First Bank of Nigeria Limited V. Pan Bisbilder (Nigeria) Limited (1989)
LawGlobal-Hub Lead Judgment Report
SALAMI, J.C.A.
The plaintiff sued the defendant in the sum of N429, 860.00 as special and general damages for a breach of contract or agreement for loan granted under the Agricultural Credit Guarantee Scheme and guaranteed by the Central Bank under the said Scheme. In the alternative the plaintiff claimed for breach of duty or default by the defendant under the Loan Agreement.
Pleadings were ordered and exchanged at a statement of claim and an amended statement of defence. At the hearing both parties led evidence and addressed the court through their respective counsel. The plaintiff called four witnesses as against one called by the defendant. The learned trial Judge, Oni-Okpaku, J., in a reserved and well considered judgment found for the plaintiff in the sum of N57, 429.00 with costs assessed at N600.00.
The parties are dissatisfied with the judgment and have appealed to this court. The defendant is contesting its liability as well as quantum of damages while the plaintiff is contesting the measure of damages awarded to it. The fact of the case is not seriously disputed. The plaintiff obtained loan of N116,500.00 from the defendant (hereinafter referred to as the appellant) under the Agricultural Guarantee Credit Scheme Fund Act 1977 whereby the appellant granted loan to the plaintiff (hereinafter referred to as the respondent) which loan was guaranteed by the Central Bank of Nigeria. The loan was advanced in two instalments of N60,000.00 and N56,500.00. The first segment of the loan was disbursed fully while the remaining portion was only partially disbursed. The appellant withheld N30,000.00 of the N56,500.00 in satisfaction of a previous overdraft granted to the respondent. The appellant contended that the withholding of the sum of N30,000.00 is not without the respondent’s consent, a fact which the latter denied. The learned trial Judge rejected the respondent’s denial nevertheless it found the agreement to divert the N30,000.00 to a purpose other than that of Agricultural Guarantee Credit Scheme illegal.
It is apt at this stage to consider the appellant’s complaint against the trial court finding it liable to the respondent. To this end it filed three grounds of appeal, two of law and the other the omnibus. The grounds of appeal read:-
“(1) Having held that “The defendant and plaintiff made separate arrangement to divert the N30,000.00 (Thirty thousand naira)” the learned judge of the High Court erred in law when she proceeded to enter judgment in favour of the plaintiff in this suit.
PARTICULARS OF ERROR
(a) The said “separate arrangement was a collateral agreement which was binding on both parties and therefore a good defence for the defendant’s failure to disburse the N30,000.00 to the plaintiff for the Agricultural Loan.
(b) The learned judge of the High Court failed to take cognizance of the fact that “the separate arrangement to divert the N30,000.00 was a waiver of the plaintiffs right to insist that the said amount should be disbursed to the plaintiff under the agreement. Having regard to the above the learned Judge of the High Court ought to have dismissed the plaintiff’s claim since the plaintiff was not in law entitled to approbate and reprobate to the detriment of the defendant.
- The judgment is against the weight of evidence.”
- The learned trial Judge erred in law in holding that the variation of the contract is in breach of an essential condition of the loan the variation having not been disclosed to the Central Bank.
PARTICULARS OF ERROR
(a) Failure to disclose the variation to the Central Bank cannot vitiate the variation vis-‘E0-vis the parties in this suit as the Central Bank is not a party in the instant suit.
(b) The said variation is binding on and enforceable by the parties to the suit irrespective of the fact that the Central Bank was not a party to the variation.
(c) The vitiation of the guarantee does not amount to a breach of the original contract as this could only affect the right of the appellant to make any recovery from the Central Bank.”
In this connection, the following issues were formulated in the appellant’s brief:-
“1. Whether the Judge of the High Court was right in holding that the appellant was in breach of loan agreement in not disbursing the sum of N30,000.00 to the respondent even though the learned judge rightly held and believed that parties had agreed that the said N30,000.00 should be withheld by the appellant against the previous loan.
- Whether the failure of the parties to inform the Central Bank of the collateral agreement between the parties renders the collateral agreement unenforceable or nugatory.
- Whether the parties are not bound by the collateral agreement.”
In this regard, the issues formulated by the respondent reads:-
“(a) Whether the finding by the learned trial Judge that “both parties had agreed that the N30,000.00 of the N56,500.00 enhancement loan was for the overdraft of the plaintiff”, is exhaustive of his follow up finding or conclusion as to the ostensible nature or purpose of the said agreement of loan being in order to divert N30,000.00 thereof to paying off a pre-existing overdraft.
(b) Whether the said agreement as found and defined by the learned trial Judge is valid and a good defence to an action for breach of the agreement of loan?”
The issues for determination, to my mind, are
“(a) Whether the learned trial Judge (having found that the agreement to divert N30,000.00 from the poultry to satisfy the respondent’s earlier obligation to the appellant is illegal) can proceed to give judgment to the respondent, inspite of its involvement in the illegality.
(b) Whether the failure of the parties to inform the Central Bank of the collateral agreement between them rendered the collateral agreement nugatory.
(c) Whether the learned trial Judge was right in holding that the appellant was in breach of loan agreement in not disbursing the sum of N30,000.00 to the respondent even though the learned Judge had held that parties had agreed that the said N30,000.00 should be withheld by the appellant against the previous loan.
(d) Whether it was still open to the learned trial Judge to hold that the appellant had breached its fiduciary duty to the respondent having found parties to be wrongdoers.”
The learned counsel for the appellant in both the appellant’s brief and his oral submissions launched a two prong attack on the judgment. Firstly, he contended that although, the respondent denied the collateral agreement by which it was agreed that N30,000.00 out of the loan should be spent to defray its pre – 1979 overdraft, it wrote Exhibit ‘V’ in 1980 as well as Exhibits ‘J’ and ‘T’ in 1982confirming that the pre -1979 over-draft was in 1980″merged as overdraft granted for the farms operation.” Appellant’s learned counsel contended further that the learned trial Judge accepted the appellant’s claim “that both parties had agreed that the N30,000.00 of the N56,500.00 of the enhancement loan was for the overdraft of the plaintiff.” He then submitted that failure to disclose the variation to the Central Bank did not vitiate the agreement or render same unenforceable. He submitted that the variation can only affect the right of the appellant to make any recovery from the Central Bank.
Secondly, the learned counsel for the appellant submitted that even if the collateral agreement was vitiated a fact he did not concede the respondent who was a party to the agreement cannot take advantage of same against the appellant.
The respondent replied that the failure to disclose the bilateral contract to divert part of the loan to the Central Bank is not the basis of the learned trial Judge’s failure to uphold it but the fact of its basic invalidity as an illegal contract. Counsel submitted that the finding that failure to disclose was a breach of an essential condition of the loan is well founded because the contract of loan being for a loan sui generis and one governed by statute was by its very nature a tripartite contract; it was therefore not competent to modify or vary it without the concurrence of the Central Bank. Counsel for the respondent contended further that if the variation of the agreement of loan is illegal as being in breach of statute then it was incompetent. He argued that the parties cannot by their conducts or agreement waive an illegality.
The learned trial Judge in the course of reviewing evidence found as follows:-
“Parties are bound by their pleadings and plaintiff cannot therefore be allowed to argue the converse of his pleadings and the documents estopping him. I therefore, believe that both parties had agreed that the N30, 000.00 of the N56,500 enhancement loan was for the overdraft of the plaintiff. But the next question is ‘was this subsequent agreement between the plaintiff and the defendant about the loan, valid without the consent of Central Bank that guaranteed it?”
The learned trial Judge concluded as follows:-
“The law in section 4(2) enabling Central Bank to give this guarantee is the Agricultural Credit Scheme Fund, Decree No. 20 of 1977 and this law provides in Section 13(1).
“13(1) No loan granted pursuant to this Decree, shall be applied to any purpose other than that for which the loan was granted.”
The purpose in this instant case being poultry farming according to paragraph ‘C’ in the schedule to the Decree. And by Section 19 of this Decree, “loan” includes advances, overdrafts, any credit facility.
Thus even though the defendant and plaintiff made their separate arrangement to divert the N30,000.00, I believe that they did not disclose this variation to the loan agreement to Central Bank because there is no evidence to prove that they did. Accordingly I hold that the variation is a breach of the essential condition of the loan agreement, since Section 13(1) of Decree 20 of 1977 the Statutory Provision governing it forbids it and it is mandatory and therefore the contract of guarantee with Central Bank is thereby vitiated.”
The Central Bank not being a party to the variation or diversion of the sum of N30,000.00 vitiates the guarantee agreement. It, therefore, had the effect of releasing the guarantor, the Central Bank of Nigeria from its obligation under the contract of guarantee. But this should not, in my opinion, have the effect of rendering the contract as a whole unenforceable. The loan agreement subsists as an ordinary banking transaction between a banker and its customer but the guarantor or surety is released by the alteration. This view is supported by Graham Paul, J., in the case of John Hair Ltd. v. S.A. Oladunjoye (1936) 13 N.L.R. I cited by the learned trial Judge. That judgment quoted at p.7, with approval, the dictum of Lord Loughborough in Rees V. Berrington 2 Yes 543. The dictum reads as follows:
“It is the clearest and most evident equity, not to carry on any transaction without the knowledge of the surety who must necessarily have a concern in every transaction with the principal debtor. You cannot keep the surety bound and transact his affair (for they are as much his as your own) without consulting him.
You must let him judge whether he will give that indulgence contrary to the nature of employment.”
It could not be otherwise since contract of guarantee mean no more than assurance to the creditor that if the principal debtor fails to pay the guarantor or surety would repay the debt. And where, as in this case, there is an agreement altering a guarantee contract, made without the knowledge and consent of surety, the surety is discharged unless the alteration is neither substantial nor prejudicial to the guarantor. See Awolesi v. National Bank of Nigeria (1962) 1 All N.L.R. 172 where Taylor, F.J., held at pp. 175-176 as follows:-
“When one goes further and looks at the other clauses in the agreement; one finds that the words “ultimate balance” in clause 3, and “account” in clause 6 can only be read in the light of clause 1 as relating “the existing account.” If the parties intended that the principal debtor should be placed in a position where he could open more than one account, and that the guarantee should cover such accounts, then in my judgment they should say so in clear and unambiguous words, for it has been said that the law favours a surety and protects him with considerable vigilance and jealousy. In the case of Ward v. National Bank of New Zealand (1882 – 3), 8 A.C. 755 at 764, Lord Justice Cotton’s observations in Holme v. Brunskill (1877-78) 3 Q.B.D. 495 are contained in the judgment of their Lordship delivered by Sir Robert P. Collier which reads thus:-
‘The true rule, in my opinion, is that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and that, if he has not consented to the alteration, although in cases where it is without inquiry evident that the alteration is unsubstantial, and one which cannot be prejudicial to the surety; the court will not in an action against the surety, go into an enquiry into the effect of the alteration.’
A little earlier their Lordship said at page 763 that:-
“A long series of cases has decided that a surety is discharged by the creditor dealing with the principal or with a co-surety in a manner at variance with the contract, the performance of which the surety had guaranteed.”
It is amply demonstrated by the case quoted earlier in this judgment and a long line of cases that on no account is the contract or the collateral agreement vitiated by the alteration of the contract without surety’s knowledge and consent. What the surety gets in that circumstance is a discharge if the alteration is substantial or prejudicial to him. There is no authority, and, if there were, it was not cited to us that a principal debtor as, in this case, is protected if with its eyes wide open it entered into an agreement to its detriment with the creditor.
In the result, I am to examine the provisions of section 13 of the Agricultural Credit Guarantee Scheme Fund Act No. 20 of 1977 to ascertain that it has otherwise provided. The section provides thus:-
“13 – (1) No loan granted pursuant to this Decree shall be applied to any purpose other than that for which the loan was granted.
(2) Any person who applies any loan granted pursuant to this Decree in contravention of subsection (1) of this section shall be guilty of an offence and shall be liable on conviction to a fine of an amount of the loan in respect of which the offence was committed or to imprisonment for not less than five years.
(3) Where an offence under this section committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of any director, manager, secretary or other similar officer of the body corporate (or any person purporting to act in any such capacity) he as well as the body corporate shall be deemed to be guilty of the offence and may be proceeded against and punished accordingly.”
The enactment has merely prohibited application of loan granted pursuant to Act No. 20 of 1977 to a purpose other than for which it is granted but has not expressly provided that the contract be void. The enactment, no doubt, has provided a penalty for a breach of the statutory prohibition. Where a statute merely prohibits a certain class of contract by stipulating a penalty for the prohibition without expressly providing whether or not the contract is void it does not follow ipso facto that the contract is void or illegal. The court is to consider whether the statute is directed at discouraging entry into such contracts or whether it was intended at making revenue for the government or whether it is aimed that the contract shall not be entered into so as to be valid. In the case of R.C. Ricket v B. V.A. Ltd. (1960) 5 F.S.C. 113 Hubard, Ag F.J., while considering order 48 rule 3 of the High Court (Civil Procedure) Rules said at p.116 of the report;
“In Melliss & Anor. v. The Shirley and Freemantle Local Board of Health (1885) 16 Q.B.D. 446,451 Lord Esher, M.R., said;
“Although a statute contains no express words making void a contract which it prohibits, yet, when it inflicts a penalty for the breach of the prohibition, you must consider the whole Act as well as the particular enactment in question, and come to a decision, either from the content or the subject matter, whether the penalty is imposed with intent merely to deter person from entering into the contract, or for the purposes of revenue, or whether it is intended that the contract shall not be entered into so as to be valid at law.” Although this passage deals with prohibited contracts, I apprehend that it is equally applicable to contractual acts, and a fortiori in a case where the act is not expressly prohibited, but merely made subject to a fine. I have no hesitation in holding that the fine is imposed in O 48 r 3 with intent merely to deter person from intermeddling and that the enactment, does not absolutely prohibit intermeddling, which if it did, all acts of an executor de son tort would, presumably, be void, whereas it was held as long ago as 1598 in Coulter’s case (5 CO Rep 98) that “all lawful acts, which an executor de son tort doth are good”, and…”
In the circumstance, I am satisfied that the enactment does not forbid a banker from exercising its long established common law right to consolidate or merge accounts of a customer; that this right is not strictly a lien; and that it can be exercised without notice to the customer, unless the contract provides otherwise. See National Westminster Bank Ltd. v. Halesowen Press Works Ltd. (1972) A.C. 785; Barclays Bank Ltd. v. Okenarhe (1966) 2 Lloyds Rep 87 and Garnet v. Mckewon (1872) L.R. 8 Ex 10. In the result, the appellant rightly invoked its power to combine the customer’s accounts. I therefore agree with the learned counsel for the appellant that the diversion of the N30,000.00 to settle the respondent’s overdraft is binding on both parties. The learned trial Judge so found and that finding subsists.
Be that as it may, the respondent, who was the plaintiff in the court below, sued on a contract which itself proclaimed illegal. The question is whether it can enforce an illegal contract? The learned counsel for the appellant, in this connection, submitted that if the agreement is vitiated the respondent who was a party to the agreement cannot take advantage of same against the appellant. There is force in the submission of the learned counsel for the appellant. The respondent in exhibit ‘T’ written on 20th May, 1982 acknowledged the merging of the over-draft with the loan in the following words:
“Before 1979 the company owed N30,000.00 overdraft which in 1980 was merged as over-drafts granted for the farms operation.”
The same respondent pleaded as follows in paragraph 10 of its statement of claim:-
“10. In or about March, 1980, when the plaintiff realised that the farm project cannot sufficiently pay its way or become a viable proposition with its then limited stock of birds and that money will also be required for some improvements in the structure of the said farm, the plaintiff applied for an enhancement of the loan of N60,000.00 earlier granted to it by the defendant by a margin of N82,000.00 divided according to the purposes for which same was required into N49,000.00 for improvements and running costs of the farm and N33,000.00 for re-stocking the farm with new birds. After a series of correspondence between the parties upon which the plaintiff will found at the hearing of this action, the defendants finally approved for the plaintiff in connection with the farm project aforesaid an additional facility of N56,500.00 on the same terms and conditions as before except that of the said amount of N56,500.00, N26,500.00 was granted by way of loan (making a total loan of N86,500.00) and N30,000.00 by way of overdraft. The said transaction was equally guaranteed by the Central Bank of Nigeria as before backed by a guarantee certificate which is in the possession and control of the defendants. The plaintiff will found upon the said document. All told the total facility approved for the poultry farm project aforesaid and guaranteed by the Central Bank of Nigeria was a sum of N116,500.00.”
(italics mine)
The appellant, the defendant in the court below, joined issue with the respondent in paragraph 8 of the statement of defence. It reads thus:
“8. As to paragraph 10 of the statement of claim the defendant admits that the plaintiff applied for an enhancement of the loan by asking the defendant for an additional N82,000.00 but the defendant approved for the plaintiff an additional loan of N56,500.00 on the understanding that part of the additional loan would go to defray the outstanding overdraft in the plaintiff’s current account which overdraft stood at N30,000.00 at the time.”
On the issue thus joined, the learned trial Judge after a painstaking trial and careful review of the fact in issue found as follows:-
“Parties are bound by their pleadings and plaintiff cannot, therefore, be allowed to argue the converse of his pleadings and the documents estopping him. I, therefore, believe that both parties had agreed that the N30,000 of the N56,500.00 enhancement loan was for the overdraft of the plaintiff.
Accordingly I hold that the variation is a breach of the essential condition of the loan agreement since Section 13(1) of Decree 20 of 1977 the statutory provision governing it forbids it and it is mandatory and therefore the contract guarantee with Central Bank is thereby vitiated.”
The implication of the voidance is that neither party can seek the benefit of the guarantee provided by Central Bank of Nigeria under Act 20 of 1977 because the illegality of either party estopped it from enforcing the guarantee agreement. In other words, the Central Bank of Nigeria, as the surety, is discharged of its obligation under the guarantee certificate because not only has the surety not been consulted but also a substantial or fundamental alteration to the contract has been made without its knowledge and consent. It is the guarantee agreement which is void and unenforceable because of the deceit of the two, principal debtor and creditor which has resulted in an illegal contract.
In Onyiuke v. Okeke (1976) 3 S.C. 1 Alexander, C.J.N. at p.7 of the report stated:-
“It is the law that a contract is illegal if the consideration or the promise involves doing something illegal or contrary to public policy; and an illegal contract is void and cannot be the foundation of any legal right. This proposition of law was clearly enunciated by Brett, M.P., in Herman v. Jeuchner (1885) 15 Q.B.D. 561, at page 563 as follows:
“When the object of either the promise or the consideration is to promote the committal of an illegal act, the contract itself is illegal and cannot be enforced. In Halsbury’s Laws of England, 3rd Edition, volume 8, page 126 paragraph 218, the law on the point is also succinctly stated as follows:-
“A contract is illegal where the subject – matter of the promise is illegal or where the promise is illegal or where the consideration or any part of it is illegal.”
And in William Hill (Park Lane) Ltd. Y. Hofman (1950) 1 All E.R. 1013, it was held that a deed of charge executed in respect of gaming debts must by virtue of the Gaming Act 1835, be deemed to have been executed for an illegal consideration and was therefore void.”
The learned trial Judge having vitiated the guarantee agreement and released the surety from its obligation thereof the principal debtor and creditor return to status quo in the regulation of their relationship. In this circumstance, usual or ordinary banking practice whereby a bank has an untrammeled right to combine a customer’s account become operative or applicable. The respondent can, therefore, not complain about the conduct of the appellant which satisfied the respondent’s previous overdraft from the proceed of a loan it has just received. The practice of the trade permits what the appellant did.
The last complaint of the appellant is found upon the finding of the learned trial Judge that the appellant applied an undue influence on the respondent to yield to the collateral agreement. Learned counsel to the appellant contended that the respondent’s defence being a total denial of the collateral agreement the defence of coercion or undue influence was not open to it.
The learned counsel for the respondent apparently conceded this point because he considered the appreciation of the use of undue influence of a banker over its customer to acquiesce in the diversion of part of the loan to repayment of a pre-existing overdraft as a mere observation or obiter dictum.
He is of the view that the learned trial Judge would have come to the same conclusion without what he considered to be an innocuous remark. He referred the court to the cases of Sowemimo v. Somisi (1982) 1 All N.L.R. (Pt.1) 49 at 56-57 which quoted with approval the case of Ukejianya v. Uchendu (1950) 13 W.A.C.A. 45, 46.
Finally on the same, the learned counsel for the respondent submitted that the appellant’s brief only questioned the charge of undue influence which query had not found any expression in any ground alleging error in law or misdirection. For this submission, he relied on the cases of Odesanya v. Ewedemi (1962) 1 All N.L.R. (Pt. 2) p.320, 321; Melwani v. Feed Nation Limited (No.1) (1986) 5 N.W.L.R. (Pt.43) 587.
I have carefully considered the submissions of the learned counsel for both parties and I am of the opinion that the complaint can be conveniently taken under the omnibus ground. The substance of the objection is that neither is undue influence pleaded nor evidence raised therefor in support. I have taken a hard look at both the pleadings and the evidence, both of which, the learned trial Judge copiously reviewed, and cannot find where coercion formed part of the respondent’s case. I am, therefore, in agreement with the respondent’s counsel, who adroitly conceded the question by describing it as an Obiter dictum or as a mere innocuous remark at that. Finally on this issue, it is trite that the relationship of a principal and agent has no application in the case of a wrongdoer: See Sharland v. Mildon 67 Eng. Report 997. The appellant had admitted that it diverted part of the loan to repay the pre-existing overdraft of the respondent. The respondent although did not expressly admit to have consented to the diversion of loan to pay a pre-existing overdraft nevertheless the learned trial Judge found that it did. Not only that it admitted the loan was paid into its existing current account, on which they continued with their existing financier business, which entail buying items for some petty traders at interest rate. If the respondent is a wrongdoer he can have no principal since the principal would also be a wrongdoer and where both of them are wrongdoers there can be no agency. I think, therefore, that the learned trial Judge wrongly held that a fiduciary relation thus existed between the parties and on that account found the appellant liable.
The appeal, therefore, succeeds on grounds 1, 4 and 6 of the grounds of appeal and it is allowed. The decision of the court below including the order as to costs is set aside. Accordingly, it is no longer necessary to consider the remaining appellant’s grounds of appeal which deal with measure of damages. It necessarily follows that the cross-appeal which is also challenging quantum of damages fails and it is also dismissed. There is order as to costs which I assess at N500.00 to the appellant.
Other Citations: (1989)LCN/0098(CA)
