Every so often a judgment rescues an old principle from a misunderstanding that had quietly taken root. The Court of Appeal’s decision in I&M Bank v. Royal Procurement is one of these. It answers a deceptively simple question: when a bank writes off a bad debt, does the debt die with it? The answer is a firm NO, and the reasoning is worth understanding.

1. The Core Holding: A Write-Off Settles the Books, Not the Bond

Writing off a debt is an accounting and regulatory exercise. It is not a legal act that extinguishes the borrower’s obligation to pay. A bank does not write off a non-performing loan out of charity; it does so because it is compelled to. Under Regulation 9 of the Banking and Financial Institutions (Management of Risk Assets) Regulations, 2014, the write-off of a bad debt is a regulatory requirement, not a matter of bank discretion. To read that compelled bookkeeping entry as a voluntary surrender of the right to recover would be to let prudential regulation accidentally rewrite the parties’ contract.

The Court drew the line clearly: a write-off only removes the asset from the bank’s accounting records for prudential and reporting purposes. The underlying contractual obligation remains alive and recoverable. It can be extinguished only through a recognised legal mode, namely waiver, discharge, novation, accord and satisfaction, or any other manner known to the law of contract. Absent proof of one of these, the debt stands, and the interest contractually accruing on it does not automatically stop merely because the loan has been classified as non-performing.

2. The Contractual Anchor and the Policy Behind It

This rests on the bedrock of contract law. Section 37 of the Law of Contract Act, Cap. 345 R.E 2023, provides that lawful agreements bind the parties until discharged in accordance with the law, and a ledger entry is not a mode of discharge. Here, the facility agreement, promissory note, and guarantee all expressly provided for contractual interest upon default, and nothing showed the bank had waived it. Drawing on National Bank of Commerce v. Stephen Kyando, the Court warned of the consequence of holding otherwise:

The act of writing off the debt did not relieve or discharge the respondent from the obligation of liquidating it, and the appellant retained a legal right to enforce recovery of the written-off debt from the defaulting respondent.

The logic is compelling. If a write-off wiped out liability, the most calculating borrowers would default on purpose, wait for their loans to age into mandatory write-off territory, and walk away owing nothing. The Court refused to convert a tool of financial prudence into a charter for financial indiscipline. It added a practical corollary: once a debt is written off, the banking system may stop generating statements automatically, and there is nothing unlawful in computing interest manually, provided the computation is evidenced, accords with the contract, and is verifiable by the court.

3. The Qualification: A Surviving Right Still Has to Be Proved

The Court completed the principle with a qualification that prevents it from being read as a free pass for lenders. The right to recover a written-off debt is one thing; proving the precise amount owed is another. Under sections 117 and 119 of the Evidence Act (R.E. 2023), the lender must establish the exact figure claimed and the basis of its interest computation through credible evidence. Failure to prove the amount due is distinct from the legal question of whether interest may accrue at all: the first concerns sufficiency of evidence, the second the legal effect of a write-off. This is the balance the judgment strikes, restoring the lender’s substantive right while insisting on the discipline of proof.

Conclusion

The lasting value of this judgment lies in the clean lines it draws. A write-off is an accounting funeral, not a legal one. Regulation compels banks to tidy their books, but it does not loosen the bonds of contract; section 37 keeps lawful agreements binding until discharged in a manner the law recognises. Yet a surviving right is not a self-proving one, and admissibility must never be mistaken for proof, least of all where one side never appears to contest it. The discipline of contract and the discipline of evidence are both indispensable, and the law expects a party to honour both.