Central African Building Society v Belinda Rindai Musodza

### Preamble
1
HB 183/19
HC 2194/16
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CENTRAL AFRICAN BUILDING SOCIETY

Versus

BELINDA RINDAI MUSODZA

IN THE HIGH COURT OF ZIMBABWE

TAKUVA J

BULAWAYO 16 JULY 2018 & 5 DECEMBER 2019

Civil Trial

Advocate L. Nkomo for the plaintiff

A. Sibanda for the defendant

TAKUVA J:	On 1 September 2016 plaintiff issued summons against defendant claiming;

Payment of the sum of US$15 815,04 which is the outstanding balance in respect of monies lent and advanced at defendant’s special instance and request together with interest as at 31 July 2016.

Interest thereon at the rate of 15% per annum from 1 August 2016 to date of full and final payment.

An order that the mortgaged property being stand 6399 Kwekwe Township of stand 2274 Que Que Township in extent of 4 000 square metres registered in the names of the defendant declared executable; and

Collection commission and or costs on a legal practitioner and client scale.

Background

This is one of the numerous cases where people obtain loans from financial institutions, pledge immovable property as security by registering mortgage bonds in favour of the financial institutions, fail to repay the loan leading to foreclosure proceedings which they then vigorously oppose with the assistance of legal practitioners.  Meanwhile, the debt will be ballooning side by side with legal costs with dire consequences.

The defendant in casu, submitted to plaintiff an application for a loan of US10 000,00 to complete the construction of her house..  By letter dated 28 February 2011, the plaintiff offered the defendant a loan of US$10 000,00 subject to inter alia, the following conditions;

The loan offer was subject to the terms and conditions of the plaintiff’s mortgage bond, the special conditions set out in the offer letter and the general conditions thereon.

The interest rate was 15% per annum.

The defendant’s house shall be insured against fire and other risks with effect from the date of registration of the mortgage bond in favour of the plaintiff.

The defendant shall be covered under the plaintiff’s combined life protection policy through Old Mutual, such cover to relate to the defendant’s indebtedness on the mortgage account.

As security for the loan a mortgage bond would be registered in favour of the plaintiff over the defendant’s property being stand 6399 Kwekwe Township of stand 2274 Que Que Township held under Deed of Transfer No. 567/1.

The defendant renounced the benefit of the exception non causa debit, non numeratae pecuniae and error calculi.

On 5 March 2011, the defendant duly accepted the offer of the loan in writing.  Subsequently, on 20 April 2011 a 1st mortgage bond number 764/2011 was duly registered over the defendant’s property in favour of the plaintiff as security for the sum of US$12 000,00.  Defendant then surrendered the original Title Deed to the plaintiff.  The defendant started defaulting repaying the loan from the 1st month of June 2011 resulting in the plaintiff writing a letter on 9 June 2011 – see page 38 annexure A.  Later on 18 July 2011 defendant was advised of an arrear charge of $1 500 as long as her account remained in arrears.  By October 2012 defendant had accumulated arrears totaling $1 032,00 – see page 39 of annexure A.  Meanwhile, between 31 May 2011 and 25 November 2011 the defendant drew down on the loan up to a total of US$7 782,00.

Thoroughly frustrated by the defendant’s conduct, plaintiff handed her over to its legal practitioners in November 2012 resulting in a formal letter of demand claiming the balance outstanding on the loan account.  This did not deter the defendant and plaintiff then issued summons against the defendant for the above claim.  At commencement of trial, the plaintiff successfully applied to amend its summons and declaration to indicate the correct outstanding amount as the sum of US$20 526,61.

The defendant entered appearance to defend the plaintiff’s claim and after requesting further particulars and being furnished with same, the defendant filed a plea wherein she denied and disputed any liability to the plaintiff in the amount claimed.  It was defendant’s contention that she could not have defaulted because the loan was “a salary based loan” and that the plaintiff’s claim is overrated by a usurious interest which was never agreed upon in the loan agreement.  Defendant pleaded that the plaintiff’s claim be dismissed with costs.

The issues

The following issues were agreed to by the parties at pre-trial conference;

Whether or not the defendant is indebted to the plaintiff in the sum of $20 526,61 plus interest at the rate of 15% per annum from 1st August 2016 to date of full payment and for costs on a legal practitioner and client scale.

Whether or not the plaintiff charged a usurious interest rate.

The issues were adopted from the plaintiff’s pre-trial memorandum following the judge’s pre-trial conference memorandum to the effect that;

“2.	The plaintiff’s pre-trial conference memorandum of issues be and is hereby adopted for trial.”

The judge also made further statements relating to the capital advanced, the amount paid towards the capital debt and the balance itself.  It is not immediately clear why this was done, but what is clear is that the issues remain as stated in paragraph 2 supra.  In any event a trial judge is enjoined to try issues revealed by the pleadings irrespective of those stated at the pre-trial conference.  Be that as it may, the pre-trial conference memorandum states that the onus to prove the 1st issue for trial is on the plaintiff while the onus to prove the second issue is on the defendant.

The evidence

The plaintiff’s case

Mr Crispen Nemauyadzo who is employed by the plaintiff as the Area Manager, Matabeleland gave evidence for the plaintiff.  The witness outlined the contractual basis of the relationship between the plaintiff and the defendant.  In his view, the relationship is based on three documents namely, the loan application form, completed and signed by the defendant in acceptance of the offer and the mortgage bond registered over the property provided by the defendant as security for the loan.  In his testimony the witness emphasised the relevant clauses of three documents which deal with inter alia the following issues;

The rate and nature of interest chargeable on the loan.

The personal life insurance policy to be taken out on the defendant’s life.

The home owner’s comprehensive insurance policy to be taken out on the mortgage property for the duration of the loan.

The witness went further to state that litigation commenced after defendant defaulted repaying the loan as stipulated in the repayment terms of the loan agreement.  As regards the computation of the outstanding balance, the witness pointed out that the plaintiff took into account the two insurance policies which continue to be paid for by the plaintiff on behalf of the defendant thereby continuously adding to the total outstanding balance of the loan account.

On whether or not plaintiff charged usurious interest rates, the witness pointed out that the interest rate charged and the manner of calculation which includes capitalising and debiting the interest every month, were all set out in the terms of the loan documents.  This method took into account the in duplum rule and that the plaintiff’s accounting system has an inbuilt function to detect when the in duplum rule is breached whereupon the system stops charging interest on the unpaid capital.  Under cross examination the witness insisted that the repayments made by the defendant were not consistent leading interest to accumulate on the unpaid capital account.  Plaintiff then allocated payments received from the defendant to interest first in accordance with clause 7 of the schedule to the mortgage bond.

Defendant’s legal practitioner while cross examining the witness concentrated on the authority of the witness to testify on behalf of the plaintiff the contention being that there is no board resolution and that the witness is not based in the Midlands where the loan account was applied for.  The witness denied that his testimony was based on hearsay evidence since he had access to the system and the file and had discussed the loan account with the plaintiff’s Recoveries Manager.

On the question of whether in action proceedings a witness who testifies on behalf of a corporate entity must have a board resolution authorising him to do so, the plaintiff relied on a number of cases.  The first is Central African Building Construction v Construction Resources Africa (Pvt) Ltd 2001 (1) ZLR 305 (H) at p306C – F where GOWORA AJ (as she then was) held that:

“In order for the defendant to successfully argue that the institution of proceedings on behalf of the plaintiff had not been authorized by the company, it was necessary that the defendant place before the court a minimum of evidence suggesting that there was no such authority.  Previous cases dealing with this particular point were matters brought either as petitions or on notice of motion and the parties would have filed affidavits in which evidence was given as to the lack of authority or to its existence.  At page 315C, the court had this to say:

“In any event, as argued by the plaintiff even if the institution of the proceedings had not been authorized, they can be ratified.  See Smith v Kwanonqubela Town Council 1999 (4) SA 847 (SCA) at 952F-G …”

Secondly, plaintiff relied on the principle stated in Total Zimbabwe (Pvt) Ltd v Power Coach Express (Pvt) Ltd 2010 (2) ZLR 1 (A) at p 1.  In that case GOWORA J (as she then was) stated that;

“Where a company litigates, it is not necessary to produce, in every case, a board resolution to prove that the company has authorized such litigation.  Where a minimum of evidence has been adduced establishing that the company has set litigation in process in the absence of some evidence from the respondent pointing to a lack of authority for the litigation, the court should not require the production of a resolution.”

In Antonio v Ashanti Goldfields Zimbabwe Ltd & Anor 2009 (2) ZLR 372 (H) at p 374F, the court held that:

“The employee who gives evidence on behalf of a corporate litigant must be suitably placed within the corporate governance structures to have knowledge of facts to which they testify.”

In casu, plaintiff argued that its witness testified that he was in a managerial position which enabled him to have direct knowledge of the facts on which he was testifying.  Reliance was placed on the provisions of section 4 of the Civil Evidence Act (Chapter 8:01).  The section provides that every person shall be competent to give evidence in any civil proceedings except where it is otherwise provided in that Act or in any other enactment.  Plaintiff argued that defendant never adduced any evidence of any law which bars the plaintiff’s witness from testifying.  Further, plaintiff relied on annexure B showing that the plaintiff’s board of directors will ratify the authorization for the witness to testify on behalf of and represent the plaintiff.  Quite clearly plaintiff is interested in recovering the outstanding balance of the loan.  The plaintiff closed its case after the evidence of this witness.

Defence’s case

Defendant testified in support of her case and contended as follows;

That the plaintiff has failed to produce a resolution that permits anybody to institute proceedings.

Mr Nemunyedzo was far detatched from the matter to an extent that his evidence should be dismissed as inadmissible hearsay even taking into account his alleged position at the bank.

The parties should be bound by the pre-trial minute of this court.

The in duplum principle should be based on the capital as agreed upon by the parties and nothing more.

Apart from raising preliminary points, defendant, contrary to the plea, admitted that she defaulted repaying the loan and attributed the default to the fact that she lost her job about nine months after she had applied for a loan.  She also contended that the capital amount availed to her was the sum of $9 114,00 only and not the amount claimed by the plaintiff.  As at the date of trial she claimed to have paid $9 894,00 as capital amount, meaning that she had paid an excess amount of $777,00.  She strenuously disputed that the premiums paid for the two insurance policies taken out by the plaintiff on her behalf as stipulated in the loan documents form part of the loan advanced to her by the plaintiff.  Defendant argued that the inclusion of the insurance payments in the loan account distorted the interest calculation in that it was calculated on the wrong capital sum.

Defendant placed reliance on the pre-trial conference minute to argue that the capital amount availed to her by the plaintiff had been paid in full.  However, the amount claimed had been set through an application for amendment duly granted before the start of the trial.  As indicated above, defendant admitted that she owes the plaintiff some money and stated that she is willing to pay through selling whatever she has.  She claims she was unemployed and her husband is also unemployed and that they survive on market gardening on her mortgaged immovable property.

Analysis

Defendant’s legal practitioner took the plaintiff’s witness to task on his authority to testify on behalf of the plaintiff.  Defendant’s contention was that there is no board resolution and the witness was not based in the Midlands Province where the loan account was applied for.  The witness was accused of testifying wholly on hearsay evidence.  As regards the absence of a board resolution defendant relied on the case of Madzivire & Ors v Zvarwadza & Ors SC-10-16;

“It is clear from the above that a company being a separate legal person from its directors cannot be represented in a legal suit by a person who has not been authorized to do so.  This is a legal principle, which the courts cannot ignore.  It does not depend on the pleadings by either party.  The fact that the first appellant is the managing director of the fourth appellant does not clothe him with authority to sue on behalf of the company in the absence of a resolution authorising him to do so.”

What happened in casu is that the plaintiff represented by Danziger and Partners issued summons against the defendants.  Defendant entered appearance to defend and requested further particulars which were duly supplied.  Defendant then filed its plea.  Mr Chikukwa, plaintiff’s Recoveries Manager filed a discovery affidavit for and on behalf of plaintiff.  He averred that he was entitled and authorized to depose to the affidavit.  He also filed plaintiff’s summary of evidence.

At pre-trial conference, the plaintiff was represented by one of its managers Mr T. Simango.  At all these various stages plaintiff never raised the issue of authority.  In actual fact, plaintiff’s contention is that whatever was done by plaintiff’s “representatives” or employees bind the plaintiff but the viva voce evidence of one of these managers namely Mr Nemunyadz is inadmissible for want of a board resolution authorising him to testify for and on behalf of the plaintiff.

The witness’ testimony relates to a loan account which exists on the plaintiff’s accounting system to which he had access.  He also had access to the file and had discussed the loan account with the Recoveries Manager.

As regards the question of whether in action proceedings, a witness who testifies on behalf of a corporate entity must have a board resolution authorising him to do so, I fully agree with GOWORA J’s (as she then was) comments in the Total Zimbabwe (Pvt) Ltd case supra.

In any event, it was never in doubt that it is the company (plaintiff) that has set the proceedings in motion and that the witness who testified on behalf of the plaintiff was not on a frolic of his own.  In Antonio v Ashanti Goldfields Zimbabwe Ltd & Anor 2009 (2) ZLR 372 (H) at p 374F, the court held that:

“The employee who gives evidence on behalf of a corporate litigant must be suitably placed within the corporate governance structures to have knowledge of facts to which they testify. “

Plaintiff’s witness, Mr Nemunyadzo testified that he was in a managerial position that enabled him to have direct knowledge of the facts on which he was testifying.  In terms of s4 of the Civil Evidence Act (Chapter 8:01), every person shall be competent to give evidence in any civil proceedings except where it is otherwise provided in that Act or in any other enactment.  Defendant has relied on the absence of the board resolution. However, plaintiff produced Annexure B showing that the plaintiff’s board of directors will ratify the authorization for the witness to testify on behalf of and represent the plaintiff.  The crisp issue is can there be any sincere contention that in the totality of the circumstances of this case, the plaintiff did not authorise the litigation to recover the outstanding balance of the loan.  I am not persuaded that this is the position.  In that regard, I find that the evidence of plaintiff’s witness is admissible.  The 1st and 2nd points in limine are hereby dismissed for want of merit.

Defendant’s third point in limine is that the capital amount owed was agreed at the pre-trial conference as$9 117,00.  Of that capital amount, the sum left to be paid at the time of the pre-trial conference was $3 118,00.  The defendant has since paid that amount.  Defendant’s contention is that the “sole dispute” for trial was “on the interest levied on the capital” debt which the parties had agreed upon.  Defendant argued that because of this agreement, no evidence on the quantum or extent of the capital amount should be led.  The problem with this argument is that the pre-trial conference memorandum states in paragraph 2 that “the plaintiff’s pre-trial memorandum of issues be and is hereby adopted for trial.”  The plaintiff’s issues are listed as;

“1.1	. Whether or not the defendant is indebted to the plaintiff in the sum of $15 815,04 plus interest at the rate of 15% per annum from 1st August 2016 to date of full and final payment and costs on a legal practitioner and client scale.

Whether or not the plaintiff charged a usurious interest rate.

The rest of the paragraphs in the joint pre-trial conference memorandum indicating the “capital advanced” the “amount paid” and the “balance on the capital debt” do not erase the 1st issue at all.  In fact paragraph 3(d) to the effect that; “The dispute is on the interest levied on the capital debt” contradicts paragraph 2.  I must say counsel for defendant really went in to town about the context, value and purpose of a pre-trial conference.  In addition to reproducing r182 of the High Court Rules 1971, he also cited Doelcam (Pvt) Ltd v Pichanic & Ors 1999 (1) ZLR 390 (H) at 397C – E where GILLEPSie J aptly stated the purposes of a pre-trial conference as follows:

“A pre-trial conference has a two-fold purpose.  The primary aim is to assist towards the resolution of a dispute without recourse to trial … The secondary aim, in the event that settlement is not achieved, is to ensure that all pleadings and pre-trial procedures are complete and correct, that the issues are limited to the greatest extent achievable and properly defined; and that the case is ready for trial on the merits without further ado. (my emphasis)

In my view a pre-trial conference memorandum should not leave the trial court hamstrung. The court should have the latitude to determine any issue that arises from the pleadings and brought by one of the parties.  That is precisely why GILLESPIE J said the issues should be limited to the greatest extent achievable.  In any event, in the present matter the issues have been spelt out clearly in paragraph 2.  At the commencement of trial, plaintiff applied for an amendment of the amount owed.  That application was granted and the trial progressed on that basis.

In the circumstances I find that the 3rd point in limine has no merit and it is hereby dismissed.

Having disposed of all the preliminary points, I now move to the merits.  The 1st issues relates to the amount owed to the plaintiff by the defendant.  Defendant argues that the amount claimed is overstated and the plaintiff failed to provide a genuine in duplum schedule.  She also contended that the interest charged is usurious.  However, during her testimony she admitted liability to the plaintiff in the sum of $18 234,00.  Defendant also admitted that she breached the material terms of the loan agreement and that she is liable to pay the outstanding balance of the loan account.  Now an admission to any fact in issue is proof of that fact.  Section 36(1)(3) of  the Civil Evidence Act (Chapter 8:01) provides for admissions in civil proceedings as follows:

“36 (1)	An admission as to any fact in  civil proceedings, made by or on behalf of the party to these proceedings shall be admissible in evidence as proof of that fact, whether the admission was made orally or in writing or otherwise,

(2)	…

(3)	It shall not be necessary for any party to civil proceedings to prove any fact admitted on the record of the proceedings.”

See: Mining Industry Pension Fund v DAB Marketing (Pvt) Ltd 2012 (2) ZLR 132 (S) at p133E – F.

“In light of this admission, the sole issue for determination is the extent of the defendant’s liability to the plaintiff.  Defendant’s challenge of the in duplum  schedule is surprising in that she asked for further particulars on 26 September 2016 and they were supplied on 22 November 2016.  Paragraph 7 of plaintiff’s further particulars states; “The in duplum schedule in its entirety clearly shows how the balance of $15 815,04 is arrived at.  This is after taking into account capital and interest, mortgage protection fee and payments on interest levied.”(my emphasis)  The schedule is seven pages long (see pages 18 – 29).  Defendant it appears was satisfied with the in duplum schedule because she only requested for further and better particulars relating to the bank statement on 16 December 2016.  The concise bank statement was supplied on 5 January 2017 – see pages 22 – 28 of the record of proceedings.

It cannot be doubted that the plaintiff supplied the complete in duplum schedule calculation and the print out of the loan account which are business documents as contemplated under section 14 of the Civil Evidence Act.  It must be noted that in determining the extent of defendant’s indebtedness to the plaintiff, the effect of defendant’s renunciation of the benefit of the legal exceptions in clause 1 of the schedule to the mortgage bond becomes relevant.  The defendant specifically renounced the benefit of the legal exceptions non causa debit non numeratae pecunie and errore calculi.

In Venture Capital Company of Zimbabwe Ltd vs Chirovero Investments (Pvt) Ltd 2000 (2)  ZLR 30 (H) the court explained the meaning and effect of the legal exceptions as follows;

“The exception non causa debit is a plea by the debtor that there was no just cause for the debt.  The renunciation of this by a debtor does not debar the debtor from denying the existence of the principal obligation.  It merely serves as a device to shift the onus of proof.  Whereas generally the creditor must allege and prove the principle obligation, when there has been a renunciation of this exception the debtor has the burden to prove that no cause of indebtedness existed.

The exceptio non numeratae pecanie is a plea by a debtor that money has not been paid to him by way of a loan. Where the debtor renounces this exception, the onus rests upon him to prove that the amount purportedly loaned to him was not paid over to him.

The exception errore calculi protects a debtor’s right to insist upon re-examination of the accounts and  where error is found to be discharged from the consequences of a promise to pay made indebite  provided that the accounts are not res judicata or have not been agreed in a  compromise.  The renunciation of this exception merely affects the question of onus.  If the debtor wishes to challenge the calculation of the amount due, he must undertake the onus of proving the accounts to be wrong.”

In casu, the defendant admitted liability to the plaintiff but contested the calculation by the p0laintiff of the outstanding balance of the loan account.  It follows therefore that having renounced the benefit of the legal exception errore calculi, the defendant bears the onus of proving that the plaintiff’s calculation of the outstanding balance of the loan account is erroneous.  The general principle regarding the burden of proof is simply stated as, he who alleges must prove.  In other words, where a given allegation, whether affirmative or negative, forms an essential part of a party’s case, the proof of such allegation rests on him.  See Lasagwe Investments (Pvt) Ltd & Ors v Highdon Investments (Pvt) Ltd & Ors 2010 (2) ZLR 296 (H) at p297R.

In my view, the defendant failed to discharge the onus on her to prove on a balance of probabilities that plaintiff’s calculation of the outstanding balance of the loan account is erroneous.  Further, defendant failed to prove that the interest rate charged by the plaintiff is usurious.  She also failed to prove that the in duplum rule was violated.  Under cross examination by plaintiff’s counsel, defendant admitted that she did not do a compilation of her own to demonstrate that the interest charged is usurious or that the in duplum rule was violated.  The in duplum rule simply provides that interest stops running once it equals the unpaid capital – see Georgius & Anor v Standard Chartered Finance Zimbabwe 1998 (2) ZLR 488 (S).

The concept of interest on loans was discussed by this court in Z B Bank Ltd v Eric Rosen (Pvt) Ltd & Ors 2015 (1) ZLR 314 (H) at p 3116C where the court had this to say;

“In the field of commerce interest is to the lender the profit on the loan.  To the borrower, it is the cost on the loan.  It is not the purpose of interest to preserve the real value of the sum due or to provide protection against inflation.  A number of factors are taken into account in arriving at the rate of interest in any given situation.  These include the costs of the funds to the lender, the risk associated with the borrower, taking into account his credit worthiness, or lack of it, the lender’s overheads and the margin of profit desired, the country risk and so on.

At common law there is no fixed customary rule that can be described as a standard rate beyond which it can be said that a transaction becomes usurious.  Rates of interest vary with the nature of the financial transactions, the social and economic standing of the parties, the risks and so on.  The mere fact that the amount of interest seems high is not sufficient to make the transaction usurious.  What, then is where in a transaction which makes it usurious?  If it is not the mere amount of interest, what other circumstances are there?  A party claiming rescission of contract on the basis of usury must show extortion or oppression or something akin to fraud.  That approach is consistent with the balance that has to be struck between, on the one hand, the liberty to regulate one’s life by freely engaged contracts and, on the other, the striking down of the unacceptable excess of freedom of contract.  It also accords with the notion that judges should approach with restraint the task of intruding upon the domain of the private powers of citizens

”.

On the evidence in casu, the defendant failed to prove that the plaintiff’s calculation of interest on the unpaid capital is extortionate or fraudulent.  What came out clearly throughout defendant’s testimony is that she labored under a mistaken belief that the capital amount availed to her by the plaintiff was the sum of $9 147,00 only.  She failed to appreciate the basic fact that for as long as that plaintiff took out insurance policies which are paid for by way of monthly premium, such payments are part of the loan availed to the defendant by  the plaintiff and are claimable as part of the outstanding balance on the loan account.

In light of the above, I find that the defendant’s contention that the interest charged is usurious is based on the misrepresentation of the total loan availed to the defendant.  In an event, the defendant’s contentions are difficult to reconcile with her tearful plea for mercy and her belated promise to do everything she can to settle the outstanding balance of the loan.  Surely, if defendant’s plea for mercy was bona fide, she ought to have avoided wasting the court’s time by defending the plaintiff’s claim on the basis of unsustainable grounds which are pleaded in her plea.  I take the view that what comes out from that plea is that defendant was all along buying time and  postponing the day of reckoning.  Defendant achieved this purpose by continuously changing her legal representatives.  I find therefore that the plaintiff has proved its claim on a balance of probabilities.  I do not find any compelling reasons why the plaintiff should not be allowed to realise the security for the loan provided by the mortgage bond.

As regards costs, it is common cause that the parties made it a term and condition of the loan agreement that upon the plaintiff litigating to recover the outstanding balance of the loan account, the defendant shall pay the plaintiff’s costs of such litigation on an attorney and client scale.  I am not persuaded that there are compelling reasons why the defendant must escape the consequences of that clause.

In the circumstances, it is ordered;

That the defendant pays to the plaintiff the sum of $20 526,61 together with interest thereon at the rate of 15% per annum calculated from the 1st of August 2016 to date of full and final payment.

That the mortgaged property being stand 6379 Kwekwe Township of stand 2274 Que Que Township in extent 4 000m2, held under Deed of Transfer number 567/11, be and is hereby declared especially executable.

That the defendant pays the costs of suit on the legal practitioner and client scale.

Danziger & Partners, Gweru, plaintiff’s legal practitioners

Mavhiringidze & Mashanyare Legal Practitioners, Kwekwe, defendant’s legal practitioners