Pan Bisbilder Nigeria Limited v. First Bank of Nigeria Limited

The appellant, as plaintiff, sued the respondent, as defendant, for breach of contract claiming a total of N429.869.00 comprising special and general damages; the said breach of contract had arisen from defendant’s failure to honour its loan agreement of N116,500.00 entered into with the plaintiff. The said loan of N116,500.00 was subsumed under the Agricultural Guarantee Credit Scheme Fund Act 1977 whereby the defendant was to grant the said loan to the plaintiff and which was to be guaranteed by the Central Bank of Nigeria. The loan was to be advanced in two instalments of N60,000.00 and N56,500.00. The first instalment had been fully disbursed while the second was only partially disbursed. The defendant withheld N30,000.00 of the N56,000.00 to off-set the previous overdraft granted to the plaintiff. Despite the plaintiffs denial of the arrangement between the parties whereby the defendant was to off-set the previous overdraft of N30,000.00 from the second instalment of the loan, the learned trial Judge, Oni-Okpaku, J. rejected the defendants’ denial and found that the parties agreed to divert part of the loan agreement to settle the plaintiff’s previous outstanding overdraft.
After due trial, the trial court found and upheld the breach of contract and awarded to the plaintiff a total sum of N58,429.00 special damages with N600.00 costs.
The defendant filed an appeal against the said judgment while the plaintiff cross-appealed at the Court of Appeal, holden at Benin. In its unanimous judgment, the lower court found that by the illegality of contravening the Agricultural Guarantee Credit Scheme Fund Act 1977 of which both parties were wrongdoers, the plaintiff’s claim must fail. According to the lower court by the provisions of section 13(1) of the aforesaid Act, the loan agreement was vitiated.

P.1

In the leading Judgment rendered by Salami, J.C.A. to which Uche Omo and Ejiwunmi, JJ.C.A. (as they were then) concurred, his Lordships stressed, inter alia, as follows:
”The implication of the voidance is that neither party can seek the benefit of the guarantee provided by Central Bank of Nigeria under Act 20 of 1977 because the illegality of either party estoppel it from enforcing the guarantee agreement… It is the guarantee agreement which is void and unenforceable because of the deceit of the two principal debtor and creditor which has resulted in an illegal contract”.
Accordingly, the lower court allowed the appeal and set aside the decision of the trial court including the order as to costs without giving any consideration whatsoever to the merits or demerits of the issue of quantum of damages. Finally, the lower court also dismissed the cross-appeal, with total costs of N500.00.
It is against this decision that the appellant has filed an appeal to this Court predicated on seven grounds of appeal, praying the court to restore the judgment of the trial court.
Learned counsel for the appellant, Dr. S.S.G. Enemeri formulated the following five issues for determination, namely:
“(1)   Whether the Court of Appeal was right in giving effect to the bilateral agreement to divert funds under the loan for a purpose outside its ostensible object which by the finding of the learned trial Judge which the Court of Appeal did not disturb was illegal under statute’?
(2)  Whether the Court of Appeal was right as to the effect of the resultant illegality or in relation to the agreement of loan’?
(3)  Whether the appellant was precluded from seeking to enforce the agreement of loan in its original tenor by reason of the collateral illegality or of his being privy to it?
(4)  Whether the Court of Appeal was right to have upset the alternative ground of liability for which the learned trial Judge also found when there was no appeal or complaint against it?
(5)  Whether the Court of Appeal was right to have dismissed the appellant’s Cross-Appeal in the Court below on all the heads of complaint as a matter of course’?”
Y. Itua, Esq. learned counsel for the respondents also postulated live issues for determination:

P.2

“(1)  Whether the Court of Appeal was right in giving effect to the collateral agreement by which the N30,000 from the enhancement loan was used to upset (sic) the overdraft previously owed by the appellant.
(2) Whether the parties are bound by the collateral agreement.
(3) Whether the appellant was entitled to rescind the collateral agreement.
(4) Whether the Court of Appeal was right in setting aside the damages awarded by the High Court.
(5) Whether the Court of Appeal was right in dismissing the appellant’s cross-appeal on quantum of damages.”
A close examination of the two sets of issues for determination easily shows that at the Court of Appeal while the appellant herein contested the quantum of damages awarded it at the trial court, on the one hand, the respondent contested its liability coupled with the quantum of damages awarded against it, on the other. Now from the judgment of the Court of Appeal dismissing the appellant’s claim as well as the grounds of appeal, the cross-appeal, and the issues formulated by both parties for determination, from the grounds of appeal, it seems to me that the following two issues may well be sufficient to address the main problem raised in this appeal. These are:
1. Whether the diversion of fund under the contract of loan between the parties subsumed under Agricultural Guarantee Credit Scheme Fund Act 1977 rendered the said contract illegal and void to the extent that neither the appellant nor the respondent can enforce the said loan contract.
2. Whether the Court of Appeal was right to have dismissed the appellant’s cross-appeal on all the heads of complaint as a matter of course.
We shall take the issues in the above order because it seems to me that if issue No.1 is answered in the affirmative that would be sufficient to determine the appeal in its entirety in the sense that issue No.2 would cease to be a live issue.
Issue No.1
Whether the diversion of fund under the contract of loan between parties subsumed under Agricultural Guarantee Credit Scheme Fund Act 1977 rendered the said contract illegal and void to the extent that neither the appellant nor the respondent can enforce the said loan contract.
This appeal raises a point of considerable judicial interest and importance involving the effect of an act prohibited by statute coupled with penal provisions for fine or imprisonment in the event of its contravention. We had earlier stated the facts of this case and the bulk of it are not seriously contested.

P.3

It is important to underline the point that although the respondent readily admitted that it had diverted part of the loan to repay the pre-existing overdraft of the appellant, strangely, the appellant denied consenting to the diversion of part of the loan. Be that as it may, the learned trial Judge found as a fact that the appellant was privy to the diversion of the loan. There is no appeal against this finding. It may be recalled that the loan to the appellant, a person engaged in poultry farming, was guaranteed by the Central Bank of Nigeria under the Agricultural Guarantee Credit Scheme Fund, Act 1977 (hereinafter referred to as the 1977 Act). Section 13 of the 1977 Act stipulates as follows:
“13(1) No loan granted pursuant to this Decree, shall be applied to any purpose other than that for which the loan was granted.
(2)    Any person who applied any loan granted pursuant to this Decree in contravention of subsection (1) of this section shall be guilty of an offence and shall be liable on conviction to a fine of an amount of the loan in respect of which the offence was committed or to imprisonment for not less than five years.
(3)     Whether an offence under the section committed by a body corporate is proved to have been committed with the consent connivance of, or to be attributable to any neglect on the part of any director, manager, secretary or other similar officer of the body corporate (or any person purporting to act in any such capacity) he as well as the body corporate shall be deemed to be guilty of the offence and may be proceeded against and punished accordingly.”
It is clear that the bilateral agreement between the parties to withhold part of the sum due to appellant under the agreement of loan for the purpose of off-setting the overdraft of N30,000.00 was outside the scope and purpose for which the loan was granted and amounted to a diversion of funds there under. Such diversion of funds granted under the 1977 Act is positively forbidden under section 13(1).
Permit me to digress generally on illegality. It is common ground that illegality and voidness of the loan contract between the parties is the main subject matter of controversy in this appeal. Definition of the term illegal contract has been elusive, The production or clarity of the classification of illegality appears to be almost confounded and rendered intractable primarily because text-writers and the Judges have continued to use the terms ‘void’ and ‘illegal’ interchangeably, Halsbury’s Laws of England (3rd ed. vol 8 p 126 para 218 states that
“A contract is illegal where the subject-matter of the promise is illegal or where the consideration or any part of it is illegal.”

P.4

Without getting unduly enmeshed in the controversy regarding the definition or classification of that term, it will be enough to say that contracts which are prohibited by statute or at common law, coupled with provisions for sanction (such as fine or imprisonment) in the event of its contravention are said to be illegal. There is however the need to make a distinction between contracts that are merely declared void and those declared illegal. For instance, if the provisions of the law require certain formalities to be performed as conditions precedent for the validity of the transaction, without however imposing any penalty for non-compliance, the result of failure to comply with the formalities merely renders the transaction void, but if a penalty is imposed, the transaction is not only void but illegal unless the circumstances are such that the provisions of the statute stipulate otherwise. See Solanke v. Abed & Anor (1962) NRNLR 92, (1962) 1 SCNLR 171 and P. Kasuumu & ors v. Baba-Egbe 14 WACA 444.
The effect of illegality of contract
Now let us return to the case in hand. It is clear that section 13(1) of the 1977 Act did not only prohibit the application of the loan granted under the 1977 Act to any purpose other than that for which the loan was granted, sub-sections 13(2) and 13(3) provide sanctions for fine or imprisonment. In other words, the collateral agreement between the parties herein was void and illegal because its aim was to divert funds under the contract of loan to a purpose other than the purpose for which it was meant (i.e. poultry farming) and punishable, as shown hereinbefore, by fine or imprisonment
The arrangement to divert part of the loan granted to the plaintiff/appellant was explicitly averred in paragraph 10 of appellant’s statement of claim:
“10. In or about March, 1980, when the plaintiff realised that the farm project cannot sufficiently pay its way or become a viable proposition with its then limited stock of birds and that money will also be required for some improvements in the structure of the said farm, the plaintiff applied for an enhancement of the loan of N60,000.00 earlier granted to it by the defendant by a margin of 2,000.00 divided according to the purposes for which same was required into N49.000.00 for improvements and running costs of the farm and N33,000.00 for re-stocking the farm with new birds. After a series of correspondence between the parties upon which the plaintiff will found at the hearing of this action, the defendants finally approved for the plaintiff in connection with the farm project aforesaid an additional facility of N56,500.00 on the same terms and conditions as before except that of the said amount of N56,500.00, N26,500.00 was granted by way of loan (making a total loan of N56,500.00 and N30.000.00 by way of overdraft.

P.5

The said transaction was equally guaranteed by the Central Bank of Nigeria as before backed by a guarantee certificate which is in the possession and control of the defendants. The plaintiff will found upon the said document. All told the total facility approved for the poultry farm project aforesaid and guaranteed by the     Central Bank of Nigeria was a sum of N116.500.00.”
The defendant/respondent responded to the above paragraph in its paragraph 8 of the statement of defence: it ran as follows:
“8. As to paragraph 10 of the statement of claim the defendant admits that the plaintiff applied for an enhancement of the loan by asking the defendant for an additional N82.000.00 but the defendant approved for the plaintiff an additional loan of N56.500.00 on the understanding that part or the additional loan would go to defray the outstanding overdraft in the plaintiff’s current account which  overdraft stood at N30,000.00 at the time.”
After a review of the evidence and the parties’ pleadings, the learned trial Judge found no difficulty when she concluded:
“I, therefore, believe that both parties had agreed that the N30,000.00 of the N56,000.00 enhancement loan was for the overdraft of the plaintiff.”
Further on in her judgment, her Ladyship said,
“Accordingly, I hold that the variation is a breach, of the essential condition of the loan agreement since section 13(1) of Decree 20 of 1977 the statutory provision governing it forbids it and it is mandatory and therefore the contract of guarantee with Central Bank is thereby vitiated.”
The Court of Appeal, speaking in the same vein in relation to the diversion of the funds under the loan agreement that was expressly prohibited by the 1977 Act through Salami, J.C.A. in his leading judgment had this to say:
“The implication of the voidance is that neither party can seek the benefit of the guarantee provided by Central Bank of Nigeria under Act 20 of 1977 because the illegality of either party estopped it from enforcing the guarantee agreement.”
There is concurrence by the two lower courts that the contravention of the act prohibited by the 1977 Act was such, according to the trial Judge, to vitiate the guaranteed contract of loan, and according to the Court of Appeal, the illegality arising there from would estop either party from enforcing the guarantee agreement. I am clearly of the view that the contract of loan subsumed by the parties under the 1977 Act and guaranteed by the Central Bank of Nigeria was tainted with illegality by the parties’ joint agreement to divert the fund under the loan agreement to a purpose other than that for which the loan was granted.

P.6

Generally, the consequence of illegality in relation to the parties contract is that the court will come to the assistance of any party to an illegal contract who wishes to enforce it. This position of the law is founded on the principle of public policy and is expressed in the maxim ex turpi causa non oritur actio, meaning that an action does not arise from a base cause. Therefore, it goes without saying that the promise or consideration exchanged by the parties herein. i.e. to divert part of the loan contract guaranteed by the Central Bank of Nigeria to off-set the appellant’s overdraft is illegal and the reason by the parties in making the agreement to divert some or the funds to liquidate the overdraft was to promote an act expressly prohibited by statute. But whether or not a party can recover under an illegal contract may depend on whether that party was aware or privy to the illegality because it is unfair, in equity. for the guilty party to hold the innocent party bound by an act of illegality that he is wholly unaware of. See Cowan v. Milbourn (1867) L.R. 2 Ex 230.  The result is that generally, money paid or property transferred under illegal contract is irrecoverable where both parties are equally guilty of the fact of illegality, This is also buttressed by the maxim in pari delicto potior est conditio defendentis and means that where the parties are both at fault, the condition of the defendant is better. See Fashina v. Odedina (1957) WR NLR 45 and Abesin & Anor v. Iyaegbe (1958) WR NLR 67.
Be it noted that it was expressly submitted on behalf of the appellant by his learned counsel that “the appellant being privy to the bilateral or collateral agreement to divert funds under the loan does not preclude it from seeking to enforce the contract of loan”, Learned counsel further submitted that the parties in relation to the agreement to divert funds under the loan were not in pari delicto and that the learned trial Judge must be taken to have so found when she made reference to undue influence of a Banker over its customer
On behalf of the respondent, their learned counsel submitted that the collateral agreement to divert the loan  granted under the guarantee was binding on both parties and also submitted that it was a form of variation of the original agreement which is permissible under the law of contract.
I must confess that the submission that the collateral agreement to divert part of the loan granted under the guarantee agreement is valid, subsisting and binding on the parties is, to say the least, startling, having regard to the express statutory prohibition under the 1977 Act. Even if the collateral agreement could, in any sense of which I have my grave doubt amount to a valid variation agreement, surely, such variation which is brought about by an act expressly prohibited by provisions of the law must itself be illegal and unenforceable.

P.7

Again, the submission that the parties in relation to divert the funds under the loan agreement were not in pari delicto is unattractive; it was raised impromptu, Neither did the parties contest that issue in their pleadings nor did they lead any evidence to support such assertion. It is crystal clear and beyond peradventure that the parties unpleaded facts go to no issue: similarly, evidence led at trial not anchored on the parties’ pleadings must be discountenanced. See Adimora v. Ajufo  (1988) 3 NWLR(Pt.80)1: Emegokwue v. Okadigbo (1973) NMLR 192 and Onwuka v. Omogui (1992) 3 NWLR (Pt.230) 393.As I had stated earlier, the point regarding whether undue influence was brought to bear on the appellant by the respondent was raised impromptu in the parties’ briefs. The learned trial Judge harped on the issue of undue influence that a banker may have on his customer. The trial Judge went further to say that the respondent was wrong to have used undue influence on the appellant when, as we have earlier shown, it was not open to the learned trial Judge to so hold in the absence of evidence in support of any undue influence based on pleading. It was clearly speculative to harp on undue influence which was not canvassed by the parties. Undoubtedly, a party who is a victim of undue influence, or even fraud, can recover back money or property transferred under such circumstances. See Smith v. Cuff (1817) 105 ER 1203; Atkinson v. Derby 6 H & N 778 and Hughes v. Liverpool  Society (1916) 2 K B 482.
I would like to emphasise the point that an assertion that a party to an illegal contract acted under pressure or undue influence is a further extension of the exception that if the parties to an illegal contract are not in pari delicto so that the party on whom superior power or influence was operated may well recover money or property exchanged in such circumstances. Reliance on the exception of undue influence must be established by positive evidence or strong inference that can be drawn from the surrounding circumstance. As I had stated earlier, neither did the appellant plead to this crucial fact nor was any evidence led in respect thereof. Learned appellant’s counsel submitted that the parties were not in pari delicto as the “learned trial Judge must be taken to have so found when she attributed that agreement to the usual undue influence of a Banker over its customer which she or course deprecated’. It is necessary to put the record straight as it relates to the point now being contested seeing that it is far-reaching and sufficient to determine the fortunes of the parties in this appeal. Having held the view that the parties never made an issue of the question of undue influence – either in their pleadings or evidence- there would be no jurisdiction whatsoever for the learned trial Judge to make any purported finding on undue influence, more so as the appellant had taken the posture of a total denial of the collateral agreement, the defence of undue influence was not open to it.

P.8

The inevitable conclusion that I am bound to reach from the foregoing is that the collateral agreement between the parties for diverting the sum of N30,000.00 part of the fund granted to the appellant under the 1977 Act was tainted with illegality. The contravention of the said 1977 Act rendered the contract between the parties void and illegal. Since the foundation of the said agreement is void and illegal it cannot, in law, support any binding and enforceable contract. See Herman v. Jeuchner (1985) 15 QBD 561 and Parkinson v. College of Ambulance (1925) K.B. 1. In the result, I turn in an affirmative answer to Issue No.1.
As pointed out from the out set in this appeal, the ultimate decision that will be arrived at herein would be predicated on the outcome of Issue No.1. Having characterised the collateral agreement between the parties as void and tainted with illegality, it is clear that it is not needful to give any further consideration to Issue No.2. No useful purpose will be served to embark on such exercise save to say that the Court of Appeal was right to have summarily dismissed the appellant’s cross-appeal on all the heads of complaint as a matter of course.
In the result, this appeal deserves to fail and is dismissed. Costs arc assessed at N10,000.00 in favour of the respondent