09/05/2021
GUARANTEE-Meaning and nature of contract of guarantee
"It is settled law that where a person personally guarantees the liability of a third party by entering into a contract of guarantee or suretyship, a distinct and separate contract from the principal debtor's is thereby created between the guarantor and the creditor. The contract of guarantee so created can be enforced against the guarantor directly or independently without the necessity of joining the principal debtor in the proceedings to enforce same..."
FIRST CITY MONUMENT BANK PLC vs. ONWUMELU(2018)
LPELR-45544(CA)
ISSUE: CONTRACT OF GUARANTEE-Meaning and nature of contract of guarantee
(CONTRACT OF GUARANTEE
-Where a contract of guarantee is an Exhibit in a Record of Appeal and the appeal is withdrawn, whether the dismissal of the withdrawn appeal has an invalidating effect on the contract of guarantee)
Issue in bracket mine.
PRINCIPLE:
"I have carefully read the submissions of the parties in this appeal and in my humble view, all the issues crafted for
determination may be conveniently collapsed into sole issue for determination which is "Whether in consideration of the
Bank Guarantee No. LEG/HO/1108/154 executed in favour of the Claimant/Respondent, the lower Court was right in
granting the claim of the Claimant/Respondent?" The sum total of the Appellant's submissions is that by virtue of the
Ruling of Dada J. of the lower Court in Suit No. ID/769/2005 on the 18th day of March, 2009, the Bank Guarantee which
the Respondent sought to enforce had become worthless and ceased to have any value and that, it was issued only for
the purpose of being attached as an Exhibit to the Application for Stay of Ex*****on of Judgment in Suit No. ID/769/2005
pending appeal and therefore cannot be enforced.
The Respondent on the other hand contended that the Bank Guarantee was executed, signed and issued by the
Appellant in favour of the Respondent, that it was a written instrument that specifically promised to pay the sum stated
therein in favour of the Respondent in the event that appeal against the judgment in Suit No. ID/769/2005 fails; and that
by virtue of the withdrawal of the said appeal, the appeal was deemed as having been dismissed pursuant to Order 11
Rules 1 & 5 of the Court of Appeal Rules, 2007 which is in pari-materia with Order 11 Rule 5 of the Court of Appeal
Rules, 2011 and therefore, the Bank Guarantee becomes payable. I have carefully read the judgment of the last Court herein appealed against as contained at pages 251 - 261 of the Records of Appeal and it is my considered opinion
that the lower Court cannot be faulted in its findings and decision. A copy of Exhibit D, which is the Bank Guarantee can
be found at pages 31 - 32 of the Records of Appeal. The Appellant did not deny issuing and executing this document
which is in favour of the Respondent. By its very nature, a Bank Guarantee is a separate and independent contract
between the guarantor and the beneficiary. The Supreme Court per ONNOGHEN, JSC, (now CJN) in CHAMI Vs. UBA PLC
(2010) 6 NWLR (Pt.1191) Pg.474 SC, (2010) LPELR-841 (SC) Pg.33-34, Paras. E - B, held as follows:
"It is settled law that where a person personally guarantees the liability of a third party by entering into a contract of
guarantee or suretyship, a distinct and separate contract from the principal debtor's is thereby created between the
guarantor and the creditor.
The contract of guarantee so created can be enforced against the guarantor directly or independently without the
necessity of joining the principal debtor in the proceedings to enforce same..."
See: also DALA LOCAL GOVERNMENT Vs. ACCESS BANK PLC & ORS. (2016) LPELR-40200 (CA) Pg.20-21, Paras. E - C and
JAY JAY Vs. SKYE BANK PLC (2016) LPELR-40185 (CA) Pg.15-16, Paras. C - B where this Court also held as follows and I
quote:
"It should be noted that by coming into existence of Exhibit D, a separate and distinct contract from the principal debtor
(Appellant) is created by the guarantor and the creditor... The import of this newly created distinct and separate
contract is that the contract of guarantee can be enforced against the guarantor (Respondent) directly or independently
without the necessity of joining the principal debtor (the Appellant) in the proceedings to enforce same..."
Exhibit D, which is the Bank Guarantee operates as a binding contract between the Appellant and the Respondent
herein, and the Respondent can proceed against the Appellant who issued it, the contention of the Appellant is that the
Bank Guarantee was issued only for the purpose of being attached as an Exhibit to the Application for Stay of Ex*****on
of Judgment in Suit No. ID/769/2005, the Appellant's submission cannot compete against the clear purpose for which the
Bank Guarantee is intended as stated on its face. In the said Bank Guarantee, issuance and ex*****on of which is not
disputed, the Appellant stated as follows:
NOW WE, FIRST CITY MONUMENT BANK PLC of Primerose Towers, 17A, Tinubu Street, Lagos (hereinafter called "the
Bank") in consideration of the Judgment Debtor failing in his appeal against the judgment in suit No. ID/769/2005 hereby
guarantee the payment of the sum of N8,925,000.00 (Eight Million, Nine Hundred and Twenty-Five Thousand Naira)
only.
In my humble understanding there is no ambiguity in the wordings of the Bank Guarantee as to the promise/guarantee
made by the Appellant to the Respondent, the Appellant shall therefore not be permitted to renege on a contract
willingly entered into in the absence of any vitiating element. I have read the Ruling of Dada J. in Suit No. ID/769/2005
delivered on the 18th day of March, 2009 and contained at pages 110 - 114 of the Records against which the Appellant
raised, heavy storm. While I am mindful of the fact that this appeal is not against the Ruling of Dada J. delivered on the
18th day of March, 2009 and therefore a consideration of that Ruling will be outside the jurisdiction of this Court; I must
however take judicial notice of same since it forms part of the Records of this appeal, and was not invalidated or
declared unenforceable by the Ruling of Dada J. The argument canvassed by the Appellant that the Bank Guarantee
was issued for the purpose of serving as Exhibit to an Affidavit in support of the Application and nothing more, in my
view untenable. The guarantee was validly signed, issued and executed. In the instant case therefore, the purpose of
the Bank Guarantee was specific and explicit and therefore cannot be construed in any other light than what is written
in clear and unambiguous terms. The primary condition upon which the Bank Guarantee was issued is to secure the
failure of the Judgment Debtor's Suit No. ID/769/2005 which had been appealed against. It is on record that the appeal
was withdrawn, the Appellant did not deny or dispute the fact that the Appeal against the judgment in Suit No. ID/769/2005 was withdrawn. The consequence of withdrawal of an appeal is that the appeal is deemed as having been
dismissed. The primary condition for the enforcement of the Bank Guarantee had been fulfilled. The purpose of the
Bank guarantee was to wholly and exclusive secure the interest of the Respondent in the event of failure of the appeal.
The learned trial Judge was therefore right in holding that:
"In conclusion, I find that the guarantee is valid and that the appeal having failed the claimant is entitled to the
judgment debt under the guarantee."
In conclusion therefore the judgment of the lower Court was right and cannot be impeached." Per ABUBAKAR, JCA.(Pp.16-22,Paras.C-A).
ABIODUN ANOR. vs. AJISAFE & ANOR.(2018)LPELR-43879(CA)
ISSUE: CONTRACT OF GUARANTEE/SURETYSHIP-
Nature of contract of suretyship
PRINCIPLE:
"From the facts as found by the trial Judge and the intention of the parties as revealed in the Exhibit "C" series particularly Exhibit 'C3', 'C4' and 'C8', it appears to me to be a clear case of suretyship. Again, I will rely on Chitty for elucidation. Suretyship is explained at paragraph 4801 thereof as: General
nature of the contract: A contract of suretyship is in essence a contract by which one person (the surety) agrees to answer for some liability of another (the principal debtor) to a third person (the creditor). The contract may be constituted by a personal engagement on the part of the surety, or by a charge on property without any personal liability, or by both. Prima facie a surety does not merely undertake to perform if the principal debtor fails to do so; he undertakes to see that the principal debtor will perform. Important results flow from this prima facie rule of construction. In particular it means that a surety is normally liable to the same extent as the principal debtor for damages for breach of the latter's obligations even though he has not in terms guaranteed the payment of damages.
Learned counsel for appellants has made heavy weather of the 1st appellant not being a party in the contract and so having nothing to do with it but in Duncan Fox & Co. vs. North and South Wales Bank (1880) 6 APP Cas. 1, 11 - 12 it was pointed out that there are three possible variations in the parties to a contract of suretyship. The first and simplest case is that in which all three parties concerned are parties to the contract in the sense that the Principal debtor and the creditor agree that the surety's liability is secondary liability only and that the principal debtor is primarily liable for the obligations guaranteed. But it is also possible that the contract of suretyship may be recognized only as between the principal debtor and the surety or as between creditor and surety, in which even the rights and duties arising out of the contract of suretyship only affect those parties. (See Paragraph 4802 of Chitty on Contract) In Nigeria, the position is not different as espoused under the Common Law. In Khaled Barakat Chami vs. United Bank for Africa Plc. (2010) 2-3 SC (Pt.11) 92 the nature of Suretyship was explained as: "Where a Person personally guarantees the liability of a third Party by entering into a contract of guarantee or suretyship, a distinct and separate contract from the principal debtors is thereby created between the guarantor and the creditor. The contract of guarantee created can be enforced against the guarantor directly or independently without the necessity of joining the principal debtor in the proceedings to enforce same.
The right of a creditor is not conditional as he is entitled to proceed against the guarantor without or independently of the incident of default of the principal debtor. See Khaled Barakat Chami vs. UBA (Supra)." Per OKORONKWO, JCA.(Pp.19-22,Paras.F-B).
ISSUE: CONTRACT OF GUARANTEE-Whether a forbearance to sue or take a debtor to Court is sufficient consideration for a guarantee
PRINCIPLE:
"...One may ask, what about consideration like the appellants counsel wondered in his submissions thoughtfully. In this case, the respondents had a right to sue the 2nd appellant for the goods converted or may even bring criminal prosecution for offences like criminal breach of trust or conversion but by reason of the intervention of the 2nd appellants husband i.e. 1st appellant, the respondents forbore to sue or bring prosecution against the 1st appellant. That was consideration that the law recognizes. In John Younis vs. Racheed Chidiak & Ors. (1970) NSCC 138. It was held that a forbearance to sue or to take the principal debtor to Court given of the request of the guarantor is sufficient consideration for the guarantee. So in this case, contrary to appellants' counsel submission, the consideration is the forbearance of the respondents in taking further steps." Per OKORONKWO, JCA.(Pp.22-23,Paras.C-A).
