Ntwatwa v Bank of Baroda (U) Limited & Another (Civil Suit 302 of 2019) [2023] UGCommC 260 (18 October 2023)

Full Case Text

## IN THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA [COMMERCIAL DIVISION]

## **CIVIL SUIT NO. 302 OF 2019**

# NTWATWA GODFREY KIZZA::::::::::::::::::::::::::::::::::: VERSUS

## 1. BANK OF BARODA (U) LTD

# **2. SSERWADDA RICHARD::::::::::::::::::::::::::::::::::::**

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

The Plaintiff brought this suit against the Defendants jointly and severally for a declaration that the sale of the Plaintiff's property comprised in Busiro Block 228-339 Plots 1056 & 710 land at Kinaawa LC1 Zone, Kasenge Ward, Kyengera Town Council, Wakiso District (herein referred to as the suit property) is null and void, general damages, punitive damages and for costs of the suit.

The brief facts constituting the Plaintiff's case are the Plaintiff acquired an overdraft credit facility of UGX 300,000,000/ from the Defendant and mortgaged the suit property. That he serviced the loan until when he started facing financial difficulties in business and he requested the 1st Defendant's officials to reschedule the loan, and later requested for time to source for a buyer and that he was already in negotiations with the 2nd Defendant to acquire part of the mortgaged property to settle the monies owed.

Omp

That to his shock, the 1st Defendant illegally and fraudulently sold off the property to the 2nd Defendant and deposited sale proceeds of UGX 400,000,000/ to the Plaintiff's account. Upon the Plaintiff's instructions, Valuator Limited found that the property had deliberately been undervalued by UGX 600,000,000/. The Plaintiff avers that the details of the mortgage transactions and subsequent sale were never availed to him despite several requests. The Plaintiff then filed this suit.

The 1st Defendant filed their Written Statement of Defence wherein it admitted to having granted to the Plaintiff the said overdraft facility and that a mortgage was executed in their favour. That upon default on repayment, the 1st Defendant exercised its legal rights and powers wherein they lawfully disposed of the mortgaged properties to the 2nd Defendant at the sum of UGX 400,000,000/. That the 1st Defendant served upon the Plaintiff all the requisite statutory notices which he ignored and refused to settle the indebtedness, hence the sale. That he was even informed about the sale when he visited the 1st Defendant's offices, and that he was aware of the intended sale and that he personally took the intended buyer to inspect the properties.

The 1st Defendant further avers that they carried out valuation of the property to determine the current market value and forced sale value before the sale; and that the price of UGX 400,000,000/ was fair and reasonable, and that the valuation relied upon by the Plaintiff is a gross exaggeration.

The 2nd Defendant filed his Written Statement of Defence and Counterclaim in which he denies the reliefs sought by the Plaintiff and prayed for a declaration that the Counter-Defendant/ Plaintiff is unlawfully occupying the suit properties, an order for eviction of the Counter-Defendant, general damages and costs of the suit.

Ong

### REPRESENTATION

During the hearing, the plaintiff was represented by M/s Tumusiime, Irumba & Advocates whereas the Defendants were represented by M/s H&G Advocates.

### JUDGMENT

Ihave carefully read the pleadings, ristened to the testimonies of the witnesses and considered the submissions of counsel for the parties in this matter.

The following Issues were agreed upon for resolution by the court during the schedul ing conference :

- l' whether the sare of the suit properfy by the l,rDefendant to the 2nd Defendan t/Counter-claima nt was illegal and fra ud ulent? - 2' whether the 2nd Defendant/counter-craimant rawfury purchased and acquired good title to the suit property? - 3' whether the praintiff is entitred to the remedies sought in the praint? - 4' whether the 2nd Defendant/counter-craimant is entitred to the remedies sought in the Counterclaim? - 5. What are the remedies available to the parties?

#### Issue I

whether the sale of the suit property by the l,( Defendant to the 2nd Defendan t/Cou nter-claima nt was illegal and fra ud ulent?

For both Issues one and rwo, it was submitted for the plaintiff that the suit property was sold at very ,ow prices and done in secrecy as the praintiff was onry made

s\*b

aware upon receiving an SMS notifying him of the deposit of the money on his account, and that he was denied a financial statement of his account.

Counsel for the Plaintiff submitted that the valuation done by the 1st Defendant was based on the evidence of DW4 who was barely three months out of school and went to the field unsupervised. That since DW3 did not inspect the property, the evidence of PW2 is more believable.

Counsel for the Plaintiff cited the disparity in the two reports yet the valuation was done few months apart and he also cited case law where Court relied on Bolam's principle and held that a valuer will not breach his duty of care if his valuation falls within an acceptable margin of error. He added that even if DW 3's valuation of forced sale value of UGX 85,000,000/ is correct, it would make no sense that the 1st Defendant would give a facility of UGX 300,000,000/.

Counsel for the Plaintiff also submitted that the 1st Defendant sold the property illegally and fraudulently at the lower price in breach of the duty to take reasonable precautions to obtain fair or true market value of the property.

In addition, that the 1st Defendant should not have rushed the sale or sold at a low price that simply covers the mortgage. He relied on the case of Majid Mkuze V Centenary Development Bank HCCS No. 87 of 2015.

In reply, Counsel for the Defendants dealt with all the allegations individually starting with under valuation where he submitted that the allegations of price in PE 1 lack both factual and legal basis as PW 2 is unreliable due to inconsistencies because of the failure to take into account the mixed use of the property for both industrial and residential purposes as it affects the price.

Turp

Counsel for the Defendants added that PW 2 did not take into consideration the fact that Plot 710 does not have direct access to it yet this impacts on the price of the property. In addition, the use of the replacement cost method of valuation without demonstration of how the witness arrived at UGX 740,000,000/ or the cost of the various building materials is suspect concealment of information. That PW 2 could not explain in cross examination how he arrived at the price of the undeveloped land pointing to a glaring inconsistency and exaggeration.

Counsel for the Defendants added that PW1 admitted to not obtaining the mandatory approval of developments on the suit land and he further relied on Section 33 (1) of the Physical Planning Act which prohibits carrying our developments without the prior permission of the Planning Committee. Therefore, that the developments on the land are illegal structures incapable of attracting value.

Counsel further relied on the case of Henry Okumu Okori & Another V Alfred Tumwesigye HCCS No. 301 of 2009 where Court held that values of unapproved structures cannot be taken into consideration in the valuation of property as it would be an illegality. Therefore, that the valuation of UGX 740,000,000/ cannot be relied upon but DE 4, the valuation of DW 3 was not challenged. He added that the duty of DW 2 was to collect field reports and that he is qualified to do so.

In relation to the submissions on error, Counsel for the Defendants replied that it does not apply to this case as there is no issue of error arising in regard to DW 3's report. Also that the evidence shows that the 1st Defendant took the reasonable precautions to obtain the best price and that the sale was bonafide, as the 2nd Defendant bought at a higher price than the forced sale value. Also that the claim was brought in bad faith as the 2nd Defendant testified that he on several occasions

Ung

offered to give back the property to the Plaintiff on condition that he refunded the UGX 400,000,000/ but he did not respond.

On the sale to the 2nd Defendant without the Plaintiff's knowledge, Counsel for the Defendants submitted that by the time of sale in 2018, negotiations between the Plaintiff and 2nd Defendant had failed. He added that the Plaintiff was not denied access to any documents and that the statutory notices were served prior to the sale (DE 1 and DE 2). He concluded that the Plaintiff did not prove that the Defendant's actions were fraudulent.

Having carefully perused the evidence on record and submissions of both parties I hold as follows. As to whether the sale of the suit property by the 1st Defendant to the 2nd Defendant was illegal and fraudulent, it is prudent to first define the terms 'illegal' and 'fraudulent' in order to bring the case into perspective. Generally speaking, an illegality is something which is not done in accordance with the law; whereas fraud was explained by the Supreme Court in the case of Fredrick Zaabwe v Orient Bank Ltd and 5 Ors Civil Appeal No. 4 of 2006 where the Court cited the definition in Black's Law Dictionary 6th Edition page 660 as:

"An intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right. A false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which deceives and is intended to deceive another so that he shall act upon it to his legal injury. Anything calculated to deceive, whether by a single act or combination, or by suppression of truth, or suggestion of what is false, whether it is by direct falsehood or innuendo by speech or silence, word of mouth, or look or gesture....................................

Sale of the mortgaged property is provided for under section 20 of the Mortgage Act as one of the remedies available to a mortgagee in the event of default by a mortgagor, or where he or she does not comply with the notice served on him or her under section 19 of the Act. section 26 (t) of rhe Mortgage Act goeson to say that a mortgagee has power to sell the mortgaged property where a mortgagor is in default of his or her obligations under the mortgage and remains in default at the expiry of the time provided for the rectification of the default in the notice served on him. In addition, section 26 (2) of the same Act requires that before such sale, a mortgagee shall serve a notice to sell on the mortgagor, and that no sale is concluded until after twenty- one days have lapsed from the date of service of the notice.

Further, according to section 27 (I) of the Act a mortgagor who exercises his power to sell the mortgaged land has a duty to take all reasonable steps to obtain the best price. In Mega\*y & ll/ade, 'The Law of Real property,', seventh Edition, sweet & Ma-vwell, par. 25-014 at II02-3, every mortgagee has a power of sale provided that the mortgage was made by a deed and that the mortgage money is due or the legal date of redemption has passed.

In the case of sendagire stephen & Nanyombi Gladys v DFCU Limited & 2 others HCCS No. 26 of 2008 the court laid down good practices to be upheld during the sale of mortgaged property by a mortgagee as follows:

"lt is now the statutory duty that despite the right of a mortgagee to sell the mortgaged property in recovery of the debt owned by the mortgagor, it owes a duty of care to do thefollowing.-

l. The first rule is not to act in secret. The Mortgagee should also obtain the best price and not act in badfaith.

\,& - 2. Value the property before sale to establish the current market and forced sale value, obtain the best price and not to sell the secured property under the forced sale and under value price. - 3. Property before sale should be advertised after the mortgagor has been notified. - 4. Method of sale. Public auction is competitive and more transparent and if private treaty is used, the best price and involvement of the mortgagor is preferable especially access to information."

In the instant case, there is no doubt that the Plaintiff was in default of repaying his loan facility which led to the sale of the property to the 2nd Defendant. Whereas the Plaintiff contends that the 1st Defendant acted illegally and fraudulently by selling the suit property in secrecy and at a low price in breach of their duty to obtain a reasonable and fair price, I find that the 1st Defendant complied with Section 26 of *the Mortgage Act* by serving the requisite statutory notices as evidenced by D1 EX 1 and D1 EX 2. In addition, DE 3 shows the notice of sale in the newspaper publication of 30th November 2017 therefore I find that all those refute the claim that the sale was done in secrecy.

In relation to the duty to obtain the best price, I find that the 1st Defendant took all reasonable steps to obtain the best price pursuant to Section 27 (1) of the Mortgage Act by advertising the sale in the newspaper (D1 EX 3) and by carrying out valuation of the property before sale as evidenced by D1 EX 4 the Valuation Report. I noted the Plaintiff's concerns that DW 4 who carried out the field visit was barely a few months out of school and went unsupervised, however, I find that this does not in any way disqualify him from carrying out his work because he has the relevant qualifications. In addition, the report was finally completed by DW 3

Wirk

who has a wealth of experience in the field. Therefore, it does not in any way affect the validity of the Valuation report used.

I also noted the disparity in prices in the Valuation report by DW3 and that of PW 2, and also noted the Plaintifls submissions on the Bolam principle and the acceptable margin of error. I will not discuss this issue further because each party carried out their valuation and neither of the reports can be used against the other to determine the margin of error unless there had been an independent valuation carried out by a Court witness. Therefore, the Bolam principle does not apply in this case.

Conceming the 1 't Defendant's contention that the developments on the suit properties were not approved according to Seclion 33 (l) ofthe Physical Planning Act and therefore that they cannot attract value, I find that the Defendant is estopped from making such arguments due to the principle of approbation and reprobation because the same Defendant took the properties as security and have gone ahead to carry out valuation and sell the said properties to the 2nd Defendant. If the prope(ies were valueless as claimed, the I't Defendant ought not to have considered them at all in the first place and they would have only valued the land. I will therefore not consider those submissions.

Finally, as to whether the 1't Defendant acted fraudulently by denying the Plaintiff access to the documents and by selling the properties to the 2nd Defendant without the knowledge of the Plaintiff, I do not find any evidence on deliberate or intentional perversion of truth to induce the Plaintiff or any false representation. Therefore, I find that the suit properties were lawfully sold to the 2nd Defendant by the 1't Defendant without any fraud.

The first issue is accordingly answered in the negative.

s\$b

#### Issue 2

# Whether the 2nd Defendant/Counter-claimant lawfully purchased and acquired good title to the suit property?

As to whether the 2nd DefendanVCounter-claimant lawfully purchased and acquired good title, Counsel for the Plaintiff made his submissions together with issue one and concluded that the purchase was unlawful.

On the other hand, Counsel for the Defendants relied on Section 29 of the Mortgage z4cl to submit that a purchaser acquires good title except where there is fraud, misrepresentation or other dishonest behaviour which the purchaser is aware of. He added that the evidence on record shows that the 2nd Defendant had earlier been in negotiations with the Plaintiff to purchase the properties but failed to agree and was much later informed by a one Siren Simwogerere that the property had been advertised for sale then he expressed interest to purchase.

Having looked at the submissions and the evidence on record, I hold as follows. I agreed that protection for a purchaser for property is embedded within Section 29 of the Mortgage Actwhich provides:

"A purchaser in a sale effected by a mortgagee acquires good title except in a case of fraud, misrepresentation or other dishonest conduct on the part of the mortgagee ofwhich the purchaser has actual or constructive notice."

Similarly, seclions 176 and 181 of the Registrotion of ritles Act offer protection for bonafide purchasers except where there is fraud. The term 'bonafide purchaser' is defined by Black's Law Dictionary, \th Edition at page I29I as

"One who buys something for value without notice of another claim to the property and without actual and constructive notice of any defects in or informalities claims

s\*u

or equities against the seller's title, one who has in good faith paid valuable consideration for property without notice of prior adverse claims."

The term 'bonafide purchaser' was also elaborated by the Supreme court in the case of David sekajja Nalima v Rebecca Musoke, supreme court civil Appeal No. l2 of 1985 where it was defined as:

"A person who purchased the land without the notice of any suitable interest or claim. The tests of a bonafide purchaser are that (she) he:

I) Must have a valid certificate of title from a person registered as proprietor not through fraud or otherwise.

2) Must have paid valuable consideration for the land.

3) Must have acted in good faith without notice of fraud whether actual or constructive or implied. "

The court in Hannington Njuki v George ll/illiam Musisi t1g99l KALR 7g4 added one last requirement that the vendor was a former registered owner of the property.

considering all the above, it is evident in this case that the 2,d Defendant is currently the registered proprietor of the suit property as evidenced by the respective Deeds of Transfer Dl Ex 6 and Dl EX 7 respectively; and that he acquired it fiom the 1't Defendant in good faith without any fraud or notice of it.

There is also evidence that he acquired it for valuable consideration of UGX 400,000,000/ which the Plaintiff himself confirmed that he received notification of the deposit of the money on his account.

11. s,&

It is also not in dispute that a mortgage had been duly executed therefore, the vendor who is the 1't Defendant in this case was the former registered proprietor of the suit property.

In the premises, the 2nd Defendant has met all the conditions for a bonafide purchaser for value without notice therefore, he lawfully purchased the suit property and acquired good title.

This Issue is also answered in the affirmative.

### Issues 3 and 5

## Whether the Plaintiff is entitled to the remedies sought in the Plaint?

### What are the remedies available to the parties?

As to whether the Plaintiff is entitled to the remedies sought, Counsel for the Plaintiff prayed that the claim be allowed with costs to the Plaintiff due to the illegal and fraudulent purchase ofthe property.

In reply, Counsel for the Defendants submitted that since no evidence was led to prove that the Defendants committed any acts of fraud or illegality, and that the Plaintiff admitted being in default, he is not entitled to the sought prayers.

I have duly considered the above submissions together with the fact that the allegation of illegal and fraudulent sale and purchase of the mortgaged property was not proved, which means therefore, that the Plaintiff did not prove their case and therefore the case stands dismissed

The Plaintiff is therefore not entitled to the prayers sought.

s\*b

#### Issue 4

## whether the 2nd Defendant/counter-claimant is entitled to the remedies sought in the Counterclaim?

As to whether the 2nd Defendant/counter-claimant is entitled to the remedies sought, Counsel for the Defendants submitted first that the Counter-claim was unchallenged as the reply was filed out of time, and that it was incurably defective. counsel therefore submitted that since the counterclaimant acquired the properties in accordance with the law, the Plaintiff/ counter Defendant no longer has interest in the said properties, and therefore is a trespasser, therefore that an order of eviction be issued against him. In addition, he prayed for general damages and costs.

I will consider the remedies sought for by the counterclaimant starting with the order of eviction.

whereas the Mortgage Act is silent on the purchaser's right to enter possession of the mortgaged property, it offers protection of the purchaser under Section 29 of the Act. However, a mortgagee has power to enter possession of the mortgaged property under Sections 20 (d) and 24 of the Mortgage Act. Since the counterclaimant rightfully purchased the suit property and the plaintiff remains in possession, the Counterclaimant is entitled to an order of eviction against the Plaintiff.

In regard to an order for general damages, it is trite law that general damages are awarded in the discretion of the Court to compensate the aggrieved party for the inconveniences faced as a result of the actions of the other party.

13 s.-

In this case, since purchase ofthe property in 2018, the 2,d Defendant has been denied use of the same and therefore he is entitled to general damages. I find it fair to award general damages of UGX 50,000,000/.

Taking into consideration that the Plaintiffs suit has no merit and stands dismissed, the Counter-claim succeeds with the following orders:

- a. Order of eviction against the Plaintiff/Counter Defendant from the suit property within a period of30 days. - b. General damages of UGX 50,000,000/. - c. Costs of the suit and Counterclaim are granted to the Defendants.

l,k-. L

HON. LADY JUSTICE ANNA B. MUGENYI DATED to ()eL3 1