TOTAL (GHANA) LTD vs. MODERN PETROLEUM LTD AND OTHERS [2001-2002] 2 GLR 219

TOTAL (GHANA) LTD v MODERN PETROLEUM LTD AND OTHERS

[2001-2002] 2 GLR 219

Division: HIGH COURT, ACCRA

Date: 9 APRIL 2002

Before: ASARE KORANG J

Mortgages—Building—Privity of interests—Mortgagee of landed property—Owner allowing building to be mortgaged by son as collateral security for guarantee bond—Order for judicial sale of mortgaged property—Claim of ownership of property by widow under will of owner—Property encumbered by mortgage before will made—Whether application by widow for setting aside order for judicial sale sustainable—Mortgages Decree, 1972 (NRCD 96), s 17(1).

The second defendant insurance company (GAIC Ltd) executed a guarantee bond as security for the first defendant company (MP Ltd) in a transaction between the plaintiff and MP Ltd. MP Ltd undertook to indemnify GAIC Ltd, against all losses or damages resulting from the guarantee bond and as collateral security, the managing director of MP Ltd mortgaged a building owned by his father C to GAIC Ltd. Subsequently, the plaintiff obtained judgment on the guarantee bond against GAIC Ltd, but MP Ltd defaulted under the indemnity agreement. GAIC Ltd therefore successfully brought proceedings against MP Ltd to enforce the indemnity agreement, and then obtained an order for the judicial sale of the building. The widow of C—who had by then died—then brought interpleader proceedings to set aside the order for the judicial sale on the ground that C had no connection with MP Ltd and that she and her children had inherited the building under the will of C. GAIC Ltd however opposed the application on the ground that it was C who allowed his son to use the title deeds on the building as collateral security for the insurance guarantee bond and then surrendered the original title deeds as a mortgage charge. And once the mortgage had been

[p.220] of [2001-2002] 2 GLR 219 registered, a charge had been created on the property. The court found, inter alia, on the evidence that the property had been mortgaged on 7 March 1997 and C had made his will on 2 October 1997.

Held, dismissing the application: under section 17(1) of the Mortgages Decree, 1972 (NRCD 96) in a mortgage transaction where the subject of the security was landed property, the mortgagee was treated as having an interest in the property and by the rules of priority, the mortgagee had a first or prior right to possession of the property, and the interest of any other person in the property was postponed. Accordingly, in the instant case, as the property was encumbered by the mortgage before the deceased made the will, the interest of the devisees under the will, including the claimant, was postponed as the interest of GAIC Ltd was prior in time to the devisees in the will. Accordingly, the claim under the will would be dismissed and the judicial sale of the property received and restored.

INTERPLEADER PROCEEDINGS under Order 57, r 16 of the High Court (Civil Procedure) Rules, 1954 (LN 140A) by a widow devisee under the will of her husband for an order setting aside an order by the court for the judicial sale by an insurance company, of a building owned by her husband which, with his permission, had been mortgaged by his son as collateral security for a guarantee bond issued in favour of the son, on the ground that she and her children had inherited the building. The facts are sufficiently stated in the ruling.

Ekow Korsah for the claimant.

Adjei-Lartey for the defendant.

Asare Korang J. On 19 February 1998 judgment was entered on admission under Order 32, r 6 of the High Court (Civil Procedure) Rules, 1954 (LN 140A) against the second defendant, Great African Insurance Co Ltd in consequence of a guarantee bond executed by the second defendant as surety for and on behalf of the first defendant, Modern Petroleum Ltd.

Before entry of judgment, the second defendant had commenced third party proceedings against the first defendant on the basis of an indemnity agreement whereunder the first defendant undertook to indemnify the second defendant against all loss, costs, damages, charges and expenses resulting from the guarantee bond.

The first defendant having made default under the indemnity agreement after the plaintiff had obtained judgment founded on the guarantee bond, the second defendant took out process against the

[p.221] of [2001-2002] 2 GLR 219 first defendant for the enforcement of the indemnity agreement.

A third party judgment was entered against the first defendant on 12 February 2001 in the sum of ¢172 million. By the reckoning of the second defendant, the total indebtedness of the first defendant to the second defendant inclusive of interest and costs now stands in excess of ¢529 million.

Having been served with notice of the second defendant’s intention to go into execution, the first defendant filed a motion on notice for stay of execution or payment of the judgment debt by instalments or both.

In a ruling delivered by this court on 5 December 2001, the said motion was dismissed.

As application to fix a reserve price for the judicial sale of the landed property House No D/3 Residential Area, Community No 5, Tema having been granted, a notice under Order 57, r 16 of LN 140A was filed by one Mrs Chinebuah claiming the said property. Subsequently this court granted a motion on notice by the claimant to set aside the order of judicial sale in respect of which a reserve price had been fixed. The court then determined to hear the claim of Mrs Chinebuah summarily.

It was contended by counsel for the claimant that the landed property referred to was the bona fide property of one Jonathan Kojo Chinebuah (deceased) whose widow is the claimant. It was also contended that neither the late Jonathan Kojo Chinebuah nor the claimant, was in any way connected with the business of the first defendant and in any event, the property had been willed by Jonathan Kojo Chinebuah to his children and the claimant jointly in his will dated 2 October 1997, probate of the will having been taken by the execution thereof on 31 July 2001. Copies of the probate and the will itself were filed in the docket of the court but were not marked.

Opposing the claim, counsel for the second defendant argued that the claim was not established by reference to the probate or the will. In an affidavit sworn to by counsel for the second defendant on 4 February 2001, he deposed to the following facts:

“(a) The claimant has no capacity to claim the property in so far as the title deeds are in the name of the deceased Jonathan Kojo Chinebuah.

(b) During the life time of the deceased, he allowed his

[p.222] of [2001-2002] 2 GLR 219 son Chris Chinebuah who at all material times was the first defendant’s managing director to use the title deeds on the property as collateral security for an insurance guarantee bond with the plaintiff herein.

(c) As a result, the original title deeds were surrendered to the guarantor under the guarantee bond by way of a mortgage charge and that explains why the claimant does not have the original title documents on the property.

(d) The mortgage was registered and so there is a charge created on the property by the claimant’s own son.”

Counsel also drew the attention of this court to the fact that the property was mortgaged on 7 March 1997 whilst the testator Jonathan Kojo Chinebuah died on 21 April 2001, according to the probate of his will. Therefore, there was a charge on the property at the time the testator died and the issue raised by the claim herein was subject to sections 17(1) and 18(1) of the Mortgages Decree, 1972 (NRCD 96).

Sections 17(1) and 18(1) of NRCD read as follows:

“17. (1) Upon failure of performance of an act or acts secured by the mortgage the mortgagee shall be entitled, as against the mortgagor and any person deriving an interest in the mortgaged property through him whose interest is subsequent to that of the mortgagee, to possession of the mortgaged property, except that in the case of default in the payment of principal or interest secured by the mortgage, the mortgagee’s right to possession may be exercised only after thirty days’ notice in writing to the mortgagor or such longer period as the mortgage may provide. . .”

“18. (1) Upon failure of performance of an act or acts secured by the mortgage the mortgagee may apply to the court for an order for the judicial sale of the mortgaged property, and upon being satisfied as to the existence of grounds for the application the court shall, upon such conditions as it deems just and equitable, grant an order for judicial sale of all or part of the mortgaged property.”

I construe section 17(1) of NRCD 96 to mean that in a mortgage transaction where the subject of the security is property, that is

[p.223] of [2001-2002] 2 GLR 219 landed property, the mortgagee is treated as having an interest in the land and the rules of priority apply to the transaction. Thus if there is any person having an interest in the mortgaged property, his interest in the property is postponed as the mortgagee has a first or prior right to possession of the property. And all the mortgagee required to do under section 19(1) of NRCD 96 where the mortgage is in respect of the payment of money by way of principal or interest is to give the mortgagor thirty or more days notice of his claim where the mortgagor fails to discharge his obligations under the mortgage.

The priorities the mortgage transactions are governed by the same rules applicable to interest in land and as in the case before me, the mortgagor has to perform the act secured by the mortgage, the devise in the will of the property, the subject matter of the mortgage, is subject to the prior right of the mortgagee to possession of the said property. As the property was incumbranced by the mortgage before the will as made, the interest of the devisees under the will including the claimant, is postponed as the interest of the mortgagee is prior in time to the devises made in the will. The mortgagee, in this case the first defendant, has a first charge to the property, the subject matter of the mortgage since the mortgage was executed prior to the making of the will and the taking of the probate of the will by the executors named therein. In the circumstances, the claim raised under the will of the late Jonathan Kojo Chinebuah is hereby dismissed and the order of judicial sale of the property, subject matter of the mortgage is hereby revived and restored.

I award costs of ¢800,000 against the claimant.

Application dismissed.

E K D-O