Abstract
The reason for this chapter is to demonstrate to the reader that contemporary Nigerian secured transactions law is in dire need of reform because it no longer provides easy access to credits, especially to the SMEs, due to its compartmentalized form, which lacks predictability and comprehensiveness. The chapter makes a critical assessment of the existing laws and discovers that a number of deficiencies exist. First, the existing laws provide vague requirements with respect to the creation and registration of security interests in personal property—of which in some cases, registration is not even required, thereby creating the ostensible ownership problems between a secured party and a third party.
Second, due to the complex and outdated formalities that exist, lenders often lose out on technical grounds or would have to always hire professionals to comb through the compartmentalized and not-easily-comprehensible secured transactions law—what increases transactions cost, which is eventually borne by the debtor through high interest rates.
Third, the compartmentalized and unlinked nature of the various applicable laws often leads to conflicting priority rules among secured creditors and other lien holders—worsened also by the lack of a collateral registry that would have served both a publicity function as well as a system of perfection. As lenders are faced with these problems, coupled also by a weak enforcement mechanism—a slow judicial system, plus a legal framework that has not expressly allowed self-help repossession of collateral—the overall effect is the severe apathy towards lending, refusal to accept personal property as collateral, increase in lenders’ monitoring costs, and the demand for high interest rates as protective measures against these deficiencies. The chapter argues that if these hindrances to affordable credits are removed through a secured transactions law reform, the Nigerian economy would definitely be better off.
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Notes
- 1.
For an overview of the Nigerian Legal System, see Obilade (1979), chapter 1.
- 2.
The word “state” is the official designation of the component units. There are 36 of them in Nigeria, and they include Abia, Adamawa, Akwa Ibom, Anambra, Bauchi, Bayelsa, Benue, Borno, Cross River, Delta, Ebonyi, Edo, Ekiti, Enugu, Gombe, Imo, Jigawa, Kaduna, Kano, Katsina, Kebbi, Kogi, Kwara, Lagos, Nasarawa, Niger, Ogun, Ondo, Osun, Oyo, Plateau, Rivers, Sokoto, Taraba, Yobe, and Zamfara. See sections 2 and 3 of the 1999 Constitution of Nigeria.
- 3.
See section 18 of the Nigerian Evidence Act, 2011.
- 4.
It is highly important to mention as well that the Constitution of the Federal Republic of Nigeria, 1999, as amended, (the Constitution) enumerates the areas where the federal government and state governments have power to legislate upon. Laws made by the federal legislative body are referred to as “Acts,” while those made by states’ legislative bodies are simply referred to as “Laws”—for example, the Criminal Code Act will govern federal offenses, while the Criminal Code Law of a state governs state offenses. It is imperative to note that where a state law conflicts with a federal law on the same issue, the former is void to the extent of its inconsistency, while both federal Acts and state Laws are subservient to the Constitution and void to the extent to which they conflict with the latter’s provisions.
- 5.
See the second schedule to the 1999 Constitution of Nigeria (as amended) for the exclusive powers of the federal parliament (the National Assembly) in Nigeria.
- 6.
See the exclusive list in the second schedule to the 1999 Constitution of the Federal Republic of Nigeria.
- 7.
See Goode (2010), p. 619.
- 8.
A similar opinion was expressed in Bartholdy and Mateus (2008), p. 2.
- 9.
Bartholdy and Mateus (2008), p. 2.
- 10.
The debtor could become bankrupt or suddenly face severe competitions in the market, forceful enough to drive him out of business. See generally Kozolchyk (2007), p. 727.
- 11.
A receiver will usually be appointed to manage and satisfy creditors based on the seniority of their security interests.
- 12.
Under the US bankruptcy regime, seniority of security interest is usually measured in this order: secured creditors, lien creditors, unsecured creditors, shareholders where the debtor is a corporation.
- 13.
For instance, the directors of an incorporated lender may be required to follow the good business judgment rule or the fiduciary duties owed to the company by securing the credit it gives to borrowers even if the latter are trusted customers.
- 14.
This is especially so in a system that allows the use of self-help to repossess collateral upon the debtor’s default. For instance, see Article 9-609 UCC.
- 15.
See Article 9-610(b), which empowers the secured party to repossess and sell collateral in either private or public market provided the commercial reasonableness standard is followed. The difficulty lies in credit sales, whereby the seller is a small company selling products to a large retail company like Walmart or Tesco. If the latter refuses to provide collateral for the credit sale but simply dictates terms on a “take it or leave it” basis that allows them to only repay at their own terms, then it might be difficult for the start-up company to insist on collateral from such a giant. However, where the giant company is the credit seller, the exact opposite is usually the case.
- 16.
The debtor may cunningly transfer assets to a third party or remove them from jurisdiction of the court—leading to the possibility that the secured party will not be paid even though he succeeds in getting a favorable court judgment.
- 17.
See Kozolchyk (2007), p. 728.
- 18.
See Kozolchyk (2007), p. 728.
- 19.
The English law that became part of Nigerian law is as follows: “(a) the received English law comprising: (i) the common law; (ii) the doctrines of equity; (iii) statutes of general application in force in England on or before January 1, 1900; (iv) statutes and subsidiary legislation on specified matters and (b) English law (statutes) made before October 1, 1960 and extending to Nigeria which are not yet repealed. Laws made by the local colonial legislature are treated as part of Nigerian legislation [,,,].” See at http://www.nyulawglobal.org/globalex/nigeria.htm. All websites in this chapter were accessed on April 16, 2016.
- 20.
For instance, the Bills of Sale Act 1878, Factors Act 1889, Infant Relief Act 1874, Judicature Act 1873, Merchant Law Amendment Act 1886, and many more are some of the English laws that were received into Nigeria and have since been left unrevised. Consequently, these laws continue to pose serious obstacles to modern-day commercial transactions.
- 21.
Specifically, the laws that are so directly relevant to secured transactions are Hire Purchase Act 1975, Sale of Goods Act, Pawn Brokers Act, Company and Allied Matters Act, 1990—which regulates floating charges, security devices like chattel mortgage, pledge, charges, and lien.
- 22.
The following proves the existence of disharmony among the Nigerian Supreme Court decisions. See Ellochim Nig. Ltd & Ors v Mbadiwe (1986) (part 14) 47 at 165, where the Justice condemned the use of self-help in harsh tones when he said: “It is no doubt annoying, and more often than not, frustrating, for a landlord to watch helplessly his property in the hands of an intransigent tenant who is paying too little for his holding, or is irregular in his payment of rents or is otherwise an unsuitable tenant for the property. The temptation is very strong for the landlord to simply walk into the property and retake immediate possession. But that is precisely what the law forbids.” Only 10 years after, the same Justice in Umeobi v Otukoya (1978)1 Law Rep of Nig 172 (SCN) said: “circumstances may exist in which a person may take an extra judicial remedial action to enforce his rights and still remain within the bounds of the law.” See also the case of Nkume v Registered Trustees of the synod of the Diocese on the Niger, (1998) 10 NWLR (pt. 570) 514, which toed this line of thought, and the latest Supreme Court decision in Awojugbagbe Light Industries Ltd v Chinukwe [1995] 4 NWLR (part 390) 400, where the Justice gave his blessing on the use of self-help in the following words: “A mortgagee, like a landlord exercising his right to possess after the expiry of his tenant’s lease, or his agent who entered and took possession of the mortgage property in exercise of his right under the mortgage agreement is not liable for damages for forcible entry because the right to possess the property had become vested in the mortgagee and his agent, the receiver, and the forcible entry was done in furtherance of their rights to possession.” These varying positions on the use of self-help to recover possession has been unhelpful to lenders or secured parties who are often confused as to the best method to utilize in realizing debt when a debtor defaults.
- 23.
Customary law, as well as statutory law, governs alienation of interest in land. See http://www.nyulawglobal.org/globalex/nigeria.htm. Customary method of alienating interest in land has become highly problematic because it often lacks documentary evidence of transaction—a source of severe contention of title between successors in title of the initial parties, especially if witnesses to the transaction have passed away.
- 24.
See the Central Bank of Nigeria’s (Registration of Security Interests in Movable Property by Banks and Other Financial Institutions in Nigeria) (Regulations, No. 1, 2015).
- 25.
Statutes that govern mortgage transactions in Nigeria are also different, depending on which part of the country the mortgage transaction took place. For instance, for the sake of mortgage transactions, Lagos is divided into two, and each part is governed by a mortgage law different from the other part. Registration of Titles Law governs Lagos Island, Ebute Metta, Apapa, and parts of Surulere, while the rest of Lagos is governed by Conveyancing Act of 1881, as well as the Eastern and Northern parts of Nigeria. Meanwhile, the states that were formerly part of the Western Region of Nigeria are now being governed by their own Property and Conveyancing Laws. For further reading, see Clemet (1991), p. 37.
- 26.
The doctrine of implied repeal is a constitutional law concept that states that whenever a new law is passed, it impliedly repeals a conflicting older one. If this same logic is imported into the Nigerian judicial system, such that courts do not have to wait for older cases or statutes to be expressly overruled or repealed, it would obviate the circumstances of having multiple views on the same issue by the same court. For further reading on implied repeal, see Markham (2009), p. 437.
- 27.
For a more robust understanding, see Grantham and Rickett (2003), pp. 717–749.
- 28.
A far more detailed explanation on right in personam is offered by Avihay (2012), p. 563.
- 29.
Goode (1987), p. 433.
- 30.
Goode (2010), p. 32.
- 31.
Goode (2010), p. 32.
- 32.
Bridge (1996), p. 3.
- 33.
Bridge (1996), p. 3.
- 34.
See the court’s definition in Torkington v. Magee [1902] 2 K. B. 427, 430, where it said: “‘Chose in action’ is a known legal expression used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession.”
- 35.
Bridge (1996), p. 4.
- 36.
See the seminal article written on this by Holdsworth (1920), p. 997.
- 37.
For a comprehensive discussion on customary law pledge of land in Nigeria, see Fekumo (2002), chapter 6.
- 38.
See Ikeanyi v Adighogu (1958) 2 ERNLR p. 38.
- 39.
See Ikeanyi v Adighogu (1958) 2 ERNLR p. 39.
- 40.
This maxim was applied in these cases: Kofi v Kofi 1 WACA 284 (redemption was possible even after 70 years), Ebiassah v Ababio (1946) 12 WACA 106 (after 60 years), Leregun v Funlayo (1956) WRNLR 167 (after 30 years).
- 41.
Chianu (2004), p. 195.
- 42.
Examples of economic crops are rubber, palm trees, cocoa trees, just to mention a few. The fruits they regularly yield could be sold in the market to realize cash proceeds.
- 43.
See Leregun v Funlayo (1956) WRNLR 167.
- 44.
Although section 4 of the Statute of Frauds, 1677, mandates that any transaction that alienates interest in land must be in writing to be enforceable, a lot of court cases in Nigeria have assented that alienation of interest in customary land transactions could be oral and evidenced by witnesses so as to accommodate the low educational status of people in rural communities. This is evident in the following cases—being that a customary pledge of land is, in the true sense, an alienation of interest in land. See Kofi v Kofi 1 WACA, Ebiassah v Ababio (1946) 12 WACA 106, Leregun v Funlayo (1956) WRNLR 167.
- 45.
A corollary to the point above is that most rural parcels of land are not properly delineated and therefore cannot be located on the map or registered in the land registry. This makes verification of land ownership claim difficult as potential buyers or anyone seeking to deal with a particular parcel of land cannot check the registry to know the current status or its transactions history. This accentuates the problem of ostensible ownership, thereby making rural parcels of land unattractive as collateral.
- 46.
Black’s Law (2009) defines “mortgage” as “a conveyance of title to property that is given as security for the payment of a debt or the performance of a duty and that will become void upon payment or performance according to the stipulated terms.” See the seminal article by Lloyd (1923), p. 233. Also see relevant chapters on mortgage in Chianu (2004).
- 47.
See a fulsome discussion on the mortgagee’s power of sale in Chianu (2004), chapter 6.
- 48.
Chianu (2004), p. 118. Also see Downsview Nominees Ltd v First City Corp [1993] A.C. 295 PC (New Zealand) at 314, where Lord Templeman noted that a mortgagee need not act with “purity of purpose” and could go as far as harboring a “mixed motive” in realizing his money through sale of collateral.
- 49.
For a more detailed study, see Kelry (2010), pp. 576–598.
- 50.
Kelry (2010), p. 576.
- 51.
Kelry (2010), p. 577.
- 52.
However, in order to protect the market, it is settled law that a bona fide purchaser for value without notice will always be protected. For a robust understanding of this frequently cited doctrine in defense of title in most commercial transactions, see Anderson and Edin (1989), p. 1.
- 53.
Apart from this truism, land and building are no longer the most valuable assets a debtor may have. Property rights in intangibles such as patents, copyrights, trademarks and names, service marks, inventory, equipment, just to mention a few, are by far more valuable in certain circumstances than real property. For instance, the monetary value of Coca Cola’s trademark, as well as inventories, may surely be more valuable than any physical asset it may have.
- 54.
Plots of land in nonrural places in Nigeria are usually delineated and are locatable on the map—with the landowners having certificates of ownership. These delineated pieces of land are perfected by registration of title in the state land registry where the land is located, and the title documents of the land could easily be used to secure credits because the lender could easily verify them at the land registry. However, in rural areas, where a large portion of the land space has not yet been delineated, proof of ownership is not usually based on the possession of a certificate of ownership but by calling witnesses to assert that one is indeed the owner of the piece of land in question—thereby giving rise to the possibility of ostensible ownership problem or a situation whereby the so-called witnesses were paid to give false witness.
- 55.
Even where he finds someone willing to cultivate the pledged land on his behalf, the cost of labor may outweigh the possible profit in the final analysis, thereby making the entire transaction an exercise in futility from the cost-benefit point of view.
- 56.
A revered authority that discusses the nature of US secured transactions law before the coming of UCC Article 9 is Gilmore (1965), Vol. 1.
- 57.
Beginning in 1942, the Uniform Commercial Code (UCC) was jointly drafted by the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute (ALI). The UCC is a soft law and not designed to have a binding effect but was to serve as a model for states for “uniform” adoption. Once adopted either verbatim or with minor changes by a state, it became a law in force. Today, all the 50 states have adopted UCC Article 9. Judge Herbert F. Goodrich was the Chairman of the Editorial Board of the Code’s 1952 version, which was drafted by top legal minds in the US, featuring Grant Gilmore, Karl N. Llewellyn, William A. Schnader, Soia Mentschikoff, and so on. It is important to equally point out that more than 30 states in the US have adopted the 2010 amendments of Article 9 UCC.
- 58.
Prior to UCC Article 9, a secured party had the right of unfettered dominion of the debtor’s assets and was practically involved in the management affairs of the debtor’s asset through his policing right. As a matter of law, it was void to give the debtor an unfettered dominion or control over the collateral, as Benedict v Ratner, 268 U.S. 353 (1925), accentuated. The main rationale behind this approach was to cure the ostensible ownership problem and to avoid any fraudulent misuse or transfer of the asset to a third party by the debtor at the secured party’s detriment. This arrangement raised a number of disturbing issues, as the secured party’s direct involvement and control could eventually lead to the collapse of the debtor’s business, considering the fact that the secured party may always be risk averse, or the direct involvement of many secured parties could be catastrophic for the common debtor who may not be allowed to utilize his business expertise. Furthermore, it was realized that policing the debtor by the secured party will incur some costs that will eventually be transferred to the debtor, thereby depreciating his chances of making sufficient profits. Article 9 solved this problem by abolishing the secured party’s right (except given by contract) to police debtor and, instead, introduced the filing system to create public awareness on any asset that a debtor has previously created a security interest in so that, in general, secured parties will be ranked in accordance with their order of perfection after attachment of security interest in a particular collateral. See Article 9-205 and its official comment and balance it with the case of Benedict v Ratner, 268 U.S. 353 (1925). For the author’s opinion about policing right of the secured party vis-à-vis Nigeria, see Chap. 3 of this work. For a related discussion on the foregoing, see Coogan (1963), p. 1.
- 59.
Australia, Canada, and New Zealand are ready examples of the countries that have reformed their secured transactions law through the lens of UCC Article 9.
- 60.
Ready examples are the United Nations Legislative Guide on Secured Transactions, Book IX of the European Draft Common Frame of Reference (DCFR), the European Bank of Reconstruction and Development’s (EBRD) Model Law on Secured Transactions.
- 61.
The Canadian PPSA was adopted in 1967 as a model law, which has close resemblance with UCC Article 9. Ontario was the first common law province in Canada to adopt it with some modifications. As at present, all the provinces in Canada have adopted and modified the Canadian PPSA except Quebec, which has the civilian system.
- 62.
Black’s Law (2009), p. 1101.
- 63.
(1899) 2 Ch.474, also adopted in Inter City Bank Plc v F&FF Nig. Ltd. (2001) 17 NWLR (pt. 742) 347 at 364.
- 64.
See Inter City Bank Plc v F&FF Nig. Ltd. (2001) 17 NWLR (pt. 742), p. 347 at 364.
- 65.
See Okuneye v First Bank of Nigeria Ltd (1996) 6 NWLR (pt. 457), p. 745.
- 66.
However, in Nigeria, a mortgagee’s right to sell immediately after the contractual date has elapsed and the mortgagor is still in default has been diluted. Hence, a mortgagee would have to wait for a grace period of 3 months after contractual default of the mortgagor in order to make a valid sale. See Section 20 of the Conveyancing & Law of Property Act (CLPA) and section 125 Property and Conveyancing Law in Nigeria.
- 67.
This practice is embedded in the popular maxim that “once a mortgage, always a mortgage.” In Nigeria, courts have always applied this maxim to protect mortgagors who are viewed to always be the weaker party in most mortgage transactions. In Gory v Nomuoja (1969) Nig Comm LR 17 and Obakpolor v Ekejija (1977) Nig Court of App Rep 593,; the court showed some considerable level of sympathy for the mortgagor by cutting off many technicalities in the agreement to hold that the mortgagor’s right to redeem was not extinguished.
- 68.
This is one of mortgagor’s equity of redemption. See section 125 Property and Conveyancing Law in Nigeria and Adinde v Iwueke (1974) Nig Comm LR 363.
- 69.
Any extra amount beyond the principal loan and interest that passes to the mortgagee in a mortgage transaction would result to an undue enrichment. See—generally—Fabunmi (1986), pp. 104–106.
- 70.
See section 20 of the Conveyancing & Law of Property Act (CLPA) and section 125 Property and Conveyancing Law in Nigeria.
- 71.
See Taiwo v Adegboro (1997) 11 NWLR (pt. 528) 224, where the court annulled a sale of property valued at 340,000 naira (US$2125) that was sold at 140,000 naira (US$875).
- 72.
Viatonu v Odutyo (1950) 19 NLR 119, where the mortgagee sold to her husband who is a copartner in the auctioneering firm. The court annulled the sale on the ground that the transaction was devoid of good faith.
- 73.
Idowu v Jaiyeola (1970) 1 African LR Comm 289.
- 74.
(1978) 1 Law Rep. of Nig. 280, 287–88.
- 75.
African Continental Bank Ltd v Yesufu (1977) Nig Comm LR 212, 239.
- 76.
African Continental Bank Ltd v Yesufu (1977) Nig Comm LR 212, 239.
- 77.
See section 51 LUA.
- 78.
Section 22 LUA.
- 79.
(1993) 3 NWLR (pt. 283) p. 586.
- 80.
(1996) 6 NWLR (pt. 457) 745.
- 81.
“a written acknowledgement of indebtedness by the company, setting out the terms and conditions of the indebtedness, and includes debenture stock, bonds and any other securities of a company whether consisting of a charge on the assets of the company or not.”
- 82.
Chianu (2004), p. 16.
- 83.
Section 197(1) CAMA.
- 84.
See Smith (2001), p. 149.
- 85.
See section 9 thereof.
- 86.
See generally Smith (2001), pp. 176–187.
- 87.
Possession is one of the methods of perfection, and when a collateral is possessed, the need to perfect by filing becomes unnecessary. This is also a recognizable method of perfection under UCC Article 9 and OPPSA. In particular, see section 9-313 UCC, as well as section 22(1) OPPSA on perfection by possession. For a detailed information about the problem of ostensible ownership, see generally Davies (1994), pp. 474–479.
- 88.
A possessory pledge is hardly the panacea of ostensible ownership, though, as there could be a subpossessory pledge whereby a creditor who lent money is given a car as collateral, for example. Now having the car and keys in his possession and disposal, he (the creditor) could also transfer it to a third party whom he owes debt. That third party could further sell the car to a bona fide purchaser for value without notice who is always protected by the law. This hypothetical accentuates the problems that always exist where there is no registry for the publicity of security interests in personal property collateral.
- 89.
- 90.
For a more fulsome argument, see Drobnig (1998), p. 53.
- 91.
Co-operative Supply Association Ltd v Inter-contractor Ltd (1969) NCLR, p. 61.
- 92.
Ahmed El-Hag v GKJ Amachree (1962) LLR, p. 10.
- 93.
Benefit and burden go hand in hand, and the inconveniences that arise from the possession of the chattels are deemed to be part of the contract. See Johnson v Stear (1863) 15 CBNS 330. Although under common law, an action for the recovery of chattel is not as of right, the plaintiff/pledgor can only ask for damages and not a compulsory return of the pledged collateral.
- 94.
A much-nuanced approach is practiced in Nigerian communities where people usually pledge their chattels to get small loans from their friends, relatives, or neighbors on the arrangement that the pledgee will make use of the pledged item until the loan is repaid. The pledgee’s use of the item until the loan is repaid is deemed to be the interest that ought to accompany the sum, meaning that the pledgor is expected to return the exact amount that was borrowed when he comes to reclaim his pledged item, and the pledgee is not expected to keep the pledged item redundant.
- 95.
See generally infra at Sect. 3.4.3.
- 96.
Forty naira is equivalent to about 30 cents of the US dollar. See www.xe.com.
- 97.
Section 2, Pawnbrokers Act of 1917 in Nigeria.
- 98.
Such loans in excess of 40 naira will be deemed illegal, void, and unenforceable against contractual parties. Similar ideology was expressed in Hughes v Liverpool Victoria Legal Friendly Society (1916) 2 K.B 482, Re London County Commercial Reinsurance Office (1922) 2 Ch. 67.
- 99.
Pawnbrokering can be a very viable means for small and mid-scale entrepreneurs to raise credits to do business. For instance, Cash America, which started as a pawnshop, has today grown to be a viable means of supplying credit to SME’s and is even listed in the New York Stock Exchange, with 900 locations in the U.S. and Mexico and other countries. For more information, see http://cashamerica.com/AboutUs/CompanyHistory.aspx.
- 100.
See section 10 of the Act.
- 101.
See section 10 of the Act.
- 102.
See section 11(1) and the second schedule to the Act.
- 103.
Section 12 of the Act.
- 104.
Section 13 of the Act.
- 105.
Section 14 of the Act.
- 106.
Section 20 of the Act.
- 107.
Section 24(a) of the Act.
- 108.
Section 24(b) of the Act.
- 109.
Section 21(1) of the Act.
- 110.
Section 23 of the Act.
- 111.
Section 23 of the Act.
- 112.
Section 15(1) of the Act.
- 113.
Section 15(2) of the Act.
- 114.
Section 18(1) of the Act.
- 115.
Section 18(2) of the Act.
- 116.
It may not have been the intention of the lawmakers to leave the pawnbroker poorer from a transaction. A pawnbroker facing the dilemma of recovering a deficient sum may, however, rely on some other principles of law outside the Pawnbrokers Act.
- 117.
This means that a party seeking to enforce the pawnbrokerage contract will not succeed before any competent court. Consequently, the in pari delicto rule will apply to the effect that the party in possession of a contested property when both are at fault gets to retain it. For more insight on this doctrine, see Stinner (1988), p. 448.
- 118.
(1979) NCLR 491 at 501.
- 119.
(2000) 15 NWLR (pt. 692) p. 730.
- 120.
(2000) 15 NWLR (pt. 692) p. 730. This is also similar in meaning with “mechanic lien,” which means “a statutory lien that secures payment for labor or materials supplied in improving, repairing or maintaining real or personal property, such as building, an automobile, or the like”—see Black’s Law (2009), p. 1008.
- 121.
For types of lien and their explanations, see generally Litman (1994), p. 319.
- 122.
(2000) 15 NWLR (pt. 692), p. 730.
- 123.
A lien that arises per agreement of the contractual parties is regarded as a consensual lien. For more detail, see the Nigerian case of Witt & Busch Ltd. v. Alraine (Nig) Ltd. (1968) NCLR, p. 301. Also see generally McGrady (2008), p. 191. Also see the decision by the Supreme Court of the United States in United States v. Ron Pair Enterprises, Inc. 489 U.S. 235, where a copious distinction was made between consensual and nonconsensual liens.
- 124.
See Witt & Busch Ltd. v. Alraine (Nig) Ltd. (1968) NCLR, p. 301, The People’s Ferry Company of Boston, Claimants of the Steamboat Jefferson, Appellants, v. Joseph Beers and David Warner, Assignees Of B. C. Terry, 61 U.S. 393.
- 125.
Fletcher v. Davis, 33 Cal. 4th 61, 66 (2004). For further details, see Spencer (2013).
- 126.
See In re Hawkes; Ackerman v Lockhart (1898) 2 Ch 1 per Lindley MR at pp. 6–7. This rationale was followed in the Nigerian case of Sagoe v The Queen (1963) 1 All NLR. 290 and also in the Australian case, Elders Rural Finance Limited, Foster’s Brewing Group Limited and Elders Limited v William Tapp (1993) 113 FLR 351, by the Supreme Court of the Northern Territory of Australia, per Martin CJ.
- 127.
Mulliner v. Florence (1878) 3 QBD, p. 484, and Chesham Automobile Supply (Ltd) v. Beresford Hotel (Birchington) Ltd (1913) 29 TLR, p. 584.
- 128.
People ex rel. Klamt v. Loeffler, 153 Misc. 781, 276 N.Y.S. 698 (N.Y. City Ct.).
Further see Jennings (1971), p. 481.
- 129.
Known as “Banker’s Lien.” See Batson v. Alexander City Bank, 179 Ala. 490 (1912), McStay supply Co v. Stoddard, 35 Nev. 284, 297. For more detailed information, see Chafee (1925), pp. 800–804.
- 130.
The English Sale of Goods Act 1893 is applicable in Nigeria as a statute of general application.
- 131.
See sections 39 and 41, Sale of Goods Act 1893.
- 132.
- 133.
(1677).
- 134.
See the judgment of court in Fitzgerald v Dressler (1859) 7 C.B. (N.S) 374, 394, where a contract of guarantee was made orally, and the court held that it was unenforceable. Also see Thomas v. Williams (1830) 10 B. & C. 664, as well as section 4 of the Statute of Frauds.
- 135.
Section 4 of the Statute of Frauds (1677).
- 136.
See Williams v Leper (1766) 3 Burr 1886. This case, although old, is still relevant today in Nigeria because the Statute of Frauds 1677 is still operative.
- 137.
Smith v Wood (1929) 1 Ch., p. 14.
- 138.
(1992) 3 NWLR (part 227), p. 13.
- 139.
R.E.A v Aswani Textile Ltd (1992) 3 NWLR (part 227), p. 13 at para G.
- 140.
Birkmyr v. Darnell, 1 Sm. L.C. Iith ed. 299; Mounistephen v. Lakeman, L.R. 7 Q.B. 196; L.R. 7 H.L. 17.
- 141.
Eastwood v Kenyon (1840) 11 Ad & El 438 at 445.
- 142.
See Harburg India-Rubber Comb Co. v. Martin (1902) I K.B. 778, 786.
- 143.
See Barclays Bank of Nigeria Ltd v Okotie – Eboh (1972) NCLR p. 174. “Consideration” here being the agreement of the lender to give the loan to the primary debtor in return for the guarantor’s guarantee.
- 144.
Younis v. Chidiak & Chidiak (1970) NCLR p. 26 at p. 30, lines 9–12.
- 145.
A guarantee that is given based on a past consideration, that is, for a loan previously granted, would be void. See French v French (1841) M & G, p. 664; Astley Industrial Trust Ltd v. Grimeston Electric Tools (1965) 109 S.J. p. 149. But see the exceptions enunciated in the following authorities: (1) “where the creditor promises or the guarantor requests the creditor to forbear from suing the debtor or to extend the time of payment or to reduce the sum payable”; see Younis v. Chidiak (1970) NCLR p. 26, (2) “where the guarantee is given in return for an undertaking by the creditor to continue to deal with the debtor to grant him further credit.” See Ikomi v. Bank of West Africa Ltd (1965) NCLR, p. 25 at p. 35, lines 8–12: (3) “Where the guarantor frequently guarantees both past and future advances in return for such undertaking.” See Harris v. Venables (1872) LR 7 Exch. p. 235 to read how this reasoning evolved. Although these are first-generation cases, the principles they embody in this respect still remain good law.
- 146.
(1967) NCLR p. 368.
- 147.
See Chellaram & Sons (Nig) Ltd v Jackson & Anor (1967) NCLR p. 368, lines 5–7.
- 148.
See National Bank of Nigeria Ltd v Awolesi (1964) NCLR p. 21; also see the same ruling in First Bank of Nigeria Ltd v Pan BisBuilder (1990) 2 NWLR (part 134) p. 647.
- 149.
See African Continental Bank Ltd v Mohammed Khalil & Anor (1971)1 NCLR, p. 71. But it would be instructive to add that where the guarantor has guaranteed several obligations in a series of contracts with the same parties, a variation of one obligation will not relieve him of all obligations but only that which was specifically varied. See Croydon Gas Co. v. Dickson (1876) 2 CPD p. 46.
- 150.
See Oluboye &Anor v Ketting (1972) NCLR p. 464.
- 151.
(1964) NCLR p. 21.
- 152.
See National Bank of Nigeria Ltd v Awolesi (1964) NCLR p. 21.
- 153.
See National Bank of Nigeria Ltd v Awolesi (1964) NCLR p. 21.
- 154.
See African Continental Bank Ltd. v. Mohammed Khalil & Another (1971) 1 NCLR, p. 71.
- 155.
See Egbert v National Crown Bank (1918) AC p. 903.
- 156.
See Universal Forest Prods. E. Div., Inc. v. Morris Forest Products. LLC, 558 F. Supp. 2d 893 (E.D. Wis. 2008).
- 157.
See Bank of the North Ltd v Misr (Nig) Ltd. (1966) NCLR, p. 155 at p. 118.
- 158.
See Bank of the North Ltd v Misr (Nig) Ltd. (1966) NCLR, p. 118, lines 16–23.
- 159.
See Onwukeme v Onwuegbu (1970) NCLR p. 399 at p. 448, lines 11–21. Since the debtor has benefitted from the guarantor’s vicarious payment, he would be unduly enriched if he is allowed not to indemnify the guarantor.
- 160.
See Onwukeme v Onwuegbu (1970) NCLR p. 399 at p. 448, lines 11–21.
- 161.
(1704) 1 Salk 27.
- 162.
This difficulty was evident in Yeoman Credit Ltd v Latter (1961) 2 All ER 294, (1961)1 WLR 828, at 835; Pitts v Jones (2007) EWCA Civ. 1301 (2008) QB 706; Associated British Ports v Ferryways NV (2009) EWCA Civ. 189, (2009) 1 Lloyd’s Rep 595 at 1.
- 163.
Ibid. This formula was also used in Mountstephan v Lakeman (1871) LR 7 QB 196.
- 164.
(1871) LR 7 QB 196.
- 165.
(1871) LR 7 QB 196.
- 166.
See Benthworth Finance (Nig.) Ltd v Ibrahim (1969) NCLR p. 272; also see Apugo & Sons Co Ltd v African Continental Bank Ltd (1989)1 CLRQ p. 87.
- 167.
See Guild & Co. v Conrad (1894) 2 QB 885.
- 168.
There is no consensus ad idem (flowing from the third party), a vital element in the formation of contract.
- 169.
Meaning that oftentimes, contracting parties have labeled their contract as one thing and meant another judging from the entire circumstances surrounding the contract. The duty of court is to ensure that it is not fooled by this mislabeling and therefore would have to dig deep to find out the objective intention of parties.
- 170.
See Benthworth Finance (Nig.) Ltd v Ibrahim (1969) NCLR p. 272.
- 171.
(1677) applicable in Nigeria.
- 172.
See section 4, Statute of Frauds, 1677.
- 173.
It will therefore become a matter of evidence for the party alleging the existence of an oral contract to prove the same. This could be done, for example, by calling witnesses or any other form of evidential proof recognized in the Nigerian legal system—the Evidence Act, 2011.
- 174.
See section 4 Statute of Frauds (1677).
- 175.
Black’s Law (2009) defines a volunteer as “a voluntary actor or agent in a transaction, especially a person who without an employer’s assent and without any justification from legitimate personal interest, helps an employee in the performance of the employer’s business.”
- 176.
For in-depth analysis on “unjust enrichment,” see generally Sherwin (2001), p. 2083.
- 177.
- 178.
See Crocker v Sundance Northwest Resorts Ltd; (1988) 1 S.C.R 1186, 51 D.L.R. (4th) 321(“By agreeing to assume the risk the plaintiff absolves the defendant of all responsibility for it,” at 1201).
- 179.
See infra at Sect. 4.5 on why floating charge should be abolished or transformed in Nigeria in view of the anticipated reformed secured transactions law.
- 180.
- 181.
Only incorporated debtors can create a floating charge. Human debtors cannot. See generally Pennington (1960), pp. 630–646. Lord Millet also provided a penetrating account of history in Agnew v Commissioners of Inland Revenue (a.k.a Re Brumark) [2001] 2 A.C 710 at 717. The following older decisions are equally succinct on the matter: Re Panama, New Zealand, and Australian Royal Mail Co (1870) 5 Ch. App 318, Re Florence Land and Public Works Co, ex p Moor (1878) 10 Ch. D 530; Re Colonial Trusts Corporation, ex p Bradshaw (1879) 15 Ch. D 465; Re General South America Co (1876) 2 Ch. D 337; Re Hamilton’s Windsor ironworks, ex p Pitman and Edwards (1879) 12 Ch. D 707.
- 182.
Initially, courts were antagonistic to the concept of using an asset yet to be owned as collateral. This was the same reason that made the American courts before the twentieth century not to accept the floating charge concept, a vehemence they later showed in Benedict and Ratner 268 U.S. 353 (1925). The earliest line of English cases that refused the concept of floating charge until the 1870 line of cases began to accept it are Kings v Marshall (1864) 33 Beav 565, Re New Clydach Sheet and Bar Iron Co (1868) LR 4 Eq. 601.
- 183.
This was mainly to avoid the problem of ostensible ownership. In the United States, for instance, it was void as a matter of law to leave personal property collateral exclusively in the hands of the debtor. The secured party was as a matter of law required to have the right to unfettered dominion over the collateral and could police the debtor in relation to his business activities. See Geilfuss v Corrigan, 95 Wis. 651; 70 N.W. 306 (1897); Benedict v Ratner, 268 U.S. 354; 45 S.Ct. 566, also for a more penetrating discussion on what the position of the law in the United States was before the advent of the Uniform Commercial Code. See Gilmore (1965), vol. 1, chapters 6 and 8.
- 184.
See Goode (2003), p. 121.
- 185.
(1862) 10 HL Cas. 191.
- 186.
(1870) 5 Ch App 318.
- 187.
In re Panama, New Zealand, and Australian Royal Mail Co. (1870) 5 Ch App 318.
- 188.
See the In re Panama, New Zealand, and Australian Royal Mail Co case. Also see the same interpretation in Re Hamilton’s Windsor Ironworks, ex p pitman and Edwards (1879) 12 Ch D 707.
- 189.
See the court’s interpretation in Re Florence Land and Public Works Co, ex p Moor (1878) 10 Ch D 465, especially at pp. 546–547.
- 190.
For a fulsome discussion on the priority ranking of a floating charge, see chapter V, entitled “Fixed and Floating Charges: Some Problems of Priority” in Goode (2003).
- 191.
See Agnew v Commissioner of Inland Revenue (2001) 3 WLR 454, [2001] 2 AC 710.
- 192.
The expression was used in Re Spectrum Plus Ltd (2005) 2 AC 680, (2005) UKHL 41.
- 193.
(1903) 2 Ch. 284.
- 194.
Re Yorkshire Woolcombers Association Ltd (1903) 2 Ch. at p. 295.
- 195.
(1904) AC 355.
- 196.
Illingworth v Houldsworth (1904) AC, at 358.
- 197.
(2005) 2 AC 680, (2005) UKHL 41.
- 198.
The third characteristic states that the charge would have to leave the company free to deal with the charged asset in the ordinary course of its business.
- 199.
See Re Spectrum Plus Ltd, (2005) UKHL 41 at 106.
- 200.
Goode (2010), p. 723. Professor Goode was anchoring his argument on the Spectrum decision.
- 201.
Buckley LJ in Evans v Rival Granite Quarries Ltd (1910) 2 KB 979 at 990. It is vitally important that the reader continues to bear in mind that floating charge, although originally an English law concept, is also an integral concept of Nigerian law, such that the materials that apply or explain the concept in England are equally useful in the Nigerian context.
- 202.
[2001] 2 AC 710.
- 203.
See Re Spectrum Plus Ltd [2005] UKHL 41 at 119 and 141.
- 204.
See Re Bond Worth Ltd (1979) 3 ALL ER 919.
- 205.
The court in Re Shoe Lace Ltd (1993) BCC 609 at 622–623, per Sir Christopher Slade, held that it is possible that an immovable property could be a subject of floating charge.
- 206.
See Tailby v Official Receiver (1888) 13 App Cas 523, Sieber Gorman & Co Ltd v Barclays Bank Ltd (1979) 2 Lyod’s Rep 142 at 159 per Slade J; Boambee Bay Resort Pty Ltd (in liquidation) v Equus Financial Serives Ltd (1991) 6 ACSR 532 at 535 per Mahoney JA; Re Atlantic Medical Ltd (1992) BCC 653 at 658 per Vinelott J; Re New Bullus Trading Ltd (1994) BCC 36 at 41–42 per Nourse LJ.
- 207.
Boambee Bay Resort Pty Ltd (in liquidation) v Equus Financial Serives Ltd (1991) 6 ACSR 532 at 535 per Mahoney JA.
- 208.
(2003) Ch. 217.
- 209.
There is an overwhelming amount of literature on “negative pledge”—a US terminology that is used in retaining some level of control in contractual agreements. For a concrete understanding of it, see the following articles –Crosthwait and Nigel (1986); Hobbs (1993), pp. 269–274; Hurlock (1994), p. 345.
- 210.
See Hahn (2010), p. 229.
- 211.
Black’s Law (2009) defines acceleration clause as “a loan agreement provision that requires the debtor to pay off the balance sooner than the due date if some specified event occurs, such as failure to pay an installment or to maintain insurance.”
- 212.
Black’s Law (2009), p. 866—“a loan agreement provision that allows the creditor to demand immediate and full payment of the loan balance if the creditor has reason to believe that the debtor is about to default, as when the debtor suddenly loses a significant source of income.”
- 213.
See Gough (1996), chapter 10.
- 214.
Han (1996), p. 416.
- 215.
Gough (1996), p. 221.
- 216.
See Re Florence Land and Public Works Co, ex p Moor (1878) 10 Ch D 530; Re Colonial Trusts Corporation ex p Bradshaw (1879) 15 Ch D 465; Bank of New Zealand v Walter Guthrie Co Ltd (1897) 16 NZLR 484.
- 217.
See Fire Nymph Products Ltd v The Heating Centre Pty Ltd (1992) 7 ACSR 365 at 370.
- 218.
See Wheatley v Silkstone and Haigh Moor Coal Co (1885) 29 ChD 715; Robson v Smith [1895] 2 Ch 118, at 124. Also see Re Benjamin Cope & Co [1914] 1 Ch 800.
- 219.
In Wheatley v Silkstone and Haigh Moor Coal Co (1885) 29 Ch D 715, the court firmly held that a subsequent specific charge ranked higher over a previous floating charge regardless of notice.
- 220.
Gough (1996), p. 225.
- 221.
See The English and Scottish Mercantile Investment Company, Ltd v Brunton [1892] 2 QB 700. Also see Welch v Bowmaker (Ireland) Ltd [1980] IR 251; Re Valletort Sanitary Steam Laundry Co Ltd (1903) 2 Ch 654.
- 222.
See Treitel (2011), p. 844.
- 223.
See Doherty v Alhnan (1878) 3 App Cas. 709. Of keen interest is the dictum of Lord Cairns: “if there had been a negative covenant, I apprehend … a Court of Equity would have had no discretion to exercise. If parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a Court of Equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done; and in such case the injunction does nothing more than give the sanction of the process of the Court to that which already is the contract between the parties. It is not then a question of the balance of convenience or inconvenience, or of the amount of damage or of injury—it is the specific performance, by the Court, of that negative bargain which the parties have made, with their eyes open, between themselves.” This was also followed in Marco Productions, Ltd v Pagola [1945] 1 KB 111.
- 224.
- 225.
Farrar (1974), p. 318.
- 226.
See Black’s Law (2009), p. 12.
- 227.
See UAC v. Inter-contractors (1988) 2 NWLR (pt. 76) 303 S.C.
- 228.
Assuming parties in a floating charge agreement failed to stipulate any event that would trigger off the crystallization process, the liquidation of such company naturally will lead to a crystallization process.
- 229.
(1904) AC 355.
- 230.
See Illingworth v Houldsworth (1904) AC 355 [italics mine].
- 231.
This is almost in line with Buckley LJ’s opinion in Davey & Co v Williams & Sons (1898) 2 Q.B 194, where he stated that a floating chargee may give advance notice as a beginning process for crystallization.
- 232.
See Re Standard Manufacturing Co (1891) 1 Ch 627 at 640; Edwards v Standard Rolling Stock Syndicate (1893) 1 Ch 574 at 577; Re Victoria Steamboats Ltd, Smith v Wilkinson (1897) 1 Ch. 158 at 161 per Kekewich J.
- 233.
See Gough (1996), p. 35.
- 234.
See Re Colonial Trusts Corporation ex p Bradshaw (1879) 15 Ch D 465 at 472 per Jessel MR.
- 235.
See Government Stock and Other Securities Investment Co Ltd v Manila Rly Co Ltd (1897) AC 81 at 87.
- 236.
See Government Stock and Other Securities Investment Co Ltd v Manila Rly Co Ltd (1897) AC 81 at 86.
- 237.
See Re General South American co (1876) 2 Ch D 337; Hodson v Tea Co (1880) 14 Ch D 859; Wheatley v Silkstone and Haigh Moor Coal Co (1885) 29 Ch D 715 at 719–719 per North J; Brunton v Electrical Engineering Corporation (1892) 1 Ch 434 at 440 per Kekewich J; Sadler v Worley (1894) 2 Ch 170; Wallace Universal Automatic Machines Co (1894) 2 Ch 547 Re Crompton & Co Ltd, Player v Cromptom & Co Ltd (1914) 1 Ch 954; Re Universal Distributing Co Ltd (1933) 48 CLR 171; Re Asiatic Electric Co pty Ltd (1970) 2 NSWR 612 at 612–613 per Street J.
- 238.
See National Westminster Bank plc. v. Jones (2001) EWCA Civ. 1541.
- 239.
(1986) Ch. 366 at 376–377.
- 240.
See Edward Nelson & Co Ltd v Faber & Co (1903) 2 KB 367 at 376–377 per Joyce J, Re Victoria Steamboats Ltd, Smith v Wilkinson (1877) 1 Ch 158 at 161 per Kekewich J.
- 241.
See Hubbucks v Helms (1887) 56 LJ Ch 536; Hamilton v Hunter (1983) 7 ACLR 295; Torzillu Pty Ltd v Brynac Pty Ltd (1983) 8 ACLR 52.
- 242.
(1879) 12 Ch D 707 at 710 per Malin V-C.
- 243.
- 244.
See Taunton v Sherriff of Warwickshire (1985) 2 Ch. 319.
- 245.
See sections 388, 389, and 390 of CAMA. Also see Okoya v Santilli (1990) 2 NWLR (pt. 131) 172.
- 246.
For more details on the conversion of floating charge into floating lien and the underlining benefits that arise, see infra at Sect. 4.5.
- 247.
This is usually referred to as “blocking” in the United States—see infra at Sect. 4.2.3 for more details.
- 248.
See, for instance, the Integrated Warehousing Services Ltd—http://www.iwsng.com/. This is just one out of the many warehousing companies in Nigeria.
- 249.
For more information on “field warehousing” and its transplantability to Nigeria, see Sect. 2.7.5, below for details.
- 250.
For a more penetrating treatment of “factoring,” see generally Salinger (1995).
- 251.
- 252.
Section 2(1) of the Factors Act 1889, applicable in Nigeria.
- 253.
In Igbo—one of Nigeria’s principal languages, a factor is known as onye oso ahia, and they are very popular in many trading centers in Nigeria usually dominated by the Igbos as sellers. Nearly always, factors are the ones who first approach passers-by or potential buyers who have visited a trading center, convince them, and consequently lure them to their principals’ shops. They are usually sweet talkers and good promoters of products.
- 254.
See infra at Sect. 2.8.6 for a more detailed discussion on “consignment.”
- 255.
The transfer of title by a factor will not be affected by the nemodat rule. See sections 21–26 Sale of Goods Act, 1893, for exceptions of the nemo dat rule. Also take a look at Merrett (2008), pp. 376–395.
- 256.
Section 2(2) Factors Act 1889.
- 257.
Salinger (1995), pp. 9, 10, 17.
- 258.
(1828) 3 Russ 1.
- 259.
Owing to the US unitary system (non-numerus claurus), every transaction that creates a security interest in a personal property is governed by Article 9 of the US Uniform Commercial Code.
- 260.
See Klausen.
- 261.
Section 9-310 UCC.
- 262.
See Gilmore (1965), chapter 6. Two cases give an apt definition—thus, in Business Factors Inc. v. Taylor-Edwards Warehouse & Transfer Co., 585 P.2d 825, 828 (Wash. Ct. App. 1978), the court said: “Field warehousing is a way of bringing about the security relationship of a pledge. It is an arrangement for allowing the pledger a more convenient access to the pledged goods, while the goods are actually in the custody and control of a third person on the pledgor’s premises.” In re Covington Grain Co., 638 F.2d 1365 (5th Cir. 1981), the court said: “Field warehousing is an arrangement whereby a wholesaler, manufacturer or merchant finances his business through the pledge of goods remaining on his premises.
The arrangement is valid and effective where there is an actual delivery to the warehouseman by the bailor who has hired the warehouseman and given him exclusive possession of the warehouse goods.” Black’s Law (2009) says it’s “[a]n inventory-financing method by which a merchant pledges his inventory which is in the possession of a third party…and cannot be economically delivered to the creditor or third party, hence the borrower segregates part of the inventory and places it under the nominal control of a lender or third party so that the lender has a possessory interest.”
- 263.
See generally Yale Law Journal Company (1960), p. 663.
- 264.
Wynne (1998), pp. 8–10,—“warehouse receipt” was defined as “[a] document issued by a warehouse keeper stating that the goods certified on the warehousereceipt are held in his warehouse at the disposal of the person named on the warehousereceipt (usually the borrower). The warehouse keeper holds the goods as bailee and can only deal with the goods in a manner authorized by the borrower (the bailor). If the bailee deals with the goods in an unauthorised manner, he will take the risk and assume the liability for any loss suffered by the bailor as a result of the unauthorised dealing. If the bailee delivers the goods to an unauthorised person, he will also be liable in the tort of conversion for misdelivery.”
- 265.
- 266.
See Skilton (1961), pp. 221–225.
- 267.
Field warehousing enables both parties to a transaction to incur less costs because, on one hand, the borrower is saved the costs of transporting goods to and from the lender’s premises and, on the other hand, the lender is saved the costs of running a terminal warehouse that would have been used to receive goods from borrowers. See Sweetser (1963), pp. 365–366.
- 268.
See Gilmore (1965), p. 151.
- 269.
On how “acceleration clauses” function in an agreement, see Hahn (2010), p. 229.
- 270.
This opinion is reached considering the general wordings of sections 16–20 of the Sale of Goods Act 1893, which provide rules for determining when risks generally pass in a contract with respect to goods.
- 271.
This was a similar description given in Business Factors, Inc. v. Taylor-Edwards Warehouse & Transfer Co., 585 P.2d 825, 828 (Wash. Ct. App. 1978), and In re Covington Grain Co., 638 F.2d 1362, 1365 (5th Cir. 1981). Black’s Law (2009) defines “field warehousing” as follows: “[It] is a method of financing an inventory that cannot economically be delivered to the creditor or third party. The borrower segregates part of the inventory and places it under the nominal control of a lender or third party, so that the lender has a possessory interest.”
- 272.
This type of account does not operate as regular bank accounts. For instance, the borrower cannot draw out money as the money deposited therein is meant to serve as collateral (flawed asset) in exchange for the warehouse receipts. The bank therefore exercises control over the account and could draw from it without any permission from the account owner.
- 273.
For details on the requirements for accreditation and other vital information about warehouse operations in Nigeria, see http://www.abujacomex.com/pages/posts/warehouse-rules-and-regulations358.php.
- 274.
“[A] document evidencing title to goods stored with someone else, especially a receipt issued by a person engaged in the business of storing goods for a fee. It is considered a document of title and may be a negotiable instrument, often used for financing, with inventory as security”—Black’s Law (2009), p. 1721.
- 275.
The essence of this account is to give the bank the right to exercise control over the loan account. The money in the loan account each time corresponds with the released warehouse receipts. This practice, although prevalent, is yet to be judicially tested—hence, decisions on this are yet to be available.
- 276.
See the stringent requirements contained in the website http://www.abujacomex.com/pages/posts/warehouse-rules-and-regulations358.php.
- 277.
This kind of practice that evinces the existence of a great distrust among the parties concerned was reinforced probably after the only decision of the Nigerian court on warehousing in Triana Ltd. v Universal Bank Plc (2009) 12 NWLR (part 1155) 313 C.A. In Triana, the borrower colluded with the warehouse operator and clandestinely removed goods from the warehouse without the knowledge of the bank. The reaction to this incident by banks is that goods kept in warehouses are not made accessible or removed by any of the parties involved; namely, the bank, the borrower, and the warehouse operator, except all parties, are present, of course with their keys.
- 278.
(2009) 12 NWLR (part 1155) 313—Court of Appeal.
- 279.
“A method of financing commercial transactions by which title passes directly from the manufacturer or seller to a banker or lender, who as owner delivers the goods to the dealer on whose behalf the banker or lender is acting, and to whom title ultimately goes when the banker’s or lender’s primary right has been satisfied”—Black’s Law (2009), p. 1657. For a more penetrating treatment, see Gilmore (1965), chapter 4. Also see generally Gilmore (1948), p. 761.
- 280.
“The term ‘trust receipt’ is misleading, as it is not trust in the ordinary sense of an arrangement whereby the person in possession with legal title holds for the use of the beneficial owner. The holder of the receipt has legal title and the so-called trustee has himself a beneficial interest in the goods. A better descriptive term would be ‘agency receipt’ or ‘bailee receipt.’”. See Mathew (1933), p. 560.
- 281.
The following cases are helpful in understanding the concept, being that they were the earliest to uphold “trust receipt” as an independent security device. See Mechanics & Traders’ Bank etc. v. Farmers & Mechanics’ National Bank, 60 N.Y. 40 (1875) and Farmers & Mechanics’ National Bank v. Logan, 74 N.Y. 568 (1878).
- 282.
See Farmers & Mechanics’ National Bank v. Logan, 74 N.Y. 568 (1878).
- 283.
For a more detailed discussion, see the case of Foreign Trade Banking Corporation v. Gerseta Corporation, 237 N.Y 265, 142 N.E, 31 A.L.R 932 (1923), but see section 12 UTRA, which now has abolished the agency theory that “even though the entruster has given the trustee liberty of sale, the Act provides that he is not to be held responsible as principal or as vendor under any sale or contract to sell made by the trustee.” See Gorske (1954), p. 110.
- 284.
See Frederick (1922), p. 546.
- 285.
Tajti (2002), p. 133.
- 286.
“A loan that is secured by merchandise and paid off as the goods are sold—usually such a loan is given by a manufacturer to a retailer or other dealer (as a car dealer)”—Black’s Law (2009), p. 707. A case in point is Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 61 Admin. Law Judicial Review, 415. Also, a general look at this article is advised: Young et al. (2010), p. 368.
- 287.
In any contractual arrangement, the payment of salaries by one party to another strongly suggests that the payee is an employee of the payer. Salaries are fixed payments regardless of the employee’s output before payment, unlike a commission that is tied to performance and therefore not fixed. For an in-depth analysis, see generally the recent seminal article by a learned writer: Morgan (2013), p. 1223.
- 288.
This is because creditors can only satisfy their debts from the debtor’s estate and not from what the latter does not own. Hence, under a floor plan arrangement, the title of goods being kept as inventories of the dealer resides in the financier and therefore cannot be part of the debtor’s estate upon bankruptcy. Even when the inventories are sold to remedy the debtor’s debts, the financier (secured party) under Article 9 has security interest in the proceeds of the inventories. See Article 9-102(a) 64 for the definition of “proceeds” and Article 9-315 for a secured party’s claim to “proceeds.” And the earlier cases on this: Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555 (1935), Wright v. Union Central Life Ins. Co., 311 U.S. 272 (1940).
- 289.
See infra at Sect. 2.8.6 for a brief discussion on “distributorship.”
- 290.
Nigeria has been a home of auto assembly plants—starting with Peugeot Automobile Nigeria company in 1975, http://www.peugeotnigeria.com/peugeot-in-country/. Currently, there are other automobile assembly plants in the country, including Stallion Group of companies, http://stalliongroup.com/business-lines/assembly.asp, and the more indigenous manufacturing/assembly plant –“INNOSON MOTORS”—http://innosonivm.com/en/About.Asp?ID=1. These companies make use of dealers to sell their vehicles, and the contractual arrangements follow the concept of “trust receipt,” although not labeled as such.
- 291.
It is the author’s opinion that in order for trust receipt financiers in Nigeria to maximally protect their interests, the bank/manufacturer should regularly police the dealer’s activities as advised by the case of Benedict v Ratner 268 U.S. 353 (1925) so as to ensure that the latter does not engage in opportunistic behaviors by using the inventories in his possession to create security interests in favor of other creditors. Policing the debtor in this case would ensure that inappropriate dealings are discovered in time before they are too late. For an in-depth discussion, see generally Jackson and Kronman (1979), p. 1143; and Williamson (1983), pp. 31–37, 241–244, and pp. 252–258.
- 292.
Conditional sale should not be confused with a credit sale contract. In the latter, the transaction is complete, and legal title passes immediately to the buyer. While in the former, the buyer obtains an equitable interest in the goods, which grows gradually into a legal title as he makes payments to complete the full price of the goods—full ownership is therefore conditioned on full price payment. For a perfect distinction between a conditional sale and other similar title financing devices, see the following English cases: Forthright Finance Ltd v Carlyle Finance Ltd [1997] 4 All E.R. 90; [1997] C.C.L.R. 84, CA (Civ Div), which followed Helby v Matthews (1895) AC 471.
- 293.
See generally Hire Purchase Act 1917, Laws of the Federation of Nigeria, 2004.
- 294.
In the case of Nigeria—the Equipment Leasing Bill only covers finance lease. Section 2 of the Bill provides for finance lease, which was defined under section 44 as “Finance lease is a lease involving rental—payment over an obligatory period sufficient in total to amortize the capital outlay of the lessor and also give the lessor some benefits.” In other words, the title of the leased equipment does not pass to the lessee at the end, neither is he given any option to buy it at a nominal fee as done in a true lease. See UCC Article 2A, and for an in-depth analysis of “true lease” and “security interest lease,” see Kaim (2008), p. 857.
- 295.
See generally Forthright Finance Ltd v Carlyle Finance Ltd [1997] 4 All E.R. 90; [1997] C.C.L.R. 84, CA (Civ Div), Helby v Matthews (1895) AC 471.
- 296.
This was the exact holding of the court in Hannin v Fisher (1935) 5 Cal. App2d 673, 43 P2d 815. Moreover, an overwhelming amount of literature in this area of law, both in the US and England, agrees to this distinction between a conditional sale and a credit sale.
- 297.
However, having been imported from England, its use is governed by the ordinary rules of contract under common law.
- 298.
The logic of law behind this conclusion is to prevent the conditional buyer from engaging in any opportunistic behavior during the pendency of the conditional sale contract—if the seller were to bear the risk of loss, then the conditional buyer will have no incentive to care and protect the goods in his possession and could, in a worse case scenario, collude with a third party to fraudulently do away with the goods since the seller consequently bears the loss.
- 299.
However, all the rights of an unpaid seller under the Sale of Goods Act 1893 could be invoked in the seller’s favor. See sections 38–48 thereof for the rights and remedies of an unpaid seller.
- 300.
See Elitestone Ltd v Morris and another [1997] 2 All ER 513, [1997] 1 WLR 687.
- 301.
What happens in case of conflict of interests in a property between a conditional sale buyer and a floating chargee’s interest on chargor’s properties following crystallization? When a floating charge becomes fixed following crystallization, the floating chargee becomes entitled to satisfy his claim with the chargor’s (the company’s) property no matter where it is located. In this case, let us presume that the company that created the floating charge is also the seller in the conditional sale contract. Since it is only possession, iced with equitable interest that passes to the buyer in a conditional sale arrangement, it becomes a matter of legal interest versus equitable interest—and although possession is strong in law, a legal title holder can always defeat a mere possession/equitable interest holder. However, in this case, when the floating chargee has become new title owner of property of the company that is in possession of the buyer under a conditional sale, the author’s opinion is that equity will always protect the conditional sale buyer such that the new owner (the floating chargee) can only step into the shoes of the former owner (the company) and maintain all terms of the original contract. Since it is a matter of subrogation, any arising conflict will be resolved by the terms of the original contract. This view could hardly be sustained because most times the floating chargee’s receiver creates a new company to which it transfers asset from the old company, thereby making it out of reach for the retained title holders whose interest were only against the old company. No Nigerian case the author knows of has ever been predicated or given direction regarding this dilemma. This is another compelling reason why the Nigerian secured transactions law should be reformed.
- 302.
This is in line with Professor Heindl’s view, who said that “…the principal objection to the conditional sale contract, however, lay in the fact that it could not be used with convenience where the financing was to be furnished by an individual other than the seller.” See Heindl (1948), p. 199.
- 303.
- 304.
Goode (2010), pp. 755–758.
- 305.
Cap H4 Laws of the Federation of Nigeria 2004.
- 306.
- 307.
Jobson v Johnson (1989) 1 All ER 621, (1989) 1 WLR 1026.
- 308.
Goode (2010), p. 29.
- 309.
See section 1 of the Hire Purchase Act—1990. Available at http://www.placng.org/new/laws/H4.pdf. Two thousand naira is roughly equivalent to 10 USD—see http://www.xe.com/currencyconverter/convert/?Amount=2000&From=NGN&To=USD.
- 310.
See the House of Lords’ decision in Sharp v Woolwich Building Society (1997) S.C (H.L.) 66, (1998) B.C.C. 115, where the court decided that a purchaser who has made full payment to a seller (who happens also to be a floating chargor) will not be deprived of the paid property if the floating chargee’s interest crystallizes before legal ownership passes to the purchaser through registration formalities. This way, substance is made to prevail over form—also the hardship that would have otherwise occurred against the purchaser who did not know of the floating chargee’s interest is obviated. This conflict is made worse by the fact that a floating charge does not affect specified property of the debtor as in a floating lien but on all debtor’s property no matter where they may be located.
- 311.
See Sharp v Woolwich Building Society (1997) S.C (H.L.) 66, (1998) B.C.C. 115.
- 312.
For a collaborating discussion on this, see infra at Sect. 5.2.1.
- 313.
For a more penetrating treatment, see generally Day (1987), p. 89; Uche (2001), pp. 381–396. Also see generally Ndu and Anyanwu (2012), pp. 1–11. Currently, there is a bill pending before the Nigerian National Assembly on equipment leasing—http://www.nassnig.org/nass2/legislation.php?id=817.
- 314.
Section 6 of the Equipment Leasing Bill mandates that the lessor must be a registered company in Nigeria. To access the proposed bill, see http://www.nassnig.org/nass2/legislation.php?id=817, as well as the Equipment Leasing Association of Nigeria, http://www.elannigeria.org/Pulblication.html.
- 315.
Ontario, for instance, has an online registration system. See section 41(1) Ontario PPSA. In Stikeman (2006), p. 26, the author captured registration of collateral in Ontario in these words: “The government of Ontario has established and maintains a central registration system for registrations under the PPSA. The purpose of this central system is to allow registration and searches of security interests to be conducted for the entire province of Ontario regardless of where the collateral is situated. While there is a central office in Toronto, there are numerous branch offices throughout the province where a search may be conducted or a registration may be and more recently it may be done online by those qualified entities that are registered agents. For a fee, anyone may conduct a search for security interests attaching to a particular debtors assets…” Even countries in Sub-Saharan Africa like Ghana (https://www.bog.gov.gh/index.php?option=com_content&view=article&id=74&Itemid=141) and Liberia (http://www.registry.cbl.org.lr/) have internet registries where security interests in personal property could be searched.
- 316.
The author (a practicing attorney in Nigeria) has firsthand experiences on how overcrowded physical land registries usually are in Nigeria, with many people sometimes waiting for a whole day just to conduct a search on land documents on behalf of their clients. It is always frustrating, and the situation always makes it very easy for land registry officials to demand bribes in order to facilitate one’s transaction in the registry. An online system will cure all this and make transactions faster and cheaper as well.
- 317.
See section 18 of the Equipment Leasing Bill.
- 318.
Section 17 of the Equipment Leasing Bill.
- 319.
In Nigeria, an average case takes about 8 years to move from a court of first instance to the apex court. There are usually many reasons why parties go to court, but most times, the problem is one of interpreting an unclear provision of law, which would have been avoided had the legislators done a thorough work in their legislative drafting so as to minimize the frequency of parties to go to court due to obscurities in the law. The average duration of a case in Nigeria is overwhelming. “For instance in Bokini v John Holt & Co Ltd (1937) 13 NLR 109—a case concerning a mortgage transaction. It began 1930 and was decided in 1937 (7 years), Bank of the North v Muri (1998) 2 NWLR (part 536) 153, a matter concerning a mortgage transaction. It commenced in 1988 and was finally decided in 1998 by the Court of Appeal. (10 years from the High Court to the Court of Appeals which was just one step). Ojikutu v Agbonmagbe Bank Ltd (Now called: Wema Bank Plc) (1996) (2) Afr. LR (comm.) 433. Also a matter concerning a mortgage transaction, it commenced at the high court in 1985 and was decided finally by the same court. (11 years) Although in this case, the parties tried to settle out of court several times. These few cases are just to show how slow litigation can be in Nigeria.” Taken from Iheme (2013), footnote 131.
- 320.
“[u]nder the UCC, a transaction in which a person delivers goods to a merchant for the purpose of sale and the merchant deals in goods of that kind under a name other than the name of the person making delivery, is not an auctioneer, and is not generally known by its creditor to be substantially engaged in selling others’ goods…and the transaction does not create a security interest that secures an obligation”—Black’s Law (2009), p. 350. This also tallies with the definition offered by White and Summers in their seminal text. See White and Summers (2010), p. 1165.
- 321.
White and Summers (2010), p. 1165.
- 322.
This is in accordance with Tajti’s view when he penned in a seminal article that “the main reasons on the side of the consignee for engaging in consignment are that they typically do not have enough money to purchase those goods, or they have no access to credit, or they do not want to assume more debt” –Tajti (2011), p. 364.
- 323.
This fear was adequately captured by Warren and Walt (2007), p. 349.
- 324.
It is impracticable to check whether an equipment in a dealer’s store that one is wishing to buy is encumbered in any way or not. A buyer of goods from a consignee will be able to establish a case of bona fide purchaser for value without notice and therefore would have superior interest. In the case of Nigeria, there is not yet a registry where security interests in personal property are registered. Similarly, this also questions the use of document filing because even if there were to be a collateral registry, a consignor cannot possibly register his security interest in the consignments via document filing. In the US, the use of notice filing could at least inform the registry searcher that the goods in debtor’s possession are in the nature of a consignment, thereby prompting relevant questions. On why notice filing instead of document filing should be made part of the anticipated secured transactions law, see infra at Sect. 4.2.2.
- 325.
Tajti (2011), p. 367. See p. 369 as well, which addresses ostensible ownership problem as follows: “The ostensible ownership problem in the context of consignment arises because of two things: first, the consignee is in the possession of goods the title on which remains with the consignor, and secondly, the consignee is empowered to sell those goods in his own name. In other words, to the outside world, he looks like the full owner of those goods having unrestricted rights to sell them. The retained title—if no public notice is given about its existence—remains a secret security known only by the parties to the transaction because the consignee may not just sell the consigned goods but may pledge them as collateral to obtain additional financing from third party creditors.”
- 326.
- 327.
See sections 38–48, Nigeria’s Sale of Goods Act 1893.
- 328.
“The transfer of the goods to the care of the consignee naturally presumes trust primarily on the side of the consignor, as he will run the risks of damage to goods, their loss and—of central interest to us—the possibility of losing the priority race with other creditors”—see Tajti (2011), p. 364.
- 329.
See Tajti (2011), p. 367. White and Summers provided a good example of how courts insist on the UCC Article 2 provision on “sign posting.” Thus, in BFC Chemicals Inc. v. Smith Douglass Inc., 46 B.R. 1009, 40 UCC 1674 (E.D.N.C. 1985), the court required the compliance with UCC s. 2-326(3)(a) that the consigner has “shown evidence of a sign in fact and that the sign was conspicuously placed at the consignee’s place of business.” See White and Summers (2010), p. 1165 at note 2.
- 330.
See infra at Sect. 5.6 for a discussion on consumer protection and secured transactions law interface.
- 331.
See the list of countries that are already members at http://www.uncitral.org/uncitral/en/uncitral_texts/security/2001Convention_receivables_status.html.
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Iheme, C.W. (2016). A Critical Review of the Current Laws on Secured Transactions in Nigeria. In: Towards Reforming the Legal Framework for Secured Transactions in Nigeria. Springer, Cham. https://doi.org/10.1007/978-3-319-41836-0_2
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