EKEREMOR LOCAL GOVT COUNCIL v. OMIE (2022)

EKEREMOR LOCAL GOVT COUNCIL v. OMIE

(2022)LCN/16340(CA)

In The Supreme Court

On Friday, May 21, 2021

SC.510/2017

Before Our Lordships:

Amina Adamu Augie Justice of the Supreme Court of Nigeria

Uwani Musa Abba Aji Justice of the Supreme Court of Nigeria

Mohammed Lawal Garba Justice of the Supreme Court of Nigeria

Samuel Chukwudumebi Oseji Justice of the Supreme Court of Nigeria

Emmanuel Akomaye Agim Justice of the Supreme Court of Nigeria

Between

EKEREMOR LOCAL GOVERNMENT COUNCIL APPELANT(S)

And

HRM KING THEOPHILUS OMIE RESPONDENT(S)

RATIO:

POSITION OF AN ALLEGATION OF ILLEGALITY IN A CONTRACT AGREEMENT.

An allegation of illegality is serious because the consequence is that a Court will not come to the assistance of any party to an illegal contract, who wishes to enforce it. This position is founded on the principle of public policy, and it is expressed in the maxim “ex turpi causa non oritur actio”, which means – “an action does not arise from a base cause”. See Pan Bisb ilder (Nig.) Ltd. v. F.B.N. (2000) 1 NWLR (Pt. 642) 684.
See also Onyiuke III v. Okeke (1976) NSCC (Vol. 10) 146, wherein this Court per Alexander, CJN, stated the position of the law as follows:
“It is the law that a contract is illegal if the consideration or the promise involves doing something illegal or contrary to public policy or if the intention of the Parties in making the contract is thereby to promote something, which is illegal or contrary to public policy; and an illegal contract is void and cannot be the foundation of any legal right. This proposition of law was clearly enunciated by Brett M.R. in Harman v. Jeuchner (1885) 15 QBD 561, at page 563 as follows-
When the object of either the promise or the consideration is to promote the committal of an illegal act, the contract itself is illegal. AMINA ADAMU AUGIE, J.S.C.

WHEN DOES A CONTRACT BECOMES ILLEGAL

In Halsbury’s Law of England, 3rd Edition, Volume 8, page 125 para. 218, the law on the point is also succinctly stated as follows:
A contract is illegal where the subject matter of the contract is illegal or where the consideration or any part of it is illegal.” AMINA ADAMU AUGIE, J.S.C.

POSITION OF LAW ON EVIDENCE BEFORE IT

It is elementary law that the Court must be guided by the evidence given before it, and it must not convey the impression that its judgment is being directed by a desire to heed private or public sentiments. See Inakoju & Ors. v. Adeleke & Ors (2007) 4 NWLR (Pt. 1041) 423 SC. AMINA ADAMU AUGIE, J.S.C.

DUTY OF COURT IN DECIDING A CASE

……Court has a duty to consider relevant provisions of law that are useful in deciding a case. Olutola v. Unilorin (2004) LPELR-2632(SC); (2004) 18 NWLR (Pt. 905) 416. AMINA ADAMU AUGIE, J.S.C.

DUTY OF COURT ON TRANSACTIONS THAT ARE EXPRESSLY OR IMPLIEDLY PROHIBITED BY STATUTE

The position of the law is that transactions that are expressly or impliedly prohibited by statute are illegal and, therefore, unenforceable. See Pan Bisbilder (Nig.) Ltd. v. FBN (supra), and Alao v. A.C.B. (1998) 3 NWLR (Pt. 542) 339, wherein this Court per Iguh, JSC, explained that:
Where a contract made by the parties is expressly forbidden by statute, its illegality is undoubted and no Court ought to enforce it or allow itself to be used for the enforcement of alleged obligations arising thereunder if the illegality is duly brought to the notice of the Court, and if the person invoking the aid of the Court is himself implicated in the illegality. AMINA ADAMU AUGIE, J.S.C.

POSITION OF LAW WHERE PARTIES CONTRACT IN BREACH OF ENABLING LAWS

As I said earlier, where parties contract in breach of enabling laws, such contracts are illegal and unenforceable. See Ekwunife v. Wayne (W/A) Ltd. (1989) 5 NWLR (Pt. 122) 422, wherein this Court held that:
“No Court or Judge has the jurisdiction to enforce an illegal contract. The duty of a Court of law or Judge is to administer justice according to law. Therefore, it will be a breach of that duty and the oath of office to enforce an illegal contract. None of the parties to an illegal contract is entitled to any remedy or relief from a Court of law and once a Court or Judge becomes aware of the illegality, it is the duty of the Court or Judge to stop the case and dismiss the claim for being void and unenforceable.”
And Corporate Ideal Insurance Ltd. v. Ajaokuta Steel Co. Ltd. (2014) 7 NWLR (Pt. 1405) 165, wherein this Court per Okoro, JSC, observed:
“A contract, which violently violates the provisions of a statute with the sole aim of circumventing the intendment of the lawmaker is, to all intents and purpose, illegal, null and void and unenforceable. Such a contract or agreement is against public policy and makes nonsense of legislative efforts to streamline ways and means of business relations. This Court, and any other Court for that matter would not be allowed to be used to enforce any obligations arising therefrom. The summary of all into a contract or transaction to circumvent the clear and unambiguous provisions of a statute. It has been the view of this Court and I reiterate it here that a transaction or contract, the making or performance of which is expressly impliedly prohibited by statute is illegal and unenforceable or impliedly prohibited by statute is illegal and unenforceable.” AMINA ADAMU AUGIE, J.S.C.

POSITION OF LAW WHERE PARTIES CONTRACT IN BREACH OF ENABLING LAWS

Accordingly, where a statute makes a particular contract or class of contracts illegal or invalid, the Court will refuse to allow an action to be maintained thereon, even though the illegality is not pleaded by the defendant and the parties do not desire to rely on it. See Per Iguh, JSC, in Alao v. African Continental Bank Ltd (1998) LPELR-407(SC) (pp. 50-51, para. E); (1998) 3 NWLR (Pt. 542) 339. UWANI MUSA ABBA AJI, J.S.C.:

POSITION OF LAW WHERE PARTIES CONTRACT IN BREACH OF ENABLING LAWS

LEGAL CONSEQUENCE OF AN ILLEGAL CONTRACT

The legal consequence of an illegal contract is that no valid right is acquired and no obligation is imposed there under and so it cannot be enforced by a Court of law since none of the parties is entitled to any valid judicial remedy or relief under it. See Onamade v. A.C.B. Ltd. (1997) 1 NWLR (Pt. 480) 123; Sodipo v. Lemninkainen (No. 2) (1986) 1 NWLR (Pt. 15) 220; Fasel Services Ltd. v. N.P.A. (2009) 9 NWLR (Pt. 1146) 400; Nnadozie v. Mbagwu (2008) 1 SC (Pt. II) 43, (2008) 3 NWLR (Pt. 1074) 363, F.B.N. Ltd. v. Moba Farms Ltd. (2005) 8 NWLR (Pt. 928) 492. MOHAMMED LAWAL GARBA, J.S.C.

AMINA ADAMU AUGIE, J.S.C. (Delivering the Leading Judgment): This appeal turns on the issue of whether a Local Government Council can borrow money from a private citizen for its recurrent expenditure, like paying staff salaries. The appellant is a Local Government Council in Bayelsa State, and the respondent, is a First-Class Traditional Ruler, who had served as a Treasurer in a Local Government before he retired.

In January 2013, the appellant’s Treasurer, “Mr. Amakuro Oyel”, acting on behalf of the appellant, borrowed the sum of N13,000,000.00 from the respondent, a private citizen, “to pay outstanding allowances of out-gone political appointees”. They agreed that 15% interest shall be paid per month. They then went to the bank, where the respondent withdrew the said amount, and handed it over to the Treasurer in cash.

In February 2013, “Mr. Amakuro Oyel” borrowed N12,000,000 from him, “being shortfall in the allocation for the payment of January 2013 salary, to make up for the short fall and pay salaries of workers”. They agreed on the same 15% interest. The respondent withdrew the money from the bank and handed over the cash to the said Treasurer.

On 27/3/2013, the Treasurer was sent on compulsory leave, and in April 2013, appellant’s Chairman, who was privy to the transactions, was also removed from office. The respondent was not paid as agreed. When all efforts to be paid yielded no results, he sued the appellant at the Bayelsa State High Court, Yenogoa, wherein he claimed as follows:
1. Payment of the sum of N49,450,000.00 representing the sum borrowed and interest up to July 2013.
2. Payment of the sum of N3,750,000.00 per month as from August 2013 representing 15% interest of the N25,000,000.00 borrowed until judgment is delivered and judgment sum paid.
3. Payment of the sum of N3,000,000.00 representing general damages.

In its statement of defence, appellant as defendant, averred as follows
10. The defendant shall contend at the trial that the claimant is presumed by law as a money lender and that the entire transaction even if same is proved is fraught with sundry infractions of the Money Lenders Law, 2006, the Bayelsa State Fiscal Responsibility Law, 2009, and the Financial Memoranda for Local Governments, 2009 and thus void and ex facie illegal.
11. The defendant shall contend at the hearing of the matter that the former Treasurer (Mr. Amakuro Oyel) and the other Officials of the defendant acted ultra vires their powers.
12. The defendant shall at the trial contend that the said money, if borrowed, the parties acted in their individual and personal capacities and that the defendant is not bound or obligated under such circumstance.
13. The defendant shall at the trial contend that there is no cause of action against the defendant.
14. Wherefore, defendant shall urge at the trial that the action be dismissed with cost same being an abuse, vexatious, frivolous and should be dismissed with substantial cost.

The appellant also filed a notice of preliminary objection praying for – “An order dismissing this action in limine” on the grounds inter alia that the trial Court lacks jurisdiction to entertain the action in view of Chapter C10, Section 2(1) of the Contracts Law of Bayelsa State, 2006; that the parties did not follow due process while contracting, “i.e. obtaining the requisite approval from the Governor”, and that there is nothing before the Court authorizing the Treasurer to act on its behalf.

At the trial itself, the respondent testified as CW1, and the said Treasurer, Amakuro Oyel Aghalamiyo, who was subpoenaed to appear, testified for the respondent as CW2. The appellant, as the defendant, called Goodluck Phillip, its Director of Finance, and he testified as DW1.

In his judgment of 4/6/2014, the learned trial Judge, Eradiri, J., dismissed the preliminary objection because the grounds of objection “are outside what should ordinarily form the foundation of a notice of preliminary objection”, and concluded as follows on the main suit itself:
The question, which this Court must ask itself is this: – “should a party, who benefitted from a contract be allowed to turn around to evade obligation on the basis of illegality? I shall simply answer this question with the words of Okoro, JCA quoted by Muntaka-Coomassie, JSC in Chidoka v. F.C.F.C. Ltd (2013) 5 NWLR (Pt. 1346) 144 at 163. The defence of illegality does not avail the defendant, who should be honourable enough to fulfill its obligation under the agreement and repay the loan and the interest. Therefore, I enter judgment for the claimant as per his writ of summons and further order the defendant to pay (him):
(i) The sum of N49,450,000.00, representing the sum borrowed and interest up to July 2013;
(ii) The sum of N3,750,000.00 per month as from August 2013, representing 15% interest of the N25,000,000.00 borrowed until judgment is delivered and judgment sum paid; and finally, the
(iii) Sum of N700,000.00 as general damages for breach of contract.

So, the appellant appealed, and in its judgment delivered on 27/3/2017, the Court of Appeal concluded as follows on the said Issue of illegality:
Learned counsel to appellant stridently submitted that the money was not borrowed in accordance with Section 2(1) & of Contracts Law, C.10, Laws of Bayelsa State 2006; Section 46(1), (2) of Bayelsa State Fiscal Responsibility Law, 2009 and Chapters 27.1, 27.2. & 27.3 of the Model Financial Memoranda for Local Governments. That these laws are binding on all “Bayelsans”, therefore, respondent, being a Bayelsan, and a traditional ruler to boot, is bound to know it and comply with it. Learned counsel quoted verbatim Chapters 27.1, 27.2. & 27.3. He quoted Section 46(1) of the Bayelsa State Fiscal Responsibility Law, 2009, which commenced thus, Section 46(3) provides-
“No borrowing shall be incurred by any administration within 180 days to the end of the tenure of that administration.”

From the quotation, can it be said with all sense of candour that these provisions are binding on the respondent? The answer is obviously No! The assertion by the appellant that the respondent is bound by the provisions of these Statutes is not correct and I so hold. The respondent is a private citizen of Bayelsa that was approached by a Civil Servant (CW2) for a loan on the written authority of his Chairman. They orally negotiated the terms of interest chargeable on the said loan and agreed that it should be 15% per month. The respondent, in company of CW2, the cashier and accountant of the appellant went to Fidelity Bank Plc, where he withdrew the monies and handed it over to the said Officials. Can the appellant be heard now to be trying to resile from that contract? Again, I answer in the negative. The law is trite that a binding contract can be in writing, orally or even implied by the law. It is my finding that there was a legally binding contract between the respondent and the appellant as there was an intention to create a contract, a meeting of the minds or consensus ad idem. What is obvious is that the appellant in its effort to resile from this contract and, therefore, escape from liability is trying to hide behind legal technicalities. From the posturing of the respondent (sic), it is obvious that it wants to reap where it did not sow or to eat its cake and have it. This is because it has benefitted from the contract it entered with the respondent, collected his N25,000,000.00, paid its outgoing counselors and shortfall of its staff salary for January, 2013, and is now turning round to plead that the entire contract was an illegality. The behavior of the appellant left much to be desired and it is hereby deplored by me. I resolve this Issue in favour of the respondent.

Further aggrieved, the appellant filed a notice of appeal containing five grounds of appeal in this Court. Briefs of argument were filed and the appellant formulated the following issues for determination in his brief:
(i) Whether from the circumstances of this case, the lower Court was right when it held that there was a legally binding contract between the appellant and the respondent?
(ii) Whether the failure of the respondent to call Hon. Agbadi Ariwalabh as a witness is not fatal to the case of the respondent?
(iii) Whether the lower Court was right in its judgment that the failure of the trial Court to pronounce on the applicability of Section 46 of the Bayelsa State Fiscal Responsibility Law, 2009 to this case does not amount to denial of the appellant’s right to fair hearing?
(iv) Whether from the processes filed at the lower Court, the appellant admitted owing the respondent?

The respondent adopted the four issues formulated by the appellant in his own brief of argument and I will do same in dealing with this appeal. The appellant’s position is that the said contracts were entered into in contravention of mandatory statutory provisions, which makes it illegal. Section 2(1) of the Bayelsa State Contract Law, 2006 provides:
(1) No action shall be brought against a person on a promise, whether made before or after the commencement of this law, to answer for the debt, default or miscarriage of another person unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by that person or some other person lawfully authorized by him.
(2) No promise, in writing, and signed as referred to in subsection shall be deemed invalid to support an action, suit or other proceeding against the person by whom the promise has been made by reason only that there was no consideration for it or that the consideration for the promise does not appear in writing, or in a written document.

The Model Financial Memoranda for Local Government stipulates that:
Chapter 27.1
A Local Government shall only raise loans from;
1. Reputable and strong banks
2. In special circumstances, and subject to obtaining approval under financial memoranda 27.2 from such, other institution as may be approved by the Governor. [Italics by the appellant]
Chapter 27.2 –
A Local Government wishing to raise a loan from a source other than reputable and strong banks shall apply for the Governor’s approval to do so on Form LGT 87. If, after consideration of the application, the Governor gives his consent to borrowing by the Local Government, he shall issue a local sanction on Form LGT 87A. [Italics by the appellant]
Chapter 27.3 –
Loans shall only be raised by a local government to defray capital development expenditure on specific projects. Loans, monies shall not, in any circumstances be used for any purpose other than that for which they were specifically raised.

Section 46(1) of the State’s Fiscal Responsibility Law, 2009 says:
(1) The State Government, its agencies, corporations and Local Government Councils in this State desirous of borrowing shall specify the purpose for which the borrowing is intended and present a cost-benefit analysis, detailing the economic and social benefits of the purpose to which the intended borrowing is to be applied to the Debt Management Office.
(2) Without prejudice to Subsection of this Section each borrowing shall comply with the following conditions:-
(a) The existence of prior authorization in the appropriation or other law for the purpose for which the borrowing is to be utilized; and
(b) The proceeds of such borrowing shall solely be applied towards long-term capital expenditures.
(c) No borrowing shall be incurred by any administration within 180 days to the end of the tenure of that administration.

Section 47(1) and 2 of the Fiscal Responsibility Law also provides that:
(1) All Banks and Financial Institutions shall request and obtain proof of compliance with the provisions of this Part before lending to the State Government and any of its Agencies or Corporations or to any Local Government Council in the State.
(2) Lending by Financial Institutions in contravention of this Section shall be unlawful.

The appellant submitted that these laws were put in place to checkmate fraud in the Local Government system; and that with regard to this case:
The said transaction does not comply with the statutory provisions of Section 2(1) of the Contract Law; that one of the elements that will make a contract illegal is when the contract contravenes the provisions of a statute, citing Total (Nig.) Plc v. Ajayi (2004) 3 NWLR (Pt. 860) 270 at 291, wherein this Court held as follows:
An illegal contract may be said to be a contract, which contravenes our statutory laws or which the contemplated action in it is contrary to statutory law or against public policy.
– That the contract was not in writing, therefore, it is ex facie illegal; that the fact that such an amount of money was given out without any form of documentation in this modern era, speak volumes; that the respondent is simply being economical with the truth and there is more to the story than the ears can hear, and that all this confirms its assertion that the said money was never loaned to it.
– That by the provisions of the Model Financial Memoranda for Local Government, a contract for a loan from a source other than a Bank shall be approved by the Governor of Bayelsa State, and the fact that there was no such approval before the said contracts were entered into was admitted by CW2 under cross-examination, and that being the case, the said contracts are, therefore, illegal.
– That Chapter 27.3 of the Model Financial Memoranda for Local Government specifically provides that loans shall only be raised to defray capital development expenditure on specific projects; that the said loan raised was not for capital development projects but to pay salaries of its ex-supervisors, which is in contravention of the provisions of Chapter 27.3, and makes the contract illegal.
– That the Bayelsa State Fiscal Responsibility Law 2009 bars the borrowing of money to do anything except for a “long-time capital expenditures”, and Section 46(3) thereof also made it illegal for any administration to borrow money within 180 days to the end of the tenure of that administration, and that CW2 admitted that the time between when they borrowed the money and the end of that administration was less than 180 days, which is an express confirmation that the contracts in question are, therefore, illegal.
– Furthermore, that other facts, weighty enough to conclude that the contracts in question are illegal, are that the said monies borrowed from the respondent, were not deposited into its account nor are they reflected in its account books that not being a money lender the respondent is barred from loaning money with interest under the Money Lenders Law of Bayelsa State; and that there is no evidence at all showing that it utilized the said loan.

The respondent, on the other hand, argued that Section 2(1) of the said Contract Law only applies where the Appellant is to take over the liability or debt of another person other than itself. He cited Saraki v. FRN (2016) 3 NWLR (Pt. 1500) 531 and Nyesom v. Peterside (2016) 7 NWLR (Pt. 1512) 452 on the interpretation of statutes by the Courts, and argued that the Model Financial Memoranda for Local Government and the Fiscal Responsibility Law show that the responsibility is on the appellant to ensure that the statutory provisions are adhered to strictly; and the Court below is right that the provisions are not binding on him, because he is a private citizen, and not a staff of the Local Government.

Furthermore, that a party, who has benefited from its own wrong cannot rely on the defence of illegality, citing W.C.C. Ltd. v. Betalha (2006) 9 NWLR (Pt. 986) 595, Oyegoke v. Iriguna (2002) 5 NWLR (Pt. 760) 417, Teriba v. Adeyemo (2010) 13 NWLR (Pt. 1211) 242; and that having benefited from a contract, a party cannot evade obligation on the basis of a purported illegality, citing Chidoka v. F.C.F.C. Ltd. (2013) 5 NWLR (Pt. 1346) 144; Umaru v. Pam (2010) 2 NWLR (Pt. 1178) 404.

He also argued that from his pleadings, it can be seen that he was in a position to render help to the appellant, and he did render the help, but the appellant refused to fulfill its own part of the agreement and wants this Court to punish him, which is morally and legally despicable; and that the Court below was right to hold inter alia that the action of the appellant is deplorable for wanting to eat its cake and have it back.

In its reply brief, the appellant countered that the said laws were made for every Bayelsan, and it also imposes a duty on the Respondent to ensure that it complied or got the approval of the relevant authorities before borrowing the money since ignorance of the law is not an excuse to escape liability and that where a contract is illegal, none of the parties will benefit therefrom, irrespective of whether the vitiating element is caused by any of the parties, because an illegal contract is void ab initio.

As I said from the onset, the critical issue in this appeal is whether a Local Government Council can borrow money from a private individual to meet its recurrent obligations, such as the paying of its staff salaries. The Court of Appeal affirmed the trial Court’s decision that “the parties entered into an informal contract, albeit, an oral contract supported by documentary proof”, and it found nothing wrong with the contract since “the respondent is a private citizen of Bayelsa that was approached by a civil servant (CW2) for a loan on the written authority of his Chairman”.

The appellant’s contention in this appeal is that the said contracts, which were purportedly used to pay its staff salaries, “is grossly illegal”. An allegation of illegality is serious because the consequence is that a Court will not come to the assistance of any party to an illegal contract, who wishes to enforce it. This position is founded on the principle of public policy, and it is expressed in the maxim “ex turpi causa non oritur actio”, which means – “an action does not arise from a base cause”. See Pan Bisb ilder (Nig.) Ltd. v. F.B.N. (2000) 1 NWLR (Pt. 642) 684.
See also Onyiuke III v. Okeke (1976) NSCC (Vol. 10) 146, wherein this Court per Alexander, CJN, stated the position of the law as follows:
“It is the law that a contract is illegal if the consideration or the promise involves doing something illegal or contrary to public policy or if the intention of the Parties in making the contract is thereby to promote something, which is illegal or contrary to public policy; and an illegal contract is void and cannot be the foundation of any legal right. This proposition of law was clearly enunciated by Brett M.R. in Harman v. Jeuchner (1885) 15 QBD 561, at page 563 as follows-
When the object of either the promise or the consideration is to promote the committal of an illegal act, the contract itself is illegal.
In Halsbury’s Law of England, 3rd Edition, Volume 8, page 125 para. 218, the law on the point is also succinctly stated as follows:
A contract is illegal where the subject matter of the contract is illegal or where the consideration or any part of it is illegal.”
An illegal contract cannot be the foundation of any legal right, therefore, the question in this case is whether the Court of Appeal is right that the said contract between the parties does not qualify as an illegal contract.
The parties have taken divergent views; while the appellant insists that the said contracts were entered into in contravention of mandatory statutory provisions, which includes Section 2(1) of Bayelsa State Contract Law, 2006, the respondent contends that the appellant entered into a valid contract with him; and that the said Section 2(1) only applies where the appellant is to take over the debt of another person.
I agree with the respondent. The words used in the said Section, “debt default or miscarriage of another person” shows that it applies when a person is sued for enforcement of the debt of another person. The appellant was sued for an alleged debt it incurred, and not the debt of another person. Thus, the said provision does not apply in this case.
But the same cannot be said about the other statutory provisions that the appellant relied upon, in arguing that the said contract is illegal. Chapter 27.1 of the Model Financial Memoranda for Local Government stipulates that Local Governments in Bayelsa State shall only raise loans from “reputable and strong Banks” and (2) in special circumstances, “from such other institution as may be approved by the Governor”.
Clearly, the transaction in this case is excluded from this provision of the Model Financial Memoranda for Local Government because the Respondent cannot be described as a “reputable and strong Bank” or an “institution”, which is an “organization, establishment, foundation, society or the like, devoted to the promotion of a particular cause or program, especially one of a public, educational or charitable – dictionary.com. He averred as follows in his statement of claim that-
“The claimant is a retired civil servant. He retired from the Local Government Service as a treasurer while serving in Yenogoa Local Government Council. He is a 1st Class Traditional Ruler in Bayelsa State being the Obanobhan of Anyama-Ogbia.”
So, the respondent is a traditional ruler, not a bank nor an institution, and it goes without saying that the act of lending money to the appellant is not part of his statutory function as “Obanobhan of Anyama-Ogbia”.
What is more, the Governor’s consent was not sought or obtained before the said loan was raised, as stipulated in Chapter 27.2 of the said Model Financial Memoranda for Local Government, and its Chapter 27.3 forbids a Local Government from raising loans for other purposes other than “to defray capital development expenditure on specific projects”.
“Capital expenditure” is defined in Black’s Law Dictionary, 11th Ed., as “an outlay of funds to acquire or improve a fixed asset”. A fixed asset is a long-term tangible piece of property or equipment that a firm owns and uses to generate income, and “fixed assets are not expected to be consumed or converted into cash within a year” investopedia.com.
Section 46(2)(b) of the Fiscal Responsibility Law also states that “the proceeds of such borrowing shall solely be applied towards long term capital expenditures”
Ignorance of the law is not an excuse, and the respondent, who was a treasurer in a Local Government Council before he retired, is supposed to know that the proceeds of the said borrowing cannot be for any other purpose except capital expenditures.
Paying “outstanding allowances of out-gone political appointees”, or making up for a “shortfall and pay salaries of workers”, is a recurrent expenditure; it cannot by any means be regarded as capital expenditure.
That aside, it is time to take a long hard look at the circumstances surrounding this case because one of the Issues raised by the appellant at the two lower Courts is that the said Treasurer and its other officials, involved in the said transactions with the respondent, acted ultra vires their powers, and so, it is not bound or obligated in such circumstances.
The respondent said that when the treasurer, CW2 approached him for the first loan, he asked CW2 for a document authorizing him to source for the funds, and he was shown a document dated 8/1/2013. He identified it at the trial, and it was marked ID1 “only for purpose of identifying same” but there is no record that it was admitted in evidence.
The respondent stated that in the presence of one of his friends, Hon. Agbadi Ariwalabh, he negotiated the interest payable with CW2, “and it was agreed that 15% interest shall be paid on the amount sought to be borrowed”. Then they went “to Fidelity Bank in Yenogua, wherein he made withdrawals to make up the N13,000,000.00, the appellant requested for and gave the money to the Treasurer [CW2]. As regards the second loan of N12,000,000.00, the respondent said that the three of them, himself, his friend and CW2, went to the same Bank where he, “withdrew some money to make up the sum requested and handed over the cash to the Treasurer [CW2]”, who acknowledged receipt of same.
CW2 said the appellant had a problem with paying salaries and allowances to out-going appointees of the Council, and the Chairman, Sabo Silikibena, directed them to look for money to borrow so as to pay “the out-going councilors, who threatened to cause problems over non-payment of their salaries and allowances”.
The first loan was used to pay for the salaries and allowances of the out-gone political appointees and civil servants of the council”.
The second was used to pay salaries. Under cross-examination by the defence counsel, he stated as follows:
“The defendant’s council has the Finance and General- Purpose Committee as the highest decision-making body of the Council. It is not true that the Finance and General-Purpose Committee never met before the monies were borrowed. It was a case of emergency. I have nothing on record to show that such a meeting was held. The Treasurer is guided by modern financial memoranda in respect of money matters. We did not pay the money into the council’s bank account. We disbursed to the beneficiaries due to the urgency of the situation although we included it in the treasury receipt. True, we did not seek and obtain the approval of the councilors or the State House of Assembly before we went to borrow the money.”
This is where I have a problem with the decision of the lower Courts. There are three tiers of government in Nigeria, Federal, State and Local Governments. Local Governments Areas [there are 774 of them] are administered by Local Government Councils, consisting of a Chairman, as Chief Executive, and other elected members, known as Councilors.
The appellant is one of the eight constitutionally recognized Local Government Councils in Bayelsa State. Yet, with all that, the trial Court and the Court of Appeal closed its eyes to the fact that a treasurer was able to borrow N25,000.000.00 from the respondent, a private citizen, and to negotiate a 15% interest rate, without recourse to the appellant.
CW2 said he was directed by its Chairman to borrow the money from the respondent, but the Chairman on his own is not the appellant. CW2 admitted under cross-examination that the Finance and General Purpose Committee is the highest decision-making body of the Council.
Even if CW2 was directed by the appellant to borrow the monies, where did he get the power or authority to negotiate the 15% interest? He did not go back to the appellant’s Chairman, who sent him, to report that the respondent had agreed to lend the appellant the said monies, and that he was asking for 15% interest. He negotiated the interest rate and then followed the respondent to the Bank where he collected cash.
CW2 also admitted that the monies were not paid into appellant’s bank account, and that they did not seek the approval of the Councilors or the State House of Assembly before they went to borrow the money; and the two lower Courts did not see anything wrong with that scenario. As far as the trial Court was concerned, the appellant “should be honorable enough to fulfil its obligation and repay the loan and interest”. To the Court of Appeal, appellant was “hiding under legal technicalities” and “wants to reap where it did not sow or to eat its cake and have it”.
It is elementary law that the Court must be guided by the evidence given before it, and it must not convey the impression that its judgment is being directed by a desire to heed private or public sentiments. See Inakoju & Ors. v. Adeleke & Ors (2007) 4 NWLR (Pt. 1041) 423 SC.
In this case, where is the evidence that the N25,000,000.00 that CW2 collected in cash from the respondent was used for the purpose for which the loan was obtained. It was not paid into a bank account, and there is no evidence to confirm what CW2 said that it was used to pay salaries and allowances to “out-gone political appointees” and staff.
A question that agitates my mind is how was the respondent able to withdraw N13,000,000 and N12,000,000 in one go from the bank? There was no mention of the Money Laundering (Prohibition) Act, 2011, but a Court has a duty to consider relevant provisions of law that are useful in deciding a case. Olutola v. Unilorin (2004) LPELR-2632(SC); (2004) 18 NWLR (Pt. 905) 416.
The said Money Laundering Act prohibits making or accepting cash payment in excess of N5,000,000 in the case of an individual and N10,000,000 for a body corporate. So, the respondent cannot make cash payments in excess of N5,000,000. In addition, Section 16(1)(d) also provides that
“any person, who makes or accepts cash payments exceeding the amount authorized under this Act – commits an offence”.
The position of the law is that transactions that are expressly or impliedly prohibited by statute are illegal and, therefore, unenforceable. See Pan Bisbilder (Nig.) Ltd. v. FBN (supra), and Alao v. A.C.B. (1998) 3 NWLR (Pt. 542) 339, wherein this Court per Iguh, JSC, explained that:
Where a contract made by the parties is expressly forbidden by statute, its illegality is undoubted and no Court ought to enforce it or allow itself to be used for the enforcement of alleged obligations arising thereunder if the illegality is duly brought to the notice of the Court, and if the person invoking the aid of the Court is himself implicated in the illegality.
In this case, the withdrawal of N13,000,000.00 and N12,000,000.00, by the respondent from a bank, and paying both sums to CW2 in cash, is not merely unlawful, it is also criminal. The transactions were illegal.
Be that as it may, the issue is whether the Court of Appeal is right that a defence of illegality cannot avail the appellant, and based on the evidence before the Court, there is no question that it was very wrong.
The impression the Court of Appeal gave was that the respondent was being patriotic when he lent the said N25,000.000 to the appellant, but the respondent was not just being a Bayelsan, he charged interest. Yet, he insisted under cross-examination that he is not a money lender.
The respondent is not a money lender, but he charged interest, and this should have been clear to the lower Courts because he claimed:
N3,750,000 per month from August 2013 representing 15% of the N25,000, 000 borrowed until judgment is delivered and judgment sum paid.
The trial Court granted the relief and ordered the appellant to pay same. The Court of Appeal, without questioning how and why the respondent, who is not even a money lender, could charge interest on the said loans, affirmed the decision/orders of the trial Court and dismissed the appeal.
Obviously, this issue must be resolved in favour of the appellant. The Model Financial Memoranda for Local Government expressly states that loans can only be taken by the appellant from financial institutions, and Section 46(3) of the Fiscal Responsibility Law provides as follows:
No borrowing shall be incurred by any administration within 180 days to the end of the tenure of that administration.
CW2, who was asked about it, admitted under cross-examination that:
The period between the time of borrowing the money and the time the principal officers of Council, including the Chairman left office was less than six months.
Thus, the contract was entered into without due compliance with the various laws and regulations, which guides the conduct of the appellant. The laws were there to ensure financial accountability and transparency in the conduct of the affairs of tiers of government and their agencies, therefore, a lender must undertake due diligence, and ensure that the officers holding themselves out as representatives of the government, have the requisite capacity to bind their principal. They must also ensure that the legal framework regulating the transaction is complied with.
As I said earlier, where parties contract in breach of enabling laws, such contracts are illegal and unenforceable. See Ekwunife v. Wayne (W/A) Ltd. (1989) 5 NWLR (Pt. 122) 422, wherein this Court held that:
“No Court or Judge has the jurisdiction to enforce an illegal contract. The duty of a Court of law or Judge is to administer justice according to law. Therefore, it will be a breach of that duty and the oath of office to enforce an illegal contract. None of the parties to an illegal contract is entitled to any remedy or relief from a Court of law and once a Court or Judge becomes aware of the illegality, it is the duty of the Court or Judge to stop the case and dismiss the claim for being void and unenforceable.”
And Corporate Ideal Insurance Ltd. v. Ajaokuta Steel Co. Ltd. (2014) 7 NWLR (Pt. 1405) 165, wherein this Court per Okoro, JSC, observed:
“A contract, which violently violates the provisions of a statute with the sole aim of circumventing the intendment of the lawmaker is, to all intents and purpose, illegal, null and void and unenforceable. Such a contract or agreement is against public policy and makes nonsense of legislative efforts to streamline ways and means of business relations. This Court, and any other Court for that matter would not be allowed to be used to enforce any obligations arising therefrom. The summary of all into a contract or transaction to circumvent the clear and unambiguous provisions of a statute. It has been the view of this Court and I reiterate it here that a transaction or contract, the making or performance of which is expressly impliedly prohibited by statute is illegal and unenforceable or impliedly prohibited by statute is illegal and unenforceable.”
In this case, the respondent blamed the appellant for not ensuring that the statutory provisions were adhered to, but the respondent also had the duty to conduct due diligence to ensure that CW2, who said he was acting on behalf of the appellant, had the capacity to bind the appellant.
This was the mischief that the Model Financial Memoranda for Local Government sought to cure when it expressly prohibited Local Governments from taking loans from non-financial institutions as strong financial institutions have the capacity to ensure that persons, who they contract with, undertake such contract within the ambits of the law. So, the respondent, who had once been a treasurer in a Local Government, has no one else to blame but himself for not exercising due diligence
From all that I have said, it should be clear that this is one instance where the concurrent findings of the trial Court and the Court of Appeal must be jettisoned and set aside, because they are perverse to the core.
Imagine if the Federal or a State Government borrows money from a private citizen, a money bag with deep pockets, to pay civil servants. It sounds far-fetched but it illustrates how absurd it is that the appellant, a Local Government Council could borrow money from the respondent, who is not a Bank, Financial Institution, or money lender to pay salaries.
In the circumstances of this case, the said contracts entered into by the parties are, definitely, illegal and unenforceable by a Court of law; and illegality of the contract impacts on the Court’s jurisdiction because, Courts exercise their jurisdiction only to administer the laws of the land and do not exercise their jurisdiction to help any Party to break the laws. George & Ors v. Dominion Flour Mills Ltd. (1963) NSCC (Vol. 3) 54; (1963) 1 SCNLR 117.
The trial Court ought not to have heard this case in the first place; the Court of Appeal had no jurisdiction to entertain the appeal against the decision of the trial Court; and this Court has to wash its hands off, because none of the Parties is entitled to any remedy from this Court.

Thus, this appeal succeeds and is allowed. The judgment of the Court of Appeal is, therefore, set aside, and in its place, I enter an order dismissing suit No. EHC/18/2014 filed by the respondent at the trial Court, which is based on an illegal contract. Parties are to bear their own costs.

UWANI MUSA ABBA AJI, J.S.C.: The appellant is a Local Government Council in Bayelsa State, and the respondent is a First-Class Traditional Ruler, who had served as a Treasurer in a Local Government before he retired. In January 2013, the appellant’s Treasurer, “Mr. Amakuro Oyel”, acting on behalf of the appellant, borrowed the sum of N13,000,000.00 from the respondent, a private citizen, “to pay outstanding allowances of out-gone political appointees” at 15% interest rate per month. They then went to the bank, where the respondent withdrew the said amount, and handed it over to the treasurer in cash. In February 2013, “Mr. Amakuro Oyel” again borrowed N12,000,000 from him, “being shortfall in the allocation for the payment of January 2013 salary, to make up for the short fall and pay salaries of workers”. They agreed on the same 15% interest. The respondent withdrew the money from the bank and handed over the cash to the said Treasurer. On 27/3/2013, the Treasurer was sent on compulsory leave, and in April 2013, appellant’s Chairman, who was privy to the transactions, was also removed from office. The respondent was not paid as agreed. When all efforts to be paid yielded no results, he sued the appellant at the Bayelsa State High Court, Yenogoa, wherein he claimed N49,450,000.00 representing the sum borrowed and interest up to July 2013, payment of the sum of N3,750,000.00 per month as from August 2013 representing 15% interest of the N25,000,000.00 borrowed until judgment is delivered and judgment sum paid and payment of the sum of N3,000,000.00 representing general damages.

The appellant defended the claim vide statement of defence accompanied with a preliminary objection for the dismissal of the suit for lack of jurisdiction by the trial Court. The respondent got judgment in his favour on 4/6/2014. On appeal by the appellant, he lost, hence this further appeal, seeking for determination:
1. Whether from the circumstances of this case, the lower Court was right when it held that there was a legally binding contract between the appellant and the respondent?
2. Whether the failure of the respondent to call Hon. Agbadi Ariwalabh as a witness is not fatal to the case of the respondent?
3. Whether the lower Court was right in its judgment that the failure of the trial Court to pronounce on the applicability of Section 46 of the Bayelsa State Fiscal Responsibility Law, 2009 to this case does not amount to denial of the appellant’s right to fair hearing?
4. Whether from the processes filed at the lower Court, the appellant admitted owing the respondent?

It is on record and not disputed that the stated sum was borrowed by the appellant from the respondent. As for the benefit derived from the use of the money, no evidence was adduced. Besides, it is clear that by the law, the contract the parties went into is ex facie illegal. Although it appears unscrupulous to allow a party that has benefited from an illegal contract to resile from same, it will also be against the law of justice for the Court to enforce an illegal contract since it will further perpetrate injustice upon the whole society. This is my stance on this.
It is trite that a transaction or contract, the making or performance of which is expressly or impliedly prohibited by statute is illegal and unenforceable. Where a contract made by the parties is expressly forbidden by statute, its illegality is undoubted and no Court ought to enforce it or allow itself to be used for the enforcement of alleged obligations arising there under if the illegality is duly brought to the notice of the Court and if the person invoking the aid of the Court, as in the present case, is himself implicated in the illegality.
Accordingly, where a statute makes a particular contract or class of contracts illegal or invalid, the Court will refuse to allow an action to be maintained thereon, even though the illegality is not pleaded by the defendant and the parties do not desire to rely on it. See Per Iguh, JSC, in Alao v. African Continental Bank Ltd (1998) LPELR-407(SC) (pp. 50-51, para. E); (1998) 3 NWLR (Pt. 542) 339.

I concur with my learned brother, Amina Augie, JSC, that this appeal succeeds since this Court cannot put its stamp upon an illegal contract.

MOHAMMED LAWAL GARBA, J.S.C.: I had the preview of the lead judgment written by my learned brother, A. A. Augie, JSC, in this appeal and agree, completely, with the views expressed that the alleged and purported contract between the treasurer of the appellant and the respondent for loans to and in the name of the appellant, was illegal being contrary to the express provisions of the Contracts Law of Bayelsa State, 2006.

An illegal contract is a contract prohibited by statute or transaction tainted by some illegality in which both parties are equally involved in the sense that the subject matter of the agreement is illegal or the consideration of any part of it is illegal and so contrary to public policy. See Onyiuke v. Okeke (1976) 3 SC 1; (1976) All NLR 148; Pan Bisbilder Nig. Ltd. v. FBN. Ltd. (2000) 1 SC 71; (2000) 1 NWLR (Pt. 642) 684; Okoya v. Santilli (1994) 4 NWLR (Pt. 338) 356; (1994) 4 SCNJ (Pt. II) 333; Alao v. A.C.B.(1998) 3 NWLR (Pt. 542) 339.
The legal consequence of an illegal contract is that no valid right is acquired and no obligation is imposed there under and so it cannot be enforced by a Court of law since none of the parties is entitled to any valid judicial remedy or relief under it. See Onamade v. A.C.B. Ltd. (1997) 1 NWLR (Pt. 480) 123; Sodipo v. Lemninkainen (No. 2) (1986) 1 NWLR (Pt. 15) 220; Fasel Services Ltd. v. N.P.A. (2009) 9 NWLR (Pt. 1146) 400; Nnadozie v. Mbagwu (2008) 1 SC (Pt. II) 43, (2008) 3 NWLR (Pt. 1074) 363, F.B.N. Ltd. v. Moba Farms Ltd. (2005) 8 NWLR (Pt. 928) 492.

As demonstrated in the lead judgment, the appellant as a legal entity, in order to enter into a proper, legally, valid and enforceable contract for loans, there must be compliance with the afore-named law and from the facts of the case, the appellant did not contract with the respondent for any loans which is valid and enforceable in law.

Since there were no assertions and evidence that the Treasurer of the appellant had the requisite authority of the appellant to apply, seek for and obtain loans from “Reputable and strong Banks” or “in special circumstances, and subject to obtaining approval financial memoranda 27.2 from such other institution as may be approved by the Governor,” to which the respondent cannot be described, anyhow, in accordance with the law, the loans sought for and obtained verbally from the respondent by the Treasurer of the appellant cannot be attributed to the appellant, but remained personal transactions between the Treasurer and the respondent. It cannot be enforced against the appellant.

I agree that the appeal merits to be allowed by this Court for the above and more pungent reasons stated in the lead judgment, which I also adopt.

The appeal is allowed by me too and as an essential consequential order, the respondent’s action, being illegal against the appellant, is hereby dismissed.

SAMUEL CHUKWUDUMEBI OSEJI, J.S.C.: I have had the privilege of reading the draft of the judgment just delivered by my learned brother, Amina Adamu Augie, JSC.

I entirely agree with the conclusion that this appeal be allowed for being meritorious.

I also allow the appeal. I abide by the consequential orders made in the lead judgment including the order as to costs.

EMMANUEL AKOMAYE AGIM, J.S.C.: I had a preview of the draft judgment of my learned brother, Lord Justice Amina Adamu Augie, JSC. I completely agree with the reasoning, conclusion, decisions, and orders therein.

Appeal allowed.

Appearances:

Felix T. Okorotie, Esq., with him, D. K. Derri, Esq. For Appellant(s)

U. Saiyou, Esq. For Respondent(s)