STANBIC BANK GHANA LIMITED vs. EMMANUEL ADDO
  • IN THE SUPERIOR COURT OF JUDICATURE
    IN THE HIGH COURT (COMMERCIAL DIVISION)
    KUMASI - A.D 2014
STANBIC BANK GHANA LIMITED - (Plaintiff)
EMMANUEL ADDO - (Respondent)

DATE:  30TH OCTOBER, 2014
SUIT NO:  BFS/9/13
JUDGES:  ANGELINA MENSAH-HOMIAH (MRS.) JUSTICE OF THE HIGH COURT
LAWYERS:  KAREN WOBIL FOR PLAINTIFF
WILLIAM KUSI FOR DEFENDANT
JUDGMENT

This is an action by the Plaintiff Bank to recover the outstanding balance of an over draft facility (O/D) of Forty-Five Thousand Ghana Cedis (GH¢45,000.00) which was granted to the Defendant in the year 2007.

 

In its statement of claim filed on 28/09/2012, the Plaintiff averred that it initially advanced a term loan of Thirty Thousand Ghana Cedis (GH¢ 30,000.00) together with the O/D but the term loan was paid off in the course of time. The amount which remained unpaid on the enhanced O/D stood at Eighty- Five Thousand, Two hundred and Forty-Two Ghana Cedis, Fifty-Four Pesewas (GH¢85,242.54) as at 06/08/2012.

 

It is also the Plaintiff’s case that by a facility letter dated 18/01/2011, the outstanding balance on the O/D in the sum of Ninety Thousand, Seven Hundred and Thirty-One Ghana Cedis, and Thirty-Two Pesewas was converted into a loan. Per this facility letter, any sum which was due but remained unpaid attracted an interest of 10% above the Plaintiff’s base rate prevailing from time to time.

 

The facility was secured by a deed of mortgage dated 13/09/2007 which was duly executed by the Defendant.

 

The Defendant’s version of these financial transactions as per his statement of Defence filed on 7/11/2012 is that after he had paid off the loan, he was granted an additional amount of forty Thousand Ghana Cedis (GH¢40,000.00) which brought the O/D facility to Eighty-Five Thousand Ghana Cedis (GH¢85,000.00). After signing the facility Letter dated 18/01/2011, the Defendant averred that he discovered that the O/D balance was below the sum of Ninety Thousand, Seven Hundred and Thirty-One Ghana Cedis, Thirty-Two Pesewas (GH¢90,731.32). He attributed the difference to interest over charge of 29% and 30% instead of the agreed 23.5%. He caused his lawyers to notify the Plaintiff who agreed to refund the over charges to him but this did not reflect in his statement of account. Meanwhile, he stated that an agreement was reached whereby the Plaintiff allowed him to make monthly payments of GH¢2,000.00.

 

The Defendant pleaded fraud and gave particulars to that effect i.e.:

(i) The Plaintiff deliberately over charging the Defendant with an interest rate that was not agreed upon.

(ii) Inflating the amount of money due to be paid by Defendant and further entering into an agreement with him based on those figures.

 

Besides, the Defendant pleaded that the date for the conversion of the O/D into a loan ought to have been 31/08/2009. The Defendant then counterclaimed for a declaration that the conduct of the Plaintiff Bank is fraudulent. He asked for a refund of all the illegal deductions with interest plus General and Special damages against the Defendant for its conduct.

 

The Plaintiff joined issues with the Defendant on his Statement of Defence and in response to the counterclaim, averred that the Defendant is not entitled to his counterclaim.

 

Six issues were set down for trial, namely:

1. Whether or not in January, 2011 the outstanding overdraft of the Defendant amounted to GH¢90, 731.32?

2. Whether or not the Plaintiff Bank over charged the Defendant interest of 39% and 30% on his overdraft account instead of 23.5% as agreed?

3. Whether the Plaintiff Bank conceded that it overcharged Defendant’s overdraft account.

4. Whether the parties agreed that the overdraft facility which was converted to a term loan would attract interest of 10% per annum if Defendant failed to pay when due?

5. Whether or not as at 6th August, 2012 the amount outstanding on Defendant’s overdraft facility was to the tune of GH¢ 85,242.54?

6. Whether the Plaintiff Bank acted fraudulently in its dealings with the Defendant?

 

Having read the entire proceedings closely, it appears to me that the crux of this matter is the time interest was to run on the term loan, the applicable rate of interest from the time the loan and O/D facilities were taken and thereafter, particularly, the time the O/D was converted into a term loan. The disagreements over the rate of interest may have resulted in the interest overcharge/ undercharge which are in dispute. When these matters are adequately dealt with, the issues before the court can be resolved with ease.

 

First, what were the agreed rates of interest at the onset of the credit agreements and in the course of the repayment period?

 

Answers to these questions can be found in the Plaintiff’s exhibits A and B. Exhibit A is the O/D facility letter and exhibit B is term loan letter, both dated 10/09/2007. In exhibit A, under the caption, pricing (Interest); it is stated as follows:

4.1 Interest on the facility will be charged at 4% per annum above the Bank’s Base Rate prevailing from time to time (currently 19.5% p.a.).

The Bank reserves the right to amend the interest and the method of calculating it at any time in line with market conditions. If the Bank does so, written advice of the amendment and its effective date will be sent to the borrower within a reasonable time after the amendment has been made.

 

4.3 Default Interest

If any sum payable by the Borrower under the facility is not paid when due, such sum will attract interest at 10% per annum above the Bank’s Base Rate from time to time (as certified by any manager of the Bank, whose appointment it shall not be necessary to prove), from the date on which such sum fell due to the date on which it is actually paid. Interest shall be compounded monthly.

 

The rate of interest for the term loan as stipulated in exhibit B is the same as that of the O/D stated above, i.e. Bank’s Base Rate of 19.5% p.a. plus a margin of 4%. The Bank’s right to amend the agreed interest which ought to be communicated to the Borrower is also the same as in exhibit A. The Defendant appended his own signature to both exhibits A and B and he does not dispute this fact in his evidence before this court.

 

When the Defendant’s credit line as in the O/D was enhanced to GH¢ 85,000.00 on 16/10/2008, another agreement was executed between the parties herein as in exhibit C. This time round, the interest rate which the Defendant accepted was 2% p.a. above the Bank’s Base Rate of 27.70% p.a. Here again, the Bank reserved the right to amend the interest and if it does so, written advice was to be sent to the Defendant within a reasonable time. Exhibit C also contained a penalty clause of 10% p.a. on unpaid balances.

 

Somehow, the Defendant was unable to keep up with the payments and he communicated his difficulties to the Plaintiff Bank. Thus, on 25/08/2009, he applied to the Bank for the O/D of GH¢85,000.00 to be converted to a term loan and spread over four years. Evidence of this fact is contained in his own exhibit 6. Subsequently, on 18/01/2011, the Plaintiff Bank per exhibit D converted the O/D to a term loan to be repaid in one hundred and twenty (120) equal monthly installments. As at the time of exhibit D, the agreed interest rate which could be amended by the Bank in line with market conditions was 2% above its Base rate of 23.95% which comes up to 25.95%.

 

Second, when was the interest to run as regards the term loan? This takes me back to exhibit B and under the caption, Interest. It is stated there under that the interest will be calculated on the daily balance owing under the loan, notwithstanding that such balance may have been increased by the debiting of interest to such balance and calculated on the basis of a 365 – day year. The said interest is to be debited to the Borrower’s (Defendant’s) account held with the Bank and be payable monthly in arrears on the last business day of each month for the duration of the loan and on the Final Repayment Date; and compounded monthly.

 

From the foregoing, it is crystal clear that the interest rate was not to be static and both parties to the credit agreements have always been aware of this fact right from the onset. Indeed, the initial interest rate was 23.5% p.a. (plus 10% p.a. default interest). Having dealt with the above matters, I now proceed to resolve the issues as set down for this trial. For the sake of consistency, the following issues will be dealt with together:

 

·         Whether or not the Plaintiff Bank over charged the Defendant interest of 39% and 30% on his overdraft account instead of 23.5% as agreed?

·         Whether the Plaintiff Bank conceded that it overcharged Defendant’s overdraft account?

 

In his testimony before this court, the Plaintiff’s representative conceded that the Bank over charged interest in respect of the O/D but this was set off against an under charge in the term loan. He explained that instead of the agreed 23.5% p.a. initial interest, the interest which the system calculated was 29.5% p.a. By his written submissions to this court, counsel mathematically illustrated how these levels of interest affected the debit balance on the loan and how these were treated by the Bank. From Counsel’s illustrations as well as the evidence of the Plaintiff’s representative, the Bank does not dispute that it over charged interest on the O/D at the onset of the O/D but attributed it to a system error. The Defendant in his evidence is of the view that the interest adjustment which the Bank claim it did in line with the facility letter does not reflect in the statement of account presented to him (exhibit G).

 

From the evidence of both parties, the interest overcharge in issue relates to the O/D. The question that remains to be answered is: by what percentage was the Defendant’s O/D account overcharged?

 

In cross-examination, the Plaintiff’s representative agreed with Counsel for the Defendant that “Interest on the O/D was at a contractual rate of 19.5% p.a. plus a margin of 4% making 23.5%” but the Bank had the sole right to amend the rate in line with market conditions. This implies that even if conditions are ripe one day after the execution of the credit agreement such that interest had to be amended, the Plaintiff Bank could do so and then notify the Defendant within a reasonable time. The O/D facility letter was executed by the Defendant on 10/09/2007.

 

The Plaintiff’s exhibit F reveals that from September, 2007 to October, 2008, the Defendant’s account was debited with interest ranging from 29.5% to 32.7%. The Plaintiff’s representative stated in his evidence that when the base rate changes, the Bank causes a publication to be made to that effect in the dailies but was not sure whether that was done during the period in issue. The Plaintiff’s Representative also failed to tender any document to prove that public notice was given as regards the changes in its base rate which accounted for the sharp upwards adjustment in the rate of interest. The adjustment itself was within the Bank’s right since the Defendant freely executed exhibit A. The problem is with the unexplained sudden wide margin. If indeed, the Plaintiff had mailed or furnished statements of accounts as in exhibit F to the Defendant periodically, the requirement of “notice” after amendment would have been satisfied. All the same, even if the Defendant did not receive the statements as in exhibit F, there is evidence on record from which the court can reasonably infer that he knew of the changes. For instance, the changes in the interest rate reflected on exhibit 2. The last entry thereon was 31/10/2008.

 

Also, the Defendant’s exhibit 6 requesting for a Restructure could not have been written in a vacuum if he was not aware of the applicable rates of interest as of that time. Thus, even though the Bank did not formally write a letter notifying the Defendant of the upwards adjustment in the applicable interest rate, the Defendant had constructive notice of the amendment within a reasonable time and he was at liberty to advise himself accordingly. In the same vein, the Defendant also owed himself a duty to notify the Plaintiff of any discrepancies in the statement of accounts for the same to be rectified. He also exercised that right and his grievances were addressed. What detriment has he then suffered? I do not see any based on the evidence before me. The Bank rectified these errors as demonstrated in exhibit 2. Exhibit 2 contains details of interest which the Bank actually charged as well as the interest which ought to have been charged by the facility letter.

 

Having carefully reviewed exhibit 2, I accept the Plaintiff’s computation that interest charged in the system amounted to GH¢13,203.25 as against GH¢11,711.02 which ought to have been charged per the facility letter. This brought the overcharge on the O/D to GH¢1,492.23 as of 31/10/2008.

 

Turning to the loan account, the Plaintiff’s representative’s evidence shows that due to a system error, interest was not charged for a period of about six months and this came to light when the Defendant’s account was recomputed. The Defendant’s version that the Bank agreed to put a moratorium on interest for six months is not borne out by the evidence on record, particularly, exhibit B. Ironically, exhibit B rather states that the loan was to utilized in full within 6 (six) months from the date of the loan letter following which date any unutilized portion of the loan will no longer be available and the limit of the loan will be reduced by such unutilized portion. Here again, interest was payable monthly in arrears and debited to the Defendant’s account on the last Business Day of each month for the duration of the loan and on the Final Repayment Date. It is also embodied in the same exhibit B that the duration of the loan was 24(twenty-four) months.

 

It flows from the above that interest was payable monthly in arrears for the duration of the loan. Therefore, the Defendant’s assertion that he was informed that no interest was due on the term loan for the first six months cannot be true. There is every indication that the Defendant misconstrued the terms of the facilities which he took from the Plaintiff Bank. On the balance of probabilities, I accept the Plaintiff’s Representative’s explanation that the “under charges” were due to a system error. This is so because if the Plaintiff intended to freeze interest for the first six months, that would have been expressly stated in the loan agreement. On the other hand, the Defendant failed to demonstrate to the satisfaction of this court that the bank was under an obligation to freeze interest for the first six months of the term loan agreement.

 

With this finding, I perused the plaintiff’s computation of interest as in exhibit 1 which emanated from the Plaintiff Bank. I noticed that the Bank’s base rate kept changing from September, 2007 to October, 2009. The range was between 19.5% p.a. to 29.70% p.a. And on each occasion, the Bank added a margin of interest as agreed upon in the facility letter. So, by the end of October, 2009, the interest actually charged in the Plaintiff’s system was GH¢5,508.45 instead of the GH¢8,634.93 which ought to have been charged in accordance with exhibit B. The difference of GH¢3,126.48 is the “Interest Undercharge” on the term loan.

 

As rightly submitted by counsel for the Plaintiff, the Bank set off the “Interest Overcharge” of GH¢1,492.23 in the O/D against “interest undercharge” of GH¢3,126.48 in the term loan. All these are clearly captured in exhibits 1 and 2. Having gone through these computations, I find that the “Interest Overcharge”, which has since been rectified, did not have any adverse effect on the Defendant’s O/D which he operated through his current account. The Defendant’s calculations of “interest Overcharges” are erroneous. His assertion of having been cheated by the Plaintiff cannot stand as regards over charges.

 

Next, I will consider the issue of whether or not in January, 2011 the outstanding overdraft of the Defendant amounted to GH¢90,731.32?

 

On this issue, the Plaintiff’s representative testified that the Defendant failed to operate the O/D account satisfactorily. At this point, the parties came to an agreement that this O/D be converted to a term loan and this conversion was actually done per the facility letter dated 18/01/2011. The Plaintiff’s Representative tendered this agreement as exhibit D, and, he explained that in the event of a default, a further interest of 10% on top of the contractual rate was to be charged. The Defendant’s evidence is silent on the GH¢90,731.32 contained in exhibit D. In his written submissions, Counsel for the Plaintiff referred the court to a clause on page 7 of exhibit D which states:

 

“Meanwhile, the Borrower may wish to and the Bank recommends that the Borrower seek independent advice in understanding the loan and the implications of the terms of this facility letter.”

 

Counsel submitted that the Defendant freely executed exhibit D after seeking independent advice and there cannot be any doubt that the outstanding O/D amount which was converted into the loan was GH¢ 90,731.32 as the time exhibit D was made.

 

The evidence on record shows that the conversion was done at the request of the Defendant. His own exhibit 6, dated 25/08/2009 is evidence of this fact. He could simply not keep up with the payments and wanted the Bank to as it were rescue him by converting the existing O/D to a term loan payable within a period of four years. When his request was eventually granted, it probably escaped him that throughout the period of his default, interest continued to run. The Defendant cannot be said to have signed exhibit D under any form of mistake. Even if he did not know of the interest overcharges at the time that he executed exhibit D, the Plaintiff has satisfactorily explained that the necessary adjustment had been made prior to arriving at the figure in exhibit D.

 

The Defendant had a right under the agreement to seek independent professional advice before executing the document. The Defendant was given every opportunity to verify the contents of that facility letter and by extension the quantum of his indebtedness before signing. This goes to show that the Plaintiff did not engage in any clandestine activity as regards the amount owed by the Defendant at the time exhibit D was made. The Defendant in fact knew of his debit balance and cannot be heard to complain about the same. I therefore find that the Defendant’s debit balance on the O/D at the time it was converted to a term loan in January, 2011 was GH¢90,731.32

 

Did the parties agree that the overdraft facility which was converted to a term loan would attract interest of 10% per annum if Defendant failed to pay when due? This issue will now be determined. The answer to this issue is straight forward and it is embodied in exhibit D, page 2, clause 5.2 titled: Default Interest/ Additional Interest/Excess Availment. It reads:

 

Should the Borrower fail to make repayment of any amounts due as stipulated in clause 4 above, or should the Borrower exceed the limit on the loan (whether this has been agreed to by the Bank or not), interest will be charged at 10% per annum over the Bank’s Base Rate from time to time, provided that this rate does exceed the legal maximum permissible rate, if applicable. Such additional interest shall be charged from the date on which such amounts fell due or from the date of the excess, to the date on which such amounts are actually paid or such excess is repaid.”

 

I gather from exhibit D that the Defendant was required to pay off his indebtedness in 120 (one hundred and twenty) equal monthly installments of GH¢2,125.15 (see clause 4.1 titled Period and Repayment of the Loan) but the Defendant maintained throughout his evidence that he was required to make monthly payments of GH¢ 2,000.00 per that agreement.

 

Obviously, the monthly payment he was required to make is stated boldly on the face of exhibit D. In the Defendant’s own exhibit 7, reference is made to a letter given to him by the Bank to the effect that he had to make monthly payments of GH¢ 2, 126.15. The amount which he even quoted is one cedi above the agreed monthly payment. The Defendant could not have missed the agreed figure by his own showing and I believe he is not being honest with the court. It is obvious from the Plaintiff’s documentary evidence that its Representative’s oral testimony on the monthly installment payment is more probable than that of the Defendant who has failed to support his bare assertion with any concrete proof.

 

Going by the Plaintiff’s evidence, the Defendant was making monthly payments of GH¢2,000.00 but stopped when he was sued. GH¢2000 falls short of the agreed installmental payment of GH¢2,125.15. Thus, the default interest of 10% will set in. Added to the already agreed rate of interest, the Defendant ought to have known that his indebtedness will swell up.

 

What was the Defendant’s indebtedness prior to the institution of this action? The burden of proof of this issue first rests on the Plaintiff who is alleging that the Defendant is indebted to it. The Defendant has blatantly denied this indebtedness because he thinks that full payment has been made per his own calculations. I have already found that as at 18/01/2011, the Defendant’s indebtedness was GH¢90,731.32 but he made some payments which have not been captured in the statement of accounts tendered by the Plaintiff. I notice from the record that the statement of Defendant’s current account through which payments were made to the Plaintiff is up to 31/10/08. The Plaintiff did not tender a detailed statement of account beyond this date but orally stated a figure as the Defendant’s current indebtedness. The lawyers unnecessarily paid too much attention to the computation of the interest over charges and neglected the computation of the Defendant’s current indebtedness which is of the essence at this time. The Plaintiff has therefore burdened the court with the unpleasant task of deducing the Defendant’s indebtedness from the evidence on record.

 

The writ of summons was issued on 28/09/2012. The Plaintiff’s representative testified that the Defendant was making monthly payments of GH¢2,000.00 until he was brought to court. The period between 18/01/2011 and 28/09/2012 is approximately eighteen (18) months. The Defendant said in his evidence that he took a loan of GH¢ 20,000.00 to pay off his indebtedness to the Plaintiff. However, he failed to tender any deposit slip or bank transfer advice to show that any such amount was paid into his current account. I will therefore not attach any weight to that piece of oral evidence. That notwithstanding, the Defendant did not contradict the Plaintiff’s representative’s testimony that the monthly payments ceased at the time he was sued. Moreover, the Defendant conceded during cross-examination that he did not complete making the agreed monthly payments over the 120 months (10 years) as in exhibit D. His evidence that he has paid off his indebtedness to the Plaintiff by his own calculations based on the 23.5% interest cannot be correct. This is so because interest was variable based on the agreement between the parties. Thus, the Defendant cannot unilaterally impose his interest rate on the Plaintiff Bank and make payments for about 18 months instead of 120 months and presume that his debt has been liquidated. On the totality of the evidence on record, he has NOT fully liquidated his debt.

 

In the absence of a detailed statement of account up to at least the time the writ of summons was issued, the Defendant’s indebtedness will be calculated as follows based on the evidence on record:

1. GH¢2000.00 payments per month starting one month after exhibit D was executed (18/01/2011) up to 28/09/2012 when the writ of summons was issued ( a period of approximately 18 months) sums up to GH¢36,000.00.

2. Debit balance as of 18/01/2011 was GH¢90,731.32

3. GH¢90,731.32 less GH¢36,000.00 is GH¢54, 731.32.

 

It is to be noted that the Defendant ought to have been paying GH¢2,125.15 each month as per exhibit D. Based on the agreement between the parties, the 10% default interest will apply to the difference of GH¢125.15 which was not paid for the approximately 18 months. It is my considered opinion that the Plaintiff is entitled to judgment for the sum of GH¢54,731.00 together with interest. The Plaintiff’s representative failed to give any evidence on the current base rate of the Bank, at least as of the time he testified. It will be unjust to simply allow the Plaintiff to apply any rate at this time to the detriment of the Defendant.

 

Thus, I will allow the Plaintiff to charge the agreed interest of 23.95% p.a. plus a margin of 2% p.a. as in exhibit D. This sums up to 25.95% p.a. The Default interest of 10% p.a. above the 25.95% will also apply to the judgment debt of GH¢54,731.00. Further, the GH¢125.15 for approximately 18 months which is still outstanding plus the same two levels of interest, referred to above will be paid by the Defendant.

 

The Defendant has pleaded fraud. For the sake of emphasis, I will repeat the particulars of fraud: (i) The Plaintiff deliberately over charging the Defendant with an interest rate that was not agreed upon and (ii) Inflating the amount of money due to be paid by Defendant and further entering into an agreement with him based on those figures.

 

Lord Herschell in Derry v Peek (1889) 14 App. Case. 337 stated the law on fraudulent misrepresentation as follows:

 

“… Fraud is proved when it is shown that a false representation has been made (1) knowingly, or (2) without believe in its truth or (3) recklessly, careless whether it be true or false.”

 

It flows from the above that the elements of fraud must be strictly proved before an action based on fraud can succeed. Where fraud is proved, the affected party may apply to rescind the contract and recover damages in respect of any loss which he may have suffered by reason of the fraud. In the case before me, the Plaintiff has clarified that the interest overcharges for the first six months or so of the O/D facility was due to a system error. Its representative has further made it clear that ICT systems can be exposed to errors and their system is no exception. I have already accepted this explanation.

 

In the same manner, interest was not calculated on the term loan for a period of six months. The Defendant was aware of this fact but tried to explain it away by saying that an official of the bank had told him there was a moratorium on interest for six months, which I have found to be untrue. Just as the Defendant should not be allowed to benefit unjustifiably from a system error, the Plaintiff should not also be allowed to incur losses arising from a system error. I have already determined that the amount of money due and owing by the Defendant as of 18/01/2011 was rightly stated in exhibit D. This implies that the Plaintiff could not have played around that figure in any way. In short, the evidence on record clearly shows that the Plaintiff did not inflate the amount owed by the Defendant and did not also deliberately over charge interest on the O/D facility prior to its conversion into a loan. With these findings of fact, I come to the conclusion that the Defendant’s allegation of fraud against the Plaintiff has not been substantiated and cannot succeed. His counterclaim for a declarative relief, general and special damages has no leg to stand on and the same is dismissed as being unmeritorious.

 

Judgment is hereby entered in favour of the Plaintiff for the sum of GH¢54,731.00 and GH¢2,252.70 (i.e. GH¢125.15 x 18 months) together with interest at the rate of 25.95% p.a. plus a default rate of 10% p.a. The two levels of interest will run from 11/01/2011 till date of final payment.

 

Cost of GH¢5,000.00 is awarded against the Defendant.