Wakwale & Another v Bumutsukhu Financial Services (U) Limited (Civil Appeal 106 of 2023) [2024] UGHC 897 (30 September 2024)

Full Case Text

## THE REPUBLIC OF UGANDA

## IN THE HIGH COURT OF UGANDA HOLDEN AT MBALE

## CIVIL APPEAL NO.106 OF 2023

## (ARISING FROM BUDUDA CIVIL SUIT NO.68 OF 2021)

### 1. WAKWALE DISON

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2. NALUBOKA GRACE ::::::::::::::::::::::::::::::::::::

### VERSUS

## **BUMUTSUKHU FINANCIAL SERVICES (U) LTD :::::::::::::::::::::::::::::::::::**

## **BEFORE HON. JUSTICE LUBEGA FAROUQ**

### JUDGMENT

## 1. Introduction:

- 2. This is an appeal from the Judgment and orders of $H/W$ Maloba Ivan Magistrate Grade 1, Bududa in Civil Suit No.68 of 2021. - 3. The Respondent/Plaintiff filed Civil Suit No.68 of 2021 in the Chief Magistrate's Court of Bubulo, against the Appellants/Defendants jointly and severally for recovery of Uganda Shillings $14,515,500/$ = being the principal sum of the Loan plus interest at court rate and costs of the suit. The defendants denied each and every allegation and stated that the Respondent has no cause of action against them, its claims are misconceived, illegal and that the reliefs sought are not tenable.

## 4. Background:

- 5. Respondent's case - 6. On 26th May 2018, the 2nd Appellant informed the director to the Respondent. that the 1st Appellant was sick but she was there to receive the money which was confirmed by the $1st$ Appellant on phone who stated that he had given his ATM to the $2^{nd}$ Appellant and that she could receive the money. The $2^{nd}$ Appellant also left behind her ATM.

- 7. On 26th August 2018, the 2nd Appellant took Ugx: 8,500,000/= and the ATM cards were left in possession of the Respondent's director. - 8. On 23th June 2018, the Appellants were further given Ugx: $6,015,500/$ = totaling to Ugx: $14,515,500/$ =, on 10% interest, which accumulated to Ugx: $15,000,000/$ = and, the Respondent sued the Appellants vide Civil Suit No.69 of 2019 and it was agreed in October 2019 to continue paying money and the plaintiff continued withdrawing till March 2021 when the 1st Appellant blocked his ATM and therefore the principle sum is not paid to date.

## 9. $1^{st}$ Appellant's case

- The 1st Appellant averred that he individually obtained loans from the 10. Respondent. In particular, he obtained Ugx: $3,000.000/$ = in august 2016 and a loan agreement was made. He further got Ugx: $500,000/$ = totaling to Ugx: $3,500,000/$ =. It was agreed at an interest of 10% and he surrendered his ATM card and its pin for the Respondent to withdraw Ugx: $260,000/$ = per month but it took advantage and withdrew for a period of 58 months totaling to Ugx: $20.550.000/=$ . - The Respondent was only to withdraw Ugx: $260,000/$ = for 17 months to 11. recover his Ugx: $3,500,000/$ = plus interest. - That the $1^{st}$ Appellant paid all monies owed to the Respondent and has a 12. counter claim for the over drawn monies to which he is claiming to recover Ugx: $16,130,000/$ = illegally withdrawn by the Respondent and therefore prayed that the suit be dismissed and judgment be entered in his favour for the recovery of Ugx: $16,130,000/=$ .

#### $2nd$ Appellant's case 13.

She averred that she got a loan in August 2016 from the Respondent 14. individually of Ugx: 2,000,000/= which was to be paid monthly at $10\%$ interest. She surrendered her ATM card. She was further given Ugx: 6.500.000/= totaling Ugx: 8,500,000/= and agreed to pay Ugx: $425,000/$ = per month for a period of $2\frac{1}{2}$ years and per salary was the source.

$\mathcal{L}$

That she has so far paid Ugx: $12,471,669$ = which includes the principal 15. sum and 10% interest which settled the entire claim and therefore prayed that the suit be dismissed.

#### Issues for trial court's resolution were-16.

- (a) Whether the defendants are indebted to the plaintiff as claimed? - (b) Whether the $1^{st}$ defendant is entitled to the claims of the counter claim? - (c) What are the available remedies to the parties?

#### 17. The trial court's decision

- The trial magistrate found that the Appellants are still indebted to the 18. Respondent to a tune of Ugx $14,515,500$ = which accordingly failed their counter-claim. He also ordered interest of 18% per annum on the said decretal sum, awarded general damages of Ugx: $8,000,000/$ = and costs of the suit. - The Appellants were dissatisfied with the said decision hence this Appeal. 19. - Grounds of appeal 20. - a. The trial magistrate erred in law and fact when he held that the Appellants are in breach of the contract loan agreement dated 26th day of May 2018; - b. The trial magistrate erred in law and fact when he held that the $1^{st}$ Appellant's counter claim fails since the Appellants are indebted to the Respondent to a tune of Ugx: $14,515,500/$ =; - c. The trial magistrate erred in law and fact when he held that the Respondent ought to recover money to a tune of Ugx: $14,515,500/$ = from the Appellants; - d. The trial magistrate erred in law and fact when he awarded an interest rate of 18% per annum to the Respondent; - e. The decision of the trial magistrate has occasioned a substantial miscarriage of justice.

- $\mathbf{4}$ - The Appellants therefore pray that this appeal be allowed, the judgment 21. and decision of the trial court be set aside and costs herein and in the court below be awarded.

#### 22. **Legal representation**

23. Counsel Nakweira Ayub represented the Appellants while Counsel Nyafwono Maureen appeared for Respondent.

#### **Submissions** 24.

25. At the hearing of this Appeal, both counsel were given schedules to file their respective written submissions. However, only the Appellants complied and the same have been relied upon in the determination of this Appeal.

#### 26. Duty of the first appellate court

27. In the determination of this appeal, am alive to the duty of the first appellant court which is to re-evaluate all the evidence of the lower court and come up with its own independent conclusion. (See: **Banco Arabe Espanol**

# V. Bank of Uganda SCCA No.18 of 1998)

Therefore, the key duty of this court in the instant case is to fully and 28. consciously consider the totality of the evidence preferred by all parties before it in and ascribe probative value to it, in order to determine the party in whose favor the balance tilts. (See: Brian Kaggwa V. Peter Muramira Court of

# Appeal Civil Appeal No. 26 of 2009)

#### 29. **Analysis of Court**

I will resolve the grounds of appeal as listed in the memorandum of appeal 30. as below.

# Ground No. 1: The trial magistrate erred in law and fact when he 31. held that the Appellants are in breach of the contract loan agreement dated $26^{th}$ day of May 2018

- I have gone through the court record. However, before I can discuss 32. whether there was a breach of the contract or not, I need to establish whether there existed a contract between the Appellants jointly and the Respondent or not. - 33. Section 2 of the Contract's Act Cap defines a contract to mean;

"An agreement enforceable by law made 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".

The above definition was further elaborated in the case of Greenboat 34. Entertainment Ltd V. City Council of Kampala H-C-C-S No. 0580 of **2003** where court stated that-

> "In law, when we talk of a contract, we mean an agreement enforceable at law. For a contract to be valid and legally enforceable, there must be: capacity to contract; intention to contract; consensus and idem; valuable consideration; legality of purpose; and sufficient certainty of terms. If in a given transaction any of them is missing, it could as well be called *something other than a contract*". (Emphasis added)

- In the present case, it is apparent that the Respondent sued the Appellants 35. jointly and severally for the recovery of Ugx: $14,515,500$ /= being the principal sum of the loan plus interest at court rate. However, according to the evidence of the Appellants, each of them got an individual loan but not joint as alleged by the Respondent. - 36. The 1st Appellant told court that he first got a loan of Ugx: $3,000,000/$ = from the Respondent in 2016 and later got an addition of Ugx: $500,000/$ = at 10% interest payable in 17 months and he handed his ATM card to the Respondent to use it to withdraw the money. He added that he completed paying for that loan and the Respondent is not demanding him any money but instead he is the one demanding him because when he gave him his ATM, the Respondent withdrawal more money than expected which the 1st Appellant claims in the counter-claim. - The 1st Appellant further denies ever entering in to a loan agreement of 37. Ugx: $14,515,000$ /= with the Respondent. - The above evidence indicates that there was no consensus and idem 38. between the 1st Appellant and the Respondent since each of them allege different facts. Therefore, the 1st Appellant having denied entering into a loan

$\mathsf{S}$

contract of Ugx: $14,515,000/$ = with the Respondent, it was then upon the Respondent to prove the same.

39. 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."*

40. Section 103 of the Evidence Act provides 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 by *any law that the proof of that fact shall lie on any particular person.*"

41. The Court of Appeal in **Yakobo M. N. Senkungu & others V. Cresensio** Mukasa Civil Appeal No.17 of 2014 observed that-

> "The burden of proof is on the party who asserts the affirmative on the issue or question in dispute in terms of sections 101, 102, 103 and 106 of the Evidence Act."

- 42. In the instant case, whereas the 1st Appellant denied receipt of the alleged loan, it was incumbent upon the Respondent to prove that the 1st Appellant indeed entered in to the said loan agreement and signed for the alleged money. - The loan agreement dated 26th of May, 2018 on the court record was 43. written in the names of the $2^{nd}$ Appellant only. - 44. The Respondent did not tender in court any evidence to prove that the Appellants obtained the alleged loan jointly. - 45. The law requires that for a contract to be valid and legally enforceable, there must be: capacity to contract; intention to contract; consensus and idem; valuable consideration; legality of purpose; and sufficient certainty of terms. - 46. However, contrary to the clear provisions of the law, in the case before me, there was no intention to contract and consensus and idem between the 1st

Appellant and the Respondent. In the case of **Greenboat Entertainment Ltd** V. City Council of Kampala (Supra), it was stated that if any of the above mentioned elements miss in a contract then, it would be called something else but not a contract.

- 47. In the loan repayment schedule, the $1st$ Appellant is only indicated as a guarantor and his ATM was tendered for that purpose. There is however no signature to confirm his consent as well. I will discuss the issue of guarantee later in the body of this judgment. - 48. In the view of the above, I find that the trial magistrate erred when he found that the 1st Appellant breached a loan contract dated 26th of May, 2018 in absence of any proof that a legal contract existed between the $1st$ Appellant and the Respondent. - I however have to note that the $1^{st}$ Appellant had ever obtained a loan from 49. the Respondent in 2016 which both the 1st Appellant and the Respondent admit that it was fully paid. - I will now handle the issue of whether any loan contract existed between 50. the 2nd Appellant and the Respondent. - The law which governs money lending institutions is the Tier 4 51. Microfinance Institutions and Money Lenders Act Cap 61 and the Regulations arising therein. - Section 84 $(1)$ of the same Act provides that-52.

"A money lending contract shall be in writing and shall be signed by the money lender and the borrower and shall be witnessed by a third party".

53. Section 84 $(2)$ of the same Act further provides that-

> "The contract shall take the form of a note or memorandum which" shall contain all the terms of the contract, and in particular, shall show-

(a) the date on which the loan is disbursed;

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- (b) *the amount of the principal of the loan;* - (c) the interest on the loan expressed in terms of a percentage per year; - (d) *the nature of security, if any;* - (e) *the duties and obligation of the borrower;* - (f) *the mode of repayment;* - (g) the nature of guarantorship, if any; and - (h) *the right to early repayment*" - In view of the above, I have looked at the loan agreement dated 26th of May, 54. 2018 of the principal sum of Ugx: 8,500,000/= between the $2^{nd}$ Appellant and the Respondent. However, the same was neither approved nor signed by the Lender. Secondly, it was not witnessed by a third party. - According to the loan repayment agreement schedule, the 2nd Appellant 55. was supposed to pay Ugx: $9,350,000/$ = as a monthly instalment inclusive of Ugx: 850,000/= as interest from $2^{nd}$ of July, 2018. - However, whereas the payment for the principal sum of Ugx: $8,500,000/$ = 56. is a bit clear, the payment for the loan of Ugx: $6,015,500/$ = which was allegedly obtained on 23rd of June 2018 is not indicated anywhere. The terms of that loan are not stipulated in a form required by the above provision of the law. - It is further noted by this court that the period within which to pay the two 57. principal sum is not also indicated. - 58. The Respondent in his pleadings, he added the two principal sum to come to the total of Ugx: $14,515,000/$ =. He pleaded that he gave the Appellants a loan of Ugx: $14,515,000/$ =. There is however no loan contract to that effect. - 59. The position of the law is that he who alleges must prove. The Tier 4 Microfinance Institution and Money Lenders Act properly provides for the form of contract and the terms to be included in the loan contract as well the parties who must sign on the contract.

- Contrary to the Act, the Respondent did not tender in court any contract 60. for the money claimed. All it tendered is the contract for the principal sum of Ugx: $8,500,000/=$ . - I however also note that the loan agreement of Ugx: $8,500,000/$ has 61. clauses which breach the provision of the law cited. For example, the interest rate in the loan agreement was supposed to be paid monthly yet according to the law, the interest is supposed to be per annum. Secondly, the agreement was not signed by the lender or witnessed by a third party. Hence, it did not also pass the test of a valid contract. - It should be noted that court cannot sanction what is illegal and an 62. illegality once brought to the attention of Court, it overrides all questions of pleading including any admissions made **Makula** thereon. $(See:$ International V. His Eminence Cardinal Nsubuga [1982] HCB 12) - Therefore, the Respondent failed to prove that there existed a legal contract 63. between the $2^{nd}$ Appellant and the Respondent and hence the $2^{nd}$ Appellant did not breach the said contract. - Ground No.1 is answered in the affirmative. 64. - Ground No.2: The trial magistrate erred in law and fact when he 65. held that the $1^{st}$ Appellant's counter claim fails since the Appellants are indebted to the Respondent to a tune of Ugx: $14,515,500/=$ - I have already discussed under Ground No.1 that the Respondent did not 66. tender in court any evidence to prove that it gave the $2^{nd}$ Appellant the alleged loan. It should be noted that a fact that is required to be proved by a document, that document must be produced to prove that fact. **(See: section)**

## 61 of the Evidence Act)

- The law pertaining money lending requires that a note or a memorandum 67. must be written, dated and signed by the parties to the contract as well the third party. This means that a money lending contract must be proved by a document. - However, in the instant case, the Respondent did not tender any document 68. to prove that he gave the $2^{nd}$ Respondent the alleged money.

- Be the above as it may, what is clear from the evidence of both parties is 69. that money exchanged hands. The $2^{nd}$ Appellant admit receiving Ugx: 8,500,000/= and Ugx: 6,105,500/= from the Respondent. According to the alleged loan agreement dated 26th of May, 2018, the 1st Appellant's ATM was given to the Respondent as security for the loan which was given to the $2nd$ Appellant. The purpose of living the 1st Appellant's ATM was to be used to fill the gap if the $2^{nd}$ Appellant's account had less or no money to be withdrawn. The Respondent was supposed to use the $1st$ Appellant's ATM to pay the $2nd$ Appellant's debt in case she defaulted. - 70. The 1st Appellant denied having entered into a loan agreement of Ugx: 14, $515,000/$ = with the Respondent. I agree. But, even though he was not the borrower, he guaranteed his ATM in that transaction and the alleged money was withdrawn from his account as the guarantor. - If the $1^{st}$ Appellant was at all not part of the transaction in dispute, and 71. yet he alleges his 2016 loan was completed in January, 2018, then why was his ATM in the hands of the Respondent till 2021? - Secondly, according to the withdraw form from June 2018 to March 2021, 72. the 1st Appellant's ATM was used to withdraw different amounts of money and he always collected the excess of the money that was withdrawn until March, 2021 when he blocked the ATM. If he was at all not part of the transaction in dispute, why did he allow his account to be withdrawn for all that period? - Thirdly, why was he collecting the balance of the money withdrawn from 73. the Respondent? - The answers to those questions only leads this court to conclude that the 74. $1st$ Appellant gave in his ATM as security for the $2nd$ Appellant's loan of $26th$ of May, 2018 and therefore, he is estopped from denying the same. - 75. In the view of the above discussion, the counter-claim had to fail and the trial magistrate was right to find so. - Ground No.2 is answered in the pegative. 76.

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- 77. Ground No.3: The trial magistrate erred in law and fact when he held that the Respondent ought to recover money to a tune of Ugx: $14,515,500/$ = from the Appellants - From the Respondents evidence, it is an admitted fact that it withdrawal 78. Ugx: 18,605,000/= from the ATM of the 1st and 2nd Appellants all together. That the 1st Appellant took Ugx: 3,995,000/= and Ugx: 14,610,000/= was paid on the loan. - In light of the Respondent's pleadings, the Respondent gave the $2^{nd}$ 79. Appellant a total loan of Ugx: $14,515,000/$ =. This in essence means that the $2nd$ Appellant paid the alleged loan principal sum. - Having found in the body of this judgment that the Respondent's 80. transactions were tainted with illegalities, it is therefore only entitled to the refund of the principal sum which the $2^{nd}$ Appellant already paid. $\mathcal{A}^{\mathcal{A}}$ - Ground No. 3 is answered in the affirmative. 81. - Ground No. 4: The trial magistrate erred in law and fact when he 82. awarded an interest rate of 18% per annum to the Respondent - Considering my findings in Ground No. 3, this ground is automatically 83. answered and in affirmative. - Ground No.5: The decision of the trial magistrate has occasioned $a$ 84. substantial miscarriage of justice. - 85. It is trite that where the trial court's decision resulted into miscarriage of justice to the appellants, the appeal deserves to be allowed. (See: Supreme Court of India Sheetala Prasad and Others V. Sri Kant and Another Criminal Appeal No. 2420 of 2009) - In the instant case, following my discussion in the body of this judgment, 86. it is obvious that a miscarriage of justice was caused to the Appellants. - 87. Ground No. 5 is answered in the affirmative. - In the results, this Appeal partially succeeds in the terms below-88. - (a) The trial court's judgment and orders are set aside - (b) The Appellants are not indebted to the Respondent. - (c) The Respondent is also not indebted to the Appellants.

(d) Costs of this Appeal and those of the lower court are awarded to the Appellants.

I so order.

LUBEGA FAROUQ Ag. JUDGE Judgment delivered via the emails of the parties on $30th$ of September, 2024

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