BD LAW DIGEST WITH CLRN & ALP NG & Co.
KHALED BARAKAT CHAMI v. UNITED BANK FOR AFRICA PLC
SUPREME COURT OF NIGERIA
(KATSINAIALU; MUKHTAR; ONNOGHEN, CHUKWUMA-ENEH; MUNTAKA-COOMASSIE, JJ.SC)
BACKGROUND FACT
The Appellant, Khaled Barakat Chami, executed a guaranteed bond pursuant to a guaranteed agreement to secure a credit facility extended by the Respondent, United Bank for Africa (UBA), to its customer, Rasha Enterprise Limited. Under the terms of the guarantee agreement, the Appellant undertook responsibility for the repayment of the credit facility in the event of default by Rasha Enterprise Limited. Following the disbursement of the facility, Rasha Enterprise Limited failed to meet its repayment obligations as stipulated in the loan agreement. Despite repeated demands by the Respondent for the outstanding debt to be settled, the company neglected to discharge its financial obligations. Given Rasha Enterprise Limited’s persistent default, the Respondent turned to the Appellant as guarantor and formally demanded payment of the outstanding debt. However, the Appellant refused to respond to the demand or fulfill his obligations under the guarantee agreement.
As a result, the Respondent sought to enforce the guarantee agreement and recover the outstanding sum by instituting legal action against the Appellant at the High Court of Kano State (Court). The claim was for the total sum of ₦171,452,649.52, the debt owed by Rasha Enterprise Limited under the credit facility. The Respondent’s legal action aimed to secure repayment of the outstanding amount by enforcing the guarantee bond issued by the Appellant.
At the conclusion of the trial, the learned trial judge dismissed the Respondent’s claim and entered judgment in favor of the Appellant. Dissatisfied with the outcome, the Respondent appealed to the Court of Appeal, which subsequently set aside the decision of the trial court.
Still aggrieved by the ruling of the Court of Appeal, the Appellant who had been the Respondent at the appellate court, filed an appeal before the Supreme Court, seeking to overturn the judgment of the lower court.
One of the key issues raised for determination before the Supreme Court was: Whether the Court of Appeal was correct in holding that Rasha Enterprise Limited was not a necessary party to the proceedings at the trial court.
ARGUMENTS
The Appellant’s argument before the Supreme Court was that he never executed any guarantee agreement with the Respondent in favour of Rasha Enterprise Limited. He contended that both the Respondent and Rasha Enterprise Limited were not duly incorporated and further argued that the credit facility extended to Rasha Enterprise Limited was not backed by any collateral.
The Appellant’s counsel submitted that Rasha Enterprise Limited was a necessary party to the proceedings and that its absence rendered the suit incompetent. Counsel argued that the determination of Rasha Enterprise Limited’s indebtedness to the Respondent was a condition precedent to establishing any liability under a guarantee. Therefore, failing to join the company in the proceedings was a fatal omission, making it legally impossible for the court to properly adjudicate the matter.
On the other hand, counsel for the Respondent maintained that the case at the trial court was based on a contract of guarantee executed by the Appellant in 1996 to secure the financial obligations of Rasha Enterprise Limited. Counsel argued that the Respondent successfully proved both the indebtedness of Rasha Enterprise Limited and the existence of the guarantee agreement executed by the Appellant. Furthermore, there was evidence that the principal debtor defaulted on the loan, failing, refusing, or neglecting to repay the debt, which was secured by the Appellant’s guarantee.
DECISION OF THE COURT
In resolving the issue, the Supreme Court held that:
When a person guarantees the liability of a third party through a contract of guarantee or suretyship, a distinct and independent contractual relationship is created between the guarantor and the creditor, separate from the principal debtor’s obligations. The Court further emphasized that a creditor is not required to join the principal debtor in proceedings to enforce the guarantee. The liability of the guarantor arises the moment the principal debtor defaults on repayment. Therefore, in this case, when Rasha Enterprise Limited failed to repay the credit facility, the Appellant’s liability as guarantor became enforceable.
Accordingly, the creditor’s right to recover the debt is not conditional upon first proceeding against the principal debtor. Instead, the creditor is entitled to enforce the guarantee directly against the guarantor, independent of any action taken against the principal debtor.
Issue resolved in favour of the Respondents
S.E Elema Esq for the Appellant
Y.O. Ali Esq., SAN with him is Messrs Bayo Oyagbola; E.Onah Esq., S.Oke Esq.; I.O. Atofarati Esq. and M. Abdullahi Esq. for the Respondents.
This summary is fully reported at (2020) 10 CLRN in association with ALP NG & Co.
See www.clrndirect.com ; www.alp.company
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