Court declares pawning of immovable property unlawful

26 Jul 2018

Pawn shop and money lending operators, beware. The law explicitly prohibits the pawning of immovable properties in exchange for small debts.

Delivering judgment recently, judge Lot Moroka of the Francistown High Court ruled the pawning of immovable property unlawful.

The judge was dismissing an application by Johannes Jurgen Fourie who sought a court order transferring the two residential plots into his possession after Andina Masedi and Tothodzani Mathamani Masedi failed to repay him the P50 000 he had loaned them with the two plots pledged as security, in case of failure to repay.

He also sought an order authorizing the Land Board to change the ownership of the two residential plots to him, and cost of suit.

Fourie alleged in his writ of summons that on the 15th of April 2014, the parties entered into an agreement that he loan them P50 000 payable in two months from the date of agreement, and that upon failure of the defendants to pay the debts on due date, he shall take two residential plots situated at Nata village pledged as security for the loan.

On the 14th of August 2016, in reaction to the writ of summons, the defendants filed notice to settle in terms of which they offered to liquidate the debt through monthly instalments in the amount of P5 000 commencing on 30th of September and every month till the debt is fully settled.

However, the deal by the defendants was not attractive to Fourie who pursued the more lucrative option of having the plots pledged as security for the debt transferred to his names. To get two residential plots at a village with bright future commercial prospects for P50 000 proved irresistible to Fourie, who went all out for the jugular and sought the court to enforce his wish.

On the 14th of August 2016 Francistown High Court Registrar wrote a letter to Fourie’s lawyers refusing to grant default judgement for the enforcement of the orders sought, stating that the request for the transfer of the plots did not accord with the law.

The matter was then set for hearing before Justice Moroka who asked attorney Kesegofetse Molosiwa representing Fourie to file heads on argument justifying the enforcement of the self-executing contract against immovable property. The Masedi’s did not defend the application.

Although the defendants did not defend the suit, Justice Moroka held that the High Court is a court of law with a conscience for justice. Therefore, in all its sittings and in all matters that come before it, the High Court has a sacred duty to ensure that justice is done.

Judges are therefore eternally vigilant particularly in default applications and in unopposed motion proceedings, to see to it that orders they grant are in accord with justice. This vigilance ought particularly to be attenuated in motion proceedings where the “papers are in order” is the open sesame that triggers the grant of the orders sought.

Justice Moroka said in exercise of its duties in the enforcement of contracts, the court must be alive to the fact that public policy generally favours utmost freedom of contract. Courts must be slow to interfere in the exercise of parties’ freedom of contract. Public policy demands in general full freedom of contract; the right of men freely to bind themselves in respect of all legitimate subject-matters.

Arriving at his judgment, Justice Moroka citing a number dictums observed the Roman law upon which Botswana common law stands prohibits such agreements where immovable property is pledged as security while in the case of a pledge for movables such a cause is valid and is enforceable against the pledgor.

Justice Moroka further explained that a term in an agreement of pledge, which provides for the private sale of pledged article and in the possession of the creditor, is valid but a debtor may seek the protection of the court if, upon any just ground, he can show that, in carrying out the agreement and effecting a sale, the creditor has acted in a manner which has prejudiced him in his rights.

In conclusion the judge held that pawn agreements in which debtors obtain money and deposit movable property into the possession of the creditor are lawful and enforceable. The pawning of immovable property is however illegal.

“The contract between the Plaintiff and the Defendant is unlawful. It is in fact void and unenforceable. The fact of default of appearance on the part of the defendant does not cleanse this illegality. It must dismissed”. The judge ordered each party to pay its own costs.