered before it can be an effective security. Section 72(1) of the Land Title Registration Act 1986 (Act 152) provides that “A mortgage created after the commencement of this Act shall be in the prescribed form and shall not have effect unless it is registered in accordance with this Act”. This implies that without registration of the mortgage, it will only exist in paper and will be worthless at the stage of enforcement because it is void as a security. Subsection 2 of section 72 says that “When a mortgage is registered as an interest in land, the instrument by which the mortgage is created shall be filed in the Registry.”

 

Attitude of the Courts towards failure to register securities.

The very essence of taking security is for the Bank or lender giving the facility to have something to fall on in the event of a default. If the Borrower defaults and the Bank or lender does not have any security to fall on, it means the Bank or lender must write-off such loans as bad debts. It is even apparent when dealing with contingent liability like Guarantees. Under the law that governs guarantees (Bank Guarantee, Bid Guarantee, Performance Guarantee, Advance Payment Guarantee, Retention Guarantee or even a Counter Guarantee) the Uniform Rules for Demand Guarantee 2010 (URDG 758), when a Guarantee is called in by the Beneficiary in whose favour it has been issued, it must be paid usually upon first written demand by the beneficiary without cavil or argument. This is so because, Guarantees are independent of the main transaction between the Customer on whose behalf the guarantee is issued and the beneficiary in whose favour the guarantee is issued. This means that, if there is a security that has not been registered, the Bank as a Guarantor may pay out the liability and at the time of seeking to enforce the security the question of registration will come up for determination. This subject has engaged the minds of our courts as far back as the 1960s until as recent as February 2020. These shall be discussed in detail to bring out the lessons for industry practice.

To appreciate the historical perspective, the writer shall start discussing the old judicial decisions till he reaches the most recent decision by the Supreme Court. From the case of George Cohen (W.A.) Ltd v. Comet Construction Co. Ltd.; Ghana Commercial Bank (Claimants) [1966] GLR 777 to the most recent decision on this subject which is the case of Bank of Africa Limited v. Gracefield Merchants Limited, & 2 others; Mike Twum Barima and Robert Allen (Claimants) unreported Civil Appeal Suit No. J4/35/2016 decision dated 5th February 2020, the Courts seem to sound an unheeded warning to Banks and lenders on the effect of an unregistered security.

In the case of George Cohen (W.A.) Ltd v. Comet Construction Co. Ltd.; Ghana Commercial Bank (Claimants) [1966] GLR 777, Comet Construction Limited took a loan from Ghana Commercial Bank (GCB) and secured it with a debenture over two of their vehicles in favour of GCB but they failed to register the debenture under the Companies Act at the time. George Cohen sued Comet and later got judgment and sought to enforce same. After Comet refused to pay, George Cohen sought to attach the two vehicles through one of the modes of execution called fieri facias (fi.fa) in January 1965, at which time GCB had not registered the debenture. GCB actually registered the debenture in October 1965 after the fieri facias (fi.fa) had been issued. GCB then filed what is called an interpleader to say they have an interest (by way of the debenture) in the two vehicles attached. The issue for determination by the court was that; between the execution creditor (George Cohen) and the claimants/debenture holder (GCB) whose interest should prevail. The Court examined the effect of failure to register a debenture under the Companies Act (Companies Code at the time) and established that failure to register invalidates the security.

By this alone it means the debenture holder GCB had no security in the debenture because it failed to register. But the Court went ahead to construe section 6 of the Companies Act (Code) and said since GCB was a bank with a special legislation, unless there is legal requirement under the Banking Ordinance, such failure will not be inimical to their interests. The Court speaking through Edusei J. therefore decided that the debenture holder/Claimant/GCB’s interest prevails over the interest of the execution creditor. This decision, it is suggested by the writer was rendered in error since the Companies Act (Code at the time) governed GCB at the time and was therefore not exempted from the registration requirement and the proper position the court should have arrived at was that the execution creditor’s interest prevails over that of the claimant bank who had not registered its debenture.

The next is the case of the Republic v James Town Circuit Judge; Ex Parte Annor [1978] GLR 453. This case also involved Ghana Commercial Bank (GCB) which held a security. The Bank held a debenture over the stock and other equipment of a Customer for whom the GCB had given a facility in the nature of an Overdraft. The debenture was not registered by either the customer or the bank. The customer was successfully sued by the landlord. The landlord as execution creditor sought to levy execution against the assets, whereupon GCB interpleaded. The landlord applied for the court to dismiss the interpleader application by GCB since the debenture had not been registered as required by law. The Circuit Court Judge before whom the application was heard dismissed the landlord’s application, and relied on the reasoning in the George Cohen case discussed above. The landlord filed an application for certiorari to quash the decision of the Circuit Court Judge and the High Court hearing the certiorari application, granted the application and quashed the erroneous decision of the Circuit Court Judge. The High Court speaking through Justice Taylor had this to say “the combined effect of Act 179, s.s 107 and 111 was that a duty was mandatorily cast on any company creating a charge to register the charge and failure to register the charge in compliance with this duty rendered the charge void so far as any security on the company’s property concerned. Neither Act 339, s. 46 nor Act 179, s. 6 could be said to affect in anyway the provisions of Act 179, ss. 107 and 111… The circuit judge erred completely in his choice of cases to support his conclusion that the combined effect of Act 179, s.6 and Act 339 s. 46 nullified the effect of provisions of Act 179 dealing with registration and validated charges made by a company in favour of a bank even where the charge was not registered. One case was decided per incuriam since it ignored the provisions of Act 179, ss. 107 and 111….”  It is the writer’s respectful view, that this case states the correct position of the law and a correct departure from the previous wrong conclusion in the case above.

 

The next is the Court of Appeal decision of ESM Company Limited vrs Exim guaranty Company and Big Aidoo Construction and in the Matter of Best Point Savings and Loans Co. Ltd (Garnishee Applicant) unreported Civil Appeal No. H1/169/2017 decision rendered on 31st May, 2018. In this case, ESM sold a Quarry Plant to Big Aidoo Construction on credit. Exim Guaranty issued a bank guarantee for the outstanding purchase price. ESM obtained judgment against the defendants and sought to proceed against the defendants with garnishee proceedings directed at the Ministry of Finance, Ghana Highways Authority and Best Point Savings and Loans (BPSL) (as the Garnishee Applicant). At the garnishee hearing it turned out that BPSL was not indebted to Big Aidoo, rather BPSL had given a credit facility to Big Aidoo.

The proceeds of an Interim Payment Certificate to be issued in favour of Big Aidoo was assigned to BPSL as part of the security for the facility. They had created a charge over the IPC 11 proceeds in favour of BPSL but BPSL had not registered as required by law at the Collateral Registry and the IPC was the subject of the garnishee proceedings. The trial High Court heard arguments and ruled that the legal interest of ESM Limited prevails over the equitable interest of the Garnishee/Applicant and so the Court made the garnishee order absolute, although BPSL had argued the said proceeds had been assigned to them by way of security and held same jointly with Big Aidoo.  BPSL being aggrieved with the decision of the High Court, appealed against the decision. The Court of Appeal dismissed the appeal on the basis that the IPC 11 was a charge created in favour of BPSL but same was not registered as required by section 25 of the Borrowers and Lenders Act. This is another case that shows how the Courts deal with charges/securities that are not registered and hence declared unenforceable.

 

The most recent decision is case of Bank of Africa Limited v. Gracefield Merchants Limited, & 2 others; Mike Twum Barima and Robert Allen (Claimants) unreported Civil Appeal Suit No. J4/35/2016. This is a Supreme Court decision rendered in February 2020, in which Bank of Africa (BOA) had given a loan facility to the 1st Defendant, Gracefield Limited (the Borrower) for specified amounts. The loan was secured by a charge over a landed property in the form of a Mortgage belonging to the 2nd Defendant Dr. Kofi Ruben Atekpe the (the Mortgagor). The Mortgage Agreement was executed in 2007, but was not registered by the parties until around August 2009. The same Deed of Mortgage executed in 2007 was used as security for another facility in 2010. Before the Bank sought to register its interest in the property, the 2nd Defendant/Mortgagor in 2008 and 2009 had assigned his interest in the same property to a certain Mike Twum Barima and Robert Allen 1st and 2nd Claimants respectively.

Upon default of the 1st Defendants, the Bank commenced an action and obtained judgments against the Defendants to recover an amount of Seven Million, Five Hundred and Twenty-Six Thousand, Two Hundred and Thirty-Four Ghana Cedis and Twenty-Nine Ghana Pesewas (GHS7,526,234.29) being the balance and interest outstanding. It was in the execution of the judgment that BOA attached the property of the Mortgagor, whereupon the 1st and 2nd Claimants filed an interpleader proceedings. During the interpleader proceedings, the trial High Court found that the 1st and 2nd Claimants were innocent purchasers for value without notice and ruled in their favour. BOA being aggrieved, appealed to the Court of Appeal which dismissed the appeal and upheld the decision of the High Court.

BOA further appealed to the Supreme Court. Their Lordships at the Supreme Court examined how each of the Claimants acquired the properties from the 2nd Defendant/Mortgagor and established that the 1st Claimant acquired his own from the 2nd Defendant by a Deed of Assignment dated 11th November, 2008, after obtaining the requisite consent from the Lands Commission.

The 2nd Claimant also acquired the property through a Deed of Assignment after also obtaining consent from the Lands Commission and they both parted with monies.

 

The Supreme Court observed thus “The record of appeal revealed that apart from applying and obtaining the consent of the Lands Commission for their respective Assignments, there is no evidence that both Claimants conducted official searches at the Lands Commission to ascertain whether the properties they were acquiring were encumbered. From the evidence on record there is no dispute that the property acquired by the Claimants were owned by the 2nd Defendant. However, the 2nd Defendant had in 2007 mortgaged the properties to the Appellant for a loan. The Appellant failed to register the mortgage promptly and for that matter at the time the 2nd Defendant assigned his interest in the properties to the Claimants, there was no registered encumbrance on the properties to the notice of the public. The mortgage was only registered in August 2009, after the 2nd Defendant had assigned his interest in the properties”.

The Court therefore observed that at the time the 2nd Defendant assigned his interest in the property to the Claimants, there was no registered encumbrance by the Bank and so even if the Claimant has conducted a search, it would not have yielded the results that the property was encumbered in anyway.

Their Lordships reviewed the authorities and spoke through Marful Sau JSC thus “It is trite that a mortgage in writing is an instrument affecting land and same ought to be registered under section 24(1) of the Land Registry Act. A mortgage shall have no legal effect until it is registered. See Asare v. Brobbey and Others (1971) 2 GLR 331 CA. Further the Land Title Registration Act, PNDC 152, provides by its section 72 that a mortgage created after the coming into force of this Act shall not have any legal effect until it is registered in accordance with the Act….. The law is thus clear that the Deed of Mortgage executed between the Appellant and the 2nd Defendant had no legal effect for lack of registration, at the time of the assignments to the Claimants”. The Supreme Court continued thus “Mortgage was executed on the 4th of May 2007. Clause 11 of the Deed of Mortgage enjoined the 2nd Defendant, who was the Mortgagor to immediately ensure the registration of the mortgage upon execution of same. The 2nd Defendant failed to perform this obligation and the Appellant also went to sleep.”

The above clearly showed that the 2nd Defendant Mortgagor failed to perform his obligation of registering the mortgage neither did BOA. His Lordship Marful-Sau JSC was therefore apt when he remarked thus “From the evidence on record, this whole bizarre episode was caused by the greed and venality of the 2nd Defendant and he must be ashamed of himself. Although the principal obligation to register rests with the person creating the charge, the law permits anyone who has an interest in the charge to register, one wonders why the Bank also did not take steps to register it and possibly bill the Defendants with the fees. But BOA also failed. And so the Supreme Court has this to say “Indeed the Appellant cannot escape blame either for her lack of diligence after executing the mortgage”.

The Court concluded by saying that “Appellant, as the mortgagee, failed to ensure the registration of the mortgage by the 2nd Defendant in compliance with the provisions of the mortgage. If the Appellant has been diligent and ensured that the mortgage was promptly registered as provided in the Deed of Mortgage by the 2nd Defendant, the Appellant would not have been in the present situation. In the circumstances, Appellant can only blame the 2nd Defendant who from the record appears to be fraudulent from the way he conducted the transactions with the Claimants and Appellant.

The argument by the Appellant that it obtained the consent of the Lands Commission for the mortgage did not change the position that at the time of the assignment, the mortgage was not registered. The consent of the Lands Commission did not amount to registration and could not create an encumbrance on the property or constitute notice to the public. The option left for the Appellant is to enforce the judgment entered by the trial High Court on 10th August 2011 against the Defendant at the trial namely Gracefiled Merchants Limited, Dr. Ruben Atepke and Kofi Kwakwa.”

It is therefore clear that no matter what, once a charge or security is created, same must be registered because if it is not registered, it is void as a security and same cannot be enforced. In practice, it is always easy to obtain judgment against a defaulting Borrower, but the difficulty is the process of execution.

Sometimes even finding a property against which to levy execution is a problem and so it is advisable, and the writer agrees with their Lordships, to ensure that whatever security a Bank or financial institution takes, same is well perfected in order to provide some degree of comfort when there is a default. It does not feel good to be in the shoes of the Appellant Bank (BOA) in this last suit. In most instances, because of business exigencies and the need to meet or exceed customer expectation, certain due diligence measures are deferred, ignored or relegated, the funds are disbursed and there is no more motivation to follow through to the end to ensure that the Bank is adequately secured, only to be hit in the end by the question of registration upon default and during enforcement.

From the above discussions, one could see that there is no much difficulty if no third party acquires an interest in the security the Bank holds, but the moment a third-party’s right accrues, usually through execution of judgments, then the only answer or way out is for the Bank to show that it has duly registered the security on which it relies.

Conclusion

Based upon the foregoing, it is clear that the Banks or SDTIs that give out facilities have a major obligation to ensure that securities they take are adequately registered so that in the event of a default, their interest is not prejudiced. It is important therefore that, just as the Banks or SDTIs are interested in the business aspect of granting facilities, the same importance ought to be placed on the perfection of securities they take, otherwise when there is a default and enforcement is being sought, the Bank and SDTIs will suddenly realize that the security they hold is just a worthless piece of paper. Banks Beware!!!

The writer is a Lawyer ([email protected])

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