DMK Capital v Tezitta & 3 Others (Miscellaneous Cause 54 of 2022) [2023] UGCommC 248 (28 August 2023)

Full Case Text

### THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA ICOMMERCTAL DTVISTONI

# MISCELLANEOUS CAUSE NO. OO54 OF 2022 DMK CAPITAL: : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : APPLICANT VERSUS

- I. TEZITTA FRED MUKOBE - 2. MUKOBE MUGUWA RACHAEL - 3. MUKOBE JACOB - 4. MUKOBE ISAAC: : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : RESPONDENTS

## BEFORE: HON. LADY JUSTICE ANNA B. MUGENYI RULING

The Applicant made this application under Section 9g of the civil procedure Act cap 71, Section 33 of the Judicature Act cap 13, order 52 Rules I and 3 of the civil Procedure Rules sl 71- l, and Section 26 of the Mortgage Act for an order for vacant possession and/or possession to be issued against the Respondents in respect of property comprised in Freehold Register volume JJA525 Folio tg plot 7059 Kainogoga Block 3 land at Butembe Jinja District measuring approximately 3,668 hectares (hereinafter referred to as the mortgaged property), and for costs of the application to be provided for. The Application is supported by the affidavit of the Applicant's Managing Director Dickson Musoni.

According to the Applicant, it advanced a facility of UGX 200,000,000/ to the Respondents by virtue of a Mortgage Agreement dated 2gth May 2021. That a further advance of UGX 104,035,000/ was made by a charge dated l grh october

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2021. The facilities were secured by a mortgage on the mortgaged property. That upon the Respondent's default on repayment, the Applicant issued them with a notice ofdefault and notice ofsale. That the Respondents still failed to honour the notices, and thereafter, the Applicant issued them with a notice to take possession, which they still refused,/ neglected to do; and are therefore still in possession of the mortgaged property. As a result, the Applicants cannot sell, value or deal in the property without having possession, hence this application.

In reply to the Application, the Respondents filed an affidavit swom by I't Respondent wherein he avers that he, together with the 2nd Respondent filed a suit claiming for the nulli\$ing of the mortgage between the parties. He denied ever receiving any money from the Applicant either singularly or jointly with the other Respondents, and that no evidence was produced to that effect. Therefore, that there was no consideration for the mortgage since no money was disbursed. He added that it is incredible that a loan of UGX 304,035,000/ can multiply to UGX 647,334,0001, and that the Applicant has never made any demand for UGX 647'334,0001; and therefore that all steps taken to foreclose on the l.t and 2d Respondent's property is null and void.

He further avers that the mortgage deed and loan agreement are illegal and unenforceable as they provide for compound interest which is prohibited by the law, and therefore that the application is a nullity as the main suit challenges the validity of the facility. He concluded that it would therefore be premature for this Court to issue such an order before the dispute is resolved.

#### REPRESENTATION

The Applicant was represented by IWS Mugabi Shyaka & co. Advocates whereas the Respondents were represented by M/S Alliance Advocates.

#### Submissions

In his submissions, counsel for the Applicant cited a mortgagor's power to sell mortgaged land under section 26 of the Mortgage Act upon furfiIing the conditions listed therein. He further pointed out court's discretion under section 33of the Judicature Ac, to grant all remedies that settle all matters in controversy, He then cited the case of stanbic Bank v Anjani Natvorlal Rajoni & Another HCMC No. 0087 of 202r where Justice Stephen Mubiru held that a mortgagee may take possession until the default is rectified, or until the mortgagee has exercised the power of sale and also that the mortgagor may stop the process by redeeming the property before foreclosure by paying the full balance due.

He further submitted that the Mortgagee would only have to prove existence of a mortgage, default by the mortgagor and the mortgagee's wish to exercise his power of sale, which he said have all been proved in the affidavit and the annexures therein. He added that the Applicant needs the order to effect sale because despite advertising the property, valuers and potential buyers are blocked from viewing the property by the Respondents and their agents. He also added that police required the order before allowing the Applicant to take possession.

In reply, counsel for the Respondent raised two preliminary objections to the effect that the Applicant filed this matter in contravention of section 19 of the civil Procedure Act which requires that suits are instituted by way of plaints under order 7 of the civil Procedure Rules or by originating summons under order 37, and yet there are matters in contention. He further submitted that the I't and 2nd Respondents are the registered proprietors of the mortgaged property but they never received any money from the Applicant therefore the matter needs to be heard and not dealt with in an application like the current one.

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The second objection is on the inclusion of information from other sources in the affidavit in support in contravention of order 19 Rule 3 of the Civil procedure Act which requires that all afhdavits be confined to such facts as the deponent is able to prove of his or her knowledge. He further submitted that the only exception is for interlocutory applications, therefore he prayed that the matter be dismissed.

In specific reply to the main issues, counsel for the Respondents submitted that his clients, the lst and 2nd Respondents have never received any loan and that the Applicant concedes in their affidavit in rejoinder that the monies were advanced to the 3'd and 4th Respondents. He added that the Applicant cannot gain possession for no consideration and that the 3'd and 4s Respondents did not possess powers of attomey allowing them to obtain the loan using their client's property as security. In addition, he stated that the Mortgage dated 28ft May 2021 is a nullity as is nol signed in Latin character, and also that the mortgagors' signatures were not attested to.

He said the same applied to the Third party mortgage which was not attested to in respect of the mortgagors. In addition, counsel said the principal debtor is not named whereas his clients were referred to as donor/surety. He added that no statements of accounts have been disclosed to prove that the alleged sums were advanced; and also that the demand notice dated 7s January 2022 is of UGX 368,000,000/ as opposed to the UGX 647,334,000/ which is now being claimed. He added that the Notice of sale dated I't April 2022 is unlawful as it does not comply with Section 19 (3) of the Mortgage Act, and that it was served on whatsapp yet it was not the agreed mode of communication between the parties. He therefore concluded that the application is premature as the other requirements under the Mortgage Act have not been complied with.

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Finally, Counsel submitted that Section 33 of the Judicature Act was cited out of context because it only applies where legal or equitable claims are properly before the Court. He prayed that the Application be dismissed with costs.

#### RULING

I will deal with the preliminary objections first before considering the application on lts ments.

On the first objection on whether the matter ought to have been filed either by way of plaint or originating summons, Section 19 of the Civil Procedure Act provides that, "Every suit shall be instituted in such manner as may be prescribed by rules", Further, according to Order 4 of the Civil Procedure Rules, every suit is instituted by a plaint. Specifically, in relation to mortgages, Order 37 Rule y' provides that:

"Any mortgagee or mortgagor, whether legal or equitable, or any person entitled to or having property subject to a legal or equitable charge, or any person having the right to foreclose or redeem any mortgage, whether legal or equitable, m\$ take out as of course an originating summons, returnable before a judge iil chambers, for such relief of the nature or kind following as may require; that is to say, sale, foreclosure, delivery of possession by the mortgagor, redemptioni reconveyance or delivery ofpossession by the mortgagee. " I

I have noted the phrase 'may take out as of course an originating summons 'which language is, without a doubt directory and not mandatory because if the legislatorS intended it to be so, they would have specified. Although the Courts have interpreted the word 'shall' to be mandatory and sometimes directory depending on the context in which it is used, the word 'may' is often times directory (See Sitenda Sebalu & Another V Sam K. Njuba & Another Supreme Court Election Petilion No. 26 of 2007). It is no surprise that even Counsel for the Respondent\$

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has proposed two options, either by plaint or originating summons. In additiory whereas rules of procedure are important, they are only meant to aid justice as wa\$ held by Justice Katurebe J. S. C in Bakaruba peter Mukasa v Nambooze Ben! Bakireke SCEP Appeal NO. 04 of 2009 where it was held that:

"Rules of procedure are very important but they are not an end themselves, thejt are often referred to as the hand maidens ofiustice but are not justice themselves; Rules form the procedural frame work within which a fair hearing in conducted,,.

For the above stated reasons, I find that the first objection has no merit and it i! therefore ovemrled.

on the second objection on the inclusion of information from other sources in the affidavit, order l9 Rule 3 sub-rule 1 of the civil procedure Rules provides:

"Afidavits shall be confined to suchfacts as the deponent is able of his or her own lonwledge to prove, except on interlocutory applications, on which statements 04 his or her belief may be admitted, provided that the grounds thereof are stated." I

whereas knowledge is defined as 'information, understanding and skills that you gain through education or experience', belief on the other hand comes from the pure conviction of a person. Even if the affidavit had information whose source is undisclosed, the courts have over time held that it is not a sufficient ground for; nullifting the whole affidavit (See R/d. cor. Dr. Kizza Besigte versus yoweri Kaguta Museveni & Electoral commission, supreme courr presidentiat Electionl Petition No. 1 of 2006 and Kasaala Growers cooperative sociery v rakoozol Jonathan & Another SCCA No. I9 of2010).

I have looked at all the paragraphs of the affidavit in support of the application swom by a one Dickson Musoni, the Managing Director of the Applicant, and I I find that whatever is included therein are facts within his knowledge by virtue of

his position, and he can ably prove them since none of them are his personaf beliefs. Therefore, I find that the affidavit in issue is not in any way i contravention of order 19 Rule 3 of the civil procedure Rules. Subsequently, th second objection equally has no merit and is also ovemrled. 4 I

Now I turn to the merits of the application, wherein the Applicant desires td exercise their power of sale pursuant to Section 26 of the Mortgage Act and arguq that the Respondents having defaulted on repayment of the facility and being served with a default notice, failed to honour the same, and that the property wad advertised but that the Respondents have blocked them and potential brye., rrooJ accessing the property, hence this application.

In order for the Mortgagee to exercise his power of sale under Section 26 of Mortgage Act, there must be a mortgage under which the mortgagor has defaul on his obligations, and remains in default after the time allowed to rectifi in the default notice under Section 19 (3) of the same Act. In addition, a notice of sale must have been served on the mortgagor and the property should not be sold before the expiry of21 working days from the date ofservice

Before I delve into whether or not the Applicant fulfilled all the above requirements, the Respondents have raised issues surrounding the validity of the third party mortgage on their property, and these should be dealt with first. To start with, it is the I't and 2d Respondents case that the said money was never disbursed to them. This contention is rightly so because it is apparent on the face of it that the said money was advanced to the 3'd and 4th Respondents, who although did not file their response have not rebutted the evidence given by the Applicant that they received the money. In addition, the third party legal mortgage dated lgrh october 2021which was used to secure the loan with the suit property in question, was

duly signed by both Respondents, which they do not deny signing but argue th they signed as sureties and not borrowers.

Section 2 of the Mortgage lcl defines a third party mortgage to mean:

"...a mortgage which is created or szbsr's/s to secure the payment of an existing o future or a contingent debt or other money or money's worth or the fuffilment of condition by a person who is not the mortgagor, whether or not in common wi the mortgagor; "

The same section also defines ..surety,' to mean:

".... a person who offers security in the form of money or money's worth to ensu the payment of any monies secured by a mortgage and includes a guarantor;"

From the above, it is therefore clear that the instant case was of a third mortgage which was executed by the two Respondents.

Honourable Justice Mubiru ably explained the nature of a third party mortgage i the case of Guma v Bank of Africa (u) Limited & 2 others civil Suit No. 13 o 2008 where he held:

" ...a third party mortgage is a secondary obligation in the form of a guarantee. In a third party mortgage, the mortgagor makes a contractual promise to ensure tha a borrower fulfik his or her obligations and / or pay an amount owed by the borrower if he or she fails to do so himserf or herself Unlike an indemnity, it creates a secondary obligation because it is contingent on the obligation of the borrower (the principal debtor) to the beneficiary of the security (the Bank). ordinarily, a third party mortgage arrangement does not impose a personal or primary obligation to pay on the part of the mortgagor and it is for that reason that it technically is a limited recourse guarantee so that the liability of the

mortgagor is limited to the amount which can be realised upon disposal of security. "

I have noted that the circumstances of this case are a bit unique because all the Respondents signed as borrowers in both the Mortgage Deed and Loan Agreeme dated 28m May 2021, but the l.t and 2nd Respondents argue that they did n receive the money therefore it would have been tricky to demand from them had i not been for the Third Party Mortgage they executed to secure that loan. Therefore the question of having their property sold when they did not receive the money i therefore settled because the property was security for the loan. notwithstanding, the Respondents also contend that the Mortgage Deed dated 2g May 2021 is a nullity because it was not attesred to. Section 147 (I) (o) (iii) of th Registrotion of Titles Act provides

"Instruments and powers of attorney under this Act signed by any p"rto, on! attested by one witness shall be held to be duly executed and that witness may b! within the limits of Ugandan advocate.

I have looked at the said Mortgage Deed dated 28th May 2021 and,I find that it wa duly executed by an Advocate although the name was not included. Therefore, th Respondents' argument does not stand.

I now tum to whether the Applicant fulfilled the requirements under Section 26 o the Mortgage Act. The Applicant duly issued a demand notice dated 27rh lan 2022 requiring the Respondents to pay the sums owing within 45 working days The Notice of sale dated I't April 2022 was later served upon the Respondents post and a receipt of payment to POSTA Uganda dated 2nd April was attached the pleadings. I therefore hnd that those conditions were met except th discrepancy in the amount claimed which was ucx 368,000,000/ in the Notice o

Default dated 27th January 2022 but is now ucx 647,334,000/ according paragraph 5 of the affidavit in support to the application. Without any statements to prove and justifu the claimed amount, I cannot make an order o vacant possession because the said amount is almost twice the amount claimed the default notice hardly five months from the date of the default notice and same ls ln contentlon.

Since the 1\$ and 2nd Respondents have filed a suit in respect of the same, it is in interests ofjustice that all contentions are first settled by the courts of law in o to settle all questions in controversy between the parties.

Subsequently, I find that whereas the Applicant may have proved that there i default, the extent ofliability is contentious. Therefore, this application fails and i hereby dismissed.

No order as to costs.

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HON. LADY JUSTICE ANNA B. MUGENYI DATED xa..l.... E.lLoy