ACCRA - A.D 2016

SUIT NO:  MISC/0006/2015

On the 2/12/15 the court granted an application filed by the Lender/Respondent herein on a motion for the possession of H/N Plot No 340 Trasacco Valley Estates, Accra under section 34(2) of the Borrowers and Lenders Act, Act 773. The applicant herein was served with the application but failed to appear before the court. It is the grant of the application for a warrant for the possession of the said property that has ignited the present application wherein the borrower/applicant seeks to set aside the grant of the warrant.


To fully appreciate the principles that will govern the grant or refusal of this application it would be useful to set out the background facts that has led to this present application. The lender in August 7, 2014 made an investment placement with the borrower/applicant in the sum of Gh¢ The lender sometime later made a demand for those sums of monies deposited as investment capital with the borrower/applicant. Instead of their monies being paid back to them, the borrower/applicant rather asked for a loan of Gh¢ for a two year period to use as a working capital. This was agreed to and accordingly the investment amount which had accrued interest and the requested loan amount of Gh¢ were both consolidated as a loan per an offer letter dated the 23rd April, 2015.


As part of the conditions for the disbursement of the loan of Gh¢ the borrower/applicant was required to meet certain conditions precedent including the provision of shareholder’s guarantee as well as directors’ personal guarantee. Security in the form of a property situate at Trasacco Valley was used as the mortgage property. The lender proceeded to effect the necessary registration of the loan and the use of the property as security under the Borrowers and Lenders Act, Act 773 of 2008.


Notwithstanding the registration of the loan and the mortgage property by the lender, the lender did not disburse the amount of Gh¢ for what it termed as the failure of Dream Finance, that is the borrower, to furnish it with the “Directors Personal Guarantee and the Shareholders’ Personal Guarantee being part of the conditions precedent to the release of additional funds”.


It admits of little controversy that without the anticipation of the release of an amount of Gh¢ the offer letter and the mortgage agreement would not have been signed between the parties. So therefore if the two agreements have been signed but the offer of Gh¢ could not be disbursed due to non performance of a condition precedent, what then becomes of the registration of the mortgage agreement under the Borrowers and Lenders Act based on which registration the lender had secured a warrant to possess the charged property.


Akembek, Esq in moving his application contends that the non disbursement of the loan automatically set aside the mortgage registration under Act 773 and revert the monies already with the applicant to its original position as an investment deposit and cannot continue as a loan given to the applicant herein. Osafo Buabeng, Esq. on the other hand claims that the investment amount together with the non disbursed loan were consolidated into one such loan agreement that even if the loan of Gh¢ was not disbursed, the investment amount that now stands at G¢5.666.949.00 continues as a loan under the facility offer and the mortgage agreement signed between the parties and its subsequent registration under Act 773 was proper.


Two contractual principles arises for determination on the face of this application even though both counsel failed to adequately raise and address them in their viva voce submissions before the court. The first is whether common law contract principle of novation of contract arises in respect of the original amount provided as fixed deposit such that after the signing of the offer letter, the placement agreement and the mortgage deed, the Gh¢ together with its interest was to be seen as a loan. And the second is whether the contract law principle of severability can be invoked here to sever the non disbursed loan from the converted investment amount into loan and enforce the recovery of same through the warrant issued by the court.


The Applicant/borrower contends in his affidavit in support of his application that since the loan of Gh¢ never materialized the transaction and its registration cannot properly be enforced and ask that the court vacant the warrant issued for the possession of the charged property. The Offer letter which was attached to the lender’s application and was marked as Ex ‘D’ states at page 1 of what constituted the loan as follows:

“New: Five Million Ghana Cedis (Gh¢

Existing: Five Million Six Hundred and Sixty Six Thousand Nine Hundred and Forty Nine Ghana Cedis (Gh¢5.666.949)

Consolidated: Ten Million Six Hundred and Sixty Six Nine Hundred and Forty Nine Ghana Cedis (Gh¢10.666.949)”.


I glean from the offer letter that the existing investment amount was converted into a loan and assumed a new status. And notwithstanding the non disbursement of the new loan, the existing one is not reverted to its original state. This is clearly what has been termed as the contract law principle of novation.

Novation is a substitution of a new for an old debt. The old debt is extinguished by thenew contrac in its stead. A novation may be made where a debtor con agement with his creditor, in consideration of being liberated from the earlier one and is usually called a general novation. There are also expromissor and delegation novations, which two novations do not arise in respect of this case.


Indeed according to Black’s Law dictionary, 8th Ed. novation is “the act of substituting for an old obligation a new one that either replaces an existing obligation with a new obligation or replaces an original party with a new party”. A novation may substitute a new obligation between the same parties or a new debtor, or a new creditor. It is also termed as substituted agreement. Novation therefore is the emergence and transfer of a prior debt into another obligation which metamorphosis into a new obligation in such a way as to destroy the earlier one.


The case of JAPAN MOTORS TRADING v RANDOLPH [1982-83] GLR 536 better illustrates this common law principle of contract where the plaintiffs entered into an agreement for the sale of their properties to the original purchasers and allowed access into the property by the intended purchasers based on a signed agreement. Raising money to pay for the property became a challenge and there had to be a renegotiation of the debt when there was a floating of shares. A new agreement was entered into and a substantial part of the purchase price for the workshop was paid. Plaintiff sued for what he claimed to be an outstanding amount. The defendants contended that the first agreement was not binding on them and were not liable for any obligations under it. Abban J. (as he then was) held that the parties themselves agreed to substitute the subsequent agreement for the previous one. Thus with the consent of all the parties, the transaction in the previous agreement was incorporated in the new one and the defendants were substituted for the person that had entered into the contract with plaintiff thereby discharging him from his obligation under the first agreement. And this was a kind of novation, according to the court, since it was clearly the intention of the parties that the liability under the original agreement to the plaintiffs was to be discharged in consideration of the defendants performing the same obligation in favour of the plaintiffs. See also the cases of G. B. OLLIVANT v EFFIOMS TRANSPORT 2 WACA 91; SERGENA v POKU 9 WACA 143.


It is the opinion of the court that even notwithstanding the non disbursement of the additional Gh¢ because conditions precedent were not met by Applicant/Borrower, the original amount given the applicant had been converted as a loan and the principle of novation is aptly applicable such that the monies do not revert to its original position as a investment deposit.



As a corollary to this novation concept must be answered whether the offer letter, placement agreement and the mortgage deeds can be saved or becomes void for the non disbursement of the new loan of Gh¢ It is trite that the courts only exists to give meaning to the terms agreed by parties to a contract and not to rewrite one for them and it is necessary for the court to find out whether the parties intended their whole contract to come to an end if the new loan was not disbursed. In Ex ‘E’ attached to the original application for issuance of warrant for possession is the Placement Agreement. At Clause 10:3 is severability clause which is worth quoting:


“If any term or provision shall be held to be illegal, invalid or unenforceable, in whole or in part under any enactment or rule of law, such term or provision or part shall to that extent be deemed not to form part of this offer but the validity and enforceability of the remainder of this offer shall not be affected”.


It is my understanding of the agreement entered into by the parties that it allows for severability of the part of the agreement that has become impossible to proceed with from the one that was the subject matter of the application for warrant. That existing amount was converted into a loan and if the second loan was not provided, the new birth assumed by the existing monies continues in full force and the registration of same under the Borrowers and Lenders Act cannot be said to be improper simply because the second loan was not disbursed. After all the lender did not ask the borrower to pay a loan he did not disburse to him.


For the reasons proffered, I find no just cause to set aside the warrant for the possession of the security at Trasacco Valley, granted by my good self under section 34 of the Borrowers and Lenders Act. Finding no merits in the application same is accordingly dismissed.


I award cost of Gh¢1.000.00 in favour of the Lender/Respondent.