IN THE SUPERIOR COURT OF JUDICATURE
IN THE HIGH COURT (COMMERCIAL DIVISION)
KUMASI - A.D 2018
PATHWAY MICRO FINANCE - (Plaintiff)
CYNTHIA OKYERE & ANOR - (Defendants)
DATE: 21 ST MAY, 2018
SUIT NO: RPC 87/2016
JUDGES: DR. RICHMOND OSEI-HWERE JUSTICE OF THE HIGH COURT
ISAAC KANKAM FOR THE PLAINTIFF
LESLEY SENYO AMEDIOR FOR AKWASI ARHIN FOR THE DEFENDANTS
The plaintiff by his Writ of Summons filed on 25th July, 2017 claim against the defendants jointly and severallyas follows:
a. A repayment of an amount of GHC52, 663,000.00 (Fifty-two thousand six hundred and sixty-three Ghana Cedis) being the total debt owed (principal, interest plus penalty) by the 1st defendant as at May 2016.
b. Interest on the sum from May 2016 till date of final payment.
c. Cost inclusive of solicitor’s fee.
Upon service of the writ on the defendants, the 1st defendant filed a defence to the claim on 11th October, 2016.
After an unsuccessful attempt at settlement, the following issues were set down for trial by the court:
a. Whether or not the plaintiff advanced an amount of GHC40, 000.00 to the 1st defendant at a concessionary rate of 5.5% per annum or 6.6% per annum.
b. Whether or not there was a mutual mistake with regards to the interest rate applicable.
c. Whether or not the loan transaction is unconscionable
d. Whether or not the 1st defendant is liable to pay the amount as endorsed on the writ of summons or any part thereof.
e. Whether or not the plaintiff is entitled to its claim against the 1st defendant.
The Plaintiff’s Case
It is the case of the plaintiff that in May 2016 it advanced a loan facility of GHC40,000.00 (Forty Thousand Ghana Cedis) to the 1st defendant for the purpose of trading as indicated in the Customer Loan application form (Exhibit A). The 1st defendant used House No. 85 Kromosi Kwanwoma (Exhibit B) as collateral for the facility. It is the case of the plaintiff that the 1st defendant made some repayments but started defaulting somewhere along the line. The plaintiff posits that the defendant is under an obligation to pay the principal plus the interest and penalty that has accrued from the date of the grant till date of final payment.
The Defendants’ Case
The 1st defendant submitted a witness statement on behalf of the 2nd defendant and on her own behalf. It is the case of the 1st defendant that she is an illiterate and that the plaintiff never took time to explain the terms of the loan facility to her before she signed up. She also claims that she was not made aware of the huge and unconscionable nature of the interest rate of 66 percent. According to the 1st defendant she committed herself to pay the loan facility faithfully under the impression that the interest rate was 5.5 percent. It is also her case that she was made to believe that the insurance covering the facility covered unforeseen circumstance like illness and that since she suffered from a total abdominal hysterectomy which was an unforeseen illness she is qualified to benefit from the insurance cover relating to the remainder of the amount due as well as the interest thereon.
The Burden of Proof in Civil Suits Generally
As in all civil suits, the legal burden of proof is placed on the party who asserts the existence of a fact in issue or any relevant fact. Depending on the admissions made, the party on whom the burden of proof lies is enjoined by the provisions of sections 10, 11(4), 12 and 14 of the Evidence Act, 1975 (NRCD 323) to lead cogent evidence such that on the totality of the evidence on record, the court will find that party's version in relation to the rival accounts to be more probable than its non-existence. This basic principle of proof in civil suits is expounded in Zambrama v Segbedzie (1991) 2 GLR 221 and the same has been applied in numerous cases including Takoradi Floor Mills v Samir Faris (2005/06) SCGLR 882; Continental Plastics Ltd v IMC Industries (2009) SCGLR 298 at pages 306 to 307; Abbey v Antwi (2010) SCGLR 17 at 19 (holding 2); and Ackah v. Pergah Transport Limited and Others  SCGLR 728. In Ackah v. Pergah Transport Limited and Others (supra), Adinyira, JSC succinctly summed up the law, at page 736:
“It is a basic principle of law on evidence that a party who bears the burden of proof is to produce the required evidence of the facts in issue that has the quality of credibility short of which his claim may fail…It is trite law that matters that are capable of proof must be proved by producing sufficient evidence so that, on all the evidence, a reasonable mind could conclude that the existence of a fact is more reasonable than its non-existence. This is the requirement of the law on evidence under section 10 (1) and (2) and 11 (1) and (4) of the Evidence Act, 1975 (NRCD 323).”
There is, indeed, a clear distinction between the legal burden of proof and evidential burden of proof. Whilst the legal burden of proof is mostly borne by the plaintiff or whoever makes an assertion, evidential burden exists to produce evidence in support of an assertion or exists in the form of tactical onus to contradict or weaken the evidence that has been led by an adversary. Thus, at the trial the plaintiff bore the burden of producing evidence and the burden of persuasion on the issues set down for trial. The plaintiff was required to lead evidence to establish its claims on the preponderance of probabilities and if it fails the court ought to enter judgment against the plaintiff. The defendants were also at liberty to introduce evidence to contradict the assertions of the plaintiff.
Tackling the Issues
I shall now proceed to resolve the issues which have been set down for trial. I shall first tackle issue
(a). Issues (b) and (c) would be then be discussed together since they are inextricably linked.
Afterwards, issues (d) and (e) would also be examined together.
Whether the Plaintiff advanced GHC 40,000.00 to the 1st Defendant at a concessionary rate of 5.5 percent per annum or 6.6 percent per annum
From the loan agreement, it is stated clearly that the lender shall advance an amount of GHC 40,000.00 to the borrower i.e. the 1st defendant herein. The 1st defendant by her own showing acknowledged the fact that the said amount was advanced to her as a loan facility by the plaintiff. In paragraphs 7 and 8 of her witness statement, the 1st defendant stated as follows:
“7. On the 12th day of March, 2015 I entered an agreement with the plaintiff outfit for a facility of (GHC 40,000) Forty Thousand Cedis for business transaction.
8. Same was granted and commenced on the 17th day of March, 2015 for a period of 12 months ending 17/3/2016.”
There is no doubt that the plaintiff advanced an amount of GHC 40,000.00 to the 1st defendant. What
the 1st defendant is contesting is the interest on the loan facility.The 1st defendant contends that she was given the impression that the interest rate on the principal sum per annum was 5.5 percent and not 66 percent per annum. In effect, the 1st plaintiff is claiming that the loan agreement was executed by mutual mistake relating to the interest rate.
Issues (b) and (c)
In his written address, counsel for the 1st defendant submitted that mutual mistake occurred in the loan transaction, as the plaintiff and 1st defendant were not at a consensus ad idem in respect of the interest rate payable when she signed the contract. He further submitted that the 1st defendant was disabled by virtue of her illiteracy and as such was placed at a serious disadvantage in relation to the plaintiff. He submitted that the loan agreement as well as the insurance policy were not explained to the 1st defendant and so she did not appreciate what she accented to. Counsel invited the court to declare the loan agreement unconscionable and dismiss the claim of the plaintiff.
Counsel for the plaintiff on the other hand submitted in his written address that the plaintiff is entitled to its claim. He submitted that the documentary evidence in respect of the loan agreement states vividly that the interest on the loan is 5.5 percent per month for 12 months. He argued that the 1st defendant voluntarily entered into the loan agreement and that it is not the duty of the court to substitute contractual terms for parties. He submitted that the 1st defendant understood the terms of the agreement and invited the court to enforce same by granting the reliefs.
In contract law, a mistake is simply put an erroneous belief by a contracting party that certain facts are true and belief in this fact led to the execution of the contract. Mistake is one of the vitiating factors of a contract. For mistake to affect the validity of the contract, it has to be operative at the time the contract was concluded: See Amalgamated Investment and Property Ltd v John Walker [1976[ 3 All ER 509. No rights or obligations will arise out of the contract when the mistake is operative. The principles of equity will render a contract with an operative mistake voidable.
In law of contract, mistake could be described as common, unilateral or mutual.
Mutual mistake in contract happens where there was no real consensus between the parties i.e. the parties fail to understand each other’s intentions and are at cross purpose even though neither party may realise at the time of signing the agreement that their intentions and promises are misunderstood. In the case of CFC Construction Co (WA) Ltd, Rita Read v Attitsogbe [2005-2006] SCGLR 858, our Supreme Court defines as unconscionable that which is by contract or gift, where on account of the special disability of one of the parties, the said party is placed at a serious disadvantage in relation to the other. The court construed as disability, ‘… Poverty, or need of any kind, sickness, age [in this case one party’s old age], sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary[as was in this case]…’ These grounds will justify the court’s intervention on the basis of the doctrine of unconscionable bargain. It added that where a party successfully makes a case for disability, or the facts lend itself to such application, the onus devolves on the dominant party to show that the transaction was fair, just and reasonable. The court is entitled to set the transaction aside if the dominant party fails to show that it was fair, just and reasonable.
In contract law, there is a causal link between mistake and unconscionability. A mistake may occur due to the disability of a contracting party and that can make the transaction unconscionable. In the instant case, the 1st defendant is pleading illiteracy as the case for her disability and is inviting the court’s intervention on the basis of unconscionable bargain. Under Ghanaian law an obligation is placed on the literate party to a contract to explain the content of the contract to the illiterate party such that if the literate party fails or refuses to do so, the contract is void: See Date Bah, “Illiterate Parties and Written Contracts” (1971) R.G.L. 181 at 185.
The Ghanaian position was enunciated in Kwamin v Kufuor 2 Ren 808, PC, where a lease agreement was signed between a chief and an English gold prospector. Subsequently, an agreement was entered into containing a clause whereby the plaintiff’s predecessor, another chief was alleged to have given up all his rights and interest in the land for a consideration of 300 pounds. It was an agent of the predecessor chief who signed the agreement drawn up on their behalf by the English Prospector. All the Africans involved were illiterates. The plaintiff contended that the clause was understood to only confirm the lease granted by another chief, not to surrender the rights of the Stool. Also, that the agent had no authority to surrender the right of the Stool.The Privy Council held that the simple reading over of the contract to the parties was not enough. It had to be proved that the plaintiff’s agent had assented to the legal document with an intelligent appreciation of its contents. The agreement was in a language they did not understand and it was imperative that it was properly explained to them since the possibility of misunderstanding was so obvious. The illiterate borrowers were therefore held not to be bound by the deeds in question.
The presumption of a voidable contract under these circumstances was made for the benefit of the weaker party where the parties dealt with each other on very unequal terms. The position of the law was given legislative backing in section 4 of the Illiterates’ Protection Ordinance, 1951 (CAP 262) as amended by Illiterates' Protection(Amendment) Act, 1963 (Act 217)as follows:
“Every person writing a letter or other document for or at the request of an illiterate person, whether gratuitously or for a reward, shall —
(1) Clearly and correctly read over and explain such letter or document or cause the same to be read over and explained to the illiterate person;
(2) Cause the illiterate person to write his signature or make his mark at the foot of the letter or other document or to touch the pen with which the mark is made at the foot of the letter or other document; …”
My understanding of the authorities is that where an illiterate person executes a document, any other party to the document who relies upon it or the author of the document or any other person who acted at the request of the illiterate person must read over and explain the document to the illiterate unless the illiterate states clearly that he or she understands the content of the said document. The burden is always on the party relying on the document to prove that it read over and explained the document to the illiterate person and that the content of the document was understood by him. This burden may be discharged through oral or documentary evidence. A jurat is normally prepared to signify that the content of a document was read over and explained to the illiterate person before he executed the document.
In the instant case, the profound question is: is the 1st defendant an illiterate person?
An illiterate person is a person who is unable to read or write. The 1st defendant’s claim to illiteracy is the fact that her highest level of education was the Senior High School level as indicated on the loan application form. This court, however, finds it difficult to accept this self-serving classification by the 1st defendant. Judicial notice has been taken ofthe fact that one needs to attain a level of literacy and numeracy skills to qualify for placement into a Senior High School in Ghana. By no stretch of imagination can you describe a Senior High School graduate as an illiterate person unless that person professes to be so prior to the execution of a document. It is my humble opinion that a declaration that one has completed Senior High School is a prima facie evidence that the person is literate. In that regard, there is a presumption of literacy unless the same is rebutted. All the pieces of evidence on record show that the 1st defendant is a literate person and understood the content of the loan agreement before she accented to it in the presence of the 2nd defendant who acted as her guarantor.
The 1st defendant gave herself away when her witness statement never disclosed that the document was read over and explained to her before she signed same and indeed she never led evidence to that effect. The absence of a jurat raises doubt about the assertion that she is an illiterate person. In sum, the 1st defendant has failed to discharge the evidential burden borne by her on the issue. In the result, I hold that the 1st defendant is a literate person who understood the contents of the loan agreement and voluntarily executed it. In any case assuming without admitting that the 1st defendant is an illiterate person, the recent decision of our Supreme Court suggests that the transaction should not be declared void if indeed she understood the content of the contract. In Duodu and Ors v Adomako and Adomako, Civil Appeal No. J4/29/2011 dated 30TH December, 2011 the Supreme Court held:
“Thus any evidence which would demonstrate that the illiterate knew and understood the content of the disputed document should be settled in favour of the opponent.”
I have looked at the content of the loan agreement and the interest rate was stated in plain language.
Paragraph 4 of the agreement provides:
“The interest rate on the loan is 5.5 percent per month for the 12 month loan period, which is GHC 26,400 for the period.”
Beside the percentage rate, the exact amount payable to cover the interest rate for the period was also stated. Therefore, there was no ambiguity in respect of the interest rate on the loan. Clearly, the parties were not at cross purposes when the loan agreement was executed. Each party understood the terms of the agreement particularly the interest rate applicable. The 1st defendant was not laboring under any form of disability when she executed the contract. Thus, in answer to issue (b): there was no mutual mistake with regards to the interest rate applicable which was 5.5 percent per month for a12-month period. Also, from the foregoing reasons, the loan transaction cannot be said to be unconscionable. Issues (d) and (e)
The terms and conditions of the agreement are captured in the loan agreement itself. It establishes the principal and rate of interest exigible thereon. It also establishes the applicable fees and the tenor of the loan agreement.
There is no doubt that the principal amount was GHC40, 000.00 and a compound interest rate of 5.5% per month was to be applied on the principal amount for a period of 12 months with effect from 17th
March, 2015. In fact, loan period ends on 17thMarch, 2016. Thus, the default clause can only be triggered after March17, 2016. The sum total of the monthly interest for the 12 months period stood at GHC26, 400.00. Thus, the total amount payable after 12 months stood at GHC 66,400.00. Both the plaintiff and the 1st defendant attached statement of the 1st defendant for the period covering the loan term: See exhibits D and C02.I have scrutinized the statement and it is clear that between April 2015 and March 2016 the total amount paid by the 1st defendant was GHC 19,908.00. When this amount is deducted from GHC 66,400.00, the outstanding balance payable as at March 2016 when the total amount was due for payment stood at GHC 46,492.00. It is observed that on 2nd August, 2016 the loan was rescheduled and an amount of GHC 8,606.00 was credited to her account. This and the Working Capital Reschedule Interest Debit of GHC 15,112.02 which was effected on 5th July, 2016 were not factored in the calculation, as they do not cover the claim.
It is clear that the loan was for a period of twelve months and at the end of the period the loan was expected to be fully paid together with the agreed interest.The question is: is the monthly compound interest of 5.5% so high that it makes the transaction unconscionable?
In the case of Printing and Numerical Registering Co. vs. Sampson (1975) L R 19 EQ 462 at 507 Sir George Hessel said:
“If there is one thing more than another which public policy requires, it is that men of full age and understanding shall have the utmost liberty of contracting and that their contracts when entered into freely and voluntarily shall be held sacred and enforced by courts of justice.”
The Supreme Court gave a stamp of approval to the English authority above in the case of Oppong vs.
Anarfi (2011) SCGLR 556 where it was held as follows:
“The law was settled that a party of full age and understanding would normally be bound by his signature whether he read and understood it or not, particularly in the absence of the requisite evidence that the other party had misled him. Therefore where parties had embodied the terms of their contract in a written document, extrinsic evidence or oral evidence would be inadmissible to add to, vary, subtract from or contradict the terms of the written instrument. Thus mere negligence in not reading a document before signing could not amount to the defence of non-est factum.’’
Having come to the conclusion that there are no vitiating factors which render the loan agreement void, the parties are bound by the terms of the agreement including the interest rate. So long as the parties voluntarily entered into the loan agreement the same would be enforced by the court.
The 1st defendant is claiming that he signed up to an insurance policy pursuant to the grant of the loan and has argued forcefully that the insurance must cover her indebtedness. According to her the policy was to cover ill health and since she took ill after securing the loan and was unable repay the loan facility, she is entitled to an insurance cover form the Insurance Company. The plaintiff, however, rebutted this assertion and stated that the insurance only covered death and incapacitation. I have examined the medical report exhibited by the 1st defendant and it confirmed that she was taken ill and underwent a medical procedure. The report never said that she is incapacitated as a result of the illness. In fact, the report concluded that “she has subsequently had two reviews and her condition has remained good.” It is trite learning that under an insurance policy whenever a risk occur the insured must inform the insurance company and make a formal claim under the policy. The insurance company will then investigate to ascertain the veracity of the risk before making any payment. In the instant case, no such claim has been made by the 1st defendant.
Also, the 1st defendant did not attach the insurance policy for the court to determine the terms. Indeed, the plaintiff ought to have attached the insurance policy to assist the court but since it does not bear the evidential burden on the issue it is not fatal to the plaintiff. It is the 1st defendant who has failed to discharge her evidential burden on the issue. Consequently, I hold that in spite of the insurance policy the 1st defendant is liable to pay the outstanding debt. From the loan agreement, the 1st defendant also undertook to continue to pay the agreed interest rate after the maturity date of the loan.This may appear to be onerous but they were entered into voluntarily by parties of full age and capacity. In view of this, the court has no option than to enforce it.In the result, the plaintiff is entitled to the compound interest of 5.5% per month on the sum of GHC46, 492.00 from 17th March, 2016 to the date of final payment of the loan.
Is the plaintiff entitled to the penalty rate of 3% per week?
In Dunlop Pneumatic Tyre Co. Ltd v New Garage & Motor Co. Ltd  AC 79 the court per Lord Dunedin defined a penalty in relation to liquidated damages as follows:
‘‘a) It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.
b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid. This though one of the most ancient instances is truly a corollary to the last test ... etc”
A straightforward example of the application of the Dunlop Pneumatic Tyre Co. Ltd criteria is Campbell Discount Co. Ltd v Bridges  AC 600, where the House of Lords struck down as a penalty a clause in a high purchase agreement requiring the hirer to pay compensation for premature termination on the grounds that the clause provided a sliding scale which operated in the wrong direction: the less the depreciation of the vehicle, the greater was the compensation payable. Penalty clauses are not generally enforceable under the common law. It is, however, important to note that the common law principle of a penalty clause has seen a recent modification in two consolidated English cases: Cavendish Square Holding BV v Talal El Makdessi and Parking Eye Limited v. Beaveis  UKSC 67. The UK Supreme Court took the position that a clause would not be judged penal unless same “imposes a detriment on the contract breaker which is out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation”. The Ghanaian court seems to adopt the position of the common law in striking out penalty clauses in liquidated damages claims. In Adjei v Oteng alias Ama [1997-98] 1 GLR 725, Holding 1, Afreh (JA as he then was) held:
‘‘When the parties to a contract stipulated the sum to be paid by way of damages in the event of a breach, the sum stipulated might be classified as liquidated damages or a penalty but not both. The essence of a penalty was a payment of money stipulated as in terrorem of the offending party, but the essence of liquidated damages is a genuine covenanted pre-estimate of damage. However, that issue was a question of construction to be determined upon the facts and inherent circumstances of each particular contract as at the time of making the contract. It would only be allowed where it was found to be liquidated damages and not a penalty. In the instant case, the payment of 50 percent of the deposit stipulated in the contract was not a genuine pre-estimate, at the time the contract was made, of the loss the plaintiff would incur if the defendant broke the contract. It was an extravagant and unreasonable amount in comparison with the greatest damage or loss that at the time of the contract the parties could genuinely estimate the plaintiff would suffer in the event of a breach by the defendant. Since it was clear that it was in the nature of a threat held over the defendant in terrorem—as a security to the plaintiff that the defendant would perform the contract—the sum stipulated was a penalty. Accordingly, the plaintiff could not claim it. Dictum of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd  AC 79 at 86-87 applied.’’
In construing whether a clause is in truth a penalty, the court looks beyond labelling to ascertain whether indeed the sum stipulated is a genuine pre-estimate of the loss suffered as a result of the breach. In the instant case the penalty clause of 3% per week is unconscionable and out of proportion to the legitimate interest of the plaintiff. From the facts, payment of the compound interest together with the otstanding sum is enough given the fact that the compound interest is relatively high and covers the period after the default till the date of final payment.
I am therefore persuaded by the dictum of Afreh (JA as he then was) and consequently strike out the penalty clause as extravagant and unconscionable. I am emboldened to take this decision in the light of two Supreme Court decisions i.e. Mensah and Others v. Ahenfie Clothes Sellers Association  SCGLR 680 and Mensah and Ors v. Royal Beneficiaries Association [2013-2014] 2 SCGLR where the Supreme Court struck down interest rates as they were held to be unconscionable.
Accordingly, I enter judgment in favour of the plaintiff against the 1stdefendant in the amount of GH¢ 46,492.00 plus 5.50% monthly interest from 17/03/2016to date of final payment. In the alternative, the plaintiff can cause judicial sale of Plot No. 85 Kromoase, Kwanwoma to defray whole or part of the debt.
Costs of GH¢6,000.00 is awarded against the 1stDefendant.