Tibiri v Tropical Bank Limited & Another (Civil Suit 487 of 2022) [2024] UGCommC 304 (3 September 2024)

### 5 **THE REPUBLIC OF UGANDA**

#### **IN THE HIGH COURT OF UGANDA AT KAMPALA**

#### **(COMMERCIAL DIVISION)**

#### **CIVIL SUIT NO.487 OF 2022**

# **TIBIRI JANE NAMUDU :::::::::::::::::::::::::::::::::::::::::::::::::::: PLAINTIFF** 10 **VERSUS**

# **1. TROPICAL BANK LIMITED**

## **2. NAMATOVU MADINA :::::::::::::::::::::::::::::::::::::::::::::::: DEFENDANTS**

#### **BEFORE: HON. LADY JUSTICE PATIENCE T. E. RUBAGUMYA**

#### **JUDGMENT**

#### 15 Introduction

This suit was filed by the Plaintiff against the Defendants jointly and severally for a declaration that no monies are due and/or owing from the Plaintiff to either the 1st or 2nd Defendants under both the Mortgage Deed and the Credit Facility Agreement that were executed on 3rd March, 2016, 20 a declaration that the 1st Defendant's actions of continuing to hold onto and refusing to release to the Plaintiff the certificate of title for land comprised in Block 234 Plot 4816 Kilinya, Kyadondo County, Mengo District is arbitrary, malicious, illegal and amounts to breach of contract, an order directing the 1st Defendant to release the Plaintiff's certificate of

25 title, general damages, punitive damages and costs of the suit.

#### Background of the suit

On 3rd March, 2016, the 1st Defendant issued to the 2nd Defendant a credit facility of UGX 45,000,000/= (Uganda Shillings Forty-Five Million Only) payable in instalments of UGX 1,875,000/= (Uganda Shillings One Million

- 5 Eight Hundred Seventy-Five Thousand Only), secured by a third-party mortgage created over the Plaintiff's land comprised in Block 234 Plot 4816 Kilinya, Kyadondo County, Mengo District, wherein the Plaintiff guaranteed payment of the principal sum and interest to the 1st Defendant. The 2nd Defendant serviced the loan until 19th October, 2016 when a sum 10 of UGX 43,518,847/= (Uganda Shillings Forty-Three Million Five Hundred - Eighteen Thousand Eight Hundred Forty-Seven Only) was credited onto the 2nd Defendant's loan account No.001-0313872 by a one Nanyunja Zahara to which the 1st Defendant immediately debited a sum of UGX 41,754,269/= (Uganda Shillings Forty-One Million Seven Hundred Fifty- - 15 Four Thousand Two Hundred Sixty-Nine Only) from the said account. On 27th December, 2018, the 1st Defendant sent a notice of default to the Plaintiff demanding a sum of UGX 43,518,847/=, as loan arrears. Upon receipt of the notice, the Plaintiff proceeded to the 1st Defendant's premises and requested to be availed with all documents relating to the 2nd - 20 Defendant's loan account. That the same were availed and upon perusal by the Plaintiff's lawyers, they wrote to the 1st Defendant informing it that the said loan had been paid up and demanded the release of the Plaintiff's title. However, the 1st Defendant refused to release the Plaintiff's certificate of title hence this suit. - 25 In reply, the 1st Defendant contended that the 2nd Defendant never serviced the loan properly as she was always in arrears and that the entries showing that a deposit of UGX 43,518,847/= was made by Nanyunja Zahara and the subsequent deduction of UGX 41,754,269/= were erroneous. That the loan is still outstanding at UGX 43,518,817/= and since it was secured by the Plaintiff's certificate of title, then the 1st 30 Defendant is lawfully holding onto the same.

5 An order for service upon the 2nd Defendant by substituted service was issued by Court on 19th September, 2022. However, there is no written statement of defence filed by the 2nd Defendant on Court record.

# Representation

The Plaintiff was represented by **Learned Counsel Birungi Monica** of **M/s**

10 **Birungi, Nalunkuma & Co. Advocates** while the 1st Defendant was represented by **Learned Counsel Nasuuna Victoria** of **M/s Heritage Associated Advocates.** The 2nd Defendant was not represented in this suit nor did she file a written statement of defence as already stated above.

# The Hearing

15 The hearing of the suit proceeded by way of witness statements. The Plaintiff was the sole witness in her case **(PW1)**. The 1st Defendant also called one witness Ms. Nambasa Angella **(DW1).** All the witnesses were cross examined and re-examined accordingly. The parties also adduced documentary evidence contained in their respective trial bundles.

# 20 Issues for Determination

- 1. Whether the 2nd Defendant defaulted on the loan facility issued by the 1st Defendant? - 2. Whether the Plaintiff is liable to pay the loan upon default by the 2nd Defendant? - 25 3. Whether the 1st Defendant should continue holding the Plaintiff's land title for nonpayment of the said loan? - 4. What remedies are available to the parties?

# 5 Issue No.1: Whether the 2nd Defendant defaulted on the loan facility issued by the 1st Defendant?

#### Plaintiff's submissions

In her submissions, Counsel for the Plaintiff first defined a contract as per **Section 2 of the Contracts Act, 2010 (now Cap.284),** as an agreement 10 enforceable by law with free consent of the parties with capacity to contract, for a lawful consideration and with a lawful object, with the intention to be legally bound as was also defined in the case of *Greenboat Entertainment Ltd Vs City Council of Kampala HCCS No.580 of 2003*. Counsel for the Plaintiff referred to the case of *Ben Kavuya & 2 Others*

15 *Vs Wakanyira David George S. C. Civil Appeal No. 31 of* **2021**, wherein the Supreme Court stated that:

"*A contract's terms are explicitly stated, and the language used is unequivocal. When the parties deliberately reduce an agreement to writing, it is presumed conclusively that they intend to create a* 20 *comprehensive and final settlement of their intentions, thereby precluding future disputes, bad faith and unreliable memory*."

In defining breach of contract, Counsel relied on **Section 35 of the Contracts Act**, and the judgment of **Byamugisha J** (as she then was) in the case of *Nakawa Trading Co. Ltd Vs Coffee Marketing Board, HCCS*

25 *No.137 of 1991*, wherein she stated that breach of a contract occurs when one or both parties fail to fulfil the obligations imposed by the terms of the contract.

Counsel then submitted that **Section 33(1) of the Contracts Act (now Section 32(1),** provides that parties to a contract shall perform their 30 respective promises. That in this case, the 1st Defendant entered into a

- 5 contract with the 2nd Defendant when the credit facility was drafted and signed by both parties on 3rd March, 2016, which imposed liability upon the 2nd Defendant to pay back UGX 45,000,000/= as per **Article 4** of the Credit Facility Agreement. - In respect of the payment, Counsel explained that, as per the bank 10 statement on Court record; the 2nd Defendant made her first deposit of UGX 2,960,000/= on 6th June, 2016, the 2nd payment was a cash deposit of UGX 3,000,000/= by Zaharah on 18th July, 2016, the 3rd deposit was a cash deposit of UGX 3,000,000/= made on 1st September, 2016 by Zaharah and the last payment was a credit transfer of UGX 43,518,847/= from Nanyunja Zahara's account to the 2nd Defendant's account on 19th 15 - October, 2016. That the 1st Defendant on 19th October, 2019 immediately deducted the principal debt of UGX 41,754,269/= from the 2nd Defendant's account along with the interest debt which left the 2nd Defendant's account with zero balance. - 20 In conclusion, Counsel for the Plaintiff submitted that the 2nd Defendant discharged her duty to pay the loan; thus lawfully meeting the duty imposed on her by **Article 4** of the Credit Facility Agreement and **Section 32(1) of the Contracts Act** and therefore, there was no default.

## 1st Defendant's submissions

25 In reply, Counsel for the 1st Defendant first defined the term "default" as per **the Black's Law Dictionary, 2nd Edition** and then contended that it is an undisputed fact that the 2nd Defendant obtained a loan of UGX 45,000,000/= from the 1st Defendant which was secured by a third party mortgage in respect of land, belonging to the Plaintiff.

5 As to whether the 2nd Defendant breached the contract, Counsel relied on **Article 7(a)** of the Credit Facility Agreement (**DE 1)** and submitted that the 2nd Defendant undertook to repay the loan in 24 equal principal monthly instalments of UGX 1,875,000/= and to make the 1st instalment after 30 days from 10th March, 2016. That however, as per **PE 3** (the 2nd 10 Defendant's account statement), the 2nd Defendant made her first instalment on 5th June, 2016, which amounted to a breach under **Section 33(1) of the Contracts Act (now Section 32(1)**, leading to default.

That according to the case of *Kibeedi Wanume Vs Equity Bank Ltd HCCS No.35 of 2010*, which cited **Sections 101,102 and 103 of the** 15 **Evidence Act** and the case of *Dr. Vincent Karuhanga t/a Friends Polyclinic Vs National Insurance Corporation and Uganda Revenue Authority [2008] HCB 151,* it was emphasized that:

*"The burden of proof as to any particular fact lies on that person who wishes the Court to believe in its existence, unless it is provided* 20 *by any law that the proof of that fact shall lie on any particular person.*"

That in the present case, the burden was upon the Plaintiff to prove that the 2nd Defendant repaid the outstanding balance on the loan she guaranteed, but instead, during cross-examination, she only relied on **PE** 25 **3** to intimate that the 2nd Defendant paid the loan as emphasized by her Counsel. To the contrary, the 1st Defendant's witness Ms. Nambasa Angella (**DW1**), when asked about the transaction dated 19th October, 2016 in **PE 3** during her cross examination, she acknowledged that it was an erroneous entry internally made by the bank, where the transaction of 30 Nanyunja Zahara, another customer of the bank was mistakenly transferred to the account of the 2nd Defendant, prompting the bank to

- 5 reflect on the 2nd Defendant's statement in error but the same was rectified hence reinstating her indebtedness. That **DW1** emphasized that such errors and mistakes often happen in the banking sector, and that it is the reason as to why banks periodically conduct account reviews and bank reconciliation, to weed out any possible error that may be apparent on the - 10 statement of any customer's account, where the issue of the 2nd Defendant falls.

Counsel further submitted that such an error occurred on 19th October, 2016, when according to **PE 3,** a credit transfer FT (funds transfer 1629321009) was made, by Nanyunja Zahara, yet, the Plaintiff testified 15 that she was unknown to her and there was no letter authorizing the bank to transfer the said funds to the 2nd Defendant. To that effect, Counsel for the 1st Defendant quoted **M H Ogilvie in Bank and Customer Law in Canada (2007)**, which states at page 284 that:

"*Banks make payments by mistake for a variety of reasons,* 20 *including simple error, either personal or by computer, in making a payment more than once, payment over an effective countermand, payment where there are insufficient funds, or payment of a forged or unauthorized cheque. Prima facie, in these situations, with the exception of insufficient funds which is treated as an overdraft, the* 25 *bank is liable to reimburse the customer's account because it is in breach of contract with the customer. But the bank is also permitted to look to the recipient of the mistaken payment for restitution of the sum paid under a mistake of fact*."

Based on the above, Counsel submitted that the 1stDefendant established 30 a prima facie case of indebtedness of the 2nd Defendant. That the Plaintiff in proof of her case, ought to have produced Nanyunja Zahara as a witness

- 5 or her statement of accounts and details that would corroborate her claim which she did not. Counsel while relying on **Section 50 of the Evidence Act**, invited this Court to interrogate the conduct of the Plaintiff and the 2nd Defendant contending that it imputes guilt upon them. That the Plaintiff sued both Defendants in this suit but in the whole trial she led - 10 evidence exonerating the 2nd Defendant claiming that she paid off the loan leaving them wondering why she sued her in the first place and secondly, that had the 2nd Defendant cleared her loan, she would not have disappeared. Counsel questioned why the Plaintiff sued her knowing she had disappeared? - 15 In conclusion, Counsel for the 1st Defendant cited **Section 19(1) and (2) of the Mortgage Act**, (now **Section 18(1) and (2) of Cap.239**) which stipulates that, where money is secured by a mortgage under this Act, a demand in writing shall create a default in payment, or where the mortgagor is in default to pay the principal or interest accruing on it, or 20 any periodic payment. Owing to the above, Counsel for the 1st Defendant submitted that as shown under **PE 3** and **DE 3**, the 2nd Defendant did not complete payment of the loan in issue and hence she is in default.

## Analysis and Determination

I have considered the pleadings of both parties, submissions and evidence 25 adduced to find as follows.

**Section 101(1) of the Evidence Act, Cap.8** provides 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. (See also **Sections 102, 103 and 104 of the Evidence Act).**

5 **Section 9(1) of the Contracts Act** defines a contract as, 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. Breach of a contract on the other hand is where one or both parties fail to fulfil obligations imposed by the terms of the contract. (See: *Nakawa*

10 *Trading Co. Ltd Vs Coffee Marketing Board (supra).*

While relying on **Section 91 of the Evidence Act**, **Lady Justice C. K. Byamugisha** (as she then was) in the case of *William Kasozi Vs DFCU Bank Ltd HCCS No.1326 of 2000,* stated that:

"*Once a contract is valid, it creates reciprocal rights and obligations* 15 *between the parties to it. I think it is the law that when a document containing contractual terms is signed, then in absence of fraud or misrepresentation the party signing it, is bound by its terms*."

As I delve into the analysis of this issue, I am mindful of the fact that it is not the function of the Court to make contracts between parties but rather 20 to construe the surrounding circumstances so as to effectuate the intention of the parties as was held in the case of *Omega Bank Plc Vs O. B. C Limited (2005) 8 NWLR (pt.928) 547)*.

This matter arises out of an undisputed fact that on 3rd March, 2016, the 2nd Defendant acquired a credit facility of UGX 45,000,000/= from the 1st 25 Defendant and the same was secured by the Plaintiff's land comprised in Block 234 Plot 4816 Kilinya, Kyadondo County, Mengo District. The Plaintiff avers that the 2nd Defendant paid off the said facility whereas the 1st Defendant contends that the 2nd Defendant defaulted in payment of the facility. In support of her claim, the Plaintiff (**PW1**) testified that she is the 30 registered proprietor of the property comprised in Block 234 Plot 4816 - 5 Kilinya, Kyadondo County, Mengo District as evidenced by **PE 4**, a copy of the certificate of title. That on 3rd March, 2016, the 1st Defendant issued a credit facility of UGX 45,000,000/= to the 2nd Defendant which was to be paid in instalments of UGX 1,875,000/= and was secured by the suit property as per **PE 2**, a third party Mortgage Deed. - 10 According to the Plaintiff, the 2nd Defendant serviced her loan following the Credit Facility Agreement and on 19th October, 2016, UGX 43,518,847/=, was credited onto the 2nd Defendant's loan account No. 0010313872 by a one Nanyunja Zahara as proved by **PE 3**, a copy of the 2nd Defendant's bank statement. That the 1st Defendant then immediately proceeded to 15 debit UGX 41,754,269/= from the said account, which was the outstanding loan amount at the material time. However, that on 27th December, 2018 the 1st Defendant sent a notice of default (**PE 5**) to the Plaintiff, demanding for UGX 43,518,847/=. That upon receipt of the said notice, she requested for all the documents relating to the 2nd Defendant's - 20 loan account including the loan statement. The same were provided to the Plaintiff's lawyers on 8th January, 2019 as evidenced by **PE 6**. That upon perusal of the said documents, the Plaintiff's lawyers informed the 1st Defendant that the said loan had been paid and demanded the release of the Plaintiff's title. However, that the 1st Defendant has to date refused to 25 release the certificate of title. During her cross-examination and reexamination, the Plaintiff insisted that the whole loan was cleared when Nanyunja Zahara deposited UGX 43,518,847/= on 19th October, 2016 and the bank deducted the same.

On the other hand, the 1st Defendant in proof of its case, relied on the 30 testimony of its sole witness Ms. Nambasa Angella, its Manager Credit Administration who testified that, the bank erroneously transferred the

- 5 loan of Namatovu Madina to the account of a one Nanyunja Zahara and upon noticing the error, a reversal was made. That the 2nd Defendant defaulted on the loan and on 27th December, 2018 the 1st Defendant issued a default notice marked as **DE 3**. That despite the notices and reminders, no attempt was made by the Plaintiff and 2nd Defendant to clear their - 10 indebtedness.

Considering the above, while the Plaintiff claims that the 1st Defendant is holding her certificate of title yet the 2nd Defendant paid all the loan amount, the 1st Defendant alleges that the 2nd Defendant defaulted on the payment. The first act of default put forward is based on, **Article 7(a) of**

15 **PE 1/DE 1**, the Credit Facility Agreement between the Defendants which stipulates that:

"*The borrower undertakes to repay the credit facility in twenty four equal principal monthly instalments of UGX 1,875,000/=, the first instalment falling due 30 days from the date of drawdown. The* 20 *lender is hereby authorized to debit the borrower's account No.0010313872 with the lender at Kampala Branch on due dates. Such payment shall be free and clear of and without any withholding or deduction for any and all present or future taxes, duties, or other charges PROVIDED THAT any payment made by* 25 *the borrower hereunder, shall first be applied to adjust any arrears of commitment fee, interest and other bank charges and thereafter towards the principal repayment of the credit facility*."

**Article 16(b) of PE 1/DE 1**, provides that the lender shall maintain accounts specifying disbursements made to the borrower's account and 30 payments by the borrower to the lender's account pursuant thereto together with interest accruing thereon and charges incurred thereon from

5 time to time and such accounts shall constitute conclusive evidence of the matters specified therein.

In the matter at hand, the 1st Defendant relied on **PE 3**, the 2nd Defendant's statement of account showing that she received the credit facility on 10th March, 2016 hence the 1st instalment should have been made 30 days 10 from the said date. But as reflected under **PE 3**, the 2nd Defendant deposited her 1st instalment on 6th June, 2016, three months later and this was not contested by the Plaintiff. **Article 14(i) and (ii) of PE 1/ DE 1**, also provide for events of default to include non-payment of the principal on the credit facility, which continues for fourteen days. Given the above, 15 it is proved that the 2nd Defendant defaulted on the payment of the principal sum following the time for payment of the first instalment agreed upon under **Article 7(a) of PE1** and I find so.

Regarding the question of whether the 2nd Defendant paid the whole loan amount as alleged by the Plaintiff, the 1st Defendant claims that the entry

20 in **PE 3**, made on 19th October, 2016 of UGX 43,518,847/= by Nanyunja Zahara, was erroneous and the same was reversed. In evidence, both parties relied on **PE 3** which I now proceed to analyze, as a whole.

The entries in **PE 3**, reflect that on 10th March, 2016, the 1st Defendant credited the 2nd Defendant's account with UGX 45,000,000/= as a loan 25 credit facility. As shown under **Article 7(a) of PE 1**, the loan was to be paid in twenty four equal principal monthly instalments of UGX 1,875,000/=, the first instalment falling due 30 days from the date of drawdown. It is portrayed in **PE 3** that to repay her loan, a cash deposit of UGX 2,960,000/= was made on 6th June, 2016 by the 2nd Defendant as 30 her first instalment. On 18th July, 2016, the second installment was paid through a cash deposit of UGX 3,000,000/= made by a one Zaharah. The

- third instalment of UGX 3,000,000/= was also paid by Zaharah, on 1st 5 September, 2016 and the last installment was made by a transfer of UGX 43,518,847/= from a one Nanyunja Zahara's account to that of the 2nd Defendant on 19th October, 2016. On that same day, the 1st Defendant made the following deductions; penalty interest of UGX 355,730.00/=, - 10 interest debit of UGX 1,382,055/= and principal debit of UGX 41,754,269/=. From then, the 2nd Defendant stopped making the payments on the loan.

Though the 1st Defendant contends that the transfer of UGX 43,518,847/=, was reversed, the same is not reflected on **PE 3**. The 1st 15 Defendant did not adduce any evidence of the alleged reversal made on the account of the 2nd Defendant. I have also observed that apart from the 1st instalment made personally by the 2nd Defendant, the rest of the instalments were paid by a one Zaharah and this was not contested by the 1st Defendant. During her cross-examination, **DW1** confirmed and 20 conceded to the fact that Zaharah made deposits on the 2nd Defendant's account which were always deducted to clear the loan.

Furthermore, though the 1st Defendant insisted that Zahara was unknown to the Plaintiff, it did not prove that Zahara was unknown to the 2nd Defendant nor was any evidence adduced to show that she was their client 25 or that the alleged erroneous transaction had affected her.

**PE 3** also portrays that from the time of the grant of the loan placement on 10th March, 2016 to 19th October, 2016, the existence of a running loan is reflected through various debits such as the monthly loan interest. However, from 19th October, 2016 to 20th September, 2018 no reflection of 30 the loan is shown; not even any debits regarding the same. I have also noticed that the 1st Defendant was charging a penal interest in case the

5 2nd Defendant delayed to make the payments however from 19th October, 2016, there were no such charges which meant that the loan had been cleared.

The 1st Defendant contends that she notified the 2nd Defendant of the said transaction made in error. During her cross-examination, **DW1** confirmed 10 that they contacted the 2nd Defendant but she was unavailable, meaning such information is most likely to be unknown to the 2nd Defendant.

**Article 16(e) of PE 1/DE 1**, stipulates that:

"*Except as otherwise stipulated herein all notices and other communications hereunder to any party hereto shall be in writing* 15 *and shall be deemed to be duly given or made when delivered by hand or when dispatched in cases of mail, to the other party's address as specified herein or such other address as such party shall have designated by notice to the other party hereto*."

Given the above, no evidence was adduced in whatsoever form, to prove 20 that the 1st Defendant notified the 2nd Defendant about the alleged erroneous transaction as was confirmed by **DW1**.

Besides that, **Article 16(b)** of **PE 1** also provides that:

"*Accounts as Evidence*

*The lender shall maintain accounts specifying disbursements* 25 *made to the borrower's account and payments by the borrower to the lender's account pursuant hereto together with interest accruing thereon and charges incurred thereon from time to time*

Owing to the provision above, during her cross-examination, **DWI** was asked whether the reconciliation/reversal of UGX 43,518,847/= is reflected in **PE 3** to which she replied in the negative and when asked why 10 that was so, she intimated that the 1st Defendant can provide documents indicating that the cash transfer was not made by the 2nd Defendant however no evidence to the effect was availed to Court.

**DW1** was asked during cross examination that;

*"So where is the transfer of that money that you are talking about* 15 *when you realized the error? Where is it on this statement?*

**DW1** responded that;

*"It is not on this statement."*

According to **Article 16(b) of PE1**, the statement of account is conclusive evidence of all the disbursements and payments by the 2nd Defendant. As 20 analyzed, **PE 3** shows that Zaharah had made earlier cash deposits to the 2nd Defendant's account in respect of the loan payment and deductions made accordingly. This was not disputed by the 1st Defendant. Having accepted the earlier cash deposits made by Zaharah, in my view, I find it unconceivable without evidence, that the 1st Defendant erroneously made 25 a funds transfer from Zahara's account to that of the 2nd Defendant and that Zahara was unknown to the 2nd Defendant yet earlier on it accepted and debited the cash deposits made by her. More so, the 1st Respondent did not adduce any evidence to show that Nanyunja Zahara, lodged a

5 complaint in respect of the alleged erroneous transaction in respect of her account, or that it notified Zahara of the same.

Furthermore, the 1st Defendant did not adduce any evidence to show that there was a transfer when it realized the alleged error. This leaves the Court with no evidence to rely on in respect of the error that the bank 10 referred to. The 1st Defendant in my view, should have adduced evidence to support the action taken in respect of the account of the 2nd Defendant to show that indeed the credit transfer had been made in error. However, nothing of the sort was adduced. The only explanation provided by **DW1** was that upon the bank realizing the error they went ahead to contact the 15 debtor who could not be found. **DW1** testified in re-examination that:

*"When the bank realized that there was an error that actually Namatovu did not pay; they went ahead to look for her to demand money from her and the contacts and everything, she was nowhere to be found. After that we looked at the file because* 20 *when someone disappears there is collateral that was basically mortgaged in case…"*

No evidence of such efforts of tracing the 2nd Defendant or bringing to her attention the alleged error were provided to Court in evidence. The Court was left with only the bank statement **PE 3** that indeed confirms that the 25 loan was cleared.

In the circumstances, I shall rely on **Article 16(b) of PE 1** and find that **PE 3** holds the reflection of the loan payments by the 2nd Defendant and according to **PE 3**, the credit facility was fully cleared on 19th October, 2016. Considering the fact that the 2nd Defendant paid off the penal

5 interest for her initial loan default, this Court finds that the 2nd Defendant did not default on the loan facility issued by the 1st Defendant.

Before I take leave of this issue, I have considered Counsel's complaint and request to interrogate the conduct of the Plaintiff and the 2nd Defendant based on the fact that the Plaintiff's evidence exonerated the 2nd 10 Defendant. As proved about, all the evidence relied upon by the Plaintiff is derived from the 1st Defendant's documents specifically **PE 3.** The Plaintiff had to follow up the loan transaction details since she was a guarantor. It however raises the question of why the Plaintiff sued the 2nd Defendant and what she intended to achieve.

15 In the premises, Issue No.1 is answered in the negative.

## Issue 2: Whether the Plaintiff is liable to pay the loan upon default by the 2nd Defendant?

## Plaintiff's submissions

Counsel for the Plaintiff submitted that **PW1** stated that she was a 20 guarantor to the 2nd Defendant having offered her certificate of title of land comprised in Block 234 Plot 4816 Kilinya, Kyadondo County, Mengo District, to secure the 2nd Defendant's credit facility under a third-party mortgage created over her land under instrument No. WAK0077230.

In her submissions, Counsel for the Plaintiff relied on **Section 68 of the**

25 **Contracts Act (now Section 67)**, to define a guarantor as one who gives a guarantee. Counsel also relied on the case of *Guma Paulino Vs Bank of Africa (U) Limited & 2 Others HCCS No. 13 of 2008,* that elaborated on the general relationship between a mortgagor, mortgagee and borrower in third party mortgages. Counsel went on to submit that as per **Section**

5 **71 of the Contracts Act (now Section 70)** and the case of *HSGS Impex Uganda Ltd Vs Bakama Enterprises Ltd & Another HCCS No.787 of 2014* the guarantor promises or undertakes that he/she will be personally liable for the debt, default or miscarriage of the principal upon default. However, their liability is ancillary or secondary to that of the principal 10 who remains primarily liable to the creditor. That there is no liability on the guarantor unless and until the principal has failed to perform his obligations. Counsel also relied on the case of *Moschi Vs LEP Air Services and Another [1972] 2 All ER 393.*

In conclusion, Counsel cited **Section 14 of the Mortgage Act** (now 15 **Section 13 (1) of Cap.239**) which stipulates that:

"*Subject to this section and section 14, on the payment of all money and the performance of all other conditions and obligations secured by the mortgage, and on the payment of any costs and expenses properly incurred by the mortgagee in exercising any of his or her* 20 *rights under the mortgage, the mortgagee shall at the request and cost of the mortgagor release the mortgage at any time …"*

In that aspect, Counsel contended that the Plaintiff is a guarantor who mortgaged her property to secure the 2nd Defendant's loan and that since the said loan was fully cleared; then the Plaintiff is not liable.

25 1st Defendant's submissions

Counsel for the 1st Defendant submitted that the decision taken by the Plaintiff to sign a Mortgage Deed surrendering her property as security for the 2nd Defendant's loan, legally made her liable for the default of the 2nd Defendant. That as per **Section 68 (now Section 67)** and **Section 71**

30 **(now Section 70) of the Contracts Act,** a contract of guarantee was 5 created which is one to perform a promise or to discharge the liability of a third party in case of default of that third party. That since the facts prove that the 2nd Defendant defaulted; then the Plaintiff cannot escape liability because the 1st Defendant relied on her guarantee to advance the loan.

Counsel further submitted that as was held in the case of *Alice Norah*

10 *Mukasa Vs Centenary Bank Limited & Another HCCS No.77 of 2010,* the Plaintiff is liable to satisfy the indebtedness of the 2nd Defendant upon her default, and that she should be compelled to do so.

### Analysis and Determination

**Section 67 of the Contracts Act** defines a contract of guarantee as a 15 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.

**Section 70 of the Contracts Act** also places liability on a guarantor to the extent to which the principal debtor is liable and such liability takes effect upon default by the principal debtor. This was emphasized by the 20 Court of Appeal in the case of *Bank of Uganda Vs Banco Arabe Espanol*, *CACA No. 23 of 2000* wherein it was stated that:

"*The law relating to the duty of the guarantor or surety to repay a loan is that once the principal borrower defaults the guarantor has a duty to repay the loan. See Moshi Vs Rep Air Services Ltd and* 25 *Another [1972] 2 All E. R 393 in particular pages 407-409*." (This judgment was upheld by the Supreme Court in *Bank of Uganda*

*Vs Banco Arabe Espanol SCCA No.1 of 2001*)"

5 The above authorities are to the effect that a guarantor is obliged to pay the loan of a principal in case of default and the liability takes effect upon default and to the extent of the defaulter's liability.

In the instant case, it is undisputed that on 3rd March, 2016 the Plaintiff signed a third party Mortgage Deed (**PE 2/DE 2**) with the 1st Defendant 10 wherein her property comprised in Kyadondo Block 234 Plot 4816 was used to guarantee payment of the credit facility advanced to the 2nd Defendant.

Having resolved under issue No. 1 above that the 2nd Defendant did not default in the payment of the loan facility, then the Plaintiff's liability as a 15 guarantor did not arise since as stated under **Section 70(2) of the**

**Contracts Act,** such liability only arises upon default.

In the circumstances, issue No.2 is answered in the negative.

Issue No. 3: Whether the 1st Defendant should continue holding the Plaintiff's land title for nonpayment of the said loan?

20 Plaintiff's submissions

In her submissions, Counsel for the Plaintiff contended that, **PE 3** shows that the 2nd Defendant fully paid the loan thus discharging the Plaintiff from any form of liability. That as per **Section 14 of the Mortgage Act (now Section 13),** upon payment of the loan by the principal debtor to the 25 lender, the guarantor/mortgagor is discharged from liability and the mortgagee is supposed to release the mortgage at the request of the

mortgagor.

In conclusion, Counsel prayed that since there is no default by the 2nd 5 Defendant, the 1st Defendant should not continue holding the Plaintiff's certificate of title.

## 1st Defendant's submissions

Counsel insisted that the 2nd Defendant defaulted on her loan obligation 10 to the 1st Defendant, which the Plaintiff guaranteed. While referring to the case of *Guma Paulino Vs Bank of Africa (U) Ltd & 2 Others (supra)*, Counsel for the 1st Defendant submitted that the Plaintiff's liability and obligations are only based on the extent she pledged and that since the Plaintiff voluntarily offered her land to be held by the 1st Defendant as assurance that if the 2nd Defendant defaults on her loan obligation, the 1st 15 Defendant shall hold the mortgaged land to the extent of the 2nd Defendant's default for as long as the said loan remains unpaid, then the 1st Defendant is rightfully holding onto the said land title.

## Analysis and Determination

- 20 Having found that the 2nd Defendant fully paid up her loan and that the Plaintiff is not liable, as provided under **Section 13(1) of the Mortgage Act,** upon payment of the loan by the principal debtor to the lender, the guarantor/mortgagor is discharged from liability and thus entitled to the release of the mortgage by the mortgagee at his/her request. - 25 I have observed that according to the third party Mortgage Deed marked as **PE 2/DE 2**, the Plaintiff offered her land comprised in **Block 234 Plot 4816 Kilinya, Kyadondo County, Mengo District** to be used as security as already stated above however, according to the default notice marked as **PE 5/ DE 3** the 1st Defendant refers to the Plaintiff's land as land 30 comprised in **Busiro Block 327 Plot 180 Nabingo, Wakiso District**. I

5 believe that this was an apparent error on the face in the notice of default since the land that was offered as security was clearly comprised in **Block 234 Plot 4816 Kilinya, Kyadondo County, Mengo District.**

According to **PE 7/DE 5**, a letter dated 14th January, 2019, the Plaintiff through her lawyers, requested for the release of her certificate of title 10 however, to date the same has never been released.

Based on the above, and having found that the loan in issue was fully paid, the Plaintiff is entitled to have the mortgage discharged and her certificate of title in respect of land comprised in Block 234 Plot 4816 Kilinya, Kyadondo County, Mengo District returned to her.

15 In the premises, issue No. 3 is answered in the negative.

# Issue No. 4: What remedies are available to the parties?

In the plaint, the Plaintiff sought the following:

- i. A declaration that no monies are due/or owing from the Plaintiff to the Defendants under the Mortgage Deed and the Credit Facility 20 Agreement that were executed on 3rd March, 2016. - ii. A declaration that the 1st Defendant's action of continuing to hold on to and refusal to release to the Plaintiff her certificate of title to land comprised in Block 234 Plot 4816 Kilinya, Kyadondo County, Mengo District is arbitrary, malicious, illegal and amounts to breach of 25 contract. - iii. An order directing the 1st Defendant to release to the Plaintiff her certificate of title for the land. - iv. General and punitive damages. - v. Costs of the suit.

#### 5 Analysis and Determination

### a) General damages

In the case of *Takiya Kashwahiri & Another Vs Kajungu Denis CACA No.85 of 2011*, the Court of Appeal held that general damages should be compensatory in nature in that they should restore some satisfaction, as 10 far as money can do it, to the injured Plaintiff. The Plaintiff should however lead evidence to show what damage he or she has suffered at the instance of the Defendant.

In the instant case, the Plaintiff sought the Court to consider the economic value of the property for the time the 1st Defendant has held onto the title inconveniencing her from benefiting from the same. In reply, the 1st 15 Defendant contended that the Plaintiff has had quiet possession and enjoyment of her property and that the title was only held as security for the loan in issue.

Having found all the issues in the negative, given the guiding principles of 20 granting general damages and the fact that the Plaintiff requested for her certificate of title vide **PE 7/DE 5** and the same was not availed, I am of the view that the Plaintiff was inconvenienced by the refusal of the 1st Defendant to release her certificate of title and is therefore entitled to general damages. I have also considered the fact that the Plaintiff sued 25 both Defendants in this suit. However, the Plaintiff never proved any case against the 2nd Defendant, neither did the 1st Defendant. Based on the above, I hereby award the Plaintiff general damages amounting to UGX 2,000,000/= (Uganda Shillings Two Million Only) for the inconvenience she has suffered as a result of the 1st Defendant's refusal to hand over her 30 certificate of title.

### 5 b) Punitive/exemplary damages

As was held by **Hon. Justice Ssekaana Musa** in *Luzinda Marion Babirye Vs Ssekamatte (Alias Mulwana Samuel) & Others Civil Suit No.366 of 2017*, the rationale behind the award of exemplary damages is that they should not be used to enrich the Plaintiff, but to punish the 10 Defendant and deter him from repeating his conduct. That it should not be excessive and must not exceed what would be likely to have been imposed in criminal proceedings if the conduct were criminal as was stated by *Spry V. P. in Obongo Vs Municipal Council of Kisumu [1971] EA 91*. Court went on to hold that all circumstances of the case must be taken 15 into account, including the behaviour of the Plaintiff and whether the Defendant had been provoked as seen in *O'Connor Vs Hewitson [1979] Crim. LR 46, CA; Archer Brown [1985] QB 401*.

In the instant case, though the Plaintiff contends that the 1st Defendant's actions of holding onto the certificate of title were wrong, considering the 20 1st Defendant's unrebutted submissions that no action has ever been taken in respect of the said property, I hereby decline to grant punitive/exemplary damages.

c) Costs of the suit

As provided for under **Section 27 of the Civil Procedure Act**, **Cap.282** 25 the costs of any action, follow the cause unless otherwise provided. Furthermore, in the case of *Uganda Development Bank Vs Muganga Construction Co. Ltd [1981] HCB 35,* **Hon. Justice Manyindo** (as he then was) held that:

*"A successful party can only be denied costs if it is proved, that but* 30 *for his or her conduct, the action would not have been brought. The*

5 *costs will follow the event where the party succeeds in the main purpose of the suit."*

In the circumstances, since there is no reason to deprive the Plaintiff of the same, she is entitled to costs of the suit. Accordingly, costs of this suit are awarded to the Plaintiff.

- 10 In the circumstances, the following orders are issued: - 1. It is hereby declared that no monies are due and/or owing from the Plaintiff to the 1st Defendant. - 2. The 1st Defendant shall release the Plaintiff's certificate of title for land comprised in Block 234 Plot 4816 Kilinya, Kyadondo County, 15 Mengo District. - 3. The 1st Defendant shall pay to the Plaintiff general damages amounting to UGX 2,000,000/= (Uganda Shillings Two Million Only). - 4. Costs of the suit are awarded to the Plaintiff. - 20 It is so ordered.

Dated, signed and delivered electronically via ECCMIS this **3rd** day of **September, 2024.**

Patience T. E. Rubagumya 25 **JUDGE** 3/09/2024 7:30am

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