Foreclosure and the Interest of Third Party

8/12/2019 Foreclosure and the Interest of Third Party

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SCHOOL OF POSTGRADUATE STUDIES

FACULTY OF LAW

UNIVERSITY OF LAGOS,

AKOKA, LAGOS

SECURED CREDIT II

SECOND SEMESTER 2012-2013 SESSION

Assignment

FORECLOSURE AND THE INTEREST OF A THIRD PARTY

PRESENTED BY GROUP 3

Theophilus S. Alo 12!0"11#1$s%e&' Chiom N(e)e 12!0"110*E)e Ch&istophe& O. 12!0"10##E)e Dniel +. 030"010"2,shl O)ioo 12!0"123!Aing%o'e Omoshol 10!0"11/3Oli'i Olu(sin O. 12!0"111!Ap&nt Chiinm 12!0"120"

Sils N(ulune 12!0"113#+&nis Chineu Og(u 12!0"11**Mlh' Ch'ioe 12!0"10*/Somto A&in)e C. 12!0"10!*Olum'o( Meseo 11!0"1012Oluunmi D&mol 12!0"11!2I)e&e Imosmi 12!0"10!0Aemol Ogunsn' 12!0"1213E&inmiloun M'o(Mug(un Chigo)i 12!0"10!Mug(un Eene 12!0"10

olnle AneI)eo& Ee SolomonAe(le N. Ane

Lecturer: Pro! I! O! S"#t$

Dr! O! A"o%'e

Dr! T! Otu(u


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INTRODUCTION

+o&elosu&e4 is 5uiil p&oess %' (hih mo&tggee4 %' the o&e& o ou&t4 te&mintes

the mo&tggo&6s e7uit' o &eemption n the&e%' %eomes %solutel' 8este (ith the title

to the mo&tgge p&ope&t'1. It hs lso %een eine %' the ou&t to men p&oess

th&ough (hih the e7uit' o &eemption o the mo&tggo& n ll pe&sons liming th&ough

him4 inluing su%se7uent enum%&nes is e9tinguishe so s to 8est the mo&tgge

p&ope&t' %solutel' in the mo&tggee.2 It is pe&tinent to note tht o&elosu&e is not onl'

8il%le to legl mo&tggee. An o&e& o o&elosu&e hs %een hel in Ogundiani v.

Araba3s the most p&ope& &eme' o n e7uit%le mo&tggee is o&elosu&e n not sle.

The e7uit%le mo&tggee %eomes 8este (ith the legl estte o the mo&tggo&. The

ou&t (ill usull' i&et the mo&tggo& to on8e' the mo&tgge p&ope&t' %solutel' to the

mo&tggee (ithout n' onition tthe. ' o&elosu&e mo&tggee m' me his

o(ne&ship eetul4 o&4 on his %&inging p&oeeings o& o&elosu&e4 u&the& ' is

ppointe o& p'ment4 n i the mone' is not then pi the ou&t le8es the p&ties to

thei& legl &ights*

A o&elosu&e tion is possi%le the moment the p&ope&t' is o&eite t l(. I the&e is

p&o8iso o& &eemption on p'ment o instlments o p&inipl n inte&est puntull'4

o&elosu&e4 t ommon l(4 (ill lie i inte&est is unpi4 e8en though the p&inipl is not

ue./At ommon l(4 the &eme' o o&elosu&e nnot %e e9e&ise %' mo&tggee

(ithout n ssistne o the ou&t. Simil&l'4 une& A&tile ! o the UCC4 p&i8te

o&elosu&e (ithout ou&t o&e& is possi%le %ut onl' %&ol' i the i the e%to& onsents

:n othe& inte&este p&ties suh s 5unio& seu&e p&ties4 o not o%5et; te& eult

n etile notie n othe& o&mlities &e omplie (ith ". In elgium4 $u9em%ou&g4 Itl'

n &)il4 o&elosu&es &e no&mll' not llo(e4 t lest (ithout ou&t o&e&s n usull'4

(ithout e9pe&t pp&isl. In Spin4 o&elosu&e is llo(e onl' i no %ie& hs sho(n up in

the pu%li ution4 %ut the &eito& must &elese the seu&e o%ligtion4 so tht the&e n

%e no eiien' 5ugment.

1 Onieo&o +.


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In the 200/ &eo&ms4 +&ne int&oue o&eitu&e i e9p&essl' p&o8ie o& in the seu&it'

g&eement o& su%se7uentl'4 %ut onl' i the ssets &e 8lue %' &ee&ene to n oiil

nnottion nottion on n o&gnise m&et o& %' e9pe&ts#.

In isussing the onept o o&elosu&e e9tensi8el'4 (e h8e onsie&e num%e& o

issues in this &tile tht &e 8e&' pe&tinent espeill'4 gi8en the inte&8ening inte&est o thi&p&ties in mo&tgge t&nstions.

THE RE*EDY OF FORECLOSURE: A TOOTHLESS BULLDOG

As stte %o8e4 o&elosu&e o&e& %solute est&o's the mo&tggo&6s e7uit' o

&eemption. Unlie the po(e& o sle ho(e8e&4 o&elosu&e o&e& n %e &e-opene %'

the ou&t une& e&tin i&umstnes. ?ene4 it is %eing &eg&e %' on8e'ne&s s

h8ing less poten' thn the po(e& o sle. In e9mining the poten' o o&elosu&e

o&e& %solute4 (e shll %e isussing (hethe& it is (epon o& st&( in the hn o

mo&tggee. It shoul %e note tht the ot&ine &ose (hen mo&tgges (e&e me in the

o&m o onitionl on8e'ne4 the onition %eing tht i mone' is not pi t the

speiie te4 the estte %eomes tht o the mo&tggee. This (s usull' the ont&t

%et(een the p&ties. Bet Cou&ts o e7uit' inte&e&e (ith the tul ont&t %' s'ing tht

the&e is p&mount intention tht p&ope&t' shoul %e seu&it' n tht the mo&tgge

mone' shoul %e e%t.

Tht is4 lthough the o&e& o o&elosu&e %solute ppe&e to %e inl o&e& %' the

ou&t4 it (s not so4 the mo&tggee still &emine li%le to %e t&ete s mo&tggee n

the mo&tggo& still &etine lim to %e t&ete s mo&tggo&4 su%5et to the is&etion

o the ou&t.

The&eo&e4 e8e&'one (ho too n o&e& o& o&elosu&e %solute ne( tht the&e (s still

is&etion in the ou&t to llo( the mo&tggo& to &eeem. No ou%t the mo&tggee hs the&ight to el (ith the p&ope&t' s the o(ne&. ?e m' e8en sell the p&ope&t' t his

is&etion. ?o(e8e&4 n' pe&son 7ui&ing title une& suh o&e& (s onsie&e to h8e

the sme no(lege tht the estte m' %e ten (' &om him %' the e9e&ise o

5uiil is&etion %' ou&t o e7uit'.

Simil&l'4 the&e &e instnes (he&e o&elosu&e (ill me&el' &emin &eme' on ppe&

(ithout n' ei'. In Engln o& instne4 no o&elosu&e p&oeeings oul %e

7 =oo ,.R. ibid t 3"#.8 Campbe!! v. (o!$!and :1##; #ChD p. 1""

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mintine ginst the C&o(n!. Ao&ing to ?ls%u&'104 o&elosu&e is not 8il%le to

mo&tggee (he&e the&e is me&e h&ge (ithout n g&eement o& legl mo&tgge114

h&ging o&e&4 o& (he&e the i&umstnes gi8e &ise to n e7uit%le lien4 suh s

8eno&6s lien4 the &eme' is %' sle n o&elosu&e is not possi%le. A sle is gene&ll'

i&ete (he&e the p&ope&t' is (o&th mo&e thn the mount seu&e %' the mo&tgge4 toen%le mo&tggo& (ho nnot &ise the sum &e7ui&e to &eeem to get the %eneit o the

su&plus12.it m' lso %e i&ete to 8oi the el' n e9pense (hih is osione %'

o&elosu&e n &eemption in se (he&e the&e is g&et num%e& o suessi8e

mo&tgges13.

The eet o o&elosu&e o&e& %solute epens on the t'pe o mo&tgge. In the se o

legl mo&tgge4 o&elosu&e o&e& %solute 8ests the o(ne&ship o the p&ope&t' on themo&tggee su%5et onl' to n' legl mo&tgge h8ing p&io&it'. In the se o e7uit%le

mo&tgge4 the mo&tggo& is ompelle to on8e' the p&ope&t' to the mo&tggee4 n upon

the sle o the p&ope&t'4 the mo&tggee must ount o& the p&oees o the sle to the

mo&tggo&.

In the se o h&ge o &egiste&e ln suh s une& the Registe&e Titles $( o

$gos Stte4 o&elosu&e %solute empo(e&s the &egist&& to ente& the sme o the

mo&tggee s the p&op&ieto& o the &egiste&e ln.1*

A o&elosu&e (ill %e p&emtu&e i it is pplie o& (hen the po(e& o sle hs not &isen. It

must lso %e note tht o&elosu&e is not onl' epenent on the ou&&ene o the

onition liste in setions 1!:1; o the Con8e'ning At n 123:1; o the ,&ope&t' n

Con8e'ning $( (hih &e :1; the mo&tgge h8ing %een me %' ee n the legl

ue te o& &eemption h8ing lpse. +o&elosu&e n lso &ise (he&e the&e is %&eh

o onition o& &eemption in the mo&tgge ee. It ollo(s the&eo&e4 tht the &ight to

9 +o&me&l'4 the o&e& (s tht the mo&tggee shoul hol n en5o' the mo&tgge p&ope&t' until the C&o(nthough it to &eeem. See (odge v. A.) *+,3- 3 / 0 C 12 34.A sle might %e o&e&e i the C&o(n h onl' ne7uit%le inte&est4 %ut not (he&e the legl estte (s 8este in the C&o(n4 s the C&o(n oul not %e ompelle %'the ou&t to on8e'.

10 ?ls%u&'6s $(s o Engln5 the >ol. 32 3#0 p& ##011 %ennsnt v. %renchard :1"!; * Ch App /3# t /*2 6e 7wen@1!* 3 Ch 220 t 22# Shea v. Moore@1!* 1

IR 1/. It is the&eo&e4 &gu%le tht the o&e& o o&elosu&e oul not me in &espet o e7uit%le mo&tgges&ete %' me&e eposit o title ees (ithout memo&num in (&iting. =he&e h&ge &ete %' (' o eposito title ees is4 ho(e8e&4 ompnie %' memo&num in (&iting4 o&elosu&e oul %e g&nte s &eme' s it

(s one in(#gi! v. i!kinson :1; 3 Ch. D *0.12 Pa!k v. Mortgage Services nding P!c @1!!3 Ch. 330.

13Pa!k v. Mortgage Services nding P!c s#pra.14 Imhno%e S.O. :2010;Lega! 8ra"ting and Cove$ancing 3rd:Temple $egl Consult;2"1.

*) , g e


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o&elosu&e nnot &ise until the mo&tggo& is in eult une& the proviso "or redemption+9

n &ep'ment hs %eome ue t l(. The impo&tne o this is tht not e8e&' %&eh o

his ont&t %' mo&tggo& (ill gi8e mo&tggee the &ight o o&elosu&e the %&eh must

%&ing into eet the onition &ene&ing the mo&tggee6s title %solute4 n the&eo&e4 must

one&n the p&o8iso o& &eemption. In Williams v. !rgan"+

mo&tgge me in 1!00ontine o8ennt o& the p'ment o the p&inipl in 1!1*4 (ith inte&est hl-'e&l' in

the mentime4 %ut the p&o8iso o& &eemption pe&mitte &eemption in 1!1* on p'ment o

the pitl n o suh inte&est s might then %e ue n unpi. The mo&tggo&

eulte in p'ment o inte&est %eo&e 1!1*4 %ut S(inen E'


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%&eh o the te&ms o the legl h&ge4 il to p' inte&est. In his opinion4 $o& Tnplem

si

It seems to me5 there"ore5 that a!tho#gh de"a#!t in the pa$ment o"

interest did not ca#se the stat#tor$ power o" sa!e to arise5 it was abreach o" a condition which m#st be comp!ied with to keep a!ive the

!ega! right o" redemption and that on de"a#!t the p!ainti"" became entit!ed

to "orec!os#re s#bect to the power o" the co#rt to re"#se to order

"orec!os#re and to keep a!ive the e;#itab!e right o" redemption.

As goo s n o&e& o o&elosu&e %solute m' seem4 t lest to n e7uit%le

mo&tggee4 the &eme' o o&elosu&e is seen %' mn' mo&tgge punits s eeti8e ns suh4 toothless %ullog (hen its poten' is omp&e (ith the &eme' o sle

possesse %' the mo&tggee.

One4 the &eme' o o&elosu&e is not inhe&ent in the mo&tgge ee unlie po(e& o

sle. It is t&ite l( tht mo&tgge me %' ee one&s on the mo&tggee the po(e& to

sell the mo&tgge p&ope&t' one the po(e& o sle hs &isen. The &eme' o o&elosu&e

nnot %e e9plo&e (ithout the ssistne o the ou&t.

T(o4 %euse o the neessit' o the ou&t ssistne in eno&ing the o&elosu&e &eme'4

the p&oess entils tht the mo&tggee (ill spen mo&e mone' %' (' o legl n iling

ees.

Th&ee4 the &eme' o o&elosu&e oul %e time-onsuming. It oul te lose to 'e&

%eo&e the mo&tggee n &elise its intention o o&elosing the &ight o the mo&tggo&.

This is %euse4 te& iling n pplition usull' %' (' o o&iginting summons4 the ou&t

(ill g&nt n initil o&e& lle o&elosu&e o&e& nisi %eo&e it mes the o&e& %solute

te& si9 months. It is (o&th' o not tht u&ing the su%sistene o the o&e& nisi4 the

mo&tggo& n &eeem the p&ope&t'. The &ight to &eeem the p&ope&t' is lso opene to

the mo&tggo& te& the o&elosu&e o&e& hs %een me %solute. The possi%ilit' o the

mo&tggo& to &eeem the p&ope&t' %' h8ing o&elosu&e o&e& %solute &e-opene

the&eo&e4 &ene&s the &eme' o o&elosu&e &the& illuso&'. Ap&t &om this sine li7uiit'

n %ilit' to sell the mo&tgge p&ope&t' is o m5o& one&n the mo&tggee4 (iting to

o%tin o&elosu&e %solute %eo&e selling is (ste o time. I selling (s o&iginll' the

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pln o the mo&tggo&4 he shoul h8e sol the p&ope&t' &ight (' (ithout h8ing to go

the (hole hog o the o&elosu&e p&oeeings.

+ou&4 the &eme' o o&elosu&e ties o(n the mo&tggee6s pitl. This is ont&&' to the

intention n &eson%le e9pettion o lene& in tht the li7uiit' o the lene& isimpi&e. Its sh lo( is p&e5uie (hile the o&elosing p&oeeings lnguish in the

ou&t. Une& the time-8lue o mone'4 innil mnge&s %elie8e tht N1 to' is %ette&

thn N2 ne9t 'e& l&gel' %euse o inltion4 &is o olletion o mone' n the inte&est

o&egone (hih oul h8e %een e&ne h the N1 e&ne %een in8este. This p&o%lem

ssoite (ith the &eme' o o&elosu&e is st&utu&l eet (hih oul %e 8oie i

the mo&tggee h opte o& sle.

+i8e4 the &eme' o o&elosu&e lso sue&s one mo&e te&&i%le is8ntge unlie othe&

&emeies opene to mo&tggee (hih oul %e e9plo&e umulti8el'. Tht

is8ntge is tht o&elosing mo&tggee tes the p&ope&t' s it ins it. I te&

selling the p&ope&t' pu&sunt to o&elosu&e o&e& %solute n the sle p&oees nnot

o8e& the mo&tgge sum n &ue inte&est4 the mo&tggee6s &ight to &e8e&t to the

mo&tggo&6s pe&sonl o8ennt to p' is e7ull' o&elose. This is ho(e8e&4 not the se4

i the mo&tggee h sol the mo&tgge p&ope&t' n the p&oees o not o8e& the

p&inipl s m n inte&est4 he n still go te& the mo&tggo& to eno&e the ltte&6s

pe&sonl o8ennt to &ep'.

RE.OPENING FORECLOSURE AND THE RIGHT OF A THIRD PARTY

A o&elosu&e n %e &e-opene e8en te& it hs %eome %solute eithe& %' the mo&tggee

o& %' the ou&t. The mo&tggee (ill %e ten s h8ing opene o&elosu&e (he&e h8ing

gotten o&elosu&e o&e& %solute sells the p&ope&t'4 not in his pit' s n %solute

o(ne& %ut s mo&tggee20. A thi& p&t' is n' pe&son h8ing inte&est in the mo&tgge

p&ope&t'. It oul nothe& mo&tggee o& pu&hse& o&m o&elosing mo&tggee. In the

se o pu&hse&4 the inte&est o the pu&hse& tht %u's &om mo&tggee s

mo&tggee n not s n %solute o(ne&4 te& o%tining o&elosu&e o&e&4 is eesi%le.

This is %euse sle s mo&tggee &e-opens the o&elosu&e n the mo&tggo& n still

20 Stevens v. %heatres Ltd. @1!03 1 Ch. /# Perr$ v. Barker s#pra.

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&eeem the mo&tgge21 o& (he&e the mo&tggee sues the mo&tggo& on the pe&sonl

o8ennt to &ep' te& o%tining o&elosu&e o&e& %solute22.

It hs %een si tht the ou&t ontinues to &eg& mo&tggee6s title s me&e seu&it'4

n (ill not nel the e7uit' o &eemption (ithout i&st gi8ing the mo&tggo& u&the&oppo&tunit' to &eeem23. Theo&etill'4 upon o&elosu&e o&e& %eoming %solute4 the

p&ope&t' %eomes 8este %solutel' in the mo&tggee (ho n theneo&th el (ith the

p&ope&t' s i it (e&e the o&iginl o(ne&. Ne8e&theless4 s


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is&etion is e9e&ise in 8ou& o the mo&tggo& seeing to h8e o&elosu&e o&e&

%solute &eopene. ?e si

7n what terms is that #dicia! discretion to be e2ercised< It has been

said b$ the highest a#thorit$ that it is impossib!e to sa$ a priori what arethe terms. %he$ m#st depend on the circ#mstances o" each case =

%here are certain things which are inte!!igib!e to ever$bod$. In the "irst

p!ace the mortgagor m#st come5 as it is said5 prompt!$> that is within a

reasonab!e time. (e is not to !et the mortgagee dea! with the estate as

his own?i" it is a !anded estate5 the mortgagee being in possession o" it

and #sing it?and then witho#t an$ specia! reason come and sa$5 @Now I

wi!! redeem. (e cannot do that> he m#st come within a reasonab!etime. hat is a reasonab!e time< /o# m#st have regard to the nat#re

o" the propert$. As has been stated in more than one o" the cases5

where the estate is an estate in !and in possession ? where the

mortgagee takes possession and dea!s with it and a!ters the propert$5

and so on ? the mortgagor m#st come m#ch more ;#ick!$ than where it

is an estate in reversion5 as to which the mortgagee can do nothing

e2cept se!! it. So that $o# m#st have regard to the nat#re o" the estate

in ascertaining what is to be considered a reasonab!e time.

%hen again was the mortgagor entit!ed to redeem5 b#t b$ some

accident #nab!e to redeem< 8id he e2pect to get the mone$ "rom a

;#arter "rom which he might reasonab!$ hope to obtain it5 and was he

disappointed at the !ast moment< as it a ver$ !arge s#m5 and did he

re;#ire a considerab!e time to raise it e!sewhere< A!! those things m#st

be considered in determining what is a reasonab!e time.

%hen an e!ement "or consideration has a!wa$s been the nat#re o" the

propert$ as regards va!#e. &or instance5 i" an estate were worth

955 and had been "orec!osed "or a mortgage debt o" 955 the

man who came to redeem that estate wo#!d have a !onger time than

where the estate was worth 95+5 and he was "orec!osed "or 95.

B#t not on!$ is there mone$ va!#e5 b#t there ma$ be other

considerations. It ma$ be an o!d "ami!$ estate or a chatte!5 or pict#re5

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which possesses a specia! va!#e "or the mortgagor5 b#t which

possesses not the same va!#e "or other peop!e> or it ma$ be5 as has

happened in this instance5 that the propert$5 tho#gh a reversionar$

interest in the "#nds5 is o" specia! va!#e to both the !itigants> it ma$

possess not mere!$ a positive mone$ va!#e5 b#t a pec#!iar va!#e5having regard to the nat#re o" tit!e and other incidents5 so that $o#

cannot set an act#a! mone$ va!#e #pon it = . A!! this m#st be taken into

consideration.

+&om the itum 7uote %o8e4 it is le& tht th&ee points4 t lest4 (ill %e liel' to

inluene the ou&t in 8ou& o opening o&elosu&e :i; p&omptness o pplition :ii; the

speil 8lue o the estte4 (hethe& monet&' o& othe&(ise n :iii; the t tht themo&tggo& h &eson%le e9pettion o &eeeming4 %ut (s isppointe in his

ttempt to o%tin the mone'. In summ&' the&eo&e4 the ou&t (ill liel' e9e&ise its

is&etion to &eopen o&elosu&e o&e& %solute in the ollo(ing i&umstnes

i. =he&e4 te& the o&elosu&e4 the mo&tggee sells the mo&tgge p&ope&t' une& his

po(e& o sle lthough4 in this instne4 the inte&e&ene (ith the o&elosu&e (ill %e

limite to ming the mo&tggee li%le to ount o& the su&plus p&oees 30

ii. =he&e the o&elosu&e (s o%tine %' tul &u 31

iii. =he&e the&e (s n ient t the lst moment p&e8enting the mo&tggo& &om

&ising the mone'

i8. The mo&tgge p&ope&t' possesses speil 8lue (hih to the mo&tggo&32

8. =he&e tht 8lue o the p&ope&t' & e9ees the mo&tgge sum n &ue

inte&est.33

It m' %e e tht the&e is little hne o o%tining the ou&t6s inulgene4 unless it n

%e sho(n t the time o the pplition tht the seu&it' is &eson%l' suiient4 n tht

the&e is &eson%le e9pettion o the mone' %eing o%tine 3*. It is ho(e8e&4 no( the

p&tie o ou&t to mnte the mo&tggo& to p' the p&inipl sum plus &ue inte&est

30 atson v. Marston *1/3; * De F M G F 2304 Stevens v. %heatres Ltd:1!03; 1 Ch. /#.

31 L!o$d v. Manse!! :1#22; 2 , =ms #3.

32 I the mo&tggo& n %' ogent4 8e&ii%le e8iene on8ine the ou&t tht the&e nnot %e n' &eplement o&

the p&ope&t'. +o& instne4 i the p&ope&t' houses some s&e sites suh s sh&ines.33 Campbe!! v. (o!$!and *s#pra.34 Patch v. ard :1"#; $.R. 3 Ch. 203 Lancashire and /orkshire 6eversionar$ Interest Co. Ltd. v. Crowe:1!#0;

11* S.


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immeitel'4 o& t lest (ithin one month s onition o& &e-opening the o&elosu&e

o&e& %solute. On ilu&e to ompl' (ith this onition4 the o&elosu&e &emins %solute.3/

Del' in ppl'ing o& &elie (ill p&e5uie the hne o &eopening o&elosu&e4 unless it

n %e e9pline. I the mo&tggee els (ith the estte o& e9pens mone' on it4 lhes in

the mo&tggo& (ill %e tl.3"

Me&e eling (ith the estte %' the mo&tggee oes not4ho(e8e&4 p&e8ent the &e8i8l o the &ight to &eeem4 %euse pu&hse& o o&elose

estte must %e ten to no( tht o&elosu&e m' %e &eopene s ginst him. The

7uestion tht omes to min t this stge is (ht is the position o 3& p&t' pu&hse&

(ho pu&hse &om the mo&tggee te& o&elosu&e o&e& (s me %' Cou&tH In his

(o&s in Cam*b$ll v. H!l'land"31 b#t i" the p#rchaser

bo#ght the estate within twent$D"o#r ho#rs a"ter the "orec!os#re

abso!#te5 and with notice o" the "act that it was o" m#ch greater va!#e

than the amo#nt o" the mortgage debt5 is it to be s#pposed that a co#rt

o" e;#it$ wo#!d !isten to the contention o" s#ch a p#rchaser that he

o#ght not to be inter"ere with< (e m#st be taken to know the genera!

!aw that an order "or "orec!os#re ma$ be opened #nder proper

circ#mstances5 and #nder a proper e2ercise o" discretion b$ the co#rt>

and i" the mortgagor in that case came the week a"ter5 is it to be

s#pposed a co#rt o" e;#it$ wo#!d so st#!ti"$ itse!" as to sa$ that a tit!e so

ac;#ired wo#!d stand in the wa$< I am o" the opinion it wo#!d not.

A sle %' the mo&tgge t&nse&s to pu&hse& o& 8lue ll o the e%to&6s &ights in the

mo&tgge p&ope&t' n ish&ges the seu&it' inte&est une& (hih the isposition (s

me n ll su%o&inte seu&it' inte&ests n liens. The te&m pu&hse&J is & mo&e

%&ol' eine thn me&el' %u'e&. It inlues n'one 7ui&ing n inte&est in p&ope&t' in

35 1$re v. (ansom :1*0; 2 e8. *# (o!"ord v. /ate :1//; 1 K. G


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8olunt&' t&nstion. >lueJ is lso 7uite %&ol' eine n inlues n'

onsie&tion suiient to suppo&t simple ont&t.

E8en though the mo&tgge oes not ompl' (ith the legl &e7ui&ements o& the

&e7ui&ements o 5uiil p&oeeing4 pu&hse& o& 8lue (ill te &ee o the speiie

&ights in n' se othe& thn pu%li sle i he ts in goo ith4 i he hs no no(legeo n' eets in the sle n i he oes not %u' in ollusion (ith the mo&tggee4 othe&

%ie&s4 o& the pe&son4 suh s n utionee&4 onuting the sle.

The Mo&tggee m'4 ho(e8e&4 %e li%le to the mo&tggo& o& othe& seu&e &eito&s i he

hs not p&oeee in o&ne (ith the l(. The &e7ui&ement o goo ith in p&i8te

sle mens honest' in t (hile the&e is no &e7ui&ement o goo ithJ o& %u'e& t

pu%li sle4 he e&tinl' (ill not %e p&otete i he %u's in % ith.3

O%8iousl'4 t n' o&elosu&e sle4 the&eo&e4 %u'e& must %e 8e&' &eul to ete&mine

(hethe& the&e &e n' supe&io& mo&tgges on p&ope&t' %eo&e he %u's the p&ope&t'. On

the othe& hn4 i the&e is o&elosu&e4 ll mo&tgges tht &e ine&io& in p&ee&ene to the

o&elosing mo&tgge &e utomtill' e9tinguishe. Thus4 the p&oees o n' suh

o&elosu&e sles &e ist&i%ute4 i the&e is enough mone' let te& stis'ing the e%t o

the o&elosing mo&tggee4 to the mo&tggees (ith ine&io& mo&tgges. None o the

o&elosu&e sle &e8enue is ist&i%ute to those (ith supe&io& mo&tgges4 %euse the

supe&io& mo&tgge st's intt in n' se.3!

On the issue o %&inging n tion o& o&elosu&e4 the mo&tggee n institute o&elosu&e

p&oeeings so long s he &emins entitle to the mo&tgge. Ate& the mo&tggee hs

ssigne the mo&tgge seu&it'4 the ssignee is entitle to %&ing the p&oeeings. ?e is4

ho(e8e&4 su%5et to the stte o the ounts %et(een the mo&tggo& n the mo&tggee t

the te o the t&nse&4 n lso to n' e7uities then e9isting in the mo&tggo&6s 8ou&*0.

A su%se7uent mo&tggee n sue to o&elose the mo&tggo& n enum%&ne&s

su%se7uent to himsel. =he&e the&e &e o-mo&tggees4 the' m' institute p&oeeings

5ointl'4 o&4 i some &e un(illing to %e 5oine s limnts o& h8e one some t

p&eluing them &om suing in tht pit'4 one m' sue %' himsel4 p&o8ie he mes

ll the othe&s eennts*1. Sine the eet o &eopening o o&elosu&e is &e8i8l o e7uit'

o &eemption4 the thi& p&t' is me su%5et to the &e8i8e e7uit' o &eemption. Thus4 it

38

?enson R.D. Sec#red %ransactions Ender the Eni"orm Commercia! Code Fno pageG39

Ha!entine v. Port!and %imber 0 Land (o!ding Co.5 1/ =n. App. 12*.40 ithington v. %ate :1"!; * Ch App 2 %#rner v. Smith @1!01 1 Ch 213.41 L#ke v. So#th ensington (ote! Co Ltd. @1#! 11 Ch. D. 121.

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is the l o inlit' o o&elosu&e p&oeeings (hih sometimes les mo&tggees4 s

(ell s mo&tggo&s4 to ppl' o& 5uiil sle inste.*2

THE CONCEPT OF 2REDEE* UP AND FORECLOSE DOWN

=he&e the&e &e suessi8e mo&tgges4 n' su%se7uent mo&tggee m' &eeem p&io&

mo&tgge. E8e&' &eeeming p&t' is lso li%le to %e &eeeme in his tu&n %' those %elo(

him4 n ll &e li%le to %e &eeeme %' the mo&tggo&. I &eemption tion hs4

ho(e8e&4 to %e %&ought4 the&e is speil &ule s to p&ties4 (hih sometimes p&e8ents

thi& o& su%se7uent mo&tggee o& the mo&tggo& &om &eeeming one mo&tgge (ithout

lso &eeeming nothe&*3. The inte&est o othe& pe&sons4 (ho h8e inte&est in the

mo&tgge p&ope&t'4 must %e ten into onsie&tion in n tion o& o&elosu&e. The &uleis o&elose o(n4 &eeem upJ. Thus the mo&tggee ppl'ing o& n o&e& o o&elosu&e

must &eeem ll mo&tgges h8ing p&io&it' n must in tu&n4 o&elose ll su%se7uent

mo&tggees n the mo&tggo&** in sho&t &eeem up4 o&elose o(nJ.*/Although the

inte&ests o ll othe& su%se7uent mo&tggees &e o little moment to the mo&tggee4 the'

must %e me p&ties to the p&oeeings. This is to o& them the oppo&tunit' o

&eeeming the mo&tgge tht &esults in the tion o& o&elosu&e*".

Thus (he&e L hs mo&tgge his p&ope&t' suessi8el' to A44C4D n E4 the mo&tgges

&ning in tht o&e& L thus &ns lst4 e.g.4 in liming n' su&plus i the p&ope&t' is sol.

Suppose tht D (ishes to &eeem 4 n o(ing to the omple9it' o the ounts o& othe&

i&umstne n tion o& &eemption is %egun. eo&e n %e &eeeme4 the e9t

mount ue to him must %e settle %' the ou&t. This mount4 ho(e8e&4 oes not et

onl' n D4 o& C4 E n L &e ll one&ne (ith the mount (hih hs p&io&it' to thei&

inte&ests. Thus4 i the p&ope&t' (e&e to %e sol4 C4E n L (oul ll (ish to no( (hethe&

(ht (s entitle to (s4 s'4 "4000 o& #40004 o& upon tht igu&e might epen thei&

hnes o &eei8ing n'thing &om the p&oees o sle. Conse7uentl' the ou&t (ill insist

upon thei& %eing me p&ties to D6s tion o& &eemption4 so tht the' n %e

&ep&esente in ting o the ounts %et(een n D n thus %e %oun %' the inl

&esult.*#

42 Megg&'4 R.E:1!""; %he Law o" 6ea! Propert$5 3rd ed *$onon Ste8en G Sons $t;5!02.43 e& ,.>. et l :1!2; Sne!!s Princip!es o" 1;#it$ :S(eet n M9(ell $t.; *2".

44 &armer v. C#rtis :1!2; 2 Sim. *"".45 Megg&'ibid t p. !*146 Onieo&o +.


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It is impo&tnt to note tht this m9im hs no pplition to &eemptions me out o

ou&t.*An the&e is no on8e&se &ule o&elose o(n4 &eeem upJ mo&tggee (ho

o&eloses is une& no o%ligtion to &eeem n' p&io& mo&tgges4 lthough he must

o&elose ll su%se7uent mo&tggees s (ell s the mo&tggo&.*!

A p&o%lem (ill ho(e8e&4&ise (he&e su%se7uent e7uit%le mo&tggee sees to o&elose the mo&tggo& in

&espet o suessi8e mo&tgge t&nstions (he&e p&io& mo&tgge4 &ning %o8e the

inte&est o the o&elosing mo&tggee is legl mo&tgge (hih is not &ipe o& &eemption /0

t the time o ming n pplition o& o&elosu&e. =ill the &ule4 &eeem up4 o&elose

o(nJ still ppl'H The ns(e& to this 7uestion is 'es. This is %euse %' &eeem p&io&

legl mo&tgge4 the inte&est o the legl mo&tggee is thus %est se&8e n it is %' no

mens p&e5uie.

Assuming tht su%se7uent legl mo&tggee sees to o&elose the mo&tgge (he&e the&e

is p&io& e7uit%le mo&tgge4 (ill the &ule still ppl'H O&in&il'4 ollo(ing the m9im o

e7uit' Kwhere there is e;#a! e;#it$5 the !aw prevai!s the su%se7uent legl mo&tggee

nnot &eeem p&io& e7uit%le mo&tgge. This p&iniple is lso ollo(e in insol8en'

p&oeeings s the inte&est o su%se7uent legl h&ge o& mo&tggee &ns %o8e tht o

p&io& e7uit%le inte&est unless the su%se7uent legl mo&tggee hs notie o the p&io&

e7uit%le inte&est. Nothing n %e le&e& thn tht pu&hse& o& 8lu%le onsie&tion

(ho o%tins legl estte t the time o his pu&hse (ithout notie o p&io& e7uit%le

&ight is entitle to p&io&it' in e7uit' s (ell s t l(/1. Anothe& t(ist this ge-long

est%lishe p&iniple o e7uit' is (he&e the e7uit%le mo&tgge is &egiste&e %eo&e the

legl mo&tgge. It is t&ite tht in tht se4 p&io&it' (ill %e ete&mine neithe& %' te o

&etion no& on the %sis o e;#it$ "o!!ows the !awm9im %ut %' the te o &egist&tion.

This hs no( %een sttuto&il' oiie in $gos Stte une& the Mo&tgge n ,&ope&t'

$( 2010/2.

I*PACT OF FORECLOSURE ON INVESTORS

48 See Smith v )reen :1**; 1Coll. C.C ///49 Anderson v Stather :1*/; 2 Coll. C.C 20!.50 Tht is the po(e& o sle hs not &isen.51 Pi!cher v. 6aw!ins :1#2; # Ch. App. 2/!. See lso Cave v. Cave :10; 1/ Ch. D. "3!. In tht se4 the sole

t&ustee o m&&ige settlement use the t&ust uns to pu&hse lns in %&eh o t&ust4 n too the on8e'ne

in the nme o his %&othe&. The %&othe& then &ete legl mo&tgge in 8ou& o A n n e7uit%le mo&tgge in8ou& o 4 neithe& A no& h8ing notie o the t&ust. It (s hel tht A6s legl mo&tgge h p&io&it' o8e& thee7uit%le inte&ests o the %eneii&ies4 %ut those inte&ests h p&io&it' o8e& the e7uit%le mo&tgge.

52 Setion 32.

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+o& the pu&poses o this ppe&4 (e h8e ssume the (o& In8esto&J to men n

institutionl lene& suh s %n o& innil institution. The te&m oul lso ppl' to

%o&&o(e& (ho nees huge pitl to e9eute p&o5et n in the p&oess o o%tining lon

ilities &om lene&s4 &etes seu&it' %' (' o mo&tgge o8e& its &el p&ope&t'.

Tling %out lene&s gene&ll'4 thei& m5o& one&n in seu&e &eit t&nstions is the

%ilit' o the %o&&o(e& to li7uite the e%t in goo time. Seu&e lening e9pe&ts h8e

opine tht the&e &e i8e Cs o seu&e lening (hih &e the h&te& o the %o&&o(e&4

the ompeten' :pit'; o the %o&&o(e& the sh lo( o the %o&&o(e&4 the onitions o

the lon4 the ollte&l o the %o&&o(e&. Ap&t &om this4 o& the lene& to &emin in

%usiness4 its sh lo( must not %e impi&e t n' time. In t the Cent&l n o

Nige&i l('s emphsises this %' &e7ui&ing innil institutions to mintin p&tiul&

li7uiit' &tio./3 $i7uiit' p&o%lem n &esult in %n %eoming insol8ent s &esult o the

eult o its %o&&o(e&s to meet up (ith thei& o%ligtions. This p&o%lem o insol8en' (s

(ht le to the uit onute %' the CN on %ns in 200! (ith some o the %ns

h8ing to %e ten o8e& %' o&eign in8esto&s (hile some (ent th&ough the p&oess o

pitl &eonst&ution. Some othe& %ns h to me&ge in o&e& to o8e&ome the li7uiit'

p&o%lem. Ap&t &om this4 some o the %ns4 (hih (e&e si to %e in g&8e sitution4h thei& Mnging Di&eto&s n non-e9euti8e i&eto&s &emo8e.

+&om the o&egoing4 the&eo&e4 the inte&est o e8e&' seu&e &eito& is to sell o the

mo&tgge p&ope&t' upon the eult o the %o&&o(e& to mintin li7uiit'. This %&ings to the

o&e4 the inhe&ent eet o o&elosu&e p&oeeing. The &eme' o o&elosu&e the&eo&e4

hs the ollo(ing impt :negti8e o ou&se; to the lene& n %' e9tension4 in8esto&s

E4tr& co5t5:

53 Ao&ing to the Cent&l n o Nige&i6s ,&uentil Fuielines issue in 2010 n eeti8e &om 1st


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=e h8e stte %eo&e tht mo&tggee seeing to e9plo&e the &eme' o o&elosu&e4

must ppl' to ou&t o& n o&e& o o&elosu&e. This entils h8ing to inu& e9t& osts o

iling the pplition o& o&elosu&e4 n the soliito&s6 ees. Ap&t &om this4 ll the (hile

the mo&tggee is seeing o&elosu&e4 it hs to eep the p&ope&t' in goo n tennt%le

onition n s &esult4 (oul %e li%le to eet neess&' &epi&s to the p&ope&t'. The&eson o& this is tht he hs to p&otet its inte&est in the p&ope&t' (hih &emins its lst

hope o &eouping the p&inipl n the &ue inte&est s it nnot ll % on the

mo&tggo&6s pe&sonl o8ennt to &ep' in the i&umstne. The mo&tggee m' lso

h8e to insu&e the p&ope&t' ginst mge. =he&e initill' the p&ope&t' (s insu&e %'

the mo&tggo& n the mo&tggo& h4 p&io& to the mo&tgge sum %eoming ue4 %een

p'ing the insu&ne p&emium4 upon le&ning o n o&e& o o&elosu&e the mo&tggo& m'

g&o( ol eet n the&eo&e4 esist &om p'ing u&the& p&emium. I the mo&tggee oesnot (nt his seu&it' to %e e9tinguishe o8e&night4 it hs to p' the insu&ne p&emium s

t (hen ue (hile the o&elosu&e p&oeeings &e pening in ou&t./*

It is (o&th' o note to onsie& (ht the onse7uene (oul %e (he&e4 u&ing the

su%sistene o the o&elosu&e o&e& nisi4 the p&ope&t' is est&o'e. =ill the mo&tggee %e

entitle to &eei8e the insu&ne p&oees s ginst the mo&tggo&H Cn he still &e8e&t tothe mo&tggo&6s pe&sonl o8ennt to &ep'H In ou& 8ie(4 the legl solution to this p&o%lem

is %eing sol8e o& the i&st time %' setion 23:%; o the Mo&tgge n p&ope&t' $( o

$gos Stte 2010 (hih no( entitles mo&tggee to sue o& the mo&tgge mone' (he&e

the mo&tgge p&ope&t' is (holl' o& p&tl' est&o'e o& the seu&it' is &ene&e insuiient

n the mo&tggee hs gi8en4 the mo&tggo& &eson%le oppo&tunit' o p&o8iing u&the&

seu&it' enough to &ene& the (hole seu&it' suiient n the mo&tggo& hs ile to o

so. It ollo(s the&eo&e4 tht e8en i the mo&tggee (s not me p&im&' loss p'ee inthe insu&ne ont&t4 the mo&tggee n in8oe the p&o8ision o setion 23 o the

Mo&tgge n ,&ope&t' $( to eno&e the mo&tggo&6s pe&sonl o8ennt to &ep'.

Lo55 o #67e5t"e6t8c&9#t&

54 Sine the ost o insu&ne une&ten %' the mo&tggee (oul4 o&in&il'4 %e psse on to the mo&tggee4 it isou%tul i the mo&tggee n sue in pe&sonl o8ennt to ompel the mo&tggo& to p' % the ost inu&&e tomintin the p&ope&t' o& to insu&e it.

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The&e &e hnes tht the mo&tggee m' not &elise up to the mo&tgge sum plus

&ue inte&est &om the sle o the p&ope&t' pu&sunt to o&elosu&e o&e& %solute. In

tht se4 the mo&tggee stns the &is o not %eing %le to &eoup the enti&e outstning

sum s he is p&elue &om suing the %o&&o(e& to eno&e the pe&sonl o8ennt o the

%o&&o(e& to get the outstning %lne pi to it. In suessi8e mo&tgge sitution4 theinte&est o the su%se7uent mo&tggees in the mo&tgge p&ope&t' is p&e5uie i p&io&

mo&tggee o&eloses the mo&tggo&6s e7uit' o &eemption. The onse7uene o &eeem

up o&elose o(n the&eo&e4 ollo(s.

Ap&t &om the mo&tggee4 the %o&&o(mo&tggo&4 m' lso sue& pitl loss in the e8ent

o sle o its p&ope&t' pu&sunt to n %solute o&e& o o&elosu&e espeill' (he&e the

p&ope&t' is (o&th mo&e thn the mo&tgge sum n &ue inte&est. I the mo&tggee h

opte o& the sle inste4 the mo&tggo& (oul h8e %een entitle to the %lne tht

&emins out o the sle p&oees te& settling the ll enum%&nes n the mo&tggee6s

ost.

Lo55 o cre;#t re9ut&t#o6

+o&elosu&e %solute o%tine ginst %o&&o(e& is % omen o& the utu&e %usiness

t&nstion o suh %o&&o(e& %euse its &eit &ting (ill onse7uentl' &op. This m'

onse7uentl' me othe& lene&s not to %e inte&este in 8ning &eit ilit' to him s

the' (ill onsie& him % e%to&.

I6cre&5e #6 co5t o c&9#t&

As o&oll&' o the loss o &eit &eputtion o %o&&o(e&4 the t tht o&elosu&e o&e&

%solute hs %een o%tine ginst him %' p&e8ious mo&tggee mes lening to the

mo&tggo& innil &is. It shoul lso %e %o&ne in min tht h8ing lost its p&ope&t' in

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o&elosu&e p&oeeing &eues the %o&&o(e&6s ollte&l n hene4 its in%ilit' to p&o8ie

seu&it' o& n' su%se7uent 8nement. This mes lening to the %o&&o(e& &is' n

onse7uentl'4 the su%se7uent lene& (ill emn highe& &te o &etu&n. The implition

o this is tht the ost o pitl (ill in&ese n e9eution o %usiness p&o5et o& the

%o&&o(e& (ill %e se&iousl' hmpe&e.

THE CONCEPT OF SECURITISATION THROUGH SPVS AND FORECLOSURE

Seu&itistionis the p&oess o ting n illi7ui sset4 o& g&oup o ssets4 n th&ough

innil enginee&ing4 t&nso&ming them into seu&it'. A t'pil e9mple o seu&iti)tion

is mo&tgge-%e seu&it':MS;4 (hih is t'pe o sset-%e seu&it'tht is

seu&e %' olletion o mo&tgges. The p&oess (o&s s ollo(s

//

One o the l&gest n most omplite seto&s o seu&e inne omp&ises lons in

8ou& o single pu&pose o& speil pu&pose ompnies :S,>s;. S,>s &e ommonl' use

in p&o5et inne4 &el estte inne4 ship 7uisition4 i&&t o& e7uipment lesing

inne4 le8e&ge 7uisition inne4 n seu&itistions. An S,> is legl entit'

&ete %' i&m :no(n s the sponso& o& o&iginto&; %' t&nse&&ing ssets to the S,>4 to

&&' out some speii pu&pose o& i&ums&i%e ti8it'4 o& se&ies o suh t&nstions.

The most impo&tnt ommon etu&e is tht the lon is me to speil pu&pose

ompn' holing the sset4 e.g. to %u' the p&ope&t' o& ship4 o& to %uil the p&o5et. The

pu&pose o o&mtion o n S,> is4 mongst othe& things to

i; Insulte the sh&ehole&s &om the insol8en' o the 8entu&e4 n to insulte the

8entu&e &om the insol8en' o the sh&ehole&s : sh&ehole&6s insol8en' (oul

le to pe&hps p&emtu&e eno&ement n might tt&t &ee)es n othe&

8e&se eet o o&po&te &esue p&oeeings;

ii; +ilitte the 8esting o ssets4 the int&oution o ne( sh&ehole&s n the

&eti&ement o e9isting sh&ehole&s

iii; +ilitte the g&nt o seu&it' to lene&s (ithout %eoming in8ol8e in the ie&ent

l(s o the sh&ehole&s 5u&isitions n negti8e pleges in thei& &eit ont&ts

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i8; A8oi the sh&ehole&s &om %eing i&etl' su%5et to the 5u&isition o the lol

ou&ts o& the lol oing %usiness6 &egulto&' &egime

8; A8oi onsolition o the ompn'6s li%ilities in the ounts o the sh&ehole&s

n

vi) A8oi the inlusion o the lons in o8ennts n e8ents o eult in the

sh&ehole&6s &eit g&eements4 espeill' the &oss-eult n innil &tios./"

In p&o5et inne the o&mtion o lol ompn' m' %e &e7ui&ement o the host

go8e&nment. The essene o n' p&o5et inning is the ppo&tionment o p&o5et &iss

mong the p&tiipnts in the p&o5et the use o omple9 mt&i9 o ont&tul &eltions%et(een the p&tiipnts en%les the implementtion o this &is t&nse&6 n omme&il

&eltionships/#. Sometimes the t9 &egime is less 8ntgeous4 espeill' the use %' the

sh&ehole&s o the S,>6s losses o& lol pitl llo(nes o& set-o ginst sh&ehole&

p&oits4 %euse the S,> is not su%sii&' o n'one. Ap&t &om 7uisition n p&i8te

e7uit' inne4 the ompnies h8e e( emplo'ees n its t9 i&s &e unomplite

hene the&e &e e(e& p&io&it' unseu&e &eito&s t&umping the seu&it'. Co8ennts

ont&olling othe& li%ilities u&the& &eue insol8en' &iss. Sine the %usiness is limite4

l&ge litigtion &iss &e less. The ssets ten to %e speii n i9e so the&e &e lesse&

&iss i the lol 5u&isition hs poo& seu&it' inte&ests/. As the l&gest &eito&s :%ns4

ont&to&s; &e p&t o the el4 on insol8en' the&e &e e(e& &iss &ising &om

p&eipitte tion %' unseu&e &eito&s.

The p&oees &om the p&o5et4 &el p&ope&t' lese4 ship o& i&&t h&te& p&t'4 &e pi

into %loe ount t the lening %n n pplie une& seJ o& (te&llJ

luse in p&es&i%e o&e&4 e.g. ope&ting osts e%t se&8ie p&opo&tion to %ue&J

&ese&8e o& mintenne ounts n su&plus to the S,> n hene to the sh&ehole&s

s i8iens o& p'ment on thei& su%-o&inte e%t.

The seu&it' pge in p&o5et inne th&ough n S,> l('s omp&ises seu&it' o8e& ll

the ssets o the S,> :to the e9tent 8il%le;. Sometimes the sh&ehole&s h&ge the

56 =oo ,. R. :200#; Comparative Law o" Sec#rit$ Interests and %it!e &inance:S(eet n M9(ell; /**.57 Tneg


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sh&es o the S,> %' (' o ollte&l seu&it' (ithout n' pe&sonl li%ilit' o& the lon %'

the h&ging sh&ehole&s. The pu&pose o this is to en%le the &eito&s to sell the

ompn' s oppose to the omplite p&oess o selling the ssets. Sle o the

ompn' lso p&ese&8es the ompn'6s ont&ts. Sine the sh&ehole&s m' %e %oun

%' negti8e pleges in thei& %n4 &eit g&eement p&ohi%iting the g&nt %' them o& thei&su%sii&ies o seu&it'4 shell ?olo m' %e o&me to hol the S,>6s sh&es to the

&eito&s n :ssuming tht none o the sh&ehole&s hs suiient holing in ?olo6s

sh&es to on8e&t ?olo into su%sii&' o n' sh&ehole&; this shoul espe

sh&ehole& negti8e pleges (hih t'pill' %in onl' the sh&ehole& n its

su%sii&ies4 not unont&olle ilites lie ?olo.

One p&til issue tht nees to %e onsie&e is (ht hppens in the e8ent oo&elosu&e o the S,> %' the lene&sH The implition is simil& to tht (hih pplies to

lne p&ope&ties in (hih upon o&elosu&e o&e& %solute4 the totlit' o the o(ne&ship

o the S,> 8ests in the lene&s. One othe& issue tht nees to %e onsie&e is tht in

&eting h&ge o8e& the ssets o n S,>4 the seu&it' is usull' &ete %' (' o i9e

n loting h&ges e8iene %' e%entu&e t&ust ee. Does it then men tht i9e

n loting h&gee lso hs the &eme' o o&elosu&e opene to himH Ao&ing to

Cousins4/! o&elosu&e is the p&e&ogti8e onl' o mo&tggee4 %euse o&elosu&e

p&esupposes title in the &eito& (hih hs %eome %solute t l( th&ough the %&eh o

onition."0It is not &eme' opene to h&gee"1. Une& Nige&in l(4 ho(e8e&4

e%entu&e hole& o& t&ustee4 in the se o t&ust ee4 m' &elise his seu&it' %'

%&inging o&elosu&e tion."2An tion o& o&elosu&e n the eet o o&elosu&e

o&e& &e the sme s o& n' mo&tggee. ut n o&e& o o&elosu&e (ill not %e me

unless ll the e%entu&e hole&s o e8e&' lss &e p&ties to the tion so tht ll inte&ests

in the ompn'6s ssets m' %e &ep&esente"3.

The implition o o&elosing n S,> the&eo&e4 mens tht the S,> %eomes the

ssets"*o the lene&s %' ope&tion o l(. It is note(o&th' tht s suesso& in title to

the o&iginl sh&ehole&s o the S,>4 the lene&s so %eome the o(ne& o the S,> n

59 Cousins E.+ et. l :1!!; %he Law o" Mortgages :S(eet n M9(ell; 2/260 Bonham v. Newcomb :1"*; 1 >e&n. 23261 7g#ndiani v.Araba s#pra.62 Setion 20! :2; :%; :i; o the Compnies n Allie Mtte&s At.63 6e Continenta! 72$gen Co.> 1!ias v. Continenta! 72$gen Co.:1#1; 1 Ch. /11.64 Une& the Inte&ntionl +innil Repo&ting Stn&s :I+RS; suh ssets &e lle sh-gene&ting unit %eing

olletion o ssets tht gene&tes sh inlo(s tht &e l&gel' inepenent o the sh inlo(s &om othe& ssetso& g&oups o ssets.

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the&e%' 7ui&e its li%ilities s (ell. One &itil e9posu&e tht the lene&s ought to

onsie& is the ine%teness o the S,> to thi& p&ties. =he&e suh ine%teness is

g&ete& thn the ssets o the S,>4 it mens it S,> itsel is insol8ent n this insol8en'

(ill4 in tu&n4 ilute the p&oit%ilit' o the lene&.

esies4 s sh-gene&ting unit4 it m' sue& n impi&ment "/in the e8ent o (hih the

lene&s (ill &elise less thn the mo&tgge sum n &ue p&inipl.

It is lso not unliel' tht the S,> is ine%te to othe& &eito&s (ho m' petition o& the

(ining up o the S,>. In the e8ent o the (ining up o the S,>4 the lene&s though4

seu&e &eito&s4 thei& &ight to %e pi in the insol8en' p&oeeings (ill %e su%5et to

p&ee&entil osts n e9penses

""

.

65 Ao&ing to IAS 3"4 n impi&ment o n sset is the ll in the &eo8e&%le 8lue o n sset. It ou&s (he&e

the &&'ing 8lue o n sset o& sh gene&ting unit is less thn the highe& o its net &elis%le 8lue o& 8lue inuse.

66 Some o these &e p'ment une& the Emplo'ee6s Compenstion At 2010 n liens liste une& setion *!*o CAMA.

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