The decision of the Court of Appeal in Wema Bank Plc v. Osilaru is such that will ordinarily agitate the mind of an average customer of a bank just as it will agitate the mind of a customer who takes the bank’s facility. The decision has raised two posers, namely:
Will a customer’s money in the abstract kept as deposits with the bank ground an action for detinue or conversion against the bank?
Will a bank be held liable to its customer for conversion in the event the bank applies the proceed of an insurance claim to defray the outstanding indebtedness of the customer, when such proceed was indeed meant for the repairs of the damaged property which the customer had used as security for the facility he obtained from the bank?
The respondent, a customer of the appellant bank (hereinafter: “the bank”), had sometime in March, 1998 taken two facilities from the bank namely; term loan and overdraft facility. The facilities were secured by a legal mortgage on the respondent's real property at 147, Akarigbo Street, Sabo, Sagamu in Ogun State and the property was insured against fire and burglary.
The respondent defaulted in both facilities whereupon by letter dated June 15, 1999, the bank made a final demand for payment of the sum of N4,847,693.63k being the outstanding balance on both facilities. The bank also threatened legal action should the respondent fail to liquidate his indebtedness. A month after and specifically on July 18, 1999, a communal clash broke out in Sagamu and the respondent’s property which was used as security for the facilities were looted and burnt. The insurance company paid the insurance claim in the sum of N5,793,319.60k through the bank for the repairs of the damaged property. This provoked a demand from the respondent for the payment of the insurance sum but the bank refused to oblige the respondent’s demand. Instead, the bank after taking the insurance sum, also demanded for the sum of N172,335,84k from the respondent being the outstanding balance on the two facilities.
Provoked by the bank’s refusal to release the insurance sum to him, the respondent took out a writ of summons against the bank at the High Court of Ogun State, Sagamu claiming declaratory reliefs as well as repayment of the said insurance sum which the bank had allegedly converted to its own use.
Upon receipt of the originating processes, the bank filed its defence and also counter claimed against the respondent for:
Payment of the aforesaid sum of N172,335,84k being the outstanding balance on the two
Interest on the said sum at the rate of 34% per annum from the 17th of May, 2000 until liquidation of the entire debt;
A declaration that the bank is entitled to sell the mortgaged property; and
An order for the sale of the said property.
At the trial, the respondent testified for himself and called no other witness while the bank called one witness. In its judgment, the trial Court found for the respondent by granting his claim in its entirety. The Court also dismissed the bank’s counter-claim.
Aggrieved by the trial Court’s decision, the bank appealed to the Court of Appeal, Ibadan.
Issues for determination
At the Court of Appeal, the bank and the respondent formulated two different sets of issues for determination in their respective briefs of argument. The bank had identified 4 issues while the respondent formulated 3 issues respectively. In the determination of the appeal, the Court adopted the 4 issues couched by the bank as follows:
Whether the respondent proved by credible evidence his entitlement to the reliefs granted by the learned trial Judge;
Whether the learned trial Judge was right to have ordered the repayment to the respondent of the insurance sum of N5,793,319.60k when no such relief is claimed on the statement of claim of the respondent.
Whether the appellant was right to have appropriated the insurance sum by paying same into the account of the respondent to defray his due indebtedness to the appellant.
Whether the appellant adduced sufficient evidence in support of its counter-claim as to entitle it to judgment on the counter-claim.
Decision of the Court
On the first issue, the Court restated the legal principle that the relationship between a banker and a customer where a bank accepts money either in current or deposit account from its customer is a relationship of debtor and creditor. The nature of the relationship is contractual such that the customer has neither the ‘custody’ nor the ‘control’ of monies standing in his credit in an account with the bank. Instead, what the customer has is a right to demand repayment of such monies from the bank. In other words, the customer’s monies in the hands of his banker are not in the custody or control of the customer. Such monies remain the property in the custody and control of the banker and payable to the customer when a demand is made thereof. However, where the customer makes a demand for his monies with the bank for instance, by issuing a cheque and the banker refuses to pay, the law is that the customer’s action is in damages for breach of contract and not for detinue or conversion.
Relying on the above legal principle, the Court therefore held that the bank cannot seize, detain or convert something which is under its control and possession. Seizure is the act of suddenly taking control or possession of something. The position of the law is that money in the specie of coins and notes can be converted while money in the abstract such as money in a bank account cannot be converted. In other words, whereas the former can be the subject in a claim for detinue or conversion, the latter cannot be. Given the fact that the subject matter of the respondent's claim is money in the abstract, the Court held that it cannot ground an action for detinue or conversion as it was unimaginable for the bank to convert money adjudged to be its property or seize money under its control, possession and custody. The Court therefore resolved the first issue in favour of the appellant bank.
On the second issue, the bank in urging the Court to resolve this issue in its favour contended that it was wrong for the trial Judge to order repayment of the insured sum to the respondent when there was no such claim before the trial Court. The bank contended that the respondent’s claim as contained in the statement of claim is vague and that although the one contained in the writ of summons is proper; it cannot be relied upon since the statement of claim supercedes the writ.
In urging the Court to discountenance this issue, the respondent however argued that there is nothing in the record of appeal to support the issue that the learned trial Judge ordered the repayment to the respondent of the insured sum. He further argued that both the grounds of appeal and the issue formulated therefrom must be held incompetent not being predicated upon the decision of the trial Court.
In considering first, the legality or otherwise of the issue under reference, the Court having examined both the relevant ground of appeal and the corresponding issue distilled therefrom, found that there is no order made against the bank to pay the insurance sum to the respondent. The learned trial Judge merely said "I therefore hold that the plaintiff claim succeeds on its entirety". Accordingly, the bank’s Ground 2 on its notice of appeal as couched appears to have surfaced from the blues as it has no root in the decision of the learned trial Judge. In resolving this issue against the bank, the Court held that Ground 2 of the notice of appeal not having ensued from the decision of the learned trial Judge, the second issue distilled there-from are incompetent and the same was accordingly discountenanced.
After resolving the second issue against the bank on what may be called a technical objection, the Court being an intermediate Court nonetheless proceeded to determine the same issue on its merit. The Court found that the relief under reference was properly couched in the writ but was rendered inconclusive in the statement of claim. The rendition in the statement of claim was therefore held to be vague and inconclusive and since it is the statement of claim that supercedes the writ; it is the rendition in the statement of claim which is vague that is to be considered by the Court. However, the Court perceived that the said inconclusive rendition in the statement of claim seems to be a mistake although the respondent’s Counsel did not say so. Therefore, in consonance with the age long principle of law that the courts should not be seen to visit the sin of Counsel on the litigant, the Court took the view that the proper approach in the circumstances was doing substantial justice to the parties, the blunders of Counsel notwithstanding.
On the third issue which was considered to be the crux of the appeal, the Court on the one hand gave careful considerations to the bank’s contention that its interest which was noted on the insurance policy was the repayment of the loan facility and that it was proper for the bank to take the insurance sum paid into the bank to defray the respondent's indebtedness to the bank. On the other hand, the Court also considered the respondent’s contention that the bank has no right to appropriate a customer's fund kept with it for a specific purpose and in the instant case, for the purpose of repairing the respondent's damaged properties and that no provision is made in loan agreement to govern the disbursement of the insurance sum in the event of occurrence of mishap as happened in this case.
In resolving this issue, the Court found that from the material placed before the Court, the respondent had admitted owing the bank the sum of N4,847,693.63k and that since the relationship between the bank and the respondent is contractual, the interest of the bank endorsed on the insurance policy can only be the repayment of the facility granted the respondent. Therefore, when the respondent defaulted in the repayment schedule, the clause in the loan agreement dealing with default had come into effect such that the totality of the indebtedness had become due and payable on demand. At the time a bank is granting a loan or overdraft facility to its customer, what is paramount in its mind, which makes it imperative to ask for and receive assurances or security for the loan, is that its interest which is the repayment of the facility must be protected. The bank's interest on the mortgaged property cannot be anything other than security for the repayment of the loan.
The Court therefore held that the insurance sum was paid in respect of the mortgaged property which the bank has substantial interest and which such interest was endorsed on the insurance policy. The Court further held that the bank was right to appropriate the insurance sum paid in respect of the damaged mortgaged property.
In resolving this issue partly in favour of the bank, the Court disagreed with the amount which the bank had appropriated as only the sum of N4,847,693.63k as contained in the bank’s final demand notice is due and payable and as such only this amount can in the meantime be appropriated by the bank. Any other indebtedness by the respondent to the bank thereafter must be specifically demanded in accordance with the above legal principle. This position is further strengthened by the fact that the respondent has admitted owing the bank the aforesaid sum of N4,847,693.63k and what is admitted needs no further proof.
On the fourth and final issue which is on whether the bank had adduced sufficient evidence in support of its counter claim at the trial Court as to entitle it to judgment. The Court found that apart from tendering statement of account in court, the bank did not do anything more than that in order to establish its counterclaim against the respondent at the trial Court. The settled position of the law is that any bank which is claiming a sum of money on the basis of the overall debit balance of a statement of account must adduce both documentary and oral evidence to show how the overall debit was arrived at as it is not the duty of the Court to embark on a voyage of discovery. Therefore, the bank having just dumped the statement of accounts on the trial Court without explaining clearly the entries therein, the Court held that the counter claim was not yet ripe for filing in Court as the bank had failed to specifically demand from the respondent the sum claimed in its counter claim which is the usual and customary practice in the banking parlance.
The law is that before a demand notice is made, no cause of action can arise.
In resolving this issue against the bank, the Court agreed with the submissions of the respondent and the finding of the trial Judge that the bank indeed failed to prove its counter claim as required by law. Reliance was placed on Section 38 of the Evidence Act which provides that entries in books of account, regularly kept in the course of business are relevant whenever they refer to a matter into which the Court has to inquire, but such statements shall not alone be sufficient evidence to charge any person with liability.
The Court found the appeal to be meritorious and therefore allowed the same in part.
The decision of the Court of Appeal in this case is no doubt significant as each of the issues distilled for determination has again resolved legal disputes many of which often rear their ugly heads in banker customer relationships. First, this decision has again distinguished between when a customer’s claim against his bankers may lie in damages and when the customer may rarely proceed against his bankers in detinue or conversion. Whereas the customer may claim damages where his article kept with the bank is in the abstract, his claim in detinue or conversion may only succeed where the article kept with the bank is tangible and not in the abstract.
Secondly, a bank is not a charitable institution; its main objective like every other enterprise is to maximize its profit. In every loan transaction, the bank’s paramount interest is the repayment of that loan and it is with this in mind that the bank is unlikely to be held liable to its customer for applying the proceed of an insurance claim to defray the outstanding indebtedness of the customer albeit that such proceed was indeed meant for the repairs of the damaged property which the customer had used as security for the facility he obtained from the bank.
Lastly, the customary practice in banking and in fact the settled position of our law is for the bank to issue demand notice on a defaulting customer. Without a prior express demand, a bank is unlikely to succeed on a claim of outstanding indebtedness against its customer just as it is not enough for the bank to merely arm itself with the customer’s account statement showing indebtedness without further proof.
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