Formula Feeds Limited and Another v KCB Bank Uganda Limited (HCT-00-CC-CS 289 of 2014) [2016] UGCommC 288 (10 February 2016)

Full Case Text

THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION)

HCT - 00 - CC - CS - $289 - 2014$

1. FORMULA FEEDS LTD

2. GICHOHI NGARI

**VERSUS**

$5$

$15$

**:::::PLAINTIFFS**

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KCB BANK (U) LTD

## BEFORE: THE HON. JUSTICE DAVID WANGUTUSI

## $JUDGMENT:$

The Plaintiffs brought this suit against the Defendants for breach of a credit facility executed between the parties. The facts constituting their claim, as set out in their pleadings, are that the 1st Plaintiff, a company whose majority shareholders are Kenyan, obtained various credit facilities from the Defendant in 2011. To secure the said facilities, the 1st Plaintiff executed a mortgage deed over land comprised in Kyadondo Block 101, Plots 190, 259-265, 266-270 and Kyadondo Block 90, Plots 397,459&460 land at Katalemwa and Kyadondo Block 101 Plots 258 and 275, land at Watuba; which land the Plaintiffs contend was mistakenly registered to them under Mailo tenure instead of obtaining a leasehold interest.

The Plaintiffs contended that that upon disbursement of the credit facilities, the Defendant charged interest on the 1st Plaintiff's accounts

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which was not contractual and kept its current accounts overdrawn, thereby stifling the Plaintiff's business. Also, that by charging illegal interest and purporting to recall the loan and demand sums which were not due, the Defendant breached the underlying terms of the contract for which they are not entitled to enforce the personal guarantees and the 5 mortgage deed.

The Plaintiffs brought this suit seeking declarations that the Defendant breached the contract between the two parties, that the mortgage deed registered over land comprised in Kyadondo Block 101, Plots 190, 259-265, 266-270 and Kyadondo Block 90, Plots 397,459&460 land at 16 Katalemwa and Kyadondo Block 101 Plots 258 and 275, land at Watuba is illegal, null and void; that the purported statutory notice dated 18th October 2013 is illegal, null and void and a further declaration that the Defendant is not entitled to realize the Plaintiff's securities.

The Plaintiffs also seek an order of cancellation of the mortgages 15 registered by the Defendant on the Plaintiffs land, an order of return of the certificates of title free of encumbrance, permanent injunctions, general, punitive and aggravated damages, interest and costs of the suit.

The Defendant's denial of liability was expressed in their written statement of defence. They contended that by 27th October 2011, a sum $20$ of Ugx 4,531,000,000/= had been disbursed and made available to the 1st Plaintiff and that at the time of executing the mortgage deed, the Plaintiffs who ought to have known that they could not own Mailo land, did not disclose to the Defendant that they were not Ugandan citizens. They contended that the interest charged was at all times in accordance with the terms of the facility letter and the mortgage deed and that it is $25$

$\mathsf{Z}$

the Plaintiffs who breached the terms of the facility when they failed to periodically repay the credit facility and that as such, the Defendant is entitled to enforce the mortgage deed and personal guarantees. They asserted that they did not breach the terms of the contract with the Plaintiff and prayed for the dismissal of the suit.

$5$

$25$

By way of counterclaim, the Defendant contended that the 1st Plaintiff had defaulted in its loan obligations which had prompted the service of a notice of default on 18th October 2013 demanding the sum of Ugx $3,704,674,108/$ =. They therefore seek a declaration that they are entitled to the sum of Ugx 3,704,674,108/= with interest; a declaration that they $\mathbf{I} \mathbf{O}$ are entitled to foreclose on the properties comprised in Kyadondo Block 101, Plots 190, 259-265, 266-270 and Kyadondo Block 90, Plots 397,459&460 land at Katalemwa and Kyadondo Block 101 Plots 258 and 275, land at Watuba to recover the aforementioned sum or in the alternative an order directing the Registrar of Titles to convert the suit $\mathbf{15}$ properties into leasehold interests and an order for costs;

The following issues were framed by the parties for determination:

- 1. Whether the mortgages registered on the suit land are legal and enforceable? - 2. Who of the parties breached the contract? - 3. Whether the Debentures and Personal Guarantees are legal and 20 enforceable? - 4. Whether the Counter Claimant is entitled to recover from the Counter Defendants a sum of Ugx 3,704,674,108/ $=$ ? - 5. What remedies are available to the parties?

With regard to the first issue, a mortgage is defined by the Mortgage Act No. 8 of 2009 as "any charge or lien over land or any estate or interest in land in Uganda for securing the payment of an existing or future or a contingent debt or other money or money's worth or the performance of an obligation and includes a second or subsequent mortgage, a third party $\mathcal{L}$ mortgage and a sub mortgage."

In the instant case, the Parties executed a mortgage deed on $17^{\rm th}$ August 2011 over land comprised in Kyadondo Block 101, Plots 190, 259-265, 266-270 and Kyadondo Block 90, Plots 397,459&460 land at Katalemwa and Kyadondo Block 101 Plots 258 and 275, land at Watuba; Exhibit It P24. In this mortgage deed, the Plaintiffs represented that they were the registered owners of the above mentioned properties.

Counsel for the Defendant submitted that the Defendant relied on this representation to advance huge sums to the Plaintiff and that under Section 59 of the Registration of Titles Act Cap 230; certificates of title 15 are conclusive evidence of ownership as the person named therein has power to deal in the land.

Counsel further submitted that the definition of a mortgage is not restricted to registered properties, that it includes unregistered interests and that therefore the Plaintiffs had authority to mortgage whatever 20 interest they had acquired. He stated that the mortgage could have taken the form of mortgaging an equitable or a registrable interest and that Exhibit P24 was therefore a legal mortgage executed between the parties.

respectfully disagree. The legal position on ownership of land by nonitizens is well settled by the Constitution and the Land Act. Article 237 $25$ (c) of the Constitution 1995 provides that non-citizens may acquire Pases in land in accordance with the laws prescribed by Parliament, and

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the laws so prescribed shall define a noncitizen for the purposes of this paragraph. This position is reiterated by Section 40(1) of the Land Act Cap 227

A non-citizen is defined by Section 40(7)(b) and (c) of the Land Act as a person who is not a citizen of Uganda and in the, case of a corporate body, one in which the controlling interest lies with non-citizens. These descriptions aptly describe the 1- and 2'- Plaintiff. That the 2- Plaintiff is a Kenyan with controlling interest in the 1st Plaintiff is also not in dispute.

The properties comprised in Kyadondo Block 101, Plots 190, 259-265, 266-270 and Kyadondo Block 90, Plots 397.459&460 land at Katalemwa and Kyadondo Block 101 Plots 258 and 275, land at Watuba; Exhibits pg\_p20 are described as Private Mailo land. Section 40(4) of the Land Act provides:

*"Subject to the otherprovisions ofthis section, a noncitizen shall not acquire or hold mailo orfreehold land."*

The import of these sections is that the Plaintiffs who are foreigners cannot acquire any interest in mailo land as they purportedly did in the instant case.

The gist of Counsel for the Plaintiff's argument seems to suggest that this was merely an irregularity, that the Plaintiffs had unregistered interests and that therefore they had authority to mortgage whatever interest they had acquired.

The Privy Council decision in **MacFoy v. United Africa Co. Ltd [1961] 3** is valuable here as it considers the distinction between nullity and irregularity, and addresses the \* a particular instrument to be void (null) and not voidable

(irregular). The relevant passage in the judgment of Lord Denning is that if an act is void then it is a nullity. The essence of this passage is that where an instrument is only voidable, then it is to be treated as regular all the time, until the Court considers it, finds it irregular, and quashes it; but where an instrument is a nullity, it is void ab initio, and strictly 5 speaking it cannot be the basis of any valid process at any time. It is the common position of the Court in MacFoy, that there are certain factors to be considered in determining whether an instrument is void-or voidable: (i) demands of justice; (ii) whether the objector has given waiver by his conduct; (iii) whether the impropriety complained of is or is not a $\ell$ $\mathbb{C}$ mere formality; (iv) whether or not the point is only a technical objection; (v) whether undue prejudice may fall upon a party; See JP Machira V Machira Waruru & Anor [2007]eKLR

In Re Pritchard (deceased) [1963] 1 AII ER 873, Lord Upjohn was of the (majority) view that the existing authorities showed three categories 15 of nullity and one of these was "Proceedings which appear to be duly issued, but fail to comply with a statutory requirement."

The authority which appears to have guided the learned Judge most, in identifying the said basis of nullity, was the unanimous Court of Appeal decision in Finnegan v. Cementation Co., Ltd [1953] 1 Q B. 688, from 20 which the following passage is taken (Jenkins, L. J at p.700):

"I agree that this appeal fails, though I share the regret expressed by $my$ Lord in coming to that conclusion. It seems to me to be a case in which a technical blunder has deprived the Plaintiff of her remedy, although the blunder was not such as to affect the substance of the $RS$ . claim in any way, or to prejudice the defendants in defending the action in any degree. Nevertheless, the defendants are entitled to

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have their objection to the competence of the action dealt with according to law, and if the law supports their objection, effect must be given to it, however unmeritorious it may appear to be."

Similarly, the Plaintiffs herein are insisting that, on the basis of the principles of law, the mortgage deed must be struck out, for offending the $\mathcal{S}$ provisions of the Constitution and the Land Act. It is thus the duty of this Court to examine those statutes, and determine if there indeed has been a breach of its provisions. The relevant provisions of the law regarding ownership of land by non-citizens have already been clearly extracted earlier and there is no ambiguity about them in relation to $10$ ownership of land by non-citizens. PW1 testified that he had used his passport as identification when opening an account with the Defendant. The Defendant should have applied due diligence after the 2nd Plaintiff submitted his passport which clearly showed that he was a Kenyan; $15$ Exhibits P3 and P4.

The conclusion to be drawn from the foregoing analysis is that, the mortgage deed being challenged by the Plaintiffs is a nullity and is [ Mortgaged deed is anulling] hereby declared so.

Turning to the second issue as to whom of the parties breached the contract, it is important at this point to trace the background of the 20 relationship of the two parties.

On 30th June 2011, the Defendant advanced credit facilities to the Plaintiffs to the tune of Ugx 3,700,000,000/=; Exhibit P21 to be utilized as follows:

- Overdraft of Ugx 400,000,000/= for working capital - Term Loan 1 of Ugx 400,000,000/= as buyout of Bank of Baroda facilities

$25.$

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- Term Loan 2 of Ugx 900,000,000/= for construction and $\frac{1}{2}$ assets acquisition of capital assets - acquisition as buyout of Bank of Asset based financing of Ux 2,000,000,000/= as buyout of Bank of for acquisition of a ford - for acquisition of a feed mill with BOU Baroda facilities participation under Agriculture Finance credit facility

The securities supplied by the Plaintiffs for this loan were set out in $\mathbf{S}$ Annexture 1 of the facility letter. They included Block 101 Plots $190$ , 258-265, 266-270, 275; Block 90 Plots 397,459 and 460; first fixed and floating debenture of Ugx 3,700,000,000/= over the 1st Plaintiff's future assets, director's personal guarantees of $Ugx3,700,000,000/$ =, Bank of $r_0$ Uganda guarantee of $Ugx1,000,000,000/$ =, tax invoice for full cost of equipment drawn in the names of the Defendant, submission of original documents of title (commercial invoice, bill of lading and packing list) to Baroda after settlement of Baroda be submitted from Bank of $1.5$ outstanding balance, among others.

The facility was to be repayable strictly on written demand but was subject to review on or before 30th June 2012. The overdraft facilities were to be payable on demand subject to annual reviews, term loan 1 was to be paid in 48 monthly installments of Ugx 11,960,047.29 from date of drawdown, term 2 loan to be repaid in 96 monthly installments of 20 Ugx 18,300,478.44 after a moratium' period of 6 months from date of drawdown while the asset based finance loan was to be repaid in 72 monthly installments Ugx 30,348,328.20 after a moratium period of six months.

Clause 4.6 of the facility letter provided that interest on the facilities was $\lambda$ . to be paid during the moratium period.

PW1 testified that the loan was indeed advanced by the Defendants.

On $27$ th October 2011, the Defendant advanced a further $U_{gx}$ On $27$ th October 831,000,000/= to the Plaintiffs under the asset based financing facility 831,000,000/- to advanced to Ugx4,531,000,000/=; Exhibit bringing the total amount advanced to $\frac{1}{2}$ = $\frac{1}{2}$ = $\frac{1}{2}$ = $\frac{1}{2}$ = $\frac{1}{2}$ = $\frac{1}{2}$ = $\frac{1}{2}$ = $\frac{1}{2}$ = $\frac{1}{2}$ = $\frac{1}{2}$ = $\frac{1}{$ bringing the total prize $\frac{1}{2}$ . The monthly installments under this facility were accordingly P22. The months increased to Ugx 52,446,646.74/=. The securities remained the same but $\le$ uncreased to $\frac{1}{2}$ were adjusted to incorporate the Ugx 831,000,000/=. The 2nd Plaintiff a one Anne Wangui Gichohi and Samson Ngari Gichohi, directors of the 1st Plaintiff executed personal guarantees on 27th October 2011; Exhibits P25, P26 and P27. That the monies were indeed advanced to the 1st Plaintiff is further supported by the bank statement of the $1^{st}$ Plaintiff; $10$ Exhibit P28

It would seem no repayments were made till 24th February 2012, when the 1st Plaintiff wrote to the Managing Director of the Defendant requesting to extend the grace on their facilities for 12 months; Exhibit D11. The letter read in part;

"We humbly request the Bank to allow us an extension of the grace period by another 12 months. This will give us enough time for change over to maize milling, even as the briquette making business gains momentum after commissioning in April 2012."

On 19th April 2012, the Plaintiffs wrote again to the Defendant regarding $2S$ their credit facilities; Exhibit D14. The letter read in part;

".. It is regretful that our account is in arrears a situation that has arisen due to a sudden withdrawal of Mukwano Industries Ltd from purchasing our biomass briquettes.."

On $18^{th}$ October 2013, the Defendant issued a notice of default to the $3^{\circ}$ Plaintiffs demanding an outstanding amount of Ugx 3,704,674,108.33/=; Exhibit D16.

$\mathbf{I}$

$\overline{e}$ The Plaintiffs' contended that the Defendant breeched the credit facility agreements by charging interest which was not contractual, not notifying the Plaintiffs in writing about increment in interest rates, failing to open fresh letters of credit to procure a feed mill and thereby stifling the 1st Plaintiff's business, using a lower exchange rate when converting 5 US549,000 which was remitted to Bank of Uganda and issuing a demand notice when the loan sums were not due.

The facility agreement Exhibit P22 provided for interest rates in clause 5. Clause 5.5 provided that the Bank could from time to time, at its sole discretion and within the limits permitted by law, revise the applicable interest rate and would advise the Plaintiff in writing of any change in the applicable rate.

Per Clause 19.1.3, any such notices were to be delivered at the 1st Plaintiff's address at P. O. Box 29200 Kampala. In the instant case, this procedure was not followed. DW1 testified that the notices of increment IS in prevailing interest rates were published in the newspapers because under the Financial Institution Act, the Bank is mandated to inform clients through any of the known media houses by print media and that the Defendant had not written to any client in person since the communication in the print media was sufficient. $20$

Be that as it may, the agreement between the two parties provided for personal notification. The question to be determined now is whether the Defendant's failure to write to the Plaintiffs constituted a breach. The answer to this question can be found in Clause 5.5 of the facility letter;

"... Failure by the Bank to advise the Borrower shall not prejudice the right of the Bank to recover interest charged subsequent to any such $% \left\vert \mathcal{A}\right\vert$

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From the foregoing, it is evident that non-notification by the Defendant to the Plaintiff regarding increment in interest rates was a breach as far as $+5$ Clause 19.1.3 but going from Clause 5.5, it did not absolve the Plaintiff from paying such interest.

As to the Defendant's alleged failure to procure a feed mill, it is clear from the evidence on record, that they did so in accordance with the Plaintiffs' instructions. On 24th February 2012, the Plaintiff wrote to the Defendant regarding the business; Exhibit D11. They stated;

"Meanwhile, due to the prevailing downturn in the economy, we have experienced a depressed demand in the feed market especially since September through December 2011. The reduced sales are not a result of competition but a shrinking feed market."

Further, on 19th April 2012, Exhibit D14, the Plaintiff's wrote to the Defendant,

"As intimated in our letter of February 24th 2012 and in view of the declining feed sales, we feel it is imprudent to continue with the purchase of the feed mill in the present circumstances. We therefore *request the Bank to cancel this margin...*"

From the above excerpts, the 1st Plaintiff clearly indicated that the business for which the importation of the feed mill was required had made a turn-down and nosedived so much that the 1st Plaintiff had diversified and gone into briquette making and that therefore the importation of the feed mill was not viable. This on its own clearly indicates that the Plaintiffs' "limping business" had nothing to do with the

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failure of opening fresh letters of credit and that they would even have been in a worse financial position had the mill been imported.

PW1 also testified that the Defendant kept charging interest unfairly on US\$549,000 held as a margin for letters of credit but not disbursed. I respectfully disagree that this was unfair. The Defendant kept holding 5 this money in trust for the Plaintiffs pending further instructions as the \* Plaintiff had decided not to use it to procure the feed mill. The unfairness would arise if the Defendant had kept charging interest after 19th April 2012 when they were instructed to cancel the margin and realize the equivalent of US\$549,000 in Uganda shillings to be paid to Bank of 16 Uganda. As it was, the Defendant realized the equivalent of the money, paid Bank of Uganda and cancelled the margin. This is supported by the reduced indebtedness Plaintiff's from fact that the Ugx4,446,943,641.74/= as at 19th April 2012 to Ugx 3,704,674,108.33/= when the demand notice was issued on $18^{th}$ October 2013, a fact which $15$ DW1 also testified to.

PW1 also testified that the Defendant used a lower exchange rate when converting US\$549,000 which was remitted to Bank of Uganda and that they did not involve the Plaintiff in this process while DW1 testified that following cancellation of the letters of credit, USD 549,000 was converted $20$ by the Defendant to Ugx 1,350,749,947/ $=$ at the prevailing rate of Ugx 2460 and applied to settle part of the loan.

The instruction given by the Plaintiff is found in Exhibit D14, the letter dated 19th April 2012. The Plaintiff wrote in part;

".. While this is correct, it includes USD549,000 held as a margin for $2S$ . LC but not disbursed... We therefore request the Bank to cancel this

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margin and realize the Ugx equivalent of the USD 549,000 as soon as possible at the prevailing exchange rates. We can then pay this money to the bank of Uganda in respect of their contribution in the Agricultural Finance Scheme."

From the above excerpt, it clearly states that the Defendant had a 5 prevailing rate it was using in its operations. It would be foolhardy for the Defendant, being a business body, to go looking for a higher rate when they had their own rate. If the Plaintiff had wanted to be involved, they should have stated so in their correspondence or provided a list of other banks whose rates the Defendant should have used. This they did not do 10 and as such there was nothing to prevent the Defendant, being a dealer in foreign currency, from using its prevailing rate.

As to the Plaintiffs' contention that the demand notice was issued when the sums were not due, by their own correspondence in Exhibit D14 they acknowledge their indebtedness. They state:

"In your letter to us, you mentioned a figure of $Ugx$ $4,446,943,641.74$ = as our total indebtedness to the Bank. While this is correct, it includes USD549,000 held as a margin for LC but *not disbursed...*"

The Plaintiffs did not lead any evidence to show that the above sums 20 were paid off and it is my finding therefore that the Defendant rightly issued a demand notice on 18th October 2013 demanding the Plaintiffs to clear their outstanding indebtedness.

In light of the foregoing, it also my finding that the Plaintiffs have not proved any breaches that would impose liability on the Defendant. On 25. their part, the Defendant contended that the Plaintiffs breached the terms of the facility when they failed to periodically repay the credit

facility. As seen from the extracts of the correspondences in Exhibits D11 and D14, it is clear that the Plaintiffs business was struggling and they were unable to remit payments which position is supported by their requests for extension of the grace period for repaying the loan and their acknowledgment of their indebtedness by PW1. Considering the evidence L as a whole, it is this Court's finding that it is the Plaintiff's who were/in 1554e 162 breach of the credit facility agreement.

$y$ v $v$

Turning to the third issue as to whether the Debentures and Personal Guarantees are legal and enforceable, Clause 4.1(a) of the Debenture dated 7th August 2011; Exhibit P23 charges to the Defendant the 1c freehold and leasehold property of the 1st Plaintiff both present and future as a continuing security for the payment of the money advanced to the Plaintiffs. Having found that the mortgage deed and the certificates of title conferring ownership of mailo land to the Plaintiffs are illegal, this Debenture deed is therefore unenforceable as the Defendant cannot 15 derive any interest from an illegal instrument.

As to the personal guarantees, PW1 testified that by the time the facilities were recalled, the Plaintiffs had problems with making repayments. He also admitted a liability of Ugx 2.1bn which they were still trying to repay. By the personal guarantees dated $27^{\text{th}}$ October 2011, Exhibits D1, $20$ D2 and D3, the 2nd Plaintiff, Anne Wanguhi Gichohi and Samson Ngari Gichohi guaranteed the due and prompt payment of the sum of Ugx 831,000,000/= due from the $1^{st}$ Plaintiff. They also guaranteed due performance and observation of all other terms and conditions of the loan facility by the 1st Plaintiff. The Directors of the 1st Plaintiff also $25$ . executed personal guarantees for the entire sum, that is, Ugx

4,531,000,000/=, a fact that was not disputed by PW1. The personal guarantees executed by Directors of the $1^{\rm st}$ Plaintiff constituted "on demand guarantees" as they guaranteed the due and prompt payment of the sums owed by the $1^{\rm st}$ Plaintiff, they undertook that $% \mathcal{L}_{\text{max}}$ if the sums were not recoverable by the Defendant under the guarantee, then they would $5$ be recoverable from the Directors and also waived any right of first requiring the Defendant to proceed against the 1st Plaintiff.

Clearly, an "on demand guarantee" is designed as a security instrument to enable the beneficiary quickly get their money without resorting to

Courts have observed in a catena of cases that the very object of a guarantee is defeated if the creditor is asked to postpone their remedies against the surety and proceed against the debtor instead and further, that any creditor, such as a banking company that obtains a guarantee as a collateral security against any debtor, is not obliged to exhaust their $15$ remedy against the principal debtor before suing the surety.

**Biswanath** Ltd $\dot{\mathbf{v}}$ **India** $of$ Investment **Bank Industrial** $\quad\text{In}\quad$ Jhunjhunwala [2009], for instance, the Supreme Court categorically held that the liability of the guarantor and principal debtor is coextensive, not in the alternative, and the creditor/decree-holder has the 20 right to proceed against either of the parties for recovery of dues or realisation of the decretal amount.

It is thus to be observed that the courts have clarified the scope and extent of a guarantor's obligations to the principle creditor on the basis that such obligations are co-terminous with the defaulting party's $25$ . responsibilities, and may only be waived/suitably modified by the parties

pursuant to the terms of writing to such extent in a contract. Subject $t_0$ express terms in the contract, it is to be noted that the object of securing a guarantee in favour of the creditor is to ensure timely redressal of outstandings in the event of default – if the creditor were to, however, $\frac{1}{2}$ postpone their remedies against the guarantors, the very object of the 5 guarantee would admittedly stand defeated.

Vene U

The Plaintiff's argument that the personal guarantees executed in favour of the credit facility; Exhibit P22 were not signed by the Defendant and therefore invalidate the personal guarantees, cannot stand. Exhibit P21. the first credit facility executed on 30th June 2011 was duly signed by all 10 parties. DW1 testified that Exhibit P22 of 27th October 2011 was an addition to the one of 30th June and that the two were to be construed jointly. This evidence is supported by the fact that various clauses in Exhibit P22 kept referring to the offer letter of 30th June for example Clause 3 on purpose of the facility, Clause 4 on repayment and review of 15 the facility and Annexture 1 Paragraph 8 regarding securities to be taken by the Bank. The argument of non signature is merely superficial and does not take away the import of the entire document. In any case, Exhibit P22 was signed by the Plaintiffs, giving a clear indication that it was in addition to the first facility letter; Exhibit P21 and that their $2c$ activities would be governed by the terms that existed in both facility letters, that is, Exhibit P21 and P22. Therefore, it is for the reasons discussed above that I find the personal guarantees executed by the

Directors of the 1st Plaintiff legal and enforceable. Clerscool guarantees are legal and experimentale. Jume No 4 As to the fourth issue of whether the Counter Claimant is entitled to 25 recover from the Counter Defendants a sum of Ugx 3,704,674,108/=;

DW1 testified that the Ugx 1,350,749,497 recovered from converting the US\$549000 was applied to settle part of the loan which as at April 2012 Ugx 4,446,943,641. This would leave balance $of$ Ugx3,096,194,144.74/=. As at $18^{th}$ October 2013 when the demand notice was issued, the figure now stood at Ugx 3,704,674,108/=. DW1 $\mathcal{S}$ further testified that the said amount has now risen to Ugx $4,272,740,118$ = because of accrued interest. Partial judgment anadmission.

Jesue 5.

PW1 admitted partial indebtedness and a Partial judgment on admission in the sum of Ugx 2,159,000,000/= was entered against the Plaintiffs on 24th July 2015 by this Court. What remains to be determined is whether $1^{\circ}$ the Defendant is entitled to the remaining Ugx 2.1bn. The Defendants submitted a statement of account of the 1st Plaintiff; Exhibit D15 which was not sufficiently challenged. The statement shows that no money has been deposited on the account towards repayment of the loan which is now attracting penalty interest. Infact PW1 testifed that they had stopped 15 putting money into the account in July 2013 and had to operate another business account elsewhere for the survival of the business. It is therefore not inconceivable that the Plaintiff's indebtedness has increased considering accrued interest on the principle sums for over two years. In the absence of any evidence to the contrary, it is therefore my $2\degree$ finding that the Plaintiffs are indebted to the Defendant in the sums-155 ml 110 5 claimed in the counterclaim.

The fifth issue is in regard to remedies available to the parties. In their counterclaim, The Defendant prayed for a declaration that they are entitled to the sum of Ugx 3,704,674,108/= with interest; a declaration $25$ . that they are entitled to foreclose on the properties comprised in

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Kyadondo Block 101, Plots 190, 259-265, 266-270 and Kyadond 90, Plots 397.459&460 land at Katalemwa and Kyadondo r&gt; ° B1°Ck aiOck 101 Plots 258 and 275, land at Watuba to recover the aforementioned s in the *alternative* an order directing the Registrar of Titles to conve t suit properties into leasehold interests.

Having found that the Plaintiffs are indebted to the Defendant 't hereby declared that the Defendant is entitled to the recovery of U 4,272,740,118/= ' ' with interest at a commercial rate of 21%/0 Per annum from date ofjudgment til payment in full.

This court is unable to make a declaration on foreclosure as that would *f* 0 be a remedy arising from the impugned mortgage deed that has be found to be illegal and unenforceable. The court is also unable to *VL- instruct* the Registrar of Titles to convert the suit properties as she wa not added as a party to the counterclaim therefore such orders would be ultra vires. The Defendant is also entitled to costs of the suit j t In conclusion, judgment is entered in favour ofthe Defendant against the Plaintiffs in the following terms;

(a) Recovery of Ugx 4,272,740,1J.8/=

annum from date of (b) Interest on (a) at commercial rate of 21% per

**Date: JUDGE**