Auto Import Export V. J.A.A. Adebayo & Ors (2005) LLJR-SC

Auto Import Export V. J.A.A. Adebayo & Ors (2005)

LAWGLOBAL HUB Lead Judgment Report

OGUNTADE, J.S.C. 

The appellant, a Romanian company was the plaintiff at the Lagos High Court. It had on 14/11/79 issued its writ of summons against three defendants claiming for the following:-

“The plaintiff’s claim against the defendants jointly and/or severally is for the sum of N1, 089,743.50 (US.$1,700,000.00) being the balance (plus interest) of the price of motor vehicles, spare parts and machinery (hereinafter called ‘The goods’) sold and delivered by the plaintiff in Lagos to Continental Motors and Engineering Company Limited now under the Management and Receivership of Mr. Basil Adenrele Adu liquidator (hereinafter called ‘the 1st defendant’) which said goods were by an agreement between the 1st defendant and the 2nd defendant transferred to the 2nd defendant for reward, the payment of which said sum of N1,089,743.50 (U.S$1,700,000) having been guaranteed by the 3rd defendant by virtue of a memorandum in writing dated the 20th May, 1975 been to balance price of motor vehicles, spare parts and machinery – N990,448.00 (U.S.$1,153,500) To interest at 5% per annum up to and including 20/5/75 as agreed – N99,295.50(U.S.$153,500) = N 1,089,743.50 (U.S.$1, 700.000)

The defendants have refused to pay despite repeated demands, and the plaintiff also claims interests on the said sum of N1,089,743.50 (U.S$1,700,000) at the rate of 12% per annum from 3/12/77 until the date of judgment and thereafter at the rate of 6% per annum until the judgment debt and costs have been fully paid.”

In the course of the trial before the High Court, the plaintiff amended its statement of claim; and another defendant, Mr. J. A. A. Adebayo (now the 1st respondent) was joined to the suit as the 2nd defendant. The plaintiff later withdrew its suit against Mr. Basil Adenrele Adu, who had at the inception of the suit been sued as 1st defendant.

Pleadings having been filed and exchanged, the suit was heard by Candide Johnson C.J. (of blessed memory). The plaintiff called one witness. The present 3rd respondent who was identified at the trial as the 4th defendant also called one ‘witness. On 16/7/86, the learned Chief Judge in his judgment concluded thus:-

“On the views above held, it is my judgment that the 3rd defendant remains liable to the plaintiff for the payment of the agreed sum of $1.7million dollars otherwise N1, 089,743.50k as claimed in the writ.

I find no case made out against the 2nd and 4th defendants on the claim and the case is dismissed against both the 2nd and 4th defendants. I hereby enter judgment in favour of the plaintiff against the 3rd defendant in the sum of N1, 089,743.50k with interest at 12% per annum from 2/12/77 until today and thereafter interest at 6% per annum until the judgment debt and interest are fully paid.”

It is necessary that I observe here that the 2nd defendant before the High Court is now described in this appeal as 1st respondent, the 3rd defendant as 2nd respondent and the 4th defendant as 3rd respondent. This observation becomes necessary in order to align the description of parties in the High Court with their description in the court below and this Court.

The 2nd respondent was dissatisfied with the judgment of the trial court. It brought an appeal against it. The plaintiff was also I dissatisfied. It brought a cross-appeal of its own. The Court of Appeal (Lagos Division) heard the appeal. In its judgment on 1/7/96, the court below struck out the appeal by the 2nd respondent and dismissed the cross-appeal by the plaintiff. The result was that the judgment of the trial court remained undisturbed. The plaintiff, dissatisfied with the judgment of the court below, has come on a last appeal before this court. In its appellant’s brief, the issues identified as arising for determination in the appeal are these:-

“(1) Whether the appellant had waived its right of recovering the balance of the debt of $1.7million and interest from the 3rd respondent and whether the 3rd respondent can validly rely on the defence of waiver where such was not pleaded.

(2) Whether upon a proper construction of exhibit 5, the endorsement of the three (3) drafts, exhibits 8, 8A, 8B by the 3rd respondent was a mere formality or a recognition of the 3rd respondent’s continued indebtedness to the appellant and a duty under the Bills of Exchange Act to pay the said sum of $1.7million plus interest to the appellant.

(3) Whether upon a proper construction of exhibit 5, the appellant’s right to payment against the 3rd respondent should be determined on the basis of the three (3) irregularly drawn drafts, exhibits 8, 8A and 8B or its further amended statement of claim.

4. Given the circumstances of this case and upon a proper construction of exhibit 5, whether the words ‘without recourse’ indorsed on the three drafts, exhibits 8, 8A and 8B operate to exclude the 3rd respondent from liability of paying the sum of $1.7million plus interest given the circumstances of the transaction.”

The 1st and 3rd respondents through their counsel filed a joint brief wherein they identified the under-mentioned issues as arising for determination.

“(1) Whether the appellant, having taken advantage of the two benefits open to it i.e. by accepting the 3 drafts as drawn without protests or rejection (sic) could at a later date complain that the drafts were wrongly or irregularly drawn.

(2) Whether the 2nd respondent as the acceptor of the three bills of exchange is the person primarily liable on the bills as drawn to the appellant

(3) Was there any further liability attaching to the 1st and 3rd respondents when the 2nd respondent had admitted in writing owing the appellant the entire sum of US$1,700,000.00 US (sic) dollars claimed in the action in its letter dated 12/12/75 pleaded in paragraph 35 of the further amended statement of claim

(4) Whether the phrase ‘without recourse’ inserted in the agreement exhibit 5 protected both the 1st and 3rd respondents from liability in the sum of US$1, 700,000.00”.

The 2nd respondent by its counsel raised one solitary issue for determination thus:-

“Whether the 1st and 3rd respondents have discharged their obligation to pay for goods sold and delivered to the 1st respondent.”

It is appropriate for me to say at this stage that the 2nd respondent against whom the trial court and the court below gave judgment has not appealed to this court against the judgment of the court below. One would ordinarily wonder why the plaintiff had pursued this appeal to this Court, since there is in any case a judgment in its favour against the 2nd respondent. The plaintiff in its notice of appeal stated the reliefs being sought from this Court thus:-

“An order setting aside the decision of the Court of Appeal dismissing the cross-appeal and entering judgment against the 2nd and 4th defendants jointly and severally for the sum of US$1, 700,000.00 (One million seven hundred thousand US Dollars) July, 1996 (sic).”

Since the plaintiff never withdrew its claim against the 2nd respondent and since there is in any case an extant judgment against the 2nd respondent, it is fair to conclude that what the plaintiff seeks by its appeal is a judgment against all of 1st, 2nd and 3rd respondents jointly and severally for the sum claimed.

The issues for determination raised by the 1st, 2nd and 3rd respondents are all amply accommodated under appellant’s issues. I shall therefore be guided by the appellant’s issues. These issues dovetail unto each other. I intend to discuss all four of them together.

But before doing so, I intend to examine and expose the pleadings upon which the suit was tried. The facts pleaded by the parties may be summarized thus:-

The plaintiff, a Romanian company engaged in the business of exportation of motor vehicles and spare parts from Romania reached an agreement on 18/10/69 with a company incorporated in Nigeria Continental Motors and Engineering Company Ltd. (hereinafter referred to as the Nigerian buyer) to sell to the latter various motor vehicles and spare parts (hereinafter referred to as the goods). Written agreements were entered into as to the manner the Nigerian buyer was to pay for the goods. For the purpose of this case, the relevant agreement that was entered into in May, 1971 stipulates that the 3rd respondent – National Bank of Nigeria would give 100% cover or guarantee to the plaintiff for the credit granted to the Nigerian buyer.

It was agreed that 20% of the value of the goods would be paid for within six months of the delivery of the goods to the Nigerian buyer and the balance of 80% was to be paid within two years of delivery.

The balance of 80% was to attract 5% interest per annum. The 3rd respondent on 4/5/71 and 27/6/70 duly gave to the plaintiff written guarantees for the credit extended to the Nigerian buyer. The appellant shipped goods worth US$9,314,565.58 to the Nigerian buyer. The Nigerian buyer defaulted in its obligation to pay for the goods.

On 2/10/72, an extra-ordinary resolution was passed winding up the Nigerian buyer. The plaintiff in an effort to recover the value of the goods shipped to the Nigerian buyer from the 3rd respondent under the deeds of guarantee instructed its solicitors to wind up the 3rd respondent bank. Meanwhile, the 3rd respondent appointed the 1st respondent as the receiver/manager of the Nigerian buyer. In the attempt to avert being wound up, the 3rd respondent agreed to pay the sum due to the plaintiff for the goods sold to the Nigerian buyer.

The 3rd respondent actually paid a substantial portion of the amount due leaving a balance of $1.7million. Some of the assets of the Nigerian buyer were acquired by the 2nd respondent. The assets were worth U.S. $1.7million. On 20/5/95, a meeting was held between the plaintiff, 1st, 2nd and 3rd respondents. A written agreement was reached as to the manner the outstanding sum of $1.7million was to be liquidated through the issuance of three bills of exchange. The bills were later issued but not in the manner agreed.

The bills were dishonoured upon presentment. The 2nd respondent agreed that it was indebted to the plaintiff for $1.7million. In these circumstances, the plaintiff issued its writ of summons claiming as earlier stated.

The 1st and 3rd respondents in their further amended statement of defence denied plaintiff’s claim. In particular they pleaded in paragraphs 2B, 2C, 2D, 4, 7(e) and 8 of the amended statement of defence thus:-

“2B. With further reference to paragraphs 26, 27 of the further amended statement of claim, the 2nd and 4th defendants admit the averment in these paragraphs to the extent that the sum of $1.7 million dollars or (N1, 089,741.50) owing by the 3rd defendant to the plaintiff by the 3rd defendant drawing three drafts on the 3rd defendant Messrs A. Obikoya & Sons Limited for:-

(a) $500,000.00 due on 1/12/75

(b) $600,000.00 due on 1/12/76

(c) $600,000.00 due on 1/12/77 and these drafts would be accepted by the 3rd defendant and, returned to the 4th defendant Bank. The plaintiff ‘without recourse’ to the Bank as full and final payment for the balance of all amounts due to the words ‘without recourse’ inserted in the Memorandum of Agreement dated 20th May, 1975.

2C. With reference to paragraph 37 of the said further amended statement of claim dated 22nd December, 1983, these defendants admit paragraph 37 of the statement of claim to the extent that the 3rd defendant failed and refused to make payment in breach of the Memorandum of Agreement of the 20th May, 1975 while the 2nd and 4th defendants deny categorically any demand by the plaintiff from them the recovery of the said amount of $1.7million dollars or (N1,089,743.50).

2D. The 2nd and 4th defendants will rely on both legal and equitable defences at the trial of this action especially that these defendants are not liable since the 2nd defendant had transferred all the assets of the Continental Motors and Engineering Company Limited to the 3rd defendant A. Obikoya & Sons Limited who have accepted liability to pay the outstanding bills amounting to $1.7million U. S. Dollars or (N1,089,743.50).

4. The 4th defendant will contend at the trial that it has discharged its obligations on the Memorandum of Agreement dated 20/5/75 and has no further liabilities to discharge to the plaintiff, and the 2nd defendant will also contend that he will not be liable since he has transferred all assets of Continental Motors and Engineering Company Limited to the 3rd defendant A. Obikoya & Sons Limited who then accepted liability for the sum of $1.7million U.S. Dollars in accordance with the agreement dated 20/5/75.

7(e). The 3rd defendant having accepted the three drafts i.e:-

1) $500,000.00 due on 1/12/75

(2) $600,000.00 due on 1/12/76

(3) $600,000.00 due on 1/12/77

drawn by the 2nd defendant and accepted by the 3rd defendant A. O. Obikoya & Sons Limited and endorsed by the 4th defendant to the Romania Bank without recourse to the 4th defendant denies any liability to the plaintiff in the said sum of $1,7million dollars with interest claimed (N1,089,743.50) nor in any sum or at all.

8. In further answer to paragraph 33 of the further amended statement of claim, the 4th defendant contends that the said 3 drafts amount to $1.7million dollars were regularly drawn in compliance with the provisions of the Memorandum of Agreement dated 20th May, 1975.

In the alternative the 2nd and 4th defendants contend that, the 3rd defendant having accepted to provide funds for payment of the drafts will be liable to dishonouring the bills.”

The 2nd respondent in paragraphs 1 to 4 of its amended statement of defence pleaded thus:-

“1. Save except as are hereinafter specifically admitted the 3rd defendant denies each and every allegation of fact contained in the further amended Statement of Claim as if each were set out seriatim, and separately denied.

2. The 3rd defendant denies paragraphs 1-4, 7-42 of the further amended statement of claim.
3. If (which is not admitted) the 3rd defendant is under a contractual obligation to pay any sum of money to the plaintiff such obligation cannot be performed without the consent of the Federal Minister of Finance given pursuant to the Exchange Control Act, 1962.
4. Neither the Federal Minister of Finance nor the Central Bank (to whom the Minister’s powers have been duly delegated) have given his permission or consent to the transaction giving rise to the alleged obligations of the 3rd defendant to pay money to the plaintiff.”

At the trial, the plaintiff’s only witness testified in support of plaintiff’s case. The witness called by the 3rd respondent also testified.”

At page 311 of the record, the only defence witness testified thus:”

There is an agreement by the parties for 3rd defendant to pay the amount claimed. Exhibit 5 shown to the witness. I identify exhibit 5 as the agreement. The three drafts were endorsed by all the parties and sent to Romanian Company. In Banking, ‘without recourse’ discharge the endorser from liability. All assets of the Continental Motors were duly transferred to Obikoya & Sons as agreed:’

It is apparent that the only defence which the 3rd respondent canvassed at the trial was that as the three bills of exchange were endorsed by all the parties and sent to the plaintiff in accordance with the terms of the agreement, exhibit 5, the 3rd respondent was discharged from further liability to the plaintiff because the bills of exchange were endorsed ‘without recourse’ to the 3rd respondent.

The first matter to be considered is exhibit 5. Did the terms of exhibit 5 extend enough to absolve the 3rd respondent from liability to the plaintiff on the outstanding sum of $1.7million The trial court in its judgment almost exclusively relied on exhibit ‘5’ and the futile attempts by parties to comply with its terms. At pages 368-369 of the record, the trial court in its judgment said:-

“All the agreed terms except those in paragraph 4(ii) gave no cause for dispute. The drafts were issued but not by the bank as agreed. They were accepted by the 3rd defendant and the plaintiff also accepted the endorsement without complaint and negotiated it. The complaint arose because the proceeds of the bills of exchange were not paid to the plaintiff. The drafts exhibits 8-8a were dishonoured and duly protested by exhibits 9-9B. The amount of $1.7million dollars due on the said bills remain unpaid hence this action.

It is not and cannot be disputed that the basis of this action is the agreement in exhibit 5. The question which I believe the court is called upon to decide is, which of the defendants 2-4 is liable to make good the sum due” (Italics mine)

From the question which the trial court framed in the passage underlined above, one gets the impression that the trial court believed that the plaintiff’s case was solely based on the dishonoured bills of exchange. I shall later in this judgment discuss the correctness of that approach. The trial court went further at pages 371-373 of the record to express the views, which spelt the death knell to the plaintiff’s case against 3rd respondent thus:-

“There is no doubt that the plaintiff was entitled to insist on the issue of the drafts in the terms of exhibit 5. When however it accepted and negotiated the drafts as issued though wrongly, it is deemed by at least conduct, to have waived its insistence on its right to the proper mode of issue.

Is the obligation of the 4th defendant we may ask discharged by that act of waiver To this end we have recourse to the term ‘without recourse’ to the bank in exhibit 5. Can the plaintiff come back again to the 4th defendant after accepting the drafts as issued on the failure to eslise (sic) the proceeds The answer would appear to be no. But let us examine it fully. The 4th defendant had got the drafts prepared though wrongly and endorsed it to the Romanians, ‘without recourse’ to it i.e. the Bank. At that stage the 4th defendant’s obligation would appear to have been fully discharged on acceptance by the plaintiff without protest or rejection. The full import and meaning of the words ‘without recourse’ is again provided in Black’s Dictionary (supra) when in defining recourse it states:-

‘To recur. The right of a holder of a negotiable instrument to recover against a party secondarily liable, e.g. prior endorser. Therefore, if a prior endorser signs without recourse, he exempts himself from liability for payment.

Again the same author defined the phrase ‘without recourse’ thus:-

This phrase, used in making a qualified endorsement of a negotiable instrument, signifies that the endorser means to save himself from liability to subsequent holders, and is a notification that, if payment is refused by the parties primarily liable, recourse cannot be had to him. An endorser ‘without recourse’ specially declines to assume any responsibility for payment. He assumes no contractual liability by virtue of the endorsement itself, and becomes a mere assignor of the title to the paper, but such an endorsement does not indicate that the endorsee takes with notice of defects, or that he does not take on credit of the other parties to the note.”

Is the discharge of the 4th defendant complete as between the parties primarily liable 3rd defendant is the person primarily liable to discharge the outstanding debt.”

The court below took the same view with the trial court when at pages 553-554 of the record it said in its judgment:-

“In this case, waiver was not specifically pleaded by any of the parties at the trial. The nearest’ of this was in paragraph 2D of the statement of defence of the 1st and 3rd respondents where they pleaded reliance on both legal and equitable defences. But from the pleadings of the parties and the evidence at the trial, it is not in dispute that there was an irregularity or breach of the terms and conditions of exhibit 5 by which the parties were bound, in drawing up the three drafts exhibits 8, 8A and 8B.

The pleading and evidence has shown that despite this irregularity, the plaintiff/respondent accepted the drafts and acted on them accordingly. Under this situation, the trial court, in my respectful view, is entitled to assume from the conduct of the plaintiff/respondent, that having failed to raise any objection at the time the drafts were presented to it, has decided to abandon its right to have the drafts correctly drawn up in compliance with the provisions of exhibit 5. I agree with the learned Chief Judge when, in his judgment at p.371 of the record said:’

There is no doubt that the plaintiff was entitled to insist on the issue of the drafts in terms of exhibit 5. When however it accepted and negotiated the drafts as I said though wrongly, it is deemed by at least conduct to have waived its insistence on its right to the proper mode of issue.’

Since waiver was the central basis upon which the two courts below decided the case, it is necessary to examine closely exhibit 5 in relation to exhibits 8, 8A and 8B in order to ascertain whether or not the plaintiff had by accepting and negotiating exhibits 8, 8A and 8B waived its right to insist on performance by the 3rd respondent of the terms of exhibit 5. The relevant part of exhibit 5 provides:-

“4. Agreement has today been reached at this meeting as follows:-

(i) The Bank has agreed to pay to the Romanians by giving instructions to the Central Bank of

Nigeria and/or the Bank’s Foreign correspondents within 48 hours to pay the sum of U.S. $5,293.781.97.

The Bank would draw three drafts on Messrs. A. Obikoya & Sons Limited for:-

(a) $500,000.00 due 1/12/75

(b) $600,000.00 due 1/12/76

(c) $600,000.00 due 1/12/77.

totalling U.S. $1,700,000.00. These drafts would be accepted by Messrs A. Obikoya & Sons Limited and returned to the Bank within 7 days from the date of this agreement. The Bank will endorse these drafts to the Romanians, without recourse to the Bank, as full and final payment for the balance of all amounts due to the Romanians.

(ii) In consideration of (ii) above, the bank has agreed to transfer to Messrs. A. Obikoya & Sons Limited, all the assets of Continental Motors and Engineering Company Limited taken over by the Receiver and Manager, excluding freehold landed properties, as at 14th October, 1974 subject to the following conditions:-

(a) all debts due to the Continental Motors and Engineering Company Limited as at 14th October, 1974 will be collected by Messrs. A. Obikoya & Sons Limited for account of and on behalf of the Receiver and Manager and/or the Bank, after deducting commission at the agreed rate.

The Receiver and Manager and/or Bank will account to A. Obikoya & Sons Limited for proceeds of all assets sold from 14th October, 1974 up-to-date, less expenditure incurred.

The Bank will not pay any custom duty, rents, N.P.A charges or any other expenses whatsoever in respect of the goods.

The Bank will not be responsible for payment of any expenses in respect of, or incurred by, Continental Motors and Engineering Company Limited in any respect whatsoever after 21st May, 1975 with the exception of the salaries and wages of staff who are on the register of the Company as at 20th May, 1975 and in respect of such staff, the Bank’s liability would be limited to salaries, wages and allowances up to 4th June, 1975 plus where necessary, salary in lieu of notice for a period not exceeding one month from that date.”

Under the terms of exhibit 5 above in paragraph 4(ii), the 3rd respondent was to draw three drafts on the 2nd respondent for a total sum of U.S. $1,700,000.00. The sum of US $500,000.00 was due on 1/12/75, U.S. $600,000.00 due on 1/12/76 and U.S. $600,000.00 due on 1/12/77. These drafts were to be accepted by the 2nd respondent and returned to the 3rd respondent within 7 days.

The 3rd respondent would then endorse the drafts to the plaintiff without recourse to itself. It was in an attempt to satisfy the terms of the agreement between the parties that the bills exhibits 8, 8A and 8B were made. Whereas, under exhibit 5, the 3rd respondent was to draw the bills of exchange, the bills exhibits 8, 8A and 8B were in fact drawn by the 1st respondent. The bills were accepted by the 2nd defendant and later they were endorsed by the 3rd respondent to the plaintiff. The 3rd respondent which had not drawn the bill as was required of it under exhibit 5 then endorsed the bills “without recourse” to itself. The bills when later negotiated were dishonoured.

The plaintiffs protested them and later sued.

Both the trial court and the court below took the view that since the bills exhibits 8, 8A and 8B were not drawn in accordance with the terms of exhibit 5, the plaintiff was at liberty to return the drafts and ask that they be redrawn; and that having negotiated the bills in the form in which they were drawn, the plaintiff had thereby waived its right to contest that the bills were improperly issued.

The 1st and 3rd respondents’ counsel in his brief of argument before this Court argued that since the plaintiff/appellant accepted the bills without protesting that they were irregularly drawn or issued, it had waived its right to complain later. Counsel relied on Ariori v. Elemo (1983)1 SC 13 at 18, (1983)1 SCNLR 1, Adegoke Motors Ltd. v. Dr. L. Adesanya (1989)3 NWLR (Pt.109) 250 at 255; Smyth Ross J. & Co. Ltd. v. Banley, Sons & Co. (1940) 3 All ER 60; Odu’a Investment Co. Ltd. v. Talabi (1997)10 NWLR (Pt.523)1 at 50-57.

Plaintiff’s/appellant’s counsel for his part argued that waiver, being an equitable defence could not be relied upon to defeat or over-ride a party’s right to property. He relied on Ogboru v. Ibori, a decision of the Court of Appeal, Benin division on 13/7/05. Counsel further argued that in any case parties did not raise ‘waiver’ in their pleadings.

Now in Ariori & Ors. v. Elemo & Ors. (1983) N.S.C.C. 1 at page 8 (1983)1 SCNLR 1 at p. 13, this Court per Eso J.S.C. discussed the nature of waiver thus:-

“In the con of this appeal therefore, the first question that one asks is ‘what is waiver’ Rather than define the word, it is probably appropriate just to describe its concept. Foras Pollock said, waiver is a simple and wholly untechnical concept perhaps the most powerful and flexible instrument to be found in any system of court jurisprudence. The concept of waiver must be one that presupposes that the person who is to enjoy a benefit or who has the choice of two benefits is fully aware of his right to the benefit or benefits, but he either neglects to exercise his right to the benefit, or where he has a choice of two, he decides to take one but not both. see: Vyvyan v. vyvyan 30 Beav 65 as per Sir John Romilly M.R. at p.74 (reported also in 54 E.R. 817). The exercise has to be a voluntary act. There is little doubt that, a man who is not under any legal disability, should be the best judge of his own interest. If therefore, having full knowledge of the rights, interests, profits or benefits conferred upon or accruing to him by and under the law, but he intentionally decides to give up all these, or some of them, he cannot be heard to complain afterwards that he has not been permitted the exercise of his rights, or that he has suffered by his not having exercised his rights. He should be held to have waived those rights. He is, to put it in another way, estopped from raising the issue. See also Halsbury Laws of England 3rd Edn. Vol. 14 – para. 1175. The trial court and the court below rightly held in my view that it was open to the plaintiff/appellant to have refused to accept the bills exhibits 8, 8A and 8B on the ground that they were not drawn in the manner agreed in exhibit 5; and that not having so refused them had waived its right to complain that the bills were not validly issued. It is however important to understand the nature of the right that the plaintiff/appellant waived by such non-objection. The deep error into which both courts below fell was to assume that the plaintiff/appellant by negotiating the bills had thereby agreed to forfeit its right of action against the 3rd respondent on the contract of guarantee.

But first let me deal with the argument by the plaintiff’s/appellant’s counsel that ‘waiver’ was not an issue on the pleadings.

It must be understood that the law applicable to bills of exchange is largely statutory, and in Nigeria, the applicable law is the Bills of Exchange Act, Cap.35, 1990 Laws of the Federation. Once a bill of exchange which ex-facie fulfills all the essential pre-requisites as stipulated under the Act has come into existence, the determination of the liabilities of the parties to the bill must be determined as laid down under the Act. The plaintiff/appellant by negotiating the bills in the form in which they were drawn gave them the appearance of bills validly drawn under the Law. If the plaintiff had rejected the bills and insisted that they be drawn in accordance with exhibit 5, it would not have become an issue in the proceedings that the bills were improperly issued. Having agreed that the bills were validly drawn by negotiating them, the plaintiff/appellant could not stop the courts below from treating the said bills otherwise than as provided under the Bills of Exchange Act. It is only to that extent that the plaintiff/appellant could be said to have waived its right. Given the circumstances of this case, it was only necessary for the 3rd respondent to plead the facts which estopped the plaintiff/appellant from contesting that the bills were not issued in accordance with the terms of exhibit 5. And precisely, this was what the 3rd respondent did in paragraphs 7(e) and (8) of its further amended statement of defence earlier reproduced. Once more I reproduce it:-

7(e) The 3rd defendant having accepted the three drafts i.e.:-

(1) $500,000.00 due on 1/12/75

(2) $600,000.00 due on 1/12/76

(3) $600,000.00 due on 1/12/77

drawn by the 2nd defendant and accepted by the 3rd defendant A. O. Obikoya & Sons Limited and endorsed by the 4th defendant to the Romania Bank without recourse to the 4th defendant denies any liability to the plaintiff in the said sum of $1.7million dollars with interest claimed (N1,089,743.50) nor in any sum or at all.

In further answer to paragraph 33 of the further amended statement of claim, the 4th defendant contends that the said 3 drafts amount to $1.7million dollars were regularly drawn in compliance with the provisions of the Memorandum of Agreement dated 20th May, 1975.

In the alternative the 2nd and 4th defendants contend that, the 3rd defendant contend that, the 3rd defendant having accepted to provide funds for payment of the drafts will be liable to dishonouring the Bills.”

What the 3rd defendant pleaded above was that the plaintiff, having received and negotiated exhibits 8, 8A and 8B in the form in which they were drawn could no longer argue that they were not validly issued. I think that the argument of plaintiff’s/appellant’s counsel that the 3rd respondent did not plead waiver is not well founded. A party’s duty is to plead relevant facts and to leave the court to apply the law or determine the consequences in law upon the facts pleaded.

In Nwadiaro v. Shell Development Co. Ltd. (1990)5 NWLR (Pt.150) 322 at 333-334, Kolawole JCA (of blessed memory) when confronted with a similar position observed:-

“The settled principle of law which is of great antiquity and which has been restated in many authoritative decisions of the courts was stated by Farwell, L.J., thus:-

‘But, as the point of pleading is of some importance and was strenuously argued, I propose to state my opinion on it. Order xix, r.4, provides that – ‘every pleading shall contain, and contain only, a statement in a summary form of the material facts on which the party pleading relies …’ – i.e., the pleader must plead facts, not law, and must not plead the evidence in support of his facts.’

(See North- Western Salt Company Ltd. v. Electro Lytic Alkali Co. Ltd. (1913) 3 K.B. 422 at 425.)

There is a vital distinction between pleading law, which is not permitted, and raising a point of law in a pleading, which is permitted under rule 1 of Order 29 aforementioned. Pleading law obscures or conceals the facts of the case; raising a point of law defines or isolates an issue or question of law on the facts as pleaded.

Scrutton, LJ., put it in another way. He observed in Lever Brothers Ltd. And others v. Bell and Another (1931) 1 K.B. 557.

‘The practice of the courts is to consider and deal with the legal result of pleaded facts, although the particular result alleged is not stated in the pleading.’

The inferences of law to be drawn from the pleaded facts need not be stated in pleadings. Thus, if the material facts are alleged, it is not necessary to plead an implied warranty. (Per Denning, L.J., in Shaw v. Shaw (1954) 2 Q.B. 429 page 441). (See also The Supreme Court Practice 1985 Volume 1 pages 261-262).”

Similarly in Re Vandervell’s Trusts No. (2) (1974) 3 All ER 205 at 213 Lord Denning M.R. said:-

“It is sufficient for the pleader to state the material facts.

He need not state the legal result. If, for convenience, he does so, he is not bound by, or limited to, what he has stated. He can present, in argument any legal consequence of which the facts permit. The pleadings in this case contained all the material facts.”

Surely, the plaintiff/appellant in that case could not have expected the courts below not to treat the bills as valid bills of exchange when ex-facie they comply with the requirements of the law under the Bills of Exchange Act, Cap.35. In that narrow sense, it is my view that the two courts below were right in holding that the plaintiff/appellant by negotiating the bills had waived its right to complain as to the manner the bills were drawn.

Sections 16,54 and 55(1)(a) and (b) of the Bills of Exchange Act Cap 35 provide:-

“16. The drawer of a bill and any endorser may insert therein an express stipulation:-

(a) negativing or limiting his own liability to the holder;

(b) waiving as regards himself some or all of the holder’s duties.”

The acceptor of a bill by accepting it:-

(a) engages that he will pay it according to the tenor of his acceptance;

(b) is precluded from denying to a holder in due course:-

(i) the existence of the drawer, the genuiness of his signature, and his capacity and authority to draw the bill;

(ii) in the case of a bill payable to drawer’s order, the then capacity of the drawer to endorse, but not the genuiness or validity of his endorsement;

(iii) in the case of a bill payable to the order of a third person, the existence of the payee and his then capacity to endorse but not the genuiness or validity of his endorsement.

55(1) The drawer of a bill by drawing it:-

(a) engages that on due presentment it shall be accepted and paid according to its tenor, and that if it be dishonoured, he will compensate the holder or any endorser who is compelled to pay it, provided that the requisite proceedings on dishonour be duly taken;

(b) is precluded from denying to a holder in due course the existence of the payee and his then

capacity to endorse.”

The relevant facts of this case which were undisputed are these:-

(1) That the 1st respondent drew the bills exhibits 8, 8A and 8B.

(2) That the 2nd respondent was the acceptor of the said exhibits 8, 8A and 8B and that the acceptance was unqualified.

(3) That the 3rd respondent negatived his liability on the bills by endorsing it “without recourse.”

(4) That the bills on presentment were dishonoured.

Under the Bills of Exchange Act, the 1st and 2nd respondent as drawer and acceptor respectively of the bills should have been held jointly and severally liable to pay the total value of the bills which is US$1.7million. There was no basis to exclude the 1st respondent from liability as the two courts below did. Their liability is as prescribed under sections 54 and 55 of the Bills of Exchange Act above.

The liability of the 3rd respondent under the Bills of Exchange Act is however a different matter. Section 16 of the Act permits an endorser to limit or negative its liability under a bill of exchange.

The plaintiff/appellant having negotiated the bills, which carried the endorsement “without recourse”, would appear to have accepted that it had no right of action against the 3rd respondent under the Bills of Exchange Act. The meaning of the phrase is as explained in the passage of the judgment of the trial court which I reproduced earlier.

Put simply, the phrase conveys to subsequent endorsees and holders in due course that the 3rd respondent was not liable on the bills.

The conclusion is inevitable that the 3rd respondent having negatived its liability on the bills of exchange could not be held liable on the said bills. The two courts below, in so far as they relied on Section 16 of the Bills of Exchange Act were right in their.

conclusion that the 3rd respondent could not be held liable under exhibits 8, 8A and 8B.

But was the 3rd respondent entitled to walk away free from liability under plaintiff’s suit I think not. The two Courts below viewed plaintiff’s claim rather too narrowly. They both assumed that plaintiff’s claim against the 3rd respondent was based exclusively on the dishonoured bills of exchange. But a perusal of plaintiff’s pleadings reveals that plaintiff’s case was more broadly based than appreciated by the two courts below. Plaintiff’s claim was founded on two planks namely (1) the dishonoured bills of exchange exhibits 8, 8A and 8B and (2) the deeds of guarantee, which the 3rd respondent executed in order to get the plaintiff grant credit to the Nigerian buyer. In paragraphs 13, 14, 15, 24,25,26,27 and 28 of the further amended statement of claim, the plaintiff pleaded thus:-

“13. By a guarantee in writing dated 4th May, 1971, given by the 4th defendant to the plaintiff, the 4th defendant guaranteed to the plaintiff payment of the value of the various tractors and spare parts supplied by the plaintiff to the said Continental Motors and Engineering Company Limited in accordance with the said Agreement dated 27th June, 1970 and the additional sales contract dated 4th May, 1971, and under the terms and conditions therein expressed.

It was further a term of the said Guarantee that the said Guarantee shall be a continuing guarantee for all moneys due and payable and to become due and payable to the plaintiff as above. The plaintiff will at the trial of this action rely on the said Guarantee for its full terms and effect.

In pursuance of the said Agreement the said Continental Motors and Engineering Company Limited got the 4th defendant to provide the necessary respective irrevocable Bank Guarantee and, upon the 4th defendant opening the necessary respective irrevocable Letters of Credit in favour of the said Auto-Tractor Bucharest at the 4th defendant’s London Branch, the various vehicles and spare parts as a reed under the said Agreements shipped by the Auto-Tractor Bucharest to the said Continental Motor and Engineering Company Limited in Lagos which took delivery of the same in Lagos, between 1970 and 1972 at the total invoice price of US$9,314,565.58”

“24. The 4th defendant Bank then appointed Mr. J. A. A. Adebayo, as the .receiver and Manager of the said Continental Motors and Engineering Company Limited (the 2nd defendant) and called a meeting of the representatives of the plaintiff, A. Obikoya and Sons Limited (the 3rd defendant) and the said Receiver and Manager to explore the possibilities of settling the outstanding account.

25. The meeting was held in Lagos on the 20th day of May 1975 and a Memorandum of Agreement dated 20th May, 1975 was drawn up and signed by the representatives of the plaintiff, A. Obikoya and Sons Limited, the 4th defendant Bank and the said Receiver and Manager.
26. Under the said Agreement, the 4th defendant agreed to pay the sum of US $9,314,565.58 representing the invoice value only of all the vehicles, spare parts and components shipped to the said Continental Motors and Engineering Company Limited by the 4th defendant, and also less an amount to be agreed for which a draft was to be drawn by the 4th defendant on 3rd defendant and to be accepted by the 3rd defendant and endorsed by the 4th defendant in favour of the plaintiff in full and final settlement of the outstanding account.
27. It was further agreed under the said agreement, inter alia, as follows:-

(1) The 4th defendant agreed to pay to the plaintiff by giving instructions to the Central Bank of Nigeria and/or the 4th defendant’s foreign correspondents the sum of US $293,781.97

(2) The 4th defendant should draw three drafts on the 3rd defendant for:-

(a) US $500,000.00 due on 1st Dec. 1975

(b) US $600,000.00 due on 1st Dec. 1976&

(c) US $600,000.00 due on 1st Dec. 1977

Totalling US $1,700,000.00

These drafts should be accepted by the 3rd defendant and returned to the 4th defendant which endorse them to the plaintiff in full and final settlement of the outstanding account.

The plaintiff will at the trial of this action, rely on the said drafts for their full terms and effect.

28. The said sum US $1,700,000.00 represents the value put on all the assets of the said Continental Motors and Engineering Company Limited excluding freehold landed properties which the said Receiver and Manager of Continental Motors and Engineering Company Limited would transfer to the 3rd defendant under the said agreement.”

In the above paragraphs, the plaintiff pleaded that it granted credit to the Nigerian buyer on the basis of deeds of guarantee executed in its favour by the 3rd respondent. A default did occur when the Nigerian buyer could not pay for the goods supplied it by the plaintiff. In accordance with the terms of the deeds of guarantee, the 3rd respondent agreed to pay the whole of the money owed to the plaintiff by the Nigerian buyer. Indeed, the 3rd respondent did pay about US$7.5miliion dollars out of the money leaving a balance of US$1.7million.

It was in order to lessen or remove the burden on the 3rd respondent that exhibit 5 was made. The underlying assumption upon which the terms of exhibit 5 were agreed as made manifest by events

leading to the making of exhibit 5 was that the bills exhibits 8, 8A and 8B when drawn and paid would release the 3rd respondent from further liability to the plaintiff on the deeds of guarantee. The reality underlying exhibit 5 was that the identified assets of the Nigerian buyer worth US$1. 7million would be acquired by the 2nd respondent so that a release could be secured by 3rd respondent for that amount upon payment of the bills of exchange exhibits 8, 8A and 8B. As it turned out, the bills were dishonoured. It seems clear to me that the dishonour of the bill was as much an injury to the plaintiff as it was to the 3rd respondent since it destroyed the only lifeline thrown to the 3rd respondent to extricate itself from the obligations it entered into under the deeds of guarantee for the debts owed by the Nigerian buyer.

It would in my view amount to a monumental failure of justice to allow the 3rd respondent who guaranteed the re-payment of the credit granted by the plaintiff to the Nigerian buyer to walk away free from liability while the debt, the re-payment of which it guaranteed remained unpaid. The two courts below should have seen that the recourse to exhibit 5 and the drawing of bills of exchange was the culmination of the attempts made by the plaintiff to force the 3rd respondent to honour its obligation under the deeds of guarantee rather than an escape route for the 3rd respondent.

Indeed, it would have turned out to be a true escape route had the 2nd respondent honoured the bills of exchange it accepted.

It seems to me also that the error of the two courts below was in treating plaintiff’s case as solely an action under a dishonoured bill of exchange. If the plaintiff had elected to base its claim solely

on the Bills of Exchange Act, there would have been no need for it to plead the transactions between it and the Nigerian buyer pursuant to which the 3rd respondent executed deeds of guarantee in its (plaintiff’s) favour. The plaintiff would only have pleaded the facts, which enabled the liabilities of the parties to the bills to be determined under the Bills of Exchange Act. This is because, consideration, an important element under the law of contract is generally presumed in an action brought under the Bills of Exchange Act. Further, in the manner the two courts below treated the issue of waiver, it was assumed that what the plaintiff waived was the right to be paid the balance due to it under the deeds of guarantee executed in its favour by the 3rd respondent. It is however manifest that the right, which the plaintiff could be deemed to have waived is not to contest that the liabilities under the bills be determined otherwise than as provided under the Bills of Exchange Act.

In the final conclusion, the judgments of the two courts below are set aside. In its place, judgment is given against the 1st, 2nd and 3rd defendants jointly and severally for the sum of US $1.7million.

The judgment sum shall attract interest at the rate of 12% per annum from 2/12/77 until 16th July 1986 when the judgment of the trial court was given and thereafter interest at 6% per annum until the judgment debt and interest are fully paid. The appellant is entitled to costs against the 3rd respondent which I fix at N 10,000.00.

SC.49/1997(2)