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Nkongolo Farms Ltd v Zambia National Commercial Bank and Others (101/2004) [2007] ZMSC 19; SCZ No. 19 of 2007 (15 August 2007)
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SCZ NO. 19 OF 2007
IN THE SUPREME OF ZAMBIA
APPEAL NO. 101/2004
HOLDEN AT LUSAKA (Civil Jurisdiction)
BETWEEN:
NKONGOLO FARMS LIMITED
APPELLANT
AND
ZAMBIA NATIONAL COMMERCIAL BANK
1ST RESPONDENT
KENT CHOICE LIMITED
2ND RESPONDENT
(IN RECEIVERSHIP)
CHARLES HARUPERI
3rd RESPONDENT
Coram: Lewanika, DCJ, Chibesakunda and Mushabati, JJS
On 27th April 2006 and 15th August, 2007
For the Appellant:
Mr. A. M. Wood of Messrs Wood and
Company, together with Mr. G. K.
Chisanga of Messrs Chisanga Advocates.
For the 1st Respondent:
Ms. M. K. Chalwe of Theotis and Chalwe
Advocates. For the 2nd & 3rd Respondents: Non-appearance
JUDGMENT
Chibesakunda, JS, delivered the Judgment of the Court Cases referred to:
1.
Barclays Bank Pic v O'Brien [1993] 4 ALL ER 417
2.
Bank of Credit Commerce International SA v Aboody [1992] 4 ALL ER P.955
3.
Credit Lyonnais Bank Nederlands NV v Burch [1997] 1 All ER 144
4.
Chaplin and Company Limited v Brammall [1908] 1 KB 233, CA
5.
Lloyds Bank Limited v Bundy [1974] 3 All ER 757
1.
6.Avon Finance Company Limited v Bridger [1985] 2 All ER 281
7.
Brusewitz v Brown [1922] 42 NZLR 1106
8.
Grindlays International (Z) Limited v Naha Investment Limited [1990/92] ZR 86
9.
Royal Bank of Scotland V ETRIDGE 2001 4 All ER 2001 P. 449.
10.Norwich and Peterborough Building Society V Steel 1993
IAER P. 330. 11.Zambia Export and Import Bank Limited vs. Mukuyu Farms
Limited and Others [1993/1994] ZR 36. 12.Saunders v Anglia Building Society [1970] 3 All ER 961
13.
Joseph Constantine Steamship Line Limited Vs. Imperial Smelting Corporation Limited 1941 Z AER
14.
Anderson Kambela Mazoka and others vs. Levy Patrick Mwanawasa and the Attorney General SCZ EP/01/02/2002.
15.Sithole v Zambia State Lotteries Board 1975 ZLR P. 106 17.Nkhata
Four Others v The Attorney General (1966) ZR.P.124
Legislation Referred to:
18.Order 18 Rule 8 (16)
19.Order 18 Rule 12 (1)
20.Halsbury Laws of England 4th Edition Vol.16 Para 1219.
21.Halsbury Laws of England 4th Edition Vol. 36 Para 36.
The delay in delivering this Judgment is deeply regretted. This is due to circumstances beyond our control
This is an appeal against the High Court Judgment in a claim by the Appellants against the Respondents for:
1)
A declaration to set aside the third party mortgage dated 15th November 1996 and the guarantee dated 28 August 1996.
2)
Alternatively damages for negligence by the 1st Respondent as bankers involving the execution of the guarantee dated 28th August 1996 in respect of the credit facility offered and advanced to the 2nd Respondent dated 13th August 1996 under and by virtue of the 3rd Respondent's misrepresentation and undue influence on the Appellants' directors.
1)
An order of injunction
4)
C osts.
5)
Further and other relief.
In support of this claim the Appellants' testimony in a nutshell was that PW1, an old lady of 72 years, Olga Georgitsis, and her late husband (hereinafter referred to as the deceased) were the directors of the Appellant Company. She, sometime in 1996, together with her deceased husband, Andreas Georgitsis offered Farm No. 3342 in Chisamba for sale to the 3rd Respondent at a purchase price of US$300,000.00 to be paid in instalments. This transaction fell through, as the 3rd Respondent's three cheques made to the Appellant's Company, were dishonoured by the Bank. She testified that she had known the 3rd Respondent personally and that they had developed a close personal and business relationship, although she had not met with him since the end of 1996. She testified further that she and the deceased signed the directors' guarantee and the mortgage deed believing that the said documents related to a maize transaction,
which her company and the 3rd Respondent were dealing in. She said that she did not remember the day she executed the documents in question. Her testimony is that at no time did the 3rd Respondent explain to her and the deceased, as directors of the Appellant Company, that the documents in question were security documents for a loan to be granted by the 1st Respondent in favour of the 2nd Respondents. She further testified that at no time did she go to the 1st Respondent to give instruction for a third party mortgage in favour of the 2nd Respondents.
She also testified that at no time did the board of directors of the Appellant Company meet to pass a resolution to clothe the 3rd Respondent with authority to use the title deed of its farm as security for the loan to be given by the 1st Respondent to the 2nd Respondent. Her testimony is also that a Mr. Jeffrey G. Mulenga who purported to have signed the purported minutes authorizing such, was never, at any time, an employee of the Appellant Company. He was an employee of the 2nd Respondent. She testified that the documents purporting to be minutes in question were a forgery. She testified that she released the certificate of title for Farm No. 3342 Chisamba to the 3rd Respondent believing that the 3rd Respondent wanted to obtain a bank loan to pay for the purchase of the same farm and not as security for a loan to be granted to the 2nd Respondent in form of a third party mortgage. According to her, she learned about the intended foreclosure of the mortgage by the 1st Respondent following an advertisement in the press.
In cross-examination, she accepted that the signature on both the third party mortgage deed and the guarantee form were hers and that of the deceased. She explained that as directors of this farm, Nkongolo Farms Limited, they signed as directors the guarantee form and the mortgage deed believing that the said documents were in connection with the maize transaction between them and a company in Kabwe known as Central Marketing Company. She went on to state that she never received any letter nor did she ever receive any documents from the 1st Respondent explaining the ramification of signing the third party mortgage deed and guarantee forms. When asked how she released the certificate of title to the
3rd Respondent, she testified that the 3rd Respondent deceived them by informing them that his application for a loan from the 1st Respondent to purchase farm No. 3342 Kabwe from the Appellant Company, had been approved by the 1st Respondent. She told the court that she did not remember the actual date when she did that. She further testified that on a number of occasions thereafter she asked the 3rd Respondent for the return of the certificate of title but to no avail. She accepted that she never made any follow up with the 1st Respondent on retrieving this certificate of title. In the same cross-examination, she testified that she never trusted the 3rd Respondent although she handed over the said documents to him.
She went on to testify that although she and the deceased executed the documents, this was done because of what the 3rd Respondent said to them. She conceded that she never read the documents in question, as she did not question the integrity of the 3rd Respondent. However, she realized later on that there was something wrong somewhere. She further testified that although the 1st Respondent did not deceive them directly, the 1st Respondent deceived her and the deceased when it made misrepresentations that the loan facilities were meant to help him (the 3rd Respondent) to purchase the farm No. 3342 from the Appellant Company.
m further cross-examination, and being shown pages 16 and 19 (Bank bundle of record) she testified that their farm's purchase price due was US $300,000.00 and that this was not equivalent to K750, 000,000.00 which was advanced to the 2nd Respondent by the 1st Respondent. She further stated that the 3rd Respondent never disclosed to her that he was
getting the certificate of title in order to secure monies from the 1st Respondent for the 2nd Respondent in form of a third party mortgage.
The evidence for the Respondents on the other hand is that the 1st Respondent obtained all the documents required as security before granting a loan to the 2nd Respondent. Their evidence is that the 3rd Respondent acted on behalf of the 2nd Respondent and obtained all the documents required before a loan could be granted to the 2nd Respondent and that all those documents required, were duly registered. The Respondents' only witness testified before the court outlining the procedure required for obtaining a loan from the 1st Respondent. He testified that although he was not the manager of the bank's branch which processed this transaction, and as such his evidence was based on documentary evidence which he found on the file of the 2nd Respondent, nonetheless he was satisfied that all the procedures required to give a loan to the 2nd Respondent had been complied with. He informed the court that, in this case, he found a guarantee form, memorandum of a deposit of a certificate of title, a 3rd party mortgage and a debenture against the 2nd Respondent. All these documents were duly registered. He went on to testify that after granting this loan to the 2nd Respondent, the 2nd Respondent defaulted in repaying the loan. So the 1st Respondent had to call on the guarantors to make good the loan/debt in default for which the 1st Respondent had as security Farm No. 3342 Chisamba.
The Respondent's witness went into details of the requirement expected from a borrower by the 1st Respondent. He testified that the
borrower had to apply through his branch and after the loan application was approved the borrower had to be given an offer letter. According to these procedures, the borrower had to sign the letter of offer as a sign of acceptance. The bank then would call for security documents, which must meet the bank's criteria. He testified that the Appellant Company was a guarantor in the transaction and not a customer of the 1st Respondent. The Respondent's witness testified that the 1st Respondent was satisfied that the Appellant Company had consented to Farm No. 3342 Chisamba being used as security because of the memorandum and the deposit of the certificate of title and the directors' guarantee. According to him the 1st Respondent was not in any way negligent in this transaction. His testimony furthermore is that there was no indication on the documents that security was fraudulently obtained. Neither was there any evidence that the security documents were forged.
In cross-examination the Respondent's witness was asked for the resolution of the Appellant Company for a third party mortgage in favour of the 2nd Respondent. He conceded that the only resolution before the court was the one purportedly signed by Mr. Jeoffry Mulenga. When asked in whose favour the guarantee document was as it did not show the beneficiary although the directors of the Appellant Company had signed it, he conceded that the guarantee document did not show the beneficiary. When cross-examined again on the Appellant Company's absence
of a request or its consent, his response was that according to the 1st Respondent the consent of the Appellant Company was deduced from the execution of the security documents. When asked why the Appellant Company
did not sign a document to indicate its acceptance, his response was that the
withdrawal of the money by the 2nd Respondents was evidence of acceptance by the Appellants in itself. He conceded to the suggestion that according to the procedure in the Bank, acceptance could
only be indicated by the surety or borrower endorsing on the copy of the letter of offer, which in this particular case was returned to the bank blank. He was cross-examined on why the signatures of the directors were in wrong places. He conceded that that was wrong. He accepted that one endorsement was for the Farm Number 3342 Chisamba while the other one was blank.
In submissions before the court, the Appellant Company urged the court to find that the first Respondent facilitated the misrepresentation by the 3rd Respondent to the Directors' of the Appellant Company. The
Appellant Company submitted that there was an element of collusion between the 3rd Respondent and some employees of the 1st Respondent, which they argued, could be deduced from the totality of the evidence and the events obtaining in the transaction.
Furthermore, the Appellant pointed out the discrepancies in the evidence before the court, which supported the drawing of the conclusions that, there was misrepresentation and thus establishing undue influence as the only reasonable inference. These discrepancies were:
1) The 1st Respondent bank without any formal acceptance from the 2nd and 3rd Respondents proceeded to release a colossal sum of K750,000,000.00 to the 2nd Respondents.
2)
The 1st Respondent accepted and acted on the purported resolution of the Appellant Company's directors (page 13 -Plaintiff's bundle of documents) which resolution was not signed by the Chairman or Secretary of the board of directors of the Appellant Company to establish its authenticity but by one Jeffrey G. Mulenga who was not an employee of the Appellant. Counsel pointed out that it is trite law that extracts of board minutes can only be produced as authentic if such extracts of the minutes have been signed by the authorized officers such as Directors. The extracts of the minutes produced in this case were not signed by the authorized officers.
3)
The 1st Respondent bank accepted and acted upon a guarantee document (page 7-12 Plaintiffs bundle of documents), which did not show the name of the customer or beneficiary. This therefore proved that the said documents were
4)
misrepresented to the appellant Company's Directors. The two signatures were also in a wrong place.
5)
The purported memorandum of deposit of title deeds in the Appellant's bundle of documents (page 14) did not show the description of the mortgaged securities whereas the same document in the 1st Respondent's bundle of documents (page 8) showed an endorsement without the full description of the alleged mortgaged securities.
6)
The purported guarantee forms were forwarded to the 1st Respondent bank by the 2nd Respondent and not by the
2)
Appellant Company (page 7 - 1st Respondent's bundle of documents).
7)
Although one Jeffrey G. Mulenga purported to have signed the alleged extract of the Board minutes for the Appellant Company he was also shown as having signed the mortgage deed as the Secretary of the 2nd Respondent company, (page
8)
23—1st Respondent bundle of documents). This confirmed the evidence by PW1 that Mr. Jeffrey G. Mulenga was never an employee of the Appellant Company.
The Appellant's core argument was therefore that with these facts and discrepancies this court must be persuaded to visit the English cases of Barclays Bank v O' Brien (l), Bank of Credit Commerce International SA v Aboody (2) and Credit Lynnnais Bank Nederland NV v Burch (3). It was argued that the whole transaction being so manifestly disadvantageous to the Appellant Company and being attached to the misrepresentation, the presumption of undue influence, which was not refuted by any evidence before this court, was irresistible. Also there being no evidence to establish that the 1st Respondent took any reasonable steps to explain the nature of this transaction to the Appellant Company this led to the 1st Respondent being fixed with constructive notice of undue influence, which the 3rd Respondent had on the Appellant Company Directors.
It was further argued that, it was common ground that the Appellant Company did not know the extent of the liability and that the liability was far beyond their means, thus risking the total loss of their property leading
to the only reasonable presumption of undue influence. According to two Directors of the Appellant Company, the 1st Respondent never gave any explanation on the implications of the transactions and the need for them to seek independent legal advice before the loan was given. Citing the case of Barclays Bank Plc v O'Brien (1), the Appellant Company therefore, urged the lower court to set aside this transaction
The Respondents in response before the High Court argued that it was not disputed that the 1st Respondent, on the basis of security documents signed by the Appellant Company's Directors and submitted by the 2nd Respondent to the 1st Appellant availed the 2nd Respondent a credit facility of K750, 000,000.00 and that this loan was secured through a third party mortgage attached to Farm No. 3342 situated in Chisamba
and the Guarantee forms signed by the Appellant Company Directors. Their case before the High Court was that the Appellant Company's Directors willingly and voluntarily signed these documents. According to them at the time all this was happening the Appellant Company's Directors had full knowledge that the same were for a loan facility from the 1st Respondent. They submitted that these documents did not misrepresent any facts.
According to them these documents did spell out what was the nature and obligations of the transaction. The documents showed that there was a 3rd party mortgage which was secured by the Appellant's Farm No. 3342 Chisamba for a debt advance from the 1st Respondent to the 2nd Respondent. They referred to page 16 of the 1st Respondent's bundle of documents, which talked about parties and their involvement. This
document also clearly indicated the place for signature to indicate consent before execution of the deed. According to the Respondents, consent had been properly obtained. It was also argued that the memorandum of deposit was equally clear. It stated that the title deed deposits were for the purposes of creating a charge over Farm No. 3342 Chisamba.
It was submitted that had the Appellant Company Directors read the documents in question, they would have gotten all the details. It was argued therefore on behalf of the Respondent that the court should dismiss the claim before it. The Respondent also argued that the two Directors of the Appellant Company knew the procedure required in obtaining credit facilities from the Bank as they had on three occasions applied for such facility. The High Court then ruled that the Appellant Company Directors willingly and voluntarily signed the security documents and that there was no evidence of fraud. It also ruled that the 1st Respondent was not negligent.
According to the learned trial Judge the Appellant Company's Directors willingly and voluntarily signed the security documents and passed a resolution authorizing the usage of the farm as security for a loan to be given to the 2nd Respondents. Aggrieved by this decision the Appellants hence appealed to this court.
Before us the Appellant Company raised three grounds of appeal. These are:-
1. That the learned trial Judge misdirected himself in law and fact when he held that the 1st Respondent bank (the Zambia National Commercial Bank Limited) was not
professionally negligent as alleged by the Appellant Company contrary to the evidence on record.
2.
That the learned trial Judge misdirected himself in law and fact when he held that the Appellant's company directors clothed the 3rd Respondent with authority as their agent to the 1st Respondent bank.
3.
That the learned trial Judge misdirected himself in both law and fact when he held that the Appellant's directors consented and voluntarily executed the third party mortgage contrary to the evidence on record.
In arguing these grounds of appeal, before us, Mr. Chisanga, Counsel for the Appellants, on Ground 2, (as Ground 1 was abandoned) argued that the Learned Trial Judge misdirected himself in law and in fact when he held that the Appellants clothed the 3rd Respondent with authority as their agent to the 1st Respondent. He argued and elaborated on this ground by submitting that the evidence, before the court did not suggest in any slightest sense that the Appellant Company and the 3rd Respondent intended to create principal - agent relationship. A borrower whose debt is secured by a third party mortgage cannot in any circumstance be constituted as an agent of the mortgagee. He went on to say that the evidence before the court was to the effect that the documentary evidence, purporting to be the Appellants' resolution authorizing the creation of the contentious third parry mortgage, was itself a forgery.
He went on to argue further that although PW1, the only witness for the Appellant Company, accepted that the 1st Respondent did not directly mislead them before signing the documents and handing-over the directors' guarantee, 3rd party mortgage and title deed, nonetheless, the 3rd Respondent deceived them into believing that the directors' guarantee and 3rd party mortgage were in relation to a maize transaction and also into believing that the deposit of the title deed was to enable him obtain a loan to purchase their farm, which they had offered for sale to him. The facts as testified by PW1 were such that the court had to invoke the doctrine of undue influence. He argued that, even if for argument's sake the Appellant deposited these documents to the 3rd Respondent who in return used them to obtain a loan facility for the 2nd Respondent, at law, that per se could not absolve the 1st Respondent from complying with its obligation which it owed to the Appellants of ensuring that the Appellant not only fully understood the implications and ramifications of the transaction before committing themselves to the transaction but also were advised to seek independent legal advice. According to the law, what was crucial was for the court to consider whether the 1st Respondent explained
fully to the Appellants the transaction they were getting involved in.
In support of this proposition of law, Mr. Chisanga cited three (3) English cases, tracing the development of this doctrine of undue inference.
1) Chaplin and Company Limited Vs Brammall (4), where the court held that, "It is unfortunate that the plaintiffs did not take care to see that the defendant had independent advice on the matter. But the result is that the plaintiffs, who through their agents, were undoubtedly aware that the
execution of this guarantee was to be procured through the guarantor's husband, who was living with his wife at the time, and would presumably have the influence of her husband over her, fail to show that the document was property explained to her.,..her plaintiffs left everything to the husband and must abide by the consequences...." As Per Vaughan Williams LJ;
Lloyd Bank Limited Vs Bundy (5) where the court held that, "... the (English) law gives relief to one who, without independent advice, enters into a contract on terms which are very unfair.... Or transfers property for a consideration which is grossly inadequate....when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue inferences or pressure brought to bear on him by or for the benefit of the other".
Avon Finance Company Limited Vs Bridger (6), in which Lord Denning MR had this to say, "Now let me say at once that in the vast majority of cases a customer who signs a bank guarantee or a charge cannot get out of it No bargain will be upset which is the result of the ordinary interplay of forces. There are many hard cases, which are caught by this
rule
take the case of a borrower in urgent need of
money. He borrows it from the bank at high interest and a
friend guarantees it The guarantor gives his bond and gets
nothing in return. The common law will not interfere
yet there are exceptions to this general rule. There
are cases in our books in which the court will set aside a contract, or a transfer of property, when the parties have not met on equal terms when the one is so strong in bargaining power and the other is so weak that, as a matter of common fairness, it is not right that the strong should be allowed to push the weak against the wall. Hitherto those exceptional cases have been treated each as a separate category in itself. But I think the time has come when we should seek to find a principle to unify them..." (Own emphasis).
Seeking support from these authorities, he argued that the 1st Respondent never discharged their duty of explaining the nature of this transaction to the Appellant. He went on arguing that considering
that in this case the, 1st Respondent was in a much stronger position than the Appellants and that the relationship between the 3rd Respondent and the Appellant Company Directors was close, the first Respondent in all fairness had a duty to ensure that the Appellant Company sought
independent legal advice before committing themselves to this transaction. It was not right for the court to allow the first Respondent to push the Appellants, who were weak and disadvantaged, into a tight corner. The question in such cases, he argued, is always whether or not
the bargain in question was as results of ordinary interplay of forces. The Appellants cited in addition the cases of Brusewitz v Brown(7) and Credit Lyonnais Bank Nederlands v Burch(3) as enunciating this legal principle that the 1st Respondent by not having taken reasonable steps to explain the nature of the transaction to the Appellant Company Directors must be fixed with constructive notice of undue influence which the 3rd Respondent exercised
over the Appellant Company Directors. Counsel cited the case of Barclays (1), where the Court of Appeal expressed the view that the law imposed on the creditor a duty to take steps to ensure that not only did the borrower/debtor not exercise undue influence and or make raise representation to the surety, but also that the creditor had to ensure that the surety had adequate understanding of the nature and effect of the transaction in question. On this same point, he further argued that, the current development of the law on the doctrine of undue influence is such that this branch of the law is meant not only to prevent undue influence in relationships where one party has reposed sufficient trust and confidence in the other, but also where the vulnerable person has been exploited by somebody who dominates and controls others. He further submitted
that the current development of the law on undue influence is such that it underscores the need of protecting unsuspecting vulnerable people from institutions and individuals with power. It sets limits over influence. Illustrating this point, he cited the case of Bank of Credit and Commerce International SA v Aboody (2) where the Court of Appeal explained that there are two classes of undue inference - Actual and Presumed undue influence. He explained mat there was Actual undue influence where the claimant has to prove affirmatively that the wrong doer actually exerted undue influence on him/her. The Presumed undue influence has two types: the first type is where there is a relationship of trust and confidence between two people, which is found in husband and wife relationship. This is presumed undue influence because the law recognizes the
relationship where it is fair to presume undue influence. The second type is where, even if there is no such relationship, the relationship would be presumed to be of trust and confidence if the complainant established de facto that the
relationship between him/her and the wrong doer imposed trust and confidence. This is rebuttable by adducing evidence.
In pursuant of this reasoning, the Appellant argued that the Appellants' Company Directors fell in the later category because there was evidence of a close relationship between the Directors
of the Appellant's Company and the 3rd Respondent. There also was evidence that the Directors reposed trust in the 3rd Respondent and that the 3rd Respondent abused this trust by falsely presenting to them that the credit was to their benefit when in actual fact they did not benefit. He further submitted that it was common cause that even though the documents which
were presented by the 3rd Respondent to the 1st Respondent may have been signed by the Appellant Company Directors since the signing of these documents and handing over of these documents was of as a result of misrepresentation of fact by the 3rd Respondent, therefore the doctrine non est factum was applicable in line with the cited authorities.
According to Mr. Chisanga the case of Brusewitz v Brown (7) was on all fours with the case before the court. The facts of that case were briefly that, the defendant was employed in a junior capacity at a modest wage by a tour operating company, which wished to increase its bank overdraft limit from
250,000 to
270,000. P, the main shareholder and alter ego of the company, asked the defendant to provide the security required by the bank for the increased overdraft by giving a second charge over her flat and an unlimited money guarantee. The flat was valued at
100,000 and the defendant's equity was
70,000. The defendant signed the mortgage document in P's presence at the offices of the bank's
solicitors. At no time was the defendant informed either by P or the bank of the company's indebtedness to the bank or the extent of the overdraft facility being granted. The bank's solicitors wrote to the defendant to point out that the guarantee was unlimited both in time and amount and advising her to seek independent legal advice before entering into the transaction but she did not do so. The company later went into liquidation
and when the bank was unable to recoup from P the full amount owing on the overdraft, it demanded payment of the amount outstanding, some
60,000, from the defendant and when the defendant failed to pay it, issued proceedings in the county court for possession of the defendant's flat. The county court judge found that there was a relationship of trust and confidence between PW1 and the defendant, which gave rise to a presumption of undue influence which had not been rebutted and dismissed the action and set aside the bank's charge over her property. The bank appealed to the Court of Appeal, contending that it had discharged its duty to the defendant by urging her to seek independent legal advice and that it
was not responsible for the consequences of her choosing not to do so.
The court of Appeal Held that: - "The transaction was so manifestly disadvantageous to the defendant, in that without knowing the extent of the liability involved she had committed herself to a liability far beyond her means and risked the loss of her home and personal
bankruptcy to help a company in which she had no financial interest and of which she was only a junior employee, that the presumption of undue influence
on the part of P was irresistible. The bank had not taken reasonable steps to avoid being fixed with constructive notice of that undue inference,
since neither the potential extent of her liability had been explained to her nor
had she received independent advice. It was not sufficient for the bank' solicitors to tell her that the guarantee was unlimited both in time and amount since without being informed of the amount of the company's indebtedness to the bank or the extent of the overdraft faculty being granted she was in no position to assess the significance of the guarantee being unlimited. "The thrust of all their submission is that the Appellant did not by this conduct clothe the 3rd Respondent with authority to act the way he did.
On the last Ground, the Appellants argued that the learned trial Judge misdirected himself in law and in fact when he held that the
Appellants' Directors consented and voluntarily executed the mortgage deed. In support of the argument, the Appellants, once again, pointed to
the argument in Ground 2, that the documentary evidence purporting to be the Appellants' resolution, authorizing the creation of the contentious third party mortgage, was itself a forgery. Augmenting this point the Appellants submitted that the circumstances, in which this guarantee and the third party mortgage were obtained by the 1st Respondent were such that the existence of undue influence of the 3rd Respondent on the Appellants had to be presumed and that the 1st Respondent had to rebut that presumption. In this case the 1st Respondent failed to do so.
They referred again to the case of Brusewitz v Brown (7), where Sir John Salmond had this to say, "The mere fact thai a transaction is based on an inadequate consideration or is otherwise improvident, unreasonable, or unjust is not in itself a ground on which this court can
set it aside as invalid. Nor is such a circumstance in itself even a sufficient ground for a presumption that the transaction was as a result of fraud, misrepresentation, mistake or undue inference, so as to place the burden of supporting the transaction upon the person who profits by it The law in general leaves every man at liberty to make such bargains as he pleases, and to dispose of his own property as he chooses. However improvident, unreasonable or unjust such bargains or dispositions may be, they are binding on every party to them unless he can prove affirmatively the existence of one of the recognized invalidating
circumstances, such as fraud or undue influence
" Mr. Chisanga
argued that the Respondent and 1st Appellants did not meet on equal terms. He argued that the Appellant had proved affirmatively that there was misrepresentation so he urged this court to uphold the appeal.
The Respondents in response also relied on their written heads of argument. In her oral submission, Ms Chalwe, Counsel for the Respondents, argued that the Appellant Company knew what they were entering into. According to her, this was so because this was the third time for the Appellant to have applied for a loan facility. The first appllication was to Barclays Bank for a loan. They had also applied to Meriden Bank, the third experience was this appllication to the 1st Respondent for a similar facility. She argued that in all these three occasions the Appellant Company had to comply with the similar requirements. She argued
that it was not necessary for the 1st Respondent to explain to the Appellant Company the procedures. She argued that in all these applications the Appellant Company was made to go through the same procedure of surrendering title
documents before the loan was authorized. Also in her view there was no need to explain the nature of the transaction and obligations of this transaction as the documents fully explained the nature of the transaction and obligations. Had the Appellant Company Directors read
the documents they would have not been deceived.
On the question of clothing the 3rd Respondent with authority, the upshot of the Respondent's argument was that the learned trial Judge concluded in the way he did because the Appellant Company conducted itself in such a way that it obviously authorized the 3rd Respondent to use its property to secure the loan. According to her the evidence on record clearly showed that the Appellant Company Directors signed security documents and the 3rd party mortgage and gave them to the 3rd Respondent, together with the title deed, which were then surrendered to the 1st Respondent. That indeed clothed the 3rd Respondent with authority to act on behalf of the Appellant Company to deal with the 1st Respondent. She argued that all the signatures on the documents were genuine. The Appellant Company's Directors were not deceived by the 1st Respondent. They were deceived by the 3rd Respondent. She pointed out that this was possible because the Appellant Company's Directors chose not to read the documents before they signed. Had they read these documents they would have realized that the transactions were to enable the 1st Respondent to give loan facilities to the 2nd Respondent. In refuting the claim by the Respondent of non est factum. she cited the case of Zambia Export and Import Bank Limited v Mukuyu Farms Limited and Others (11) where
the court held that: "
an agreement is signed freely if it is signed in the
course of business practice and the Respondents had a choice not to
sign". She also cited Grindlays Bank International (Z) Limited v Nahar Investments Limited (g) where Ngulube, DCJ, as he was then, in an effort to establish who have to be held liable in a case where innocent parties are deceived held that, ".... I look upon it as a familiar doctrine as well as a safe general rule, and one making for security instead of uncertainty and insecurity in mercantile dealings, that loss occasioned by the fault of a third person in such circumstance ought to fall upon one of the two parties who clothed that third person as agent with authority by which he was enabled to commit the fraud " She urged this court to apply this sound reasoning.
In support of this proposition she further cited other English cases of Norwich and Peterborough Building Society v. Steed 1993(9) and Lloyd v. Etrige and Others 2001(10). She referred us to the evidence of PW1 where PW1 categorically denied that the 1st Respondent deceived them, although PW1 accepted that the 3rd Respondent deceived her and the deceased. She argued that the 1st Respondent had a bank/customer relationship with the 2nd Respondent and that the 2nd Respondent applied for a credit facility of K750,000,000.
That facility was approved subject to the 2nd Respondent providing:
1)
Valuation of and the creation of a legal mortgage over landed property to secure debt;
2)
The provision of Directors personal guarantees;
3)
Authorization by the registered proprietor to secure property for debt;
4)
Memorandum of deposit for title deeds.
1)
She argued that the 2nd Respondent met all these requirements. She referred to the correspondence between the 1st and the 2nd Respondents. She argued that the Appellants' Directors signed all these documents voluntarily. She argued that, the fact that they chose not to read what they were signing, because of the story or explanation given to them by the 3 Respondent, was not evidence or ground enough for them to claim undue inference, neither can they base on that a claim of misrepresentation.
She then argued that there was no misrepresentation as the documents presented to the Appellant Company's Directors were clear. The 3rd party mortgage was to secure a loan advance to the 2nd Respondent by the 1st Respondent. She referred to the documents at page 16 of the defence bundle of documents and the fact that the relevant consent for the execution of the title deed had not been obtained. She contended that the Respondent inferred relevant consent from the met that the second Respondent who was the 1st Respondent's client used the loan facilities. She further illustrated this point by saying that there was no misrepresentation according to the document on records. She argued that had the Appellant's Company Directors read these documents, they would have known what these transactions were about because all the details were spelt
out in the documents on record. On the argument that the 1st Respondent had an obligation to spell out and explain the nature of the transaction and the extent of the liability, she referred to the page that describes
the loan and the property secured. She also referred to the memorandum of deposit, which explained that the title deeds deposited were for the purpose of creating a charge over the property. She then argued that there was no misrepresentation in these documents. She referred to the guarantors'
undertaking that they undertook to make payment if there was any default
in repayment of the loan. According to her the omission of the 2nd Respondent's name though unfortunate, did not nullify the two obligations under the guarantee as the evidence on page 7 was that she and PW1 signed the same and the letter above referred to, clearly refereed to the same credit facility to be availed to the 2nd Respondent. On the argument that the Appellant Company did not benefit from the transaction, she argued that in fact the Appellant Company did as they were paid U$100,000.000 as down payment for the purchase of the farm.
In her written submission she argued that since all the signatures on the forms were genuine and the title deed having been released and these transaction having been understood by the Appellant Company's Directors, the 1st Respondent had no reason to believe or suspect that the Appellant Company was neither aware nor falsely induced to sign the security documents. She argued that the court also found as a fact that
in the pleadings filed by the Plaintiff (Appellant Company) there was no pleading of fraud as provided under Order 18 Rule 8(19) of the Rules of the Supreme Court (19). In conclusion she submitted that as the Learned trial Judge also made the following findings:-
(i)
That it was an undisputed fact that the 1st Defendant did, on
the basis of security documents signed by the Appellant's
Directors and submitted to them by the 2nd Respondent,
avail the 2nd Respondent, its customer a credit facility of
K750,000,000.00.
(ii)
That it is also not in dispute that the above credit facility
was secured through a 3rd party mortgage-attaching Farm.
(iii) No. 3342 situated in Chisamba and personal guaratee of the Appellants Company's Directors.
(iv) That it was also not in dispute that the 3rd party mortgage and guarantee were voluntarily signed by the Appellant Company's directors and authorized agents, namely Olga Georgitsis and A B Georgitsis.
(v)
That it is further not in dispute that at the time of executing
the above stated agreements, the Appellant Company's directors had full knowledge that the same were for a credit facility or loan advance from the 1st Respondent to the 2
