CHIEF S.L. EDU (APPELLANT)

v.

NATIONAL BANK OF NIGERIA LTD. & W.A. TRAVEL AGENCY LTD (RESPONDENT)

(1971) All N.L.R. 259

Division: Federal Supreme Court

Date of Judgment: 15th October, 1971

Case Number: SUIT NO. S.C. 104/1970

Before:  Ademola, C.J.N., Madarikan, Fatai-Williams, JJ.S.C.

Appeal from the High Court (Lagos).

HELD:

(1)     The main point to be determined in this appeal was whether by virtue of the document (Exhibit A) the 1st defendant/appellant had pledged his personal credit or not. The answer to this question could be found in the document (Exhibit A) which regulated the contractual relationship between the parties.

(2)     Upon a careful examination of the document there was no doubt that:-

(a) It was a memorandum for the deposit of the deeds listed in the schedule on the back thereof;

(b) the said deposit of deeds was to be continuing security by the 1st defendant for the repayment of a loan to the 2nd defendant of sums totalling £10,000 together with interest at 10% per annum;

(c) it created a charge on the premises comprised in the deeds with an undertaking on the part of the parties that

"when required by the bank we and all necessary parties will at our own expense execute to the bank or as they shall direct a Mortgage of all our estate and interest in the premises comprised in the said deeds ... Mortgage shall contain such powers of entry, sale, leasing and other powers and provisions as the Bank's Solicitors or Counsel shall advise."

(3)     The remedy which the plaintiff bank ought to have pursued was contained in and clearly set out in that undertaking. This they had failed to do. Since there was no personal liability of any kind imposed upon the 1st defendant/appellant by virtue of the document (Exhibit A) the present action was misconceived and ought to have been dismissed. It was however, open to the plaintiff bank to take whatever action they may be advised to take on the strength of the undertaking in Exhibit A.

Appeal allowed: Judgment of High Court set aside.

Cases referred to:

Re Conley, (1938) 2 All E.R. 127.

Smith v. Woods, (1929) 1 Ch. 14.

Act referred to:

Bankruptcy Act, (1914) s. 14(1).

APPEAL from the High Court (Lagos).

SUIT NO. S.C. 104/1970.

Chief Williams for the Appellant.

Chief Sowemimo for the Respondent.

Madarikan, J.S.C. (delivering the judgment of the court):-The present appellant was the 2nd defendant in an action instituted against him and the West African Travel Agency Limited as the 1st defendant in the High Court, Lagos (Suit No. LD/280/66). The plaintiff/company's claim as endorsed on its writ was as follows:-

"The plaintiffs' claim against the defendants jointly and severally is for the sum of £11,366-9s-3d being money payable by the defendants for money lent by the plaintiffs to the defendants and for money paid by the plaintiffs for the defendants as bankers for the defendants at their requests and for interest upon money due from the defendants to the plaintiffs up to and including February, 1966.

The defendants have failed, refused or neglected to pay the said sum of money to the plaintiffs despite repeated demands."

After pleadings had been ordered, learned Counsel for the plaintiff/company, Chief Sowemimo, sought leave to withdraw the claim against the 1st defendant (that is, the West African Travel Agency Limited) and it was struck out accordingly. It would appear that the case then proceeded against the 2nd defendant alone. But later in the proceedings, leave was obtained to join the West African Travel Agency Limited again, this time as the 2nd defendant. We shall hereafter refer to Chief Shafi Lawal Edu as the 1st defendant and to the West African Travel Agency Limited as the 2nd defendant/company.

In its statement of claim, the plaintiff/company averred as follows:-

"1      The plaintiffs are a limited liability company carrying on the business of banking with their registered office at No. 82/86, Broad Street, Lagos.

2       Chief S.L. Edu is a reputable business magnate who resides at 26, Queens Drive, Ikoyi.

3       The West African Travel Agency Limited is a limited liability company carrying on his business of a travel agency with its registered office at No. 9A, Martins Street, Lagos.

4       The plaintiff at the request of the West African Travel Agency Limited having been duly guaranteed by Chief S. L. Edu advanced on the basis of overdraft facilities to the said West African Travel Agency a total sum of £11,366-9s-3d inclusive of interest.

5       In pursuance of paragraph 4 above Chief S.L. Edu executed a memorandum of guarantee dated 5th March, 1963.

6       The plaintiffs will rely on the statement of account of the West African Travel Agency with the plaintiffs.

7       The plaintiffs have made repeated futile requests to the defendants for payment of the said sum. Whereof the plaintiff claims as per their writ of summons."

and in the statement of defence of the 1st defendant, he pleaded as follows:-"1    The first defendant admits paragraph 2 of the statement of claim.

2       The first defendant denies the alleged guarantee in paragraph 4 of the statement of claim and says further that if that which he signed on 5th day of March, 1963 were to be accepted as "guarantee" then, the guarantee was expressly limited to the landed properties mentioned in the schedule thereof.

3       The alleged guarantee (which is denied) is also subject to the condition precedent of a demand being made of the principal, that is to say, West African Travel Agency Limited, before enforcement on the said properties. The plaintiffs have not complied with that precedent to the knowledge and belief of the first defendant.

4       The plaintiffs, be discharging and or releasing the principal from his obligation through their withdrawal of the claim against the principal on the 14th day of November, 1966, have discharged the first defendant from all liability under the alleged guarantee. Whereof the first defendant contends that plaintiffs' claim must be dismissed with costs to him."

The 2nd defendant/company, for its part, admitted liability.

The only witness who testified at the trial was one Robert Emmanuel Babatunde Osborne who was called by the plaintiff. He deposed that the 1st defendant guaranteed in writing the repayment of the loan granted by the plaintiff (i.e. the National bank of Nigeria Limited) to the 2nd and marked as exhibit A; that the sum of £11,366-9s-3d claimed in the writ was the amount outstanding in respect of the loan; and that despite repeated demands, the 2nd defendant refused to pay.

The 1st defendant elected not to call evidence at the trial.

In a reserved judgment, the learned trial Judge commented on exhibit A as follows:-

"Exhibit A is the memorandum of guarantee. The surety is firstly liable to pay the sum secured and such guarantee does not require registration. ... By virtue of exhibit A, Chief S.L. Edu had guaranteed the payment and is therefore liable as the surety."

Finally, he entered judgment against both defendants jointly and severally for the sum of £11,366-9s-3d together with 100 guineas costs.

The 1st defendant has now appealed against that judgment. As the argument before us cantered round the liability of the 1st defendant/appellant under exhibit A, it is convenient, at this stage, to reproduce exhibit A. It reads as follows:-

"£10,000-0s-0d

Memorandum that Chief Shafi Lawal Udu of 26, Queen's Drive, Ikoyi-Guarantor for West African Travel Agency Limited of 9a, Martins Street, Lagos.

have this day deposited with the NATIONAL BANK OF NIGERIA LIMITED (hereinafter called "the Bank") the deeds and writings mentioned in the Schedule on the back hereof to be retained by the bank by way of continuing security to them for payment on demand of the sum of £10,000-0s-0d say TEN THOUSAND POUNDS together with interest at the rate of 10 per cent per annum, commission, bank charges, law and other costs, charges and expenses. And for more effectual security, we charge the premises comprised in the said deeds and writings and the proceeds to arise from any sale or sales thereof or any part thereof with the payment of all such moneys and undertake that when required by the bank we and all necessary parties will at our own expense execute to the bank or as they shall direct a Mortgage of all our estate and interest in the premises comprised in the said deeds and writings which Mortgage shall contain such powers of entry, sale, leasing and other powers and provisions as the Bank's Solicitors or Counsel shall advise. This security shall be applicable and extend as well to our separate account and liabilities as to any joint account or liabilities of us with any other person or persons as partners or otherwise.

AS WITNESS our hands this 5th day of MARCH, 1963.

Sgd. S.L. EDU

Witness to the Signature of

Chief Shari Lawal Edu

R.O. KASSIM

5, Williams Street,

Lagos."

The deeds listed in the schedule at the back of exhibit A are as follows:-                    

"Description of Security                                                                Value

Building Lease dated 18th June, 1948 and registered as No. 64 at Page 64 in Volume 733 of the Land Registry in the Office at Lagos.

Assignment of Leasehold Premises dated 9th May, 1949 and registered as No. 23 at Page 23 in volume 787 of the Lands Registry in the Office at Lagos.

                                                                                                                                            £12,000"

It was the submission of Chief Williams for the appellant that, as there is no covenant in exhibit A whereby the appellant pledged his personal credit, the document (exhibit A) does not involve an undertaking that the appellant will be personally liable. Counsel then contended that the learned trial Judge was wrong in law to have proceeded on the basis that the 1st defendant was personally liable and entered judgment against him on that ground. Counsel however conceded that, after taking all necessary steps, the properties listed at the back of exhibit A may be sold by the bank for payment of the debt that has arisen by virtue of exhibit A. Counsel relied on the case of Re Conley (1938) 2 All E.R. 127 and Smith v. Wood (1929) 1 Ch. 14.

In his reply, learned Counsel for the plaintiff/respondent, Chief Sowemimo, referred us to paragraph 770 at page 413 of 18 Halsbury's Laws of England (3rd Ed.) where a surety is defined as one who engages with the creditor of a third party to be answerable, in the second degree, for some debt, default or miscarriage, for which the third party then is, or may be or is intended to become liable to the creditor. Counsel submitted that the assumption of personal liability is now a necessary element in suretyship, and that a surety who provides his pledge or security is deemed to have pledged his personal credit. He also referred us to the case of Re Conley (supra).

In Smith v. Wood (supra), by a memorandum of charge, twelve persons deposited the title deeds of their respective properties and certain insurance policies to secure the payment to the defendant of the debts due from a company to the defendant and they respectively charged their respective properties with the repayment of these sums. Subsequently, one of the guarantors prevailed upon the defendant to release to her the title deeds of three of the properties which she had deposited. The title deeds were handed over to her and she then mortgaged the houses covered by the title deeds to a building society to secure a loan of £600 with interest. When the defendant wanted to realise the properties charged, other than the properties released, the plaintiffs, who were seven of the depositors, brought an action seeking a declaration that the properties deposited by them had been released from liability under the memorandum of charge by virtue of the release of the title deeds to the three properties mentioned earlier. The court of first instance held that the defendant's act in handing over the deeds of the three properties had brought about a substantial alteration in the contract connecting the parties inter se and that consequently the properties of such of the plaintiffs as had not consented to the alteration were released from liability. This judgment was upheld by the Court of Appeal in England.

In the course of his judgment at page 29, Russell L.J. observed as follows:-

"In considering the legal position of the co-mortgagors under the deed in question, two points must be borne in mind. The first is that there is no personal liability of any sort or kind imposed upon them by the deed."

Another case cited to us by both Counsel was Re Conley (supra) where the wife of a bankrupt had deposited with a bank War Loan as security for the bankrupt's indebtedness to the bank. Later the bankrupt's mother deposited certain War Loan and Building Society shares for the same purpose. In depositing the said security in the bank neither the wife nor the mother of the bankrupt gave any covenant or undertaking of any kind to pay any sum to the bank. When large amounts were deposited in the bankrupt's accounts which improved the state of his accounts by making them show a credit balance, both the wife and mother of the bankrupt released and obtained back their securities. Soon after this, the business of the bankrupt was closed down and he was declared a bankrupt. The main point that arose in the case was whether, on the facts, both the wife and the mother of the bankrupt were "sureties or guarantors", and the decision of Parwell J. was that neither of them was, on the true construction of section 14 of the Bankruptcy Act, 1914, a surety or guarantor of the bankrupt in respect of the bankrupt's overdrafts.

The trustee in bankruptcy then appealed to the Court of Appeal which reversed the finding of Farwell J. and remitted the case to the lower court for a rehearing on the ground that although the depositors did not enter into any contract to pay the bank, they were "sureties or guarantors" within the meaning of section 14(1) of the Bankruptcy Act, 1914, which provides as follows:-

"Every conveyance or transfer of property, or charge thereon made, every payment made, every obligation incurred, and every judicial proceeding taken or suffered by any person unable to pay his debts as they become due from his own money in favour of any creditor, or of any person in trust for any creditor, with a view of giving such creditor, or any surety or guarantor for the debt due to such creditor, a preference over the other creditors, shall, if the person making, taking, paying or suffering the same is adjudged bankrupt on a bankruptcy petition presented within three months after the date of making, taking, paying or suffering the same, be deemed fraudulent and void as against the trustee in the bankruptcy."

The Court of Appeal further stated that Farwell J. had placed too narrow an interpretation upon the words "sureties or guarantors."

In the course of the judgment of Sir Wilfred Greene M.R. in the Court of Appeal, he referred to the definitions of "guarantee" and "surety" in several books and after stating that the definitions appeared to postulate the existence of a personal liability of the surety or guarantor in respect of the matter guaranteed, he concluded by expressing the view that the assumption of personal liability is not a necessary element of suretyship.

Similarly, at page 133 Claus on L.J. said:-

"In comparatively modern commercial practice, the pledge (not, as a rule, of hawks or similar chattels, but more commonly of documents of title to chooses in action) has again become common practice, often, for obvious reasons, divorced from any wider obligation to be answered in person or in other property available for execution. These considerations have satisfied me that it would be unsound to treat the phrase 'surety or guarantor' as necessarily connoting a personal liability, and as failing to cover the very case on which the whole conception of suretyship and guarantee appears as a matter of history to be founded, of a person who had provided a pledge without undertaking liability beyond the pledge."

And dealing with the argument advanced on behalf of the trustee that both the mother and wife of the bankrupt were under personal liability to the banks in respect of the overdrafts, Luxmore J. observed at pages 134 as follows:-

"So far as the first point is concerned, the respective contracts between the depositors and the banks are in each case regulated by a written document. In none of these documents is there any express provision that the depositor is to be under any personal liability, and I am unable to appreciate on what ground it can properly be said that personal liability is to be implied, and what is to be its limit. I am satisfied from an examination of the material documents that the intention of the parties in each case was to limit the depositor's liability to the amount of the security deposited, and to exclude any personal liability on the part of the depositor. In my judgment, there is no substance in the first point."

In effect, the three judges in the Court of Appeal concurred in the view that both the mother and wife of the bankrupt were not under any personal liability to the bank.

It seems to us that the main point which falls to be determined in this appeal is whether by virtue of the document (exhibit A), the 1st defendant/appellant had pledged his personal credit or not. The answer to this question can be found within the four corners of the document (exhibit A) which regulated the contractual relationship between the parties. Upon a careful examination of the document, we are in no doubt that:-

(1)     it is a memorandum for the deposit of the deeds listed in the schedule on the back thereof;

(2)     the said deposit of deeds was to be a continuing security by the 1st defendant for the repayment of a loan to the 2nd defendant of sums totalling £10,000 together with interest of 10% per annum; and

(3)     it created a charge on the premises comprised in the deeds with an undertaking on the part of the parties that:-