[1938] EACA 182

### ORIGINAL CIVIL

#### Before THACKER J.

## VICTORIA PRINTING PRESS, LIMITED, Plaintiffs

# PURAN CHAND MANY, Defendant Civil Case No. 149 of 1939

Money and Moneylending—Memorandum of loan agreement—loan secured by debenture-copy of debenture attached to memorandum-Whether two documents can be read together as constituting statutory memorandum—Moneylenders Ordinance. 1932. section 10.

Plaintiff borrowed Sh. 4,000 from defendant a registered moneylender the security for the loan being a debenture agreement creating a floating charge on the plaintiffs' undertaking and property. The debenture agreement contained various provisions which were not set out specifically in the memorandum but the memorandum referred to the debenture and a copy was attached to the memorandum and delivered to the plaintiff with the copy of the memorandum.

It was contended that as the debenture contained onerous provisions the debenture and the memorandum could not be read together to form one document and that the memorandum did not therefore contain all the terms of the contract under section 10 of the Ordinance.

*Held* $(14-10-39)$ .—That the debenture and the memorandum should be read together as constituting the statutory memorandum and that the provisions of section 10 of the Moneylenders Ordinance, 1932, had been complied with .

Mitchener v. Equitable Investment Co., Ltd. (1938 2 K. B. 559) distinguished.

Reading Trust Limited v. Spero (1930 1 K. B. 492) considered.

Hoare v. Adam Smith (London) Ltd. (1938, 4 All. E. R. 283) applied.

(Editorial Note.-This decision appears to be in accordance with the decision Tooke v. T. W. Bennett & Co. Ltd. 1939, 4 All. E. R. 200, the report of which had not reached Kenya before the judgment in the instant case.)

Action claiming a declaration that the statutory memorandum of loan was unenforceable and cancellation and delivery up of the security for the loan on the ground that the memorandum did not set out all the terms of the contract.

Counterclaim for principal and interest due on the loan.

The memorandum of contract dated 1st May, 1939, was as follows: -

"1. Amount to be advanced shall be Shillings Four Thousand onlv.

2. The said sum shall be advanced on the 1st day of May, 1939.

- $\cdot$ 3. The rate of interest shall be 24 per cent per annum. - 4. To secure the repayment of the said sum and the interest to accrue thereon the company will give to the lender a debenture charging by way of floating charge the undertaking and property of the company a copy of which is attached hereto and marked 'A' and shall be given to the company."

The debenture contained onerous clauses not specifically mentioned in the memorandum but a copy was attached to the memorandum and copies of the memorandum and the debenture were delivered to the plaintiff.

Mangat for the Plaintiff.

#### Figgis, K. C. (Nazareth with him) for the Defendant.

JUDGMENT.—In this action the plaintiff company is the borrower and the defendant a registered moneylender. No evidence has been called by consent of both parties and the issues which are to be determined are those set out in paragraph 6 (a), (b), (c) and (e) of the plaint. By consent paragraph 6 (d) and paragraphs 7 and 8 of the plaint have been withdrawn.

The issues therefore to be determined are whether the memorandum of agreement, Exhibit 1, complies with the requirements of section 10 of the Moneylenders Ordinance, 1932, in the following respects: -

- (1) whether the memorandum sets out the actual transaction in its terms between the parties; - (2) whether the manner of repayment of the principal and interest is shown in the memorandum; - (3) whether the memorandum shows the date on which the loan was actually made or sets out the nature of the security and the terms thereof; and - (4) whether the terms contained in the floating charge, Exhibit 3, are onerous and material and as such should have been mentioned in the memorandum.

Put shortly the issue is whether the memorandum of contract complies with section 10 of the Ordinance. Mr. Mangat's argument has been that the memorandum of agreement, Exhibit 1, which is the memorandum of contract, does not set out the exact terms of the transaction and that the date of the loan is ambiguous, as clause 2 of the memorandum states: "The said sum shall be advanced on the 1st day of May, 1939". Now paragraph 4 of the memorandum of agreement, Exhibit 1, states that a copy of the debenture, Exhibit 3, is attached to the memorandum of agreement and it does not appear to be seriously disputed that the copy marked "A", Exhibit A, was attached to the memorandum of agreement at the time of the execution of the memorandum. At the same time Mr. Mangat does not admit by that that the debenture forms part of the contract. In any case Mr. Mangat admits that his clients have been given a copy of the debenture. A further exhibit is No 2 in which the plaintiff company acknowledged that the memorandum of agreement dated 1st May, 1939, was signed by the company before receiving the loan, that the debenture was executed after the company had signed the above memorandum, that a copy of the memorandum together with a copy of the debenture was received by the company, and lastly that the plaintiff company received the principal sum of Sh. 4,000. A further exhibit is No. 4 which is a copy of the minutes of a board meeting dated 1st May authorizing the borrowing of Sh. 4,000 from the defendant and that the debenture charging by way of floating charge all the undertaking and property of the company both present and future be sealed and issued to the defendant in consideration of and as security for the loan.

Reading all these exhibits together and particularly the memorandum of agreement, Exhibit 1, and copy of the debenture, Exhibit A, there can hardly be any question that the borrowers knew full well upon what terms they were borrowing the money. Put shortly Mr. Mangat's argument is that notwithstanding that the contract cannot be set out in these various documents in this way but that all the material terms of the contract must be set out in one document, the memorandum of agreement, Exhibit 1. In other words plaintiff's argument is that you cannot find the terms of the contract between the borrower and the lender by reference to other documents even though such other documents were executed simultaneously or immediately after the memorandum of agreement. Mr. Figgis' argument for the defendant is that it is not essential in order to comply with section 10 of the Moneylenders Ordinance that the terms of the contract be contained within the four corners of one sheet of paper but that it is permissible to look at a contract which is contained in one or more documents executed at one and the same time and that the contract will be a compliance with section 10 by reference to other documents if that reference is clear and unambiguous.

Several cases have been quoted by both Mr. Mangat and Mr. Figgis which are of interest. Here I would say at once that the points for decision, whilst simple enough to appreciate, arc by no means easy to decide having regard to the authorities. Indeed one of the two points which I now have to decide has been before the Courts in England on several occasions and is a point which has given the Judges in England some little trouble. I think this doubt and difficulty arise from the very fact that the requirements of the Moneylenders Ordinance, 1932, which is similar to the English Moneylenders Act are stringent especially upon the lender. The question invariably arises in these moneylending cases what degree of stringency is to be required. It must be a reasonable stringency and not one which would bring the law or the act or ordinance into contempt. The first case cited by Mr. Mangat is Civil Case No. 159 of 1938, Vaghijbhai Naranbhai Amin against C. F. Joanes and C. S. Rodrigues\* which was a case which came before me in October of this year, and I am referred inter alia to parts of my judgment which are as follows:

"Furthermore, I cannot accept Mr. Amin's argument that if the date of the loan is not shown the contract is still enforceable and that the Court may reopen the matter and endeavour to find out what the date is",

and again:-

"Mr. Amin, I ought to point out, has made the point that as the letter of 15th September, 1937, shows the date of the loan the Court ought to read this letter in conjunction with the contract itself. In my judgment the Court cannot do that. The contract itself must contain all the requirements laid down by section 10."

I did not intend my judgment to imply by these words that the contract or memorandum of agreement must necessarily contain in one document or one piece of paper all the terms of the loan and that it cannot be a compliance with the section to refer clearly to another document executed simultaneously. In the case which Mr. Mangat cites the letter which was sought to explain the date of the loan was not written until some nine months after the contract itself had been executed and for this reason alone that case is distinguishable from the present case.

The next case cited was Mitchener against Equitable Investment Co., Ltd., 1938, 2 K. B. 559, the headnote of which is as follows:

"By section 6, sub-section 1, of the Moneylenders Act, 1927, no contract for the repayment of money lent by a moneylender shall be enforceable unless a memorandum of the contract is made and signed by the borrower, and by sub-section 2 the memorandum shall contain all the terms of the contract. The plaintiff borrowed money from the defendants, moneylenders. The memorandum merely set out that the loan was secured by a bill of sale on the plaintiff's furniture. The statutory form of such a bill of sale sets out that personal chattels thereby assigned shall not be liable to seizure for any other than five specified $causes: -$

Held, that the memorandum did not contain all the terms of the contract in that it did not specify upon which of the above grounds the goods could be seized, and that, therefore, the contract was unenforceable."

Here again I think this case is distinguishable from the facts in the present case and the following extract from the judgment of Lawrence J. will show the distinction: -

"In my judgment that does not meet the point which was decided by Branson J., because, though it is perfectly clear that a person who had before him a copy of the memorandum which stated that the loan was secured by a bill of sale would know, if he knew the law, as he is bound to know it, that no other power of seizure than one of those specified in section 7 of the Act could be incorporated, he would not know which power of seizure was incorporated in the bill of sale unless he saw the bill of sale. As those powers of seizure and sale are most material for the borrower to know, in my judgment it is an infringement of section 6 of the Moneylenders Act, 1927, not to specify in the memorandum the power of seizure and sale which the bill of sale referred to in the memorandum contains."

The point in short in that case was that there were under the Bills of Sale Act, 1878, Amendment Act, 1882, several possible powers of seizure and the borrower who had before him a copy of the memorandum which merely stated that the loan was secured by a Bill of Sale would not know which particular power of seizure was incorporated in the Bill of Sale unless he saw the Bill of Sale. There is nothing on my reading of this case to show that a copy of the Bill of Sale was attached to the memorandum of the contract or given at the time to the borrower. In this deduction I am supported by Du Parcq J., in his judgment in Hoare v. Adam Smith, Ltd., to which case I shall refer later. It appears from the report that there was a mere reference in the memorandum to a Bill of Sale on the plaintiff's furniture. In this case before me there is not merely a reference to a debenture but a copy of the debenture is attached to the memorandum and a copy given to the borrower and the plaintiffcompany executed this debenture at the same time as the memorandum and must be taken to have been fully aware of the terms of the debenture. The borrower in the Mitchener case was left in doubt. The borrower in the present case was not left in doubt.

The next case is Simmons v. Russell Financiers, Ltd., 1934, 2 K. B. 487. Here the moneylender had followed a counsel of perfection $\mathbf{K}$ . by reciting in the memorandum the particulars required by the<br>relevant section of the Moneylenders Act, 1927, even setting out verbatim the Bill of Sale. This case, however, is not as I read it an authority for saying that this counsel of perfection is essential and that anything short of that is not a compliance with the relevant section of the Act. The case is properly an authority for the proposition that the Moneylenders Act does not refuse the lender to set out in the memorandum the effect of the terms of the contract according to the decisions of the Courts in various cases.

The next case is Reading Trust Ltd. v. Spero, 1930, 1 K. B., 492, which I think is more in point. In this case which was heard in the Court of Appeal, Scrutton and Greer, Lords Justices, held that the note or memorandum was sufficient on the ground that the promissory note given as security for the repayment of a sum might be identified by parol evidence as the promissory note mentioned in the note or memorandum of the contract for the repayment of that sum. The headnote states: -

"The court, without deciding the point, inclined to the view that the terms of a security given for repayment of a loan need not be set out in the note or memorandum of the contract, at any rate where the security does not impose terms more onerous than those stated in the note or memorandum."

I quote from the judgment in the case of Scrutton L. J. as follows:-

"However, in Gaskell Ltd. v. Askwith both the trial Judge and the Court of Appeal were troubled whether the note or memorandum could be in two documents, and the present case has raised the question of the relation of the note of the contract to the security. It seems clear in section 6 that the legislature. while requiring a copy of the contract to be signed, has not required a copy of the security to be sent to the borrower, and it may need consideration whether if there is a more onerous term in the security than in the contract, the note of the contract may not be incomplete. I am disposed to think that where the contract contemplated a promissory note as security and there is a promissory note in the ordinary form, not contradicting the contract, the fact that the contract does not set out the terms of the promissory note will not invalidate the contract. It may be otherwise if the security contains an onerous term not in the contract. I reserve, however, any final decision on this question, which does not seem to me to arise in the present case. I think oral evidence may be given to connect the promissory note signed with the memorandum, but section 6 does not seem to treat the security as part of the memorandum: see per Thesiger L. J. in Long v. Millar."

And again from the judgment of Greer, L. J.:-

"It is true that the memorandum states that one of the terms of the contract of loan was that it was to be secured by a promissory note and not otherwise. It does not state what were the terms of the promissory note but in my-judgment parol evidence was admissible to identify the kind of promissory note referred to, and it was satisfactorily proved that the form of the promissory note was in existence, although unsigned, at the time the memorandum was signed. Once the form of the promissory note is identified, it can, in my judgment, be treated as part of the memorandum of contract, and the memorandum can then be read as if it contained the words 'on the security of a promissory note in the following form'. The words of section $6$ are that without such a note no contract of loan shall be enforceable. They are analogous to the words of the Statute of Frauds and the Sale of Goods Act, 1893. It has been decided in cases under the Statute of Frauds that parol evidence is admissible to identify a document referred to in the document signed by the party to be charged . . . Following the same line of reasoning I think that if memorandum of a contract of loan states that the loan is granted on the security of a promissory note, it may be proved by oral evidence that at the time of the loan there was in existence a form of promissory note ready for signature and that, when this evidence is given, the Court can read the two documents together as a complete memorandum of the contract of loan. If, for the reasons I have stated, the memorandum is in itself sufficient, this is a complete answer to the argument put forward on behalf of the appellant based on section 6 because it cannot be disputed that the copy delivered to the defendant in each case contained a reference to a promissory note which was identified by the evidence, and it is not in dispute that an exact copy of the memorandum was given to the appellant after he signed the memorandum and the promissory note. The same result will be arrived at if, as I think we may, we construe the words a promissory note' as meaning a note promising to pay the Reading Trust at their address each instalment at its due date."

This case would seem to support the contention of the defendant that clear and unambiguous reference to a parallel document is sufficient although the case as decided still left doubt as to whether if the security contained an onerous clause it should not be specifically mentioned in the contract; and on this point Mr. Mangat has referred me to what he says are onerous clauses in the debenture, namely, that a Receiver can be appointed of the Company's assets and that the Receiver has the power of sale over those assets; further that the repayment of the principal can be expedited on the happening of any one of the five events in clause 5 of the debenture.

The next case cited was Egan v. Langham Investments Ltd., 1938, 1 K. B. 667. The decision in this case does not appear to me, however, to throw any material light upon the points which I have to decide, and is not so relevant as other cases.

The next case is Gaskell Ltd. v. Askwith, 45 T. L. R. 439, and before the Court of Appeal at page 566. In the lower court the relevant portion of Mr. Justice Humphreys' judgment is as follows:-

"It had further been objected that there was no reference in the memorandum to the place of payment or to the increased rate of interest payable under the default clause. Mr. Barrington-Ward's reply had been that in considering a memorandum under the Moneylenders Act one must look at the whole transaction to see what actually formed the memorandum, and that a memorandum might consist of two or more documents. In the present case two documents, a copy of the memorandum and a copy of the promissory note had been handed to borrower and those two, it was contended, comprised together a statement which constituted all the terms of the contract.

He would have desired further argument if the point had been necessary for the determination of the case. He agreed with the contention that under the Moneylenders Act, 1927, as under the Statute of Frauds, a memorandum might consist of two documents. If the memorandum in the present case had referred to the promissory note, no difficulty would have arisen; but inasmuch as there was no reference at all in the memorandum to the terms of the promissory note, he was not clear that the mere fact that a copy of the promissory note was handed to the borrower together with a copy of the memorandum was a sufficient compliance with the terms of the section."

This case does not turn on any onerous term in the security, but Humphreys J.'s words: "If the memorandum in the present case had referred to the promissory note no difficulty would have arisen" are of interest.

$\overline{ }$

Lord Justice Scrutton in the Court of Appeal said that like Mr. Justice Humphreys, he felt very great doubt whether the note or memorandum referred to in section 6 of the Act of 1927 might properly consist of two documents, as in the present case. However, it was not necessary to decide that point in this appeal, which failed and must be dismissed.

The next and last case cited by Mr. Mangat is *Central Advance* and Discount Corporation Ltd. v. Marshall, 1939, 3 All E. R. 695, in which the headnote is as follows:-

"The plaintiffs had advanced £50 to the defendant upon the terms of repayment by monthly instalments. Repayment was secured by a bill of sale executed by the defendant, and a guarantee executed by guarantors. The guarantee contained a clause providing that, in the event of the bill of sale being or becoming invalid or inoperative, the guarantors would on demand pay the lenders the amount of the loan and interest on the unpaid part thereof. The memorandum of the contract mentioned the bill of sale and the guarantee but did not disclose the above clause:

*Held.* $-(1)$ The guarantee was a security within the meaning of the Moneylenders Act, 1937, section 6.

(2) This clause was one which imposed a further liability on the borrower, and was, therefore, a term of the contract which should have been set out in the memorandum. A mere reference to the fact that it was a term of the contract that a guarantee should be given without any reference to this clause was insufficient to satisfy the provisions of section 6."

Clauson L. J. in his judgment stated as follows: -

"On the facts stated, it appears to us to be plain that one of the terms of the contract was that the clause in question should be contained in the guarantee, and that no sufficient statement of this term of the contract appears in the note or memorandum. A mere reference to the fact that it was a term of the contract that a guarantee should be given without any reference to the presence of this clause in the guarantee seems

to us to be insufficient to satisfy the provisions of the Moneylenders Act, 1927, section 6. The Act does not require the terms of a security to be set out in the memorandum, but, if the effect of the security is that a liability different in any respect to that described in the memorandum is, or may be, directly or indirectly imposed on the borrower, this further liability must appear in the memorandum. The presence of the clause in question in the guarantee (a guarantee given as a term of the contract) imposes the possibility of a serious liability directly on the guarantors, and, owing to the relation between the guarantors and the borrower, indirectly upon the borrower. It appears to us to follow that the failure to state this term of the contract has the result that the note or memorandum fails to disclose a material term of the contract, and thus fails to comply with section 6 of the Act."

It is to be observed that the judgment speaks of "A mere reference to the fact that it was a term of the contract that a guarantee should be given" and goes on to say that without any reference to the presence of this clause in the guarantee it seemed to the Court to be insufficient to satisfy the provisions of the Moneylenders Act, 1927. The case seems to be authority for saying that a clause which imposes a further liability on the borrower must be set out in the memorandum. The case is, I think, the most helpful in support of Mr. Mangat's contention, but it is to be pointed out that the report does not show that a copy of the bill of sale or guarantee was given to the borrower at the time of execution, or annexed to the contract at the time of execution.

Mr. Figgis in his argument maintains that the true test in interpreting section 10 of the Moneylenders Ordinance, 1932, is, were all the terms of the borrowing brought to the notice of the borrower? Mr. Figgis further relies in the main upon the case of *Hoare v. Adam* Smith (London) Ltd., 1938, 4 All E. R. 283, which seems to be a case more in point with the facts of the present case than any of the other cases with the possible exception of the Central Advance case. It is a recent case heard in England in November, 1938, whereas the Central Advance case was heard in July this year. The headnote reads as follows: -

"A loan by registered moneylenders was secured by a bill of sale. It appeared both from the memorandum and from the evidence that the borrower had received a copy of the bill of sale. It was contended that the memorandum was insufficient, since it did not state the power of seizure and sale contained in the bill of sale. It was further contended that, although in the bill of sale the consideration was not truly stated, the plaintiff was estopped from raising that point, because he knew the true facts at the time of execution:

$Held.$ —(1) It is not necessary that the power of seizure and sale under the bill of sale should be specifically set out in the memorandum of loan where the borrower receives a copy of the bill of sale."

This case in my judgment is distinguishable from Mitchener $v$ . Equitable Investment Co., Ltd., supra, and the decision in the latter case applies only in cases where the borrower is not given a copy of the bill of sale. Until Hoare's case it had been thought that in all cases where a loan was secured by a bill of sale it was necessary to state in the memorandum the power of seizure and sale contract in the bill of sale. The decision in *Hoare v. Adam Smith (London) Ltd.* seems to be that in all cases where a loan is secured by a bill of sale and the borrower has received a copy, or perhaps where he has seen the original, it is sufficient to incorporate the bill of sale in the memorandum of the loan by reference. It would not be unreasonable to assume that this same principle would apply also to a security in the form of a debenture. I quote from the judgment of Du Parcq $L. J.$ :

"I think that this is a case where the moneylenders are entitled to say that the bill of sale must be looked at together with the memorandum to see whether the memorandum contains what the Moneylenders Act, 1927, says that it ought to contain. I do not in the least dissent from the judgment of Lawrence J. in the case of Mitchener v. Equitable Investment Co., Ltd. It is plain that in that case, as indeed it is in the case which was before Lewis J. in Stewart-Naylor v. London and Westminster Loan and Discount Co., Ltd., that the borrower had not received a copy of the bill of sale, and I think that, applying what I regard as having been decided at any rate by the majority of the Court of Appeal in Reading Trust, Ltd. v. Spero, it is, in all the circumstances, sufficient if the bill of sale contains accurately all the terms of the contract.'

I think, moreover, the case can be distinguished from the Central Advance case, in which no copies of the securities appear to have been given. It is to be observed also that the learned Judge takes no cognisance of whether the bill of sale contained any onerous clause. He seems to rest his decision on the principle which Mr. Figgis has submitted, namely that the contract may be contained in two documents executed simultaneously. Following the wording of Du Parcq L. J. in this case I am bound to come to the conclusion that the present case before me is one where the moneylenders are entitled to say that the debenture must be looked at together with the memorandum to see whether the memorandum contains what the Moneylenders Ordinance, 1932, says that it ought to contain. If this is a correct reasoning, and it has at any rate the very recent authority of the High Court of Justice in England to support it, even if it is said that the date of the loan is not properly stated in the memorandum and if I had to decide the point on that document alone, I should incline to the view that the wording is a sufficient statement of the date of the loan albeit that is not to say that it could not have been couched in better words. Nevertheless the debenture itself shows that the principal was received from the moneylender and the date of the debenture is 1st May, 1939, which is also the date given in clause 2 of the memorandum of agreement also executed on 1st May, 1939.

I hold therefore that the defendant has complied therefore with section 10 of the Ordinance and if it is necessary to hold it, that certain of the terms in the debenture are onerous. But from the reasoning in Hoare's case, the presence of an onerous clause in these circumstances appears not to be material. This disposes of the issues which have been submitted to me for decision, which issues it follows are decided in favour of the defendant.

Action dismissed with costs. Counter claim allowed with costs.