CIV/I/
53/82

IN THE
HIGH COURT OF LESOTHO

In the
Matter of

LESOTHO
BUILDING FINANCE CORPORATION Plaintiff

V

M M
MTHEMBU Defendant

REASONS
FOR JUDGMENT

Filed by
the Hon the Chief Justice Mr Justice T S Cotran on the 19th day of
April,1984

On the
2nd March 1984 I entered judgment as prayed in the summons (as
amended) in favour of the plaintiff, the Lesotho Building
Finance
Corporation, against the defendant, Mr. M M Mthembu, with costs I
said reasons will be given later and these now follow

The
plaintiff is a statutory corporation established by Act No 7 of 1976
and is subiect to the provisions of the Buiding Finance
Institutions
Act No 17 of 1976 (Vol XXI Laws of Lesotho p 24 et seq. and 124 et
seq ) The plaintiff's objects and powers are enumerated
in ss.4 and 5
of Act 7 of 1975. The plaintiff has no power to lend money, except on
the security of immovable property, or a matching
deposit, or for a
purpose consistent with the Act

It is
common cause that the plaintiff advanced the defendant the total sum
of M20,000 which was paid to him on the 6th March 1980
(M7.000) on
the 28th May 1980 (M10,000) and on the 30th September 1980 (M3,000)
The security was to be on property described as
"every right on
interest in and to the buildings and the improvements erected with
the consent of government express or

2

implied
on certain site No 5/9 Europa situate on the Maseru Reserve in the
district of Maseru" by way of a reducable mortgage
bond No 15864
(Exhibit Ai payable by monthly instalments with interest from
specified dates The certificate of title was handed
to plaintiff and
the bond duly registered on 29th May 1980 The defendant's plea is
that he had repaid in full the said sum during
June/July 1981 at the
plaintiff's main branch in Kingsway Maseru to the Managing Director
in cash but that no receipt was issued

It was
agreed by attorneys of both parties that the onus of proof lay on the
defendant and that he had to begin. He went into the
box and swore
vaguely that the bond was cancelled upon his paying the then Managing
Director the amount outstanding on the loan
He produced photocopies
of two documents Exhibit A and Exhibit B Exhibit B is a form of
consent by the plaintiff to the cancellation
of the bond signed by
the then Managing Director on 2nd July 1980 endorsed by the
plaintiff's attorney and conveyancer on 8th July
1981, and Exhibit A
which shows that the Registrar of Deeds effected the cancellation on
the 24th September 1981 The defendant
says that upon cancellation he
got back the certificate of title and sent it to the Commissioner of
Lands to convert the title
into a lease (in terms of the new Land Act
No 17 of 1979 (Voi XXIV Laws of Lesotho p 96 et seq )) but this
cannot be true because
there is evidence in Exhibit 6, a letter from
the plaintiff to defendant dated 31st May 1981 in which the former
referred to an
advertisement in the press in January 1980 in which
the defendant had made an application for conversion to a lease The
defendant
denied ever receiving Exhibit G. Apart from giving the
dates of his application for the loan, the offer and his acceptance,
he
did not (in examination in chief) give any dates. His answers to
difficult question in cross examination

3

were
almost invariably that he was unable to remembet He was confronted
with his account with the plaintiff (Exhibit C) which shows
that he
paid on tne 28th October 1981 the sum of M532 80 ana could not
therefore have paid the Managing Director "in full"
in
June/July 1981 He replied that that sum should have been credited to
his "savings account" with the plaintiff He produced
no
evidence that he had such an account He was shown a letter (Exhibit
Ej from Mr Steyn, an attorney of Che firm Lovius, Block,
Melt/, Steyn
and Yazbek dated the 28th April 1982, written on behalf of the
defendant (para 1) in which the defendant acknowledges
(para 4) that
a balance was still outstanding on the loan granted to him on the
security of the property The defendant answered
the question by
saying that he never briefed the attorney to say so and it is a
"mystery" to him how Mr Steyn got this
information

The
defendant denied he had a transaction over the property with one
Phofoolo at first but in the next breath he agrees that an
action
over the property is pending against him to compel him to transfer it
to Phofoolo I will retrain, except where necessary,
to refer to that
matter since the action is still pending out straightforward
questions were answered by a protest that he, the
defendant, is
"prejudiced" by the plaintiff's attorney bringing matters
up in this way

The
plaintiff's mortgage manager, Mr Khoboko, gave evidence that he was
personally aware of the loan to the defendant, that defendant
had
started to build a house on the site and applied for a loan in March
1980 because he had difficulty in completing it, that
there was an
agreement over the amount of the loan (M20,000) and the security but
that the loan was to be staggered to coincide
with progress of the
construction that on a visit to the site in

4

September
1960, the house was not completed and the last M3,000 was advanced to
the defendant to enable him to do so, that the defendant
fell into
arrears in his monthly payments and demands ware made on him (Exhibit
D) which payments were made over the counter in
the banking hall of
the plaintiff He produced (Exhibit H) a bunch of banking slips
showing repayments by defendant From his personal
negotiations with
the defendant the witness explained how the cancellation came about
The defendant needed cash because his property
was about to be sold
in execution over judgment debts The defendant agreed to sell the
property to Phofoolo, and the plaintiff
agreed to advance a loan to
Phofoolo in the sum of about M55,000 on the security of the same
property. The arrangements were for
the plaintiff to deduct the
defendant's outstanding loan from this amount, and pay, he could not
say on the first day of the trial
to whom, Pnofoolo or the defendant,
the balance, to provide the defendant with cash to enable him to stop
the High Court sale Through
an error the plaintiff made out a cheque
for some M55.000 without deducting the amount due on the defendant's
loan The mortgage
manager was given time overnight to produce the
cheque or the counterfoil He was unable to do so (and indeed the time
was far too
short to dig for a cheque or a stub almost four years
old) but he checked his books and made enquiries and found out that a
cheque
for M55,257 31 was made in favour of Phofoolo on the28th June
1980,

and
endorsed by Phofoolo in favour of the defendant which cheque was
handed over to the Sheriff of the High Court before the sale
The
defendant does not deny receiving this sum but as usual does "not
remember" exactly how much, when, and from whom,
and in what
manner, but he did not deny that the proceeds were used to stop the
sale in execution of judgment debts.

The
defendant produced no receipt, the story that he privately paid the
Then Managing Director, now dead, in cash at his office
must be a
fabrication because, through his attorneys, he was inter alia
admitting the outstanding loan up to April 1982 and came
up with a
different story when he was sued and knew that the dead cannot speak
The result is that the defendant who struck me as
a man with little
respect for the truth has not discharged the onus placed on him, and
I find, as a fact, that the amount claimed
has not been paid.

On the
3rd August 1982 I declined to enter summary judgment in favour of the
plaintiff for reasons then given and granted the defendant
leave to
defend No point of law was taken either in the pleadings or in limine
or in the course of the evidence although defendant's
attorney took
up the question of vires in his final address

It is now
absolutely clear that the loan was granted on the security of
defendant's property by way of a reducable mortgage bond
dated 21st
April 1980 which the plaintiff agreed to cancel on or about 28th June
1980 in the circumstances described by Mr Khoboko.
The plaintiff
continued, however, to receive from defendant some paymenis on and
off until OctoDer 1981 Mr Khoboko did concede
that the last sum of
M3.000 in September 1980 was advanced after the plaintiff knew of the
mistaKe it made in not deducting the
defendant's loan from the cheque
given to Phofoolo but it only knew that the defendant will claim he
settled the loan when an action
was lodged to recover it The
plaintiff's mortgage manager struck me as a man of honesty and
integrity 1 could not discern in his
evidence any attempt to

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lie or
whitewash

The
position therefore on or about 28th June 1980 was that the plaintiff
agreed to cancel the defendant's bond on the secured property,

recouping any amount he owed, and after discovering its mistake a
week later, loaned him M3,000 in September 1980 knowing that

defendant had agreed to sell to Phofoolo Ihe plaintiff was obviously
in a dilemma It had lent out over R75.000 on the security
of one
property (probably worth less) to two persons, defendant and Phofoolo
The defendant had at the same time an unexpected bonanza
to satisfy
his creditors, which upon the death of the Managing Director,
defendant converted to a false claim that he settled the
loan of
M20.000 in full.

Plaintiff
acted intra vires its powers certainly over the M7,000 and M10.000
respectively in March ana May 1980 for the advance
was made on the
security of the defendant's property The last M3.000 was not so much
ultra vires the plaintiff's powers as ultra
vires the plaintiff
Managing Director's power because though plaintiff retained the
security, it was a securety in respect of property
upon which a loan
was already granted and paid out to Phofoolo There was on the part of
the plaintiff an indulgence to defendant
and business incompetence
perhaps, but I have no doubt that in the circumstances this part of
the loan is recoverable as well There
are several reasons for this
Firstly the defendant had not only renounced all benefits from
specific exceptions and all other exceptions
which might or could be
pleaded in bar to the validity of the debt or part thereof by Clause
7 of the bond (Exhibit A), but did
not in fact except or plead
confining his case

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to a
decision on the facts. Secondly because whilst plaintiff should have
exercised better judgment by refusing to pay defendant
any amount
after it mistakenly parted with Phofoolo's cheque the transaction was
not contra bonds mores. Thirdly because the matter
of ultra vires
(now confined to M3,000) must be resolved in plaintiff's favour in
any event. The former anxiety in the. proceedings
for summary
judgment occurred from reading in haste a passage in Gower's
Principles of Company Law, 4th Edition at p 171 and 172,
viz –

"But, to revert to the ultra vires rule proper, as we have seen,
it was designed to protect the company against itself (or
rather
against its organs) so as to safeguard its members and creditors
Hence one might have supposed that it could not be invoked
by the
other party so as to enable him to escape from a transaction from
which he found it more profitable to resile This would
be consistent
with other examples of lack of capacity, such as non-age or insanity,
where, normally, the lack of capacity can be
relied on by the infant
or lunatic, or by those acting on his behalf, but not by the party
with whom he has dealt On the other
hand, the orthodox view is that
an ultra vires transaction is "void" and if that expression
is taken literally it must
mean that the transaction is totally
ineffective in respect of both parties

Until very recently there was virtually no authority on tms question
and when it arose the courts had a rare opportunity of deciding
on
policy grounds - which, it is submitted, would inevitably have led
them to decide that the third party cannot plead that a transaction

is ultra vires Instead, they first assumed and then held, that as the
transaction was void he could do so - thereby adding one
more
absurdity to the list "

Some of
the authorities quoted by the learned author are available in my
Library albeit the English cases in the All E.R series
There seems to
be some divergence of opinion when the issue arose between, on the
one hand, the Supreme Court of Nigeria

8

in
Continental Chemists Ltd. v Ifakundu 1966 1 African Law Reports
(Commercial) 54 where the Court held that a contract entered
into
with a former employee by the terms of which the employee had to
serve his employer for a number of years after education
at the
employer's expense was ultra vires the employer's power under its
memorandum of association and it could not therefore recover
damages
for breach of contract from the employee (and Metalimpex v Leventis &
Co (Nig ) Ltd 1976 1 African Law Reports (Commercial)
20, obiter at p
32 lines 35-40) and, on the other hand, the Supreme Court of Canada
in Breckenridge Speedway Ltd. v The Queen (1969)
9 Dominion Law
Reports (3rd) p 142 the judgment of which was made available to me
through the courtesy of Dr Alan Milner, Editor-in-Chief,
African Law
Reports, Trinity College, Oxford, where the Court held that money
loaned by the Province of Alberta to a local businessman
through the
operation of the Treasury Branches Act 1955, is recoverable with
interest according to the loan contract, whether that
statute is
ultra vires the province as a venture into the federal field of money
and banking or not.

I have
not been able to trace any authority in Lesotho on the subject and we
are therefore at large I shall grasp what Prof Gower
calls this new
opportunity and hold, if the Court can raise the issue mero moto,
that unless there is anything intrinsically illegal,
or immoral, or
contrary to public policy, in a loan transaction between a borrower
and his building society, the latter can recover
the loan even though
the granting of it, or part of it, turns out to be ultra vires the
society's power and objects.

The costs
in the proceedings for summary judgment were reserved until the
result of the trial These costs are also to be borne by
the defendant

CHIEF
JUSTICE

19th
April 1984

For
Plaintiff Mr Koornhof

For
Defendant Mr Matsau