Mubeco Petroleum Co. Ltd V. Bank of Industry Ltd: On whether Bank can Allow Third Party Interest on Collateral Securing Payment of Loan Granted to Its Customer

An insight into the Court of Appeal decision therein.

Citation: (2021)13 N.W.L.R PT. 1792 AT 139.

Courtesy Moruff O. Balogun, Esq.

Summary of facts:
The respondent granted loans and credit facilities to the appellant to advance its business, which were secured by a loan and mortgage debenture agreement made between the appellant and the respondent in respect of the fixed and floating assets of the appellant, valued at N1,979,585,000.00. In clause Gf of the Up-stamped Loan and Mortgage Debenture Agreement, it was agreed that the appellant shall obtain the prior written consent of the respondent before it creates any further mortgage or charge over its fixed and/or floating assets.

In November 2013, the appellant signed a five-year contract worth N58,000,000,000.00 with NNPC Retail Limited to produce different grades of lubricant oil and it needed funding to execute the contract. The appellant approached Keystone Bank and Diamond
Bank and both banks offered the appellant facilities to execute the contract. In line with clause 10(c) of the Up-Stamped Loan and Mortgage Debenture Agreement, the appellant applied to the respondent for consent to create a second charge on its assets to secure the facilities offered by Keystone and Diamond Banks. The respondent refused to grant the consent.

The appellant contended that the respondent’s refusal to give the consent was unreasonable and an implied breach of the contractual obligation owed by the respondent to the appellant; and that the respondent’s refusal and failure to give the consent unduly prejudiced its business fortune, causing its inability to discharge its
payment obligation to the respondent under the Loan and Mortgage Debenture Agreement.

Consequently, the appellant instituted an action at the Federal High Court, Kaduna seeking inter alia a declaration that it was an implied term of the Deed of Mortgage Debenture and the Up-Stamped Deed of Mortgage Debenture that the respondent’s
requisite consent to the creation of a second mortgage/charge on the appellant’ s assets shall not be refused or delayed unreasonably; and a declaration that the respondent’s refusal or failure to give the consent was tantamount to an unreasonable refusal or delay of the consent and an implied breach of contractual obligation owed by
the respondent to the appellant under both Deeds.

At the conclusion of trial, the trial court in its judgment dismissed the appellant’s claims. It held that the appellant failed to show that the respondent’s refusal to grant the requested consent was unreasonable and that there was no evidence that the appellant
accepted the offers by the other banks or met the conditions precedent to accessing their-facilities. Aggrieved by the judgment of the trial court, the appellant appealed to the Court of Appeal.

Held: Unanimously dismissing the appeal.

The following issues were raised and determined by the Court of Appeal:

On whether bank can allow third party interest on collateral securing payment of loan granted to its customer –
“It is commercially unwise and unreasonable to expect the respondents to consent to the request by the appellant to allow a third party compete with the respondents pari pasu by creating a second charge over the same assets or properties already mortgaged to them (respondents). So far as that agreement between the appellant and respondent was still in existence, the latter cannot be held liable for the appellant’s inability to secure the loan request from the third party, (Keystone Bank and Diamond Bank). Certainly, the withholding of consent by the respondent was not unreasonable.”

On duty on court to give effect to terms of agreement-
A court cannot read into an agreement between parties a term that was not contained therein. Courts must respect sanctity of contracts. In the instant case, in clause 10(c) of the Up-stamped Loan and Mortgage Debenture Agreement, exhibit 2, it was agreed that the appellant should obtain the prior written consent of the respondent before it created any further mortgage or charge over its fixed and/or floating assets, By the clause, the decision to grant consent was squarely that of the respondent.

The trial court was right in refusing to hold as unreasonable the respondent’s failure
to grant its consent to the creation of a second mortgage on the charged assets. The respondent, having decided in its interest to refuse the consent requested, as the agreement between them permitted, could not be held liable for the inability of the appellant to execute the contract it had with NNPC Retails Ltd.

Courtesy:
Moruff O. Balogun Esq.
Ijebu Ode, Ogun State.
08052871414
09121207712 [WhatsApp]