INTRODUCTION
Disputes between Bankers and their customers, whether savers or borrowers are inevitable like in any other commercial contractual transactions, due to risk factors which are not the focus of this Legal Illumination. Some of these disputes will of course be resolved at customer care desks or via emails or phone calls, while some will end up in the court of law for adjudication.
Bank customers as well as Bankers in Nigeria have lost billions of naira as result of engaging Lawyers who lack depth in Banks and Customers dispute jurisprudence. Thus, the focus of this edition of Akintunde Esan's Legal Illumination is on Nigerian jurisprudence on some of the issues of disputes between Banks and their Customers in Nigeria.
A. BANKER AND CUSTOMER RELATION
1. Banker and Customer Contract
The relationship that exists between a banker and customer is one founded on a banker and customer contract with special usage peculiar with monetary or commercial transactions. It involves the use of special documents and terms such as collaterals, mortgages and debentures. I.O.M Nwoye & Sons Ltd v. C.C.B Plc. (1993) 8 NWLR (Pt. 310) 210.
2. Status of Banker and Customer Relationship on Credit Balance
The relationship of a banker and customer is contractual. It is essentially that of a debtor to a creditor, in the case of credit balances. The bank undertakes to receive money and to collect bills for its customer's account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them. The customer on his part undertakes to exercise reasonable care in executing his written orders so as not to mislead the bank or to facilitate forgery. See: Atkin L.J. in Joachimson v. Swiss Bank Corp. (1921) 3 K.B. 110 at 127; Purification Techniques (Nig.) Ltd. v. Attorney General of Lagos State (2004) LPELR-7424(CA) 23-24, paras. F-F, per Galadima, J.C.A
3. Status of Monies Standing to the Credit of Customer in Bank’s Account
Given the nature of the relationship between banker and customer and of the contract that exists between them. The customer has neither the 'custody' nor 'the control' of monies standing in his credit in an account with the banker. What the customer possesses is a contractual right to demand repayment of such monies. There is no issue of customer’s property in the credit balance of a bank account. See: Hirschhorn v. Evans (1938) 3 All E.R. 491; Joachimson v. Swiss Bank Corp. (supra); Foey v. Hill (1882) 2 HL Cas. 28; Yesufu v. A.C.B. (1981) 1 SC 74, (1981) 12 NSCC 36; Balogun v. N.B.N. (1978) 3 SC 155; (1978) 12 NSCC 36.
4. The Status of the Monies of Judgment Debtor Customer with Garnishee Banker
Monies in the hands of garnishee banker are not 'in custody or under the control' of the judgment debtor customer. Such monies remain the property in the custody and control of the banker; and payable to the judgment debtor until a demand is made. Hence, Order VIII rule 2(b) of the Judgments (Enforcement) Rules takes care of this by providing that 'garnishee proceedings may be taken where the debt is not yet payable in any court in which the judgment debtor could have sued the garnishee as aforesaid if the debt had been immediately payable. Purification Techniques (Nig.) Ltd. v. Attorney General of Lagos State (2004) LPELR-7424(CA) 24-25, paras. F-G, per Galadima
B. TITLE DOCUMENT DEPOSITED AS COLLATERAL
1. Deposit of Customer’s Title Document
Where a customer’s title document is deposited as collateral and the bank refused to grant the loan, the bank is under an obligation to return the tittle deed. If the bank retains it, it shall be liable to pay damages to the customers for wrongful detention. Royal Petroleum Co. Ltd. v. F.B.N Ltd. (1997) 6 NWLR (Pt. 510) 584.
2. Loss of Customer’s Title Document
The loss of the title document of a customer in the custody of a bank could give rise to tort of detinue or conversion. In an action for detinue, a customer can claim for specific restitution of the chattel, or in default, it value and damages for it detention up to the date of judgment. However, where the chattel is not profit-earning, it is extremely difficult to access the damages incurred by the customer. NEKA v. ACB (2004) 3 MJSC 118 at 152, B-C, per Uwaifo, JSC.
3. Court Order on Return of Customer’s Title Document
Where a mortgage deed has not been tendered in evidence or where there is evidence that the customer is still indebted to the Bank, it is improper for a court to order the Bank to return the title deed to the customer. U.B.N. v. Emole (2002) 1 MJSC 126 at 141, paras. B-C, per Ogundare JSC.
C. LIABILITY OF BANKS
1. Liability of Banks for Tort of Negligence
The basis of liability of a Banker for tort of negligence is the failure of the banker to exercise reasonable care and diligence to process cheque before payment. Ndoma-Egba v. ACB Plc (2005) 10 MJSC 93 at 131, paras. C-A
2. Vicarious Liability
A bank is vicariously liable for the fraud committed by its employee by tampering with the bank customer’s account.. U.B.A. Plc v. Okoro (2002) 10 NWLR (Pt. 774) 1
3. Refund of Customer’s Money
A bank is duty bound to refund customer’s money on failing to remit it as instructed by the customer. UBN v. Umeoduagu (2004) 11 MJSC 127 AT 145, paras. A-B, per Edozie,JSC
D. LOAN AND OVERDRAFT FACILITIES
1. The Difference between a Loan and an Overdraft Facility
A customer may borrow from a banker by way of loan or by way of overdraft. A loan is a matter of special agreement. An overdraft facility is not a loan in the sum approved which may be withdrawn at once and which is to be debited against the customer’s account. Rather, it is a credit facility to be enjoyed by the customer to the tune of the amount approved as the customer wishes.
In the absence of an agreement, express or implied from a course of business, bankers are not bound to allow their customers to overdraw their account. An agreement for overdraft must be supported by good consideration and it may be expressed or implied. Halsbury’s Law of England (4 ed.)Volume 3, Page 115, paragraph 155; Bank of the North Ltd v. Bernand (1976 - 1984) 3 NBLR 104 at 109, paras. J-C
2. Application for Overdraft Facility
An application by a customer for overdraft or loan facilities from a bank is mere declaration of willingness to enter into negotiation with a view to entering into a contract. It cannot therefore constitute an offer, but at best an invitation to treat. Orient Bank of Nig. Plc v. Bilante International Ltd. (1997) 8 NWLR (Pt. 515) 37;Omega Bank (Nig.) Plc v. O.B.C Ltd. (2005) 8 NWLR (Pt. 928), 547 at 583, paras. D-E
3. Overdrawing a Bank Account
In the absence of fraud or any other criminal act, the act of overdrawing a bank account cannot give rise to a criminal liability.If a customer draws a cheque for a sum in excess of the amount standing to the credit of his current account, it is really a request for a loan.Afribank (Nig.) Plc v. Onyima (2004) 2 NWLR (Pt. 858) 654; Cooperative Bank Ltd. v. Otaigbe (1976-1984) NBLR 587(HC)
4. Letters of Credit
Conditions stated for opening letters of credit are binding on the bank and the customer respectively. Jeric Ltd v. Union Bank Plc (2000) 12 KLR (Pt. 112) 3205.
E. DEBT RECOVERY
1. Methods of Answering an Allegation of Indebtedness.
There are four probable methods of answering an allegation of indebtedness, these are:
i. To admit the debt
ii. To deny the debt
iii. To counter-claim against the debt
iv. To set off against the debt.
Air Via Ltd. v. Oriental Airline Ltd (2004) All FWLR (Pt. 212) 156 at 1582-1583,paras. H-A ,per Onu, JSC
2. Admission of Indebtedness
Once a defendant admits indebtedness or the receipt of a loan, the burden as to repayment or as to the reason for non-payment, is on the defendant. Okoli v. Morecab Finance (Nig.) Ltd (2007) 14 NWLR (Pt. 1053) 37 at 71 paras D-E.
3. Demand Notice or Letter for Payment of Debt
As a general rule, in an action for recovery of debt, the cause of action accrues upon demand for the payment of debt, if no demand is made, a cause of action does not arise and no action can be commenced. Kolo v. First Bank of Nig. Plc (2003) 3 NWLR (Pt. 806) 216.
The demand notice or letter for payment of debt must be signed by the company with its common seal and not by an Agent or Solicitor.Tate Industries Plc v. Devcom Ltd (2004) 17 NWLR (Pt. 901) 182 at 220; Section 409(a)CAMA .
It is an implied term in the relationship between a banker and its customer that, there should be no right of action for the payment of an overdraft until there has been a demand or notice given. Accordingly, no cause of action can arise in this type of transaction except and until there is a demand or notice given. Wema Bank Plc. v. Osilaru (2008) 10 NWLR (Pt. 1094)150 at 178 -179, paras. H-A
Be that as it may, it has been held that, where there is an expiry date for any credit facility in an agreement evidencing same, a written demand for payment to the debtor may be dispensed with after the said expiry date. However, the position with the surety is different in that, there should be a written demand on him depending on the terms of the suretyship or guarantee. Integrated Dimensional Systems (I.D.S) & 2 Ors. v. A.I.B Ltd (2002) 4 NWLR (Pt.758) 660
4. Oral Evidence of Debt
Oral evidence adduced in proof of a party’s indebtedness which is not contradicted, is sufficient to ground a claim for debt, even if documentary evidence such as a statement of account adduced in proof of the debt is rejected by the court or in the case. Trade Bank Plc. v. Chami (2003) 13 NWLR (Pt. 836) 158 at 218, paras. D-A.
5. Debt Collection by Police and other Law Enforcement Agent
It is settled law that, the police force as well as other law enforcement agents and institutions entrusted with the security of the nation and its people is/are no debt collector and should never be involved in such services. Law enforcement agents including the Police cannot be engaged for settlement of private or civil dispute like the collection of debts and enforcement of contract agreements. See Abdullahi v. Buhari (2004) 17 NWLR (Pt. 902) 278 at 303 para. A; Afribank (Nig) Plc v. Onyima (2004) 2 NWLR (Pt. 858) 654 at 679-680, paras. H-A
6. Serious and Reasonable Debt Payment Proposal
On the issue of the need for a bank debtor-customer to make serious and reasonable debt payment proposal as a gesture of good faith of intention to settle his indebtedness to his bank, the Supreme Court per Mohammed JSC, held in the case of Echaka Cattle Ranch Ltd. v. N.A.C Bank Ltd (1998) 3 KLR (Pt.59) 471 at 482, paras. E-G as follows:
“It is crystal clear that the appellant had not made any serious and reasonable proposal for the payment of what had already fallen due for payment of the loan the company received from the respondent. For how could one who is to pay N3,644,789.70 offer to make a down payment of N 50,000.00 only and payment shall be within two months of the date. Mr. Morphy wrote the letter of proposal for settlement and how could the Company be acting in good faith if it asks for rescheduling of its loan for 20 years ”
F. BANK RATES
1. Bank Rates issued by the Central Bank of Nigeria
It has been held that, bank rate issued in circulars by the Central Bank of Nigeria is not a matter the court can take judicial notice of. However, it is a well known fact which the Supreme Court takes judicial notice of that interest rates are dependent on the policy of the Central Bank.No interest rate is static. It is not immutable. It varies depending on the nature of Government policy which follows the state of the economy. Daniel Holdings Ltd v. United Bank for Africa Plc (2005) 5 SC (Pt.II) 18 ; Kwajaffa & Ors. v. Bank of the North (2004) 8 MJSC 106 at 135, paras. B-C, per Pats-Acholonu; Section 15 Banking Act.
Where the terms of the agreement between the Bank and its customer are clear with regards to the agreed rate of interest and there is no provision for variations, the Banker cannot vary the agreed interest rate to accord with the guidelines of the Central Bank on interest rate. N.B.N Ltd v. A.T. Engineering Co. Ltd. (2006) 16 NWLR (Pt. 1005) 210
2. Compound Interest:
A bank has the power to charge compound interest on loans or other advances granted to a customer even where there was no express agreement on the rate of interest to be charged. This is because the customer is taken to impliedly consent to an interest to be charged to his account. Adetoro v. Union Bank Nig Plc (2008) 13 NWLR (Pt. 1104) 255 at 296, paras. D-E
3. Interest on Overdraft
Although, banks can continue to charge interest on any unliquidated loan or overdraft until the customer pays up, this is not absolute. Where there is a fixed expiry date for an overdraft, the agreed interest rate will only be applicable from the date the agreement came into effect up to the date the facility expired. I.D.S Ltd v. A.I.B Ltd (2002) 4 NWLR (Pt. 785) 660 ; United Bank for Africa Plc v. Lawal (2008)7 NWLR (Pt. 1087) 613 at 633, paras. B-E.
4. Pre and Post Judgment Interests
Banks are entitled to pre-judgment interest on debts as of right, while post-judgment interest is governed by statute. I.D.S Ltd v. A.I.B Ltd (supra)
G. EXCESS AND ILLEGAL BANK CHARGES
1. Claims for Refund of Excess or Illegal Bank Charges
Claim by bank customers for the refund of excess charges and/or illegal charges debited to their accounts by their Banks is rampant these days in court. A bank customer has the right to refund of bank charges not duly charged in line with the provisions of Central Bank of Nigeria “Guide to Bank Charges” The claims for refund of excess or illegal charges may include the following:
(a) Excess commission on turnover (COT)
(b) Excess overdraft Interest
(c) Excess loan interest
(d) Excess property search fee
(e) Illegal facility fee
(f) Illegal returned cheque fee
(g) Excess statement charge
(h) Illegal pre-disbursement fee
(i) Excess management fee
(j) Excess debenture search on company
(k) Excess cost on debenture charge
(l) Illegal CRC charge
(m) Illegal Solicitor’s fee
(n) Illegal credit Registry profile search fee
(o) Excess access online charge:
(p) Spurious withdrawals
(q) Interest not at prevailing CBNMRR/MPR
H. FOREIGN CURRENCY
1. Devaluation of Foreign Currency
In a banker and customer relationship, the onus of proving how devaluation of foreign currency affected transactions between the banker and the customer, and that the banker is entitled to charge the customer with such devaluation lies on the banker as such facts are specially within his knowledge. UBN v. Emole (2002) 1 MJSC 126 at 137, para. G, per Ogundare, JSC.
I. DEED OF LEGAL MORTGAGE
1. The terms of the grant of a loan or overdraft facilities secured by a legal mortgage would be governed by the legal mortgage. Aderemi Isaiah Adegbola & Ors. v. UBA Plc. (2005)11 CLRN 111, per Rowland, JCA.
J. STATEMENT OF ACCOUNT
1. Relevant but not Sufficient Evidence
A bank statement of account is not sufficient explanation of debit and lodgments in a customer’s account to charge the customer with liability for the overall debit balance shown in the statement of account. Any bank which is claiming a sum of money on the basis of the overall debit balance of a statement of account must adduce both documentary and oral evidence to show how the overall overdraft balance was arrived at. Habib Nig. Bank Ltd. v. Gifts Unique Nig. (2004) 15 NWLR (Pt. 896) 405; Wema Bank Plc. v. Osilaru (2008) 8 CLRN 89 at 109, lines 20-5; 10 NWLR (Pt. 1094) 150.
2. Periodic Statement of Account
In a bank and customer relationship, it is the duty of the banker to send statements of account to the customer at regular interval as may be agreed upon by the parties. Hoston (Nig.) Ltd v. A.C.B. Plc (2002) 11 NSCQLR 195 at 214, per Ogundare, JSC.
Where a bank customer receives periodic statements of account and did not dispute the account as shown on the statements, the customer is deemed to have accepted same as correct. Thor v. FCMB (2005) 14 NWLR (Pt. 946) 697.
3. Debit Balance
Where a claim or defence or counter claim of a party is based on the debit balance in a statement of account, in order to succeed, such a party need to prove how the debit balance was arrived at. Anyakwo v. A.C.B (3) (1976) 2 SC at 62-64, per Fatai Williams,JSC ; (1976) NCLR 118 at 127.
4. Banker Consolidating the Accounts Owned by a Customer
There is no doubt in law that a banker may consolidate the accounts owned by a customer in his own right, unless precluded by agreement, express or implied from the course of business from doing so, in order to ascertain and treat as the balance, the amount standing to the credit of the customer. It is a prudent way open to the banker to assess the financial worth of a customer. It is a different thing where a banker opens two accounts for a customer one in the customer's own name and the other in a business name or in the name of an incorporated body under his aegis or control. Joe v. Co-operative Bank (2003) 4 MJSC 171 at 187, paras. F-G , per Uwaifo, JSC.
5. Proof of Payment of Money into Bank Account
Proof of payment of money into a bank may be proved either by the oral evidence of the person who made the payment personally to the bank or by the production of bank tellers or acknowledgement showing on the face of it that the bank had received the payment. First Bank Nigeria Plc v. Mainasara (2006) 2 NWLR (Pt. 909 ) 42.
K. BANK CHEQUES
1. The Obligation of Bank to Honour Customer’s Cheques
A bank is bound to pay cheques drawn on it by a customer in legal form, provided, the bank has in its hands at the time sufficient and available funds for the purposes, or provided the cheques are within the limits of an agreed overdraft. It needs be emphasized that, there must be sufficient funds to cover the whole amount of the cheque presented. In the absence of special arrangement, there is, as a general rule, no obligation on the banker to pay any part of a cheque for an amount exceeding the available balance. The bank only contracts with the customer to honour cheques when he has “sufficient” and available” funds in hand. First African Trust Bank Ltd. v. Partnership Investment C. Ltd (2004) 2 MJSC 101 at 126 – 127, paras. G-A, per Iguh, JSC.
2. Forged or Unauthorized Cheques
Under Section 24 of the Bill of Exchange Act 1882, a forged or an unauthorized cheque is inoperative. Ndoma-Egba v. ACB Plc (2005) 10 MJSC 93 at 133, para. A.
3. The issuance of a Dud Cheque
The issuance of a dud cheque is a crime and is punishable under the Dishonoured Cheques (Offences) Act with two-year jail term upon conviction. In the case of Fajemirokun v. Commercial Bank Nigeria Ltd. & Anor (2009) 2 NMLR 287, Tabai J.S.C, at page 299, para. 30, illuminated on the issuance of dud cheque in Nigeria thus:
"In the first place issuance of Dud Cheques is a criminal offence under Section 1 of the Dishonoured Cheques (Offences) Act Cap D11 Laws of the Federation of Nigeria 2004 and for which the Respondents were entitled to make a report to the Police."
4. Proving of the Offence of Issuing Dud Cheque
The prosecution in order to secure a conviction for the issuance of a dud cheque has the duty to prove:
a. That the accused obtained credit by him or herself
b. That the cheque was presented within three months of the date thereon; and
c. That on presentation the cheque was dishonoured on the ground that there was no sufficient funds standing to the credit of the drawer of the cheque in the bank on which the cheque was drawn
See Abeke v. State (2007) 9 NWLR (Pt. 1040) 411 at 429 -430, paras. G-B, per Tobi, JSC; Section 1 (i)(b) Dishonoured Cheques (Offences) Act Cap D11 Laws of the Federation of Nigeria 2004
L . JURISDICTION
1. Concurrent Jurisdiction
The Federal High Court has concurrent jurisdiction with the state High Courts in transactions involving an individual customer and his bank. FCMB v. NDIC (1999)2 NWLR (Pt. 591)333; NDIC v. Okem Enterprises Ltd (2004)7 MJSC 74,130 – 131, paras. D-A, per Kutigi ,JSC; Section 251 (1)(d) 1999 Constitution.
2. Exclusive Jurisdiction
An issue of banking that is not one of bank customer relationship should be squarely before the Federal High Court. Societe Bancaire Ltd v. Salvado De Lluch (2005) 1 MJSC 187 AT 201 -202, paras. G-E; Section 251 (1)(d) 1999 Constitution.
3. Dispute Between Two Banks
Where there is a dispute between two banks, the forum for resolution is not exclusive to the Federal High Court.The nature of the transaction and the capacity in which one of the banks related with the other shall determine the proper forum. FMBN v. NDIC (1999)2 NWLR (Pt. 591) 333 (SC)
M. JUDGMENT
1. Stay of Execution of Money Judgment
Preservation of the res (judgment debt or money judgment) which is the corner-stone of application for stay of execution will be meaningless or defeated if the res is preserved in the hands of the judgment debtor on the sole ground that, he or she or it is rich. It will also amount to a glaring case of depriving a successful litigant of the fruits of the judgment. U.B.N. Ltd. v. Odusote Bookstore Ltd (1994)3 NWLR (Pt. 331) 129 at 152, paras. A-B.
The Court of Appeal in the case of Owena Bank (Nig.) Plc v. O.B.C. Ltd. (1998) 9 NWLR (Pt. 564) 129 at page 137, paras D-C, held that the decision in the case of Union Bank of Nigeria Plc v. Odusote (supra) was not meant to stifle the exercise of discretion by the Court and that the case was decided on the circumstances and peculiar facts of the case. Thus, the exercise must be based on the peculiar nature and circumstances of each case.
CONCLUSION
Banks' company secretaries/legal advisers in order to minimise losses suffered by banks in debt recovery cases in Nigeria are advised to engage lawyers with depth in commercial as well as bank and customer disputes.
In addition, in-house solicitors of banks should be legally knowledgeable enough to request for the legally required accounting evidence from their accounting departments.
Finally, bank customers who are not satisfied or convinced with the status of their account with their banks need to engage experienced accounting consultants to audit such accounts before engaging the services of a sound and experienced lawyer in bank and customer dispute litigations.
Akintunde Esan, Legal Practitioner/Consultant and Chartered Mediator - Managing Partner, Ase Olodumare Chambers, Lagos, Nigeria.
If you need further legal illuminations on any dispute with your Bank in Nigeria, you are advised to contact Akintunde Esan
THE LAW ON COMMON DISPUTES BETWEEN BANKS AND THEIR CUSTOMERS IN NIGERIA is a legal illumination of AKINTUNDE ESAN known as The LEGAL ADVISER ONLINE. Akintunde Esan is the Managing Partner & Principal Consultant @ ASE OLODUMARE CHAMBERS (Legal Practitioners/Consultants & Chartered Mediators)
