CASE TITLE: ZENITH BANK v. DAILY TIMES OF (NIG) PLC & ANOR (2022) LPELR-58415(CA)
JUDGMENT DATE: 26TH JULY 2022
- UZO IFEYINWA NDUKWE-ANYANWU, JCA
- OLUDOTUN ADEBOLA ADEFOPE-OKOJIE, JCA
- EBIOWEI TOBI, JCA
COURT DIVISION: ABUJA
PRACTICE AREA: BANKING LAW
The 1st Respondent, as Plaintiff before the trial Court, instituted an action against the Appellant and 2nd Respondent seeking, inter alia, declaration that the 1st Respondent is entitled to the repayment of the sum of N849,300,843.56 which the Appellant paid out or allowed to be withdrawn between 2010 and 2015 from the 1st Respondent’s Zenith Bank by persons who were no longer Directors and or officers of the 1st Respondent and who had no authority of the 1st Respondent to draw any cheque or transfer any money from any of the 1st Respondent’s Bank Account of which fact, the 1st Respondent timeously notified the Appellant.
The Appellant entered its defence, and called witnesses.
Upon conclusion of trial, the trial Judge found the Appellant liable for breach of its duty of care owed the 1st Respondent by negligently paying out various sums of money from the 1st Respondent’s accounts with it.
Aggrieved by this decision, the Appellant appealed.
The appeal was determined upon consideration of the issues thus:
- Whether the lower Court was right to have found the Appellant liable for breach of its duty of care owed the 1st Respondent by negligently paying out various sums of money from the 1st Respondent’s accounts with it.
- Whether the non-joinder of Fidelis Anosike and Noel Anosike robbed the lower Court of the jurisdiction to hear and determine the case?
- Whether the joinder of the 2nd Respondent as a party to the suit was proper in the circumstances of this case?
The learned Appellant’s Counsel submitted that banks, in the absence of a board resolution, Court order or a post no debit instruction changing the signatories to the account, and that the Appellant cannot be faulted for honouring its customers’ cheques that is in compliance with the customer’s mandate. Learned Appellant’s Counsel also submitted that the removal of the directors of the 1st Respondent without any change of signature mandate, rendered the decision of the trial Court that the Appellant was negligent by breaching its duty of care to the 1st Respondent when it paid cheques drawn by them erroneous. Counsel further argued that the 1st Respondent had an obligation to itself and the Appellant to change the signatories in the mandate to its account, obtain a Court order or post no debit, which it did not do. The Appellant cannot thus be faulted. A bank has an obligation and duty to its customer to obey its mandate once it is found to be in order.
Learned Counsel to the 1st Respondent submitted that notwithstanding the notification to the Appellant of the pendency of suits to remove the said Directors and also notification of the Board Resolution removing them as Directors, the Appellant continued to allow the said Directors to operate the 1st Respondent’s bank accounts domiciled with them. Learned Counsel submitted that this was a flagrant breach by the Appellant of its duty of care owed the 1st Respondent.
In conclusion, the appeal was allowed.
BANKING LAW- DUTY OF A BANK: Whether a bank will be liable for honoring cheques presented by removed directors of a company who are signatories to its account in the absence of a mandate from the company changing the signatories to the account
“The question that calls for determination under this issue is whether, in view of the removal of these persons as directors of the company since 1/2/2010, with a resolution to this effect filed at the Corporate Affairs Commission on 5/2/2010, which fact was communicated to the Appellant on 9/3/2012, the Appellant was liable for honouring cheques and allowing change of signatories at the behest of the removed directors, in the absence of a mandate from the 1st Respondent changing the signatories to the account.
While I agree with the 1st Respondent’s Counsel that any acts done contrary to the Resolution brought to the attention of the Appellant by its letter dated 9/3/2012 (Exhibit B6) would render the Appellant liable, the converse to this would be that the Appellant cannot be held culpable for acts done prior, of which it had no notice. The lower Court, I note, held them liable for all withdrawals made between 2010 and 2019
I agree with the Appellant’s Counsel that the “Indoor Management” Rule availed it. This Rule was stated by the English Courts in Royal British Bank v Turquand (1843-1860) AER Rep 435 at 437 to 438, and adopted by the Supreme Court in J.A. Obanor & Co Ltd v Co-op Bank Ltd (1995) 4 NWLR Part 388 Page 128 at 139 Para E-G per Uthman Mohammed JSC, where they held:
“According to this rule, while persons dealing with a company are assumed to have read the public documents of the company and to have ascertained that the proposed transaction is not inconsistent therewith, they are not required to do more, they need not inquire into the regularity of the internal proceedings – what Lord Hatherley called “the indoor management.”
The various requests for change of mandate signatures, from the processes tendered before the lower Court (Exhibits DB 20-21, DB23, DC9-22) were all done by the erstwhile Board before the notification by the 1st Respondent’s Counsel to the Appellant by letter dated 9/3/12, of the removal of the Anosikes as Directors. The evidence shows that prior to these dates the account of the 1st Respondent was operated by the Anosikes.
The testimony of the 1st Respondent’s Chairman, Ikechukwu Obiorah, before the Court, contained in Paragraph 8 of his witness deposition before the lower Court (Page 16 of Record) is that “before they were removed from the Board of Directors of the Plaintiff, both Fidelis Anosike and Noel Anosike were operating the Bank Accounts of the Plaintiff domiciled with the 1st Defendant.”
It is thus impossible for the Appellant to be held liable for infracting any Board Resolutions that were not brought to its attention by the 1st Respondent. To expect a Bank, before honouring cheques from companies, to make searches at the CAC of Board changes, which changes have not been communicated to it and when there has been no mandate change, would be delving into the realm of impracticability.
The 1st Respondent’s Counsel, in his bid to make the Appellant liable, has referred to letters tendered before the lower Court of notification to the Appellant by the Solicitors to the 1st Respondent informing the Appellant of pending litigation between the parties. One of such letters is Exhibit B28, dated 18/1/2010 written by Uchenna Nwosu & Co notifying the Appellant of pending litigation seeking the question of whether Messrs. Fidelis Anosike, Charles Anosike and Noel Anosike were still shareholders and directors of the 1st Respondent. The letter warned the Appellant that the continuous dealings by the said persons with the 1st Respondent’s accounts would amount to contempt of Court and criminal collusion.
I, however, agree with the Appellant’s Counsel, that letters from legal counsel cannot take the place of Court orders or mandates from the company through duly registered resolutions of the company. This is because a bank is placed in the delicate position of not only protecting its customers from loss but also distancing itself from board room brawls and protecting itself from possible litigation against it by the contending parties.
Nothing short of a directive by Board Resolution from the 1st Respondent changing the mandate of its signatories and communicated to the Appellant, would suffice, I hold.
Indeed, the evidence of PW1, under cross-examination by the Appellant’s Counsel, at Page 993 of the Records is as follows:
“I have not seen any resolution sent to Zenith Bank for change of Bank signatories except communication by counsel acting pursuant to the resolution of the board …Our case before the Court is that Zenith Bank did not stop giving effect to instruction signed by Noel Anosike and Fidelis Anosike. My case is not that I sought to change them and Zenith Bank refused. I did not obtain Court injunction served on Zenith Bank to stop the Anosikes operating the account… I did not issue any resolution directing Zenith Bank to close the account. There was no substitution of signatories to the account sent to Zenith Bank”. Underlining Mine.
Indeed, the signature mandate cards and Board Resolutions tendered by the Appellant (Exhibits DC3-DC14) show a consistency of the Anosikes as signatories to the account.
In the absence of any directive by Board Resolution, from the 1st Respondent changing the mandate of its signatories nor prior knowledge of any change in the composition of the 1st Respondent’s Directors, the Appellant cannot, I hold, be held liable for breaching its duty of care to the 1st Respondent.
Section 167 (c) of the Evidence Act 2011 (as amended) enures in favour of the Appellant, I hold, as it allows the presumption that the common course of business was followed and that in the absence of any change of mandate, the Anosike’s who had been signatories to the account would continue to be so.
For, as held by this Court in the case of Savannah Bank of Nigeria Plc v Prime Management System Ltd (1999) 10 NWLR Part 621 Page 160 at 165 Para B-C per Mahmud Mohammed JCA (as he then was) “..the fact that there was then a dispute between the Directors of the Respondent in the operation of the company can never provide any justification in law for the Appellant to dishonour the cheques properly issued by the Respondent in line with the existing mandate for the operation of the accounts.”
The lower Court was thus in error when it held the Appellant liable for failing “to search CAC to ascertain who were indeed the directors of the Plaintiff”.
The lower Court was also in error when, in rejecting the contention of the Appellant’s Counsel that the Anosikes were only removed as Directors and not as signatories to the account, it held that “A person must be a staff, officer, a director in an organization before such person is made a signatory to the account. Having been lawfully removed as directors and/or officers of the Plaintiff and judicially determined, the 1st Defendant ought to have suspended further operation of the accounts pending resolutions of pending matters or pending when the existing or current directors convey a fresh board resolution appointing fresh signatories to the accounts.”
Not only has no authority been presented to show that it is only staff, officers or directors of a company that can be made signatories to a company’s account, a Bank will be going beyond its duty to its customer, by getting embroiled in boardroom politics, rather than acting on the existing mandate before it.
The duty of a Bank is to exercise reasonable care and skill in regard to its customer’s affairs and not to allow funds to be withdrawn from a customer’s account contrary to the mandate. See Ndoma-Egba v African Continental Bank Plc (2005) 14 NWLR Part 944 Page 79 at 112-113 Para G-A per Oguntade JSC, Fijabi v First Bank of Nigeria PLC (2021) LPELR – 53351 CA at 20-21 per Ogakwu JCA.
The Appellant, I hold, would be acting contrary to its duty to the 1st Respondent and in grave error, to place a ban on the account of the 1st Respondent without an order from the Court, an instruction from the signatories to the account, or a resolution from the company.
In the case of UBA Plc v Antai (2018) LPELR-49786 (CA) at Pages 25-27, where the Bank placed a ban on the account of the customer in the absence of an instruction from the signatories to the account, a resolution of the company or order of the Court, this Court held, per Tobi JCA:
“In the circumstance, the Appellant could not have been right to place a ban on the account without a Court order or an instruction from the signatories of the account or resolution from the Union in a meeting. Apart from these, any ban on the account will amount to a unilateral act no matter the intention. For as long as the account exists, there is a contractual relationship between the Appellant and the Respondent to which the Appellant is under obligation to honour instructions from the signatories to the account including honouring cheques, provided the account is funded… The Appellant with due respect was ill advised to take the instruction from a letter, that is Exhibit D1 to ban the account of the Respondent. This is not done and the Appellant rightly in my view should not be allowed to go free with such misuse of discretion which is completely unfounded in law and common sense. The Appellant in my view should rather be concerned with the account holder represented by the signatories than other persons who as far as the account is concerned are not parties since they were not known as representatives of the Union, much more so when they are not signatories to the account. Even if they are officers of the Union, provided they are not signatories to the account, in the absence of a resolution from the Union, the Appellant has no business dealing with anyone in relation to the account outside the signatories. Banks should not unilaterally be closing or placing ban on accounts without a Court order or instruction from the account holder or signatories to the account. The appropriate advice the Appellant would have given to the makers of Exhibit D1 was to get a court order so as not fall into the wrong side of the law. For the lack of proper discretion from the Appellant, it has to pay for it.”
I hold likewise. While I agree that any action taken by the Appellant in contravention of the resolution conveyed to it in Exhibit B6 renders it liable and that the Resolution of the 1st Respondent removing the said directors divested these directors of any authority to transact or act on behalf of the Board of Directors, inclusive of change of signatories, there is, however, no change of signatories shown to have been effected after 9/3/2012 when notification was given to it by the 1st Respondent. The Appellant cannot thus be held liable to the 1st Respondent for breach of any duty of care or loss suffered by the 1st Respondent.
The lower Court, I thus hold, was in error to have found the Appellant liable for breach of its duty of care owed the 1st Respondent by paying out various sums of money from the 1st Respondent’s accounts with it.” Per ADEFOPE-OKOJIE, J.C.A.