Josephine Mwiya Limata v Bonanza Cash Express Limited (APPEAL No.302/2022) [2023] ZMCA 341 (24 November 2023)

IN THE COURT OF APPEAL OF ZAMBIA APPEAL No.302/2022 HOLDEN AT NDOLA (Civil Jurisdiction) CAZ/8/448/2022 Coram: Makungu, Chishimba and Muzenga, JJA On the 17th and 24th day of November, 2023 -------- For the Appellant: Mr. M. Chitundu of Barnaby Chitundu & Khunga Advocates For the Respondent: Miss N. Adam of D. Findlay & Associates JUDGMENT Makungu, J. A delivered the Judgment of the Court. Cases referred to: 1. Exhilda Mtonga, Haliue Mtonga v. Money Matters Limited (201 OJ Z. R 382 2 . Zulu v. Avondale Housing Project Limited (1982) Z. R 172 3. Mutantika (Monaz Enterprises) v. Luapula Artland Limited (2016) ZMHC 181 4. Zambia State Insurance Company and Helmes Transport Limited v. Joseph Chanda (1990-1992) Z. R 175 (S. C) 5. Vita Food Products Inc v. Unus Shipping Co. Ltd (1939) A. C 277 6. Mundanda v. Mulwani and Others (1977) Z. R 29 7. Edman Banda v. Charles Lungu, Selected Judgment No.22 of 2017 8. Pandoliker & Sons Limited and Others v. African Banking Corporation Zambia Limited Appeal No. 231 / 2013 9. Kalusha Bwalya v. Chadore Properties and Another SCZ No. 20 of 2015 10. Magic Carpet Travel and Tours Limited v. Zambia National Commercial Bank Limited (1999) Z. R 61 11. Printing and Numerical Registering Company v. Sampson (1875) LR 19 EQ at 465 12. African Banking Corporation Limited v. Plinth Technical Works Limited & Others SCZ Selected Judgment No. 28 of 2015 13. Bwalya Chishimba Kambwili v. Greatwall Financial Services Limited CAZ Appeal No. 28 of 2021 Legislation referred to: 1. The Money Lenders Act, Chapter 398 of the Laws of Zambia Other Authorities referred to: 1. Ewan Mckedrick, Contract Law, Palgrave HE UK, 3rd Edition (1 997). 1.0 INTRODUCTION This appeal is against the decision of E. L Musona J, of the High Court dated 30th September, 2022 in favour of the respondent for the recovery of a debt covered by a mortgage and a contract of sale. We shall henceforth refer to the parties by their designations in this Court. 2.0 BACKGROUND 2.1 On 24th March, 2021 the respondent commenced an action before the High Court by Originating Summons claiming the following reliefs: 1. The immediate settlement of the sum of Zambian Kwacha One Million Six Hundred and Fifty-One Thousand (Kl , 651,000.00) being the balance of the principal sum -J2- borrowed by the appellant from the respondent with interest thereon up to the date of Originating Summons. 2 . Interest on the amount due from the date of Originating Summons to the date of payment. 3. An order for the foreclosure of Subdivision, Al428 of Subdivision No.4 of Subdivision F of Farm No.32a Lusaka in the Lusaka Province of the Republic of Zambia, offered as security for the repayment of the loan under the agreement dated 25th June, 2019. 4 . An order for delivery of possession of the said property. 5 . An order that the respondent does execute under seal the Deed of Assignment to convey the mortgaged property into the applicant's name. 6 . Any other relief that the court may deem fit and costs. 3.0 AFFIDAVIT IN SUPPORT OF ORIGINATING SUMMONS 3.1 The substance of the affidavit in support of the originating summons sworn by Zhuang Bai Yu, the General Manager of the respondent company is as follows : 3 .2 That the respondent is a limited liability company incorporated in the Republic of Zambia carrying on the -J3- business of money lending with a Money Lenders Certificate and the appellant is a natural person. 3.3 That on or about 21st January, 2019 the parties entered into a loan agreement, under which the respondent advanced the sum of ZMW 1,000,000.00 to the appellant at an agreed interest rate of 8% per month to be repaid in twelve (12) monthly instalments of K163,333.00 each. 3.4 The appellant failed to meet her obligations under the Loan Agreement. At her request, the respondent agreed to restructure the balance due and entered into a new loan agreement with the appellant dated 25th June, 2019 in the sum of K2, 646 ,000.00 at an agreed interest rate of 8 % per month to be repaid in twelve (12) monthly instalments at the rate of K220, 500.00 per month with effect from 25th July, 2019. A copy of the Loan Agreement was exhibited and marked ZBY3. 3.5 The appellant deposited her original Certificate of Title Number 53572 for Subdivision A1428 of Subdivision No.4 of Subdivision F of Farm No32a Lusaka as collateral for the loan. A copy of the Certificate of Title was exhibited as ZBY4. -J4- 3.6 The deponent further stated that if the appellant failed to settle the loan plus interest, the transaction would immediately be deemed a Sale Agreement and the property would be conveyed to the respondent as evidenced by the Contract of Sale and Deed of Assignment executed between the parties on 21 st January, 2019. The Contract of Sale and Deed of Assignment were marked ZBYS and ZBY6 respectively. 3.7 That the appellant has failed to settle the balance of the loan in the sum of Kl, 651,000.00 plus interest despite the demands by the respondent. 4.0 AFFIDAVIT IN OPPOSITION 4.1 In an affidavit dated 15th April, 2021, the appellant conceded that the respondent disbursed to her the sum of Kl,000,000.00 as a loan on 21 st January, 2019. She denied ever requesting the applicant to restructure the loan, as she still had up to 21 st January 2020 to pay up. 4.2 She stated that the fresh loan agreement m the sum of Kl,350,000.00 was at the instigation of the respondent. She denied ever being paid the said sum of money by the -JS- •. respondent. A copy of the loan agreement was marked exhibit JML2. 4.3 She admitted to having pledged the property in issue as security for the loan and signing the contract of sale and assignment dated 21 s t January, 2019 which indicate the consideration as Kl, 960,000.00. She further averred that she only borrowed Kl, 000,000.00. 4.4 That contrary to clause 15 of the special conditions in the contract of sale, that payments shall be made into the respondent's bank account, she was verbally instructed by the respondent's loan officer to pay in cash. She accordingly made all payments in cash except for those made through her advocates. Further, some of the cash instalments were collected from her home by the respondent's employees. 4.5 She further stated that the statement of account marked ZBY7 does not show the correct picture of the repayments and the sum of Kl, 165,000.00 claimed by the respondent is incorrect. 4.6 That the respondent has sought an order for foreclosure without allowing her to redeem the outstanding loan or mortgage and without the parties reconciling the accounts. -J6- 4 .7 That a foreclosure remedy cannot run concurrently with the conveyance of the same property under the sale agreement. 5.0 DECISION OF THE LOWER COURT 5.1 Upon considering the evidence from both parties, the Judge in the court below found that there was a Loan Agreement signed by both parties and that the appellant pledged her property as collateral. That the condition was that in default of payment, the transaction would be treated as a sale of the pledged property. For that reason, the parties executed the contract of sale and an assignment. The Judge found no deceit in the manner in which the parties had transacted. 5 .2 On that basis, judgment was entered in favour of the respondent. The appellant was ordered to redeem her loan within 90 days from the date of the judgment. In default, foreclosure to take effect. 5 .3 In case of a dispute regarding the balance of the loan, the same would be referred to the Deputy Registrar for assessment. Interest on the amount due was granted at short-term bank deposit rate from the date of commencement of the action to the date of judgment, and thereafter at the current Bank of Zambia lending rate. -J7- •. 6.0 GROUNDS OF APPEAL 6.1 The appellant advanced six grounds of appeal framed as follows : 1. The court below misdirected itself both in law and fact when it upheld the two (2) purported Loan Agreements and purported sale of the pledged property being subdivision Al428 of subdivision No. 4 of subdivision F of farm No.32a, Lusaka between the parties herein when the agreements were tainted with illegalities hence not enforceable by the courts of law. 2. The honourable Judge in the court below fell in error in both law and fact when he failed to determine whether under the Money Lenders Act Chapter 398 of the Laws of Zambia under which the respondent carries on its money lending services, the interest rate of 8% per month or 96% per annum charged by the respondent on the appellant's loans was not excessive and for unconscionable as it violates the provisions of the said Act hence unenforceable at law. 3. The court below erred both in law and fact when it failed to determine if at all the respondent under the Money Lender's Act was at liberty to compound -JS- .. interest in the absence of express agreement by the parties hereto and when the practice is forbidden by the said Act. 4. The court below fell in error both in law and in fact when it failed to determine whether the alleged consolidated loan of the 25th June, 2019 between the parties was valid and enforceable at law in the absence of the respondent advancing the alleged sum. 5. The honourable Judge misdirected himself both in law and fact when he Jailed to appreciate that the alleged default of a loan agreement cannot automatically give the lender the right to purchase the pledged property without court process not withstanding there being a contract of sale to that effect. 6. The honourable Judge in the court below misdirected himself both in law and fact when he proceeded to order for transfer of the appellant's property pledged as collateral for the loan to the respondent under a contract of sale when the respondent had not paid consideration of ZMW 1,960,000.00 in full. -J9- 7 .0 APPELLANT'S HEADS OF ARGUMENT 7 .1 The appellant relied on the h eads of argument filed on 20th December, 2022. Grounds 1, 2 and 3 were argued together as th ey are conn ected. The appellant's counsel pointed out that according to section 15 ( 1) of the Money Lenders Act pursuant to which the respondent's Money Lenders Certificate was issued, the interest rate shou ld not exceed 48% per annum. Th at in terest a bove the prescribed rate should be deemed harsh and u nconscionable. 7 .2 The respon dent charged th e appellant interest of 8% per month which works out to b e 96% per annum which is harsh and uncon scionable. In support of this su bmission, reliance was p laced on the case of Exhilda Mtonga, Haliue Mtonga v. Money Matters Limited. 1 7 .3 That section 10 of the Money Lenders Act prohibits the ch arging of compou n d interest for all transactions done under th e Act. 7.4 Citing the case of Zulu v . Avondale Housing Project Limited2 counsel contended that there is enough ground for the court to interfere with the findings of the lower court as the loan agreement and Contract of Sale are illegal. -Jl0- 7.5 In arguing ground 4, the appellant's counsel stated that according to the respondent's claim, when the appellant failed to repay the loan on the agreed terms, it restructured the loan by adding the unpaid principal amount as well as the unpaid compound interest and deemed it to be a new loan. In support of this submission, counsel relied on the case of Mutantika (Monaz Enterprises) v. Luapula Artland Limited3 where the court ordered the respondent to refund the applicant the monies overpaid by the applicant to the respondent as a result of the respondent charging compound interest on the applicant's loans and that the respondent as mortgagee do forthwith deliver possession of the appellant's Certificate of Title No. 4 760 for subdivision 916 of farm No.331, Meanwood, Ndeke, Lusaka. 7.6 Grounds 5 and 6 were argued together as follows: on one hand, the respondent claims the property was pledged as security while on the other hand, it claims that the property was sold to it. There can only be one transaction either a mortgage or a sale. 7.7 Further the alleged consideration in the contract of sale of Kl , 960,000.00 h as never been paid to the appellant. In support of the argument that a contract that lacks -Jll- consideration cannot be enforced, counsel placed reliance on the case of Zambia State Insurance Company and Helmes Transport Limited v. Joseph Chanda.4 7 .8 He submitted that the sum of Kl , 960,000.00 is composed of the principal sum and the excessive interest of 96% per annum charged under the Loan Agreement of 21 st January, 2019. 8 .0 RESPONDENT'S HEADS OF ARGUMENT 8.1 In the respondent's arguments filed on 22nd February, 2022 , grounds 1, 2, and 3 were also argued collectively. Counsel surmised the legal issues arising from the said grounds as follows : (a)That the lower court, failed to pronounce itself on issues of illegalities raised by the appellant concerning interest. (b) That the agreements between the parties are illegal and as such ought to be unenforceable. 8 .2 Starting with the first issue stated above, counsel contended that the appellant's argument that the lower Court failed to pronounce itself on the issues about interest is misguided as the said issues and any alleged illegality have not yet been determined by the Deputy Registrar. -J12- ,, 8.3 Counsel submitted that the parties freely and voluntarily entered into two Loan Agreements. The first one is dated 21st January, 2019 on page 57 of the Record of Appeal, and the second being the re-structured Loan Agreement dated 25th June, 2019 appearing on page 27 of the Record of Appeal. 8.4 We were referred to Ewan McKendrick's Contract Law 3 rd Edition on page 3, 1 where it elucidates that individuals are free to stipulate the terms of their agreement without the interference of the courts or parliament and that these agreements should be respected, upheld, and enforced by the courts. On the same point, counsel referred us to the English case of Vita Food Products Inc v. Unus Shipping Co limited5 and the Zambian case of Mundanda v. Mulwani and Others. 6 8 .5 Counsel also pointed out that the issue of illegality was only raised by the appellant in the court below when she defaulted to pay the loan. She called in aid the case of Edman Banda v. Charles Lungu7 where the Supreme Court declined to allow an argument of such a nature that was only raised by the defaulting borrower in a futile attempt to fend off what the courts adjudged to have been a legitimate loan which had been lawfully procured. -J13- .. 8.6 Counsel submitted that the loan was legitimately and lawfully procured and as such ought to be enforced between the parties. 8 .7 She further submitted that concerning cases arising from the Money Lenders Act, courts have jurisdiction to interfere with interest where it is found to be excessive and unconscionable instead of nullifying the subject agreement. 8.8 In countering ground 4, counsel contended that the appellant did not dispute having freely and voluntarily entered into both Loan Agreements. Her only dispute was that the restructure of the Loan Agreement dated 25th June 2019 was made at the instance of the respondent. Nevertheless, the appellant did not challenge the restructured loan agreement prior to her default. Therefore, the Loan Agreement dated 25th June, 2019 under which the loan facility of K2, 646,000.00 was granted to the appellant ought to be upheld and enforced. Counsel cited the case of Pandoliker & Sons Limited and Others v. African Banking Corporation Zambia Limited8 as authority for the submission that the parties had redefined their relationship by the terms and conditions embodied in the restructured Loan Agreement. -J14- ... 8. 9 She also drew our attention to the case of Kalusha Bwalya v. Chadore Properties and Another9 on the principle that extrinsic evidence is generally inadmissible to add to, vary, subtract from, or contradict the terms of the written contract. In light of this authority, she argued that the appellant cannot rely on any extrinsic evidence to challenge the validity of the restructured Loan Agreement dated 25th June, 2019. 8.10 Under grounds 5 and 6, the respondent's counsel contended that the appellant misconstrued the judgment of the court below by stating that the court gave the lender the right to purchase the pledged property by default and ordered for transfer of the property when no consideration had been paid. On the contrary, the lower court held that the contract of sale was merely executed between the parties as a consequence of pledging the property as security for the loan. 8.11 Counsel further submitted that the appellant's deposit of the Certificate of Title as collateral for the loan, created an equitable mortgage over the property in favour of the respondent. The case of Magic Carpet Travel and Tours Limited v. Zambia National Commercial Bank Limited10 was cited as the authority for this proposition. -JlS- .. 8.12 Counsel further submitted that the remedy available to an equitable mortgagee is foreclosure and the lower court was on firm ground to order as it did. 9.0 ORAL ARGUMENTS 9.1 During the hearing of the appeal the appellant's counsel Mr. Chitundu made oral arguments emphasizing that the consideration for the purchase of the property was not paid. 9.2 Counsel for the respondent Miss Adam, in augmenting her written submissions stated that the judge did not state the amount due, he referred that issue to the Deputy Registrar for determination. Therefore, this Court has no jurisdiction to make a decision on the issues that are yet to be determined by the Deputy Registrar. 9 .3 She further submitted that the Kl ,960,000 purchase price encompasses the interest due on the loan. The second loan was a restructure of the first loan. 9.4 On grounds 5 and 6 , she submitted that this was a mortgage action and the contract of sale relates to the property pledged as security. Where there is a default, the remedies available -J16- to the mortgagor include foreclosure of the property. There is no need for consideration as envisaged by the appellant. 10.0 ANALYSIS AND DECISION 10.1 We have examined the record of appeal, and the arguments by counsel on both sides. Grounds 1, 4, 5 and 6 will be tackled together and so will grounds 2 and 3 as they are intertwined. We will begin with grounds 2 and 3. GROUNDS 2 AND 3 10.2 The issues raised in these two grounds of appeal are whether charging interest at the rate of 8% per month which amounts to 96% per annum and compounding the interest is permissible under the Money Lender's Act. 10.3 It is not in dispute that the respondent is a limited liability company carrying on the business of money lending with a valid Money Lenders Certificate issued under the Money Lenders Act. 10.4 The charging of interest under the Money Lenders Act is regulated by Section 15 (1) of the Money Lenders Act which provides for interest not exceeding 48% per annum. Further that, where the interest exceeds the prescribed -Jl7- percentage, such interest is excessive and the transaction would be deemed to be harsh and unconscionable. 10.5 Section 10 of the Money Lenders Act prohibits the charging of compound interest. It provides as follows: "Subject as hereinafter provided, any contract made after the commencement of this Act for the loan of money by a money lender shall be illegal in so far as it provides directly or indirectly for the payment of compound interest or the rate or amount of interest being increased by reason of any default in the payment of sums due under the contract." 10.6 The above provision is crystal clear and requires no further explanation. In casu, the parties agreed to 8% interest per month which is equivalent to 96 % per year. We find no difficulty in holding that this part of the agreement is illegal as the interest rate is beyond what is prescribed by the Act and we deem it to be harsh and unconscionable. As a result, we disallow all the interest charged according to the loan agreement. GROUNDS 1, 4, 5 AND 6. -J18- 10. 7 These grounds of appeal raise the following issues: (a)Whether the Loan Agreements and the contract of sale which are purportedly tainted with illegalities can be enforced, and at the same time. (b)Whether the restructured Loan Agreement dated 25th June, 20 19 was valid and enforceable in the absence of disbursement of the loan amount to the appellant. 10.8 The undisputed facts of this case show that the parties entered into two Loan Agreements. The first one is dated 21st January, 2019 for K 1,000,000.00 appearing at 57 of the Record and Appeal and the second, is a re-structured one for Kl,350,000.00 dated 25th June, 2019 at page 27 of the Record of Appeal. The appellant then surrendered her Certificate of Title to Subdivision A1428 of Subdivision 4 of Subdivision F of farm No . 32a Lusaka to the respondent as collateral for the loan. The parties also entered into a contract of sale of the said property at the purchase price of Kl,960,000.00. We note that this is the same amount indicated as the repayment sum on the initial Loan Agreement. Clause 14 of the special conditions of the contract of sale provides that: "The vendor has buy back option at a monthly repayment of One Hundred Sixty Three Thous and -J19- Three Hundred Thirty Three Kwacha only (163,333) each month, shall be paid by the vendor to the purchaser." 10.9 An assignment was also executed between the parties on the same date. We have already confirmed the illegalities of the interest charged and compounded by the respondent in our analysis and determination of grounds 2 and 3. 10.10 The other illegality alleged by the appellant is the non payment of the sum contained in the restructured Loan Agreement. There is no proof that the amount of Kl, 350,000.00 was ever disbursed to the appellant by the respondent. Nevertheless, it is not in dispute that the sum of Kl ,000,000.00 was disbursed to her. 10.11 The appellant also alleged that the sum of Kl,960,000 .00 being the agreed purchase price of the said property was not paid. Paragraph one of the assignment between the parties indicates that the sum of Kl,960,000.00 was paid by the purchaser (respondent) and receipt thereof was acknowledged by the vendor (appellant) as beneficial owner of the property. We therefore reject the appellant's submission that it was not paid. We are fortified by the case of Printing and Numerical Registering Company vs. -J20- .. J... Sampson11 in holding that the contract of sale was entered into by two parties with the required capacity, freely and voluntarily. 10.12 We further rely on the case of African Banking Corporation Limited v. Plinth Technical Works Limited & Others12 where Supreme Court stated as follows: "The junction of the Court is to ascertain what the parties meant by the words which they have used; to dee lare the meaning of what is written in the instrument, not of what was intended to have been written; and to give effect to the intention as expressed." 10.13 We reject the appellant's allegation that she made ca sh payments towards the loan through some employees of the respondent as no proof of such payments was produced. Our reading of paragraph one of the assignment is that the property was sold at a consideration of Kl ,960,000.00 which was fully paid. Further the buy back option was not exercised by the appellant. 10. 14 It is our considered view that under the circumstances, the respondent's commencement of a mortgage action was -J21- irregular. Even the amount of Kl,651,000.00 which was claimed as the balance of the principal sum borrowed by the appellant was not justified. 10. 15 Further the restructured loan shows an inflated amount due to the illegal interest rate applied. It is contrary to the claim and unenforceable. 10.16 Clause 13 of the special conditions of sale was to the effect that in default of full repayment by the appellant under the agreed period of 12 months between 21st February, 2019 and 21st January, 2020. (See special condition no.15 for the period) . The vendor shall transfer title to the purchaser. Therefore, we hold that the respondent only had the option of suing for specific performance of the contract of sale and not for foreclosure . By so doing the intentions of the parties would be enforced. This is also in line with what we held in the case of Bwalya Chishimba Kambwili v. Greatwall Financial Services Limited13 which is similar to this one in that there was money purportedly borrowed by the appellant and yet there was a contract of sale with a buy back option, which option was also not exercised. We held that the Contract of Sale was valid. -J22- • 10. 17 As regards the argument of illegality of the loan agreements, in the case of Edman Banda v. Charles Lungu7 the Supreme Court stated that: "The mere fact of proof of illegality having tainted a contract would not always render such a contract void and unenforceable. Put differently, an otherwise 'illegal' contract would be enforced by a court of law where factors or considerations exist which militate against refusal to enforce." 10. 18 In casu, although the contract of sale sprung from the Loan Agreements which were tainted with illegalities, this does not invalidate the said contract of sale as the intentions of the parties are clear and there was offer, acceptance and consideration. 10.19 The respondent's argument that the appeal was made prematurely because the Deputy Registrar has not yet assessed the debt due as ordered by the lower court 1s baseless as the appeal is against the whole judgment. 10.20 In light of the foregoing analysis and holdings, the lower court's judgment cannot stand and it is hereby set aside. The -J23- 'r parties will have to proceed with the conveyancing of the property. It is our firm view that they cannot execute both the purported loan agreement and the contract of sale. 11.0 CONCLUSION 11. 1 All being said, grounds 1 to 4 succeed, while ground 5 partially succeeds and ground 6 fails. Since ground 6 which we consider to be the major ground has failed, we order that each party shall bear its own costs . .......... L ........... ~ .. C. KMAKUNGU COURT OF APPEAL JUDGE .................................. F. M CHISHIMBA K. MUZENGA COURT OF APPEAL JUDGE COURT OF APPEAL JUDGE -J24-