Professional Documents
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Nkongolo Farms V Zambia National Commercial Bank
Nkongolo Farms V Zambia National Commercial Bank
BETWEEN:
AND
JUDGMENT
(258)
6.Avon Finance Company Limited v Bridger [1985] 2 All ER 281
(259)
3) An order of injunction
4) C osts.
5) Further and other relief.
(260)
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 2 nd 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.
(261)
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 Kabwefromthe 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 3 rd 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. 3342fromthe Appellant Company.
(262)
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 3 rd 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, a3rdparty 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.
(263)
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.
(264)
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.
(265)
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 - 1 2 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
J10
(266)
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
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
J12
(268)
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.
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
J21
(277)
set it aside as invalid. Nor is such a circumstance in itself even a
sufficient groundfor 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.
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 3 rd 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 2nd
Respondent, (see paragraph 6 of the Appellants' statement
of claimfiledinto court on 17th November, 1998).
(vi) It is not in dispute that the Appellant Company's directors
voluntarily released a certificate of title for the property
used as collateral for the 2nd Respondent's borrowing, (see
paragraph 7 of the Appellants' statement of claim).
She reminded this court that as a general rule this court rarely
interferes with thefindingsof facts by the lower court, unless such findings
are not supported by evidence on record or that the lower court erred in
assessing and evaluating the evidence by taking into account matters which
ought not to have been taken into account or failed to take into account
some matters which ought to have been taken into account or mistakenly
the lower court failed to take advantage of having seen and heard the
witnesses and this is obvious from the record or the established evidence
demonstrates that the lower court erred in assessing the evidence before it.
See the case of Nkhata and Others Vs. the Attorney General (17). Mr.
Chisanga in reply drew a distinction between a plea of fraud and a plea of
misrepresentation in claims for damages and these pleas as vitiating factors
of consent. He pointed out to us that a plea of fraud and a plea of
misrepresentation can be interchangeably pleaded in claims for damages.
However, according to him there is a distinction between these two pleas
depending on the context. In support of this preposition he cited Order 18
rule 8 (16) (18) which says: "In an action for damages for
Misrepresentation under Misrepresentation Act 1967 s.2, it is enough to
plead misrepresentation and not to plead fraud in the statement (or
points) of claim, but where the plaintiffs seeks to allegefraud,men fraud
must be specifically pleaded and the further and belter particulars of the
statement (or points) of claim are not the right place for doing so,
especially where they had initially no plea of fraud in the statement (or
point) of claim, and moreover, if the plea of fraud is being raised by way
of answer to the plea to plea of the defendant raised under the Unfair
Contract Terms Act 1977, it should be raised by way of answer to the plea
Of the way Of amendment Of the reply (Garden Neptune Shipping v Accidental
Worldwide Investment Corporation [1990] 1 Lloyd's Rep.330.GA).
In addition we hold that there was common ground that the Appellant
had two Directors, PWl and the deceased and that the Appellant Company
Director, PWl and the deceased had personal and business relationships
with the 3rd Respondent. Also it was equally common ground that there
was an agreement between the Appellant Company and the 3rd Respondent
to sell property No. 3342 Chisamba and that the 3rd Respondent issued
three cheques carrying different dates to pay for this farm to the Appellant
Company. All these three cheques were dishounered by the bank.
(
It was common ground that there was close relationship between the
two Directors of the Appellant Company and the 3rd Respondent. In fact
there was evidence in cross-examination that there was intimate
relationship between one of the Directors with the 3 rd Respondent. The
transactions in question were manifestly disadvantageous to them. Also
there was evidence, which was not disputed of the anomalies with regard to
the procedure in obtaining the security documents were obtained. The
Appellant relying on the English authorities, in particular, Bank of Credit
Commerce International SA v Aboody(2) Credit Lyonnais Bank
Nederland's NV v Burch (3) sought to rely on the doctrine of undue
influence. The Learned trial Judge dismissed that plea. The current trend
of the law on the application of the doctrine of undue influence is to
ensure influence of one person over another person is not abused. The law
supplemented by Equity has set limits of one person's influence over the
other. In the early stages of development of this doctrine, its application
was only confined to husband and wife relationships. Now the question,
whether the transaction was brought about by exercise of undue influence,
is a question of fact. According to Sir Trille on the Law of Contract 1999
3rd Edition page 380. the question is not whether the relationship between
J38
the parties belongs to a certain category or type but rather whether one
party reposed sufficient trust and confidence in the other. According to Sir
Trille even that approach does not exhaust the list because this principle
has not been confined to cases of abuse of trust and confidence only but
also to cases where vulnerable persons have been exploited. There is no
single touchstone to determine whether the doctrine is applicable or not. In
this case, facts narrated by PWl reveal that deceit was the nature and
character of the transactions in question. Following the reasoning in the
case of Royal Bank of Scotland v. Etridge and other Appeal (9), our view
therefore is that as there were a number of anomalies that were catalogued,
plus the evidence by PWl that there was deceit before this agreement was
entered into, as such this is a proper case for applying this doctrine of
undue influence.
We are of the view that on the evidence on record the Learned trial
Judge glossed over and overlooked the evidence of these irregularities and
PWl's evidence thus wrongly concluding that the Appellant's Company
Directors voluntarily and willingly signed the documents. For example,
there is evidence that the signatures were on the wrong pages, that there
was no acceptance letter, a procedure that the 1st Respondent's witness
testified that that was one of the mandatory requirements before a loan
facility could be given. All these pieces of evidence put together were
totally unsupportive of the Learned trial Judge's findings that the Appellant
Company Directors willingly and voluntarily signed the documents. In our
view, these anomalies taken together with the evidence of PWl, should
have supported the irresistible findings that there was undue influence.
J39
(295)
Now the question is whether or not the 1st Respondent shared in the
wrong doings of the 3rd Respondent.
In the case of Credit Lyonnais Bank NV v Burch (3) the facts already
quoted and the ruling by the court which we already quoted, the court
placed the responsibility on the Bank lending money to take reasonable
steps to explain to the surety, the extent, and the implications of the
transaction and to make sure that the surety independently sought
independent legal advice before committing itself to the transaction. In that
same case, the court held that it was not sufficient for the bank lending
money just to have a causal contact with the guarantor. According to these
English authorities, the bank had a duty to make sure that the surety sought
to seek independent legal advice. The ratio of this English case is that, the
creditor has the obligation to inform itself to whether or not there is a
relationship of trust and confidence between the borrower and guarantor,
and the attendant risk to abuse that, relationship. The bank has an
obligation to ensure that the guarantee did not in any way exercise undue
influence on the guarantor.
for the benefit of the 3rd Respondent. The first Respondent Med to
discharge its duty to ensure that the Appellant Company Directors sought
the required legal advise before committing themselves to the transaction
which ended to their disadvantage as we accept Mr. Wood's submission
that the Appellant Company was never paid US$1,000,000.00. Therefore,
at law the 1st Respondent must be fixed with constructive notice of undue
influence, which was obviously exercised by the 3rd Respondent on this
elderly couple. This presumed undue influence was never rebutted. In this
case before us there was no evidence to establish that this elderly couple
were free from undue influence before they committed themselves. There
were no evidence to show that they were told to seek legal advise.
For the reasons stated in our judgment, we hold that the appeal has merit.
We agree that there was no negligence on the part of the first Respondent.
We therefore set aside the third party mortgage dated 15th November 1996
J41
(297)
and the guarantee dated 28th August 1996. Judgment is entered in favour of
the Appellant We award costs for the Appellant.
D.K.Lewanika
DEPUTY CHIEF JUSTICE
L. P. Chibesakunda
SUPREME COURT JUDGE
C. S. Mushabati
SUPREME COURT JUDGE