20000915 TZCA Dodoma

IN TIIS COULT OF APPl~.AL Gr TJ.i.l'JZANIA .

AT DODOMA GT\IIL AP?J~AL NO. L1.4 OF 1997 YAHYA SAID NKULOMA. • • • APFSLLANT AND N .B.C. HOLDING COHPORA'I'ION L'fi). • • l18SPOND.GNT Um appeal fro:n the judgement and decree of the High Court of 'I'anzania at Dodoma) dated the 27th day of J·anuary, 1997 in ftY~~l. c~?~~.}:L?.~~J~?._ ,2J.,_l<z22 JUDG]tMbN'r OF THE COUR'J.1 ~.,._.,._:.,..•--·.-..; ... ,;;~.r-.--...... • ...... z.-.:-.~-....-,._. ..~............ 'I'he appellant unsuccessfully sued the respondent bank in the High Court and bejnp; dissatisfied vJith that judgement he has come' to this Court on appeal .. I At the High Court the follO\-.rfag 'facts were not :in dispute. The appellant had two accounts with the respondent bank at Kuu Street Branch, Dodoma: Nos. 18~0009 and 25/5L~9. In 1991 be. obtained a term loan of Shs • 9,300 ,000/- for a hotel project payable in six years from 1992 throue;h his account No. 18--0009. On his ~cc0Tu.1t No. 25/549, the appelJ.a.Dt got an overdraft facility for a .shop project durfr1g the period of 199·1 to' 1991+. 'I'he overdndt carried a higher interest rate· than the term loan. At various t:irnes the respondent bank transferred some monies totaling S,hs. 16,719,837/.: from account 25/549 'to account 18-0009 a11<l used it to service the term loan. - ••• /2 .,. 2 The case cf the appellant is that the respondent had neither a legal justification nor hfo permission to deduct that

sum and prayed that that amount, together, with an interest of Shs. 14,004-,264/=, be repaid to him. 'rhe respondent bank, on the other ha."'1d 1 claims that tho.t amount was deducted ,on the strength of a Banker 1 f; Order signed by the appella11t on 14/10/1992 authorizi:.rig such deductions to ,service the term loana On behalf. of the a})pollant was Hr. Pe.nl Nyengarika, learned advocate, while the respondent had. the services of Mr. Rich.::i.rd Hweyongeza, learned counsel., The appellant has a five-grom1d n:ernorandum of appeal~ The first ground is very general and it transcends all other grounds~ It avers that the learned trial judge did not properly evaluate the evidence in favour of the appellant,. Obviously, then we have to deal with the first ground in every one of the other four grounds~ the four g;rounds are that: One, the finding that the money was justly deducted wa_s wrong. 'l'wo, it was wrong to have found that the respondent bank had a lien on the money~ Three, the plea of non est factum vJas 'oirongly rejected. Four, . the learned j1.:.d.ge erred to hold that an account with an overdraft facility could also be an ordinary account. Before ,we examine the merits and/or demerits of the appeal, \ve think that it is necessary to go over some other established facts that, unfortunately, the -lower court either overlook3d or did not adequately come to grips with. The

loan contract was sie.;ned 011 6 April, 1990, and according to paragraph 3 ( i) of the loan Agreement (Exh. J?2), there was a period of grace of 23 months before repayment. ;I'he letter of 5 March, 1990 (Exh.P1) in which the respondent notified the appellar1t the approval of the loan, · fixed repayment to start on 31 March, 1992. 'I'he payr::ent was to be quarterly -per at Shs. 475,000/::: per quarter, tha.t is, a toto.l of Shs., 1,900,000/= Lyear,, ooo/3 3 An interest at the rate of 27 .5'}6 per annu.m was also to be paid from the time the appellant started :;using the term loan•;;o That, too, was to be paid quarterly on March, June, September and December of each yearo Again, there was a cornrnitrnent fee at the rate of 15,'b per annum ::on the committed but UJ."1.drawn L;,i,c] balance;' of the loan. The fee accrued from 6th April, 1990, that is 1 the dc.1.te of signing the loan Agreement. The repayment of the loan and the payment of interest thereon were to be executed as provided in the Jepayrnent Schedule, Appendix 1, to the loan Agreement. However, that Appendix is conspicuously absent from the court record an.d neither party has said a_-rwthing about it. So,· we have never been ill a position to Jin.ow \'Jhat was the Repayment Schedule, how much illterest and commitment fee was to be paid and when. 'l'he appellant was to bpen both an ordinary ai::cou.'lt and a

Banker's Order Card (Bo:;) authorizing the respondent bank to debit loan illStallments as and \•ihen they fell due e 'l'hat 'account was never opened 'out a BOC (Exh. P8) was signed on '14 October, 1992 and was to take. effect from 27 October, 1992 for a deduction of Shs~ 292,000/~ every quartere We should put it on record here that the first deduction from the account 25/549 was on 28 .September, 1991 a."ld was of Bhs., 1,046,250/=-=. Mr6 Rweyongeza submitted that there were three ways ill which the loan could have been repaid. One, it ::)ould have been repaid directly in cash by the appellanto Two, repayment illstalli11ents could have been deducted through the BOC. Lastly, the respondent could use the bankillg practice of debiting a borrO\·Jer's accm.L."1.t with a credit balance. It is significant to note that the appellant has never ex1ilained how he effected the loa....-vi repayments arid h0.s been absolutely rnurn· as to how much he had r repaid,. It is abundantly obvious to us, there for0, that the appellant did not repay a sin 0 le sent directly ill casho So, we have to see whether it could be said that he repaid the loan by any of the other two methods or by a combillation of botho • 0 ./4 4 As already stated above, the BOC was signed on 14/10/1992 and was to take effect from 27/10/1992 for Shs., 292,000/::: each b.11ie. However, and as pointed out again, the first

deduction from account 25/5~ was on 28/9/1991 and it was Shs. 1 1 046,250/=., 'l'hat was foll0\,1ed by four other deductions on 30/12/1991, 28/3/1992, 29/6/1992 and 2/10/1992 totaling Shso 3,943,959/50.. It is crystal clear tbJ.t these could not have been deducted on the strength of the BOC because it ,·,iJ.S not in existence, as appropriately pointed out by Mro NyangariJrv:'l. Indeed, the d~.te for the repayment of the loon, that is 31/3/1992 was :not yet due when the first three deductions of 28/9/1991, 30/12/1991 and 28/3/1992 wer·e effected. So, it could not be said that those amotmts were for the repayment of the lo.:..1x1., But Hr .. Nyangarika dicl not question this fact., Was it an overf';ight or was the:: deduction justified'? As we have said earlier, interest at the rc1te of 27 .5% was chargeable immediately upon the use of the term loan. We are not told 1;1hen the term loan started. to be used. Also the cornrnitm·:mt fee at the rate of 1% on the amounts alre2,dy committed but not drawn, accrued from the date of sign1-11g the loon Agreement, that is, from 6/4/1990. Is it possible, then, that the first deduction on 28/9/1991 for Shs. 1,046, 250/-= was for se1~vicing intc,rest and the fee't On that d.8.te six installments should. have been paid since the signing of the Agreement but none ha.d beGn made. Couldn't the pnyrnent of the two commitments amount to that total?

'l'he onus was on the appellant to show that the deducted amount was wrongly taken. It is tY-ite 13.i-.r that it is up to the c.ppellcmt, as the plaintiff, to establish that the res})oncl.ent was not entitled to be pa.id th2,t amount and any other subsequent amounts. He did not do th2.to So, we are left with the m1ly deduction that the respondent was entitled to those monies • • • •/5 5 This is what Mr. Rweyongeza argued and, on the ba.J.a...'1ce of probabilities, we think that is so. However, we are satisfied, as r.-1lready pointed out, that the first " five deductions were made when the ·BC.C had not become operativeo So, the respondent did j:10t# deduct account 25/549 on the strength of the BOC. The other eitht deductions, from that of 28/12/1992 to that of 29/12/1994, were made at ti'lle l3CX:: was operative and so, were ai.::.thorized by the BOC. Mro Nyang,:i.rikz. subr11itted tllat the appellant sig;ned the BCC blindly, that the ternm were not read out to him r:nd that it would have been better if the BOC w..:.,s attached to the loan agreeme_J1t. l/e do not buy that. Mr. Nyai,.garika conceded that the opaning of a BO'.J was one of the terms of the loan Agreement signed by the a:ppellant i..'1 the presence of his advocate o The appellant himself adi11ittcd in cross-cxaiuination that the. loan Agreement -w:.is recid to h:i.m by the Bank Ma"'lager. So, he cannot now disown

the BOC. itie, therefore, hold that the eight deductions, from the m1e of 28/12/1992 to that of 29/12/1994, were made under the BOC. The question is under what authority were the first five deductions made';' That disposes the e;round of appeal that the plea of non est factum was 1:,Tongly rejected~ the appellant was not at all mistaken as to the character or effect of the traYJ.sation embodied in the loan Agreement. / Mr. Hweyongeza has maintained that the first five deductions were effected under the il1herent powers of a bonk to debit n borrower's account with a credit balanceo In addition, the learned advocate also claimed that the respondent bank had a. lien on the monicG iJl the bank belonging to the appellant. Is there such an inherent power by which a bank can deduct one account of a customer to pay the liabiliticf? of the customer under another account? ••• /6 &. 6 There is a coE1i"!lon ic\W right of combination of accou..11.ts o A customer may have more than one account i.-:ith a banko In that case the bank has a right. to combine the accounts and treat them as one. This is what is called combination of accounts. The accounts mo.y be in one branch of the b2nk or :in different branches of the sar.1e banko But here we shall deal \-Jith the former situation because that is what concerns us :in this appeal; the two accounts of the appellant are both in the same branch

of the respondent bank. Combination of accounts is also referred to as a right of set-off. 'I'his is a monetary cross-claim made i...7. an action by a pl&.intif{, that is, a legal right by.which a debtor is entitled to take into account a debt ov,ing to him by a creditor when sued for a debt due from him to tlle creditor .. However, the right of combination of accounts or set-of is only exercisable in the context of the relationship of a banker and a customer ~~\~ 1 by B,P. Ell:inger and E. Lcimn·;icka, Oxford 2nd I~dc at Po 184) .. There are h;o instances in which a bank is entitled to combine accounts or to set-•off~ J<~irst, \·111cre a customer is unable or unwilling to repay an overdraft incurred :L."1 one account aithough another account is jn credit. Second, is where a customer draws a cheque for an amount exceeding the bal&nce standing· to the credit of the account involved but· the deficiency can be met out of the funds deposited in another account~ (;;;ee }i:llinger and Lomnicka at p. 179). Combination of accou.,'1ts I h::.s .three other exceptions; One I the rigi1t could be abrogated by a s11ecial ae,:r.eement., Two, the right is inapplicable where the property was remitted to the bank and appropriated for a special purpose. Lastly, a customer's account cannot be combined with a trust account or an account to be utilized by the customer a:s a trustee. /,.Jee

Gr.':.enwood;_~Teale .:!.•. Willfo.m t ,Williams_1.. B_rovm_ & _Co., ( 1894) 11 IJ.'LR 56 cited in Bllingcr a.nd Lomnicka. at P• 18~7. 7 As already sho\m, both accounts 25/549 and 18-0009 bE:long to the a.ppellant aDd are in the sa.'Tie branch of the respondent bank. The accounts are neither for special purposes nor are they for trusteeship. There is a.J.so no evidence that there is_ any agreement to prohibit them from being combined. However, thsre is one question: could the respondent bank have done that without notifying the appellant? There are two 1 apparently 1 conflicti..Dg decisions on the matter of notice to a CU£3tomer. 'l'he Court of j~xchequer gave an equivocating answer in .Q.§l.El.e.Jt v !.J-1.']\e,v~-¥1:, _( 18?2) LR 8 Ex. 10, where KELLY, CB said, at P• 13: In gen.:::ral it might be proper or considerate to give a notice to that effect, but there is no legal obligation on the bankers to do so, a1'ising either· from 1;xpress contract or the course of dealing between the parties. MATTHEW, J. held that a reasonable notice to a customer is essential. However, the two decisions have been r0conciled by pointing out that in 5.'~Y.~!i thare was no agreement between the bank and the customer to keep the two accounts separate o So, the bar1k could exercise its right without notice. In Buckingham & Co. 1 howeve:;:-,. that right was abrogated by an agreement based on a

course of dealings and it could only be displaced by reasonable notice to the customer~ But even in such cases, agreements to keep the two accounts separate can be abrogated by subsequent developments-. It is our consiciered opinion that \·1here there is no agreement to keep more than one account separate, then there is no need to give notice before exercising the right t'o combine accounts. Hm-.;evcr, where there is ••• /8 8 such agreement, then reasonable notice is required. But even in such situation, if the words of the agreement indicate that the agreement would cease upon the occurring of an event, notice is equally not required. Our opinion is supported by what LOHD CROS_:=i OF Cllli;J..S:f!A 1 in his dissenting opinion, said in the jud[>,111ent of the House of Lords in .~,._~_,, National Westminster __ ,........ , ...,~•.-. .. _.._..&l' ...,_......_ ........ On any footing the bank would be obliged to honour - cl'_ieques dra.vm up to the limit of th~ 2-pparcnt - credit balance be fore the company became aware that tho bank wc:..s consolidating th~ accoµ..nts and SC?it_ mi_gl1t :9.e SAid.tbat 1_1.9ti.Jication•.}.9 .t~e k customer was not a condition nrcccd0nt to the -.&i;-:.-~--.,_,_ ,..... ..................... ~ - I . - " ' _ _ ...._.....,.._ • . • ~ - ~ - ....- ,..... -......................... -. .

..... ~.1C~EJC.~~~~-PJ1-...!h.~.•E.~~-~<:.£~..sl~!':i-l.._o.i...£9E.'2..,~;i.i9#:tiqn. but only a measure of_ pre_caution which the bank might take· to· end its liability to. honour ·cheques o - (emphasis supplied) But we would go fui~thGr and say the,t wher0, as WG have abundantly shown in this appeal, a customer is well 2..\•Jare of his -commitments to a bank but deliberately avoids meeting ·them, them the ?ank is entitled, without notice 1 to combine accou.nts even if there· is an agreement n·ot to --\ do-so,. So, the respondent b~1k had the. right to comb foe the t\'lo accounts and use the credit in account 25/549 to make due repayments of the loan in account 18-0009e Courts should not be USGd to assist individuals who want to take undue advantage of the cn~dit system. - - For the avoidance of doubt we have to point out that in this appeal there was .?JL agr.eeme~t for opening up a :r].ew account for. repaying the loan. This could only mean that the parties intended to keep the three accounts separate. However, from what \-;c have said above-,•-. tho respondent bank - was :mtitled to combin~ the two accounts and deduct funds from account 25/549 to repay the loan on account 18-0009. ••• /9 - 9 As for lien, we can only say that it does not attach to the balance standing. to the credit of the customer's account with his bank. The balance is part of the bank's· general funds

and also a debt due from the bank to the customer. This is because of the nature of the relationship ·. between a banker and a cus~omer. The bank u.ses customer 1 s deposits aG ite O\•m but undertakes to repay a.11 amount equal to that paid in, with er without interest either at call or at fixed t~nc. Thus the role of the bank is that of a debtor while that of tlw customer is of a· ci-e.d~., . . (The roles are reversed where an account is overdra.,m) • So, the heJan.; is treated as if it were the property of the bank. Now, a person·~, have a lien . over. his own _property and espec~lly whel;l. the prope~ :.;.. also in his possession.· (Zee Ellinger and Lomnicka. PP• 107-111 1 t8} ant 692).• Therefore, for the reasons given above 1 we' dismiss the a ~ wi;h ... costs. It is so ordereda DA.'l:l:,;D at UAI<ES .~\AM this 1.5th day of. Se~tember,. 2000~ A.S.L. RAl~ADHAi\fI JUS 'rICE OF APPEAL ----..:--......-.. t .. ◄--...... Do~~. LUBUVA- ;[l}9119lt.9E-lt~E~! K.S .K.LUGAKINGrnA -- --~-~...,_..-=OF. -,...APPEAL JU.S'i'I0:i:: -·-:.,r:,,•-~-:a I certify that this is a true copy of the orie;inal.