Rwankote v Zziwa & Another (Civil Suit 940 of 2021) [2024] UGCommC 258 (19 August 2024)

Full Case Text

# THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA KAMPALA [COMMERCIAL DIVISION] **CIVIL SUIT NO. 0940 OF 2021**

# RWANKOTE MUGUMYA CHARLES::::::::::::::::::::::::::::::::::::

## **VERSUS**

### 1. ZZIWA EDD

## 2. MZAD ENGINEERING SERVICES LIMITED:::::::::::::::::DEFENDANTS

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

## JUDGMENT

The Plaintiff filed a suit against the Defendants claiming jointly and severally for the recovery of Ugx 200,000,000/= (Uganda Shillings Two Hundred Million Only) being money advanced to the 1st Defendant, a declaration that the Defendants are in breach of contract, general damages, interest on the outstanding amount from the 14th day of March 2016 up to the date of payment in full and costs of the suit.

The facts constituting the Plaintiff's cause of action are that:

a) On the 13th day of January 2016, the 1st Defendant approached the Plaintiff and requested for Ugx 200.000,000/= (Two hundred million shillings only) to enable him to raise the capital for his company and purchase goods from abroad and the parties entered into an undertaking agreement.

b) Upon the agreement and undertaking with the 1st Defendant, the Plaintiff pledged his property comprised in Kyadondo Block 273 plot 5981 at Upper Konge with a money lender for monies that he had advanced to the first Defendant to raise capital for the company where the first Defendant is shareholder.

c) That the 1st Defendant upon receipt of the said sum of monies acknowledged the debt and liability of Ugx 200,000,000/= (Uganda shillings two hundred million only) as principal amount and interest on the principal to the Plaintiff on the 13th of January 2016 and undertook to pay the same before the 14th day of March 2016.

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d) The 1st Defendant through the 2nd Defendant (Mzad Engineering Services Limited) a company where he holds shares guaranteed the advanced monies as a third party and also issued blank cheques numbered 000016, 000017, 000018, 000019, 000020, 000021, 000022 and 000027 in the Plaintiff's favor as additional security for securing the monies in case of default by the 1st Defendant.

e) That upon default by the 1st Defendant to honor the undertaking, the Plaintiff demanded the payment of the monies, and the 2nd Defendant on the 14th day of April 2016, through one Busuulwa Nathan with an intention to defraud the Plaintiff issued blank cheques numbered 000045, 000046, 000047, 000048, 000049 and 000050 dated the 14th of April 2016 to the Plaintiff on their banker Diamond Trust Bank (DTB) Wandegeya Branch intended to cover part of the debt but the same after being deposited by the Plaintiff to his banker was dishonored and therefore returned unpaid.

f) That the Plaintiff immediately communicated to the 1st Defendant that the cheques were dishonored and demanded for his payment but the same has not been paid despite several reminders and demands.

g) That due to the Defendants' default, the Plaintiff lost his property comprised in Kyadondo Block 273 plot 5981 at Upper Konge to a money lender for the 1st Defendant's cause.

The Plaintiff was issued with summons that was duly served onto the Defendants and the Defendants did not file their written statement of defence upon which the Plaintiff filed their affidavit of service and subsequently applied for an interlocutory judgment which was entered on the 24th day of January 2023 by Her Worship Nakitende Juliet and the matter was forwarded for formal proof.

Formal proof hearing proceeded on the 13th of March 2024 by this Court. The Plaintiff called two witnesses during formal proof namely Rwankote Mugumya Charles (PW1) and Gary Agaba (PW2) whose witness statements were both admitted as evidence in chief, and since the Defendants did not file their written statement of defence, there was no cross-examination.

#### REPRESENTATION

The Plaintiff was represented by M/s Barenzi & Co Advocates.

## **JUDGMENT**

I have addressed my mind to the pleadings of the Plaintiff, the evidence adduced during the hearing, and the submissions of counsel. Three issues were raised by the Plaintiff for the determination of this Court namely:

- 1. Whether the Defendants breached the undertaking/agreement entered on the 13th day of January 2016 to pay Ugx 200,000,000/= (Shillings Two **Hundred Million) to the Plaintiff.** - 2. Whether the $2^{nd}$ Defendant is liable as a guarantor to pay the money? - 3. Whether the Plaintiff is entitled to general damages, interests and costs of the suit

In the case of Hajji Asumani Mutekanga vs Equator Growers (U) Ltd SCCA No.7 of 1995 it was held that:

"A Defendant who neither enters appearance nor files a defence is precluded from taking part in the proceedings during formal proof hearing when there is a subsisting interlocutory judgment. It was further held that where an interlocutory judgment has been entered in favor of the Plaintiff, the question of liability of the Defendant is no longer in issue. What is in issue is the assessment of the quantum of damages."

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Whether the Defendants breached the undertaking/agreement entered on the 13th day of January 2016 to pay Ugx 200,000,000/= (Shillings Two Hundred **Million) to the Plaintiff.**

Counsel for the Applicant relied on the case of **Ronald Kasibante vs Shell (U)** Limited HCCS No. 542 of 2006 to define breach of contract and the witness statements of PW1 and PW2 to illustrate that there was indeed an agreement and a breach of the same. Counsel submitted that based on the definition of breach of contract as stated by Honorable Justice Hellen Obura in the case cited above, the Defendant is liable for breach of contract/undertaking as he has failed to pay the Ugx $200,000.000/$ = back to the Plaintiff and this has caused damage to the Plaintiff who lost his land to the money lenders as a result of the default and breach of the Defendant.

In the case of Cargo World Logistics Limited vs Royale Group Africa Limited HCCS 157 of 2013, Justice Henry Adonyo relied on the case of Ronald Kasibante

# vs Shell (U) Limited HCCS No. 542 of 2006 reported in (2008) HCB 162 to define breach of a contract thus:

"breach of a contract is the breaking of the obligation which a contract imposes, which confers a right of action for damages on the injured party. It entitles him to treat the contract as discharged if the other party renounces the contract or makes its performance impossible or substantially fails to perform his promise. The victim is left with suing for damages, treating the contract as discharged or seeking a discretionary remedy."

## Section 33 (1) of the Contracts Act, 2010 provides that:

"The parties to a contract shall perform or offer to perform, their respective promises, unless the performance is dispensed with or excused under this Act or any other law."

In the instant case, the undertaking entered between the Plaintiff and the 1st Defendant is marked as PExh 1 in the Plaintiff's trial bundle and it clearly indicates that the 1st Defendant admitted liability of a debt of Ugx 200,000,000/= owed to the Plaintiff and undertook to pay the said sum on or before the 14th day of March 2016. PW1 testified as indicated in his witness statement that was admitted in evidence that the debt of Ugx 200,000,000/= has remained unpaid to date.

This therefore indicates that the 1st Defendant had an obligation to pay the agreed sum of Ugx 200,000,000/= on the $14^{th}$ of March 2016 as agreed in the undertaking and failure to pay the said constituted a breach of the undertaking. The Defendant did not file a defense and this leaves the assertions and the evidence adduced by the Plaintiff unchallenged and uncontroverted.

I therefore find that the Defendant breached the undertaking agreement entered on the 13th of January 2016 to pay Ugx 200,000,000/= (Shillings Two Hundred Million) to the Plaintiff.

## $$

# Whether the $2^{nd}$ Defendant is liable as a guarantor to pay the money?

Counsel for the Plaintiff submitted that both PW1 and PW2 testified that the 2nd Defendant at the time of the transaction between the Plaintiff and the 1st Defendant issued postdated cheques to the Plaintiff as a guarantee and confirmation that the debt of Ugx 200,000,000/= shall be paid to the Plaintiff in case of default by the $1^{st}$ Defendant. The 2nd Defendant also on the 14th of April 2016 upon the default of the

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1st Defendant to pay the money on demand by the Plaintiff issued cheques through one Busuulwa Nathan to the Plaintiff on their banker DTB Wandegeya branch, however, all the said cheques were dishonored.

Counsel relied on section 68 of the Contracts Act to define a contract of guarantee as a contract to perform or promise or to discharge the liability of a third party in case of default of the third party which may be oral or written and this section also defines a guarantor as a person who gives a guarantee.

Counsel submitted that the 2nd Defendant provided the Plaintiff with nine cheques as security/guarantee that the money borrowed by the 1st Defendant shall be advanced to him in case of default by the 1st Defendant and this goes to prove that the 2nd Defendant was a guarantor in the transaction between the 1st Defendant and the Plaintiff.

Counsel relied on section 71 of the Contracts Act which provides that the liability of the guarantor shall be to the extent to which the principal debtor is liable and shall take effect upon default by the principal debtor. Counsel contended that the 1st Defendant defaulted to pay the money to the Plaintiff within the time period specified that is the 14th of March 2016 till to date and this therefore imposes liability on the 2nd Defendant to pay the Plaintiff the money borrowed by the 1st Defendant.

As rightly stated by counsel for the Plaintiff above, section 68 of the Contracts Act defines what a contract of guarantee is as below:

"A contract to perform a promise or to discharge the liability of a third party in" case of default of that third party, which may be oral or written"

The first question to be asked is whether the $2nd$ Defendant is indeed a guarantor for the 1st Defendant in relation to the undertaking agreements entered into by the Plaintiff and the 1st Defendant.

Under section 68 of the Contracts Act, a guarantor is defined as a person who gives a guarantee.

A guarantee was defined in the case of Paul Kasagga and Another vs Barclays **Bank (U) Ltd HCMA No. 0113 of 2008 as follows:**

"A guarantee is a contract whereby a person contracts with another to pay a debt" of a third party who notwithstanding remains primarily liable for such payment. See *Encyclopedia of Form and Precedents 4th Ed page 761. The guarantor's liability* for the nonperformance of the principle debtors' obligation is co-extensive with that

obligation. A guarantee obligation is secondary and accessory to the obligation the performance of which is guaranteed. The guarantor undertakes that the principal debtor will perform his obligation to the creditor and that the guarantor will be liable to the creditor if the principal debtor does not perform."

Therefore, a guarantor is someone who agrees or contracts to pay a debt of a third party.

On the record of this Court, there is no documentary evidence to show that the $2nd$ Defendant entered into any contract of guarantee with the Plaintiff. The 2nd Defendant is also not a party to the undertaking. What can only be seen from PExh 2 are cheques drawn by the $2nd$ Defendant to his bank EcoBank to pay sums of money to the Plaintiff. From the cheques drawn by the $2nd$ Defendant, it cannot be ordinarily inferred that it was a contract to perform a promise or to discharge the liability of the 1st Defendant in case of any default in the undertaking agreement.

Despite the absence of any written evidence to prove the existence of a contract of guarantee, the law under section 68 of the Contracts Act permits oral contracts of guarantee. In the circumstance, it would be worth asking one's self why a company (2nd Defendant) in which the 1st Defendant is a shareholder and director would issue postdated cheques to the Plaintiff of the exact amount owed by the 1st Defendant.

To the mind, this would simply imply that the company ( $2nd$ Defendant) intended to assure the Plaintiff that if at all the 1st Defendant defaulted in payment, they would remedy the default. From the actions of the 2nd Defendant, it can therefore be inferred and implied that they intended to remedy and make right the default by the 1st Defendant which in essence makes them guarantor.

In the Plaintiff's pleadings, he contends that the $2nd$ Defendant as a third party guaranteed the payment upon default by issuing postdated cheques and PW1 also testified that the 2nd Defendant company where the 1st Defendant owns shares issued cheques drawn to their banker Ecobank to guarantee the money that was advanced to the 1st Defendant. These assertions were not controverted by the Defendants who did not file a defence and are therefore deemed as the true position.

I therefore find that for the above reasons, the $2^{nd}$ Defendant is a guarantor of the 1st Defendant and is liable for the payment of Ugx 200,000,000/ $=$ .

Whether the Plaintiff is entitled to general damages, interests and costs

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## **General Damages**

Counsel relied on section 61(1) of the Contracts Act and the case of Ariam Properties Ltd vs Royal Transit Ltd HCCS No. 31 of 2021, where Justice David Matovu relied on the case of Kibimba Rice Ltd vs Umar Sazim SCCA No. 17 of 1992 which provides that where a party sustains a loss by reason of breach of contract, he is so far as money can do it be placed in the same situation with respect to damages as if the contract has been performed.

Counsel for the Plaintiff further submitted that both PWI and PW2 testified that as a result of the default by the 1st Defendant to pay the money on the 13th of January 2016 as agreed in the undertaking agreement, the Plaintiff lost his property comprised in Kyadondo Block 273 Plot 5981 at Upper Konge which he had given up as collateral to the money lender in order to get the funds that he gave the 1st Defendant to assist with increasing the capital of the 2nd Defendant. Counsel contended that in light of the above submission, the Plaintiff is entitled to general damages to do good the loss that he has suffered as a result of the default of the 1st Defendant.

## Section 61 (1) of The Contracts Act, 7 of 2010, provides that:

"Where there is a breach of contract, the party who suffers the breach is entitled to receive from the party who breaches the contract, compensation for any loss or damage caused to him or her."

General damages are a direct natural or probable consequence of the act complained of and are awarded at the discretion of the court and the purpose is to restore the aggrieved person to the position they would have been in had the wrong not occurred as rightly held in cases of Hadley vs Baxendale (1894) 9 Exch 341 and Robert **Cuossens vs Attorney General SCCA No. 8 of 1999.**

This award is also assessed on the value of the subject matter, the economic inconvenience that the Plaintiff may have been put through, and the nature and extent of the injury suffered as held in the case of **Uganda Commercial Bank vs Kigozi** [2002] EA 305 at 313.

In the instant case, it has already been determined that the Plaintiff has suffered a breach of the undertaking agreement/contract and is therefore entitled to general damages which is a direct and natural consequence of the breach.

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What remains to be made by this Court is the proper assessment of general damages that ought to be awarded in the circumstances. The Plaintiff contends that he lost his property in Kyadondo Block 273 Plot 5981 at Upper Konge which he had given up as collateral to a money lender to get the funds that he gave the 1st Defendant.

Apart from the above assertion by the Plaintiff, no evidence has been adduced to show that the Plaintiff indeed pledged his property as collateral for the money advanced to the 1st Defendant, the undertaking agreement is silent about a collateral being pledged and lastly, the Plaintiff has not adduced any evidence to show that his property was lost due to non-payment. However, it cannot be overlooked that the Plaintiff was kept out of the use of his money by the 1st Defendant for years.

Taking the above into account and the circumstances of this case, I find a sum of Ugx $40,000,000/$ = (Forty Million Uganda Shillings) sufficient as general damages and I award the same to the Plaintiff.

## **Interest**

Counsel relied on section 26(2) of the CPA and the case of Ariam Properties Ltd vs Royal Transit Ltd HCCS No. 31 of 2021, where Justice David Matovu relied on the case of Harbutts Plasticine Ltd vs Wyne Tank & Pump Co. Ltd where court held that an award of interest is discretionary, the basis of which is that the Defendant has kept the Plaintiff out of his money and the Defendant has had use of it so the Plaintiff ought to be compensated accordingly.

Counsel for the Plaintiff submitted that both PWI and PW2 testified that the transaction between the Plaintiff and the 1st Defendant was executed on the 13th January 2016 and this was the same time that the 1st Defendant was given Ugx 200,000,000/= and the 1st Defendant was to pay the full amount by the 16th of March 2016, however, the 1st Defendant has up to date April 2024 failed to pay the said amount and also got to the point of not picking up the calls of PW1 and PW2.

Counsel further submitted that the 1st Defendant has used the money borrowed from the Plaintiff in 2016 to grow and develop the 2nd Defendant over the years and has failed to pay the Plaintiff to the point of not picking up calls made to him by PW1 and PW2 and prayed for an interest of 20% until payment in full.

## Section 26(2) of the Civil Procedure Act provides that:

"where the decree is for payment of money, the court may, in the decree, order interest at such a rate as the court deems reasonable to be paid on the principal sum

adjudged from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate as the court deems reasonable on the aggregate sum so adjudged from the date of the decree to the date of payment or to such earlier date as the court thinks fit".

In determining a just and reasonable rate, courts take into account the ever-rising inflation and drastic depreciation of the currency. A Plaintiff is entitled to such rate of interest as would not neglect the prevailing economic value of money, but at the same time one which would insulate him or her against any further economic vagaries and the inflation and depreciation of the currency in the event that the money awarded is not promptly paid when it falls due. (Kinyera vs The Management Committee of Laroo Building Primary School HCCS 099/2013).

In the instant case, I have taken into consideration the fact that the 1st Defendant has kept the Plaintiff out of the use of his money which the former has held onto for a considerable period of time since 2016. The Plaintiff is therefore entitled to interest on the principal sum and general damages awarded.

In the absence of an agreement between the parties in respect of interest applicable in case of default, interest at court rate is awarded in favor of the Plaintiff from the date of judgment until the full payment of the principal sum and general damages.

## **Costs**

Section 27(1) of the CPA gives the court the discretion to determine the costs of the $\mathbf{CPA}$ suit and by whom the costs of the suit are to be paid. This discretion must be exercised judiciously and not arbitrarily.

The general rule is that a successful party is awarded costs unless there are good reasons to deny it. (See Jennifer Behange, Rwanyindo Aurelia, Paul Bagenzi vs School Outfitter (U) Limited CACA No.53 of 1999)

The Plaintiff is the successful party in this case and I see no reason for denying him the costs of the suit.

In the final result, judgment is entered for the Plaintiff against the Defendants in the following terms; -

a. Ugx 200,000,000/= (Two hundred million shillings only) being the outstanding amount under the undertaking agreement.

- b. Ugx 40,000,000/= (Forty Million Shillings Only) as general damages. - c. Interest on the sum in (a) and (b) above at court rate from the date of this judgment until payment in full. - d. The costs of the suit.

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

19/8/024 11/30 am

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