Post Bank Uganda Limited v Kato Eco Farming Limited & 7 Others (Civil Suit 168 of 2021) [2024] UGCommC 283 (26 March 2024)

Full Case Text

### IN THE REPUBLIC OF UGANDA

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

## **CIVIL SUIT NO. 168 OF 2021**

POSTBANK UGANDA LIMITED::::::::::::::::::::::::::::::::::::

#### **VERSUS**

**::::::::::::::::::DEFENDANTS**

1. KATO ECO FARMING LIMITED

2. TODOKO ISAAC

3. GERIGA AHMED

4. SOMA SAIDI

5. AGELE CHARLES

6. AYUME K. SIMEON

7. GALAA R. ALONGA

8. AYITE MATATA

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

The Plaintiff filed this suit by way of ordinary Plaint against the 1st and 2nd Defendants jointly and severally for recovery of UGX 615,601,000/ = being money had and received by the 1st Defendant, interest on the said amount and costs of the suit.

The brief facts constituting the Plaintiff's case are that on the 18th March 2015, the Plaintiff entered into a Memorandum of Understanding (MOU) with the Defendants to avail credit services. Koboko District Farmers Association (KODFA) had requested the Plaintiff to avail credit services to its green gram,

simsim and beans beneficiary farmers. KODFA agreed to sell to Kato Eco Farm Ltd (KEFL) its green grams, simsim and beans produced by its beneficiaries, and KEFL was to remit all payments due the borrowers/members who obtained credit facilities from the Plaintiff, and guaranteed that in case of any breach of contract by the farmers, it would be liable to pay the outstanding loan amount. They also agreed that upon default by the beneficiaries, the Plaintiffhad priority claim from KEFL and KODFA to settle any outstanding amounts.

That upon recommendation of KODFA, the Plaintiff availed the farmers a credit facility aggregating to UGX 615,601,000/, and that KEFL was to provide all technical extension services to the contract farmers at the different stages of farming. That based on that fact, the credit facilities advanced to the farmers were to be transferred to the KEFL. That the contract farmers subsequently defaulted on the loan repayments and a default notice was sent to the management of KODFA dated l3th November 2015, and also informed the Defendants of the farmer's breach by letters dated 8th and I 7s December 20 1 5.

That by letter dated 28n December 2015, the Defendants requested for an extension of time to pay the loans of the contract farmers and committed themselves to pay. The same had not been paid, hence this suit.

The 2nd, 3"1, 4th, 5th, 6rh, 7th, and 8th Defendants filed a joint Written Statement of Defence wherein they denied the claims and contend that the said MOU dated 18th March 2015 was between the Plaintiff, I'r Defendant (KEFL), and KODFA. That the 2nd,3'd, 4'h,5th, 6th, 7th and 8fr Defendants have never received any loan from the Plaintiff or the 1't Defendant, whether directly or through their accounts. That KODFA duly fulfilled its responsibilities under the said MOU. They further aver that under the said MOU, it is not the responsibility of KODFA or the 7 mentioned

Defendants to repay the advanced loan. They added that the beneficiary farmers were only given seeds which could not sustain the project and yet the advanced loan should have catered for land openings, harrowing, weeding, buying farm tools and equipment, insecticides, agro chemicals, transportation costs, storage costs and marketing.

That the 7 mentioned Defendants were never served with any Notice of intention to sue; and that they prayed that the suit be dismissed with costs

The l't Defendant was served by substituted service but never filed a written statement of defence, therefore, default judgment was entered against it, and the matter was set down for formal proof. During trial, Counsel for the Defendants informed Court that the 6th Defendant passed on.

#### REPRESENTATION

The Plaintiff was represented jointly by M/S Crimson Associated Advocates and the Legal Department of Post Bank, the Plaintiff whereas the 2nd, 3'd,4th,5th, 6th, 7th and 8'h Defendants were represented jointly by IWS Buga & Company Advocates and M/S Silicon Advocates.

#### JUDGMENT

During scheduling, the following issues were agreed upon for resolution by this Court:

- l. Whether the Plaintiff has a valid claim against the Defendants - 2. Whether there was breach of contract by the Defendants - 3. Whether the Plaintiff is entitled to money had and received against the I't Defendant

. Q\$\* \J

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

## Issue I

## Whether the Plaintiff has a valid claim against the Defendants

counsel for the Plaintiff relied on Section l0 (l) of the contracts Act 2010 for the definition ofa contract and submitted that once a contract is valid, reciprocal rights and obligations are created between the parties, and that in the absence of fraud, the parties to the contract are bound by their signatures. counsel submitted that through the request and recommendation of KODFA, the Plaintiff had advanced a loan facility of UGX 615,500,000/ to the Defendants, its beneficiary farmers through KEFL; and that an MOU dated 1 Sth March 201 5 was signed.

He added that under that MOU, the Plaintiff undertook to provide credit, KODFA undertook to mobilise individual farmers into producer organisation and to provide periodic monitoring reports, while KEFL undertook to remit payments due to the borrowers. He added that the loan amount was duly disbursed on the account of KEFL as had been agreed for their provision of agricultural extension services, and that upon harvest the beneficiary farmers were to supply their harvest to KEFL, whereupon sale of their harvest, KEFL would remit the payments to the Plaintiff. That the whole amount remains outstanding to date, therefore, that the Plaintiff has a valid claim against the Defendants for recovery of the sante.

In reply, it was submitted forthe 2nd,,3,d,4th,5,h,7t\ and 8th Defendants thatthere is no valid claim against them because no contract was executed between them and the Plaintiff, and that during cross examination, PWI confrmed that neither of the said Defendants had applied for any facility, and neither did they hold accounts with the Plaintiff. He added that, PWI could not mention how much money was Ient out to the individual Defendants to warrant payment of the claimed sums.

counsel added that PE3, the alleged list of beneficiaries does not mention his clients as beneficiaries, and that there is no evidence that they benefitted from any loans advanced by the Plaintiff. He concluded, that if the plaintiff has a claim, then it is against the l't Defendant.

I have duly considered submissions by both parties and find as follows. In order for the Plaintiff to prove that they have a valid claim against the Defendants, there must be a cause of action, which has been defined in the case of Auto Garage & others v Motokov (1971) EA 514 to the effect that a plaint shows a cause of action ifthe Plaintiffenjoyed a right and that the right has been violated and that the defendant is liable. The Plaintiff s claim against the Defendants is premised on the MOU dated 18h March 2015, which created some rights and obligations therein. However, even before we determine whether or not the claim is valid against the Defendants, the MoU must comply with the provisions of section l0 (l) oflhe contracts Act 2010 in order to be a valid contract. The Section provides:

"A contract is an agreement made with the free consent of parties with capacity to contract, for a lawful consideration and with a lawful object, with the intention to be legally bound. "

The 2nd, 3'd, 4th, 5th, 7th and 8ff Defendants contend that they were not parties to the MOU, and deny applying for any loan facility. However, it is the plaintiffs case that the loan facility was given to the Defendants as beneficiary farmers of KODFA and upon recommendation of KODFA. A quick look at the pEl, the MOU dated l8th March 2015 shows that it was signed between three parties namely; KODFA, the Plaintiff and the I't Defendant. It is clear from the preamble of the MOU in paragraph (c) that the Plaintiff had 'agreed to avail the above mentioned facility to respective members upon recommendation by KODFA',

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however, whereas the recommendation (PE2) refers to an attached list of beneficiaries, the same was never produced by the Plaintiff. PE3, supposed list of beneficiaries is the I't Defendant's bank statement which has so many transactions and in no particular way indicates how much each of the mentioned Defendants benefitted. It is only the 2nd Defendant who is reflected on page 12 of the Plaintiff s Trial Bundle (PTB) with an amount of UGX 5,000,000/ as the disbursed amount and a total of UGX 7,092,5401 being the interest and principal.

Clause 4 (i) and (ii) of the MOU provide that loan amount due to a single contract farmer of KODFA depends on the borrower's acreage and capacities, and also gives the loan period as 4 months. I have looked at the loan agreements (PE5) and none of the 6 Defendants appeared in the loan agreements. Therefore, whereas the Plaintiff may have a valid claim, there is no proven valid claim against the 2nd, 3.d, 4th, 5th, 7th and 8s Defendants.

Therefore, this issue is answered in the negative in respect of the above Defendants but in the affirmative in respect of the I't Defendant.

#### Issue 2

#### Whether there was breach of contract by the Defendants

Counsel for the Plaintiff submitted thar an agricultural loan of UGX 615,500,000/ was advanced to the Defendants and that the loan period was limited to one season, and to date the money remains outstanding. He added that the Defendants are in breach of their contractual obligations following their failure to repay the loans advanced to them.

NN In reply, it was submitted for the 2n0,3'd,4th, 5th, 7th and 8s Defendants that they cannot be found to have breached that which they are not obligated to do, since they did not execute any contract with the Plaintiff.

I have considered the submissions of both Counsel and the evidence on record, the following are my findings. Section 33 (1) of the Contracts Act 2010 places an obligation on parties to perform their promises under a contract unless such performance is dispensed with or excused under the law. Therefore, failure to perform such promises leads to a breach in contract. Breach of contract was defined in Black's Law Dictionary 5th Edition at page 171 as "where one party fails to carry out a term of a contract. " The term was further elaborated by the High Court in the case of Stanbic Bank Uganda Limited Versus Haji Yahaya Sekolega T/A Sekalega Enterprises High Court Civil Suit No. 185 of 2009 ot poge 6 where Court held:

"A breach of contract is the breaking of the obligationwhich a contract imposes which confers a right of action in damages to the injured party. It entitles him to treat the contract as discharged if the other party renounces the contract or makes performance impossible or substantially fails to perform his promise."

In this instant case, the contract (MOU) created different obligations for the three parties or signatories thereof. It is not disputed that the Plaintiff fulfilled their obligation to provide credit to the beneficiary farmers of KODFA through the I't Defendant. According to PEl, KODFA agreed to sell all its green gram, simsim and beans produced by the beneficiary farmers to KEFL" which in tum agreed to pay them through their Postbank accounts. From PE8, KODFA's response to the Plaintiff upon receiving the default notices dated 8th and 17ft December 2015, the 2nd Defendant who wrote as the Chairperson of KODFA stated that KODFA

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mobilised the farmers and recommended them, recruited extension farmers and distributed the seeds and agro-chemicals received from KEFL to the recruited farmers, did land opening and bulked green gram from which they collected UGX 13,334,0841 which they deposited on the Plaintiffs account. He pointed out challenges such as the farmers only receiving seeds as opposed to the production financing arrangement agreed upon. He added that prolonged drought and lack of crop finance to buy and bulk produce at fair prices were the main challenges.

From the above, it is clear that the l't Defendant failed to fulfil their obligations to the beneficiary farmers and that in addition, there had been a diversion of the original plan of export market to local market which had exposed them to risks of being cheated. I therefore, find no breach on the part ofthe 2nd, 3'd,4\*',,5ff, 76 and 8th Defendants. Therefore, it appears that the failure on the part ofthe l't Defendant made it impossible for the beneficiary farmers to fulfil their obligations. It is therefore clear that payment of the obligations was to be made by the l't Defendant, and the only instance where the borrower was obligated to repay the loan is contained under Clause I (vii) of PE 1 where there is failure to supply the green grams, simsim and beans to KEFL.

Following the above, and from PE8, even if it be argued that the beneficiary farmers failed to supply enough produce to repay the loarl making them liable to repay the loan, these particular 6 Defendants have not been shown to have been among the said beneficiary farmers, either from the list or loan agreements (PE5). Therefore, I find that no evidence of breach of contract was produced against the 2nd,3'd,4th, 5th, 7th and 8th Defendants. In the premises, the I't Defendant who made it impossible for the beneficiary farmers to fulfil their obligations is the only Defendant liable for breach of contract. Therefore, this issue is answered in the affirmative in respect of the 1't Defendant.

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## Issue 3

Whether the Plaintiff is entitled to money had and received against the I't Defenda n t

It was submitted for the Plaintiff that according to PE4, the sum of UGX 615,601,000/ was disbursed to the l't Defendant as requested by KODFA, and that the loan period was limited to one season. He cited the case of Dr James Kashugteya Tumwine V Sr ll/ittie Magara HCCS No. 576 of 2004 where Justice Bamwine held that the action for money had and received is applicable 'whenever the defendant has received money which in justice and equity belongs to the Plaintiff under circumstances which render the receipt of it by the Defendant a receipt to the use ofthe Plaintiff,,'Counsel for the 2nd,3'd,4s,5fr,7s and 8fr Defendants made no submission on this issue citing that it involves the I't Defendant.

Having considered the submissions from the Plaintifls counsel and considering the earlier discussions in the preceding issues, I find as follows. The High Court in the case of Gloria Kunajo & another V Francis Drote HCCS No. 0889 of 2020 defined an action for money had and received to mean:

"A form of suit used by claimants who seek to recover from the Defendant money which had been paid to the Defendant; (1) by mistake; (2) upon a consideration which has totally failed; (j) as a result of imposition, extortion or oppression; or (4) as the result of undue advantage which had been laken of the claimant's situation, contrary to the laws made for the Protection of persons under those circumstances, or where an undue advantage was taken of the Plaintiff's situation whereby money was exacted to which the Defendant had no legal right."

In this case, it is not disputed that the lst Defendant received the money for the benefit of the beneficiary farmers and the lst Defendant undertook to pay the farmers through their accounts with the Plaintiff in Clau\$e (c) of PEl, and also undertook to remit payments due in case of default, together with KODFA under Clause 5 (i) of PEl. According to Gloria Kunajo & snother V Francis Drate (supra), the purpose ofa claim for money had and received is:

".......to restore money where equity and good conscience require restitution, it is not premised on wrongdoing, but seelcs to determine to f,hich party the money rightfully belongs, and it seelcs to prevent unconscionable loss to the payer and unjust enrichment to the payee. "

From the evidence on record, the said money was advanced to the I't Defendant's account for the use of the beneficiary farmers of FODCA, however, according to the 2nd Defendant who also doubles as the Chairperson of FODCA, t}re I't Defendant only provided seeds to the farmers and the farmers lacked crop f,rnance to buy and bulk produce at fair prices and that the market was diverted to local instead of export market. It is therefore evident that the beneficiaries did not fully realise the use of the money, hence the need to restore the money to the party to which it rightfully belongs. Since there is already default, there is need to restore the money to the Plaintiff. However, I must note that whereas the Plaintiff relies on PE4 the bank statement as proof of disbursement of the loan facility, there is no reflection of the said amount being credited on the l't Defendant's account. Only 56 loan application agreements were produced and the total amount would be UGX 246,400,000/. However, since the amount indicated in PE7 the demand notice is UGX 615,601,000/ and the Defendants have not disputed that amount, I will leave it as that. In the premises, the Plaintiff is entitled to recovery of money had and received from the Plaintifffor the use ofthe benehciary farmers.

## Issue 4

## What remedies are available to the parties?

On the remedies available, the Plaintiff prayed for recovery of the outstanding sum of UGX 615,601,000. Since the previous issue is answered in the affirmative, I make an order for the recovery of the said sum from the 1.t defendant since a party who suffers breach of contract is entitled to compensation for the loss pursuant to 5,61 (I) Contracts Act 2010.

The Plaintiff also prayed for interest from the date of filing of the suit till payment in full. The Court in Shell Uganda Ltd V Captain Naeem Shair Chaudry Civit Appeal No. 32 of2010 held that interest on special damages begins to run from the date of filing the suit until payment in full. Therefore, I make an order for interest on the at Court rate of 6%o per annum from the date of filing of the suit till payment in tull.

Following that award of costs are discretionary under Section 27 of the Civil Procedure Act Cap 7l , I make an order for costs to be paid by the I't defendant to the Plaintiff.

Since the 6th Defendantpassed on, the suit is dismissed against the2nd,3.d,4th,5th, 7th and 8th Defendants with costs payable by the Plaintiff.

.n. J.r l"K\*

HON. LADY JUSTICE ANNA B. MUGENYI DATED t-" J.. J. ) 4