LEGAL PRINCIPLE: CONTRACT LAW – Illegality – Contracts Prohibited by Statute – Agricultural Loans – Diversion of Funds
PRINCIPLE STATEMENT
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 thereunder. Such diversion of funds granted under the 1977 Act is positively forbidden under section 13(1).
RATIO DECIDENDI (SOURCE)
Per Achike, JSC, in Pan Bisbilder Nigeria Ltd. v. First Bank of Nigeria Ltd. (2000) NLC-1141991(SC) at p. 4; Paras B–C.
"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 thereunder. Such diversion of funds granted under the 1977 Act is positively forbidden under section 13(1)."
EXPLANATION / SCOPE
Diverting agricultural loan funds from their statutory purpose is expressly prohibited. Any agreement to withhold or redirect such funds falls outside the loan’s scope and is illegal. Parties cannot contract to do what statute expressly forbids. The prohibition applies regardless of mutual consent—public policy overrides party autonomy. Such agreements are void and unenforceable. The court will not sanction arrangements that defeat the statutory purpose of agricultural loan schemes. Compliance with statutory purpose is mandatory; deviation renders the agreement illegal. This protects the integrity of government-subsidized lending programs.