Standard Chartered Bank Uganda Limited v Mugwiri (Civil Suit 268 of 2021) [2024] UGCommC 121 (23 April 2024)

# THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA [COMMERCIAL DIVISION] **CIVIL SUIT NO.0268 OF 2021** STANDARD CHARTERED BANK UGANDA LTD=====PLAINTIFF **VERSUS MUGWIRI MORRIS======================DEFENDANT**

### Before Hon. Lady Justice Patricia Kahigi Asiimwe Judgment

Introduction

- The Plaintiff sued the Defendant for recovery of UGX 1. 197,352,893, interest thereon from $2^{nd}$ March 2021 until full payment and costs of the suit. - $2.$ The Plaintiff's case is that in October 2019, the Plaintiff advanced the Defendant an unsecured personal facility of UGX 200,000,000. Under the terms of the loan agreement, the Defendant agreed to repay the money in 60 monthly installments beginning 5<sup>th</sup> December 2019. - 3. It was also agreed that the outstanding loan balance would attract interest of 17.5% per annum. The Defendant defaulted on his loan repayment obligations. As a result of the default, the Defendant accumulated an outstanding loan balance of UGX 197,352,893, which was the amount due and owing as of $2^{nd}$ March 2021. - The defendant's case is that he was an employee of Tropical Bank 4. Ltd earning UGX 14,179,637 per month. On 4<sup>th</sup> February 2019, the Plaintiff and Tropical Bank Ltd entered into a Memorandum of Understanding under which the Plaintiff agreed to advance salary loans to Tropical Bank Limited's employees, and in turn, monthly repayments would be deducted at source by Tropical

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Bank Ltd and remitted to the employees' salary loan accounts with the Plaintiff. He applied for a loan of UGX 200,000,000 because of the Memorandum of Understanding between his former employer and the Plaintiff.

$5.$ On 20<sup>th</sup> March 2019, the Plaintiff disbursed only UGX 172,000,000 because he did not qualify for UGX 200,000,000. He further applied for top up of UGX 29,300,674 which was disbursed to him on 25<sup>th</sup> October 2019. His salary secured the loan and monthly repayments were to be deducted at source by Tropical Bank Ltd and remitted to his loan account with the Plaintiff. His employment was terminated on 29<sup>th</sup> June 2020 and the employer stopped remitting the monthly installments. The Plaintiff voluntarily assumed the risk of not recovering the loan from him in the event that he lost his employment and did not get alternative gainful employment.

Representation

6. The Plaintiff was represented by S&L Advocates and the Defendant was represented by JOSKA Advocates.

### Issues

- 7. The issues for resolution are as follows: - Whether the Defendant is indebted to the Plaintiff for the $\mathbf{I}$ sums claimed - What remedies are available? $\mathbf{H}$

## Evidence

## *Plaintiff's Evidence*

8. The Plaintiff called one witness, Nagasha Jackline, (PW1) a Recoveries Manager, Credit Risk Mamngement-Retail Collections for the Plaintiff. In her testimony, she reiterated what was stated in the Plaint. Under cross-examination, she testified that the Defendant took out a personal installment loan, not a salary loan.

In cases where the loan is unsecured, losses are mitigated by way of insurance, and also courts of law. That the defendant paid for insurance which covers total permanent disability, death, and retrenchment. Retrenchment happens when one has been laid off due to redundancy or downsizing.

#### Defendant's Euidence

- 9. The Defendant testified that while still in the employment of Tropical Bank Ltd, the bank would deduct UGX 5,024,443 from his salary on a monthly basis, which arnount would be remitted to his loan account with the Plaintiff. The Plaintiff represented to him that the loan was insured and his understanding was that in case he lost the job, the insurance would be required to pay. - 10. The Plaintiff did not explain what form of insurance would be taken out, but it was made clear that in case of termination, no recovery proceedings would be taken against him and other staff, and that the insurance would take over and repay the loan. Under cross-examination, he stated that he was dismissed for gross misconduct and that he has not made any payment since then, and that the notice of dismissa-l does not mention the retrenchment.

#### Resolution

### . Issue l: Whether the Defendant is indebted to the Plaintiff for tlue sums claimed

11. It is not in dispute that the Defendant took out a loan of UGX 2O0,OOO,OOO from the Plaintiff and that he failed to make payments. The Defendant contends that he took a salarlr loan which was insured and that on losing tr-is job he is no longer liable to pay the loan. The Plaintiff's a.rglrment on the other is that the Defendant took out a Persona-l Insta,lment Loan which was unsecured and that therefore the Plaintiff is liable to pay the outstanding amounts. The first issue to resolve is whether the Defendant took out a salary loan.

- 12. However before I address this issue Counsel for the Defendant argued that there is no loan agreement between the parties. PW 1 in her testimony testified that the key facts document and the application letter signed by the Defendant form the loan agreement. I have reviewed the Key Facts Document and the Defendant's Application and I find that the documents meet the requirement of Section 1O of the Contracts Act. There is an offer and acceptance, there is consideration, the parties have capacity to contract and there was an intention to be legally bound. In the absence of evidence to the contrary, I find that there was a loan agreement. - 13. The background to this case is that on 4th February 20 19, the Plaintiff and the Defendant's former employer, Tropical Bank Limited entered into a memorandum of understanding under which the parties agreed to establish a salary loan scheme for the eligible employees of Tropical Bank Limited (DE 2). Under clause 2.4 of the Memorandum of Understanding, the loans were to be repaid using the borrowers' salaries. - 14. Under PE 1, the Defendant's loan application form, the type of loan applied for was the Salary Solution Life: Personal Loan + Current Account. Under the Key Facts Document (PE 2), the type of loan is indicated as a Personal Instalment loan. It is however also indicated that the loan is "designed for salaried ea-rners to obtain unsecured credit to further their individual plans." (Emphasis mine) - 15. A reading of the above documents gives the impression that the parties intended to enter into a salaSr loan agreement. However,

the Key Facts Document clearly stated that the loan is unsecured.

- 16. According to **The Black's Law Dictionary 8<sup>th</sup> Edition**, page 2741 an unsecured loan is based solely on the borrower's promise or signature. In this case, while the loans were designed for salaried earners and indeed the Defendant's money was remitted by his former employer to the Plaintiff, under the Key Facts Document that was signed by the Defendant, the loan was unsecured. - 17. In the case of Olanya Hannington Vs. Acullu Hellen Civil **Appeal No. 0038 of 2016** Mubiru J held that "It is trite law that when a document containing contractual terms is signed, then, in the absence of fraud, or misrepresentation, the party signing it is bound..." - In the case of Pius Kimaiyo Langat vs. Co-operative Bank of 18. **Kenya Ltd (2017) eKLR** the Court of Appeal in Kenya held that:

*We are alive to the hallowed legal maxim that it is not the* business of courts to rewrite contracts between parties. They are bound by the terms of their contracts, unless coercion, fraud, or undue influence are pleaded and proved

- 19. In this case, the parties signed an agreement that clearly indicates that the loan was unsecured. In the absence of evidence of coercion, fraud, misrepresentation, or undue influence this court will not interfere with the agreement of the parties. I therefore find that the defendant procured a personal Instalment loan. - 20. It should be noted that even if this had been a salary loan, the loss of his job would not have discharged the Defendant from

$\mathcal{R}$

paying the outstanding amounts of the loan. In the case of Standard Chartered Bank V Bob Ssekamatte Nsereko Civil **Suit No. 873 of 2020**, the defendant sought to be exonerated from payment of a loan because his contract ended and his loan had been secured by his salary. Justice Mubiru held that: "The fact that he took out a salary loan cannot support his contention that repayment was by that fact alone intended to be made exclusively from his earnings as salary from that employment."

21. The learned judge further held that:

> An unsecured debt is backed only by the reliability and credit of the borrower. The requirement that the borrower is a salaried employee at the time of taking out the loan is never intended to constitute the salary as security for payment but rather to prove the borrower's creditworthiness and promise to repay. In the sense that no collateral is required for a salary loan, it is an unsecured debt where if the borrower defaults on this type of debt, the lender must initiate a suit to collect what is owed. Loss of employment by the defendant probably made it more onerous for the defendant to find alternative sources of income for repaying the loan but certainly did not make his performance impossible. It resulted in alteration of the manner of his performance of but not in frustration of the contract. The *defendant did not offer any alternative proof of discharge of his obligations under the contract.*

22. Therefore a salary loan is an unsecured loan and loss of a job does not relieve the borrower from his or her obligations to pay the said loan.

- 23. Counsel for the Defendant submitted thqt the Plaintiff did not insure the loan and yet money was deducted from the loan amounts to cover insurance. The contention is that the insurance would have covered the Defendant in case of loss of his job. - 24. Under the key facts Document, (PEl) it is indicated that insuralce covers death, disability, and rbtrenchment. On the following page of the same document, the same information is repeated. - 25. In this case obviously death does not apply and neither does permanent disability as no evidence to that effect was adduced. The Plaintiff was dismissed and not retrenched as evidenced by the dismissal letter submitted in evidence under DE 1. Therefore any insurance cover taken out would not apply to the Defendant's circumstances. - 26. In the circumstances, the Defendant is indebted to the Plaintiff to the tune of UGX 197,352,893. This issue is therefore answered in the affirmative.

#### Issue II: WTtat remedies are auailable?

27. The Plaintiff prayed for payment of the outstanding loan amount of UGX 197,352,893, interest, and costs of the suit. The Defendant did not dispute the amount of money claimed and neither did he submit any evidence to prove that he had paid the said money. Therefore, having resolved the 1"' issue in the affirmative, the Plaintiff is entitled to payment of the outstanding amounts of money.

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- 28. Judgment is therefore hereby entered for the Plaintiff on the following terms: - a) The Defendant pay the Plaintiff UGX 197,352,a93; - b) Interest at 17.5%o from the date of filing this suit that is 2l"t April 2O2l; and - c) Costs to the Plaintiff.

### Dated this 23'd day of April 2024.

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Patricia Kahigi Asiimwe Judge Delivered on ECCMIS