LEGAL PRINCIPLE: BANKING LAW — Banker-Customer Relationship — Interest Rates — Construction of Variable Interest Rate Clause
PRINCIPLE STATEMENT
Where the words of an instrument are free from ambiguity, and circumstances have not created doubt as to proper application, the instrument is to be construed according to the strict, plain, and common meaning of the words themselves. It was wrong to import into the mortgage deed extraneous requirements such as prior notice of interest rate increase.
RATIO DECIDENDI (SOURCE)
Per Kalgo, JSC, in Ishola v. UBN Ltd (2005) NLC-1251996(SC) at pp. 4–5; Paras C–A.
"All interest payable on the moneys hereby secured shall accrue due from day to day at the rate from time to time stipulated by the bank and may be capitalised at such intervals as the bank may from time to time prescribe but not more often than monthly and added to the moneys hereby secured and shall thereupon bear interest accordingly at the rate aforesaid... The general rule is that where the words of any instrument are free from ambiguity in themselves and where the circumstances of the case have not created any doubt or difficulty as to the proper application of the words to claimants under the instrument or the subject matter to which the instrument relates, such an instrument is always to be construed according to the strict, plain and common meaning of the words themselves; it was wrong to import into clause 3 of the mortgage deeds extraneous matters such as the requirement that the appellant obtain the prior consent of or give prior notice of increase in the rate of interest on the loan to the respondent."
EXPLANATION / SCOPE
Plain and unambiguous contract terms must be given their ordinary meaning without importing extraneous requirements. A clause allowing the bank to stipulate interest rates from time to time does not require prior notice. The principle applies to contract interpretation. The rule prevents courts from adding requirements not found in the clear language of the agreement. Parties are bound by the literal meaning of their contract.
