Does The Mere Existence of an Overdraft Facility Automatically Translate to Indebtedness or Constitute A Binding Loan Agreement?

CASE TITLE: WEMA BANK PLC v. OSINOWO & ANOR (2025) LPELR-80275(CA)

JUDGMENT DATE: 17TH JANUARY, 2025

JUSTICES:  DANLAMI ZAMA SENCHI

POLYCARP TERNA KWAHAR

ABDULAZEEZ MUHAMMED ANKA

DIVISION: LAGOS

PRACTICE AREA:  BANKING LAW

FACTS:

This appeal borders on banking law.

This appeal emanates from the judgment of the High Court of Lagos State concerning a dispute over the enforceability and termination of a Personal Guarantee Agreement entered into by the parties in 2014. The original claimant, the late Mr Sesby Banjoh, had guaranteed banking facilities worth ₦136,020,000 granted by the Appellant bank to Sesby Travels and Tours Ltd. As collateral, Mr Banjoh submitted a property located at Plot 312 Titilayo Adedoyin Street, Omole Residential Scheme 1, Ikeja GRA, Lagos.

The facilities comprised:

1. A ₦96,020,000 Bank Guarantee in favour of the International Air Transport Association (IATA), with a 365-day tenor from 27th March 2014, and 

2. A ₦40,000,000 overdraft, also from 27th March 2014, with a tenor of 180 days.

In April 2018, four years after the agreement, and at a time when there were no outstanding liabilities, Mr Banjoh sought to terminate the guarantee, through a letter requesting that the borrower either provide alternative collateral or allow the Bank Guarantee to lapse.  As of the time of the said letter dated 4th of April, 2018, there were no outstanding financial commitments from the Appellant with respect to the Bank Guarantee and the overdraft facility was not drawn. The bank rejected this request, claiming that the guarantee remained valid and continuous, and demanded full repayment of the overdraft and formal discharge of the Bank Guarantee before releasing the collateral.

The matter proceeded to trial for judicial interpretation of whether the Personal Guarantee Agreement allowed for unilateral termination. The trial Court ruled in favour of the Respondents, affirming their right to terminate the agreement.

The Appellant appealed the decision, while the Respondents cross-appealed some parts of the judgment that were unfavourable to them.

ISSUES FOR DETERMINATION:

The issues identified by the appellants for the determination of the main appeal were:

1. Whether in the circumstances of this case, the learned trial Judge was right in granting an order compelling the Appellant to pay to the Respondents the sum of N20,000,000.00 (Twenty Million Naira) covering solicitors’ professional fee, sundry costs and expenses thereto?

2. Whether in view of the provisions of the deed of Personal Guarantee (Exhibit 1) to the originating summons, the Court of Appeal decision in FBN vs. SOGONUGA (2007) 3NWLR(PT 1021)230; (2005) LPELR 7495 (C.A), and all other circumstances relating thereto, the learned trial Judge was right in holding that the deceased Respondent can unilaterally exit and has indeed exited his obligations under the deed and therefore entitled to the release of title documents by virtue of the Respondent’s mere letter of 4th April 2018 (Exhibit 2)?

3. Whether in view of the nature of proceedings indicated in this case, the learned trial Judge was right in holding that the action was properly commenced by originating summons procedure?

The Cross-Appellants nominated the following issues for the determination of the cross-appeal:

1. Whether the learned trial Judge was right in refusing and dismissing the deceased claimant’s claims for general damages?

2. Whether the learned trial Judge was right in refusing and dismissing the deceased claimant’s claim for pre-judgment interest on the pecuniary award granted to the deceased claimant bearing in mind the prevailing circumstance of the deceased claimant’s case before the trial Court?

3. Whether the learned trial Judge did not err in awarding a cost less than the actual sum established by credible and unimpeached evidence before the Court?

COUNSEL SUBMISSIONS:

​The Appellant’s counsel disputes the decision of the learned trial Judge in holding that the deceased Respondent can unilaterally exit his obligations under the deed and therefore entitled to the release of title documents by virtue of the Respondent’s mere letter of 4th April 2018 (Exhibit 2).

In arguing this issue, the Appellant contended that a guarantee is defined by the Black’s Law Dictionary, 10th Edition, page 820 as “1. To assume a suretyship obligation to agree to answer for a debt or default. 2. To promise that a contract or legal act will be duly carried out. 3. To give security to.” That a contract of guarantee is a distinct and separate contract and the guarantor can be proceeded against independent of the principal [CHAMI vs. UBA PLC. (2010) 6NWLR (PART 1191) 474, (2010) LPELR 871 (SC)]. He therefore submitted that a guarantor is bound by the guarantee that he has given to another party. Counsel argued that in FBN PLC vs. SONGONUGA (2007) 3 NWLR (PART 1021) 230, (2005) LPELR 7495 (CA) AT PAGES 57-58, this Court held that:

“Firstly, the Respondent having guaranteed a loan or overdraft granted to Wayes and Freytag Nig. Ltd cannot just walk out of its obligations under the agreement without first discharging its liability to the Appellant. A guarantor cannot determine his liability under a guarantee agreement by merely writing a letter without more. He must discharge all his liabilities to the Appellant such as payment of all accrued interest, principal sum as agreed before notice to determine is given…” per Salami JCA relying on the cases of IKOMI V BWA (1965) NSCC 29@35; OBIKOYA vs. WEMA BANK LTD (1991) 7 NWLR (PART 201)119 @ 128.

On this ground, Counsel argued that the Court listed four conditions under which a guarantor could be discharged under the deed of guarantee viz:

i. Where his obligation under the guarantee contract has been satisfied.

ii. Where the principal debt has been extinguished by act or acts of the parties.

Iii. Where a limitation or prescriptive period had elapsed.

iv. Where a Court applied a presumption which operates to terminate the contract of guarantee.

Counsel further relied on OJEMENI V. STERLING BANK PLC (2014) LPELR 24442 (CA) and argued that these conditions are not cumulative but in the alternative. A guarantor, Counsel submits the need to satisfy one or more of the exceptions above, otherwise, he is not at liberty to seek to opt out of the contract of guarantee. Rather the general principles of law as espoused by this Court in FBN PLCV. SONGONUGA (SUPRA) will be applicable. Appellant’s Counsel submitted that in the circumstances of the instant appeal, none of the exceptions stated in Songonuga’s case to enable the claimant to “exit” his contract of guarantee in Exhibit 1 is applicable.

Appellant’s Counsel argued that the trial Court in his judgment held that “The Court finds that since there is no outstanding indebtedness due either by the primary obligor or Applicant, the Applicant is free to exit from the guarantee agreement” and that this conclusion was arrived at by the trial Court after an analysis of the issues below, which it regarded as being at stake:

(i) The status of the overdraft facility of N40 million and

(ii) The Bank Guarantee (BG) of N96 million given to IATA by the Appellant to the benefit of the claimant’s/respondent’s company.

Counsel argued that for (i) above, the learned trial Court held that the statement of account failed to prove any indebtedness by the primary obligor or the claimant to it at any material time and for (ii) above, which is the second component of the deceased Respondent’s Personal Guarantee given to the Appellant, Counsel argued that the trial Court held that since by the letter of 4th day of April 2018, (Exhibit 2), the deceased Respondent had stated that he was no longer interested to continue with his contract of guarantee, he ought to be allowed to exit his obligations under the contract.

Counsel further argued that if the Respondents are not liable by virtue of the deed of Personal Guarantee in respect of the N40 million overdraft facility at the time of the Respondent’s letter of 4th April 2018, (a fact the Appellant stated that they were not conceding), the Respondent was liable at that material time to his obligation in respect of the Bank Guarantee, which was up and running as admitted by the Respondent’s letter itself. He therefore stated that having recognized his un-discharged obligation under the Bank Guarantee, his attempt to exit the contract is inconsistent with the Deed of Personal Guarantee which copiously described the liability/obligation of the Respondents as “continuing”. He also argued that the above observations and conclusions of the trial Court that the Respondent can exit by his letter of 4th April 2018 did not at all flow from the contents of the guarantee contract (Exhibit 1). Appellant’s Counsel submitted that the deed of Personal Guarantee is a “continuing guarantee” requiring no notice of renewal for its continued existence and that the Respondents have expressly waived the requirement of all notices including the requirement of renewal of the deceased Respondent’s obligation under the guarantee. Therefore, the non-renewal of the guarantee in 2016 – 2017 is not fatal to the life of the personal guarantee.

In response, the Respondents’ Counsel submitted that it is settled law that a Defendant Bank, like the Appellant in the instant appeal, who alleges indebtedness must adduce sufficient and concrete documentary evidence to prove the same and that without doubt, the Appellant has failed in this regard. Counsel argued that the case of FBN V. SONGONUGA [SUPRA] heavily relied on by the Appellant does no good to its cause as the case is distinguishable and factually dissimilar to the instant appeal. He argued that, unlike the instant appeal, the said FBN V. SONGONUGA [SUPRA] centered on whether or not the transaction contracted by the parties involved created an equitable mortgage (which requires the consent of the Governor of Lagos State) or an equitable charge (which does not) and the probable consequences of either. None of which has any correlation with the instant appeal. He also stated that in FBN V. SONGONUGA, there was no doubt in the minds of the parties and the Court that the guarantor could “unilaterally” determine the personal guarantee contract by his letter to the Appellant, though liable for the debt and interest accrued to the primary obligor’s account at the time of his exit. He submitted that this is contrary to the argument proffered by the Appellant as to the impossibility/illegality of what was termed the “unilateral” exit of the Respondent in the instant appeal. Counsel further stated that still in FBN V. SONGONUGA, the quantum and interest element of the debt were issues submitted for resolution by the Court and it was established by credible evidence that the Respondent was indeed indebted to the Appellant, unlike the instant appeal where the Appellant did not furnish any evidence to prove the Respondents’ indebtedness to it. Rather, the evidence furnished by the Appellant only corroborates the Respondent’s assertion that he was/is not indebted to the Appellant.

It is also the Respondents’ Counsel’s submission that the trial Court was right in its decision that none of the two conditions purportedly imposed by the Appellant by its letter of 19th July 2018 can stand. Counsel argued that the first condition which is the demand that the Respondents repay the sum of N40,000,000.00 (Forty Million Naira) as overdraft was absurd as the said overdraft facility was not drawn or owed at the material time. Also, the second condition which touches on the Bank Guarantee also did not involve any physical cash whatsoever and all the Appellant needed to do upon receipt of the deceased Respondent’s letter of 4th April 2018, was to issue a Certificate of Discharge if the obligor was not interested or unable to get another guarantor, which would be forwarded to AITA and the Bank Guarantee would be duly returned and cancelled in line with the terms of the Appellant’s contract with the obligor. Furthermore, Respondents’ Counsel argued that at the time the late Mr Sesby Banjoh sought to exit the personal guarantee contract, the tenors of both the overdraft facility and the Bank Guarantee had lapsed because of effluxion of time. While the Bank Guarantee had a tenor of 365 days from the 27th of March, 2014, the Overdraft had a tenor of 180 days from the same 27th of March,2014 and none was ever renewed by the parties, save for the attempt made by the Appellant during the pendency of the case at the trial Court and without the knowledge or consent of the Respondents.

Counsel further argued that the word “continuing” which the Appellant made heavy weather about in its brief is different from the context in which it is used in the contract. He argued that it does NOT depict a contract in perpetuity and that all the word speaks to is the guarantor’s guarantee “…on a continuing basis, to the Bank the prompt payment to it when due” and nothing more. He also argued that in the said FBN V. SONGONUGA, the word “continuing” was NOT held to mean that the Respondent in that case could not determine the guarantee contract between him and the Appellant Bank. Rather, the Court recognized the Respondent’s right to determine and exit the guarantee contract by virtue of the Respondent’s letter to the Appellant subject only to his settling the debt and interest accrued at the time of his exit. Counsel therefore submitted that in the instant appeal, there was/is no such indebtedness accruable to the Respondent at his exit, the contract invariable stands determined without more. Concerning the argument on the renewal of the Letters of Offer for years 2016 and year 2017, the Respondents’ Counsel argued that there were no valid subsisting Letters of Offer, thus the decision in favour of the Respondents herein on this issue would remain as solid as the rock.

DECISION/HELD:

The appeal and cross-appeal were dismissed.

RATIO:

BANKING LAW – OVERDRAFT:   What the concept of overdraft entails; whether the mere existence of an offer of overdraft facility automatically translates to indebtedness

“An overdraft, as explained in I.B.W.A. LTD vs. UNAKALAMBA (1998) 9 NWLR (PT. 565) 245, is:

“Money lent. A payment by a bank under an arrangement by which the customer has an overdraft, is a lending by the bank to the customer. A banker is not obliged to let his customer overdraw from his account unless he has agreed to do so. Such an agreement need not be express. It is sufficient and valid if it be inferred from the course of business. Borrowing and lending are matters of contract not necessarily premeditated but possibly spontaneously.” (Pp. 260-261, paras. H-A)

From the above, an overdraft would occur when the banker allows its customer, either based on previous agreement or in the cause of business, to access more funds than available to the credit of the customer. The difference between the customer’s balance and the amount accessed higher than the customer’s balance becomes the overdraft – it is a loan from the banker to the customer. As rightly held by the trial Court, the customer does not become liable merely by the existence of the grant or approval of an overdraft facility until and unless the beneficiary of the facility actually utilizes the facility and draws an amount over and above the credit standing in its favour. For this reason, in the case of AYANSINA vs. CO-OP. BANK LTD. (1994) 5 NWLR (PT. 347) 742, this Court held that:

“Since a banker is not bound to allow his customer to overdraw, a loan or overdraft is not granted as a matter of course but subject to an agreement, express or implied from a course of business.”

Consequently, it goes without saying that an overdraft does not create a liability or responsibility merely because it existed. The position of our law as enumerated by the Supreme Court is that even the application from the customer is not an offer, rather it is the approval by the banker of an overdraft facility that is the offer and the utilization of the facility is the express acceptance of the offer. This position was reiterated by the Supreme Court in OMEGA BANK (NIG.) PLC. vs. O.B.C. LTD. (2005) 8 NWLR (PT. 928) 547 (P. 583, PARAS.D-E) thus:

“An application by a customer of a bank for overdraft or loan facilities from the bank is a 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. In this case, exhibit “PS” could not be regarded as an offer. [ORIENT BANK OF NIGERIA PLC. vs. BILANTE INTERNATIONAL LIMITED (1997) 8 NWLR (PT. 515) 37]”

It is manifestly evident that the mere existence of a grant of offer of overdraft facility as in the instant case does not automatically translate to indebtedness.” Per SENCHI, J.C.A.

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