Marvelous Masiya v Simon Chikunguwo and Others

The applicant sought an order compelling the first respondent to transfer immovable property (Stand 4008 Prospect Township measuring 1,848 square meters) which he claimed to have purchased for USD 50,000 pursuant to an Agreement of Sale dated 28 July 2021. The applicant alleged full payment had been made and various documents were executed including declarations by seller and purchaser, transfer of title deeds, and a power of attorney. The first respondent opposed, claiming he never sold the property but had borrowed USD 14,000 from the applicant (a loan shark) at 20% per month interest, which he had substantially repaid. He contended the documents were executed as surety for the loan, not as a genuine sale. The first respondent produced a receipt (Annexure SCI) dated 28 August 2021 showing he had repaid USD 2,925, leaving a balance of USD 1,275. He argued the transaction violated Section 5 of the Banking Act as the applicant was conducting banking business without registration.

• Whether the agreement between the parties was a genuine contract of sale or a simulated contract disguising an illegal loan transaction
• Whether the transaction contravened Section 5 of the Banking Act [Chapter 24.20] which prohibits unlicensed persons from conducting banking business
• Whether a contract entered into in violation of statutory provisions is void ab initio and unenforceable
• Whether there were material disputes of fact requiring referral to trial
• What test should be applied to determine if a contract is simulated rather than genuine

The application was dismissed with costs against the applicant.

A contract entered into in violation of a peremptory statutory provision (such as Section 5 of the Banking Act prohibiting unlicensed banking business) is void ab initio and unenforceable, regardless of its form. Courts must examine the real substance and purpose of a transaction by applying the "commercial sense" test, looking beyond the documents to surrounding circumstances, conduct of parties, commercial probabilities, and whether the arrangement contains anomalies or an "air of unreality." Where a purported sale agreement is found to be a simulated transaction designed to disguise illegal money-lending, no rights or obligations arise from it. The court has no discretion to enforce such agreements - the illegality renders them nullities.

The court observed that in determining whether a contract is simulated, several factors may be considered including: whether agents/intermediaries were paid commission commensurate with the stated transaction value; whether the purchase price reflects market value; whether the purchaser inspected the property; whether there is objective evidence of payment (bank transfers, receipts); and whether the parties' subsequent conduct is consistent with the purported agreement. The court noted that "the charade of performance is generally meant to give credence to their simulation" - parties performing some aspects of a simulated contract does not prove its genuineness. The judgment also commented that had the court not found the contract void ab initio, the material disputes of fact would have warranted referral to trial for viva voce evidence, but illegality precluded this course.

This case is significant for establishing how Zimbabwean courts will scrutinize agreements that appear facially legitimate but may disguise illegal transactions. It demonstrates the application of the "commercial sense" test in determining whether contracts are simulated, and confirms that courts have no discretion to enforce contracts that violate peremptory statutory provisions such as the Banking Act. The judgment reinforces the principle that illegal contracts are void ab initio and provides guidance on identifying indicia of simulation, including examining surrounding circumstances, the conduct of parties post-agreement, commercial improbabilities, and lack of documentary evidence of key terms (such as payment). It also serves as a warning against loan sharks attempting to use property transfer documents as security for unlawful lending activities.