AHENFIE CLOTH SELLERS ASSOCIATION v. PHILOMENA MENSAH & OTHERS
July 21, 2010
SUPREME COURT
GHANA
CORAM
- BROBBEY, JSC (PRESIDING)
- ANSAH, JSC
- OWUSU (MS), JSC
- YEBOAH, JSC
- ARYEETEY, JSC
Areas of Law
- Banking and Finance Law
- Contract Law
- Commercial Law
July 21, 2010
SUPREME COURT
GHANA
CORAM
AI Generated Summary
Delivering a unanimous Supreme Court decision, Brobbey JSC held that a registered association formed to source bank loans for members was in substance carrying on a moneylending business. In 2004 the association obtained a three-billion old cedi facility from Ghana Commercial Bank explicitly for lending to members, and advanced A2300 million (GH A230,000) to the first defendant on terms requiring GH A246,800 to be repaid over 52 weeks. After 21 weeks of payments, the borrower defaulted and the association sued to recover the balance. The court found the effective charge of 52% (with 29% attributable to bank interest and an additional 23% taken by the association) on an unsecured loan to be excessive, harsh, and unconscionable. It further held that operating without a moneylenders license under Cap 176 is a penal offense but does not void such transactions, which remain enforceable through statutory re-opening under Cap 175. The transaction was ordered re-opened, with total interest fixed at 40%, running from the loan date until final payment, and proper accounting for amounts already paid.
BROBBEY JSC:
This is the unanimous decision of the court. In this judgment, the appellants shall be referred to as the defendants while the respondent will be referred to as the plaintiff or the plaintiff association. The bare facts which gave rise to this litigation were as follows: The plaintiff is an association of which the PW1 is the president. According to the PW1, the association was formed with the aim of sourcing loans for its members because the members found it difficult to source loans for their businesses if they sourced the loan as individuals. The association was registered as a company limited by guarantee. The 1st, 2nd and 3rd defendants denied that they were members of the Association but the plaintiff produced evidence to prove that they were members.
The association obtained a loan of three billion old Cedis from the Ghana Commercial Bank for use by its members. The first defendant applied for and was given three hundred million old Cedis as a loan which was guaranteed by the second, third and fourth defendants. The three billion Cedis was to have been paid to the bank within a period of 52 weeks and it attracted interest of 29 per cent per annum. The plaintiff did not state the exact rate of interest attracted by the loan to the first defendant. The 1st defendant was to have repaid her loan of three hundred million Cedis at the rate of nine million Cedis per week but within the same 52 weeks. At the rate of nine million Cedis per week, the 1st defendant would have paid four hundred and sixty eight million Cedis within the 52 weeks. The 1st defendant paid the weekly nine million Cedis for 21 weeks, after which she stopped or failed to pay any more money to the plaintiff. The plaintiff therefore took action against her and the other defendants in their capacities as guarantors for the recovery of 279 million Cedis which she alleged was the balance owed on the three hundred million Cedis loan. That transaction between the plaintiff and the defendants was evidenced by exhibit A.
The parties do not dispute that by the agreement on the facility given to the first defendant, she was to have paid GH¢46,800.00 from the GH¢30,000.00 loaned to her. The difference was GH¢16,800.00. By simple arithmetical calculation, the difference of GH¢16.800.00 on the GH¢30,000.00 amounted to 52 per cent. That included the 29 per cent charged by the bank. In other words, the Association charged 52 per cent for lending the GH¢30,000.00 to the first defendant.