Biryomunmaisho and Another v Centenary Rural Development Bank Limited (Miscellaneous Application 131 of 2023) [2024] UGHC 536 (19 June 2024)

Full Case Text

The Republic of Uganda In the High Court of Uganda Holden at Soroti Miscellaneous Application No. 131 of 2023 (Arising from Civil Suit No. 14 of 2023)

1. Justus Biryomunmaisho

2. Hudson Areeba

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#### Versus

Centenary Rural Development Bank Limited ::::::::::::::::::::::::::::::::::::

$\mathsf{S}$

# Before: Hon. Justice Dr Henry Peter Adonyo

#### Ruling

### 1. Introduction:

The applicants brought a notice of motion under Section 98 of the Civil Procedure Act, Cap 71, Section 33 of the Judicature Act Cap 16 and Order 36 Rules 3 and 4 of the Civil Procedure Rules, S. I 71-11 for orders that they be granted unconditional leave to appear and defend the suit Civil Suit No. 14 of 2023 and for the costs of the application to be provided for.

2. Grounds of the application:

The grounds upon which this application is anchored the application were deponed to by the applicants in their supporting affidavits which briefly are that;

- a) The applicants have a good defence against the respondent's claims. - b) The suit against the applicants was instituted in bad faith. - c) The summary plaint was supported by a defective affidavit. - 25 - d) The figures/amount being demanded conflict, raising a triable issue, and the applicants have a plausible defence. (a copy of the intended written statement of defence annexed as "D").

- e) The applicants have never executed a guarantor deed in favour of the first defendant, who was recommended by his first employer (Soroti University) to get a salary loan, but they have intentionally left her out. (A copy of the recommendation annexed as "B"). - f) The only way the Court can investigate why the principal guarantor for the salary loan was left out in Civil Suit No. 14 of 2023 is in an ordinary suit, hence the need to allow this application. - g) The sum claimed by the respondent in the plaint cannot be ascertained without evidence and critical analysis by the court in an ordinary suit. (A copy of the plaint annexed as "D"). - h) The respondent has not disclosed the bank statement showing how much was advanced, the interest charged, and the payments made so far to ascertain the liquidated sum since the Summary Plaint has conflicting figures. - 15

$\mathsf{S}$

i) It would be in the interest of substantive justice if this Honourable Court were to permit the applicants to appear and defend the suit on its merits.

3. Grounds in opposition to the application:

Isaac Ojobi deponed an affidavit in reply as the respondent's Manager - Business Banking, Soroti Branch. He premised his objection to the instant application on the grounds which, in brief, follow below;

- a) On 30th November 2021, the respondent granted a credit facility of UGX 110,000,000 (Uganda Shillings One Hundred and Ten Million) to the first defendant in Civil Suit No. 14 of 2023. (A copy of the micro and small loans agreement is attached as SEK1) - 25

b) The $1^{st}$ and $2^{nd}$ applicants executed personal guarantees in favour of the respondent bank wherein they bound themselves to pay the above sums to discharge Okello Julius's indebtedness. (Copies of letters of

acknowledgement from the guarantors are attached as SEK 2 and SEK 3, respectively).

- c) The first defendant defaulted on his loan obligations, prompting the respondent bank to serve him with a demand notice for the outstanding sum, which at the time was UGX 103,811,598 (Uganda Shillings One Hundred and Three Million Eight hundred and Eleven Thousand Five Hundred and Ninety-Eight) but the 1st defendant did not pay. - d) The 1st defendant's employer, Soroti University, only guaranteed to pay the $1^\ensuremath{\text{st}}$ defendant's salary through the $1^\ensuremath{\text{st}}$ defendant's account held with the respondent bank but to guarantee payment of any outstanding loan amount due to the default of the 1st defendant. (A copy of the letter of undertaking from Soroti University is attached as SEK 4) - e) UGX 105,569,256/= was the outstanding amount when filing the suit, but the 1st defendant's liability continues to accrue due to non-payment of the loan money as and when due. - f) The respondent bank wrote to the 1st defendant's employer, Soroti University, to confirm his employment status as he had defaulted on his loan obligations. (A copy of the letter from the respondent bank to Soroti University is attached as SEK 5). - g) The Respondent Bank was informed by the 1st defendant's employer that he had resigned, so they stopped depositing his salary on the account. (A copy of the response from Soroti University is attached as SEK 6) - h) The applicants have no plausible defence to the suit. - i) The applicants knew and were aware of the repercussions of guaranteeing the loan repayments of the 1st defendant and vouched to bear liability if he failed to pay.

$\mathsf{S}$

#### 4. Representation:

M/s Abbas Advocates represented the applicants while M/s Sekabanja & Co. Advocates represented the respondent. The parties filed written submissions f which I am grateful with the same considered accordingly.

5. Issues: $\mathsf{S}$

Only one issue suffices in resolving the instant application. That is:

### Whether the applicants have raised triable issues to enable the court to grant them leave to appear and defend Civil Suit No. 14 of 2023.

#### 6. Submissions of the parties:

- 10 The applicants' counsel admitted that while the applicants guaranteed the loan of Okello Julius pursuant to their executed guarantee deeds to that effect, it is also true that the respondent did not serve the applicants with default or demand notices upon the 1st defendant defaulting on his repayment obligation to the respondent, yet the applicants contended that the respondent owed them a duty - to have notified them in writing of the 1st defendant's default in repayment of 15 the loan, them being 3rd parties to the Loan Agreement.

To counsel, it follows that the applicants only learned of the default upon being served with a summons.

The applicants' counsel, therefore, prayed that the court finds the respondent's

failure to notify them of the first defendant's default to repay the disbursed loan 20 amount a triable issue for determination in the main suit.

The applicants' counsel submitted that the respondent's submissions present several figures: a loan facility of UGX 110,000,000=, which they claim they disbursed to the 1st defendant, yet the respondent has not pleaded anywhere in

the head suit how and in which bank account the said money was paid to. 25 Secondly, the respondent contended that because of the default, the loan

amount increased from UGX 103,811,598 without pleading how they arrived at this figure from UGX 110,000,000/=.

Thirdly, on the demand notice is Ugx 105,569,526/= according to the respondent's submissions that that amount was arrived at due to interest charged; however, in paragraph 4 of the plaint, the respondent claims that Ugx 105,569,526/ $=$ is the loan outstanding, interest and costs of the suit.

The applicants' lawyer submitted that the respondents had not shown any interest rates giving rise to the said figures, and also, it was unusual that the costs of the suit can be pleaded as an outstanding loan.

The applicants' counsel further contended that the respondent deliberately 10 refused to disclose to the court how much money the 1st defendant had paid back and that no bank statement was attached to assist the court in determining the exact outstanding debt owed by the 1st defendant.

On the other hand, the respondent's counsel contended that the respondent

- leaving out Soroti University from the proceedings, yet it recommended Okello 15 Julius to get the loan, is not a triable issue because the university was neither a party to the loan agreement nor one of its guarantors, rather, the University undertook to pay the 1st defendant's salary through the respondent bank to enable the bank to access payments of any outstanding loan amounts due not to - pay on his behalf. 20

$\mathsf{S}$

The respondent's counsel submitted that the applicants did not attach any evidence refuting the respondent's submission that the applicant accepted to guarantee the loan facility granted to the 1st defendant.

The respondent's counsel submitted that the applicants willingly and knowingly

bound themselves to pay the respondent bank any outstanding balance in case 25 the borrower failed to clear his debt.

The respondent's counsel submitted that the applicant has no plausible defence to Civil Suit No. 14 of 2023 because they are not disputing that the money was lent to the principal debtor, but they want to know how the respondent came up with the figure it claims.

$\mathsf{S}$ 7. Resolution of the Application:

The position of the law in civil matters is that he who assets must prove thus meaning that the duty and burden of proof lie on the applicants as they are the ones who are seek to get the orders sought as above to be granted by this court in their favour. (See: Sections 101 and 102 of the Evidence Act, Cap 6).

Order 36 rule 3(1) of the Civil Procedure Rules S. I. 71-1 provides that a defendant 10 who has been sued under summary procedure must seek the leave of court if he or she intends to defend or has a defence to the said suit.

This legal provision has been further clarified by the Supreme Court in the case of Geoffrey Gatete and Another v William Kyobe SCCA No.7 of 2005 where it was

pointed out that in an application of such nature, what the court was required to 15 determine is whether the defendant has shown good cause for such leave to defend to be given.

The threshold of such an application as the instant application is that before leave to appear and defend is granted, the defendant must show by affidavit that there is a bonafide triable issue of fact as was pointed out in the case of *Maluku Inter*

Global Trade Agency Ltd Vs Bank [1985] HCB 65, where the court held that;

"Before leave to appear and defend is granted the defendant must show by affidavit or otherwise that there is a bonafide triable issue of fact or law. When there a reasonable ground of defence to the claim, the plaintiff is not entitled to summary judgment. The defendant is not bound to show a good defence on the merits but should satisfy court that there was an issue or

## question in dispute which ought to be tried and the court should not enter upon the trial of the issue disclosed at this stage."

Arising from the holding above, the triable issues and plausible defence that an applicant set out must ought to be backed up by affidavit evidence which is

different from mere denial. $\mathsf{S}$ Further, the defence raised must not be a sham defence intended to delay the Plaintiff from recovering money due. (See: Ariho Trevor vs Standard Chartered Bank Uganda Limited Miscellaneous Application No. 560 of 2021).

Order 36 Rule 8 of the Civil Procedure Rules states that leave to appear and defend the suit may be given unconditionally, or subject to such terms as to the 10 payment of monies into court, giving security, or time or mode of trial or otherwise, as the court may think fit. In effect, where the court is satisfied upon application, it may grant conditional or unconditional leave to defend.

- It is the agreed position that the applicants, by personal guarantees (SEK3) dated 29th November 2021 bound themselves to discharge any indebtedness arising 15 from a loan amounting to UGX 110,000,000 granted to Okello Julius' by the respondent. The loan was secured as per the Centenary Salary Loan-Letter of Offer/Loan Agreement signed by both Okello Julius and the respondent on 30th November 2021. (SEK1) - It is also not disputed that Okello Julius who is the 1st defendant in Civil Suit No. 20 14 of 2023 defaulted on his loan obligation. The respondent bank contend that they served the applicants with a demand notice (SEK4) and that the guarantors were notified of the demand, but the guarantors (the applicants) dispute that averment. - From my consideration of this application what I recognise as the major 25 contentions by the applicants are that they assert there are triable issues in the head suit where they have a good and plausible defence. For instance, the applicants contend that the respondent had never served them any demand notice upon default of the 1st defendant of repaying their loan. I have examined SEK4 attached to the respondent's affidavit in reply.

It is a demand notice and recall of salary loan dated 18/01/2023 and it bears a signature and it was addressed to the Okello Julius and the person who signed $\mathsf{S}$ indicated that he/ she was to forward the same to Okello Julius. It is not controverted and so I would find conclude that the respondent communicated the demand notice to Okello Julius.

The applicants further contend that the respondent never served them with such a demand note. I have examined SEK2 and SEK3 which were written by the 2nd 10 and 1st applicants, respectively. The contents of these documents are to the effect that the applicants, while acknowledging and asserting that they had been the guarantors of a loan disbursed Okello Julius by the respondent were requesting through SEK2 and SEK3 that the respondent bank removes any hold

off their accounts which they noted to have been put on hold because Okello 15 Julius failed to repay the loan.

These letters (SEK2 and SEK3) were written by the applicants on 20th January and 25th January 2023. The applicants wrote the two letters (SEK2 and SEK3) upon being informed that Okello Julius had defaulted on his repayment obligations.

They as the guarantors of the loan were officially notified by the respondent that 20 default by Okello Julius had defaulted in servicing his loan as seen from SEK4 which the demand notice sent to Okello Julius is dated 18/01/2023, days before they tried to extricate themselves from being guarantors.

Also attached as SEK3 is guarantee signed by each of the applicant on 29th November, 2021.

Each attest that they had received independent advice as to understanding their role as guarantors and the repercussions thereto.

The attestation is in line with Sections 71(1), (2) of the Contracts Act, 2010 which provides that the liability of a guarantor shall be to the extent to which a principal debtor is liable unless otherwise provided by contract, and this liability takes effect upon default by the principal debtor.

Invariably, the signed guarantee under especially paragraph 1 imports and $\mathsf{S}$ impose upon the applicants the obligation to make good of any default by a borrower.

In this case Okello Julius defaulted in servicing his loan advanced and that default triggered the liability of the guarantor.

- The applicants on realising the trouble they were in wrote to the respondent bank 10 asking the bank to remove the hold off their accounts after the bank wrote a notice of default (SK4) to Okello Julius in a mistaken belief that they could wriggle themselves from their predicament which could not be so as it is clear to me that effort the notice of default which was clearly copied to them and they were - bound by their contractual obligations as guarantors to make good Okelo Julius' 15 loan default.

Accordingly, I am satisfied that the applicants were well aware of their roles as loan guarantors and were well notified of fact of the default in servicing the loan by Okello Julius and as such that there is not a triable issue in that respect.

- The applicants furthermore raise the fact that Soroti University which they argue 20 was the former employer of the $1^{\ensuremath{\text{st}}}$ defendant and had written a letter of undertaking in favour of Okello Julius who is the $1^{\rm st}$ defendant in the head suit to the respondent and thus should have been sued as the guarantor of the loan instead of the applicants. - I have examined SEK1, SEK3 and SEK5. SEK1 is dated 30th November 2021 and it 25 is the Letter of Offer/Loan Agreement signed by the bank and Okello Julius. Soroti University is not a party in it.

SEK3 has attached to it the names of the persons who guaranteed the loan offered by the respondent to Okello Julius. It is dated 29th November 2021. It bears the names of Justus Biryomunmaisho and Hudson Areeba who are the applicants herein. Each signed of the applicant the same the loan guarantors.

Soroti University is not indicated therein. $\mathsf{S}$

SEK5 is a letter from the respondent addressed to Soroti University and it is dated 9th January 2023. In it the respondent is seeking information and guidance from Soroti University as to whether Okello Julius was still its employee or not upon noticing that there was no more salary being remitted into Okello Julius' account

held with the bank. $10$

> Soroti University replied the same as per the document attached to SEK5 dated same date informing the bank that Okello Julius had long since 10th November 2022 resigned from his employment with the University.

The response of Soroti University made the respondent to write to Okello Julius the Demand Notice (SEK 4) dated 18th January 2023 which was copied to the 15 applicants herein.

The applicants then wrote letters dated 20th and 25th January 2023 (SEK2 and SEK3) seeking to have the bank to remove the hold off their accounts. It is apparent to me that this was in an effort to shirk of their liabilities as guarantors.

They could not easily do that. The applicants then raised the ground that it should 20 be Soroti University to be sued by the respondent as the loan guarantor since it guaranteed the loan instead of applicants themselves. This assertion is no evidenced anywhere by any legally binding document in this respect such as SEK1 and SEK3. It is the applicants who guaranteed the loan which Okello Julius defaulted upon. 25

This conclusion is borne by the law which is clear in this respect. Under Sections 71(1), (2) of the Contracts Act, 2010 it is provided that the liability of a guarantor shall be to the extent to which a principal debtor is liable unless otherwise provided by contract, and this liability takes effect upon default by the principal debtor.

Accordingly, it is the applicants and not any other person who is clearly the $\mathsf{S}$ guarantor of the loan disbursed by the respondent to Okello Julius who defaulted and so it is only the applicants who must make good the said loan.

Thirdly, the applicants also contended that there were discrepancies in the outstanding amounts arguing that whereas the loan facility is UGX 110,000,000, the loan amount was reduced to UGX 103,811,598 from UGX 110,000,000 10 without any pleading to that effect and that the amount in the demand notice SEK4 was UGX 105,569,526 making one not know how the figures were arrived at and which interest was used as no bank statement was attached to show any repayment schedule the respondent's affidavit.

- The respondent averments in paragraphs 3, 5, and 7 of the affidavit in reply show 15 that the principal amount which the debtor received was an amount of UGX 110,000,000 from the respondent bank and that by the time the respondent filed the suit, the default sum had increased from UGX 103,811,598 quoted on the demand notice dated 18/01/2023 to UGX 105,569,526 (as at 25th July 2023 when - the suit was filed) due to interest charges. 20 I have examined the attachments SEK1, SEK3, and SEK4 and they are all definite on the figures averred to by the respondent as above, apart from the application of interest as being 16% per annum and is seen from ly in all documentation of which the parties are fully aware of. Accordingly, I find that there is no alleged - discrepancies in the amounts stated by the respondent as the respondent has 25 clearly and sufficiently explained and proved by affidavit evidence how the

varying amounts were arrived at with the failure of the respondent to attach a bank statement not standing anymore as a triable issue. This ground similarly fails.

8. Conclusion:

As a result of the findings and conclusions above, I do find that the applicants $\mathsf{S}$ have failed to establish any good defence against the respondent's claims in the head Civil Suit No. 14 of 2023 given the fact that they have not presented any plausible triable defence.

In the result this application is found to be unmerited and merely intended to buy off time to try to shove away the applicants' clear legal obligation to the 10 respondent yet they clearly were loan guarantors to a loan advanced to Okello Julius who has since defaulted in servicing his loan and as a result each of the applicants are liable to make good the said loan by virtue of Sections 71(1), (2) of the Contracts Act, 2010 which provides that the liability of a guarantor shall be

to the extent to which a principal debtor is liable unless otherwise provided by 15 contract, and this liability takes effect upon default by the principal debtor.

The above being so, this application for orders that the applicants be granted unconditional leave to appear and defend Civil Suit No. 14 of 2023 is dismissed as the applicants present no plausible defence.

- As bank loan guarantors, each applicant must bear their contractual obligation 20 and responsibilities without fantasising not to know that when they signed into loan guarantee document on 29th November 2021 for Okello Julius after attesting to having been independently advised of to such a role as indicated in SEK3, then they made themselves responsible to the respondent whenever such a default would occur. The default happened and so they are solely responsible to make - 25 good the amount Okello defaulted to pay. - 9. Orders:

- a) This application for orders that the applicants be granted unconditional leave to appear and defend Civil Suit No. 14 of 2023 is dismissed as the applicants present no plausible defence. - b) The costs of this application is awarded to the respondent bank. - $\mathsf{S}$ I so order.

Hon. Justice Dr Henry Peter Adonyo

Judge

19th June 2024