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THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF
UGANDA AT KAMPALA
(COMMERCIAL COURT
DIVISION)
HCT-00-CC-CS-1017-2004
EDMUND AKATUKWASA :::::::::::::::::::::::
PLAINTIFF
VERSUS
1. GERSHOM KANYARUJU ]
2. DFCU LEASING CO.
LIMITED] :::::::::::::::: DEFENDANTS
BEFORE:
THE HONOURABLE MR. JUSTICE YOROKAMU BAMWINE
J U D G M E
N T:
THE plaintiff’s main claim against the first defendant
is for the recovery of US $4000. That against the second defendant is
for the
recovery of Shs.7,000,000-. Additionally, he claims interest and costs of the
suit. It is not disputed that the plaintiff
and the first defendant were
friends and also that the first defendant was a customer to the second
defendant. From the evidence,
the two erstwhile friends entered into a contract
in which the first defendant was to sell a vehicle to the plaintiff. At the
time
of the contract the vehicle had not arrived in Uganda. The agreement was
reduced in writing, P. Exh. XVIII. The contract price
was Shs.30,000,000- out
of which Shs.10,000,000- was paid on execution of the agreement. The remaining
payments were conveniently
phased. The parties agreed that in case of failure
to deliver the motor vehicle to the purchaser in Kampala for whatever reason
attributable to the vendor, the vendor would refund to the purchaser the full
advance payment of Shs.10,000,000- and any further
payments that the purchaser
might have effected as a deposit outside the provisions of the agreement plus
30% interest thereon per
month. The seller defaulted. Following the default,
the parties agreed, this time orally, that the seller refunds to the buyer
all
the money the buyer had deposited on the truck. It was by now
Shs.15,000,000-.
The first defendant then requested the 2nd
defendant, to whom the truck had been leased by the first defendant in breach of
the contract between the plaintiff and the first
defendant that it, the
2nd defendant, pays a sum of Shs.22,000,000- to the plaintiff. The
second defendant agreed in writing to do so. However, the 2nd
defendant only paid a sum of Shs.15,000,000- and refused to pay the balance of
Shs.7,000,000- claiming that this was the only money
on their customer’s
account and that in any case the parties had agreed that the 1st
defendant pays the balance himself. Two cheques to the value of US $4000 issued
by the 1st defendant to the plaintiff also bounced. The
plaintiff’s case is that following the 1st defendant’s
breach of the contract the parties agreed that the 1st defendant pays
him a sum of Shs.28,000,000-. That of this, the 1st defendant agreed
to make a direct payment of Shs.6,000,000- to him and the balance of
Shs.22,000,000- through the 2nd defendant. That since the
1st defendant did not have a shillings account, he issued to him two
post dated cheques in dollars which unfortunately bounced. Hence
the suit to
recover the value of the two cheques from the 1st defendant and
Shs.7,000,000- from the second defendant.
Three issues were framed for
determination:
1. Whether the plaintiff is entitled to payment of US
$4000.
2. Whether the 2nd defendant is liable to pay Shs.7m to the
plaintiff.
3. Whether the plaintiff is entitled to other reliefs
sought.
Mr. Nester Byamugisha for the plaintiff.
Mr. Edrin Mubiru for
the 1st defendant.
Mr. Denis Owor for the 2nd
defendant.
Mr. Mubiru participated in the scheduling conference. He was
also present when the plaintiff testified. He thereafter disappeared.
His
client never appeared at the hearing at all.
The plaintiff’s case
is that upon the 1st defendant failing to honour his contractual
obligation to deliver the truck to him, they sat down again and agreed that he
refunds
all that the plaintiff had so far lost. Court is satisfied that this
was in accordance with the contract document, P. Exh. XVIII.
He contends that
on calculating what was due to him, the amount came to Shs.37m and that after
the 1st defendant had explained to him the problems he had
encountered in the deal, they finally settled for a sum of Shs.28,000,000- to
be
refunded to him. That they agreed further that the 2nd defendant
pays him a sum of Shs.22,000,000- on the 1st defendant’s behalf
while the 1st defendant would personally meet the balance.
I have
duly studied the agreement between the parties, P. Exh. XVIII, particularly
clause 10 (i) thereof. Under that clause, the
plaintiff was entitled to a
refund of his Shs.15m plus interest of 30% per month for 5 months. By simple
arithmetic, the maximum
amount payable as interest as at June 2004 was
Shs.22,500,000- (that is, Shs.15,000,000- x 30 x 5).
100
Plus the Shs.15,000,000- which had so far been deposited, the amount
recoverable by him under clause 10 (i) was Shs.37,500,000-.
It is the
plaintiff’s case that the amount was reduced to Shs.28,000,000- after the
1st defendant had explained to him the financial difficulty he was
in. I have considered the fact that the remedy for the breach following
the
total failure of consideration lay in the contract document itself, clause 10
(i) thereof. I have also considered the fact that
the two were friends; and
that the amount was not enhanced but reduced favourably to the 1st
defendant’s advantage; and also the fact that the 1st defendant
has opted not to be heard in his defence. I have found no reason for Court to
doubt the plaintiff’s sincerity in
the matter. The path taken by him is
logical and supported by the contract document itself. Court is satisfied on
the balance of
probabilities that the parties orally agreed that a sum of
Shs.28,000,000- be paid by the 1st defendant as a condition for his
discharge from the breach.
In view of the above finding, I shall now
proceed to consider the specific issues framed for Court’s
determination.
First, whether the plaintiff is entitled to payment of US
$4000.
I have considered the plaintiff’s evidence that the two
cheques were issued to him by the 1st defendant in settlement of an
additional Shs.6,000,000- to make a total of Shs.28,000,000-. This much was not
reduced in writing.
However, in law, where a contract is made orally, the terms
of it can be proved by oral evidence, normally by the person claiming
that there
is a contract.
I have seen the two cheques, P. Exh. IV and P. Exh. V. It
is the plaintiff’s evidence that the 1st defendant told him
that he did not have a shillings account and so issued him the two post dated
cheques in dollars. The 1st defendant did not deny the fact of
issuing those cheques in his Written Statement of Defence. There is evidence
that both cheques
bounced. The obligation of the drawer of the cheque which was
to settle a debt owed by him to the plaintiff was not honoured or
fulfilled.
When a bill is dishonoured by non-payment, an immediate right of recourse
accrues to the holder. Therefore, the cause
of action arose in favour of the
plaintiff when the cheques were dishonoured. The plaintiff has proved that the
1st defendant owed him a debt. He opted to settle it by cheques and
those cheques bounced. The plaintiff is entitled to the value of
those 2
cheques. I so find.
Second, whether the second defendant is liable to pay
Shs.7m to the plaintiff.
The story here is a long one. From the
evidence, the 1st defendant wrote to the 2nd
defendant’s General Manager requesting that part of the funds accruing to
him on the lease agreement for the truck be passed
on to the plaintiff. The
plaintiff agreed to this arrangement and so did the 2nd defendant.
To be double sure, the plaintiff’s lawyers sought confirmation from the
2nd defendant about its promise to settle the 1st
defendant’s obligations to the plaintiff. The second defendant confirmed
so, in writing to them. From all this evidence,
it is clear to me that the
2nd defendant without any pressure from any quarter guaranteed
payment of Shs.22m to the plaintiff on the 1st defendant’s
behalf. They had reason to do so because they had taken over the vehicle that
had been meant for the plaintiff.
That was enough motivation. Why then have
they decided to renege on their promise? According to DW1 Mukasa, the first
defendant
had also instructed them to pay a one Kaya. That upon paying the said
Kaya, only Shs.15m remained on the account. They have not
produced any
statement of account to substantiate that allegation. Since the purported
instruction from the 1st defendant to pay Kaya preceded that of
paying the plaintiff, no reason has been given as to why they made an un
reserved commitment
to the plaintiff to pay him fully. They were better placed
to know whether the two instructions could be complied with.
DW1 Mukasa
has also talked of 1st defendant’s instructions to them to pay
only Shs.15m. The letters are on record as attachments to P. Exh. XV and P.
Exh. XVII
but each has no any indication on it that it was ever received by the
2nd defendant and acted upon. In my view, that bit about the
1st defendant re-instructing them to pay less than had been
originally agreed upon was an afterthought. It appears to me that after
the
1st defendant had made a commitment to pay the plaintiff through the
2nd defendant and after the 2nd defendant had confirmed
the commitment, he (1st defendant) secretly went to the
2nd defendant and stopped the full payment. Such stoppage was in my
view fraudulent and inoperative. That the two cheques were issued
at the time
the parties agreed that the plaintiff be paid by the 2nd defendant is
discernable on the dates thereon. One is dated 23/7/2004 and the other
23/8/2004, implying that since they were post
dated, the time of issue was on or
around 23/6/2004. This in my view is further circumstantial evidence that
supports the plaintiff’s
story that at the time the 2nd
defendant promised to pay Shs.22m on 1st defendant’s behalf,
the 1st defendant also undertook to pay a sum of Shs.6,000,000-
directly to him. This in my view destroys the 2nd defendants
evidence that the two cheques were issued after the parties had realised that
the whole amount could not be paid by the
2nd defendant.
I
have directed my mind to the issue of NOVATION raised by counsel for the
plaintiff. As a general rule liabilities under a contract
cannot be assigned.
However, they can be assigned with the consent of the other party to the
contract. This is what is known in
law as Novation. Thus novation is the only
method by which the original obligor can be effectively replaced by
another.
What then is novation? In Cheshire, Fifoot & Furmston’s
Law of contract, 14th Edition at p. 577, the learned editors define
it thus:
“Novation is a transaction by which, with the consent of all the parties concerned, a new contract is substituted for one that has already been made. The new contract may be between the original parties, e.g. where a written agreement is later incorporated in a deed; or between different parties, e.g. where a new person is substituted for the original debtor or creditor.”
From the evidence, it is this last form,
the substitution of one debtor for another, that concerns us in this
case.
George Kanyaruju, the 1st defendant, owed
Shs.22,000,000- to Edmund Akatukwasa, the plaintiff. Under the lease
transaction between the 2nd defendant and the said Kanyaruju, the
2nd defendant owed money to Kanyaruju. The three parties agreed
between themselves that the amount owed by Kanyaruju to Akatukwasa be
paid by
the 2nd defendant to Akatukwasa. To show the seriousness of that
commitment, the 2nd defendant not only made a confirmation of the
fact to the plaintiff’s lawyers but also made a part payment in the sum of
Shs.15,000,000-.
The plaintiff now seeks to enforce the payment of the balance.
The law as contained in S. 3 (1) of the Contract Act, Cap 73, is
that no suit is
maintainable on certain guarantees or representations unless they are in writing
and signed by the party chargeable.
It provides:
“3 (1). No suit shall be brought whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriage of another person unless the agreement upon which the suit is brought, or some memorandum or note of the agreement, is in writing and signed by the party to be charged with it or some other person lawfully authorized by him or her to sign it.”
It has not been argued that Nsubuga who made
the commitment on behalf of the 2nd defendant lacked the capacity to
do so. I do understand the law to be that a transaction of this nature is not
effective as NOVATION
unless an intention is clearly shown that the debt from A
to B is to be extinguished. In my view the decision to reduce the commitment
in
writing was in the spirit of S. 3 (1) of the Contract Act. It was sufficient
demonstration of the second defendant’s serious
commitment to settle the
debt on the 1st defendant’s behalf. The first defendant was
after all their client. That commitment could in my opinion only be revoked
upon
the same three parties sitting down together and agreeing to do so. The
unilateral withdrawal by 2nd defendant was ineffective. The
principle contained in S. 3 (1) of the Contract Act has been interpreted to
apply whether the liability
guaranteed is contractual or tortious. It applies
where a third party, as herein, promises to the creditor to pay the debt. It
does not apply where the third party’s promise is to the debtor. See LAW
OF CONTRACT IN UGANDA by David J. Bakibinga at page
61. In all these
circumstances, it appears to me that whether the issue is approached from the
point of view of the doctrine of
NOVATION or of contracts of Guarantee, the
plaintiff’s claim against the 2nd defendant in respect of the
Shs.7,000,000- is unassailable. I hold so.
Third, whether the plaintiff
is entitled to the other reliefs sought.
He has prayed for interest of
30% per annum on the US $2000 from the date of dishonour of each cheque till
payment in full. This
is as regards the 1st defendant. As regards
the 2nd defendant, he has prayed for interest at the same rate per
annum from the date of payment of Shs.15m till payment in full. This
was a
business transaction. The plaintiff expected to earn a living out of the
original contract. After the breach, he expected
to be compensated for it and
forget all about it. The basis of an award of interest is that the defendant
has kept the plaintiff
out of his money; and the defendant has had the use of it
himself; so he ought to compensate him accordingly.
In the instant case,
the plaintiff has been wrongfully denied the use of money that was rightfully
his. It is necessary that he be
compensated for that loss. No damages for
breach of contract have been asked for and/or awarded to the plaintiff. I would
award
him interest on the two awards. For the award against the 1st
defendant in the sum of Shs.6,000,000-, the equivalent of US $4000 at the then
exchange rate of Shs.1500- per dollar, interest at
the rate of 25% per annum
shall be paid from the date of the dishonour of the last cheque (i.e.
28/09/2004) till payment in full.
As for the award against the 2nd
defendant, interest at the same rate of 25% per annum shall be computed from the
date when the 2nd defendant defaulted on the payment of
Shs.7,000,000- (i.e. 06/07/2004) till payment in full.
As regards costs,
the usual result is that the loser pays the winner’s costs. A successful
party should only be denied costs
if it is proved that but for his conduct, the
action would not have been brought. I have found no fault on the part of the
plaintiff
to warrant denial of the costs to him. He will be paid the taxed
costs of the suit, one half by the 1st defendant, the other half by
the 2nd defendant.
It shall be so.
Yorokamu
Bamwine
J U D G E
30/5/2006
30/5/2006
Nester Byamugisha
for plaintiff.
Denis Owor for defendants.
Court: Judgment
delivered.
Yorokamu Bamwine
J U D G E
30/5/2006
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