Masinde v Finance Trust Bank & 2 Others (Civil Suit 756 of 2017) [2024] UGCommC 290 (20 May 2024)

### THE REPUBLIC OF UGANDA

## TN THE HIGH COURT OF UGANDA AT KAMPALA

#### (COMMERCIAL DIVISION)

# CIVI SUIT NO. 0756 OF 2OI7

MASINDE MIKE COLLINS::::::::::::::::::::::::::::::::::::::::::::::PLAINTIFF

#### VERSUS

#### r. FINANCE TRUST BANK

#### 2. MBAZIIRA DAN

# 3. NALUNGA ROSEMARY::::::::::::::::::::::::::::::::::::::::::DEFENDANTS

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

#### JUDGMENT

#### PLAINTIFFS CASE

The Plaintiff brought this suit against the three Defendants jointly and severally for;

- i. A declaration that the sale agreement between the 2nd and 3'd Defendants and the subsequent mortgage deed entered between the 1't and 2nd Defendant is illegal and fraudulent as it included the Plaintiffs property yet the Plaintiff was not a pa(y to it. - ii. A declaration that the mortgage deed between the 1't,2nd' and 3'd Defendant is null and void - iii. An injunction against the Defendants from interfering with the Plaintiffs property - iv. An order for damages

The Plaintiff contends that sometime in 2000, he bought a Kibanja from Namugowa Godfrey and thereafter constructed a residential house where he has lived with his family to date. During the purchase, the Plaintiff conducted due diligence to ascertain who owned the legal interest in the land and was informed by the local authorities ofthe area that the land had an absentee landlord. The Plaintifffrom the time ofpurchase was never approached by anyone demanding ground rent and did not encounter any third-party claims to the Kibanja/Land.

<sup>1</sup> NE

ln20l4, Nalunga Rosemary (3'd Defendant) approached the plaintiff and introduced herself as the rightful beneficiary with the legal interest to the suit land on which the Kibanja was comprised and the Plaintiff introduced himself as the sitting trenant with an unregistered interest in the land and notified her that the house on the land was his residential house on which he lived with his family.

The Plaintiffthen conducted a search in the land registry in 2015 and confirmed the 3'd Defendant as the registered owner having been registered on the certificate of title in 20l3. The Plaintiff contends that he expressed his desire to the 3'd Defendant to be allowed to purchase the reversionary Mailo interest of his Kibanja towhich the 3'd Defendant requested for ten million shiltings which the plaintiff promised to look for.

ln 2017, the 2nd Defendant came onto the suit land and informed the plaintiff that he had been sent by the 3'd Defendant to open boundaries and value the suit land. Two weeks later, the 2"d Defendant came back with unknown people and started inspecting the Plaintiff s home and informed the Plaintiff that they were going to sell the property to which the Plaintiff reported the matter to the police, and the 2nd Defendant was arrested with his team.

The Plaintiff later learnt that the 2"d Defendant had mortgaged the Kibanja with his home to Finance Trust Bank without his knowledge and consent and without giving him the first option to purchase. The Plaintiff was surprised to see a notice of intended sale by public auction/private treaty of his house in the Daily Monitor Newspaper dated the l8tr' of December 2017 by Mulinda Auctioneers and Court Bailiffs without his knowledge and consent and the advert directed the Plaintiff and his family to vacate their residential house within 14 days from the date ofthe advert failure of which, they would be evicted at their cost and embarrassment.

The Plaintifr contends that he is not aware of the circumstances under which his house appeared in the Newspaper and he was neither informed by the bank nor by the 3'd Defendant that his Kibanja was going to be subjected to a mortgage. He was not given the first option to purchase the reversionary interest yet he was willing to purchase the same. He further contends that he was not a party to the mortgage deed between the I't and 2"'r Defendant and neither was he informed of any sale transaction between the 2n'l and 3'd Defendant hence his property cannot form part olthe mortgage and should be detached.

The Plaintiffcontends that the actions ofthe Defendants are illegal and fraudulent as no due diligence was taken to ascertain the Plaintiffs equitable interest in the suit land.

## IST DEFENDANT'S CASE

The 2nd Defendant applied for a loan facility from the l'( Defendant and a loan agreement was executed on the 6th of December 2016 wherein the 1't Defendant agreed to advance a loan facility of Ugx 35,000,000/: (Thirty-five million Uganda shillings) to the 2nd Defendant and the loan was secured by a legal mortgage on the property comprised in Kirinya Block 234 Plot 2693 registered in the names of Mbazira Dan.

The I't Defendant contends that prior to the creation olthe mortgage, alt preliminary steps required to be taken by the law before accepting any property as security were done such as a system search to establish that there is no encumbrance on the borrower's title, a visit to ascertain that the borrower is the owner of the pledged security and through this due diligence it was ascertained that the 2nd Defendant is the registered owner of the pledged security.

Subsequently, the 1't Defendant proceeded to lawfully execute mortgagc deeds in respect of the suit property and lodged title deeds with the lands office for the registration of a legal mortgage. The 2nd Defendant defaulted on the loan rcpayment and the bank's agents are in the process ofrecovering its money through foreclosure.

The 1" Defendant contends that it is not responsible for the alleged 3,d Defendant's failure or denial to give the Plaintiff priority to purchase the reversionary interest in the suit [and.

#### REPRESENTATION

The Plaintiff was represented by M/s M. Nalule & Co Advocates whereas the Defendants were represented by M/s Signum Advocates.

During the hearing, Plaintiff produced three witnesses to wit; himself (pWI), Ssembatya Joachim Katwele (PW2) and Namugowa Godfrey (PW3) who testified in Court whereas the I't Defendant produced one witness Ronald Ntege (DW I ) who also testified in Court. The Plaintiff filed its submissions which have been considered and the 1't Defendant did not file any submissions in Court.

## JUDGMENT

I have carefully read the pleadings and record of proceedings in this matter and listened to the testimonies of the parties herein. During the hearing of this case, it was brought to the attention of this Court that a Default Judgment was entered against the 2nd and the 3'd Defendants. This Court will therefore address the issues in contention between the Plaintiff and the l'r Defendant which are as follows:

- l. Whether the Plaintiff has any interest in the land comprised in Kyadondo Block 234, Plot2693land in KirinYa - 2. Whether the sale transaction between the 3'd and 2'd Defendant in respect of land comprised in Kyadondo Block 234, Plot 2693 Situate at Kirinya without giving the Ptaintiff the I't option to purchase was valid. - 3. Whether the mortgage transaction between the I't and 2nd Defendant in respect of the land comprised in Kyadondo Block 234' plot 2693, land at Kirinya without the consent of the Plaintiff was legal. - 4. What remedies are available to the partics

Issue I

# whether the Plaintiff has any interest in the land comprised in Kyadondo Block 234,Plot 2693 land in Kirinya

The Plaintiff avers that he bought a Kibanja from one Namugowa Godfrey in 2000 on unregistered land and they executed a sale agreement marked as PEX1. This was corroborated by the testimony of PW3 who stated that indeed the land was bought from him and they executed a sale agreement that was witnessed by PW2 who was an LC1 chairperson by that time. PW2 further corroborated the testimony of PWl and PW3 by stating that he indeed witnessed the sale agreement executed between PW1 and PW3 in 2000 and by this time the land was unregistered. The Plaintiff further averred in his witness statement that from the time he bought the land, he was never approached by anyone demanding ground rent or claiming any third party rights on the land till 2014 when the 3rd Defendant approached him. These assertions are not contested by the 1't Defendant and are therefore deemed to be true.

The land title marked as D Exh.1 indicates that the land was first registered on 2910512003 by one Richard Kavuma and was iater transferre d on 2510912013 to the 3,d Plaintiff who then transferred it to the 2"d Plaintiff on the 6th of September 2016.

\*"\ \)

In the case of Owembabazi Enid v Guarantee Trust Bank Limited and Others HCMA No 0063/2019, a Kibanja was defined by Justice Stephen Mubiru as:

"A form of land holding or tenancy that is subject to the customs and traditions of the Buganda characterized by user rights and ownership of developments on land in perpetuity, subject to payment of an annual rent (busuulu) and correct social behavior, distinct and separate from ownership of the land on which the developments are made and in respect ofwhich the user and occupancy rights exist. A Kibanja refers not only to the piece of land but also to the tenants' rights. Consequently, a Kibanja holder has conditional perpetual occupancy and user rights in the land".

Kibanja holders derive their protection and rights under section 29(1)(a)(i) of the Land Act Cap 22 which defines a lawful occupant as a person occupvinq land b.v virtue o\_f the repealed Busuulu and Envujjo Law qf 1928. A Kibanja holder is therefore a lawful occupant under the law.

A person claiming to be a Kibanja holder has the burden of proving acquisition of the necessary rights either as a child of the Kibanja holder, a customary successor, or that he had the consent of the mailo holder to reside on the suit land. (see Hosea Sonko and ll others vs D. K. Banoba HCCA No 71 of 2014).

Consent of the Mailo owner is sufficient proof of acquisition of a lawful Kibanja and Justice Mubiru in the case of Owembabazi Enid v Guarantee Trust Bank Limited and Others(supra) re-emphasized the procedure for obtaining that consent as laid down in the case of Tifu Lukwago v Samwiri Mudde Kizza and. another, S. C. C. A. No. 13 of 1996 as follows:

" llhenever a Kibanja is sold, the seller introduces the buyer to the owner of the Mailo land on which the Kibanja is. If the owner had an agent who looks after that land the buyer is introduced to the agent, who in turn introduces him to the owner. In either case, the buyer upon being so introduced gives to the Mailo land owner or to the agent as the case may be, a gift called a Kanzu. Thereupon the buyer is recognized by the owner as the new Kibanja holder".

In the instant case, by the year 2000, the land in question was not registered and the Plaintiff avers that the said land was said to have an absentee landlord but he however obtained the consent of the Kibanja holder to reside on it after paying for the land and executing an agreement. The payment made to the Kibanja holder by

t\,-\

the Plaintiff in essence was a gift for the usage of the land since the landlord was absent.

Though a Kibanja is not necessarily executed by signing an agreement, when the registered proprietor introduced herself in the year 2014, the Plaintiff had been utilizing the land where he built his family home for 13 years and he was willing to buy his interest in the land. From the foregoing, it is clear that the Plaintiffhas an interest in the said land where he constructed his family home.

I, therefore, find that by virtue of executing a sale agreement(purchase), actual undisturbed possession, and utilization of the suit land from the year 2000 up to 2014, the Plaintiffhas an equitable interest and right in the disputed land.

This Issue is resolved in the affirmative.

## Issue 2

# Whether the sale transaction between the 3'd and 2'd Defendant in respect of land comprised in Kyadondo Block 234,Plot 2693 Situate at Kirinya without giving the Plaintiff the 1't option to purchase was valid.

From the certificate of title marked as DEX. 1 , it is clear that the 3'd Defendant sold and transferred the land to the 2nd Defendant on the 6th of September 2016. The Plaintiff (PW 1) further testified which facts were not disputed that he had made his interest in buying the land known to the 3'd Defendant and they were in the process of negotiations. This shows that the 3'd Defendant was aware that there were underlying unregistered interests on the land that she was selling.

PWI also testified that he first met the 2nd Defendant in2016 a{ler he came onto the land and introduced himself as a surveyor coming tO open boundarieS and later returned after two weeks with people he purported to be selling the land to and <sup>a</sup> case was reported to Kirinya police marked as PEX5. These facts are not contested or disputed. Anyone buying land ought to carry out due diligence regardless of whether the land is registered or not. Failure to carry out due diligence puts them on constructive notice of all the prevailing interests on the said piece of land. In the absence of any evidence to the contrary, I am therefore inclined to believe that the 2nd Defendant was aware of the unregistered interests of the Plaintiff when he bought the said piece ofland.

The land in question is Mailo land and Section 3(4Xb) of the Land Act provides that:

NN "Mailo tenure is aform of tenure deriving its legality from the Constitution and its incidents from the written law which permits the separation of ownership of land from the ownership of developments on land made by a lawful or bona fide occupant."

As per the above section, this tenure permits the separation of ownership of land from the ownership of developments made on the land by lawful occupants and further Section 35(8) ofthe Land Act provides that:

"subject to this section, a change of ownership of title effected by the owner by sale, grant, and succession, or otherwise shall not in any way affect the existing lawful interests or bona fide occupant and the new owner shall be obliged to respect the existing interest. "

As the registered proprietor ofthe land, the 3'd Defendant had a right to sell the piece of land to anyone she wanted and the 2nd Defendant equally had a right to buy. However as clearly stated in section 35(8) of the Land Act, the change in ownership in the above land did not in any way affect the equitable interest the Plaintiff had acquired in the suit land. The 2nd Defendant upon purchase owned the said land subject to the interests of the Plaintiff.

I therefore find that the sale to the 2nd Defendant is a valid sale and the 2nd Defendant owns a registered interest in the land through title whereas the Plaintiff has an unregistered equitable interest in the suit land.

The 2nd Defendant, therefore, has a legal obligation to respect the equitable interest of the Plaintiff on the suit land.

## Issue 3

Whether the mortgage transaction between the I't and 2nd Defendant in respect of the land comprised in Kyandondo Block 234, plot 2693, land at Kirinya without the consent of the Plaintiff was legal.

Section 4(1) of the Mortgage Act 2009 places a duty on the Mortgagor and Mortgagee to act honestly and in good faith and in particular, disclose all relevant information relating to the mortgage.

Having known that there were other unregistered interests on the suit land, the 2'd Defendant ought to have disclosed those interests to the Mortgagee (1'1 Defendant) at the time of executing the mortgage and also inform the Plaintiff of his intention of executing a moftgage. The Mortgagee equally had a duty among others to conduct

\\-N

due diligence on the property to be mortgaged to ascertain its authenticity and satisfy itself with any other interests that the land might have.

In the instant case, the bank had an obligation to carry out due diligence on the land and property that was being mortgaged. During cross-examination, DW1 testified that the bank carried out due diligence by visiting the property to be mortgaged, valuing and surveying it. DW2 was asked to refer to the survey report marked as DEX 2 and line 5 of the report stated that the internal details of the development were not captured due to restricted entry and line 6 read that the property owner never availed them with the architectural plan and building permit as required. From the testimony of DW1, they claimed that the mortgaged house had tenants yet they never asked for the tenancy agreement from the Mortgagor. No interactions were made with the purported tenants in the mortgaged house and the LC1 chairperson was not consulted.

#### In the case of **Owembabazi(supra)**, it was stated that:

"Later interest holders are deemed to know of interests that they would have discovered if they had asked the usual questions about the property, and are bound by them. The rule is that a later interest holder must be diligent and act in a reasonable manner, making all those investigations that an acquirer of an interest in land is normally expected to make. Then, he or she will be affected only by actual notice of the fraud. If he or she omits to make the usual investigations, then, he or she lays himself or herself open to be affected by constructive notice. The later interest holder will be deemed to have notice of anything which he or she has failed to discover because he or she did not investigate the title properly or if he or she did not inquire for deeds or inspect them. The equitable doctrine of notice provides that a later interest holder is bound by any right which he or she would have discovered if he or she had made the ordinary investigations of deeds, births, deaths, marriages, and other facts which affect the ownership of land."

In the instant case, the 1<sup>st</sup> Defendant bank ought to have made inquiries regarding the property with the LC chairperson of the area, talked to the occupants of the mortgaged house, requested for the tenancy agreement to satisfy themselves that the occupants of the house were truly tenants, looked at the architectural plan of the house to ascertain who the real owner of the house is etc. Similarly having restricted entry to the property should have raised their suspicion on the property to be mortgaged. Failure to carry out the required inquiries clearly shows that the bank was grossly negligent while executing the Mortgage deed and thus had constructive

Dub

notice of the equitable interests (unregistered interests) of the Plaintiff on the mortgaged property.

# As stated in the case of Owembabazi Enid v Guarantee Trust Bank Limited and Others HCMA No 0063/2019(supra):

"In terms of ranking, the interests of persons in actual occupation of the land may override a subsequent registered disposition of the land. Occupiers' interests may be capable of overriding registered dispositions (such as mortgage charges) if the occupation is obvious on a reasonably careful inspection of the land or the buyer / mortgagee knows about the interest (see Mortgage Express v. Lambert [2016] 3 WLR 1582; [2017] Ch 93). Overriding interests are interests which are binding on land even though they are not shown on the register. They bind both the registered proprietor and any person who acquires an interest in the land. On a registered disposition, an interest belonging at the time of the disposition to a person in actual occupation will override a registered disposition subject to exceptions. The exceptions are: (i) an interest belonging to a person of whom enquiry was made before the disposition and who failed to disclose the interest when they could reasonably be expected to do so; and (ii) an interest which belongs to a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition."

The Plaintiff has been in actual occupation of this land since 2000 and has built his family residential home in this said piece of land. I therefore find that the 1<sup>st</sup> Defendant is bound by the overriding interests of the Plaintiff since they had constructive notice of the interest.

Accordingly, the mortgage transaction between the 1<sup>st</sup> and 2<sup>nd</sup> Defendant in respect of the land comprised in Kyandondo Block 234, plot 2693, land at Kirinya without the consent of the Plaintiff was illegal.

## Issue 5

## What remedies are available to the parties

The Plaintiff sought for judgment to be entered against the defendants for:

- a. A declaration that the mortgage deed is illegal and fraudulent - b. An order attaching the Plaintiff's property from the mortgage - c. An order of permanent injunction restraining the 1<sup>st</sup>, 2<sup>nd</sup> and 3<sup>rd</sup> defendants and their agents from interfering with the Plaintiff's property

Ony

- d. Exemplary damages - e. General damages - $f$ Interests - g. Costs of the suit - h. Any other relief that court may deem fit.

Having held as I have above, I make the following orders:

- 1. The mortgage transaction between the $1^{st}$ and $2^{nd}$ Defendant in respect of the land comprised in Kyandondo Block 234, plot 2693, land at Kirinya without the consent of the Plaintiff was illegal. - 2. Unconditional release of the Plaintiffs property from attachment and an immediate stop to the sale of the mortgaged property. - 3. A permanent injunction restraining the 1<sup>st</sup>, 2<sup>nd</sup> and 3<sup>rd</sup> defendants and their agents from interfering with the Plaintiff's property is issued.

I do not find this a proper case for the award of exemplary and general damages as against the 1<sup>st</sup> Defendant because the transactions in issue were not solely or directly caused by it and the Plaintiff, although somewhat inconvenienced by the actions of the defendants, has remained in full possession and occupancy of the suit property to date.

It is trite law that costs follow the event and having no reasonable ground for depriving the Plaintiff of the costs of this suit, the same are granted to him.

Mabriche

HON. LADY JUSTICE ANNA B. MUGENYI DATED...................................