Arab Bank (Nigeria) Ltd V. Alhaji Aminu Dantata (1977) LLJR-SC

Arab Bank (Nigeria) Ltd V. Alhaji Aminu Dantata (1977)

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In these proceedings commenced in the High Court of Kano State, the plaintiffs (now appellants) claimed from the defendant –

“the sum of N43,647 under a contract in writing dated 30th September, 1972, whereby the defendant agreed, in consideration of the Plaintiffs granting overdraft facilities to the Kano Dyeing and Printing Factory Limited, to guarantee the payment to the plaintiffs of all sums due by the Kano Dyeing and Printing Factory Limited to the plaintiffs, the said Kano Dyeing and Printing Factory Limited having gone into voluntary liquidation as at 27th August, 1973, and having been due the sum of N174, 589 to the plaintiffs as at that date, which sum is still due and owing to the plaintiffs”.

Paragraphs 3 to 10 of the plaintiffs’ amended Statement of Claim read –

“3. The defendant was a Director of Kano Dyeing & Printing Factory Limited, a limited liability company incorporated in Nigeria and having its head office at 9, Independence Road, Bompai Kano (hereinafter for brevity referred to as “the said company”).

  1. (1) The said company had a bank account with the plaintiffs and the plaintiffs granted overdraft facilities to the said Company upon consideration of the defendant inter alia guaranteeing same.

(2) By written contract dated 30th September, 1972 between the plaintiffs, the said company and inter alia the defendant as guarantor the plaintiffs agreed to extend credit to the company up to N160,000 plus interest, commission and expenses until repayment.

  1. By the said written contract the defendant, in consideration of the plaintiffs granting the aforesaid credit and/or other banking facilities to the said Company, guaranteed to pay the plaintiffs all sums due to the plaintiffs or that may become due to the plaintiffs by the said company.
  2. The plaintiffs duly extended credit to the said Company under the aforesaid written contract and as at 27th August, 1973 the said company was indebted to the plaintiffs in the sum of N174,589 inclusive of interest commission and expenses.
  3. The members of the said company passed a resolution on 27th August, 1973 that the said company be wound up voluntarily and that a liquidator be appointed.
  4. The plaintiffs rank as unsecured creditors in the winding up and the liquidator has informed the unsecured creditors of the said company that he anticipates the total dividends to be paid to unsecured creditors to be in the region of 35%.
  5. That on 25th September, 1974 the liquidator paid a dividend of 25% to the unsecured creditors of the company and the plaintiffs thus received from the liquidator on that date the sum of N43,647 towards the total indebtedness of N174,589 thus leaving a balance due by the company to the bank of N130,942.
  6. The plaintiffs now seek to recover from the defendant under the aforesaid written contract dated 30th September, 1972, one-quarter of the aforesaid sum of N130,942 that is N32,735.50 being his proportion of the total debt due, the other three guarantors having already paid their proportions of one quarter each.

The plaintiffs therefore seek judgment against the defendant in the sum of N32,735.50″.

In his own amended Statement of Defence, the defendant denied most of the averments in the statements of claim. The main plank of his defence is in paragraph 9 which reads:-

“9. Further to paragraph 8 hereof, the defendant would aver that if, which is denied, he is liable to the plaintiffs, he is liable jointly with other directors alleged to be parties to the loan contract for the total sums due and no apportionment of the debt was agreed by the parties to the contract, and in any case if, which is denied, he entered into any undertaking to be liable, he did so in the belief which he gathered from the form of the undertaking, that others therein named also would execute the document and as they did not all execute the document, he denies liability. The defendant would allege that the said other directors have not been sued as arrangements, the extent of which have not been disclosed to the Defendant, have been reached with these other directors.”

It is common ground that the basis of the plaintiffs’ claim is the written Agreement (Exhibit A). It is described therein as a – “contract relating to a bank loan between –

A The Arab Bank (Nig.) Limited Kano Branch represented by Mr. Taysir A. Sharaf and Mr. Ali Obeidat hereinafter named the ‘Bank’;

B. Kano Dyeing & Printing Factory Ltd., hereinafter named the ‘Borrower’; and

C. Personal Guarantees of –

  1. Mr. M.Z. Khatoun;
  2. Mr. J. Aboulafia;
  3. Alhaji Aminu Dantata;


  1. Abdul Latif Osseiran.”

Clauses 13, 18 and 23(d) of the Agreement (Exhibit A) provide as follows:-

“13. The Guarantor whose signature appears below declares that, in consideration of the granting by the bank of this credit and/or other banking facilities to the borrower, he guarantees that the borrower shall fulfil all his undertakings and obligations arising from this contract, and also guarantees to pay to the bank all sums due to the bank or that may become due to the bank in respect of this contract or any extension or renewal thereof, whether such extension or renewal shall take place once or several times.

  1. If this contract is signed by more than one person in their capacity as Debtors or Guarantors, all the signatories shall be severally and jointly responsible to the Bank for the total sum due to the Bank according to this contract.
  2. xxx xxx xxx xxx xxx

(d) If the bank has to sue the borrower and/or Guarantor they undertake jointly and severally to pay all costs, fees, and expenses incurred by the bank plus lawyer’s fees valued at 10% of the total sum claimed.”

(The underlining is ours).

It is also shown in the Agreement (Exhibit A) that it is –

“written in two copies, signed by the parties, each of whom has a copy.”

The word “Guarantor” is defined in the Agreement to include the plural.

We pause here to observe that, notwithstanding the above statement that the Agreement is “signed by the parties”, only three of the guarantors, in fact, executed the Agreement. The first guarantor (Mr. M. Z. Khatoun), who, incidentally, is the founder of the company, did not execute the Agreement. The significance of this omission will be discussed later.

The first witness called by the plaintiff admitted that the guarantors are four in number but that the bank did not sue all the four directors together because they have the right to claim either from all of them together or from one guarantor only. He further admitted that they did not sue Mr. Osseiran and Mr. Khatoun because they had reached an agreement with them by virtue of which those two persons would pay the bank certain sum of money.

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To further questions, the witness (1st P1/W) replied as follows:-

“I agree that Exhibit A was prepared in such a way that four people must sign as guarantors. I agree that only three people signed as guarantors of Exhibit A ………… I agree that we expected all the names listed in Exhibit A to sign. I agree that the three directors who paid their share of the debt did so in pursuance of their connection with Exhibit A. I cannot say whether the bank would pay if only three directors of the Kano Dyeing and Printing Factory Limited have signed.”

When he was questioned about the proportion of the debt already paid by three of the guarantors (including Mr. Khatoun who did not execute the Agreement, Exhibit A), the witness replied –

“I agree that the three guarantors may expect the other to sign. I agree that the three guarantors paid a total of three quarters of the balance shown in Exhibit A. I do not know what each one of them has paid …………………… I agree that the three guarantors paid the three quarters of the debt shown in Exhibit A as a result of their agreement with the bank. The arrangement for the three guarantors to pay the three quarters is not in Exhibit A. I agree that Exhibit A does not contain any method of apportionment of liability of the guarantors. I agree that para. 18 in Exhibit A contains a reference to ‘total sum due’. I agree that the arrangement by bank and three guarantors to pay three quarters of the debt is a gentleman agreement and is not contained in Exhibit A.”

The defendant testified in his defence. He stated that although the four directors agreed to sign the written guarantee jointly, he discovered later that only three of them executed Exhibit A. He agreed that he was one of the guarantors who executed the Agreement. He then observed that since the actual Agreement was not executed by the four directors as guarantors, he was not liable to pay anything because “there is a failure on the side of the plaintiffs to legalise the document”. Under cross-examination, the defendant informed the court that he invested the sum of N180,000 in the company by purchasing 90,000 shares at N2 per share. When questioned about the apportionment of the amount due to the plaintiffs from the company, the defendant replied –

“I say that we have never sat down and discussed with Abulafia as to the question of liability. I did not approach the other directors about individual liability. I was phoned by the plaintiffs asking me to pay 25% of the loan. I did not pay and I did not discuss anything with them about this. I say that even if I heard that the other three directors guaranteeing the loan have paid 25% of the loan each, I am not prepared to pay 25%.”

In dismissing the plaintiffs’ claim, the learned trial Judge observed that the defendant agreed that all the four directors agreed to sign Exhibit A guaranteeing the loan, but that he did not know why Mr. Khatoun did not sign; that there was no suggestion that the defendant agreed to dispense with the signature of Mr. Khatoun on Exhibit A; that having regard to the wording of clauses 13 and 18 of Exhibit A, there is no iota of doubt that the guarators were to be jointly and severally liable to the plaintiffs for the total sum due to the plaintiffs. He then found as follows:-

“I find as a fact that Exhibit A is intended to be signed by all the four directors of the company and that they were to be jointly and severally liable to the plaintiffs after such signature. I also find that Exhibit A was in fact signed by only three directors including the defendant and that there was no evidence to explain why the signature of the fourth guarantor Mr. M.Z. Khatoun was dispensed with. There are also no circumstances present before me to infer such evidence. It is therefore a question of law whether the defendant in this case would be liable to the plaintiffs under Exhibit A.”

The learned trial Judge then referred to the decisions in Hansard v. Lethbridge & Ors (1892) 8 TLR p.346 and National Provincial Bank of England v. Brackenbury (1906) 22 TLR 797. The ratio decidendi of both cases is that where a surety had executed a document in the belief derived from the form of the document that it would be executed by all the sureties named as such in the document as persons who were to sign, he would be relieved from his obligation if all the others did not sign.

Being dissatisfied with the judgment, the bank has now appealed to this court on the following grounds:-

“1 The learned trial Judge erred in law in holding that the cases of Hansard v. Lethbridge & Ors 8. TLR 346 and The National Provincial Bank of England v. Brackenbury (1906) 22 TLR 797 applied to the present action in that there was no condition precedent requiring the guarantee to be signed by particular persons.

  1. The learned trial judge erred in law in not distinguishing the above quoted cases from the present action on the question of contribution.”

In support of the first ground of appeal, learned counsel for the appellants submitted that because the guarantors are described in Exhibit A as “personal guarantors”, the Agreement between the plaintiffs/appellants and the respondent is one between the creditor and an “individual personal guarantor”. Learned counsel also submitted that, in order to seek to avoid the Agreement for non-execution, the respondent must show that there is a term in the Agreement that all the individual guarantors shall execute the Agreement. Learned counsel then pointed out that the ratio decidendi of the two cases relied upon by the learned trial Judge conflicts with the ratio decidendi of the two earlier cases, namely Coyte v. Elphick (1874) 22 WR 541 and Cumberledge v. Lawson (1857) 26 LJCP 120.

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Coyte v. Elphick, referred to by learned counsel for the appellants, is a case where, by a mortgage deed secured by a life insurance policy and by two sureties (one of whom is the defendant), the mortgagor mortgaged his landed property and the policy of insurance and all monies payable under it to the mortgagee. There was power of sale in the deed by the mortgagee of the property and the insurance policy. The defendant mortgagor covenanted that if the mortgagee should be made to execute the power of sale, or if the proceeds should not be sufficient, he (the defendant mortgagor) would pay the deficiency to the amount of 300(pounds). To an action on this covenant, the defendant mortgagor pleaded that no policy was effected and also that one of the sureties had not executed the deed. The court held that it was a condition precedent that a policy should have been effected, and also that in the absence of express provision, it was not a condition precedent that the other surety had signed. This case, to our mind, is clearly distinguishable from the cases relied upon by the learned trial Judge and also from the case in hand. In the Coyte case, and unlike the case in hand, it is the mortgagor, not the joint surety who omitted to sign the deed, who was the defendant. In effect, the mortgagor tried to deny liability on the ground that one of the sureties whose liability is, in any case, separate and distinct from that of the mortgagor who is the principal debtor, did not execute the mortgage deed. We are therefore not surprised that the court held that this omission to execute the deed was not a condition precedent to the defendant mortgagor’s liability.

The second case, that is, Cumberledge v. Lawson is also one in which the principal debtor and not the surety is the defendant. In any case, it was decided mainly on the state of the pleadings. As was pointed out by Creswell, J.-

“the defendant did not say that he never did seal or deliver nor that he delivered the deed as an escrow on condition that P should execute, nor that he was betrayed into sealing and delivering on the faith that he was not to be bound unless P executed; and I find nothing on the face of the plea to lead to the conclusion that there was any such stipulation. All the defendant says is that he executed the deed on the faith that P should execute it. That clearly is not sufficient. If the defendant delivered the deed as an escrow on condition that he was not to be bound unless P executed, he should have so pleaded.”

The underlining is ours).

From the foregoing, it is also clear that Cumberledge’s case is distinguishable from the cases relied upon by the learned trial judge.

The law as to the liability of a surety in circumstances similar to those of the case in hand is well settled.

Thus, in Leaf v. Gibbs (1830) 4C&P466 (NP), it was held that when a person signs a promissory note on a representation that others are to join and one afterwards refuses to sign, the payees cannot recover in an action on the note against the person who signed it, unless the jury are satisfied that such person, knowing the facts and being aware of his rights, had consented to waive his objection.

Again, in Evans v. Brembridge (1855) 69 ER 741, one of two intended sureties executed a deed of covenant for the payment of monies advanced to the principal debtor, on the understanding that the moneys would not be advanced until the deed was executed by the other surety. The deed was never executed by the other surety, and no notice of his failure to execute it was given by the creditor to the executing surety until after the principal debtor had defaulted. It was held in an action, instituted by the creditor against the surety who executed the deed, that the executing trustee was entitled to be discharged in equity from every part of the debt and to have the deed delivered up to be cancelled. As Page-Wood, V-C., has rightly pointed out at pp. 745-746 of the judgment-

“The only doubt I had was whether it might not be the proper course to order the deed to be delivered up upon some terms as that the plaintiff should be bound to the extent of half the sum secured by his covenant; but looking to the other authorities, Leaf v. Gibbs (4 Car. & P. 466) and Rice v. Gordon (11 Beav. 265), which proceeded upon the equities of the parties, it seems to be decided that, when once it appears that the instrument is not such as it was intended to be, this court holds that the legal effect of the instrument is to be got rid of as against the surety. This court, then will look at the original Agreement between the parties to see if it appears that they all intended that the obligation should be joint and several between the co-sureties. In this case, the deed was in that form, and was prepared and framed by the covenantees, who sent it for execution to the plaintiff, thereby giving him the clearest intimation that his liability was intended to be joint and several. After that, it was the duty of the company to inform the plaintiff that the deed was not executed by his co-surety as originally proposed, and to ascertain his view with respect to his altered position. It is impossible to say that it was not materially altered by the plaintiff becoming severally bound, especially in this case, considering the relation of the principal debtor to the other surety. The plaintiff may have calculated on the influence that person might have exercised together with himself in inducing the debtor to discharge his obligation.”

Thirdly, in In the Goods of Cowardin (1901) 18 TLR 220, one surety to an administration bond executed the bond on being assured that the other person named in it as co-surety would execute it. The co-surety refused to do so. Consequently, the name of another surety was inserted in the bond and this person executed it. The first surety did not assent to the alteration. In an action brought to enforce the bond against the first surety, it was held that the bond was void and must be cancelled. The following observation, made by Barnes, J., in his judgment in the case, is particularly apposite:-

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“In ‘Underhill v. Horwood’ (10 Ves., at p. 225) the Lord Chancellor said:- ‘Where a man executes a bond, meaning that it should be the joint bond of himself and another and not his several bond, it would not be his several bond. But the cases go further. In such a case, however, unless there is something special, the man, who had become so severally bound, has a right to have that bond delivered up; for his intention was not to become a mere several obligor, but to be a joint and several obligor, and the rights are different both in law and equity, for if he is only a several obligor he has no remedies over against any one, but if he is a joint and several obligor, or only a joint obligor, there is right of contribution against the other sureties in equity, from the earliest time, and of exoneration from the principal.’ Therefore it was clear how important it was to have a co-bondsman who was approved of in case it ultimately might become necessary to proceed against either.”

In Hansard v. Lethbridge (supra), relied upon by the learned trial Judge, it was held that where a surety executes a document in the belief, derived from its form, that it will be executed by all the sureties named therein as persons who are to sign, he (the surety) will be released from his obligation if all the others do not sign.

The facts of the last case to which we propose to refer – National Provincial Bank v. Brackenbury (1906) 29 TLR 797 – are on all fours with the case in hand. There, a guarantee to a bank for overdraft was, on the face of it, intended to be a joint and several guarantee by four guarantors. Three out of the four signed the guarantee, but the fourth did not sign, though willing to do so, and then died. The court held that those three who signed were not liable to the bank on the guarantee.

The rationale of all those decisions to which we have referred is not far to seek. It is, we think, reasonable for any person who agrees, jointly and severally with others, to guarantee a loan granted by a bank or similar institution to a third party, to signify his agreement to stand as a joint guarantor in the belief that the joint guarantors could, and would, repay the loan if the third party is in default, and the guarantors are called upon by the creditor to pay up. This, to our mind, is the main plank of the defence to the claim in this case. As a general rule, where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectively be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect. What is the part of each must, of course, depend on the circumstances. (See Mackay v. Dick (1881) 6 AC (HL) 251 as per Lord Blackburn at p. 263).

The Agreement (Exhibit A) we recall, states that it shall be “signed by the parties, each of whom has a copy”. There can be no doubt, therefore, that it is a condition precedent to the agreement that Mr. Khatoun and the other guarantors, who are jointly and severally liable with him, would execute the Agreement as joint guarantors. By allowing Mr. Khatoun who, as we have pointed out earlier, is the founder of the company to which the overdraft facility was granted, not to join in the execution of the Agreement, thereby discountenancing his joint obligation thereunder, and without notifying the defendant/respondent, the plaintiffs/appellants have deliberately altered the fundamental basis of the contract of guarantee. The position here is precisely the same as that in the National Provincial Bank of England case (supra), and the learned trial Judge was clearly justified in basing his decision on the ratio decidendi of that case. The first ground of appeal therefore fails.

Learned counsel for the appellant complained in the second ground of appeal that the learned trial Judge was in error in relying on the two cases which we have considered earlier without distinguishing them from the present action on the question of contribution. The short answer to this complaint is this. The right and duty of contribution, as the learned counsel for the respondent has rightly pointed out, is based, not on contract but on the doctrines of equity. Of course, the issue of contribution only arises if the person asked to contribute is a party to the original contract of guarantee. If he has been released from liability under the contract, as is the case in the matter now before us, the issue of contribution does not arise. No person can be called upon to contribute to a non-existent liability. The learned trial Judge was, therefore, right in not considering the issue. It is completely irrelevant.

For all the reasons which we have given above, the appeal fails and it is dismissed. The judgment of the learned trial Judge delivered on 4th March, 1974, in the High Court of Kano State dismissing the plaintiffs/appellants’ claim in Suit No. K/52/197A is affirmed.

Costs in favour of the defendant/respondent are assessed at N100.00.

Other Citation: (1977) LCN/1876(SC)

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