Whether A Bank Has The Right To Recover A Loan Facility Granted To A Customer From Any Available Funds Belonging To Such Customer
CASE TITLE: GENERAL HOUSING & PRODUCTS LTD & ANOR v. ACCESS BANK (2022) LPELR-58897(CA)
JUDGMENT DATE: 27TH OCTOBER, 2022
JUSTICES: THERESA NGOLIKA ORJI-ABADUA, JCA
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GABRIEL OMONIYI KOLAWOLE, JCA
BATURE ISAH GAFAI, JCA
PRACTICE AREA: BANKING LAW
By a loan agreement with the Respondent sometime in 2007, the Respondent granted the Appellants a credit facility of Four Hundred and Fifty Million Naira (N450,000,000.00) to trade in share market. Although, the loan agreement was later mutually amended in terms of its tenure and the Respondent’s prerogative on the shares purchased by the Appellants, the core terms of the agreement remained the same. However, contending that the Respondent wrongly deducted excess amount of N1,471,824,915.75K from their bank account as loan repayments, notwithstanding the Respondent’s deduction of huge interests and penalties on the loan, the Appellants instituted a suit as Plaintiffs at the trial Court seeking several declaratory reliefs and orders.
The Respondent joined issues with the Appellants contending in equal vehemence that it was duly entitled to all the deductions it effected on the Appellants’ bank account.
At the end of trial, the trial Court dismissed the Appellants’ claims. Dissatisfied, the Appellants appealed to the Court of Appeal.
ISSUES FOR DETERMINATION:
The Court determined the appeal on the following issues thus:
“1. Whether having regard to the parties’ pleadings and the materials placed before the Court by the parties, the trial Court was right to have dismissed the Appellants’ claim for One Billion, Four Hundred and Seventy One Million, Eight Hundred and Twenty Four Thousand, Nine Hundred and Fifteen Naira, Seventy Four Kobo (N1,471,824,915.74k) being the excess loan repayment deductions effected on the Appellants’ account domiciled with the Respondent?
- Whether in the light of the issues joined by the parties the totality of the materials placed before the Court and the entire circumstances of the case the trial Court was right to have refused the Appellants’ claim for One Hundred and Fifty Million Naira (N150,000,000.00) being the amount deducted from the Appellants’ account no.0412290000019 as cash collateral for the Four Hundred and Fifty Million Naira (N450,000,000.00) facility granted the Appellants by the Respondent?
- Whether in view of the essential materials before the Court and the entire facts and circumstances of the case, the trial Court was right to hold that the Respondent had no obligation to manage the Four Hundred and Fifty Million Naira (N450,000,000.00) facility it granted the Appellants?”
Learned counsel for the Appellants argued that although in the credit facility agreement between the parties i.e., Exhibit P4, it was agreed that the principal source of realizing the facility was to be from the sales of the Appellants’ shares, the Respondent wrongly proceeded to deduct from the Appellants’ account the sum of N150,000,000.00 which they deposited as collateral for the loan facility. Counsel pointed to certain paragraphs of the Appellants’ 2nd Further Amended Statement of Claim, the credit facility agreement and the evidence of the Respondent’s DW under cross-examination to further support his contentions.
Counsel relying on the case of Kanu Sons & Co. Ltd vs. FBN Plc (2006) submitted that parties are bound by the terms and conditions of the contract they signed. That the Respondent effected the deduction of the said sum notwithstanding the terms of the agreement by which the Respondent took possession of the Appellants’ shares as well as a letter of authority to sell off the shares but which the Respondent took no steps to sell.
The Appellants further pointed to Exhibits P4 and P5, the facility credit agreement and the amended credit facility agreement to buttress their argument that the Respondent was bound to dispose off the shares before resorting to the Appellants’ said cash collateral on the credit facility.
Respondent’s counsel on the other hand, argued that the Appellants failed to realize the right of the Respondent as a mortgagee to pursue any of the legally recognized methods of recovering unpaid debt and in its so doing, cannot be limited to what the Appellants claim to be the Respondent’s first option under the contract. It was further argued that the Respondent’s first option as claimed by the Appellants for the sale of the Appellants’ shares as a first step under the contract is nowhere made a mandatory condition on the Respondent in the pursuit of the debt recovery.
In conclusion, the appeal was dismissed and the judgment of the trial Court was affirmed.
BANKING LAW- LOAN: Whether a bank has the right to recover a loan facility granted to a customer from any available funds belonging to such customer
“In my considered view, the lower Court’s evaluation of the evidence, more particularly on Exhibits P5 and P6 (supra) focused on the Respondent’s right to recover the loan facility from available funds of the Appellants including more particularly the Appellants’ collateral deposit in issue. I have studied Exhibits P4 to P6 carefully in the specific context of whether or not the Respondent is entitled to access and utilize the Appellants’ collateral deposit towards defraying their debt on the loan facility without first having recourse to their shares pledged as a security for the loan.
Firstly, it is not in dispute that the said deposit is only a part of the Appellants’ guarantees on the repayment of the loan facility. It is not in dispute that the sum constitutes the Appellants’ cash collateral for the loan facility. It is the Appellants’ money, unencumbered by any other third party’ claims. As a collateral, Appellants could not by law or under the terms in Exhibits P4 to P6 utilize same for any purpose other than the repayment of the loan facility nor can the Respondent be restrained from drawing therefrom for that purpose. That is the core essence of the Appellants’ cash collateral. The nature of the loan facility, the terms and intention of the parties on their agreements on it i.e., Exhibits P4 – P6 and common sense would not admit of any proposition to the contrary, more particularly the Appellants’ contention that the Respondent has no right to utilize their cash collateral in the manner or at the time it did; an argument that I find to be bereft of any business sense or legal justification. As a creditor, the Respondent reserves the right to use the Appellants’ cash collateral as pledged funds to set off or liquidate the principal amount and accrued interest in the event of default of the availed amount because by the very essence of cash collateral, the borrower pledges same for no other reason than as security for the loan and cannot therefore pick an unfounded quarrel with the creditor on grounds that aim to negate the settled legal character of a collateral. See African International Bank Ltd vs. Integrated Dimensional System Ltd & Ors (2012) LPELR – 9710 (SC).” Per GAFAI, J.C.A.