Centenary Rural Development Bank Limited v Kwesiga (HCT-05-CV-CA 59 of 2022) [2025] UGHC 69 (20 February 2025)


# **THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT MBARARA HCT-05-CV-CA-0059-2022**

5 **(ARISING FROM THE CHIEF MAGISTRATES COURT OF IBANDA IBD-00-CV-MC-036-2021)**

## **CENTENARY RURAL DEVELOPMENT BANK LIMITED -------------------- APPELLANT**

## **VERSUS**

**KWESIGA REMEGIO ----------------------------------------------------------- RESPONDENT**

**BEFORE :** Hon. Justice Nshimye Allan Paul M.

#### 15 **JUDGMENT**

# **REPRESENTATION**

The Appellant was represented by Adv. Bright Bujara Arinaitwe from M/s Muhumuza – Kiiza Advocates & Legal Consultants, while the Respondent was represented by Adv. Kate Nakamya from M/s Manigaruhanga & Co Advocates.

# **BACKGROUND**

The facts as established from the record of the Trial Court are that the appellant and respondent entered into a Micro and Small loans agreement on 20th November 2020. The Respondent thereafter acquired a loan of UGX25,000,000/= 25 (Uganda Shillings Twenty-Five Million) only from the Appellant payable within a period of 2 years. The Respondent deposited with the Appellant a sale of land agreement for land comprised in Kyaruhanga II, Kyaruhanga Ward, Kagongo Division, Ibanda District as security. In June 2021 he fell sick and failed to meet the monthly payment requirement which prompted the Appellant to declare him

30 a defaulter and served him with demand notices in July 2021. That the Respondent's plea for extension of payment period was not successful, and the Appellant proceeded to advertise the property in the Daily Monitor Newspaper.

The Respondent herein filed a miscellaneous cause in the Chief Magistrates court 35 vide Misc. Cause No.036 of 2021 by way of a notice of motion brought under Section 98 of the Civil Procedure Act Cap 71 and Order 52 Rules 1 & 3 of the Civil Procedure Rules SI 71-1 seeking orders that;

- 1. The sale of the mortgaged property situate at Kyaruhanga II, Kyaruhanga Ward, Kagongo Division, Ibanda District be halted. - 2. The mortgage agreement between the Respondent and the Appellant be reviewed and varied. - 5

The Appellant opposed the application and also argued that the Respondent ought to have deposited 30% of the outstanding amount before commencing the suit, and that they only issued a notice of default upon the Respondent's failure to meet his obligations. That the only option that was left to them thereafter was to

10 exercise remedies of an unpaid mortgagee which includes sale of the security.

The issues for determination before the Trial Court were;

- 1. Whether there are grounds for halting the sale of the mortgaged property - 15 2. Whether there are grounds for reviewing the mortgage - 3. What remedies are available to the parties

On 22nd March, 2022, the learned trial Chief Magistrate, HW Kainza Beatrice delivered her ruling wherein she made orders at page 8 that.

20 *"1. I find that the respondent (appellant herein) used the wrong procedure to realise his money. He should have sought mediation and then obtained a court order as this was an informal mortgage on customary land this , the sale is hereby halted*

*2. I further find that the applicant (respondent herein) has not provided* 25 *sufficient grounds for reviewing the mortgage terms"*

The appellant being dissatisfied with that decision, lodged this appeal before this Court.

## 30 **GROUNDS**

The grounds of appeal as stated in the memorandum of appeal are;

- 1. The learned trial Magistrate erred in law and fact when she struck out the Appellant's affidavit in reply for lack of authority of the deponent. - 2. The learned trial Magistrate erred in law and fact when she held that the 35 Respondent's Application brought by way of Miscellaneous Cause was not - defective. 3. The learned trial Magistrate erred in law and fact when she held that there - was an equitable mortgage and thus halted the Appellant's pending sale of the suit land as security.

- 4. The learned trial Magistrate erred in law and fact when she held that the Appellant used a wrong procedure to realise its money and that it should have first gone through mediation and Court order. - 5 The Appellant prayed for the appeal to be allowed, the ruling, orders and awards of the trial Court set aside, and substitute them with a decision in favour of the Appellant.

## **SUBMISSIONS**

10 The parties filed written submissions, which this court has considered.

#### **DUTY OF APPELLANT COURT**

The duty of a first appellate court was laid out in the case of **FR. NARSENSIO BEGUMISA AND 3 ORS V. ERIC KIBEBAGA SCCA NO. 17 OF 2002** that;

*"The legal obligation of the 1st appellate court to reappraise the evidence is founded in the common law rather than rules of procedure. It is a well settled principle that on a 1st appeal, the parties are entitled to obtain from the appeal court its own decision on issues of fact as well as of law.* 20 *Although in case of conflicting evidence, the appeal court has to make due allowance for the fact that it has neither seen nor heard the witnesses."*

The above principles will guide this court in the determination of the grounds of appeal.

## **PRELIMINARY OBJECTION**

I will begin with the preliminary objection raised by the respondent that this appeal was file out of time.

30 It is trite that an appeal to the High Court is commenced by filing a memorandum of appeal as is stipulated in **Order 43 Rule 1(1) of the Civil Procedure Rules SI 71- 1** within 30 days from the date 30 days of the decree of the lower trial Court from which an appeal to the High Court is allowed. The law in **SECTION 79(2) OF THE CIVIL PROCEDURE ACT CAP 282** guides that time taken in preparing the lower 35 court record is in particular instances deducted from the time of computing the 30 days within which the appeal must be filed.

The evidence on court record shows that the learned trial Chief Magistrate, HW Kainza Beatrice delivered her ruling on 22nd March 2022. The Appellant filed a notice of appeal wherein a request for a certified copy of proceedings and ruling was made. That the certified documents were availed to the appellant on 5th July, 2022 and the Appellant's memorandum of appeal was filed on 21st July, 2022.

- 5 In my analysis, of the above its clear from the notice of appeal that the appellant requested for the lower court record to enable them formulate grounds of appeal, in that way they triggered the freeze on the computation of the 30 days until they were availed with the certified record of proceedings which they claim to have received on 5th July 2022. They subsequently filed a memorandum on - 21 st 10 July 2022, which is within the 30 days. I find that when all the laws are put into consideration this appeal was filed within time, and as such this preliminary objection is overruled.

## **DETERMINATION**.

## 15 **GROUND ONE**

**The learned trial Magistrate erred in law and fact when she struck out the Appellant's affidavit in reply for lack of authority of the deponent.**

In principle, a principal officer of a company who is knowledgeable of facts 20 pertaining to a matter in court can swear an affidavit in reply basing on the law in Order 29 Rule 1 Civil Procedure Rules S. I 71-1. In the same vein any company can rely on any person to be its witness, and if the law requires affidavit evidence, the said witness may depone an affidavit in a matter before court basing on the law in Order 19 Rule 1 Civil Procedure Rules S. I 71-1.

In the case at hand, Mr Ronald Sekidde swore an affidavit in reply in the matter before the Trial court, He clearly states in paragraph 1 of that affidavit in reply that *"I am a male adult Ugandan of sound Mind and Legal Manager Litigation of the respondent (appellant Herein)..".* it is clear, that Mr Ronald Sekidde 30 introduced himself as a Legal Manager Litigation of the appellant, but the Trial Magistrate in her ruling at paragraph 7 of page 3 stated that "*I note that Mr Sekidde works with Mrhumuza-Kiiza Advocates & legal Consultants."* In my opinion, if the opposite party had any doubts as to the employer of Mr Ronald Sekidde, they ought to have moved Court to have him called for cross 35 examination on the facts he stated in his affidavit basing on the law in Order 19 Rule 2 Civil Procedure Rules S. I 71-1.

In my analysis, I find that had the Trial Magistrate properly evaluated the evidence on record, especially that in paragraph 1 of that affidavit in reply, she

would not have reached the decision that *Mr Sekidde works with Mrhumuza-Kiiza Advocates & legal Consultants,* which was a precursor to striking out the affidavit in reply which was not proper. Ground one of appeal succeeds.

## 5 **GROUND TWO**

**The learned trial Magistrate erred in law and fact when she held that the Respondent's Application brought by way of Miscellaneous Cause was not defective.**

10 The Appellant argued that for a matter to be brought by way of Miscellaneous Cause, it must state the specific legislation under which the cause of action arises, and that the trial Magistrate erred in validating the Respondent's application under Section 98 of the Civil Procedure Act. Counsel contended that where there are complex questions of law requiring specific pleading of particulars, an 15 ordinary plaint is preferable to a Miscellaneous Cause. For the Respondent, it was contended that the Appellant's counsel did not specify any defectiveness in the Respondent's application.

In her decision on this issue, the learned trial Chief Magistrate relied on Order 52 20 of the Civil Procedure Rules to hold that where the law does not provide for a specific procedure, all applications are to be commenced by notice of motion. She also invoked Court's inherent powers under Section 98 of the Civil Procedure Act to hold that there was nothing defective in bringing the application.

25 I have perused the lower court file and find that the respondent filed a notice of motion brought under section 98 of the civil procedure Act and order 52 of the Civil Procedure Rules, seeking an order to halt the sale of property by the mortgagee among other orders. It would have been appropriate to add on the notice of motion provisions in the mortgage Act and Regulations the applicant 30 was relying on but it was not done, nonetheless, I agree with the Trial Magistrate's ruling on this matter as no injustice was occasioned unto the Appellant, by the way the application in the lower court was crafted. The evidence on record by both parties was clear enough to support the ruling. Ground two therefore fails.

## **GROUND THREE**

**The learned trial Magistrate erred in law and fact when she held that there was an equitable mortgage and thus halted the Appellant's pending sale of the suit land as security.**

I have perused the ruling by Her Worship where she states in her final orders at page 8 of her ruling that;

*"1. I find that the respondent (appellant herein) used the wrong procedure* 10 *to realise his money. He should have sought mediation and then obtained a court order as this was an informal mortgage on customary land this , the sale is hereby halted…" (emphasis mine)*

The appellant insisted that was not customary land but rather a kibanja Mortgage 15 under section 3 (1) of the Mortgage Act, and their counsel referred court to the kibanja mortgage agreement attached as annexture c to the affidavit in reply.

The key issue at the centre of Her Worship's decision leading to the halting of the sale by the mortgagee is on her finding that the relationship between the parties 20 involved *an informal mortgage on customary land*.

This court ought to consider the evidence on court record and determine if the uncontested security that was offered by the mortgagor led to a creation of **an informal mortgage on customary land or not?.**

It is trite that a person holding land under any form of land tenure has power to create a mortgage of his or her interest in the land as is provided in **SECTION 2 (1) OF THE MORTGAGE ACT CAP 239**. The law, in **ARTICLE 237 (3) OF THE UGANDAN CONSTITUTION 1995**, **SECTION 2 OF THE LAND ACT CAP 236** and **SECTION 1 OF** 30 **THE MORTGAGE ACT CAP 239** lay down the land tenure systems of holding land in

Uganda as a)customary;(b)freehold;(c)mailo; and(d)leasehold.

It is also important to note that **SECTION 29 OF THE LAND ACT CAP 236** creates interest in land known as lawful occupant" and "*bona fide* occupant". It provides 35 that.

# *"29. Meaning of "lawful occupant" and "bona fide occupant"*

*(1) "Lawful occupant" means— (a)a person occupying land by virtue of the repealed —* *(i)Busuulu and Envujjo Law of 1928; (ii)Toro Landlord and Tenant Law of 1937; (iii)Ankole Landlord and Tenant Law of 1937;*

*(b)a person who entered the land with the consent of the registered owner,* 5 *and includes a purchaser; or*

> *(c)a person who had occupied land as a customary tenant but whose tenancy was not disclosed or compensated for by the registered owner at the time of acquiring the leasehold certificate of title.*

*(2) "Bona fide occupant" means a person who before the coming into force of* 10 *the Constitution —*

*(a)had occupied and utilised or developed any land unchallenged by the registered owner or agent of the registered owner for twelve years or more; or*

*(b)had been settled on land by the Government or an agent of the* 15 *Government, which may include a local authority."(emphasis mine).*

Having laid down the land interests above, I will now segregate the types of mortgages a person with those interest in land can create.

20 A. **Legal mortgage on land registered** under the Registration of Titles Act on the Freehold, Mailo or Leasehold registers is created in accordance with **SECTION 2(1) OF THE MORTGAGE ACT CAP 239.** A legal mortgage ought to be registered to take effect as is provided in **SECTION 2(4) OF THE MORTGAGE ACT CAP 239** and **SECTION 54 OF THE REGISTRATION OF** 25 **TITLES ACT CAP 240.**

B. **Unregistered mortgage** under **SECTION 2(5) OF THE MORTGAGE ACT CAP 239,** is an unregistered mortgage which shall be enforceable between the parties**.**

C. **Equitable Mortgage** under **SECTION 2(8)(b) OF THE MORTGAGE ACT CAP**

- 30 **239** by deposit of a certificate of customary ownership; a certificate of title issued under the Registration of Titles Act; a lease agreement; any other document which may be agreed upon evidencing a right to an interest in land; or any other documents which may be agreed upon. - D. **Informal Mortgage** as is defined in **SECTION 1 OF THE MORTGAGE ACT CAP** - 35 **239**. It states that.

*"informal mortgage" means a written and witnessed undertaking, the clear intention of which is to charge the mortgagor's land with the repayment of money or money's worth obtained from* *the mortgagee and includes an equitable mortgage and a mortgage on unregistered customary land"(emphasis mine)*

This means that an informal mortgage as defined in **SECTION 1 OF THE** 5 **MORTGAGE ACT CAP 239** has two subsets that include:

- i. *A mortgage on unregistered customary land.* The law in **SECTION 1 OF THE MORTGAGE ACT CAP 239** defines "customary land tenure" has the meaning given to it by the Land Act. It is 10 important to note that the creation and operation of mortgages on customary land is governed by the law in section 6 of the Mortgage Act CAP 239. - *ii. An equitable mortgage.* The law in **SECTION 1 OF THE MORTGAGE ACT CAP 239** defines "mortgage" to include a charge 15 or lien over land or any estate or interest in land in Uganda for securing the payment. In my opinion the mortgaging of the interest of a lawful or Bonafide occupant as defined in **SECTION 29 OF THE LAND ACT CAP 236**, would fall in this category because its not customary land as defined in the Land Act or registered land 20 under the Registration of Titles Act.

In summary of the above, the types of mortgage a person can create are

(1) a Legal mortgage on registered land,

- (2) An unregistered mortgage, - 25 (3) equitable mortgage - (4) *An informal mortgage on unregistered customary land, and*

*(5) An informal equitable mortgage based on an unregistered interest in land.*

30 I will now analyse the evidence on court record in the determination of this ground of appeal.

It is not in question that the respondent obtained a loan of UGX 25,000,000 from Centenary Rural Development Bank Ltd (appellant) on 20/11/2020 upon deposit of

35 a land sale agreement of land situate at Kyaruhanga II, Kyaruhanga Ward Kagongo division Ibanda district (*see Paragraph 1 of the affidavit in support sworn by the respondent in the lower court and paragraph 5 & 7 of the appellants affidavit in reply).*

It is trite that parties with capacity to contract are bound by the agreements they intentionally freely enter into for a lawful consideration and with a lawful object as is provided in SECTION 9 OF THE CONTRACTS ACT CAP 284.

- 5 The evidence on record shows that the respondent received a loan of UGX 25,000,000 from the appellant and used unregistered land situated at Kyaruhanga II, Kyaruhanga Ward Kagongo division Ibanda district as security for the loan. The Kibanja Mortgage agreement signed on 20th November 2020 by the parties, spouse and advocate giving independent advise to the respondent clearly states in - 10 its heading that the land is unregistered land/ Kibanja.

I find that the parties having agreed that the security was unregistered land/ Kibanja as stated in The Kibanja Mortgage agreement signed on 20th November 2020, it therefore follows that the relationship created between the parties;

- 15 i. Can NOT be A legal mortgage on registered land since the land is not registered. - ii. Can NOT be an informal mortgage on unregistered customary land, because in the mortgage Act customary land tenure is defined in Section 1 of the 20 Mortgage Act CAP 239 as the meaning given to it by the Land Act.

In the Land Act CAP 236, customary tenure is defined in section 3 (1) therein as a form of tenure— *"(a) applicable to a specific area of land and a specific description or class of persons; (b) subject to section 27, governed* 25 *by rules generally accepted as binding and authoritative by the class of persons to which it applies; (c) applicable to any persons acquiring land in that area in accordance with those rules; (d) subject to section 27, characterised by local customary regulation; (e) applying local customary regulation and management to individual and household ownership, use* 30 *and occupation of, and transactions in, land; (f) providing for communal ownership and use of land; (g) in which parcels of land may be recognised as subdivisions belonging to a person, a family or a traditional institution; and (h) which is owned in perpetuity."*

35 I find that there is no evidence that the property offered as security by the respondent to the appellant fulfilled the definition of customary tenure in **SECTION 3(1) OF THE LAND ACT CAP 236** and as such it can not be concluded that informal mortgage on unregistered customary land was created in the loan transaction between the parries.

iii. Lastly, I find that the loan transaction between the parties created an 5 informal equitable mortgage based on an unregistered interest in land. The reasons for the finding are that the parties signed an agreement offering the land as security on 20th November 2020 and it is titled " Kibanja Mortgage agreement". In **MASINDE MIKE COLLINS vs FINANCE TRUST BANK & ors CIVI SUIT NO. 0756 OF 2OI7,** HON. LADY JUSTICE ANNA B. 10 MUGENYI held at page 5 of her judgement that " A Kibanja holder is therefore a lawful occupant under the law." This brings in the definition of a lawful occupant in SECTION 29 OF THE LAND ACT CAP 236, which means that the respondent is a lawful occupant on the land that he offered the appellant as security.

I find that had Her Worship analysed the evidence on record fully she would NOT have reached the conclusion that the transaction between the parties was **an informal mortgage on customary land** as was stated in her holding at page 8 of her judgement.

A distinction was not made between **an informal mortgage on customary land** and **an informal equitable mortgage based on an unregistered interest in land** all provided in the definition of an informal mortgage in SECTION 1 OF THE MORTGAGE ACT CAP 239. In this case the transaction between the parties 25 created an informal equitable mortgage based on unregistered interest in land.

Ground 3 therefore succeeds.

## **GROUND FOUR**

**The learned trial Magistrate erred in law and fact when she held that the** 30 **Appellant used a wrong procedure to realise its money and that it should have first gone through mediation and Court order.**

I have already found in the resolution of ground three that the transaction between the parties in the The Kibanja Mortgage agreement signed on 20th 35 November 2020 created **an informal equitable mortgage based on an unregistered interest in land** and **not an informal mortgage on customary land** as was held by the lower court.

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The creation and operation of mortgages on customary land is governed by the law in SECTION 6 OF THE MORTGAGE ACT CAP 239, which prescribes in section 6(2) that.

- 5 *"Where the mortgagee under a mortgage on customary land seeks to exercise any customary remedy which involves or may involve the mortgagor being dispossessed or permanently deprived of the occupation of the mortgaged land, the mortgagee shall, after using the services of the Mediator to try and mediate on the application of the proposed or any* 10 *other remedy, make an application to the court for an order authorising the exercise of that remedy; and the court shall, in determining whether to authorise the exercise of that remedy, be guided by the provisions of sections 32."* - 15 This means that the avenue of using a mediator before resorting to court is linked to **informal mortgages on customary land,** which is not the required procedure in this case now before this court where the respondent created **an informal equitable mortgage based on an unregistered interest in land.** - 20 In my opinion, since clause 2.10 of the Micro and Small loans agreement and clause (ii) of The Kibanja Mortgage agreement, which were all duly signed by the parties on 20th November 2020 provided for sell of the mortgaged property by private treaty or public action (*see annexture B & C to the affidavit in reply, as well as the advert of sale by public auction /private treaty attached as annexture C* - 25 *to the respondents affidavit in support*), I find that the appellant followed the procedure as was agreed by the parties in their agreement. Ground 4 therefore succeeds.

I note that counsel for the respondents in her submissions raised the issue of the 30 notices and dates in the now SECTIONS 18 AND 25 OF THE MORTGAGE ACT CAP 239, claiming that the appellant never adhered to the procedures therein. I appreciate counsel's argument as a lawyer that joined the matter at appeal, but upon perusal of the evidence by the parties on record, I realise the issue of the procedures in the law in the now SECTIONS 18 AND 25 OF THE MORTGAGE ACT

35 CAP 239 was neither raised in the affidavit evidence nor argued in the lower court.

The Supreme Court has guided in the case of M/s Fang Min v Belex Tours & Travel Ltd. Civil Appeal No. 6 of 2013 that;

"The correct position of the law is that while an issue or ground of illegality or fraud not raised in the lower court may be raised on appeal, the parties must be given an opportunity to address court on it before the court makes a decision."

The parties in this case before court were not accorded an opportunity to address court on the issue of the procedures in the law in SECTIONS 18 AND 25 OF THE 10 MORTGAGE ACT CAP 239. I will therefore not delve into the argument raised by counsel for the respondent on appeal that the appellant did not follow the procedure laid out in SECTIONS 18 AND 25 OF THE MORTGAGE ACT CAP 239.

- I note that the last attempt by the appellant to pursue its remedy as a mortgagor 15 to sell the property offered by the respondents as security happened in 2021. It is this imperative that if the respondent still owes appellant, and the respondent is still in default of his mortgage obligations, then the appellant should reissue a notice under SECTION 18 (3) OF THE MORTGAGE ACT CAP 239 informing the mortgagor (respondent) of the current outstanding loan amount, if any, requiring - $20$ him to settle it before pursing the remedies in SECTION 19 OF THE MORTGAGE **ACT CAP 239.**

In conclusion, I find that three of the four grounds of appeal succeed. I therefore

- order that $25$ - 1. This appeal is allowed. - 2. The ruling and orders of the learned trial Chief Magistrate, HW Kainza Beatrice in IBANDA IBD-00-CV-MC-036-2021 are set aside. - 3. The Mortgagee shall issue a fresh notice under SECTION 18 (3) OF THE - MORTGAGE ACT CAP 239 to the Mortgagor if he is still in default on his obligations in the Mortgage. - 4. The respondent shall pay half of the costs of this appeal to the appellant.

Aughrutz

**NSHIMYE ALLAN PAUL M. JUDGE** 20-02-2025

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