LAW DIGEST WITH CLRN & ALP NG & Co.
UNITY BANK PLC v. TAMBUWAL CONSTRUCTION AND TRADING COMPANY LTD & ANOR.
SUPREME COURT
(AGIM, J.S.C., NWOSU-IHEME, J.S.C., TSAMMANI, J.S.C., ABIRU, J.S.C. IDRIS, J.S.C.)
FACTS
Unity Bank Plc (the Appellant) commenced proceedings under the Undefended List Procedure at the High Court of Sokoto State against Tambuwal Construction & Trading Company Ltd, the (1st Respondent), and its Managing Director, Alhaji Ahmadu Bello Liman, (the 2nd Respondent). The Appellant’s claim was for the sum of ₦61,214,693.11, together with interest and costs, said to be the outstanding indebtedness arising from an overdraft facility originally granted to the 1st Respondent in 1992 and 1993 by Bank of the North Ltd. It was the Appellant’s case that the 2nd Respondent had personally guaranteed repayment of the facility and, in further security, mortgaged five landed properties as collateral for the debt.
In 2005, pursuant to the Central Bank of Nigeria’s banking consolidation policy, Bank of the North Ltd merged with other financial institutions to form Unity Bank Plc. The merger, which the Federal High Court sanctioned, resulted in Unity Bank Plc becoming the successor-in-title to the assets and liabilities of Bank of the North Ltd, thereby entitling the Appellant to recover the debt owed under the facility. The Respondents denied the existence of any such loan. They contended that their dealings with Bank of the North Ltd were confined to the operation of a bank account and that no overdraft facility had been granted to the 1st Respondent. They further challenged the Appellant’s locus standi to institute the action, arguing that the name “Tambuwal Construction & Trading Company Ltd” as presented in the suit did not match the account name in the bank’s records. They also asserted that the Appellant had failed to produce credible documentary proof of the alleged merger between Bank of the North Ltd and Unity Bank Plc. For his part, the 2nd Respondent denied ever guaranteeing the facility or undertaking personal liability for the debt.
However, during cross-examination, the 2nd Respondent admitted that he had mortgaged five of his landed properties in connection with the facility extended to the 1st Respondent. After reviewing the evidence before it, the trial court found that the Appellant had satisfactorily established its status as the lawful successor to Bank of the North Ltd and therefore had the requisite standing to sue. It also held that the Respondents’ liability had been proved through a combination of documentary evidence and the 2nd Respondent’s admissions. Judgment was accordingly entered in favour of the Appellant, granting all the reliefs claimed. Dissatisfied, the Respondents appealed to the Court of Appeal, which allowed the appeal, set aside the trial court’s decision, and entered judgment in their favour.
The Appellant, being aggrieved by the decision of the Court of Appeal, further appealed to the Supreme Court, urging it to reverse the appellate decision and to restore the judgment of the trial court. One of the issues that arose for determination was whether the 2nd Respondent, as the Managing Director of the 1st Respondent’s limited liability company, could be held personally liable for the debt incurred by the company.
ARGUMENTS
Learned counsel for the Appellant submitted that, while the law firmly recognises a limited liability company as a separate legal entity distinct from its shareholders and directors, this corporate veil is not impenetrable. Where it is shown that a director has personally guaranteed a loan or undertaken the role of surety for a debt incurred by the company, the law imposes on such director a joint and personal liability for the repayment of that debt alongside the company.
Counsel argued that no party should be allowed to accept and enjoy the benefits of a contractual arrangement while simultaneously evading the corresponding obligations arising from it. In the present case, the 2nd Respondent, though acting as the Managing Director of the 1st Respondent, went beyond the protective boundaries of corporate personality by personally guaranteeing the facility in issue and securing it with the mortgage of several landed properties belonging to him in his private capacity. This, counsel maintained, placed the 2nd Respondent in the position of a co-obligor with the 1st Respondent, thereby rendering him jointly and severally liable for the debt.
In response, learned counsel for the Respondents argued that the Appellant failed to produce any credible evidence before the trial court showing that the 2nd Respondent had ever executed a personal guarantee for the repayment of the facility in question. In the absence of such proof, there is no legal basis for holding the 2nd Respondent personally accountable for a debt ostensibly incurred by the 1st Respondent. Counsel stressed that the mere use of the 2nd Respondent’s landed properties as collateral did not automatically confer personal liability upon him, as pledging property in security is distinct from assuming a personal obligation to repay the debt.
He therefore contended that the inclusion of the 2nd Respondent as a party to the suit was improper. On this basis, he urged the Court to uphold the decision of the Court of Appeal, which, in his view, had meticulously reviewed the record, properly assessed the evidence adduced by both sides, and correctly applied the relevant principles of law in setting aside the judgment of the trial court.
DECISION OF THE COURT
In resolving this issue, the Supreme Court held that:
A director or managing director of a company may be held personally liable for the debts or obligations of that company where it is established by credible evidence that such an officer expressly acted as a surety or personally guaranteed the repayment of a loan or debt incurred by the company. The Court explained that this rule operates as an exception to the general doctrine of corporate personality, which treats an incorporated company as a distinct and separate legal entity from its shareholders, directors, and officers. While the company enjoys its own legal personality, it can only act through human agents who serve as its directing and operational minds. When these agents act strictly within the scope of their authority and for and on behalf of the company, they are regarded in law as agents of a disclosed principal, and liability rests solely on the company. Personal liability, however, arises where such individuals step outside the limits of their authority or assume contractual obligations in their own names and capacities.
In the instant case, the Court found that Alhaji Ahmadu Bello Liman had, under cross-examination, admitted to mortgaging five of his personal landed properties as security for the facility granted to Tambuwal Construction & Trading Company Ltd. This amounted to a personal assumption of liability for the debt, thereby placing him in the position of a co-obligor with the company. The Supreme Court therefore held that both the 1st and 2nd Respondents were jointly and severally liable to repay the loan to Unity Bank Plc.
Issue resolved in favour of the Appellant
Ademola Folarin, Esq. – for the Appellant
A.Y. Abubakar, Esq. (with him, M.A. Assalafi, Esq.) – for the Respondents
This summary is fully reported at (2025) 7 CLRN in association with ALP NG & Co.
See www.clrndirect.com ; www.alp.company.
