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B. VISINONI LIMITED AND OTHERS
NATIONAL BANK OF NIGERIA LIMITED
HIGH COURT OF THE (DEFUNCT) NORTH-CENTRAL STATE
Ogunteye (A. L. Vigo with him) – for plaintiffs
BANKER AND CUSTOMER RELATIONSHIP – Dishonour of cheque -Insufficient funds in customer’s account – customer, issued cheque on the strength of overdraft facilities purportedly granted to him by bank manager who lacked authority to grant same – Whether bank is liable.
SECURITIES FOR ADVANCES –
(1) Exercise of power of sale by mortgagee bank .
(2) Whether notice given by bank to mortgagor, was, in the circumstances of the case, proper.
(3) Mortgagee bank, paying residue of proceeds of sale of mortgaged property to debtor’s account instead of paying same to mortgagor (guarantor) personally – Effect.
The plaintiffs’ claim against the defendant is for account and for the sum of N27 3,000 as damages for breach of contract.
The first plaintiff is a limited liability company carrying on the business of engineering contractors while the second plaintiff is its managing Director and main shareholder. The defendant is the banker to the plaintiffs.
The case for the first plaintiff/company is that the company has a current account with the defendant at its branch in Kaduna under an agreement permitting the first plaintiff to overdraw upon a maximum of N20,000.
The overdraft agreement was secured by a mortgage of properties belonging to the second plaintiff; that on 20th March, 1972 the defendant agreed to increase the overdraft by N 10,000 thereby permitting the first plaintiff to overdraw up to a maximum of N30,000.
The first plaintiff further pleaded that on or about 30th November, 1973 the defendant without lawful cause committed breach of overdraft agreement by wrongfully dishonouring several cheques issued by the first plaintiff and thereby inflicted severe damage to the business of the first plaintiff. Paragraph 10 of the S. of C. sets out the specific losses totalling N250, 193. The first plaintiff asks for this sum as specific damages.
In their answer to this claim the defendant admits permitting the first plaintiff to overdraw up to N20,000 under the mortgage agreement but denies having increased the overdraft to N30,000. The defendant concedes that between August and October, 1972, the defendant’s manager allowed the first plaintiff to exceed the allowed limit of N20,000 by NI0,000 but contends that the act of the manager was ultra vires and the defendant was not bound by it. The defendant further pleads that the first plaintiff had always known the overdraft limit to be N20,000 and the first plaintiff is stopped from denying that fact.
The defendant further denies having dishonoured the cheques of the plaintiffs and then traverses that if there was any dishonour of the said cheques it was not wrongful as the plaintiffs had exceeded the overdraft facilities and there was not sufficient fund in the account to merit the cheques. The defendant denies having caused the losses as alleged and avers that the damage, if any, is too remote.
The issues raised by this part of the claim are:
(1) Was the permitted overdraft of N20,000 increased to N30,000 by the defendant or by its manager acting within the scope of his authority?
(2) Upon the overwhelming evidence that the cheques of the first plaintiff were dishonoured by the defendant, were the dishonours justified in that there was not sufficient funds to meet all or any of the cheques?
(3) Is the defendant liable for breach of contract, and if so, what is the measure of damages?
The case for the second plaintiff is that on 26th January, 1974, the defendant unlawfully foreclosed the mortgage and sold the mortgaged property; he claims the sum of N59,380 being the balance due to him from the proceeds of the sale, the sum of N3,600 being loss of profits and general damages.
In their defence, the defendant denies the foreclosure and sale to be wrongful and avers that their solicitor had made a formal demand on the plaintiffs to pay the sum and interest secured by the mortgage and as the plaintiffs failed to comply with the demand they sold the mortgaged property in accordance with the provisions of the law.
Finally the plaintiffs aver that since March, 1973, the defendant has refused to furnish any statements of accounts to the plaintiffs despite repeated demands. The defendant simply denies the allegation.
The issue regarding the granting of the initial overdraft is not in dispute. The terms are contained in the Mortgage Agreement, of 12 May, 1971, Exh. I. Under it the defendant granted to the first plaintiff “overdraft facilities not exceeding £10,000 such that at any given time the total outstanding as overdraft… shall not exceed the sum of £10,000”. In November, 197 I, the first plaintiff applied to the defendant for the increase of the overdraft to £20,000. It is common ground that only the head office of the defendant, which is situated in Lagos, has the authority to approve such overdraft.
The evidence shows that the head office did not reply to the first plaintiff’s application for the increase, despite several reminders, until by their letter of 13th December, 1972, Exh. 1, in which they rejected the application. The evidence relating to the conduct of the business in the overdraft account of the first plaintiff with the defendant shows that the branch manager of the defendant at Kaduna, where the first plaintiff has been ,operating the overdraft account, had been permitting the first plaintiff to exceed the overdraft limit of £10,000 from January, 1972 to November, 1972.
It is pertinent to set out the state of the account during the aforementioned period. The closing balance for January, 1972 was £13,000 debit which exceeded the limit by £3,000; for February, 1972 it was £14,116.11.4 exceeding the limit by £4,116.11.4; for April, 1972 it was £21,389.5.8 debit exceeding the limit by £11,389.5.8; for May, 1972 it was £21,389.5.8; for June, 1972 it was £21,543.9.8 exceeding the limit by £11,543.9.8. The cards for April, July and October 1972, Exh. 4(22), 4(2) and 4(21), respectively show by their endorsements that the first plaintiff was allowed an excess of £5,000 overdraft pending the approval of head office. These facts were furnished by the evidence of PWI and DWI and supported by the ledger cards Exh. 4( 1-23).
The November, 1972 account is continuation of the October 1972 account.
It is on the back of Exh. 4(21). Being the continuation of October, 1972 account, the November, 1972 account must be presumed to carry the endorsement for October, 1972 that the first plaintiff was allowed by the branch manager to overdraw an excess of £5,000 over the limit. There is no evidence to rebut this presumption. The defendant has not produced the December, 1972 account. In his evidence the second plaintiff says the account of the first plaintiff was overdrawn by £12,000 in December 1972 when the cheques of the first plaintiff were dishonoured. This exceeded the permitted limit by £2,000.
It is clear from the evidence that from January, 1972 to December, 1972, that although the limit of the overdraft approved by the head office of the defendant was £10,000, the branch manager of the defendant at Kaduna had been consistently exceeding that limit by allowing the first plaintiff to overdraw in excess of £ 1 0,000. I accept the case for the first plaintiff that the branch manager granted to the first plaintiff an excess of £5,000 overdraft thereby up grading the overdraft limit to £15,000 at the material time i.e. 11th December, 1972 when the first cheque of the plaintiff was dishonoured.
The salient question now is: Is the defendant bound by the act. of their manager? Mr. Vigo for the plaintiff contends that the branch manager had discretion to give overdraft to the defendant’s customers and that there is no evidence that the plaintiffs knew the branch manager had no authority to permit the excess and that the ultra vires act of the manager acting within the scope of his employment is binding upon the defendant. The case for the defence is that the manager acted outside the scope of his authority and that the plaintiff knew that and consequently the defendant is not liable. Mr. Adewumi for the defence relies on A-G for Ceylon v. Silva (1953) A.C. 461 to buttress his contention.
The general principle of the common law is that a master is liable for a contract entered into on his behalf by his servant if the servant has expressed apparent or implied authority of the master to enter into such contract. Where the servant has no authority and the other contracting party is aware of that, then the contract is not binding on the master: see Chitty on Contracts 23 ed. p. 47 seq and the A -G of Ceylon v. Silva (supra).
There appears to have been evidence that prior to August, 1972, branch managers of the defendant have discretionary powers to grant overdraft and were in the habit of exceeding the limits of overdrafts imposed by the head office of the defendant. Since the issue of circular of 14th August, 1972, Exh. 25, the powers of branch managers were taken away thus:
“The Board has directed that with immediate effect and on receipt of this circular, all discretionary powers to approve banking facilities given to District and Branch Managers are withdrawn. On no account and under no circumstances should any further facility be granted to any customer without the written authority of the Head Office as advised by the General Manager or the Chief Credit. Officer.”
The circular of 24th August, 1972 Exh. 26, further directed all branch managers to refrain from exceeding the limits of overdrafts imposed by the head office and to take active and vigorous steps to recover all excess lendings and outstanding facilities. The circular of 1st September, 1972, Exh. 27, permitted branch managers:
“to grant loan and overdraft facilities to civil servants and respectable salary earners not exceeding half of the net income credited or paid monthly into their accounts, provided such customers’ accounts are in credit by the end of the month on the receipts of the respective salaries in the Bank”.
It is clear from the foregoing that the branch manager of the defendant had no authority to exceed the limit of the overdraft permitted to the first plaintiff under the Mortgage Agreement, Exh. 1. I find that as from August, 1972 to December, 1972 the manager acted outside his authority by granting the excess of £5,000 to the first plaintiff.
The evidence of the second plaintiff who applied for the overdraft initially on behalf of the first plaintiff shows that the first plaintiff knew that only the head office of the defendant had authority to grant the over- draft. The second plaintiff testified that the branch manager had shown him the letter, Exh. 3, conveying the approval of the £10,000 overdraft by the head office. He further testifies that when he applied for the increase of £10,000, the manager wrote to Lagos and when there was no reply the manager gave him the introductory letter of 20th March, 1972, Exh. 2, in which the manager recommended to the head office to approve the increase and the second plaintiff delivered the letter personally to the head office. The witness went on to say that there was no reply from Lagos until March, 1972 when in his presence the branch manager spoke to Lagos over the telephone and Lagos gave a temporary approval of £5,000 increase and the first plaintiff then started to overdraw £15,000 up to the beginning of December, 1972.
1 find that the second plaintiff had throughout the transaction known that the branch manager had no authority to grant the overdraft and had no authority to exceed the limit authorised by the head office. Being the managing director of the first plaintiff, the second plaintiff’s knowledge is binding on the first plaintiff. 1 find that the first plaintiff knew that the manager had no authority to allow the excess.
Applying the general rule that a third party cannot sue a master on a contract which he in fact knew the servant had no authority to make, I hold that the excess overdraft of £5,000 granted by the manager to the first plaintiff without the authority of the head office is not binding on the defendant.
I therefore accept the case for the defence that the limit of the overdraft for the first plaintiff was £10,000 when the cheques of the first plaintiff were dishonoured.
The next question is: was there sufficient funds in the account of the first plaintiff to meet up the cheques? The defendant has not produced the December, 1972 ledger account. The second plaintiff, however, testified that the account of the first plaintiff was overdrawn by £12,000 when the first cheque for £200 of 11 December, 1972 was dishonoured on that date. He conceded that he had exceeded the £ 10,000 limit granted by the head office by £2,000. As the first plaintiff had exceeded the limit, I hold that the defendant was justified in dishonouring the first cheque as there was no money to honour it.
There is no evidence that the first plaintiff made any payment into the bank between 11th and 12th December, 1972. The limit of the overdraft facility and the sum overdrawn by the first plaintiff must be presumed to be £ 1 0,000 and £12,000 respectively on the 12th of December, 1972 when the other cheques for £716.1.10, £300, £1,285, £400, £800, £500, £100 and £700 all of 12th December, 1972 were dishonoured. I find that the first plaintiff exceeded their limit when all these cheques were presented to the bank for payment and there was not a penny in the account of the first plaintiff to meet any of the cheques. I hold that the defendant has justified the dishonour of all the cheques.
I find the defendant not liable for the breach of the overdraft agreement. The claim of the first plaintiff in this respect will be dismissed. I shall proceed to consider the case for the second plaintiff. His case falls into two parts. Firstly the foreclosure and sale of his property was wrongful and secondly a claim of N59,380 for money had and received by the defendant to his use.
The only point taken by Mr. Vigo with regard to the sale of the mortgaged property is that the notice given to the plaintiff as contained in Exh. 14, indicated that the defendant intended to sell No. 8A and 8B Bidda Road, but they sold the property situated at Kachia Road. He contends that the notice was not valid for the property sold. He concedes that the public notice for the sale included the property sold but he contends that was not enough as the Conveyancing Act provides that the notice shall be served on the mortgagor.
Mr. Vigo’s complaint relates to the form of the notice, Exh. 14. The form of notice to be given by the mortgagee to the mortgagor before the former exercises his power of sale is indicated in 27 Halsbury 3rd Ed. p. 301 para 564 and 14 Encyclopaedia of Forms and Precedents 4th Ed. p. 863. It is not necessary to describe the property to be sold if the mortgagee failed to pay the principle money and interest before the expiry of the notice. It is sufficient to intimate to the mortgagor that the mortgagee “shall sell the property comprised in the said mortgage or some part thereof’. Encyclopaedia (Supra).
Exh. 14 intimated to the mortgagors that if they failed to pay the principal and interest within the period specified in the notice, the defendant “shall proceed to exercise the right of sale under the said mortgage”. The right of sale under the mortgage, Exh. 1, included the property at Kaduna Road described in schedule A therein. In so far as the matter relates to the only point taken by Mr. Vigo, I find that it was a substance. The plaintiff has failed to show the foreclosure and sale of the mortgaged property to be wrongful or unlawful. This part of the claim must also fail.
The second part of the second plaintiff’s claim relates to the recovery of the balance of the proceeds of sale of the mortgaged property. The evidence shows that the property was sold for N85,000. The defendant’s principal money and interest stood at N27,443.30 at the time of the sale and the expenses for the sale were Nl,700. The defendant was therefore entitled to deduct the total sum of N29, 143.3 from the proceeds and thereby leaving a balance ofN55,856.70.
From the terms of the Mortgage Agreement, Exh. 1, the defendant knew that the second plaintiff was a surety and the owner of the property sold by the defendant. They must have known that any balance of the proceeds of the sale was the entitlement of the second plaintiff. They are bound in law to surrender the balance to the second plaintiff or to keep it in his account on his behalf and to deliver it to him on demand. The evidence shows that balance in the account of the first plaintiff and a large portion of that account, to writ, the sum of N49,393.96, was garnished upon the applications of other creditors of the first plaintiff.
The defence to this claim is that the second plaintiff knew or should be presumed to know that the proceeds of the sale was paid into the account of the first plaintiff and that he acquiesced to the payment thereinto.
Mr. Adewumi contended that the second plaintiff knew from the statements of accounts, Exh. 9( 1-11) that the proceeds were credited to the account -of the first plaintiff but the learned counsel conceded that the statements were supplied to the plaintiff upon the order of this court after this suit had been filed. These statements are not therefore helpful to the defence.
Mr. Adewumi further contends that the second plaintiff should know that the proceeds were credited in the account of the first plaintiff from the endorsement on the cheque dated 18th November, 1974, Exh. 8, “account garnished”. The cheque was drawn by the first plaintiff on a cheque sheet 671. The evidence shows the personal account of the second plaintiff was Nor. 671. As the cheque was signed on behalf of the first plaintiff, 1 find that the endorsement showing that the account of the first plaintiff, the drawer, was garnished did not sufficiently bring any knowledge to the second plaintiff that the balance of his money was credited to the account of the first plaintiff. Moreover this cheque, Exh. 8, is irrelevant to the issue since it was issued on 18th November, 1974 after this suit had been filed.
Mr. Adewumi further contends that the second plaintiff should have contested the garnishee proceedings but the learned counsel concedes that the second plaintiff was not put on notice in any of the said proceedings. As the second plaintiff was not put on notice of the garnishee proceedings and there is no evidence to show that he knew his monies were the subject of the garnishee proceedings, it would be absurd to hold that his absence in the court to challenge the garnishee proceedings tantamounts to acquiescence of the crediting of his money to the account of the first plaintiff.
The defendant has failed to prove that the second plaintiff acquiesced the crediting of the proceeds of the sale to the account of the first plaintiff and has failed to prove circumstances from which such’ acquiescence could be inferred.
I find the defendant liable to the second plaintiff in the sum ofN55,856.70 being the balance of the proceeds of sale of the mortgaged property.
To sum up:
(1) The claim of first plaintiff for the sum ofN250, 193.20 is dismissed.
(2) The claim of second plaintiff for breach of the mortgage agreement and N3,600 loss of mesne profits is also dismissed. –
(3) The claim of the second plaintiff for the balance of the proceeds of sale succeeds and judgment shall be entered -for him in the sum of
It is relevant to indicate that by virtue of the letter of 18th September, 1974, Exh. 6, the Commissioner of Revenue North Central State appointed the defendant as the agent. of the first and second plaintiffs for the purposes of the Income Tax Management Act, 1961 and informed the defendant that there is an outstanding tax liability in the sum of N6,204.70 plus N582.26 interest. The letter did not state specifically whether this tax liability is on the first plaintiff or the second plaintiff. The defendant should therefore make enquiry to ascertain whether the tax has been paid, and if it has not been paid, to ascertain whether it is the liability of the first plaintiff or the second plaintiff. If the defendant finds the tax liability to be that of the second plaintiff, i.e. Mr. B. Visinoni, the defendant may retain sufficient money by virtue of s. 29( 1) of the Act out of this judgment debt to satisfy the tax liability.