M.S Awolesi V. National Bank Of Nigeria Limited (1962)
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The facts of this case have been sufficiently and clearly set out in the judgments which will be delivered by my Lords Unsworth, and Bairamian, F.J.J. The authorities to which our attention was drawn at the hearing of the appeal have also been fully dealt with in those judgments and suffice it here for me to direct my attention to what I consider the major issue in this appeal, which I may state shortly as follows:-‘Is the opening of account No.2 by the respondent bank in favour of the principal debtor, a substantial breach of the agreement of guarantee, exhibit ‘C’, entered into between the appellant and the respondent bank?
This agreement was entered into on the 30th December, 1955 and at that time the indebtedness of the principal debtor to the respondent bank was £6,766-16s-9d as deposed to by the Manager of the respondent bank. Clause 1 of the agreement provides inter alia as follows:-
‘In consideration of the Bank (which expression shall include their successors and assigns) continuing the existing account with Emanuel Olasemi Adeyemi Taiwo of 140, Akarigbo Street, Shagamu (hereinafter called the Principal), for so long hereafter as the Bank may think fit……
Now on the 31st December, 1955, again on the evidence of the manager of the respondent Bank, this Shagamu account of the principal debtor stood at £10,096; and in the month of January 1956 a second account was opened by the principal debtor. On the evidence of this witness quite substantial sums were paid into this account and there was little effort made to reduce the indebtedness on the old account. This is what the witness says:-
‘Approximately £29,000 was paid into this account in year 1956. from 1st January, 1957 to 31st March, 1957 approximately £4,00 was paid in.’
‘Defendant opened No.2 account on 12th January, 1956 with deposit of £354. On 21st August, 1957 No.2 account was £2-17s-5d in credit. Up to 31st December, 1956 he paid £14,000 odd into No.2 account.
It should be borne in mind that the opening and operation of this account was done without the knowledge of the appellant who was kept completely in the dark as to what was going on between the respondent bank and the principal debtor. The word ‘continuing the existing account’ in Clause 1 seem to me incapable of any other construction than that the parties had agreed that the account of the principal debtor existing on the 30th December, 1955 shall be continued as such, i.e. in an unbroken state, and that to my mind negatives the opening of a second account in the circumstances disclosed above.
Clause 1 however, goes on to provide that:-
‘…………. or otherwise giving credit or accommodation or granting time to the Principal, I the undersigned, Moses Sowemimo Awolesi, Afin Akarigbo, Shagamu, hereby guarantee, ‘
The respondent bank cannot in my view find shelter under this provision for the opening of the second account is not a giving of credit or accommodation or granting of time in respect of the existing account.
When one goes further and looks at the other clauses in the agreement, one finds that the words ‘ultimate balance’ in clause 3, and ‘account’ in clause 6 can only be read in the light of clause 1 as relating to ‘the existing account’. If the parties intended that the principal debtor should be placed in a position where he could open more than one account, and the guarantee should cover such accounts, then in my judgment they should say so in clear and unambiguous words, for it has been said that the law favours a surety and protects him with considerable vigilance and jealousy. In the case of Ward v. National Bank of New Zealand. (1882-3), 8 A.C. 755 at 764, Lord Justice Cottons observations in Holme v. Brunskill, 3 Q.B.D. 495 are contained in the judgment of their Lordships delivered by Sir Robert P. Collier, which reads thus:-
‘The true rule, in my opinion, is that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and that, if he has not consented to the alteration, although in cases where it is without inquiry evident that the alteration is unsubstantial, and one which cannot be prejudicial to the surety, the surety may not be discharged; yet that, if it is not self evident that the alteration is unsubstantial, or one that cannot be prejudicial to the surety, the Court will not in an action against the surety, go into the effect of the alteration.’
A little earlier their Lordship said at page 763 that:- ,
‘A long series of cases has decided that a surety is discharged by the creditor dealing with the principal or with a co-surety in a manner at variance with the contract, the performance of which the surety had guaranteed.’
Is the variation that has taken place a substantial one? This must always depend on the peculiar circumstances of each case. In the case before us the position is this, that by the terms of the contract the surety would be entitled to the benefit of all sums paid in by the principal debtor into his account and which would undoubtedly go towards the partial liquidation of the principal sum and reduction of the interest payable on same. On the evidence before the trial Judge it was made clear that this second account was in credit at times to the tune of £2,500. In my view without an enquiry by way of ordering the taking of a proper account it is not self evident that the effect of the alteration is unsubstantial or one that cannot be prejudicial to the surety, nor is it an alteration that I can say is patently unsubstantial and not prejudicial to the surety. For these reasons I do not consider it necessary to embark upon an enquiry by way of accounts or other-wise into the effect of this alteration. I would discharge the surety from liability and would allow this appeal and dismiss the claim with costs assessed at 50 guineas in favour of the appellant in this Court. The costs of the Court below to be taxed by the Court.
This is an appeal from the judgment of Irwin, J:, given on the 21st August, 1959, in suit AB/lll/57 of the High Court of the Western Region, in which the Bank sued two defendants-the 1st, E.O. Adeyemi Taiwo, their customer, and the 2nd, his guarantor, who is the appellant-on the claim for £10,023-14s-3d, to which these particulars were appended-’24th July, 1957 To balance of banking account £10,023-14s- 3d.’ The appeal raises the question of the opening of a second account after a guarantee is obtained.
Taiwo, who had an account at the Shagamu branch of the bank, issued a number of cheques which could not be met; on the 30th December, 1955, the appellant signed a guarantee and they were honoured; on the 31st the account, according to the Banks statement, was overdrawn to a little less than £10,100. The limit of the guarantee was £10,500 (plus charges). The Bank then insulated that account as the guaranteed account. Taiwo drew no more on it; but there are credits to it from time to time; and it is debited with interest from month to month. The overdraft in July 1957 stood, according to the Banks statement, at the figure sued for, £10,023-14s-3d. Taiwo submitted to judgment in the suit; his guarantor resisted the claim.
The Bank attached to the Statement of Claim a copy of that account, and did not disclose the fact that in January 1956, a second account was opened for Taiwo at the Shagamu branch. It appeared in the Ledger Book brought by the manager when testifying for the claim; it showed that between January 1956, and July 1957, Taiwo had paid in £33,000 or more, and drew out of it not quite so much. Part of the argument for the guarantor was that, the second account notwithstanding, the Bank was obliged, under the rule in Claytons Case, to credit payments-in to the overdraft, and that prior debts should be satisfied in order of date; for the Bank it was argued that the rule did not apply in the case. The learned Judge held that:-
‘It was not open to the Bank to make a new account during the currency of the guaranteed one so as to prevent the application of the principle of Claytons Case, Devaynes v. Noble, (1816), 1 Mer. 572.
‘In Re Sherry, London and County Banking Co. v. Terry, (1884), 25 Ch. D. 692, Cotton L.J., said:
‘The balance which the surety guarantees is the general balance of the customers account, and to ascertain that, all accounts existing between the customer and the bank at the time when the guarantee comes to an end, must be taken into consideration. So that it would be impossible for the bank to said, to the prejudice of the surety, ‘We carry these sums which have been paid by the customer not to an account of which we ascertain the balance, but to a new account, and we refuse to bring those sums to the credit of his banking account to the relief of the surety.’ That is quite a different thing, and would be an improper dealing, improper in this sense, that it would prevent the balance of the account from being ascertained in accordance with the terms of the guarantee.
‘And in Mutton v. Peat, (1900) 2 Ch. 79, it was held that two accounts of the customer must be treated as one in order not to prejudice the rights of the surety.’
Lower down the learned
Other Citation: (1962) LCN/0967(SC)