Wambette v Bumutsukhu Financial Services (U) Limited (Civil Appeal 32 of 2024) [2025] UGHC 49 (19 February 2025)

Full Case Text

## THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA HOLDEN AT MBALE

# CIVIL APPEAL NO. 0032 OF 2024

# (Arising from Bududa Civil Suit No. 56 of 2023)

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REEMA ANDREW WAMBETTE ::::::::::::::::::::::::::::::::::

#### **VERSUS**

# **BUMUTSUKHU FINANCIAL SERVICES (U) LIMITED ::::::::::: RESPONDENTS**

#### BEFORE HON. JUSTICE LUBEGA FAROUQ

#### JUDGEMENT

## 1. Introduction:

- 2. The Plaintiff/Appellant sued the Defendant/Respondent under a summary suit No. 56 of 2023 for- - (a) payment of Ugx: 2, 230, 614 being the principal sum and accumulated interest;

(b) Interest at court rate from the date of accrual till payment in full;

- (c) General damages and; - (d) Costs of the suit.

### 3. Background:

4. The background is that on the 1st of November, 2021, the Defendant at his special request and instance approached the Plaintiff for a top up loan of Ugx: $350,000/$ = to add up Ugx: $837,000/$ = at 10% per month. They agreed it to be repaid on a monthly basis until zero balance but the Defendant could come for other top up loans in subsequent month. He agreed to hand over his ATM card to be managed to remit monthly repayment by authorizing the company director to withdraw directly from his Centenary account as he remits by paying monthly interest of 10% and balance be

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remitted on the loan principle and the outstanding principle be carried forward to the next month at 10% per month.

- 5. The Respondent contended that the money was not constant on the Defendant's account at the end of every month which prompted the loan to accumulate to Ugx: 2, 230,614/=. The Plaintiff/Respondent averred that the loan demanded is still Ugx: 2, $230,614$ = unpaid which would have been paid long ago. - 6. The Appellant/Defendant on the other hand contended that on 1st of November, 2021 he got a loan from the Plaintiff and the loan recovery was the ATM card as loan security. That the Plaintiff has been withdrawing money from his bank account to speed up the loan recovery since November, 2021 - 7. That since November, 2021, the Plaintiff has been withdrawing money from the Defendant's bank account amounting to a total of Ugx: 3, $420,000/=$

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

- indebted the (a) Whether the Defendant/Appellant is to Plaintiff/Respondent Company to a tune claimed? - (b) What are the available remedies to the parties? - 9. The trial magistrate after consideration of the evidence on the court record found that the Appellant/Defendant is in breach of the loan agreement and that he is indebted to the Plaintiff/Respondent to a tune of Ugx: 2,230,614/=. He further awarded general damages of Ugx: $1,000,000/$ = and an interest of 12% plus costs of the suit. - 10. The Appellant was dissatisfied with the above decision hence this appeal.

### 11. Grounds of appeal

- (a) That the learned trial magistrate erred in law and in fact when he enforced a loan agreement which was illegal. - (b) That the learned trial magistrate erred in law and in fact when he found that the Appellant was in breach of the loan agreement.

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- (c) That the learned trial magistrate erred in law and in fact when he failed to properly evaluate the evidence on the record and came to a wrong conclusion that the Appellant pays Ugx: $2,230,614/$ = to the Respondent, general damages of Ugx: 1,000,000/= with interest of 12% without justification thus occasioning a miscarriage of justice. - (d) That the learned trial magistrate erred in law and in fact when he relied on the Appellant's bank statement to hold that his ATM card had expired and yet the bank statement was silent on that fact. - (e) That the learned trial magistrate erred in law and in fact when he failed to find that the Respondent had withdrawn money in excess of what was legally due to her thus depriving the Appellant of his money. - (f) That the learned trial magistrate erred in law and in fact when he issued a suspicious taxation hearing notice to the Appellant before the judgment in Civil Suit No. 56 of 2023. - 12. The Appellant prayed that the appeal be allowed, set aside the judgment and orders of the lower court and costs for both the lower court and the appellate court be awarded to the Appellant.

### 13. Legal Representatives

- 14. Counsel Wataka Bourn represented the Appellant whereas Counsel Were Safiyo holding brief for Counsel Obede Deogratious represented the Respondent. - 15. During the hearing of this case on 11th of November, 2024, the parties' counsel requested court to allow them proceed by way of written submission which was granted. All the parties complied and the submissions are on the court record. - 16. Duty of the first appellate court - 17. This court is cognizant of the fact that it is the first appellate court with the duty to evaluate all the evidence on the court record and come to its own conclusion. - 18. I am further guided by the decision in Fr. M. Begumisa & Ors V. E. Tibegana SCCA No. 17 of 2003 where the Apex court stated that-

"The appellate court has to bear in mind that its duty is to rehear the case and the court must consider the trial before the Judge with such materials as it might have decided to admit. The court must then make up its own mind not disregarding the judgment appealed from but carefully weighing and considering it and not shrinking from over ruling it if on full consideration, the court comes to the conclusion that the judgment is wrong"

# 19. Also in Kifamunte V. Uganda SC Crim. Appeal No. 10/1997 it was held that-

"Failure by the first appellate court to evaluate the material evidence as whole constitutes an error in law".

- 20. The above principles will guide this court in the determination of this appeal. - 21. Analysis of court - 22. I will resolve each of the grounds of appeal independently as below. - 23. Ground No.1: That the learned trial magistrate erred in law and in fact when he enforced a loan agreement which was illegal. - 24. Counsel for the Appellant submitted that the Respondent being a money lending company it is governed by the provisions of the Tier 4 Microfinance Institution and Money Lenders Act Cap 61. He cited section $84(1)$ of the said Act to argue that the provision of the law requires that money lending contract shall be in writing, signed by the money lender and borrower and the same shall be witnessed by a third party. - 25. Counsel alluded that the copy of the loan agreement of the managing director of the Respondent which was exhibited as PEXH.1 does not comply with the requirement of the law in as far as it was not signed by the money lender and witnessed by a third party which is in violation of an Act of Parliament. - 26. He referred this court to the case of Stanbic Bank Uganda Ltd V. **Ssenyonjo & Anor (Civil Appeal No. 47 of 2015)** relied on in the case of

Bostel Brothers Ltd V. Hurlock [1948]2 ALLER 312, where it was held that "a contract executed in violation of a statutory provisions is void... thus what is done on contravention of the provisions of an Act of Parliament cannot be made the subject matter of an action."

- 27. Counsel further cited Masaka Municipal Council V. Takaya Frank ( Court of Appeal Civil Appeal No.173 of 2015) where court held at page 11 that- "No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act...in Patel V. Mirza [2016]UKSC 452, Lord Toulson of the UK Supreme Court held that illegality has the potential to provide a defence to civil claims of all sorts, whether relating to contract, property, torts or unjust enrichment, and in a wide variety of circumstance. - 28. In the view of the above, counsel submitted that the loan agreement in this matter did not comply with the requirements of the mandatory provisions of an Act of Parliament which makes it void and thus illegal. - 29. Counsel for the Respondent on the other hand, submitted on Grounds No. 1, 2, 3 and 5 together. I have reviewed the entire record on the file but I have not found any submission relating to this Ground. - 30. Determination of court - 31. I have carefully reviewed the court record and the submissions. Initially, it's apparent that the Respondent is a money lending company which allegedly provided a loan to the Appellant. The proceedings in the lower court were conducted through oral evidence." - 32. The Respondent who testified as PW1 said that- "the plaintiff coextended a loan facility on the $1st$ of November, 2021 to the defendant as a top up loan. The top up loan was Ugx: 350,000/= to add to $Ugx: 487,000/$ = which was already a running loan to make a total of Ugx: 837,000/= at 10% interest rate per month..." - 33. The parties tendered in court a loan agreement and it was marked PEXH.1. The said loan agreement contained terms and conditions for Bumutsukhu financial services (U) Ltd (the Respondent).

- 34. Clause 5 of the said loan agreement states that- "if we have a running loan with you any top up loan shall not be considered unless the outstanding loan is paid off." - 35. The above clause naturally means the Respondent was not supposed to issue any further loan when the initial loan was still running. However, contrary to that clause, the Respondent issued a top up of Ugx: 350,000/= to add up to Ugx: $487,000/$ = which was already a running loan. Another top up of Ugx. 460,000/= was further made on $7^{\text{th}}/05/2022$ and another of Ugx: $80,000/$ = was made on 14th of July, 2022. - 36. All the above top ups were made in breach of Clause 5 of the loan agreement. - 37. Secondly, apart from the top up of Ugx: $80,000/$ = which is hand written on the loan repayment agreement schedule, the loan agreement is silent on the other said top ups. - 38. It is also observed that even though the top up of Ugx: $80,000/$ = was written, there is no proof that the Appellant acknowledged receipt of the same. - 39. Section 85 (1) of the Tier 4 Microfinance Institution and Money Lenders Act, Cap 61 provides that-

"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."

- 40. However contrary to the above provision of the law, in this case, the loan agreement which was tendered as PEXH.1 was not signed by the lender or witnessed by a third party. - 41. This court in its recent decision of **Wakwale & Anor V. Bumutsukhu** Financial Services (U) Limited (CIVIL Appeal No. 106 of 2023) [2024] **UGHC 897 (September 2024)** found that; "absence of a signature by one of the parties or third party on the loan agreement was contrary to the provision of the law and implied lack of consensus and idem between the parties to a contract which is a key element of a valid contract".

$\mathsf{6}$ - 42. Similar to the above authority, in this case the Appellant denied acknowledgement of the alleged top up loans of Ugx: $350,000/$ =, UGx: $460,000/$ = and Ugx: 80,000/= respectively. He only acknowledged receipt of Ugx: $487,000$ /= which he signed for. Hence, there was no consensus and idem between the parties. - 43. Section 84 (2) of the Tier 4 Microfinance Institution and Money Lenders Act (Supra) 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; (b)the amount of the principal of the loan; (c) the interest charged on the loan expressed in terms of $a$ *percentage per year;* (*d*)*the nature of the security, if any; (e)the duties and obligations of the borrower; (f)the mode of repayment; (g)the nature of guarantorship, if any; and* (*h*)*the right to early repayment*".

- 44. The above provision indicates that a loan contract shall take the form of a note or memorandum which implies that it should be written. - 45. In this case, apart from PEXH.1 the loan agreement for the initial sum of Ugx: $560,000/$ =, there is no other document to prove that the Respondent issued the alleged top up loans. - 46. The amounts showed at the back of PEXH.1 are different from the amounts referred to by the Respondent in his evidence and dates. The amounts indicated therein where issued in 2020 and yet the Respondent refers to top up loans of 2021 and 2022. - 47. In addition to the above, the Respondent in his evidence in chief testified that- "The defendant handed the centenary bank ATM card that I

was supposed to withdraw the said funds to be applied on the principal and interest... in the month of February 2023, the defendant's ATM card got expired before salary was paid and when I tried to withdraw the defendant's card was captured in the ATM machine because it was expired."

48. Regulation 18 (1) (a) and (b) of the Tier 4 Microfinance and Money Lenders Regulations, 2018 provides that-

> "A money lender shall not demand or accept the following as collateral for any money advanced to $a$ borrower as a loan-

> (a) a national identity card, passport, warrant card, or other *document establishing the identity or nationality of the holder;* (b) bank savings, ATM cards and security codes for the ATM cards or deposit account books; or

> (c) an instrument of transfer of any property or assets signed *prior to the disbursement of the loan*

- 49. The aforementioned provision explicitly prohibits money lenders from accepting ATM cards as collateral for a loan. Therefore, the Respondent's action of accepting the Appellant's ATM card as security was unlawful and violated the relevant legislation. Money lenders should cease this practice, recognizing that they are often in a position of greater knowledge than their borrowers - 50. In the case of **Stanbic Bank Uganda Ltd V. Ssenyonjo & Anor (Supra)**, it was held that- a contract executed in violation of a statutory provision is void... thus what is done in contravention of the provisions of an Act of *Parliament cannot be made the subject matter of an action.*" - 51. Based on the foregoing discussion, it's evident that the loan agreement or transaction between the Appellant and the Respondent was marred by numerous illegalities. Therefore, it is unenforceable by court - 52. Ground No. 1 is answered in the affirmative.

- 53. Grounds No.2: That the learned trial magistrate erred in law and in fact when he found that the Appellant was in breach of the loan agreement. - 54. Section 84 (1) of the Tier 4 Microfinance Institution and Money Lenders Act, (Supra) provides that-

## "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."

- 55. The aforementioned provision stipulates that a valid money lending contract requires the signatures of the lender and the borrower, as well as the attestation of a third-party witness - 56. However, contrary to that provision, in this case, PEXH.1 which is the loan agreement was not signed by the money lender and not witnessed by a third party. Hence, it did not meet the perquisites required of a valid money lending contract. - 57. It follows therefore, that there existed no money lending contract between the lender and the borrower. - 58. Ground No.2 is answered in the affirmative. - 59. Ground No.3: That the learned trial magistrate erred in law and in fact when he failed to properly evaluate the evidence on the record and came to a wrong conclusion that the Appellant pays Ugx: 2,230,614/= to the Respondent, general damages of $Ugx$ : $1,000,000/$ = with interest of 12% without justification thus occasioning a miscarriage of justice. - 60. From the court record, whereas the Respondent alleged that the Appellant got different top up loans when the initial sum was still running, the Appellant on the other hand only acknowledged receipt of Ugx: $487,000/$ = which was to be paid in four months at an interest rate of $10\%$ .

- 61. The Appellant in support of his allegation, he tendered in court DEX.1 the bank statement. According to that exhibit, from the 2nd of December, 2021 to 20th of December, 2022, the Appellant paid a total of Ugx: $1,785,000/=$ - 62. The Respondent as already discussed above, he did not adduce evidence to prove that the Appellant ever received the said top up loans. All that the Appellant admit receiving is Ugx: 487,000/= which according to DEX.1 was paid in full. - 63. However, since the loan sum of Ugx: $487,000/$ = was not paid within the four months stated by the Appellant in his evidence in chief, the excess of it shall be taken to be the interest. - 64. Ultimately, it is concluded that the trial magistrate erred when he made the finding that the Appellant owed the Respondent Ugx: $2,230,614/$ = without any justification - 65. Consequently, and in light of the above points, the award of general damages was also made in error - 66. Ground No.3 is answered in the affirmative. - 67. Ground No.4: That the learned trial magistrate erred in law and in fact when he relied on the Appellant's bank statement to hold that his ATM card had expired and yet the bank statement was silent on that fact. - 68. According to DEX.1 there were no withdraws from 20th December, 2022 until 12th of September, 2023. The last withdrawal was made on 31st of October, 2023 yet Civil Suit No. 56 of 2023 from which this appeal arise was instituted in court on 27th of October, 2023. - 69. The above would literally match the Respondent's allegation that the ATM card expired. This is so because there is no reason why the Respondent would spend almost a year without withdrawing its money if the ATM was indeed still valid. - 70. Secondly, the timing of the last withdrawal and the filing date of Civil Suit No. 56 of 2023 in the lower court further support the Respondent's

claim that the ATM card had expired. This is because it is illogical to initiate legal action against a borrower for failing to repay a loan while simultaneously withdrawing funds from the borrower's account. Such an action would be contradictory

- 71. Therefore, even if DEX.1 is silent on whether the ATM card had expired or not, the fact that the Respondent did not withdraw money from it for almost a year, is sufficient to prove that the ATM card had indeed expired. - 72. Ground No.4 is answered in the negative. - 73. Ground No.5: That the learned trial magistrate erred in law and in fact when he failed to find that the Respondent had withdrawn money in excess of what was legally due to her depriving the Appellant of his money. - 74. My findings under Ground No. 3 are relevant to this ground as well. Furthermore, the Respondent claimed the ATM card had expired and that the last withdrawal occurred in December 2022. Since the Respondent denied the continued validity of the card, the burden of proof shifted to the Appellant to rebut this claim. - 75. Exhibit DEX.1 appears to show withdrawals occurring after December 2022. The key question is: who made those withdrawals? Given the Respondent's assertion that the ATM card was expired, the Appellant, as the account holder, had the responsibility to refute this claim, yet failed to do so. - 76. I have further already discussed under Ground No.3 that according to the Appellant's evidence, he was supposed to pay the loan facility plus interest of 10% per month within a period of four months but instead paid it in 10 months. For that reason, there was no excess money withdrawn. - 77. Ground 5 is answered in the negative.

- 78. Ground No.6: That the learned trial magistrate erred in law and in fact when he issued a suspicious taxation hearing notice to the Appellant before the judgment in Civil Suit No. 56 of 2023. - 79. This Ground was abandoned by counsel for the Appellant. For that reason, this court has not considered it as well. - 80. In the final result, this Appeal partially succeeds in the terms below- - (a) The lower court judgment, decision and orders are set aside. - (b) Costs of this appeal and of the lower court are awarded to the Appellant.

I so order.

**LUBEGA FAROUQ** Ag. JUDGE

Judgment delivered via the emails of the Advocates of the parties on 19th day of February, 2025