Lobo v East African Agency and Another (Civil Case No. 113 of 1951) [1952] EACA 276 (1 January 1952)

# ORIGINAL CIVIL

### Before WINDHAM, J.

#### T. B. LOBO, Plaintiff

v.

# (1) EAST AFRICAN AGENCIES, (2) MODERN PROVISION STORES, LTD.,

## Defendants.

### Civil Case No. 113 of 1951

Money-lending contract—Section 11 Money-lenders Ordinance, Cap. $307 -$ Unforceability.

The plaintiff, a licensed money-lender, sued the first and second defendants in respect of three loans made to them together with interest and alternatively on three promissory notes endorsed in favour of the plaintiff by the first and second defendants as security for the said loans. The second defendants were sued as makers of the promissory notes which were dishonoured at maturity, notice of dishonour having been given.

Both defendants admitted the loans and giving the promissory notes, but alleged that non-compliances with section 11 of the Money-lenders Ordinance (Cap. 307), rendered unenforceable both contract and promissory notes given as security.

Held (23-4-52).—(1) By the plaintiff lending the first and second defendants the money after signing the memorandum he was precluded from recovering from the first and second defendants upon the contract by reason of section 11 (1) of the Money-lenders Ordinance, Cap. 307.

(2) The omission to state that interest was payable in advance was a breach of section 11 (2) of the Money-lenders Ordinance and Plaintiff's claim against both defendants failed.

Cases cited: Simmons v. Russell Financiers, Ltd. (1934) 2 K. B. 487.

S. R. Kapila for plaintiff.

Nazareth for defendant.

JUDGMENT.—The plaintiff, a licensed money-lender, is suing the first and second defendants in respect of three loans made to the first defendants on 3rd, 7th and 8th February, 1950, in the amounts of Sh. 4,297/60, Sh. 3,983/50 and Sh. 4,000 respectively, totalling Sh. 12,281/10. As security for these loans the first defendants endorsed over to the plaintiff three promissory notes for those three amounts, which the second defendants had drawn in favour of the first defendants. Thus the second defendants are being sued, as the makers of the promissory notes, for their total value, namely Sh. 12,281/10, the notes having admittedly been dishonoured at maturity and notice of dishonour having been given. The first defendants are, in respect of this principal amount of the three loans, being sued on these three promissory notes given as security for them and alternatively on their contracts with the plaintiff whereunder they undertook to repay the loans, and they are being sued under that contract for the further sum of Sh. 2,449/72 by way of interest on the loans at the agreed rate of 24 per cent per annum, which added to the principal sum totals Sh. 14,730/82.

Both defendants admit the loans and the giving of the promissory notes, and their defences are based on alleged non-compliances with section 11 of the Money-lenders Ordinance (Cap. 307), rendering unenforceable both the contracts and the promissory notes given as security. The alleged failures to comply with section 11 which are most strongly relied on are two. First, it is contended that the memoranda of the contracts required by that section were in each case signed after the lending of the money by the plaintiff and after the giving of the promissory notes as security, thereby making both the contracts and the security unenforceable by reason of the provisions of section 11 (1). Secondly it is contended that both the contracts and the security are unenforceable because the memoranda did not contain all the terms of the contracts as required by section 11 (2), in that in particular they did not record an admitted term of each of the three contracts that the interest on the loans till maturity of the promissory notes should be paid in advance. Evidence has been given in respect of each of these points by the plaintiff and by Madatali Noormohamed Lalji, the partner in the first defendant firm with whom the plaintiff transacted the loans. I will deal with each point in turn.

With regard to the question whether the three memoranda were signed before or after the lending of the money or the giving of the second defendant's promissory notes in each case, I may say at once-and this applies to the whole of the evidence of the two witnesses—that the plaintiff impressed me as the more honest witness and that in every case where his evidence conflicts with that of the witness Lalji I prefer to accept that of the plaintiff. But the plaintiff has made certain admissions in his evidence, and he is bound to the extent of these admissions. As regards the point that we are now considering, he has admitted in evidence, referring to the first of the three loan transactions, that the defendants "had given me the security before I wrote the memorandum. I refer to the promissory note dated 1st February, 1950, which had already been handed to me (the one made out by the second defendants and endorsed over by the first defendant to me). I had not yet given the first defendant the cheque for the loan when I made out the memorandum". While accepting this evidence of the plaintiff about his cheque for the loan being given after the memorandum was made out, I am bound at the same time to accept his admission that the promissory note was handed to him before the memorandum was written out. And since that promissory note would be no security for him at all until it was endorsed over to him by the first defendant firm acting by their partner Lalji, I must take his admission that "the security" had been given to him before the drawing up of the memorandum as meaning, though he does not say so in so many words, that this promissory note had already been endorsed before it was handed over to him. The plaintiff was not asked whether the same was true with regard to the other two loan transactions, namely those of 7th and 8th February; but since Lalji has said that this same course, namely the giving and endorsing of the second defendant's promissory notes as security, was effected before the memorandum in each case was drawn up, I must take the position to have been the same in all three cases. That being so, I must hold that these three promissory notes drawn by the second defendants in favour of the first defendants and endorsed over by the latter to the plaintiff by way of security for the three loans, are unenforceable against either defendant, by reason of the provision of section 11 (1) of the Money-lenders Ordinance that "no such contract or security shall be enforceable if it is proved that the note or memorandum aforesaid was not signed by the borrower before the money was lent or before the security was given, as the case may be". Since I have found that the plaintiff lent the first defendants (acting through Lalji) the money *after* the signing of the memorandum, the plaintiff would not, so far as concerns the particular non-compliance with section 11 that we are now considering, be precluded from recovering from

the first defendant upon the contract, as distinct from the security; such is the effect of the words "as the case may be" at the end of section 11 (1). The second alleged non-compliance, however, which I will presently consider, touches the enforceability both of the security and of the contract, since it concerns a defect in the memorandum itself, and section 11 (1) provides that neither the contract nor any security shall be enforceable unless a memorandum has been made which must comply with the requirements of section 11 (2); and it is to an alleged non-compliance with those requirements that I will now turn.

Section 11 (2) requires that the memorandum "shall contain all the terms of the contract, and in particular shall show" certain matters which the sub-section then proceeds to set out. This means that every term of the contract must be contained in the memorandum even if it is not one of the matters specifically set out in the sub-section. Now the three memoranda in the present case, which are identically worded save for dates and for the amount of the loan and the security in each case, specify the rate of interest payable on the loans, namely 24 per cent per annum, but they do not state whether the interest was payable in advance or in what other manner, pending the maturity of the promissory notes given as security. The plaintiff has admitted in evidence, however, that it was agreed between him and Lalji that this interest should be paid in advance in each case, and in fact it was so paid in cash, on the days when the loans were respectively made. This accordingly formed a term of the contracts; and since it was not embodied in any of the three memoranda, those memoranda failed to comply with section 11 (2), the omitted term being in my view a material one. That being so, the memoranda were not such as are required to be made by section 11 (1), and accordingly neither the contracts nor the securities are enforceable. Learned counsel for the plaintiff has cited Simmons v. Russell Financiers, Ltd., (1934) 2 K. B. 487, as authority for the proposition that a term of the contract providing whether interest shall be payable in advance or otherwise is not so material a term that its omission from the memorandum will render the contract or security unenforceable. That was a case arising out of section 6 of the United Kingdom Money-lenders Act, 1927, whose wording is identical with that of section 11 of the Kenya Ordinance. But the position there was wholly different. In that case what was not mentioned in the memorandum was the number of instalments that were to be paid by the borrower. It was held that this was not a non-compliance with the provision requiring all terms of the contract to be stated, because the contract, which was embodied in a bill of sale whose terms were set out verbatim in the memorandum, contained no clause specifying the number of instalments to be paid; this number being ascertainable only mathematically by calculating how many of the agreed monthly instalments of £3 would have to be paid before all principal and interest had been paid off, and not being set out in the contract. In the present case, however, the payment of interest in advance was admittedly an agreed term of the contracts—the fact that these contracts were oral and not as in Simmons' case written being immaterial—and they should therefore have been embodied in the memoranda. Nor can the omission in my view be considered, by any stretch of language, as a mere "clerical error". I have no option therefore but to hold that, the term being a material one, the memorandum failed to comply with section 11, with the result that the plaintiff's claim against both defendants on the securities, and against the first defendant on the contracts, must fail. The action is dismissed with costs.

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