SASA ENTERPRISES (Z) LIMITED v MOHAMED RAZA HUSSEIN DHARAMSI 1989 TLR 78 (HC)

 

SASA ENTERPRISES (Z) LIMITED v MOHAMED RAZA HUSSEIN DHARAMSI 1989 TLR 78 (HC)

Court Court of Appeal of Tanzania- Zanzibar

Judge Nyalali CJ, Omar JA and Mfalila Ag JA

17 May, l989 D

Flynote

Contract - Oral loan agreement - Concluded by one of the directors of a company -

Loan E money given to the director - Whether company liable to repay the loan.

Company Law- Directors - Powers - One of company directors concludes an oral loan

agreement and receives the money -Whether company liable to repay the loan -

Section 33(b) Companies Decree of Zanzibar -Relevant articles of the Articles of

Association of F the Company considered and construed.

-Headnote

The respondent successfully sued the appellant company in the High Court for breach

of contract to repay a loan of shs. one million. The loan contract was concluded G

between the respondent and one of the directors of the appellant company. Counsel

for the appellant argued that said loan was a personal loan made to the director and

not in any way a loan made to the appellant company. It was further argued that the

loan did not comply with the requisite procedures for borrowing money by the

company. The H court considered the effect of a company's internal requirements

and procedures on third party interest.

Held: (i) Section 33(b) of the Companies Decree of Zanzibar empowered the I

appellant company to enter into parol contract notwithstanding any internal

procedure made by the company to

1989 TLR p79

NYALALI CJ, OMAR JA AND MFALILA Ag JA

the contrary provided such parol contract was made by a person acting under the A

company's authority expressly or impliedly;

(ii) although the provisions of Articles 14 and 15 of the Articles of Association

of the Company must be construed as requiring prior agreement between the

directors before one of them acts for and on behalf of the company, a third party

dealing with B one of the directors is not obliged to ascertain whether such prior

agreement existed;

(iii) the appellant company is liable to repay the loan as claimed by the

respondent.

Case Information

Appeal dismissed.

Case referred to. C

1. Royal British Bank v Torgand [l856] 6EXB.

El-Maamry, for the Appellant. D

[zJDz]Judgment

Nyalali, C.J., Omar, J.A. and Mfalila, Ag. J.A.: The respondent, namely, Mohamed

Raza Hassan Dharamsi, successfully sued the appellant, that is, Sasa Enterprises (Z)

Limited in the High Court of Zanzibar at Zanzibar for breach of contract E for

repayment of a loan of shs. one million plus interest at Bank rate and with costs. The

appellant was aggrieved by the decision of the High Court, hence this appeal to this

court. Mr. El-Maamry, learned advocate, appeared for the appellant before us;

whereas the respondent who was duly served with notice to appear, did not enter F

appearance in his appeal. The hearing of this appeal proceeded in his absence under

the provisions of Rule 105(2) of the Tanzania Court of Appeal Rules, l979.

From the proceedings at the trial and in this court, the following primary facts are not

in dispute between the parties: The appellant is a company incorporated in l985 under

the G Companies Decree of Zanzibar, initially it had four shareholders, that is,

Ghalib Abdalla, Halfani Shuweli, Ali Sultani Issa and his wife, that is, Eshe. On the

15th February, 1986, the number of shareholders was reduced by resolution from four

to two; and in that way the remaining shareholders remained Ali Sultani Issa, who H

appeared as the only defence witness at the trial, and Ghalib Abdalla who did not

testify at the trial. Sometime thereafter in l986 the respondent Mohamed Raza

Hussein Dharamsi gave the said Ghalib Abdalla a loan of shs. one million repayable in

a month's time. The said sum of money has not been repaid as agreed in spite of

repeated I demand for

1989 TLR p80

NYALALI CJ, OMAR JA AND MFALILA Ag JA

payment. It is also not in dispute that at the material time the said Ghalib Abdalla was

A one of the Directors of the appellant company.

From the proceedings in this court and the court below the following matters are in

dispute between the parties: It is the respondent's case apparent from the record that

the loan of shillings one million was made to the appellant acting through its

Director, B that is Ghalib Abdalla. On the other hand, it is the appellant company's

case also from the record and the submissions made by Mr. El-Maamry, learned

advocate for the appellant, that the said loan of shillings one million was a personal

loan made to Ghalib Abdalla, and not in any way a loan made to the appellant

company. C

The main issue which arises for consideration and decision in this appeal before us is a

narrow one, and it is whether the loan of shillings one million was a personal loan

made to Ghalib Abdalla or was a loan made to the appellant company. The learned

trial judge considered this point and found as a fact that the loan was not a personal

loan D but was a loan made to the company through one of its Directors, that is the

said Ghalib Abdalla.

In his memorandum of appeal, elaborated upon by Mr. El-Maamry, the appellant

complains against this finding of the court below and submits in effect that the

evidence E adduced at the trial was not sufficient to prove on a balance of

probabilities that the loan was made to the appellant company.

The evidence adduced by the respondent, who was the complainant at the trial, was

given by the respondent himself (P.W.1) and by one Ibrahim Hassan (P.W.2) who is

F the brother of P.W.1, and by one Ahmed Sultan Mugheiry (P.W.3). This latter

witness is also known as Riami. The evidence of P.W.1 is to the effect that the loan

agreement was made in the office of the appellant company for the purpose of

financing the G construction activities of the appellant company, and that thereafter

the money was conveyed to Ghalib by P.W.2. The evidence of P.W.2 corraborates

that of P.W.1 concerning the transmission of the money to the said Ghalib Abdalla

who passed it on to P.W.3. The evidence of P.W.3 corroborates that of P.W.2

concerning the delivery of the money. P.W.3 was the Operations Director of the

appellant company. He H testified to the effect that the appellant company needed

the money because it happened to be in a bad financial position, and the money thus

received was used in paying construction technicians of the company. That, in a nutshell,

is the evidence in support of the respondent's case. I

1989 TLR p81

NYALALI CJ, OMAR JA AND MFALILA Ag JA

The appellant, on the other hand, adduced evidence through one of its Directors, that

A is, Ali Sultan Issa (P.W.1) to the effect that the appellant company did not borrow

any money from the respondent as the alleged loan did not comply with the

procedures required for borrowing money by the company. This procedure entails a

resolution by the Board of Directors, a recording of the transaction by the company,

and an B endorsement of the company's seal on the documents embodying the loan

agreement.

It is apparent that the central issue in this case is whether the said Ghalib Abdalla

acted for and on behalf of the appellant company in borrowing the money as testified

to by P.W.1, P.W.2 and P.W.3. In resolving the issue, one has to ask one self whether

it is C improbable that the said Ghalib Abdalla acted as he is said to have acted, in

contravention of the laid down procedures of the company. We see nothing

improbable for any human being, including the said Ghalib Abdalla to act contrary to

laid down procedures. To say otherwise would mean that it is also improbable for

people to D contravene the law.

The Said Abdalla did not testify at the trial although the court made sure that he was

available. Since he was an obvious witness for the appellant's case if the appellant's E

denials of liability were true, one wonders why the appellant, acting through one of

its Directors, that is, P.W.1 elected not to have him give evidence. Under the

circumstances of this case, we think that an adverse inference can and should be

drawn under the provisions of section 114 of the Evidence Decree of Zanzibar, Cap. 5,

which states: F

The court may presume the existence of any act which it thinks likely to have

happened, regard being had to the common cause of natural events, human conduct

and public and private business, in their relation to the facts of the particular case. G

We are satisfied that the appellant refrained from having the said Ghalib Abdalla give

evidence, whilst he should testify in support of the respondent's claim. We are thus

satisfied that the learned Chief Justice was correct in accepting the evidence of P.W.1,

H P.W.2 and P.W.3 concerning the conduct of the said Ghalib Abdalla in borrowing

the money in question for and on behalf of the appellant company. This conduct is

fully covered by the provisions of section 33(b) of the Companies Decree of Zanzibar,

Cap. 153, which states: I

1989 TLR p82

NYALALI CJ, OMAR JA AND MFALILA Ag JA

33- (1) Contracts on behalf of a company may be made as follows: A

(a) ...

(b) a contract which if made between private persons would by law

be valid although made by parol only, and not reduce into writing, may be made by

parol B on behalf of the company by any person acting under its authority, express

or implied.

(2) A contract made according to this section shall be effectual in law, and

shall bind the C company and its successors and all other parties thereto.

It is obvious from these provisions of section 33 that the appellant company was

empowered in law to enter into a parol contract, as it did in the present case, D

notwithstanding any internal procedure made by the company to the contrary,

provided that such parol contract is made by a person acting under the company's

authority expressly or impliedly. The question therefore arises whether the said

Ghalib Abdalla was expressly or impliedly authorised by the company to enter into

the loan contract E which is the subject of this case.

The learned Chief Justice relied, inter alia, on the provisions of Articles 14 and 15 of

the Articles of Association of the appellant company, which state - in Article 14: F

The Directors may, from time to time, at their discretion, borrow and secure

the payment of any sum or sums of money for the purposes of the Company.

As to Article 15, it states: G

The Directors may secure repayment of such monies in such manner and upon

such terms and conditions in all respects as they think fit. H

On the basis of these provisions, the learned Chief Justice came to the conclusion that

the said Ghalib Abdalla, acting as Director of the appellant company, had express

authority to enter into the loan contract in question. The learned Chief Justice was

furthermore of the view that although the provisions of Articles 14 and 15 must be I

construed as requiring prior agreement between the

1989 TLR p83

Directors before one of them acts for and on behalf of the company, a third party A

dealing with one of the Directors is not obliged to ascertain whether that prior

agreement existed. As authority for this stand, he cited the case of Royal British Bank

v Torgand [l856] 6 EXB. We concur with his findings. We are satisfied that the said

Ghalib Abdalla as a Director of the appellant company had express authority

contained B in Articles 14 and 15 of the articles of Association, to borrow money for

and on behalf of the appellant company.

The final issue for consideration and decision in this case is whether the appellant

company is liable to repay the loan as claimed by the respondent. We find no

difficulty, C in answering this question by virtue of the provisions of section 33

(1)(b) and of the Companies Decree of Zanzibar above cited. The answer is thus in the

affirmative.

It follows therefore that the judgment of the learned Chief Justice cannot be faulted,

and we are bound to dismiss this appeal and we do so now with costs. D

Appeal dismissed.

1989 TLR p83

E