Legal advice key to successful business

By Nyakundi Nyamboga

In any commercial transaction, it is suicidal for players to lack, at the very least, basic knowledge of the laws governing their dealings.

I am not in any way suggesting that businesspersons must undergo legal training. I am underscoring the fact that ignorance in the laws governing their transactions is costlier than seeking legal advice.

Knowledge of the relevant laws serves as insurance for the players all the way through the transaction. In the event of a disagreement, the way out could have been foreseen at the commencement of the transaction.

Take for instance, a person intending to invest in a building, be it residential or commercial. If he plans to borrow money to finance the project, he is secure when he is well advised on secured and unsecured loans.

Where the borrower intends to use landed property as security for the loan, knowledge of the conveyancing systems and the land laws becomes crucial.

Relevant laws

Whether he is going in for a mortgage or charging his landed property is a decision that requires knowledge of the relevant laws- Indian Transfer of Property Act or the Registered Land Act. Each of these laws govern landed property and provide remedies for the borrower and the lender in case the transaction is on rocks.

In a mortgage, there is conditional transfer of the property that has been given as security, while a Charge does not involve a transfer. The charge on the land gives the lender a lien over the property without conditional passage of ownership.

It is a general rule that where one delivers to a lender documents of title relating to the borrower’s land with the intention that the land be treated as security, an equitable mortgage or charge is created.

It is necessary to make the borrower sign some memorandum to the effect that the documents of title were being deposited with a view to creating security by way of equitable mortgages or charges.

Equity regards as done that which ought to be done. If the borrower agrees that in consideration of money advanced, he will execute a mortgage in favour of the lender, an equitable mortgage is created in favour of the lender, and the lender can enforce the execution of the mortgage by specific performance in equity.

Other remedies against a defaulting borrower, depending on whether it a mortgage or charge, are sale of property, appointment of a receiver, taking possession and civil suit on covenant to repay.

The law recognises that a mortgage or a charge transaction is a security transaction and therefore, the borrower is entitled as of right to redeem (buy back) the subject matter of the transaction which he may have mortgaged or charged on obtaining the loan from a lender.

All the borrower is required to do is what is equitable, give adequate notices.

—The Writer (nnyamboga@eastandard.net) is Standard Group Associate Editor Legal