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

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