• IN THE SUPERIOR COURT OF JUDICATURE
  IN THE HIGH COURT (COMMERCIAL DIVISION)
  KUMASI - A.D 2018
  

SINAPA ABA SAVINGS AND LOANS LIMITED - (Plaintiff)

vs.

PRIME MOTORS LIMITED & ANOR - (Defendants)

JUDGMENT

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This is a loan recovery action in which the Plaintiff bank seeks to recover the sum of GHC 190,299.66 and interest thereon from the Defendants as debtor and guarantor respectively. The case of the Plaintiff is that on 03/12/2014 it granted a credit facility of GHC 200,000.00 to the 1st Defendant at its request for a period of twenty-four months which has since elapsed. The 1st Defendant secured repayment of the loan with its machinery and also executed an equitable mortgage over its building; the 2nd Defendant executed a contract of indemnity. The Plaintiff stated that the Defendants have defaulted in fulfilling their respective obligations under the facility in issue. The Defendants caused a lawyer to enter appearance on their behalf, and he proceeded to file a statement of defence. Directions for the filing of witness statements were given on 12/02/2018, the defendants who failed to comply with the timelines, were given seven days extension of time within which to file their witness statements. That did not also work for them, on 16/04/2018, their lawyer informed the court that Prime Motors is virtually non-existent and he was finding it difficult to get the witnesses so as to file their statements. On 18/04/2018, counsel for the Plaintiff prayed the court to strike out the statement of defence and counterclaim of the Defendants for failing to comply with the orders given at the Case Management Conference. The court accordingly struck out the statement of defence and counterclaim filed by the Defendants on 31/03/2017 under Order 32 rule 7A (3) (b) of the High Court (Civil Procedure) (Amendment) Rules, 2014 C.I. 87. A date was set for the Plaintiff to prove its case, and counsel for the defendants attended court to cross-examine the plaintiff’s representative.

 

 

 

ISSUES FOR TRIAL

 

The issues set down for trial are:

 

Whether the Plaintiff granted a loan facility in the sum of GHC 200,000.00 to 1st Defendant? Whether it was agreed that the facility was to attract interest at 39% per annum?

 

Whether 1st Defendant executed an equitable mortgage over its building property as security for the loan?

 

Whether 2nd Defendant executed a contract of indemnity in favour of the Plaintiff in respect of the loan facility?

 

Whether Plaintiff and Defendants entered into any loan agreement in October, 2016 which varied the loan agreement?

 

Whether the Defendants are indebted to the plaintiff in the sum of GHC 190,299.66 as at 31st December, 2016?

 

Whether the Plaintiff is entitled to its claims against the Defendants?

 

 

 

At the trial, a representative of the Plaintiff testified on its behalf, and the Plaintiff called one witness of fact. In proof of the Plaintiff’s assertions that a loan of GHC 200,000.00 was given to the 1st Defendant at an interest of 39% per month for twenty-four months which said terms were contained in the loan agreement, the Plaintiff’s representative tendered copies of the application letter put in by the 1st Defendant for the loan (exhibit A); the Offer letter (exhibit B) and the loan agreement (exhibit C). As proof of the contract of guarantee executed by the 2nd Defendant, a copy of the said agreement was tendered as exhibit ‘D’. Further, the Plaintiff’s representative tendered the lease document over the 1st Defendant’s landed property numbered plots 07 & 011, New Bekwai Road, Ahenema Kokoben, Kumasi, which the 1st defendant gave to the bank as security for re-payment as exhibit ‘E’.

 

 

 

Continuing, the Plaintiff’s representative said the 1st defendant defaulted in re-payment and when the 2nd Defendant was approached, he requested that in order to reduce the indebtedness of the 1st Defendant, he wanted the Plaintiff to service its vehicles at the 1st Defendant’s workshop so that the cost of such servicing would not be paid to the 1st defendant by the Plaintiff but same will be used to defray part of the 1st defendant’s debt. However, this request was not accepted by the Plaintiff. This piece of evidence was corroborated by PW1, who described herself as the Head of Administration of the plaintiff bank. According to PW1, she went along with the head of credit of the Plaintiff bank and the Ellis Avenue Branch Manager to the 1st Defendant’s workshop to discuss the issue with them, but the arrangement suggested by the Defendants was not feasible and so there was no agreement to that effect. That notwithstanding, the Plaintiff’s representative said on one occasion, its Ellis Avenue Branch sent a vehicle to the 1st Defendant for servicing, and the 2nd Defendant directed that the service charges amounting to GHC 672.93 after tax be credited to the 1st Defendant’s loan account to reduce its indebtedness.

 

 

 

The Plaintiff’s representative explained that the 1st Defendant was to make monthly payments of GHC 15,290.04 which comprised principal, interest and client’s welfare scheme. Thus, the total expected payments at the end of the twenty-four months was GHC 366,960.96, but as at December, 2016, the 1st Defendant had paid GHC 176,661.30, hence the claim for GHC 190,299.66.

 

 

 

BURDEN OF PROOF.

 

The striking out of the Defendants’ statement of defence and counterclaim does not relieve the Plaintiff from the burden of proof placed on it by law. This is because under sections 10(1) & (2) (b) and 11(1) of the Evidence Act, 1975 NRCD 323, the Plaintiff must introduce evidence to establish a requisite degree of proof in the mind of the court so as to avoid a ruling being made against it. Put differently, in the circumstances of this case, both the burden of persuasion and evidential burden rest on the Plaintiff. The provisions just referred read:

 

 

 

10. Burden of persuasion defined

 

(1) For the purposes of this Act, the burden of persuasion means the obligation of a party to establish a requisite degree of belief concerning a fact in the mind of the tribunal of fact or the Court.

 

(2) The burden of persuasion may require a party

 

(b) to establish the existence or non-existence of a fact by a preponderance of the probabilities …

 

 

 

11. Burden of producing evidence defined

 

(1) For the purposes of this Act, the burden of producing evidence means the obligation of a party to introduce sufficient evidence to avoid a ruling on the issue against that party.

 

The standard of proof must necessarily meet the requirements of sections 11(4) and 12 of NRCD 323, that is, proof by the preponderance of probabilities. It states:

 

 

 

11(4) In other circumstances the burden of producing evidence requires a party to produce sufficient evidence which on the totality of the evidence, leads a reasonable mind to conclude that the existence of the fact was more probable than its non-existence.

 

 

 

12. Proof by a preponderance of the probabilities

 

(1) Except as otherwise provided by law, the burden of persuasion requires proof by a preponderance of the probabilities.

 

In any case, it is the Plaintiff who has dragged the Defendants to court and there is no legal obligation on the Defendants to prove anything, except to say that in such a situation, the court will be left with only the evidence of the Plaintiff to consider when weighing the evidence. Brobbey JSC commented on this in the case of In Re Ashalley Botwe Lands; Adjetey Agbosu & Ors v Kotey & Ors ( 2003- 2004) SCGLR 420. His Lordship stated:

 

... A litigant who is a Defendant in a civil case does not need to prove anything; the Plaintiff who took the defendant to court has to prove what he claims he is entitled to from the Defendant. At the same time, if the court has to make a determination of a fact or of an issue, and that determination depends on evaluation of facts and evidence, the Defendant must realize that the determination cannot be made on nothing. If the Defendant desires the determination to be made in his favour, then he has the duty to help his own cause or case by adducing before the court such facts or evidence that will induce the determination to be made in his favour. The logical sequel to this is that if he leads no such facts or evidence, the court will be left with no choice but to evaluate the entire case on the basis of the evidence before the court, which may turn out to be only the evidence of the Plaintiff. If the court chooses to believe the only evidence on record, the Plaintiff may win and the defendant may lose. Such loss may be brought about by default on the part of the Defendant ...

 

 

 

All assertions made by the Plaintiff, and which are capable of proof in some positive way must be strictly proved, otherwise, the Plaintiff cannot succeed on that point. See Ackah v. Pergah Transport Limited & Ors (2010) SCGLR 728.

 

 

 

WHETHER THE PLAINTIFF GRANTED A LOAN FACILITY IN THE SUM OF GHC 200,000.00 TO 1ST DEFENDANT

 

AND

 

WHETHER IT WAS AGREED THAT THE FACILITY WAS TO ATTRACT INTEREST AT 39% PER ANNUM.

 

Relying on the evidence adduced on behalf of the Plaintiff, counsel for the Plaintiff argued that the fact of the Plaintiff granting a loan of GHC 200,000.00 to the 1st Defendant to be repaid on agreed terms has not been discredited by the Defendant, and in both the offer letter and the loan agreement, the interest exigible was stated as 3.25% per month, which translates to 39% per annum. Based on these pieces of evidence, counsel invited the court to rule in favour of the Plaintiff on these issues. Counsel for the Defendant took a contrary view. Even though he conceded that the 1st Defendant took a loan of GHC 200,000.00 on 10/03/2014 from the Plaintiff, he challenged the terms of the loan. Referring to exhibit C, the loan agreement tendered by the Plaintiff, counsel argued that since that document was executed on 03/12/ 2014, the terms therein cannot relate to a loan disbursed to the 1st defendant on 10/03/2014, that is nine months earlier. His contention was that there must certainly be a loan agreement covering the money disbursed to the 1st Defendant on 10/03/2014, but the Plaintiff has failed to tender the same.

 

 

 

Since the loan drawdown date preceded the execution of the loan agreement by nine months, it was counsel’s submission that the 3.25% per month or 39% per annum interest rate is inapplicable to the loan in issue. It is quite intriguing that even though the loan agreement between the Plaintiff and 1st Defendant herein is dated 03/12/2014, there is a contract of guarantee executed by the 2nd Defendant is his capacity as Director of 1st Defendant on 03/03/2014, exhibit ‘D’; and per exhibit ‘F’, titled statement of account, the loan drawdown date was 10/03/2014. How could this have happened? Whilst the Plaintiff’s representative was under cross-examination, he attempted to explain this away by saying that probably the loan might have been restructured as a result of which an agreement was executed, that is, exhibit ‘C’. This prompted the court to go back to the Plaintiff’s statement of claim. In paragraphs 3 and 4 of the statement of claim filed on 01/03/17, the Plaintiff pleaded as follows:

 

3. The Plaintiff states that on 3rd December, 2014 at the request of the 1st defendant, the Plaintiff granted a credit facility in a total sum of GHC 200,000.00 to the 1st defendant for its business.

 

4. The credit facility in the sum of GHC 200,000.00 was to attract interest chargeable at the rate of 39% per annum or such other rate that the Plaintiff shall determine from time to time.

 

 

 

Ordinarily, the lending bank will require the borrower to satisfy the conditions precedent before the borrower can draw down the funds. These conditions are usually contained in the loan agreement, and vary according to the type of credit facility. The plaintiff has not demonstrated, either through its pleadings or evidence on oath that the loan disbursed to the 1st defendant on 10/03/2014, was restructured on 03/12/2014, as a result of which exhibit ‘C’ was made. The Defendants have also not introduced any evidence that pursuant to the loan agreement dated 3rd December, 2014, an amount of GHC 200,000.00 was disbursed to the 1st Defendant Company. Indeed, upon a perusal of exhibit ‘F’, there is no loan drawn down on any other date apart from 10/03/2014. The question is, if there was no agreement to repay the loan of GHC 200,000.00 at an interest rate of 3.25% per month, on what basis, and for what reason, did the 2nd Defendant execute the contract of guarantee dated 03/03/2014 exhibit ‘D’? Strangely, the portion on exhibit ‘D’ where the loan sum was to be inserted was left blank, but the interest rate was written therein. Is it the case that the Plaintiff’s officer responsible for the documentation and processing of the loan agreement did not pay attention to details, or that he deliberately made mistakes so as to frustrate the enforcement of the loan and /or contract of guarantee?

 

 

 

It is true that the production of the loan agreement in respect of the loan drawn down on 10/03/2014 would have been the best form of evidence as to the terms of that loan. But, in the absence of a formal loan agreement covering the loan disbursed to the 1st Defendant on 10/03/2014, which it duly utilized by way of withdrawals, the court will hold that the 1st Defendant accepted the loan which it applied for in March, 2014, as in exhibit ‘A3”, on the Plaintiff bank’s usual lending terms, such as in exhibit ‘C’. There is evidence on record, as in exhibit ‘D’ executed by the 2nd Defendant, which shows that as at 03/03/2014, the 2nd Defendant, acting for and on behalf of the 1st Defendant, knew that the Plaintiff bank’s lending interest rate was 3.25% per month. So, for the 1st Defendant’s total exposure of GHC 200,000.00 a week later, it knew, or ought to have known of the interest exigible on the loan. The reliance on the date on exhibit ‘C’ by the Defendants is just an attempt to confuse the issues and to mislead the court as to the terms of the loan.

 

Having weighed the evidence before this court, the court concludes that the Plaintiff granted a loan of GHC 200,000.00 to the 1st Defendant on 10/03/2014 at an interest of 3.25% per month, which translates to 39% per annum and the 1st Defendant in fact utilized the facility.

 

 

 

Whether Plaintiff and Defendants entered into any loan agreement in October, 2016 which varied the loan agreement.

 

The Plaintiff has not made any such allegation or averment in its pleadings and it does not form the basis of the Plaintiff’s case. In other words, neither the burden of persuasion nor the evidential burden on this issue rest on the plaintiff. And, since the defendants have not introduced any evidence at all on this point, the court holds that there was no agreement in October, 2016 which varied any previous agreement between the parties.

 

 

 

WHETHER OR NOT THE 2ND DEFENDANT EXECUTED A CONTRACT OF INDEMNITY IN FAVOUR OF THE PLAINTIFF IN RESPECT OF THE LOAN FACILITY.

 

The Plaintiff pleaded in paragraph 6 of its statement of claim that the 2nd Defendant executed a contract of indemnity in favour of the Plaintiff. Going by the principles of proof in civil suits, the Plaintiff must prove this fact. Exhibit ‘D’ is the only evidence tendered by the Plaintiff on this issue. In his final submissions, counsel for the Plaintiff relied on exhibit ‘D’, and argued that to the extent that its validity has not been challenged by the Defendant, the court should make a finding in favour of the Plaintiff on this point. Counsel for the Defendants did not touch on this issue in his closing address filed in court. Exhibit ‘D’ is titled “Contract for Guarantee”. The Contracts Act, 1960, Act 25 makes provision for contracts of guarantee, section 14 thereof states:

 

 

 

Contracts of Guarantee

 

14. Guarantees to be in writing

 

(1) An agreement made before or after the commencement of this Act, by which a person guarantees the due payment of a debt or the due performance of any other obligation by a third party, is void unless it is in writing and is signed by the guarantor or is entered into in a form recognized by customary law.

 

From the above provision, a ‘guarantee’ constitutes a promise to compensate a creditor against loss incurred by the main debtor’s default. On the other hand, an “Indemnity” is a promise to reimburse the beneficiary thereof for loss incurred in a given venture. The loss is usually the result of the default of one party in contract. In ‘Chitty On Contract’ 23rd Edition, page 772, the learned author made this distinction:

 

In a contract of guarantee, the surety assumes a secondary liability to answer for the debtor who remains primarily liable; whereas in a contract of indemnity, the surety assumes a primary liability either alone or  jointly with the principal debtor.

 

 

 

In the case at hand, this court will look at the substance, rather than the form, and hold that the 2nd Defendant executed a contract of guarantee and not a contract of indemnity. Hence, the contract of guarantee executed by the 2nd Defendant on 03/03/2014 related to the loan of GHC 200,000.00 drawn down a week later on 10/03/2014. In effect, the 2nd Defendant guaranteed the loan of GHC 200,000.00 disbursed to the 1st Defendant on 10/03/2014, when exhibits ‘D’ and ‘F’ are read together and I so find.

 

 

 

WHETHER OR NOT THE 1ST DEFENDANT EXECUTED AN EQUITABLE MORTGAGE OVER ITS BUILDING PROPERTY AS SECURITY FOR THE LOAN.

 

The Plaintiff’s evidence on this point is that the 1st Defendant used its machinery and building property No. 07 & 011, New Bekwai road, Ahenema Kokoben, Kumasi, as security. In support of this oral evidence, the Plaintiff’s representative tendered exhibit ‘E’, which it described as a lease document on the property.

 

All what the Plaintiff’s counsel said in his closing submissions on this issue is that in exhibit ‘C’, the 1st Defendant agreed to use its plant machinery and building to secure the repayment of the loan.

 

 

 

For the Defendants, counsel argued that exhibit ‘E’ is a lease agreement between the 1st Defendant and its landlord and cannot be a subject of a mortgage in respect of the loan in issue. He argued that from exhibit ‘E’, the 1st Defendant is not the owner of the property, and could not use the same to secure a loan. That apart, the interest of the 1st Defendant in the property has barely a year and a half to run. Upon a close look at all the documents tendered by the Plaintiff, there is no shred of evidence that the 1st defendant used the property described as building property No. 07 & 011, New Bekwai Road, Ahenema Kokoben, as security for repayment of the loan granted on 10/03/2014. Even if the court considers the loan agreement executed on 03/12/2014, there is still a hurdle. Why is it so? From the Plaintiff’s own exhibit ‘E’, the real owner of the property numbered 07 & 011, New Bekwai Road, Ahenema Kokoben, is Andrew Amoako Asiamah of P.O.Box 11769, Kumasi, he has been described as the lessor of that property. Exhibit ‘E’ was made on 10/02/2010, to take effect from 15/04/2010 for a period of ten years.

 

 

 

The said Andrew Amoako Asiamah has not executed any document to the effect that he ever consented to the use of this property as a third party security. Neither the Plaintiff nor the subject loan is mentioned in exhibit ‘E’. It is also not the Plaintiff’s case that the 1st Defendant used its ten-year interest as security. The Plaintiff ought to have known of the 1st Defendant’s limited interest in the property as per exhibit ‘E’. This court observes that the Plaintiff’s officer(s) who represented in it in these transactions failed to do due diligence before the loan was drawn down. Exhibit ‘E’ is certainly not evidence of any mortgage, howsoever described, over the property numbered 07 & 011, New Bekwai Road, Ahenema Kokoben. (emphasis). As between the parties to this suit, there is no enforceable mortgage howsoever described.

 

 

 

WHETHER OR NOT THE DEFENDANTS ARE INDEBTED TO THE PLAINTIFF IN THE SUM OF GHC 190,299.66.

 

The evidence adduced on behalf of the Plaintiff is to the effect that the loan was to be amortized by monthly installments of GHC 15,290.04, inclusive of interest. As at the time of this suit, the Plaintiff’s evidence is that GHC 176,661.30 had been paid. It turned out during cross-examination that an amount of GHC 672.93 being the Plaintiff’s Ellis Avenue vehicle serving charge, was not credited to the 1st Defendant’s loan account as directed by him.  The Plaintiff’s representative’s evidence that only GHC 593.05 ought to be credited to the 1st Defendant’s account is not justified because per his own admission, the service charge was GHC 672.93. Under the circumstance, the GHC 672.93 is to be credited to the 1st defendant’s loan account.

 

During cross-examination on 08/05/2018, the Plaintiff’s representative gave the following breakdown of the amount the 1st Defendant owes:

 

Q. How much of this is the principal?

 

A. GHC 99,999.90.

 

Q. What of the interest component?

 

A. It is GHC 73,521.54.

 

Q. What of the welfare component?

 

A. It is GHC 3,732.84.

 

 

 

When asked to explain the client welfare scheme, the plaintiff’s representative stated thus:

 

Q. Can you take the loan agreement, exhibit C, and read paragraph 4, which relates to client welfare scheme?

 

A: “The borrower shall contribute towards a welfare fund an amount representing 2% of the principal loan amount. The welfare fund shall be used to defray any balance of the loan outstanding in the event of any claim by the client as specified by the CWS policy”

 

Q. Do you make this policy available to the client?

 

A. At the point of the loan we do inform them what it is about as I have said, when you have a natural disaster, armed robbery and there is a police report to that effect, the CWS takes care of the claim.

 

Q. I am putting it to you that you never made this policy available?

 

A. Prior to the giving of the loan, those portions are explained to the client and he signed to it indicating that he understood perfectly what it is.

 

Q. I am putting it to you that you rather explained to the client in the event that he is unable to pay any outstanding debt under the contract, any amount that it had at that time contributed would be used to defray all or part of the debt.

 

A. That is not correct.

 

Q. And you did not attach this policy to your witness statement.

 

A. We did not.

 

 

 

As the evidence stands now, there is nothing to show that the Defendant was made to sign any CWS policy on or before the loan draw down date of 10/03/2014. The policy itself was also not tendered by the Plaintiff to enable the court make its own findings. That notwithstanding, the 1st Defendant,  acting through 2nd Defendant executed exhibit ‘C’, which contains the Bank’s usual lending terms, one of such terms is the CWS policy. It is the view of this court that the Defendants have always been aware of the 2% CWS charge and the denial in court is an obvious afterthought. The court will therefore accept the oral testimony of the Plaintiff’s representative that the Defendants were made aware of the 2% CWS charge before the loan draw down date of 10/03/2014. From the Plaintiff’s exhibit ‘F’, the total payments made by the 1st Defendant as at 01/03/2018 is GHC 177,254.35. When the GHC 672.93 is added, the resultant figure is GHC 177,927.28.

 

 

 

In the absence of any documentary proof from the Defendants evidencing payments made beyond the GHC 177,927.28, the court holds that no additional payments have been made by the 1st Defendant. At the interest rate of 3.25 % per month or 39% per annum, on the sum of GHC 200,000.00 advanced to the 1st Defendant on 10/03/2014, together with the processing fee and CWS charges which the Defendants were aware of, the Plaintiff is entitled to recover from the Defendants, as principal debtor and guarantor respectively, the sum of GHC 189,033.68.

 

 

 

Accordingly, judgment is entered against the Defendants in favour of the Plaintiff in the sum of GHC 189,033.68, together with interest at the prevailing Commercial Bank rate and at simple interest from 17/01/2017 to the date of delivery of judgment; and post judgment interest at the same rate till date of final payment.

 

Cost of GHC 8,000.00 is awarded against the Defendants in favour of the Plaintiff.