The Black’s law dictionary 9th edition at page 1019, defines loan as (1) “An act of lending; a grant of something for temporary use. (2) A thing lent for the borrower’s temporary use especially a sum of money lent at interest”.
From the above definition, loans are granted not only to be repaid but to attract interest(s) mutually agreed upon by the lender and the borrower expectedly at the inception of the transaction.
It is against this backdrop that lenders such as banks and cooperative societies just mention a few, not only charge interests on loans but ensure that they are recovered from the loan beneficiaries.
However, not all loans attract interests. A friendly loan for instance, does not attract interest especially when the circumstances of the grant clearly show that it is a friendly loan and the parties do not contemplate an interest payable on the transaction. So what is a friendly loan?
A friendly loan may be defined as one granted out of kindness and without any intention to receive interest from the beneficiary.
Thus, in the case of CHAMPION BREWERIES PLC v. SPECIALTY LINK LTD & ANOR (2014) LPELR-23621(CA), the court of Appeal per Justice Mbaba while beaming light on what a friendly loan is, has this to say; “A friendly loan, as the name implies, is a loan from a friend to a friend, which makes no room for usury or interest or penalty. It connotes a lifeline thrown by a friend to a friend, to bail him out of trouble and does not contemplate profiting from the gesture, financially.
I looked at the Black Law Dictionary and other English dictionaries for the meaning of “friendly loan” I did not see in the ones I consulted. But I saw the meaning of the adjective “friendly” to mean – “kind; behaving as a friend, relating to, or typical of a friend, being a colleague, helper partner etc” In the sense of that word a “friendly loan” therefore does not admit of interest, or anything that detracts from kindness, friendship, help and partnership, which charging of interest or usury is likely to cause.
Again, in First Bank of Nigeria v. I.A.S. Cargo Airlines Nig. Ltd (2011) LPELR- 9827(CA) Salawa, JCA held: “…where the Plaintiff happens to be a private person, or the loan is stated to be a “friendly loan” and no interest charge is fixed at the time of entering into the loan agreement, the Court is precluded from awarding interest in such circumstances.”
The same position of the law was adumbrated in UBN v. SAX Nig. Ltd (1994) 8 NWLR (Pt. 361) 150; UBN v. OZIGI (1994) 3 NWLR (Pt. 363) 385. UBN v. SALAMI (1998) 3 NWLR (Pt. 538)
Unlike a friendly loan which is granted out of kindness or assistance and does not contemplate interest, a loan granted by a bank or a corporate body in the business of money lending or with the custom of collecting interest on loans, usually spells out the interests attached to a loan at the inception of the transaction hence the lender is entitled to recover both the principal sum lent to the beneficiary as well as the accrued interest.
Indeed, the Supreme Court of Nigeria in the case of DIAMOND BANK LTD v. PARTNERSHIP INVESTMENT CO LTD & ANOR (2009) LPELR-939(SC), reiterated the legal position thus “…the general rule at Common Law, is that interest is not payable on a debt or loan in the absence of express agreement or some course of dealing or custom to that effect.
See London Chattam and Dover Railway v. South Eastern Railway (1893) A.C 249. “Thus, interest will however, be payable where there is an express agreement to that effect and such an agreement, may be inferred from a course of dealing between the parties. See Re-Duncan and Co, (1905) 1 Ch. 307 or where an obligation to pay interest arises from the custom or usage of a particular trade or business and I add like in banking.” Per OGBUAGU, J.S.C (Pp. 29-30, paras. D-A ).
Similarly, AKPABIO, J.C.A. (of blessed memory) in IDAKULA v. RICHARD (2001) FWLR (Pt. 693) 111 gave further eloquent expression on this issue when he maintained that “…The Court will readily award a pre-judgment interest, where the plaintiff is a Commercial Bank, and the rate of interest fixed at the inception of the loan or over draft transaction; whereas, if the plaintiff was a private person; or the loan stated to be a “friendly loan” and nothing said about interest charges at the time of entering into the loan agreement, the Court will not award interest in such circumstances.”
Even where there is no agreement as to interest, the courts can still award interest as it most probably will believe that the parties intended that interest should be paid on the loan so long as the loan was granted by bank or a corporate body engaging in the business of moneylending or with the custom of collecting interest on loans except, there is a signed agreement or proof that the loan is a friendly one.
This could be gleaned from the decision of the apex court, in the case of ISHOLA v. SOCIETE GENERALE BANK (NIG) LTD (1997) LPELR-1547(SC), where the Court, held that “But where there is no express agreement as to the rate of interest payable, it seems that the bank is entitled to charge interest rate on the basis that there is now an established custom to that effect or that the customer has impliedly consented where, without protest, he allows his account to be debited with such interest. See also Barclays Bank of Nigeria Ltd v. Alhaji Maiwada Abubakar (1977) 10 SC 13.”
From the foregoing, it is crystal clear that while interest on loans is very vital in keeping business of extending financial assistance to friends, associates and the general public depending on the terms of the transaction, not all loans attract interest.
Any person seeking loans whether from a friend, bank or a corporate body in the business of moneylending or with the custom of collecting interests on loans, need to be circumspect particularly with regards to issues concerning not only the repayment of the principal amount but also the interest, except it is such that attracts no interest.
