It’s Loan, Not Sale – Supreme Court Tells Money Lenders

By Dickson Jere

LUSAKA 24/01/25 – THE highest Court in Zambia – the Supreme Court- has finally made its position on the rampant “fake” Contracts of Sale transactions by Shylocks who eventually grab houses and other properties from borrowers.

You see, a lady borrowed K300,000 from a money lender of Chinese origin and pledged her house as collateral. Instead of mortgage, the money lenders prepared a Contract of Sale of the house and converted the K300,000 into dollars and added interest.

The amount was now at USD67,800. When she defaulted on the six months loan, the lender went ahead and changed ownership of the house which is valued at over K3.4 million. The lady lost her house!

She sued the lender in the High Court, arguing that she had entered into a loan agreement and not sale. After hearing the case, the Judge agreed with her and cancelled the purported “Contract of Sale” and ordered that the transaction be treated as a loan.

There was no agreement that she wanted to sell the house and buy it back within six months at higher price. It did not make sense at all unless it was a loan.

Unsatisfied with the outcome, the lender appealed to the Court of Appeal where three Judges handled the case. They ruled that the “Contract of Sale” was valid because the lady voluntarily agreed and signed the document.

The lady climbed to the Supreme Court arguing that she got a loan and the house was collateral. Three Judges of the Supreme Court analyzed the case and found that the terms of the transaction pointed to a loan and not a sale of the house.

“When the contract is considered with all other evidence, it all points to the conclusion that this was a loan and not a sale,” the Judges said.

The Supreme Court noted that the content of the said Contract of Sale which had “Buy Back” clauses was vague and pointed to the fact that the lady was merely getting a loan.

“The ordinary and natural meaning of the contract leads to the conclusion that it was meant to be a loan and not a sale,” they said, adding that the lady only received K300,000 and not even the mentioned USD 67,800.

The court said since the sale was a nullity, there was no basis of claiming the monies except for the K300,000, which should be paid back with interest at the bank lending rate.

“Anything more would be usury,” the Judges said and ordered that the Certificate of Title given to the lender be cancelled.

The Judges observed that these fake sale transactions with “buy back clauses” have become prevalent in Zambia and urged Parliament to pass laws to prevent the scourge.

“The time has in our view, come for legislative intervention in transaction such conveyancing and mortgages so that, it becomes mandatory for parties seeking to buy, sell or borrow using property as security, to obtain independent legal advice before doing so,” they concluded.

Case citation – Gillian Mutinta v New Future Financial Company Limited- Appeal No 13 of 2023 and Judgment delivered yesterday 10th January 2025.

(story edited by Mthoniswa Banda)