Money Lenders, Collateral And Sale
By Dickson Jere
He borrowed K12,000 from money lender and pledged his Mercedes Benz C Class as collateral. As per agreement, he was to pay back K15,600 inclusive interest after a month and was therefore made to sign a sale agreement of the Benz.
As fate had it, he defaulted. The lender then sold his car for K55,000 and he was not given back the difference. He also claimed that the car was actually worthy K180,000 and not K55,000. The lender insisted that the car was not in good condition and in fact the buyer spent over K70,000 fixing it.
The above summarized facts prompted the borrower to sue in the High Court, claiming that interest charged was high (illegal) and that he did not allow the lender to sale his car after default.
Last week, the High Court Judge, Kazimbe Chenda, made the following important points after analyzing the case;
1. The sale agreement for the car was valid as it was signed with free will. However, there was evidence to show that the car was not an alright sale but collateral linked to the loan even though the letter of sale did not say so. The Judge said; “The letter of sale was valid, binding and enforceable.”
2. When a car was pledged as collateral on “as is basis”, you cannot claim later that it was not in good condition. You bear the costs of repairs as the lender or buyer. “It follows that the Defendant having transacted with the Plaintiff over the vehicle on the basis of the letter cannot cry foul over the state of vehicle,” the Judge said.
3. After selling the car, the lender should have rendered an account to the borrower and handover the change less the costs incurred. The lender was therefore in breach of the law and should return the change to the borrower, if any. “I thus find that the Defendant breached its statutory duty to account to the Plaintiff…” the Judge ruled.
4. The interest charged on the loan of 30% per month was against the law. The correct interest was reduced from 30% per month to 30% per year! “It follows therefore, that the interest under the loan agreement is way beyond the permissible statutory limit, illegal and unenforceable,” the Judge stated.
What are the take home points from this Judgement?
(a) When you voluntarily sign the sale of your property as collateral, you cannot turnaround and say you did not agree. However, if the sale is linked, by evidence to a loan, that sale will be taken as collateral by the Court.
(b) Money lenders should always make sure that the interest charged on the loan is not beyond 48% per year. Anything beyond that will be declared illegal by the Court.
(c) When the car is sold on “as is basis” you cannot come back later and claim that the vehicle is faulty. You take the risk!
So, think twice before borrowing especially during the festive season. And read what you sign and make sure you understand the terms and conditions. If in doubt, consult lawyers.
For details – read the case of Chisanga v Muzanga limited- 2022/HPC/0257. My students, this is mandatory read.
Merry Christmas and I am still on holidays until next year!
Disclaimer. The article is based on my analysis of this case and is not substitute of legal advice. Seek independent legal advice.
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