Gold Link Insurance Company Ltd V. Petroleum (Special) Trust Fund (2005)
LawGlobal-Hub Lead Judgment Report
JIMI OLUKAYODE BADA, J.C.A.
This is an appeal from the Judgment of the Federal High Court, Abuja, in suit No: FHC/ABJ/CS/179/2003 – PETROLEUM (SPECIAL) TRUST FUND AND GOLD LINK INSURANCE COMPANY LIMITED delivered on the 3rd day of October 2006.
Briefly the facts of the case are that the Respondent as the Plaintiff at the lower Court filed this action on the undefended list on the 4th day of April 2003. The matter was later transferred to the general ca se list and pleadings were ordered.
In the suit, the Respondent as Plaintiff claimed the sum of (N3,017,707,37) i.e. Three Million, Seventeen Thousand, Seven Hundred and Seven Naira, Thirty Seven Kobo, being money had and received from the Plaintiff by Tonada Publications ltd and guaranteed by the Defendant i.e. Gold Link Insurance Company Limited, as 70% down payment for the supply of stationery materials and which items were not supplied.
At the trial, the Respondent relied on its guarantee agreement with the Appellant dated 6th August 1998 in which the Appellant guaranteed the payment to the Respondent if Tonada Publications failed to perform.
The Appellant’s case on the other hand was that the Respondent nominated the manufacturer of the stationery materials to whom Tonada paid the cost of manufacturing but that the manufacturer failed to produce the goods. The Appellant therefore maintained that since the failure of Tonada Publications limited to supply was because the manufacturer nominated by the Respondent failed to produce the stationery, it was not liable.
The lower Court gave Judgment in favour of the Respondent on the ground that the Respondent had proved its case by showing that the contractor, having collected the 70% down payment failed to supply the goods, thereby making the Defendant i.e. his guarantor liable to refund the money collected.
The Appellant dissatisfied with the said Judgment now appealed to this Court.
The Learned Counsel for the Appellant abandoned Ground one of his Notice of Appeal and relied on Ground 2. He formulated only one issue for determination as follows:-
“Whether the Judgment of the lower Court is not against the weight of evidence adduced before His Lordship namely that the failure of the manufacturer nominated by the Respondent to produce the goods was the reason the guaranteed contractor failed to supply the goods.”
The Learned Counsel for the Respondent formulated two issues for determination as follows:-
“Issue 1
Whether the alleged failure of the manufacturer to produce absorbs the Appellant of her obligation under the contract of guarantee which obliges her to refund the advance payment made to the contractor in event of failure of the contractor to supply the goods.
Issue 2
Whether the Judgment of the Court is supported by evidence.”
At the hearing, the Learned Counsel for the Appellant adopted and relied on the Appellant’s brief dated 26/3/07, filed on 10/4/07 and deemed properly filed on 11/6/07. He urged that the appeal be allowed and Judgment of the lower Court set aside. The Learned Counsel for the Respondent on the other hand adopted and relied on the Respondent’s brief filed on 12/7/07 and he urged that the appeal be dismissed.
The issues formulated by Learned Counsel for the parties are similar, however the issues as set out by the Learned Counsel by the Respondent are considered relevant and apt to determine this appeal.
Issues 1 & 2 (Taken together)
Whether the alleged failure of the manufacturer to produce absorbs the appellant of the obligation under the contract of guarantee which obliges her to refund his advance payment made to the contractor to supply the goods.
Whether the Judgment of the Court is supported by evidence.
The Learned Counsel for the Appellant having abandoned Ground 1 of the Notice and grounds of appeal, the said ground is hereby struck out.
The learned Counsel for the Appellant referred to the evidence of the PW1 under cross-examination that “The manufacturer did not produce the goods.” He now queried that if the manufacturer who was paid did not produce the goods, how can the contractor supply them and how can the promisor be bound? He referred to Nigerian Law of Contract 1st Edition on Page 162 by Prof Itse Sagay SAN -on guarantee agreement. He also referred to the case of:- Nwankwo vs. Ecumenical Dev. Co. Society (2002) 1 NWLR Part 749 Page 513 at 534 – 535 Paragraph G – H.
He stated that the Appellant executed a guarantee agreement in favour of the Respondent on behalf of the Principal debtor Tonada Publications limited but that the manufacturer nominated by the Respondent failed to produce the goods. He then argued that the Appellant did not undertake to answer for the default of the manufacturer nominated by the Respondent, and further that the Appellant did not guarantee the manufacturer who defaulted resulting in the failure of the contractor to supply.
Learned Counsel submitted that the contract of guarantee between the Respondent and the Appellant was frustrated. He relied on:-
– Akanum v. Olugbode (2001) 13 WRN Pages 132 at 160.
– Royal Exchange Assurance (Nig) Ltd V. Aswani ile Ind. Ltd (1992) 3 NWLR Part 227 Page 1 at 13.
– Gurara Securities and Finance Ltd V. T. C. Ltd (1992) 2 NWLR Part 589 Page 29 at 47.
The Learned Counsel for the Respondent in his own submission stated that the main defence of the Appellant to the suit is that the manufacturer accredited by the Respondent did not manufacture and the contractor could no go outside the accredited list to source for supplies. He referred to the evidence of DW1 who failed to name the so called manufacturer that money was paid to, nor give account number to which the money was domiciled.
He then urged that the appeal be dismissed.
In this appeal the Respondent (as Plaintiff in the lower Court) awarded a contract, Exhibit “A” to Tonada Publications Ltd for the supply of stationery items to the tune of (N4, 339,310.39) Four Million, Three Hundred and Thirty Nine Thousand, Three Hundred and Ten Naira, Thirty Nine Kobo. The contract had general and special conditions, one of which is that the product should be sourced from one of the Plaintiffs specified manufacturers.
The terms of payment include an advance payment of 70% contract sum upon the submission of a guarantor from one of Plaintiffs approved insurance companies.
In compliance with the terms of payment, the contractor Tonada Publications processed an insurance bond from the Appellant i.e. Exhibit “B”.
Part of the Exhibit “B” reads:-
“We understand that you have entered into a Contract Agreement dated 6th August 1998 with Tonada Publications Limited, whose registered office is at 16, Earnest Ikosi Street, 1st Floor Port Harcourt for the procurement and Distribution of stationery items, under the National Educational Materials, Procurement Programme (NEMPP), and that under the contract, the sum of N3,037,517.27 (Three Million, Thirty Seven Thousand, Five Hundred and Seventeen Naira, Twenty Seven Kobo only) being 70% of the total contract is payable in advance against an Insurance Guarantee. In consideration of your making an advance payment of (N3,037,517.27)Three Million, Thirty Seven Thousand, Five Hundred and Seventeen Naira Twenty Seven Kobo only to the contractor, we Goldlink Insurance Company Limited on 15th Floor, Western House 8/10 Broad Street Lagos as instructed by the contractor agreed unconditionally and irrevocably guarantee as primary obligor and not merely as surety, the payment to the Petroleum (Special) Trust Fund on its first demand without whatsoever right of objection or inquiry on our part and without its first demand to the contractor In the sum of N3,037,517.27 (Three Million, Thirty Seven Thousand, Five Hundred and Seventeen Naira Twenty Seven Kobo) only and in respect of which sum we bind ourselves, our successors and assigns by these presents. We further guarantee to ensure that the said advance payment shall be utilized for the performance and execution of the aforesaid contract.”
Exhibit “B” part of which is reproduced above is the contract between Respondent i.e. Plaintiff/Contractor/Appellant i.e. Defendant.
In Royal Exchange Assurance (Nig) Ltd v. Aswani ile Industries Ltd (supra) Akpata JSC said:-
“A guarantee is a written undertaking made by one person to a second person to be responsible if a third person fails to perform a certain duty.”
A contract of guarantee as in the present case could be described as an assurance to the creditor that if the principal debtor fails to pay, the guarantor or surety would repay the debt.
In this appeal the contractor has failed to supply the stationery, according to him, due to the fact that the manufacturer accredited by the Respondent did not manufacture and the contractor could not go outside the accredited list to source for supplies.
The Appellant submitted that contract was frustrated.
But he who comes to Equity must come with clean hands. The DW1 i.e. the Appellant’s witness in his evidence testified under cross examination that he did not know the manufacturer to whom payment was made. He went further that there was more than one manufacturer. Therefore the contractor had the option of choosing from the list of manufacturers attached to Exhibit “A”. The Appellant’s witness also could not give the account number of the manufacturer to which the money was paid for the supplies.
The Learned Counsel for the Appellant relied on the Principle of frustration of Contract as if it is a magic word whereas it is not.
In Mazin Engineering Limited vs. Tower Aluminum (Nig) Ltd. (1993) 5 NWLR Part 295 Page 526, the Supreme Court defined frustration of contract as (1) the premature determination of an agreement between the parties lawfully entered into and in course of operation at the time of its premature determination owing to the occurrence of an intervening event or change of circumstance so fundamental as to be regarded by law both as striking at the root of the agreement, and as entirely beyond what was contemplated by the parties when they entered into the agreement.
However, frustration does not occur where:-
(i) The intervening circumstance is one which the law would not regard as so fundamental as to destroy the basis of the agreement.
(ii) The terms of the agreement show that the parties contemplated the possibility of such an intervening circumstance arising.
(iii) One of the parties had deliberately brought about the supervening event by his own choice. Where frustration arises, it operates to bring the agreement to an end as regards both parties forthwith and quite apart from their violation.
(2) In most cases, frustration depends on the time construction of the terms of the contract read in the light of the relevant circumstances when the contract was entered into.
(3) Where a contract has been frustrated, the question of breach will not arise, as none of the parties can be held responsible for what has happened.
The lower Court was therefore right in refusing rely on the pieces of evidence adduced by the Appellant to support frustration of the contract. If the Appellant had been able to show diligence by naming the manufacturer to whom money was paid and the account number into which money was paid then he could have pleaded frustration successfully. But as things are the Appellant relied on self inflicted frustration because there is no evidence that money was paid to anybody.
In other words, for doctrine of frustration to avail a party, he must show that he is willing and capable of performing his own obligation under the contract but was prevented from doing so by circumstances beyond his contemplation and control.
See – Egbe v. Alhaji (1990) 1 NWLR Part 128 Page 564;
– Ademola v. Sodipo (1989) 5 NWLR Part 121 Page 329.
An agreement in a deed creates a binding obligation between the parties, once the parties have agreed to regulate their posi1ionby a written document, neither of the parties can withdraw from it. See – Koiki v. Magnusson (1993)9 NWLR (Part 317) Page 287.
A careful examination of Exhibit “B” would show that the lower Court gave effect to the plain, clear and unambiguous words of the exhibit. The Appellant is bound to repay the advance to the Respondent in view of the failure of the contractor to supply the stationery as agreed.
The Appellant by Exhibit “B” bounded itself as primary Obligor and not merely as a surety but also its successors and assigns for the repayment to the Petroleum (Special) Trust Fund on its first demand to the contractor in the amount not exceeding the sum of (N3,037,517.27) Three Million, Thirty-Seven Thousand Five Hundred and Seventeen Naira, Twenty-Seven Kobo, –
By the provisions of Exhibit “B” the Appellant is obliged to ensure that the advance payment is utilized for the execution of the contract, or to refund the said amount to the Respondent in event of failure to execute same,
The lower Court was therefore right in holding that the contractor who was paid the 70% mobilization fee failed to perform the contract thereby making the Appellant liable on the insurance guarantee.
In view of the foregoing, these issues under consideration are hereby resolved in favour of the Respondent and against the Appellant.
In the final analysis, this appeal fails and is hereby dismissed.
The Respondent is entitled to costs which is fixed at (N35,000.00) Thirty Five Thousand Naira against the Appellant.
Other Citations: (2005)LCN/1864(CA)
