Stanbic Bank Uganda Limited v Dahable Uganda Limited & Another (Miscellaneous Application 93 of 2023) [2024] UGCommC 107 (18 March 2024)

Full Case Text

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# **IN THE HIGH COURT OF UGANDA SITTING AT KAMPALA COMMERCIAL DIVISION**

Reportable Miscellaneous Cause No. 0093 of 2023

In the matter between

**STANBIC BANK UGANDA LIMITED APPLICANT**

**And**

# **1. DAHABLE UGANDA LIMITED**

**2. MOHAMED OMAR SHEIKH RESPONDENTS**

**Heard: 15 September, 2023. Delivered: 18 March, 2024.**

*Land law - Mortgages - the mortgagee has the option of taking possession until the default which was the cause of the entry into possession has been rectified through the possession of the mortgagee, or until the mortgagee has exercised the power of sale - the power of sale allows the mortgagee to convey the mortgaged property to a purchaser, free and clear of the interest of the mortgagor and any other subsequent interests in the property - To redeem the property, the borrower needs to pay the full balance due before the foreclosure sale.*

# **RULING**

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# **STEPHEN MUBIRU, J.**

Introduction:

[1] The applicant bank advanced to the 1st respondent banking facilities amounting to shs. 9,800,000,000/=. These were disbursed in the following tranches: under Facility Letters dated 11th May, 2021 the 1st respondent received shs. 1,700,000,000/= for the construction of the company head office at KagomaMaganjo. Subsequently on 6th December, 2021 the 1st respondent received a term loan in the sum of shs. 2,200,000,000/= and a revolving loan in the sum of shs, 2,100,000,000/= and lastly, under the facility letter dated 4th August, 2022 the 1st respondent received an increase of shs. 3,800,000,000/= bringing the total revolving loan to shs. 5,900,000,000/= All the said facilities were guaranteed by the 2nd respondent and also secured by legal mortgages over properties comprised in LRV ARM F01.101 Block 3 PLOT 731, Ayivu County, Arua District, LRV WAN 5434 Folio 24 Busiro Block 401 Plot 1856 Kikusa Wakiso District, JJA411 Folio 6 Plot 84 Bunya Road Buligo South Iganga District and LRV WAK 4887 Folio 16 Plot 285 Busiro Block 336 Lwekobaja Wakiso District.

[2] The 1st respondent defaulted on its payment obligations and the outstanding amount a at 29th August. 2023 was in the sum of shs. 7,132,879,566/= which continues to attract interest at the contractual rate. the applicant to issue to the 1st respondent with a Notice of Default dated 30th January 2023 and a notice of Sale of the mortgaged property dated 20th April, 2023. On 24th July 2023 when the applicant as a Legal Mortgagee attempted to exercise the power of sale for the properties the 1st and 2nd respondents through their agents, and/or persons acting on their behalf jointly and/or severally. refused to hand over vacant possession of the mortgaged properties.

#### The application.

[3] The application by Notice of motion is made under the provisions of section 98 of *The Civil Procedure Act* and section 33 of *The Judicature Act.* The applicant seeks an order directing the respondents jointly and or severally, to hand over vacant possession of the properties comprised in LRV ARM F01.101 Block 3 Plot 731, Ayivu County, Arua District, LRV WAN 5434 Folio 24 Busiro Block 401 Plot 1856 Kikusa Wakiso District, JJA411 Folio 6 Plot 84 Bunya Road Buligo South Iganga District and LRV WAK 4887 Folio 16 Plot 285 Busiro Block 336 Lwekobaja Wakiso District, or in the alternative and in the event that the respondents refuse to peacefully hand over vacant possession of the same, for the applicant to evict them from the properties, and the costs of the application. Despite having ben served with the application, neither respondent filed an affidavit in reply nor turned up at the hearing of the application.

### Submissions of counsel for the applicant;

[4] Counsel for the applicant submitted that justice requires that this application is allowed because the applicant has a legal interest in the properties as a duly registered mortgagee and is entitled to sell them in accordance with the mortgage deeds and applicable law to recover part of the outstanding amount.

## The decision.

- [5] Foreclosure is the legal process that allows lenders to recover the balance owed on a defaulted loan by taking ownership of and selling the mortgaged property as collateral. The equity of redemption is a right given to the mortgagor over the mortgaged property, which includes the right to redeem the property on full repayment of the secured debt (see sections 8 (1) and 32 of *The Mortgage Act, 8 of 2009*). The mortgagor may redeem the mortgaged property on paying the full amount, including costs found due to the applicant. A final order of foreclosure usually puts an end to the equity of redemption and is valid against all respondents. Once obtained, the applicant obtains title to the property free and clear of the interests of the respondents and may therefore proceed to take possession or transfer the property to a purchaser. - [6] Through a suit for foreclosure, the mortgagee becomes the owner of the mortgaged property and those interests subsequent to the mortgage in priority will lose their interest in the mortgaged property. Suits for foreclosure appeal to mortgagees where the value of the property at the time is not sufficient to repay the mortgage debt. If a mortgagee seeks to take possession of the mortgaged property, (because the property value exceeds the mortgage debt, or the estate

market is depressed, and the value may increase over time) a suit for foreclosure may be more favourable. Court will order a foreclosure where it appears the value of the property is unlikely to satisfy the applicant's claim.

- [7] The mortgagee has the option of taking possession until the default which was the cause of the entry into possession has been rectified through the possession of the mortgagee, or until the mortgagee has exercised the power of sale (see section 25 (c) and (d) of *The Mortgage Act, 8 of 2009*). In a suit for foreclosure, following a final order of foreclosure, the mortgagor and subsequent encumbrancers are absolutely debarred and foreclosed of and from all right, title and equity of redemption of, in and to the mortgaged lands. This means that the mortgagors no longer have equity in the property which could support a claim to any right to request relief. An order of "foreclosure and sale" would thus be preferable for a respondent in situations where the value of the property exceeds the amount owing on the mortgage. - [8] Borrowers may stop the process of foreclosure by redeeming their property before a foreclosure sale. To redeem the property, the borrower needs to pay the full balance due before the foreclosure sale. Alternatively, the borrower may prove that the foreclosing mortgagee did not comply with the foreclosure laws or the terms of the mortgage. The respondents having failed to assert her right of redemption, it is hereby ordered and adjudged that the right, title and equity of redemption of the respondents to and in the mortgaged property described as LRV ARM F01.101 Block 3 Plot 731, Ayivu County, Arua District, LRV WAN 5434 Folio 24 Busiro Block 401 Plot 1856 Kikusa Wakiso District, JJA411 Folio 6 Plot 84 Bunya Road Buligo South Iganga District and LRV WAK 4887 Folio 16 Plot 285 Busiro Block 336 Lwekobaja Wakiso District, is hereby foreclosed. - [9] A mortgagee has the option to enforce their mortgage security through a foreclosure or judicial sale but for the most part, the exercise of a contractual or statutory power of sale is the more favourable remedy for mortgagees. If the

mortgage contract does not contain a power of sale provision, statutory power of sale provisions are set out in Part V of *The Mortgage Act, 8 of 2009* and are deemed to apply unless expressly excluded.

- [10] If a mortgagee seeks to enforce their security as quickly and cost effectively as possible, a sale by private treaty is the appropriate remedy. In the instant case, the mortgage did not reserve that power in the mortgage deed. However, according to section 28 (1) (d) of *The Mortgage Act, 8 of 2009*, where a mortgagee becomes entitled to exercise the power of sale, that sale may be by public auction, unless the mortgagor consents to a sale by private treaty. In the instant case the respondents have not consented to a sale by private treaty. Furthermore, according to Regulation 8 (1) of *The Mortgage Regulations, 2012* a mortgagee exercising a power of sale under the Act must subject to the Act and the Regulations, sell the mortgaged property by public auction. - [11] Sales by public auction provide the mortgagor with a lengthier notice period and a court supervised process. The theory of the public auction is that the mortgagor as owner of a substantial equity is assured of having its value returned to him as "surplus moneys," or at worst, that in case the competitive bidding for the property fails to bring a price equal to the debt and costs, it will at any rate fix the true value of the mortgaged property and so limit to a just amount any deficiency judgment which may be entered. - [12] That notwithstanding, sale by public auction can also be much more costly. This is because section 28 (2) thereof requires that where a sale is to proceed by public auction, it is the duty of the mortgagee to ensure that the sale is publicly advertised in advance of the sale by auction in such a manner and form as to bring it to the attention of persons likely to be interested in bidding for the mortgaged land may include but not be limited to the mortgagee placing an advert including a colour picture of the mortgaged property, in a newspaper which has wide circulation in

the area concerned, specifying the place of the auction, and the date of the auction, being no earlier than thirty days from the date of the first advert.

- [13] For all intents and purposes, the lengthy judicial foreclosure process is intended to benefit the mortgagor by giving him or her every opportunity to remedy the default, modify the terms of the loan, and redeem the property prior to foreclosure. In the same vein, statutory provisions for sale favour a public auction to a sale by private treat mainly because matters of foreclosure are uniquely equitable in nature despite certain limitations stemming from the nature of the *in rem* proceedings. Accordingly, it is ordered and decreed that sale of the mortgaged property in the instant case shall by public auction in accordance with the relevant provision of *The Mortgage Act, 8 of 2009* and *The Mortgage Regulations, 2012*. - [14] The power of sale allows the mortgagee to convey the mortgaged property to a purchaser, free and clear of the interest of the mortgagor and any other subsequent interests in the property. The respondents' right, title and equity of redemption to and in the mortgaged property described as LRV ARM F01.101 Block 3 Plot 731, Ayivu County, Arua District, LRV WAN 5434 Folio 24 Busiro Block 401 Plot 1856 Kikusa Wakiso District, JJA411 Folio 6 Plot 84 Bunya Road Buligo South Iganga District and LRV WAK 4887 Folio 16 Plot 285 Busiro Block 336 Lwekobaja Wakiso District, is foreclosed.

# Order:

[15] Having been foreclosed, it is ordered and adjudged that the respondents forthwith deliver to the applicant or as the applicant directs, possession of the mortgaged property or of such part of it as is in the possession of the respondents, failure of which possession may be obtained by eviction of the occupants. The costs of this application are to be incorporated in the costs of recovery of the outstanding sum.

Stephen Mubiru Judge.

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Appearances;

For the applicants : M/s AF Mpanga Advocates.

For the respondents :