LEGAL PRINCIPLE: CONTRACT LAW – Interpretation of Loan Agreements – Inclusion of Sums Advanced via Letters of Credit
PRINCIPLE STATEMENT
A loan agreement providing that the loan shall include any sum owing by reason of advances made on letters of credit issued on behalf of the borrower is effective to include such sums as part of the loan.
RATIO DECIDENDI (SOURCE)
Per Onu, JSC, in Artra Industries Nigeria Limited v. The Nigerian Bank for Commerce and Industry (1998) NLC-271997(SC) at pp. 15-16; Paras A--D.
"It is hereby agreed and understood that the Loan shall include any sum owing to the Lender by reason of advances made directly to any person at the request of or on behalf of the Borrower on any bonds, letters of credit issued and guarantees or indemnities given by the Lender or its agents on behalf of the Borrower."
EXPLANATION / SCOPE
Loan agreements can define “loan” broadly to include various forms of credit. Letters of credit advanced on the borrower’s behalf are included. The principle applies to commercial lending. The borrower is bound by the clear terms. The court will give effect to the parties’ intention. The rule ensures that all forms of credit are captured.