National Bank of Malawi v Dairibord Malawi Ltd (34 of 2007) [2008] MWCommC 1 (28 January 2008);

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MALAWI

IN THE HIGH COURT OF MALAWI

COMMERCIAL DIVISION

 

BLANTYRE REGISTRY

 

COMMERCIAL CAUSE NUMBER 34 OF 2007

 

 

 

 

 

 

BETWEEN:

 

NATIONAL BANK OF MALAWI………………………………..….PLAINTIFF

 

  • AND -

 

DAIRIBORD MALAWI LTD…………………………………………DEFENDANT

 

 

CORAM: THE HONOURABLE JUSTICE DR. M.C. MTAMBO

Mwangomba of Counsel for the Plaintiff

Gulumba of Counsel for the Defendant

Mrs Pindani Court Reporter

Mrs Phiri Court Clerk

 

 

 

 

 

JUDGMENT

 

 

 

 

 

Dr. Mtambo J.

SUMMARY

 

By Writ of Summons the Plaintiff, a commercial bank, claims from the Defendant, a company engaged in the manufacture and sale of dairy products, the sum of K6,337,642 being money advanced to one Phillip Msindo who was at the material time in September 2006 Managing Director of the Defendant and customer of the Plaintiff at their Chichiri Branch. The Plaintiff also claims interest at 4% above the bank’s lending rate and costs of the action. Mr. Msindo applied for a loan of K6,000,000 on 5th September, 2006 and the Plaintiff approved it on 18th September, 2006. It was a condition of the approval that the Defendant must guarantee repayment of the loan in the event that Mr. Msindo was for any reason not able to repay the loan plus interest which guarantee was executed by the Defendant on 19 September 2006.

 

On 2nd January, 2007 the Plaintiff demanded full repayment of the loan plus interest from Mr. Msindo emanating from the fact that Mr. Msindo’s contract with the Defendant was terminated and he was due to return to Zimbabwe. Mr. Msindo did not honour the demand and verbally advised the Plaintiff that he was financially incapacitated to repay the loan which statement was repeated in his letter to the Plaintiff dated 20th April, 2007. After demanding settlement from the Defendant on the guarantee and not receiving a positive response, the Plaintiff commenced the present proceedings.

 

The Plaintiff claims that the debt was validly guaranteed by the Defendant but the Defendant contends that the guarantee which was executed by the Defendant’s secretary Mr Mushava and director Mrs Chulu is not binding on the company as the two Defendant’s agents did not know that what they were signing was a guarantee binding the company but thought that they were merely acting as witnesses of Mr. Msindo in his personal transaction with the Plaintiff confirming to the Plaintiff that they knew Mr. Msindo. The Defendant therefore pleads the defence of signing a wrong document under a mistaken belief or what is known in legal jargon as non est factum.

 

The Defendant also argues that that the contract for the disbursement of money from the Plaintiff to the Defendant to which the Defendant was obviously not a party, was conditional on the Defendant’s board of directors issuing a resolution to guarantee the loan and that since no resolution was issued by the Defendant, the loan was improperly disbursed and is therefore the guarantee can not bind the Defendant. It is however interesting to note that the guarantee bears the Defendant’s common seal and states that it is executed pursuant to a board resolution dated 19th September 2006. No explanation is offered by the Defendant as to the manner for safe custody of its seal and who affixes common seals to company contracts and whether in this case the company rules as to custody and use of the common seal were followed or not. Further, the Defendant’s two witnesses do not explain whether when they were signing the guarantee the statement that there was a board resolution in place was on the guarantee or not and if so whether they read it or not only being content to dwell on how they signed the guarantee allegedly by mistaken belief. Even more, the Defendant does not explain whether the company articles have a provision which states that the company can not issue a guarantee unless there is a board resolution in place.

 

It should be noted that earlier, the Plaintiff agreed to lend money to Mr. Msindo on two occasions which loans were preconditioned on Mr. Msindo procuring from the Defendant letters undertaking to remit Mr. Msindo’s alary to the Plaintiff to liquidate the indebtedness which letters were in fact procured from the Defendant by Mr. Msindo. No board resolutions were issued by the Defendant with respect to those transactions possibly because it was not a precondition for the loan disbursement.

 

The Defendant further argues that the Defendant’s guarantee of the loan by the Plaintiff to the Defendant is illegal because under section 151 (1) (a) of the Companies Act (Cap 46:03) of the Laws of Malawi, it is unlawful for a company to make a loan to any person who is its director or to enter into any guarantee in connection with a loan made to such a person by any person. On the other hand, the Plaintiff argues that this section applies to public companies and not a private company such as the Defendant.

 

THE PLEADINGS

 

The Pleadings are in the form of a specially indorsed writ by the Plaintiff in which the Plaintiff claims the sum of K6,337,642 being a sum guaranteed by the Defendant which sum was lent by the Plaintiff to the Defendant’s Managing Director one Phillip Msindo plus interest at 4% above the bank’s lending rate and costs of the action. The Defendant filed a defence and amended defence in which it pleads non est factum and that the guarantee signed by the Defendant’s director and secretary was not consequent upon a board resolution in terms of the precondition for disbursement of the loan in the contract between the Plaintiff and Defendant and that the Plaintiff disbursed the money without having seen a board resolution but on being presented with a mere guarantee form which was signed and sealed by the Defendant. The Defendant further pleads illegality.

 

The chronology of the Defendant’s pleading being that in paragraphs 3, 4 and 5 (a) of its Defence, the Defendant pleads that there was no resolution sanctioning execution of the guarantee by the Company. In paragraph 5(b) the Defendant pleads non est factum. In paragraphs 6 and 7 the Defendant argues that the guarantee was only signed by one Director (and not two Directors) and therefore the company was not bound by the guarantee. In paragraph 11 the defendant pleads illegality under Section 151(a) of the companies Act, 1984. It is important to note that the Defendant has not pleaded fraud or misrepresentation or misleading statement or information in the communication between Mr. Msindo and Mr. Innocent Mushawa and Mr. Elizabeth Chulu (being persons who executed the guarantee on behalf of the Defendant).

 

THE EVIDENCE

 

The Plaintiff called one witness, a Chimwemwe Nkunika (PW1) and the Defendant called two witnesses: Innocent Mushava (DW1) and Elizabeth Violet Chulu (DW2). stated that he is and was at the material time the Plaintiff’s Account Relationship Manager and handled the transaction in issue in that capacity. It was the evidence of PW1 that by letter dated 5thSeptember, 2006 (exhibit P1)Mr. Phillip Msindo applied for a loan of MK6 Million. The Plaintiff duly approved the loan in writing (exhibit P2) the loan was conditional on Mr. Msindo’s employer (The Defendant) providing a guarantee of MK 6 Million. Although PW1 does admit in cross examination that the loan disbursement was conditional on the procurement of the Defendant’s board resolution, exhibit P2 not state that the disbursement is conditional on such a resolution. Mr. Msindo got the guarantee form from the Plaintiff and delivered it to the Defendant for execution after which execution he delivered it to the Plaintiff as required. Upon being satisfied that there was a security in place the Plaintiff disbursed a loan of MK6 Million to Mr. Msindo. The Plaintiff did not deal directly with the Defendant in its communication until when circumstances arose requiring enforcement of the guarantee when they wrote directly to the Defendant.

 

PW1 further told the court that it has never been the practice of the Plaintiff to make inquiries and probe its customers to verify whether internal management regulations have been complied with regarding execution of documents and that therefore in the case at hand, as long as the guarantee was duly executed and the common seal duly affixed to the same the Plaintiff had no reason to doubt credibility of the guarantee. He does not know whether a Board meeting was convened to approve the guarantee or not. PW1 testified that the Plaintiff proceeded to grant the loan to Mr. Msindo even before receiving a copy of the Board Resolution because the basic security (guarantee) was in place. He told the court that it is not unusual for the Plaintiff to allow its customers access to facilities applied as long as the basic security is in place. This is because after the basic security is in place the rest of the documentation may be collected or submitted later by the customer. The rationale, according to him is to allow customers go on with their business.

 

PW1 also stated that in an earlier transaction where the Plaintiff required the Defendant to execute a debenture as security for a loan of MK80 Million the Bank could not grant the facility without receiving a board resolution because it was a condition of the loan that the company should furnish a board resolution. On the other hand the condition of the loan to Mr. Msindo was for him to furnish a guarantee duly executed by the company.

 

Regarding the surrounding circumstances to his signing the guarantee DW1 testified that Mr. Msindo had earlier informed him that it concerned a personal loan that he was acquiring from the plaintiff. He did not feel any compulsion to make detailed enquiries but just signed the document without reading it and appraising himself of its purport. DW1 also stated that Mr. Msindo told him that he wanted someone who knew him to sign the document as a witness. He claims he did not know that by signing the document he was binding the Defendant to a guarantee.

 

DW1 further told the court that he was given the guarantee exhibit P3under cover exhibit P2. He only read the first page of exhibit P2 and did not read page 2. Page 2 clearly states that as security for loan Mr. Msindo should provide a guarantee duly executed by the Defendant. He admitted that had he read page 2 of exhibit P2he could have known that he was signing a guarantee on behalf of the Defendant company. The witness admitted during cross-examination that he was negligent in signing a document before reading it and acquainting himself with its contents and effect.

 

DW2 admitted that she indeed signed the document on space for Director. She alleged that at the time of signing the document she did not know that it was a guarantee. She told the court that she did not read the guarantee before signing it although it was within her rights to do so.

 

 

ISSUES

 

  1. Whether disbursement of the loan herein was conditional on procurement and receipt by the Plaintiff of the Defendant’s board resolution.

 

  1. Whether the absence of a board resolution authorizing the issue of a guarantee has any effect in view of the fact that the actual guarantee was signed and sealed by the Defendant.

 

  1. Whether, short of estoppel, after stating that the guarantee was executed pursuant to a board resolution dated 19th September 2006 the Defendant can turn around to say that in fact there was no board resolution.

 

  1. Whether a person who negligently signs a wrong document can successfully plead non est factum.

 

  1. Whether a private company is prohibited by law form guaranteeing loans to its directors.

 

 

THE LAW AND DISCUSSION

 

The Indoor Management Rule

 

Where an outsider enters into a contract with a company through its directors in good faith without knowledge that the directors have no authority from the company to enter into the transaction in question, the contract is still binding on the company because the outsider is allowed to assume that all is in order that looks to be in order. This is what is popularly known as the indoor management rule or the rule in Turquand’s Case. In this case by the full name of Royal British Bank v Turquand(1856) 6 E & B, the Board of Directors borrowed money without having the transaction authorized by a resolution of the Company in general meeting as required by the company’s deed of settlement, a descendant of the modern articles of association. The court held that the Company was bound by the borrowing as the resolution was a matter of internal management of the Company which a third party could assume had been correctly adhered to.

 

Learned Counsel for the Plaintiff Mr. Mwangomba has narrated that this principle was approved by the Court in Mahony v East Holyford Mining Co(1875) LR 7HL 869 in which the court held that:

 

“… [W] here there are persons conducting the affairs of the Company in a manner which appears to be perfectly consonant with articles of association, then

those so dealing with them, externally, are not bound to be affected by any irregularities which may take place in the internal management of the company.”

 

According to Mr. Mwangomba, Butterworths Corporate Law Service: Company Law, 2000 Paragraph 10.71 gives the rationale behind the rule in Turguand’s case when he states:

 

The reasons for the evolution of this line of authority is not merely one of business convenience, but that an outsider has no right to insist upon proof by the

directors that the provisions of the memorandum or articles have been complied with and cannot thereby be treated as having constructive notice of confidential papers.”

 

In AGC (Pacific) Ltd v Woo International Pty Ltd [1992) LRC (Comm) 624, a Company executed a lease agreement as lessee in favour of the appellant financier as lessor to finance purchase of a car. The Company defaulted and the financier enforced the agreement by repossession and sale of the car, resulting in a loss of money. The financier took out proceedings against the respondent company as guarantor of the agreement. The respondent claimed in defence that the guarantee was unenforceable in that it was executed by its managing director without authority of the board of directors. The District Court Judge dismissed the claim and the financier appealed. The National Court of Papua New Guinea (an English Common Law country) applied the rule in Turquand’s Caseand held that a third party dealing with a Company in good faith and without notice of reasonable grounds to suspect irregularity or impropriety was not bound to ensure that the internal regulations of the company as to delegation of authority had been complied with. The Managing Director had ostensible authority to enter into the transaction and the appellant was not bound to inquire as to the director’s actual authority. Accordingly, the respondent was held to be bound by the agreement.

 

Emphasizing the rationale behind the rule Sakora A. J. Said (p.628):

 

It should be remembered that a third party has no means of knowing whether an ordinary resolution has been passed by the Company. He can read the memorandum and study the vires, and inspect the registration of charges, or discover whether a special or extraordinary resolution has been passed. He can read the articles of association and obtain particulars of the directors. But he can not know, un-less he has been told, whether an ordinary resolution such as was required in the Turquand case has been passed by a general meeting. The loan there was clearly within the powers of the Company. The Company, therefore, had the necessary capacity. A third party need go no further: he need not make sure that the rules of internal management- sometimes referred to as the rules of ‘indoor management’ – have been observed.”

 

A similar view was taken by the House of Lords in Morris v Kanssen(1946) AC 459 at 475 when Lord Simmonds said:

 

One of the fundamental maxims of the law is the maxim Omnia praesumunturrite esse acta. It has many applications. In the law of agency it is illustrated by the doctrine of ostensible authority. In the law relating to corporations its application is very similar. The wheels of business will not go smoothly roundunless it may be assumed that that is in order which appears to be in order.”

 

On the basis of the above line of authorities, Mr Mwangomba submits that the rule in Turquand’s case (as consistently applied in later cases) applies on all fours to the case in that, assuming that there was indeed need for a Board Resolution pursuant to whatever authority:

 

  1. The Plaintiff as third party was acting in good faith. Indeed, no allegation of malafideson the part of the Bank was made by DW1 and DW2.

 

(ii) There were no reasonable grounds for Plaintiff to suspect irregularity or impropriety. (See B. Liggett (Liverpool) Ltd v Barclays Bank Ltd [1928] 1KB 48

 

Therefore,

 

(iii) The Plaintiff was not bound to ensure that internal regulations of the Defendant had been complied with (see Royal British Bank v Turquand(supra).

 

This is even more so because:

 

  1. The Plaintiff had no means of knowing that the resolution had been passed or not other than being so informed by the Defendant. The Defendant having informed the Plaintiff by endorsement on the guarantee that a resolution had been passed on 19thSeptember, 2006. There was no reason whatsoever for the Plaintiff to suspect any, irregularity.

 

  1. So, the Plaintiff could not go further. It could not inquire into internal management steps taken by the Defendant. Indeed, it was not incumbent on it to ensure that internal management rules of the Defendant had been complied with. (see AGC (Pacific ) Ltd v Woo International Pty Ltd(supra).

 

Mr. Mwangomba further argues that indeed, if it were the case (assuming that it was possible, which is not, and it is not obligatory) that the Plaintiff would for every transaction go on a spree of inquiries on its corporate clients to establish whether the internal regulations and processes have been duly followed, then “wheels of business would not go smoothly around.” (see Morris v Kanssen).

 

Pleadings and Failure to plead a material issue.

 

Both learned counsel for the Plaintiff and Defendant have addressed me in their submission on the importance of pleadings and the need to plead material facts. Both recognize that it is a well established principle of law that a party to a case cannot rely on

a material that he has not pleaded. Material means necessary for the purpose of formulating a complete cause of action; and if any one material statement is omitted, the statement of claim (or defence is bad (per Scott LJ in Bruce v Odhams Press Ltd [1936] 1 ALL ER 287, p.294. Pleadings define the issues between the parties and serve to determine which party has the onus of proving which material issue in the case.

 

0.18 r 12 (1) RSC, 1999 Edition provides that:

 

“…every pleading must contain the necessary particulars of any claim, defence, or other matter pleaded, including, without prejudice to the generality of the foregoing

 

  1. particulars of any misrepresentation, fraud, breach of trust, willful default, or undue influence on which the party pleading relies”.

 

Halsbury’s Laws of England (4th Edition) Vol. 36 paragraph 36 states that where a party relies on any misrepresentation, fraud or breach of trust, willful default or undue influence by another party, he must supply the necessary particulars of the allegation in his pleading. It was thus held in Super Trade House v Mazombwe (10 MLR 89) that the court cannot make finding of fact on matters not pleaded. A similar holding was made in Malawi Railways v Nyasulu MSCA Civil Appeal No. 13 of 1992. In this case, the Malawi Supreme Court of Appeal dealt with a matter where the respondent at trial sought to really on an implied term of an employment contract. The respondent had not pleaded the implied term in the High Court. The High Court had determined the case in the respondent’s favour on the basis, inter alia, of the implied term. On appeal in the Supreme court, Counsel for the Appellant argued, among other things, that the lower court had erred in deciding the case on the basis of an implied term that had not been pleaded. Kalaile J, delivering the judgment of the court said:

 

Counsel for the appellant argued, quite correctly in our opinion, that although the learned trial Judge implied into the agreement between the parties the underlined terms that he did, the respondent had not pleaded or alleged such implied terms in the statement of claim. Counsel also pointed out that Order 18, rule 7 of the Rules of the Supreme Court, 1995 Edn at page 291 makes it a duty on every part, to the proceedings to plead all material facts which that party will rely upon at the trial”.

 

Learned Counsel for the Plaintiff Mr. Mwangomba, applying the law to the case at hand, correctly submits that parts of the Defendant’s defence evidence attempts to assert unpleaded defences as follows: Firstly, that paragraph 15 of the witness statement of DW1 that he signed the document (guarantee) in question because Mr. Msindo told him that it (only) concerned a personal loan that he was acquiring from the Bank was not pleaded in the Defence. Secondly, evidence by DW1 given in re-examination that he signed the document (guarantee) as someone who knew Mr. Msindo was not pleaded in the defence. Thirdly, evidence of DW2 stating that she signed the document because Mr. Msindo told her that he needed someone to verify to the Bank that they knew him personally (paragraphs 6,7, 8, and 10 of her witness statement was not pleaded in the Defence.

 

On the other hand, applying the same law to the case at hand, learned counsel for the Defendant Mr. Gulumba also correctly argues that the Plaintiff can not rely on the rule in Royal British Bank v Turquand(1856) 6 E & B 327 which rule protects an outsider not aware that internal management issues such as failure to obtain a required board resolution for the execution of a guarantee because the Plaintiff did not plead that in the statement of claim. Mr Gulumba’s argument is supported by Rolled Steel Products vBritish Steel Corp. (1985) 2 WLR 905 where the Court of Appeal held that the rule in Turquand’s Caseis not a mere plea of law (which therefore does not have to be pleaded). It is a plea of mixed law and fact which needs to be pleaded.

 

The effect of a director signing a company document and attesting affixing of a company seal to the document

 

It was held by Skinner CJ (as he then was) in Manica Mann George (Malawi) Limited v City Centre Limited MLR 215 that where a director puts his name (or signs) on a document to attest affixing of company seal, the document is an instrument of the company and not writing of the director under his hand. At page 218 the judge went on to say:

 

It seems clear to me that where a director puts his name on a document as evidencing the affixing of the seal of a company, the document is a document of the company and is not a writing of a director, nor is it under the hand of a director”.

 

Therefore, the words on the guarantee in the case at hand stating that it was executed pursuant to a resolution of the directors dated 19thSeptember 2006 should be attributed to the Defendant who in all honesty, on the facts of this case, should not be allowed to turn around to argue that in fact no board resolution was in place particularly where DW1 and DW2 did not disown the affixing of the company seal. That is not to say that I am making a finding of estoppel since that was not pleaded and may not be applicable anyway.

 

Non est factum

 

As a general rule, a party is bound by their signature to a document so that the court will not allow them to renege from it. However, in exceptional circumstances such as where they can prove to the court on a balance of preponderances that there was no consensus ad idembetween the parties or that the document they signed is fundamentally different from the one they intended to sign, they can be allowed to so renege. I must therefore mention at the outset that since it is the Defendant who raises the defence, the onus of proof in terms of the applicability of the law to the facts rests with them. To that extent, learned counsel for the Defendant Mr. Gulumba has relied on Rose and Frank Co. v J R Crompton & Bros Ltd.(1923) 2 KB 261 at page 293 and Carlisle and Cumberland Banking Company v Bragg (1911) 1 KB 489 where guarantees issued by the Defendants on which signatures were induced by fraud were set aside by the court. The latter case went on to hold that the fact that a person who is fraudulently induced to sign a document was negligent does not preclude them from pleading the defence of non est factum. , it should be noted that the Defendant in this case, apart from merely pleading non est factum, has not pleaded fraud or lay down the particulars of the fraud it intended to rely upon.

 

In response, learned counsel for the Plaintiff Mr. Mwangomba wishes to rely on

Saunders v Anglia Building Society [1970] 3 ALLER 961 (HL) at p.966, a House of

Lords decision which overruled the case of Carlisle and Cumberland Banking Company

by holding that negligence will preclude a person from relying on the defence of non est

factum on the principle that no man may take advantage of his own wrong. Lord Reid in his leading Judgment went on to opine on p.963:

 

But that does not excuse them from taking such precautions as they reasonably can. The matter generally arises where an innocent third party has relied on a signed document in ignorance of the circumstances in which it was signed, and where he will suffer loss if the maker of the document is allowed to have it declared a nullity. So there must be a heavy burden of proof on the person who seeks to invoke this remedy. He must prove all the circumstances necessary to justify its being granted to him, and that necessarily involves his proving that he took all reasonable precautions in the circumstances. I do not say that the remedy can never be available to a man of full capacity. But that could only be in very exceptional circumstances; certainly not where his reason for not scrutinizing the document before signing it was that he was too busy or too lazy. In general I do not think that he can be heard to say that he signed in reliance on someone he trusted. But, particularly when he was led to believe that the document which he signed was not one which affected his legal rights, there may be cases where this plea can properly be applied in favour of a man of full capacity.

 

The plea cannot be available to anyone who was content to sign without taking the trouble to try to find out at least the general effect of the document. Many people do frequently sign documents put before them for signatures by their solicitor or other trusted advisers without making any enquiry as to their purpose or effect. But the essence of the plea of non est factum is that the person signing believed that the document he signed had one character or one effect whereas in fact its character or effect was quite different. He could not have such a belief unless he had taken steps or been given information which gave him some grounds for his belief. The amount of information he must have and the sufficiency of the particularity of his belief must depend on the circumstances of each case. Further the plea cannot be available to a person whose mistake was really a mistake as to the legal effect of the document, whether that was his own mistake or that of his adviser. That has always been the law and in this branch of the law at least I see no reason for a change”.

 

In this case, Lord Hodson went on to further emphasize that the burden of proving non est factumis on the party disowning his signature in the words:

 

The burden of proving non est factum is on the party disowning his signature; this includes proving that he or she took care. There is no burden on the opposite party to prove want of care”.

 

I agree with the argument of learned counsel for the Plaintiff that in so far as DW1 and DW2 admitted or it is evident that they were careless or negligent in appending their signatures to the guarantee, that they did not read the document before signing it because they were in a hurry (or too busy), that they signed the document because they trusted Mr. Msindo and that they did not take the trouble to find out at least the general nature of the document, the plea of non est factum not available to them in the sense that Lord Reid expounds the law.

 

Illegality

 

Section 151 (1) (a) of the Companies Act, 1984 provides:

 

It shall not be lawful for any company-

 

(a) to make a loan to any person who is its director or a director of any group company, or to enter into any guarantee or provide any security in connexion with a loan made to such a person by any other person”.

 

However, Section 151(6) provides:

 

The Section shall apply to a public company and any group company of a

public company, and to such further classes of company as the Minister may

from time to time prescribe by notice published in the Gazette; but shall not

apply to any loan made prior to the commencement of the Act”.

 

Based on section 156 (6), the Plaintiff argues that since the Defendant is a private company and not a public one as is evidenced by exhibits P12 P13the memorandum of association and certificate of incorporation of the Defendant, the guarantee in this case is not caught by the prohibition. The Defendant argues that the Plaintiff did not plead section 151 (6) of the Companies Act and as such can not rely on it. This is surprising in that it should be the Defendant who is relying on illegality to convince this court that its argument is in tandem with the law and facts. Further, this being a point of law, one wonders whether it needed to be pleaded.

 

Section 4 of the Statute of Frauds 1677 requires that a guarantee must be in writing and be signed by the person to be charged. Section 4 (in so far as it is material provides:)

 

No action shall be brought… whereby to charge the defendant upon any special promise to answer for her debt, default or miscarriages of another person…unless the agreement upon which such action shall be brought or some memorandum or note thereof, shall be in writing, and signed by the party to be charged there with, or some other person there unto by him authorized”.

 

The Plaintiff therefore, submits that the Defendant having duly signed or executed the guarantee (which is in writing) the requirements of the Statute of Frauds are satisfied and the defendant is bound to the guarantee.

 

The Companies Act of Malawi 1984 requires that every instrument to which a company seal is affixed be signed by a Director and counter signed by the secretary or by second Director. On the basis of this provision, the Plaintiff rightly argues that since the guarantee in question was signed by a Director and a Secretary, there was no need for another director to sign the same as the Defendant suggests in paragraph 7 of their defence when they argue that the minimum number of Directors being two, the decision to bind the company was ultra viresand therefore not binding on the company. One would wonder at the relevance of the defence argument which relates to the issue of quorum for meetings and has no relevance to execution of company documents.

 

CONCLUSION AND DISPOSITION

 

Conclusion

 

Once the Plaintiff brought to this court a guarantee duly signed by the Defendant’s company secretary and director and bearing the Defendant’s company seal, the burden of proof shifted to the Defendant to prove that the guarantee is not valid. Despite some suggestions to the contrary in cross examination, a perusal of the evidence in the matter shows that the contract for the disbursement of the loan between the Plaintiff and Mr. Msindo was not conditional on procurement of a board resolution as evidenced by exhibit P2 but on the Defendant executing a guarantee. No evidence was brought by the Defendant to show that the execution of a guarantee under the Defendant’s articles of association requires the issue of a board resolution. As has been rightly argued by the Plaintiff, the law only requires that a company guarantee should be in writing of which the one in question was. The existence or non existence of the board resolution in the case at hand is therefore irrelevant. In any event, when one looks at the guarantee contract itself duly affixed with the Defendant’s common seal, it states just next to the spaces where DW1 and DW2 appended their signatures that the Defendant’s common seal is affixed pursuant to a resolution of the directors dated 19th September 2006. As already observed elsewhere in my judgment, to allow the Defendant after stating that a board resolution was in place to turn around and say that in fact there was no resolution would, short of estoppel, on the facts of this case be a travesty of justice.

 

As is evident in my judgment, the plea of non est factum is established where the person who seeks to escape from being bound by a document they have signed can prove to the court on a balance of probabilities that they under a mistaken belief signed a document which is fundamentally different from the one they intended to sign without any negligence. The Defendant has not addressed this court either in pleading or by evidence or by submission whether the document which DW1 and DW2 actually signed was fundamentally different from the one they allegedly intended to sign. Is guaranteeing Mr. Msindo’s personal loan fundamentally different from an alleged witnessing of the personal loan? The particular circumstances in which DW1 and DW2 signed the guarantee are not pleaded either. I must confess that coming from mature, senior, educated, experienced and responsible persons entrusted with the discharge of important corporate functions, the surrounding circumstances to the appending of signatures as alleged by DW1 and DW2 are dumbfounding to me. And looking at the two paged broad sheet guarantee myself, I fail to understand how a person in the standing of DW1 and DW2 could not have read the words guarantee which appear on both pages. In other words, I have not believed in the veracity of the evidence of DW1 and DW2. And if indeed the clear words guarantee and “pursuant to a Resolution of the Directors the latter of which were just next to the spaces DW1 and DW2 appended their signatures not in their personal capacity but as Director and Secretary of the Defendant were not seen by the Defendants when they were signing the document, their conduct amounts to gross and inexcusable negligence to say the least. The question who between the Plaintiff and Defendant should suffer for the gross negligence and incompetence of DW1 and DW2 who were agents for the Defendant should obviously be answered in a matter of of course the Defendant not the Plaintiff must suffer for this.

 

The Defendant has therefore failed to discharged its burden of proof to convince me on a balance of probability that it should fall under the exception to the general rule which provides that signature of a document means that one has read it and agrees with its contents. Thus, on the evidence the plea of non est factum is not made out.

 

With regard to the defence of illegality, the Defendant did not furnish to the court sufficient facts and submission to show how this defence applies in view of the fact that there was uncontroverted evidence before this court that the Defendant is a private company. Although section 151 (1) (a) prohibits any company (presumably including a private company) from guaranteeing loans to its directors, this section must be read together with section 156 (6) of the said Act. Clearly, section 156 (6) must have been intended to circumscribe the ambit of section 151 (1) (a). To otherwise hold would mean that the legislator engaged themselves in unnecessary additional drafting. They could simply have stopped at section 151 (1) (a) if the intention was that all companies should be subject to the prohibition.

 

Disposition

 

In the circumstances therefore the Plaintiff’s claim succeeds. The costs of and incidental to these proceedings are awarded to the Plaintiff.

 

 

Pronounced in open court this 28th day of January 2008.

 

 

 

 

 

Dr. M.C. Mtambo

Judge