Effect of Domiciliation Arrangement in Banking Transactions: Whether Translates to Assignment of Chose-in-Action
Facts
The Respondent financed two Local Purchase Orders (LPO Nos. 4747 and 48303), issued by the 1st Appellant to a certain Pit-a-Pat International Nigeria Limited (“Pit-a-Pat”) sued as the 2nd Defendant at the trial court. By a letter (Exhibit D) from Pit-a-Pat to the 1st Appellant, Pit-a-Pat gave an irrevocable mandate that payment for LPO No. 4747 should not be released to it, without the prior knowledge of the Respondent. Also, by another letter (Exhibit G) from Pit-a-Pat to the 1st Appellant, it gave an irrevocable mandate, that payment for LPO No. 48303 should be made to the Respondent. In response to these letters, the 1st Appellant wrote two letters to the Respondent, informing the Respondent that it only pays the company mentioned on the LPOs. The 1st Appellant, subsequently paid Pit-a-Pat, and the Respondent instituted an action against the Appellants, claiming the payments for the LPOs, as well as interests and damages. The Appellants raised a Preliminary Objection, on the grounds that - there was no privity of contract between them; the 1st Appellant acted as an agent of a disclosed principal and the suit disclosed no reasonable cause of action against them. The trial court, however, dismissed the objection raised, and entered judgement in favour of the Respondent.
Dissatisfied with the decision of the trial court, the Appellants appealed to the Court of Appeal. The Court of Appeal upheld the decision of the trial court in respect of the Respondent’s claim on LPO No. 48303, on the ground that Exhibit G was an assignment of a chose-in-action by Pit-a-Pat to the Respondent. Nonetheless, the court set aside the decision of the trial court in respect of LPO No. 4747, on the ground that Exhibit D only stated that payment should not be released without the knowledge of the Respondent. Still dissatisfied with the decision of the Court of Appeal, the Appellants further appealed to the Supreme Court, and the Respondent filed a Cross-appeal. The Respondent also filed a Preliminary Objection against some of the Appellants’ grounds of appeal, but same was discountenanced by the court, as there were other grounds, capable of sustaining the appeal.
Issues for Determination In resolving the main appeal, the Supreme Court considered the following issue:
Whether the Court of Appeal was right to have held that, there was an assignment of the proceeds of the contract in respect of LPO No. 48303.
For the Cross-appeal however, the Supreme Court considered the following issue:
Whether the Court of Appeal was right to hold that, there was no assignment in respect of LPO No. 4747.
Arguments The Appellants argued that, the contract between Pit–a-Pat and the Respondent was for the domiciliation of payment, and not an assignment. The Appellants submitted that, in banking transactions, domiciliation is not the same as an assignment, as banks do not use it to create an assignment, but as a way of reducing its risks and to be assured that its customer is not paid directly. They further argued that, the issue of assignment is not borne out of the contract between the said parties, and they are bound by the terms of their contract. They relied on the case of PETER TIWELL (NIG.) LTD v INLAND BANK (1997) 3 NWLR (Pt.1103) 111. The Appellant stated that, it was during the pendency of the Respondent’s case at the trial court, that it introduced the concept of assignment in its Amended Statement of Defence to stretch the content of Exhibit G, which simply referred to the arrangement as domiciliation.
The Respondent, on the other hand, argued that the Court of Appeal was right in holding that there was a valid legal or equitable assignment of the benefit of LPO No. 48303. Citing TOKINGTON v MAGEE (1902) 2 K.B. 427 and other authorities, the Respondent submitted that, the conditions for a valid assignment were present, as the assignment was absolute, in writing, and the Appellants had notice of the assignment. Further, the Respondent argued that, the letter was not prepared by a Legal Practitioner, and the main object of interpretation of documents, is to discover the intention of the parties which is deducible from the language used. They argued that, the letter contained an irrevocable mandate which the 1st Appellant understood, but refused to comply with. Further, the Appellants argued before the lower court that, the consent of the 1st Appellant was necessary before there can be a valid assignment, but they turned around at the Supreme Court to argue otherwise. The Respondent urged the Apex Court, not to permit the Appellants to blow hot and cold at the same time. It cited the case of FBN PLC v ACB LTD. (2006) 1 NWLR (Pt. 962) 438 to submit that, the Appellants invented the issue of domiciliation to mislead the court.
Court’s Judgement and Rationale Deciding the main issue, the Supreme Court considered its earlier pronouncement in the case of PETER TIWELL (NIG) LTD v INLAND BANK ( supra) on domiciliation, and described the term as an arrangement between a bank and a borrower to domicile payment due to the borrower from a third party with the bank. An assignment, on the other hand, is a legal term used in the context of the law of contract and property, which means a right to transfer “choses in action.” Further, the Court described a chose in action, as all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession; it is essentially the right to sue. Choses in action were not originally assignable at Common Law to enable the Assignee sue in his own name, because debts or choses in action were regarded as personal – LAMPET’S CASE (1613) 10 CO-REP 46B, 48. An attempted assignment was seen as an intrusion by a third party, into a dispute between two parties.
Conversely, choses in action, which may be legal or equitable, were assignable in equity. Where the chose in action is legal, the Assignee can only sue in the name of the Assignor; if equitable, he could sue in his name. With the coming into effect of Section 25 of the Judicature Act 1873, legal choses in action were made assignable by law, and with the Law of Property Act 1925, the usual way of assigning the benefit of a debt or other legal chose in action, is as set out in Section 136 thereof. An assignment which fails to comply with the formalities set out under Section 136 of the Law of Property Act, will be effective as an equitable assignment. Thus, the effect of a legal assignment is to put the Assignee in the same position as the Assignor, in respect of the benefits (not burdens) arising from the original transaction with the debtor.
The difference between a domiciliation arrangement and an assignment, is the right to sue. A domiciliation arrangement is between the bank and the borrower; if the borrower fails to pay back the loan, the bank has no right to sue a third party. However, with a legal assignment, the bank would have the right to sue the third party, in its own name. The Court of Appeal had opined that, the condition for the enforcement of a right by an Assignee, is to join the Assignor in the claim against the debtor, which the Respondent satisfied by joining Pit-a-Pat along with the Appellants at the trial court. The Appellants however, posited that there was no tripartite agreement between the Respondent, Pit-a-Pat and the Appellants. Therefore, the Respondent cannot elevate a domiciliary arrangement between the bank and the 2nd Defendant, to the status of an assignment.
The Supreme Court held that parties to an agreement retain the commercial freedom to determine their own terms – NIKA FISHING LTD v LAVINA CORP (2008) 16 NWLR (Pt. 1114) 509; where there is a contract regulating an arrangement between the parties, the main duty of the court is to interpret the contract, to give effect to the wishes of the parties as expressed therein. The directive in Exhibit G referred to in this case, when read holistically with other documents relied on in this case, show that parties never intended to create an assignment. What the Respondent and Pit-a-Pat clearly agreed to, was a domiciliation arrangement for payment to be made by the 1st Appellant, and not an assignment of the benefit of proceeds of the contract.
As regards the Cross-Appeal, the Supreme Court held that, there was no mention of domiciliation or assignment in Exhibit D, wherein Pit-a-Pat gave an irrevocable mandate, that the payment cheque in respect of the said LPO should not be released to it without prior knowledge of the Manager of the Respondent. Exhibit D did not convey any transfer of benefits of the contract, from Pit-a-Pat to the Respondent.
Appeal Allowed, Cross-Appeal Dismissed.
Representation: A.A. Osara, Esq. and J. Oche, Esq. for the Appellant/ Cross Respondent.
Ngozi Ogbomor, Esq. and Fidelis Mbadugha, Esq. for the Respondent.
Reported by Optimum Publishers Limited (Publishers of the Nigerian Monthly Law Reports (NMLR))
“THE DIFFERENCE BETWEEN A DOMICILIATION ARRANGEMENT AND AN ASSIGNMENT, IS THE RIGHT TO SUE. A DOMICILIATION ARRANGEMENT, IS BETWEEN THE BANK AND THE BORROWER; IF THE BORROWER FAILS TO PAY BACK THE LOAN, THE BANK HAS NO RIGHT TO SUE A THIRD PARTY. HOWEVER, WITH A LEGAL ASSIGNMENT, THE BANK WOULD HAVE THE RIGHT TO SUE THE THIRD PARTY, IN ITS OWN NAME”