(An exposé on the Hadija Arerary vs. Tanzania Postal Bank case)
- Big relief to banking institutions in Tanzania regarding spousal consent when undertaking a mortgage for a matrimonial property.
- Spouses should be more vigilant before mortgaging their matrimonial properties to avoid the possibility of losing them in event where they default payments.
- Wife claims to have not issued consent to the said mortgage.
- Court declares that an affidavit and reasonable steps to verify the marital status of the mortgagor were sufficient to validate the mortgage, and hence enforceable.
- Reference of the principal of “bonafide purchaser of right”
1. 0 Introduction
On the 11th of May 2020, the Court of Appeal of Tanzania delivered a judgement in the case of Hadija I. Arerary (herein “Appellant”) vs Tanzania Postal Bank (herein “Respondent” or “TPB”), Civil Appeal No. 135 of 2017 (hereinafter “The Case”). Honourable Justice Mziray, Honourable Justice Mwambegele and Honourable Justice Mwandambo presided over the case.
The judgement has given a sign of relief for the banking sector on recovery issues upon loan defaults as it was held that since the mortgagee had taken all reasonable steps to inquire on the mortgagor’s marital status which he disclosed as not being married; then Appellant (who claimed to be the wife of the mortgagee) could not be protected by section 59(1) of the Law of Marriage Act, CAP 29 that requires for the spousal consent before securing a mortgage.
Breakthrough Attorneys Litigation experts who have represented many banks in the jurisdiction tells us that this has been the single most gruesome impediment to the recovery process over the banking and financial institutions to the extent of threatening banks’ existence. According to the Bank of Africa Tanzania Financials Statements published on March 2020, it has reported that the rate of Non-Performing Loans (NPLs) as by March 2020 were up to 9.4% from 9.2% from December 2019.
For the most past of the recent years, it has been habitual for defaulters’ spouses instituting cases against the mortgagee banks and the mortgagor spouse claiming that the mortgaged property was mortgaged without spousal consent. Alongside those suits, it was habitual for such spouses to apply for injunctions against the mortgagee to stop any repossessions and auction rights. Given protracted litigation culture, banks have been suffering to recover in such cases, which constitutes the majority of such banking businesses.
One of the occasions (on injunctions applied against the Mortgagee) the High Court, through Hon. Madam Judge Sheikh refused to grant an injunction on the reasoning that
“…the balance of inconvenience lies in favour of the Bank (HSBC Bank). For the bank to continue doing business, it must have funds to lend and which must be paid by borrowers-debtors. If a bank doesn’t recover the loans it will surely be an obvious candidate for bankruptcy. Therefore, the law is that the bank/lenders and their customers/borrowers must fulfil and enforce their respective contractual obligations under the various lending securities entered into by the parties. Henceforth, in any event that the Applicant has not been granted temporary injunction, and the Applicant suffers damages, the Applicant can seek redress by way of damages, if they win the case..”
We ascribe to that reasoning of Hon. Madam Judge Sheik in General Tyre East Africa Ltd vs HSBC Bank PLC, Miscellaneous Civil Application No. 35 of 2005 as the failure of recoveries and protracted mortgage disputes were, in our opinion, threatening the banking and financial institutions’ existence. Below, is our synopsis of the current case.
Brief background of the case
TPB granted a loan to the said Frank B. Mwanuke (borrower) who issued a title deed of the one Julius A. Pangani (guarantor and mortgagor) as collateral. In his affidavit, the mortgagor deponed that he was single. Unfortunately, the borrower defaulted payments hence; TPB exercised its rights to sell the mortgaged property to recover the debt. The Appellant, claiming to be the wife of the mortgagor, however, disputed the sale of the property as she claimed that her consent as a wife was not sought before embarking on the mortgage transaction.
Eight (8) years from the start of the dispute, the Appellant successfully won her case at the District Land and Housing Tribunal (DLHT) at Iringa where it was declared that the mortgaged property was a matrimonial home. Therefore, the tribunal restrained the sale of such property since there was no spousal consent from the Appellant.
Being aggrieved with the said decision, TPB successfully appealed to the High Court where the Tribunal’s decision was overturned. The court held that TPB was entitled to sell the mortgaged property since the Appellant failed to establish that she was the spouse of the mortgagor considering that the mortgaged property was registered in the sole name of the mortgagor, who in his affidavit, deponed that he was single. Take note that the appeal at the High Court took about one (1) year, between 2016 to the date of the decision that was issued on March 2017.
The Appellant, however, was not satisfied with the said decision leading to second appeal, as of right, to the Court of Appeal of Tanzania.
2.0 Decision of the Court of Appeal of Tanzania
After hearing both parties, the Court narrowed the crucial issue for discussion being whether or not the mortgage of the suit property was proper in law. As provided under section 8(2)(3) of the Mortgage Financing Act of 2008, the Court held that it was the responsibility of the mortgagor to disclose the information of the spouse. Additionally, as provided under Land (Mortgage) Regulations, 2005, the mortgagor is required to depone his affidavit to express his marital status as it was the case in this matter; and what mattered were the contents of the affidavit of which the mortgagor did not denounce or challenge.
The Court further stated that Appellant could not challenge the affidavit since she was not the one who deponed it and she was also barred by the principle of Estoppel as it was laid under section 123 of the Evidence Act, Cap 6 which states:
“ when one person has, by his declaration, act or omission intentionally caused or permitted another person to believe a thing to be true and to act upon that belief, neither he or his representative shall be allowed, in any suit or proceedings between himself and that person or his representative, to deny the truth of that thing.”
The Court was convinced that the mortgagee had taken reasonable steps to verify the marital status of the mortgagor and it had no reason to disbelieve him. It held that:
“since the mortgagee sufficiently proved that the mortgagor was not married and there was no any caveat registered against the property, the appellant cannot benefit from the provisions of section 59(2) of the Law of Marriage Act, CAP 29 as well as section 161 of the Land Act, CAP 113, taking into account that she did not have a registrable interest in the mortgaged property because the house was in the sole name of the mortgagor”.
In dismissing the appeal, the Court upheld the decision of the High Court by stating that TPB was correct to disburse the loan believing that there was no any other third party with interest on the mortgaged property, therefore, the mortgage was valid.
This is a welcoming move that will protect banking institutions from the practised norm where spouses intend to circumvent justice through one spouse seeking for a mortgage without disclosing his/her marital status with the aim that the other spouse will contend on the ground that he/she didn’t issue spouse consent to facilitate the mortgage transaction hence declaring the mortgage as invalid. The banks should however still ensure that they conduct their due diligence by obtaining affidavits and take all reasonable steps to verify the marital status of the mortgagors as required by the law.
In protecting the rights of the mortgagee bank, the Court of Appeal has, in the digression of our Breakthrough Attorneys’ litigation experts, without so much reference, restated the position of a bonafide purchaser of right, that is, the mortgagee bank.
Our lawyers were part of the team in Mire Artan Ismail & Another vs Sofia Njati, Civil No. 75 of 2008 where in its decision, the Court made reference to Halsbury’s Laws of England Vol 17(2) 4th Edition which expounded on the principle of bona fide purchaser of right that states:
“ where a party acquires interest over a property believing that the same is free from encumbrances and that the person disposing, after due diligence is done, has capacity to dispose, such person must, under the law, be protected”.
This person is any bank which does all it can to ascertain the ownership status of the mortgagor. The rest is up to the borrower, mortgagor and the corresponding spouse.
Breakthrough Attorneys congratulates the Court of Appeal for a job well done which will create a better perspective in mortgage sector in Tanzania.
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