Can Someone Who Has No License Lend Money? What The Law Actually Says

By O. G Chukkol

If you have lent money before or have borrowed money before or wish to lend money to someone, this article is for you. Money lending is legally a complex transaction that if not handled with caution, a lender will lose his money and even court cannot assist him in recovering the money.

Money lending is generally regulated by the ordinary law of Contract alongside the Money Lenders Laws of various states. However, is peculiarity of a transaction that determines the law that applies to it. Having said that, section 6(b) of the Money Lenders Law of Lagos State provides that “If any person… carries on business as a moneylender without being in possession of a valid moneylender’s licence authorising him so to do, he shall…be liable on summary conviction to a fine of two hundred naira and in the event of a second or subsequent conviction to imprisonment for three months or a fine of two hundred naira or both;.”

The wordings of the section above are word for word replication of the provisions of the Money Lenders Law of practically all the States in Nigeria and they have been subject of judicial interpretation in several cases. The implication is that for one to lend money, he must first obtain a license to do so, else, the agreement will be illegal and the money will be irrecoverable.

Thus, in Nnamdi v. Ndulue & Ors (2017) LPELR-43593(CA) a suit was filed “for and on behalf of Ofuobi Committee of Friends” againstits one of its members for failing to pay N200, 000 lent to him and a supposed interest of N36, 000. The court held that the Association was a money lender and since the Association was not registered and had no license, the suit was statute barred and the money irrecoverable.

Also in Kekong v. Abang & Ors (2010) LPELR-9013(CA), the debtor lent the sum N500, 000 to be repaid interest free within one month but with 30% interest Per month for the subsequent months upon failure to repay the money within one month. The court held that the transaction was money lending because the said transaction was one in a series of business transactions. Thus, the transaction was held to be illegal, unenforceable and the money irrecoverable.

The question is: do I automatically become a money lender by merely lending money to another person? In other words, does it mean that I have no right at all to lend money if I don’t have license?

WHEN LICENSE IS NOT NEEDED

There are three categories of persons that cannot be called money lenders within the meaning of the Money Lenders Law even if they lend money to someone and these are:

• A banker,
• An insurer and
• A person who does not have for his primary object the lending of money.

It follows therefore that a person will not be designated as a money lender even though he is involved in money lending, in so far as he is a banker or an insurer or the primary object of his business is not money lending. In Ibrahim v Bakori (2009) LPELR-8681 CA it was held that a person who lends money to a friend to resuscitate his ailing business should not be termed a money lender. See also Chidoka v FCFC Ltd. (2013 5 NWLR (Pt. 1346) 144

In Max Blossom Ltd v. Victor & Ors (2019) LPELR-47090(CA) the Appellant loaned N10 Million to the Respondents to be repaid with N7.5 Million interest. The Respondents argued that the Appellant was not a licensed money lender therefore the loan agreement was illegal and the money irrecoverable. The court disagreed with them and held that the agreement was enforceable and lawful.

In his concurring judgment, Sanga JCA said, “My learned brother dexterously and delicately dissected the convoluted reasoning by the respondents who after benefitting from a loan transaction turn round to castigate the said transaction by saying it was illegal ab initio. My learned brother in the lead judgment rightly observed on page 20 that ‘the respondents in this appeal are only trying to be clever by half..’In other words, they want to use the instrumentality of the law to aid their nefarious activity which is akin to the proverbial saying of eating their cake and having it at the same time. This Court cannot be a party to such an arrangement wherein the respondents derived benefit from the transaction, only to turn round on being called upon to pay to argue that the transaction did not meet the requirements of the money lenders Law of Rivers State.

In Lubcon Ltd v. Classmate Technologies Co. Ltd (2019) LPELR-47414(CA), the Respondent as Claimant before the High Court of Kwara sued to recover the sum of N10 Million which she lent the Defendant including the monthly 8.5% interest thereon making the total amount to recover to be N20, 200,000. The Defendant raised objection on the basis that the agreement was illegal because the Claimant had no money lending license neither was the Claimant a bank. The Preliminary objection failed and the Court of Appeal affirmed the decision of the trial Court on the basis that the transaction was a simple contract and therefore enforceable.

Also, the case of Nwankwo v. NZERIBE (2003) LPELR-5452(CA) is relevant. The facts of the case are that both the plaintiff and the defendant were friends. They were also politicians. The defendant requested from the plaintiff loans to enable him finance his political ambition of contesting the governorship of his State, Enugu State. The Defendant promised to pay back to the lender within 90 days of his taking office as Governor of Enugu State. Unfortunately he lost the election and when the Plaintiff sought to collect his money, the Defendant objected on the basis that the Plaintiff was not a licensed money lender so the money was  irrecoverable. The court rejected the argument and held that the Plaintiff was not a money lender and the burden was on the Defendant to show that the Plaintiff was a money lender. Having failed to discharge the burden of proof, the decision of the trial Court was affirmed. Another basis for affirming the decision of the trial Court was the principle of unjust enrichment. The court held thus:

“Finally, as it was not denied by the appellant that he never received the amounts which the plaintiff/respondent said he lent to him at his request, I think the principle of unjust enrichment should be made applicable in the instant case. Under the said principle, the appellant, who freely entered into the loan agreements and benefited from them by receiving the various sums advanced to him under the said agreements, should not be allowed to rely on frivolous excuses and thereby continue to unduly enrich himself from the benefit he received under the loan agreements.”

It is important to clarify at this stage that any person who lends money at interest shall be presumed to be a money lender until the contrary is proved. That is why in Idika v. Uzoukwu (2008) 9 NWLR (Pt.1091) 34 (CA) the Appellant at various times lent money to the Respondent totaling N195, 000 and the cumulative interest of the four transactions was N165, 000. The court held that the transaction was not a money lending transaction but a simple contract. However, Saulawa JCA in his dissenting judgment held that by granting loan to the Defendant four times, the Plaintiff had held herself out as a money lender and she should have been treated as such. I agree with Saulawa’s dissenting position. Since it is proved that the Appellant had lent money four times with interest, she should have been treated as a money lender so that she should not recover her money since she didn’t have license.

Furthermore, mere lending money with interest does not make one a money lender that will require one to have license. This position was confirmed in the case of Veritas Insurance Co. Ltd. v. Citi Trust Invest. Ltd. (1993) 3 NWLR (Pt. 281) 349 thus: “…Learned counsel for the appellant made heavy weather out from a reasonably fine cloud on the issue of interest. As it is, the respondent claimed an interest of 5% on the amount. It is certainly not my understanding of the law that once a plaintiff claims interest on an amount, the transaction automatically comes within the ambit or preview of the moneylenders law…There is no such provision either in the moneylenders law or in any other law …”

CONCLUSION

A man does not become a moneylender by reason of occasional loans to relations, friends or acquaintances, whether interest be charged or not. Nor does a man become a money lender merely because he may upon one or several isolated occasions lend money to a stranger. There must be more than occasional and disconnected loans. There must be a business of money lending; and the word ‘business’ imports the notion of system, repetition and continuity. License is needed only when one lends money for a living. Farewell, J in Lintchfield Vs Dreyful (1906) 1 KB 554 at 559 was correct when he said that the Money Lenders Law was intended to apply to persons who are really carrying on the business of money lending and not to persons who lend money as incident business or to a few old friends.

O. G. Chukkolis a student, Faculty of Law, ABU, Zaria, oliverchukkol@gmail.com