Pride Micro-Finance Limited v Musana (HCT-01-CV-CS 2 of 2021) [2024] UGHC 761 (20 August 2024)

# **THE REPUBLIC OF UGANDA**

# **IN THE HIG COURT OF UGANDA AT FORT PORTAL**

## 3 **HCT – 01 – CV – CS – 002 OF 2021**

#### **PRIDE MICROFINANCE LTD ::::::::::::::::::::::: COUNTER CLAIMANT**

#### **VERSUS**

# 6 **MUSANA RICHARD:::::::::::::::::::::::::::::::::: COUNTER DEFENDANT**

**Corum: HON JUSTICE VINCENT WAGONA**

**Delivered on: 20th/08/2024**

- 9 **Summary: Contract Law Mortgage contracts/agreements The settled position of the law is that** *breach of contract in case of a mortgage or loan agreement is not proved by only alleging that a party failed to pay but should be* - 12 *accompanied by the fact that the required steps to enforce the agreement under the Mortgage Act and the Regulations were complied with and the other party still failed to comply.*

#### 15

# **JUDGMENT (EXparte) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_**

The counter claimant commenced the counter claim against the counter defendant for recovery of shs 29,089,236 being the loan in default, general damages and costs.

21 It was contended by the counter claimant that on 17/12/2019, she disbursed credit of shs 15,000,000/= (Fifteen Million Shillings) to the counter defendant and pledged unregistered land at Muhoire Village, Kituule Parish, Hakibale Sub County, 24 Kabarole District developed with a residential house as security. That the counter


defendant indicated that he was not married as such spousal consent was not sought since steps were taken to ascertain his marital status.

- 3 That the counter defendant defaulted on the loan and despite several statutory notices, he failed to honor his obligations thus the outstanding loan is shs 290,089,236/= which is till due and owing. That the counter claimant thus took all - 6 possible lawful measures to recover her loan since the counter defendant had defaulted. She thus sought to recover the sum in default, general damages and costs.

The counter defendant was served with the counter claim by way of substituted

9 service and he never entered appearance. Court thus granted an order allowing the counter claimant to present her claim exparte.

# *Issues:*

- 12 The counter claimant framed two issues for determination that is; - **1. Whether the counter defendant is indebted to the counter claimant.** - **2. What remedies are available to the parties?**

# 15 **Representation and hearing:**

Natukunda Lilian appeared for the counter claimant and led evidence of only one witness and filed written submissions to that effect.

# 18 **Burden of Proof and Standard of Proof:**

The long settled position of the law is that the legal burden of proof rests upon the plaintiff who is bound to do so on the balance of probabilities. This principle is 21 anchored on section 101 of the Evidence Act which is to the effect that whoever desires any Court to give judgment as to any legal right or liability dependent on the existence of facts which he or she asserts must prove that those facts exist. The term


'*balance of probability'* was put in proper prospection by *Lord Nicholls of Birkenhead* in *[re H \(Minors\)\(Sexual Abuse: Standard of Proof\) \[1996\] AC 563,](https://www.bailii.org/uk/cases/UKHL/1995/16.html)* 3 *586D-H,* thus;

*"The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the* 6 *event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that* 9 *the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical* 12 *injury is usually less likely than accidental physical injury. A step-father is usually less likely to have repeatedly raped and had non-consensual oral sex with his underage stepdaughter than on some occasion to have lost his* 15 *temper and slapped her. Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation."*

18 That being the case, evidential burden on the other hand per sections 102 and 103 of the Evidence Act keeps shifting depending on facts as alleged by a given party to prove the existence of such facts. In the present case the counter claimant bears the 21 burden to prove her case on the balance of probabilities.

#### **Legal Arguments:**

Learned counsel for the counter claimant commenced by inviting me to the decision 24 of *Standard Chartered Bank (U) Ltd v Bob SsekamatteNsereko, Civil Suit No.*


*0873 of 2020* where Justice Mubiru observed that; "… *The initial burden of proof is on the plaintiff to show the court why the Defendant/debtor owes the money claimed.*

- 3 *Generally a plaintiff must show (a) the existence of a contract and its essential terms (b) a breach of duty imposed by contract and (iii) resultant damages."*She also referred me to the position by Lady Justice Flavia Senoga Anglin in *Barclays Bank* - 6 *of Uganda Limited v Howard M Bakoija, HCCS No. 53 of 2011* where she observed that; " *a breach of contract occurs where that which is complained of is breach of duty arising out of the obligation undertaken under the contract."* - 9 It was submitted that there existed a contract where the counter claimant advanced to the counter defendant a sum of shs 15,000,000/= (PEX6) where he mortgaged his unregistered land at Muhoire Village, Kituule Parish, Hakibaale Sub County, - 12 Kabarole District measuring 9 acres (PE3, PEX2A & PEX2B) which loan was payable in 12 months with effect from 17/01/2020. That the counter defendant defaulted on payment of the same amount and the counter claimant exercised her - 15 right under clause 7 of PEX6 to recall her loan. The counter defendant failed to pay the amount due and owing to counter claimant in the currency of several notices to him (PEX8, PEX9, PEX10, PEX11 and PEX 12). There was thus breach and the - 18 counter claimant is entitled to recover the sum in default from the counter defendant. Regarding remedies, learned counsel for the counter claimant referred to me to section 19 (4), 19(2) of the Mortgage Act 2009 and submitted that all the notices - 21 required under the Mortgage Act were served upon the counter defendant who defaulted on payment and as such he is liable to pay the sum claimed.

Learned counsel also submitted regarding general damages that the counter claimant 24 ought to be compensated for the loss and inconveniences incurred since general


damages are intended to put a successful party to the position he or she was before breach happened. (See:*Stanbic Bank Uganda Ltd v Hajji Yahaya, HCSS No. 185*

3 *of 2009 and Besimira Moses v A. G, HCCS No. 143 of 2015*). Counsel prayed for general damages of 10,000,000/= (Ten Million Shillings) and costs since costs follow the event per section 27 of the Civil Procedure Act.

## 6 **Consideration by Court:**

#### *Issue one: Whether the counter defendant is indebted to the counter claimant*

A mortgage or loan agreement connotes an understanding between the mortgagor 9 (borrower) and a mortgagee (lender) where the mortgagee advances credit to the mortgagor payable on terms spelled out in the mortgage/loan agreement upon the mortgagor surrendering collateral which acts as an assurance on the part of the 12 mortgagor that he will perform his obligations under the mortgage agreement and as insurance for the mortgagee where he can recover the money advanced from through foreclosure. A breach of mortgage or loan agreement occurs when a borrower fails 15 to meet his or her obligations as outlined in the loan contract. This can include missed payments or late payments; non-payment of interest or fees; failure to

18 In this case PW1 exhibited *PE1* where the defendant asked for a loan of shs15,000,000/= from the counter claimant. *PE2* is the agreement of ownership pledged by the defendant as collateral. *PE3* is the mortgage agreement. PE4 is an

maintain collateral; and violating loan covenants or conditions

- 21 affidavit in verification of the defendant's marital status. *PE5* is a declaration that the land mortgaged is not family property. *PE6* is the facility/loan agreement. In PE6, it is indicated that the borrower was the counter defendant and the lender - 24 was the counter claimant. The amount advanced is shs 15,000,000/= and the counter


defendant pledged a Kibanja at Muhoire as security and presented PE2. The loan agreement is duly signed by the lender and the borrower. The loan repayment date

- 3 per PE6 is 17/12/2020. In the absence of any evidence to the contrary, I find that a valid contract (loan agreement) existed between the counter claimant and the counter defendant where the counter claimant advanced to the defendant a sum of shs - 15,000,000/= payable by 17 6 th December 2020. The counter claimant contends that the said contract was breached by the defendant who refused to repay the loan sum and interested as agreed. Breach of contract as - 9 rightly submitted by learned counsel for the counter claimant connotes a situation where one party to a contract fails to carry out a term or where one or both parties fails to fulfill the obligations imposed by the terms of contract. (See: *Ssempa v* - 12 *Kambagambire (Civil Suit No. 408 of 2014) [2017] UGCommC 133 (3 July 2017)*, *Nakana Trading Co. Ltd Vs Coffee Marketing Board Civil Suit No. 137 of 1991&Standard Chartered Bank (U) Ltd v Bob SsekamatteNsereko, Civil Suit No.* - 15 *0873 of 2020* ). Breach of contract in case of mortgage or loan agreements is not proved by only alleging that a party failed to pay but should be accompanied by the fact that the required steps to take to enforce the agreement under the Mortgage Act - 18 and the Regulations were complied with and the other party still failed to comply. Section 19 of the Mortgage Act provides that upon default, the mortgagee is bound to serve the mortgagor with notices of default prior to commencement of the 21 recovery process. In this case the counter claimant exhibited PE8 being the first notice of default of 21 days, PE3, second notice of default, PE10 the last notice of default and later served the defendant with PE11 recalling her entire loan. These 24 notices are not disputed by the counter defendant since the suit was heard exparte - after he was served. The loan was meant to be fully paid by 17th December 2020 per

 PE6. The said period expired and there is no evidence that the loan sum advanced to the counter defendant was fully paid. I therefore find that there was default by the 3 counter defendant on the terms under PE6.

Section 20 of the Mortgage Act provides for remedies in case of default which include sending a notice to the mortgagor requiring him to pay the loan, appointment

- 6 of a receiver, lease of the mortgaged property, entering possession of the mortgaged property and sell of the mortgaged property. Section 21 allows a mortgagor to commence an action in court for recovery of amount in default upon proof among - 9 others (a) that the notices under section 19 were duly served upon the Mortgagor and he defaulted, (b) the mortgage deeds provides for such right, (c) the mortgagor is personally responsible to pay the loan or where the mortgagee is deprived of his or

12 her collateral or security.

It was submitted by the learned counsel for the counter claimant that after default, the counter claimant commenced recovery process and advertised the collateral for 15 sale. That the sale was challenged by the defendant's spouse who contended that she

- was never consulted and she never consented to the transaction as required under the Mortgage Act. PW1 testified that the plaintiff discovered after it had commenced - 18 execution process that the land pledged as collateral was family land and the counter defendant had celebrated a marriage with a one Kemigisa Annet whom the counter defendant did not disclose to the Bank as a spouse. That as a result of such deceit, - 21 the counter claimant paid a sum of shs 6,000,000/= as costs to the counter defendant's wife resulting from the suit she filed per the consent dated 20th September 2023 in HCT – 01 – CV – SC 0 LD No. 002 of 2022.


It is indeed true that a one Kemigisa Annet, wife to the counter defendant filed this suit challenging the mortgage created over the suit land by the counter claimant 3 without her consent as a spouse. She presented a customary marriage certificate issued by Tooro Kingdom where she celebrated a customary marriage with the counter defendant (PE13). She also stated that the land pledged was 6 matrimonial/family land where she had her residential house and other land for cultivation. As a result, the counter claimant entered into a consent with her forgoing the collateral and paid shs 6,000,000/- to her as costs (PE14). It is thus clear from 9 the record of court that the counter claimant was deprived of her collateral as a result of the acts of the counter defendant who did not disclose that he was married as required under section 4 of the Mortgage Act. I therefore find that the counter

12 defendant is indebted to the counter claimant in respect of the sum in default. I therefore resolve this issue in the affirmative.

## **Remedies:**

15 The counter claimant sought a number of remedies considered below:

## *(a)Recovery of shs18,733,702.15/- being the sum in default:*

The Counter claimant exhibited the loan agreement as PE6 and other documents 18 incidental to the same. She also exhibited the notice of default served upon the counter defendant as required under section 19 of the Mortgage Act as PE8, PE9 and PE10. She further exhibited a demand notice served upon the counter defendant

21 requiring him to pay the money in default as PE 11. I therefore find that the counter claimant has proved on the balance of probabilities that she is entitled to recover the sum in default of 18,733,702.15/- which is currently in default and the prayer is 24 accordingly granted.


## *(b)General Damages:*

It is a long crystallized principle of law that general damages in breach of contract 3 are what a court may award if it cannot point out any measure by which they are to be assessed, except the opinion and judgment of a reasonable man. (See: *Haji Asuman Mutekanga v Equator Growers Ltd, SCCA No. 7 of 1995).* Such damages 6 are compensatory in nature and are designed to compensate the innocent party of the loss, inconveniences and expenses a party is subjected to as a result of such damage. This was well explained by Lord Diplock in *Photo Production Ltd v Securicor*

- 9 *Transport Ltd [1980] AC 827, 848- 849 thus; "a contract is the source of primary legal obligations upon each party to it to procure that whatever he has promised will be done is done. Leaving aside the comparatively rare cases in which the court* - 12 *is able to enforce a primary obligation by decreeing specific performance of it, breaches of primary obligations give rise to "substituted or secondary obligations. Those secondary obligations of the contract breaker arise by implication of law.* - 15 *Damages for breach of contract are in that sense a substitute for performance. That is why they are generally regarded as an adequate remedy. The courts will not prevent self-interested breaches of contract where the interests of the innocent*

18 *party can be adequately protected by an award of damages."*

In this case PW1 testified for the plaintiff that a loan of shs 15,000,000/= was advanced to the counter defendant who defaulted on repayment of the same. When

- 21 they commenced the recovery process, the plaintiff's wife Kemigisa Annet filed a suit challenging the sale contending that the property was mortgaged without her consent as a spouse to the counter defendant. The counter claimant entered into a - 24 consent with the said wife where they paid shs 6,000,000/= as costs. The counter claimant was subjected to inconveniences and loss as such she should be awarded


general damages. Learned counsel prayed for general damages of shs10,000,000/= as being adequate to compensate the counter defendant for the loss and 3 inconveniences she was subjected to.

I find that this is a proper case for award of general damages. The counter claimant advanced her money to the counter defendant who pledged security which was later 6 found to be family property. The counter defendant did not disclose to the counter claimant that the property in issue is family property until the counter claimant commenced foreclosure process. The counter claimant was sued by Kemigisa Annet 9 wife to the counter defendant challenging the mortgage on ground that the land was family property which required her consent as a spouse which was never sought prior to advancing the loan in issue. The counter claimant went ahead and paid shs 12 6,000,000/= to her as costs. I therefore find that the sum proposed by learned counsel for the counter claimant of shs 10,000,000/= (Ten Million Shillings) as compensation for the loss and inconveniences the counter claimant by the counter 15 defendant sufficient. I thus award general damages of shs 10,000,000/= (Ten Million Shillings) to the counter claimant.

## *(c) Costs:*

18 Section 27 (2) is to the effect that costs follow the event. Where a party is successful in presenting his or her claim, he should be awarded costs for the expenses incurred. I find no reasons whatsoever to deny the counter claimant costs. I therefore award 21 costs of the suit to the counter claimant.

Therefore, the claim by the counter claimant succeeds with the following orders:

**1. The counter defendant is ordered to pay to the counter claimant shs** 24 **18,733,702.15/- (Eighteen Million, Seven Hundred Thirty-Three**


**Thousand, Seven Hundred and Two Thousand, and Fifteen Shillings) being the sum in default.**

- 3 **2. General damages of shs 10,000,000/= (Ten Million Shillings) are awarded to the counter claimant.** - **3. Costs of the counter claim are also awarded to the counter claimant.** - 6 **I so order.**


Vincent Wagona

9 **High Court Judge**

**FORTPORTAL**

**Date: 20/08/2024**