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Last Updated: 25 May 2007
Simon Kato Bugoba V Samuel Kigozi
-HCT-00-CC-CS-0543-2004 [2007] UGCommC 12 (6 February 2007)
THE
REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT
KAMPALA
(COMMERCIAL COURT DIVISION)
HCT-00-CC-CS-0543-2004
Simon
Kato Bugoba Plaintiff
Versus
1. Samuel Kigozi
2. Muyanja
Mbabali Defendant
6th February
2007
BEFORE: THE HONOURABLE MR. JUSTICE YOROKAMU
BAMWINE
J U D G M E N T:
The
plaintiff’s case against the defendants is that he borrowed Shs.26m
from the 1st defendant and as security therefore pledged
land comprised in Kyaggwe Block 110 Plots 1526 and 2282 at Seeta.
Without giving to him
notice of foreclosure, the 1st
defendant transferred the said land into his names. The 2nd
defendant bought the suit land from the 1st defendant.
At
the scheduling conference, the parties agreed that the plaintiff
borrowed from the 1st defendant a sum of Shs.20,000,000-
and pledged his land comprised in Kyaggwe Block 110 Plots 1526 and
2282 Land at Seeta. Parties
executed an agreement for Shs.26m and as
further security plaintiff deposited with 1st defendant
the certificates of title and duly signed transfer forms and a cheque
in the sum of Shs.26m. When the cheque was presented
for payment, it
bounced. On 13/9/2002, the 1st defendant transferred plot
1526 into his own names. On 30/9/2002 the 1st defendant
did like wise for plot 2282. On 17/2/2004, the land was transferred
from the 1st defendant to the 2nd defendant and
according to the transfer documents the consideration was Shs.20m.
The plaintiff got an evaluation of the property
and at the time of
the transfers the property was worth Shs.125m.
Issues:
1.
Whether the 1st defendant was entitled to transfer the
land into his own names.
2. Whether the 2nd defendant
was a bonafide purchaser.
3. Whether the plaintiff is entitled to
the remedies sought.
Counsel:
Mr. Ronald Ngobi for the
plaintiff.
Mr. Gideon Balinda for the 2nd
defendant.
Before I delve into the issues for determination
herein, I find it necessary to comment on two important aspects of
this case. The
first one is that the 1st defendant did not
participate in the proceedings. He is said to have disappeared after
transferring the land to the 2nd defendant. The second one
is that the facts disclose issues of Land and commercial justice. In
August 2004, the learned Registrar
of this Court referred the case to
the Civil Division of the High Court. On 28/10/2004, a Judge of the
Civil Division sent it back
to the Commercial Division after
observing:
"I have reviewed the pleadings and facts and consider this to be a commercial transaction involving a hybrid mortgage dealing and the consequences thereof. As such it is a commercial dispute to be dealt with in that Court. I direct file to be sent there for disposal."
I’m not sure that sending it back to the
Commercial Division as if the Civil Division does not at all handle
matters of Commercial
financial nature was the best course to take in
the circumstances of this case. Be that as it may, I will do the best
I can.
To appreciate what happened between the plaintiff and
the 1st defendant, I consider it necessary to reproduce
the Loan Agreement between them. It goes as follows:
"MONEY LENDING AGREEMENT
This agreement coming this 8th day of July 2002 between KIGOZI SAMUEL of P. O. Box 30220 Kampala ........... and Simon Kato Bugoba ..................................
WITNESSETH AS FOLLOWS:-
1. The lender hereby lends to the borrower at the borrower’s own request who hereby receives the sum of Shs.26,000,000- to be paid back to the lender within a period of 30 days from the date of signing of this agreement.
2. That the borrower guarantees as security for the repayment land and houses thereon comprised in Block 110 Plot 1526 and Block 110 Plot 2282 respectively, land at Seeta East Buganda Kyaggwe registered proprietor Simon Kato Bugoba and a post dated cheque No. 071747 of 26,000,000- (words) drawn on Nile Bank, Parliament Avenue Branch, Kampala and dated the 6th day of August 2002.
3. The borrower has surrendered to the lender two duplicate certificates of titles for the above security and has signed transfer and consent forms in favour of the lender at the signing of this agreement.
4. That if the borrower defaults, the lender is free to apply for and transfer the property into his names and takeover ownership thereof and or sell it to recover his outstanding amount plus costs and other related charges.
In witness whereof the above parties have hereto set their respective Lands the month and year first above mentioned.
Signed by the said
...........................
KIGOZI SAMUEL LENDER
Signed by
the said ..............................
SIMON KATO BUGOBA
BORROWER
All in the presence of
..........................
EDISON RUYONDO ADVOCATE"
Other
witnesses included one Kiwanuka and one Mulindwa.
In his
testimony, the plaintiff narrated how in 2002 he was looking for
someone to lend him money. Someone took him to the 1st
defendant. He lent him Shs.20m and they made an agreement to that
effect, P. Exhibit. 1. The agreement talks of Shs.26m. The difference
was interest. He was to pay it back in a period on one month. He
provided the aforementioned security and he was made to sign a
transfer
form, P. Exhibit. 111 but they did not date it. The transfer
was in favour of Kigozi. There were houses on the two properties.
Each
plot had 3. He admits that he failed to raise Kigozi’s money
in time. On failing to pay, Kigozi went straight to the Land Office
and transferred the two titles into his names. When he went to the
Land Office one and half months later, he found that the transfer
had
already been effected. Kigozi did not notify him that he was going to
transfer. On realizing that he had transferred, he put
a caveat. But
after the transfer, he, Kigozi, did not evict him from the land.
It
is his evidence further that on failing to raise the money, he
contacted Kigozi and they agreed that he, the plaintiff, sells one
plot with 3 houses on it. One broker called Mulindwa took him to
Conference Centre where Mbabali’s offices were. Mbabali offered
Shs.40m. The plaintiff wanted Shs.100m. In the course of time, he had
problems with Wembley people and went into hiding. By the time
he
came back, Mbabali had already bought the land.
Learned
counsel for the plaintiff has submitted that in view of the facts
above, the relationship of the plaintiff and the 1st
defendant was that of an equitable mortgagor and mortgagee as no
legal mortgage was executed by the parties. The law provides that
an
equitable mortgage of land may be made by the registered proprietor
of his/her certificate of title with intent to create security
thereon whether accompanied or not by a note or memorandum of
deposit. Every equitable mortgage as aforesaid shall be deemed to
create
an interest inland. From the pleadings and evidence of the
plaintiff, I accept counsel’s argument that the plaintiff and the
defendant
duly satisfied the provisions of the law as to creation of
an equitable mortgage. Was the 1st defendant then entitled
to transfer the land into his names?
I have addressed my mind
to the above issue. The absence of the 1st defendant both
as a party and a witness has not made my work any easier. But as
pointed out already, the loan agreement purported
to grant power to
the 1st defendant to transfer the land into his own names
and to this end the plaintiff signed transfer forms. During his
testimony, the
plaintiff said that he needed money urgently to grade
some land, which he hoped to sell and pay off the loan. He also
testified that
the document was drawn by the 1st
defendant’s lawyers and that the acquisition of the loan was
conditioned on the plaintiff’s signature on the loan agreement in
the words it was couched. Mr. Ruyondo who drafted the agreement for
the parties did not appear as a witness to challenge the plaintiff
on
that point. I’m inclined to the view espoused by counsel for the
plaintiff that clause 4 of the agreement did not entitle the
1st
defendant to transfer the land into his names and gain ownership
thereof. The lawyer who drafted the agreement on behalf of the
parties
ought to have been aware of the existence of S. 129 (2) of
the Registration of Titles Act which clearly states that an equitable
mortgage shall be deemed to create an interest in land. By
implication, after creation of the equitable mortgage the 1st
defendant had an interest in the land to the extent of the sum loaned
to the plaintiff. Upon default by the plaintiff, the remedies
open to
the 1st defendant were the ones set out in the Mortgage
Act. He could appoint a receiver; take possession of the mortgaged
land; and/or foreclose.
He did not do any of the above. He did not
follow any of the provisions of the law relating to realization of an
equitable mortgage.
It is immaterial that the plaintiff expressly
gave power to the 1st defendant to transfer the land into
his names. I say so because an equitable mortgagor has an equitable
right to redeem his property.
Any provision in the mortgage
purporting to oust that right would be invalid. The case cited to me
by counsel, Samuel –Vs- Jarrah Timber of Wood
Paving Corporation [1904] A.C. 323, is in my view
relevant to the facts herein. In that case, Lord Lindley explained:
The doctrine "once a mortgage always a mortgage" means that no contract between a mortgagor and a mortgagee made at the time of the mortgage and as part of the transaction or in other words, as one of the terms of the loan, can be valid if it prevents the mortgagor from getting back his property on paying off what is due on his security. Any bargain which has that effect is invalid, and is inconsistent with the transaction being a mortgage.
I agree. I would only add that the plaintiff had
secured his land as a mortgage. He was entitled to redeem it on
payment of the debt
in full at any time even after expiry of the
repayment date. The remedy available to Kigozi was not to go straight
to the Land Office
and transfer the land into his names but to apply
to Court to exercise the powers available to a mortgagee.
I would
answer the first issue in the negative and I do so.
As to
whether the 2nd defendant was a bonafide purchaser, I have
already stated that according to the plaintiff, on failing to raise
the 1st defendant’s money, he contacted Kigozi and they
agreed that he, the plaintiff, sells one plot with 3 houses on it.
From the plaintiff’s
own evidence, therefore, he intended to sell
one of the plots to pay off Kigozi. He claims that one Mulindwa took
him to Conference
Centre and introduced him to the 2nd
defendant who went and inspected the houses. He claims that Mbabali
wanted to buy both. I take the ‘both’ in his testimony to
refer
to the plots. He asked for Shs.100m but Mbabali offered Shs.40m. They
failed to agree and in the process of looking for other
buyers, he
had problems with Wembley people and went into hiding. The 2nd
defendant denied knowledge of the plaintiff prior to the purchase by
him of the suit property. Mulindwa who would have thrown more
light
on the matter did not appear as a witness. He was said to be ill.
I
have considered the plaintiff’s evidence that on learning about the
transfer to Kigozi he went to the Land Office and lodged a
caveat to
stop any further deals on the land until his dispute with Kigozi was
resolved. There is ample evidence that he did so.
A person with no
more interest in the land would not have done so. He testified that
he was not notified about the removal of the
caveats. The second
defendant has produced a notice to him to remove a caveat, D.
Exhibit. V, but there is nothing on it to show
that the plaintiff
ever received it. From the evidence, however, upon the caveats being
removed, the 2nd defendant became the registered owner of
both plots. The plaintiff is not happy about it. He claims that he
lost property worth Shs.125m
for a mere Shs.40m paid by the 2nd
defendant to Kigozi and yet he could have obtained a buyer and paid
the proceeds to Kigozi. I noted the demeanour of the plaintiff
as he
testified. I was of the view that he was a truthful witness for his
side. I accept his evidence that upon failing to pay, himself
and
Kigozi agreed that one plot be sold so that Kigozi is paid his
Shs.26m. I also accept the plaintiff’s evidence that the 2nd
defendant was contacted as a potential buyer and he showed interest
in the property. However, because of the problem he had with
Wembley
people, and because of the gap in the figures, the plaintiff did not
complete the deal with the 2nd defendant. It would appear
to me that Kigozi took advantage of the plaintiff’s absence not
only to conclude the deal with the 2nd defendant but also
to pay himself Shs.40m instead of the Shs.26m the plaintiff owed him.
From the above evidence, I reject the 2nd defendant’s
evidence that he did not know the plaintiff prior to purchasing the
suit property. I also accept the plaintiff’s
evidence that while
the property he had wanted sold comprised one plot, No. 1526, the 2nd
defendant ended up buying Plot No. 2282 as well. In law, a bonafide
purchaser is one without notice of fraud and without intent to
wrongfully acquire. A bona fide purchaser acquires good title
irrespective of the vendor’s defective title. From the evidence
presented
to Court, the 2nd defendant knew or had cause to
know that Kigozi was not the right person to sell the land in view of
the plaintiff’s interest in
it. He did in my view act dishonestly
towards the plaintiff. He took undue advantage of the plaintiff’s
absence after he had had
problems with Wembley people.
His
dishonesty is further reflected in his subsequent acts. Whereas he
claims that he inspected the suit property and found there
houses
with tenants in them, DW3 Okolong Charles who valued the property for
purposes of stamp duty and testified that he inspected
the suit
property in the company of the 2nd defendant said that the
property shown to him had incomplete houses at window level. DW3’s
evidence is clearly in sharp contrast
with that of the 2nd
defendant on the question of developments on the land. Learned
counsel for the plaintiff has submitted that in view of the evidence
of the plaintiff, DW1 Kyeyune Mbabali and DW2 Muyanja Mbabali
regarding the description of the suit property, it is clear that DW3
Okolong was shown different property. I accept that submission. It
appears to me that it is not only DW3 Okolong who was shown different
property but one Bwiragura as well. The irreconcilable evidence of
DW2 and DW3 on the issue of developments on the suit property
leads
one to no other conclusion but that the two were not talking about
the same property. In my view, the 2nd defendant’s act
of showing different property to the valuers smirks of dishonesty. I
would answer the 2nd issue in the negative and I do so.
I
now turn to the issue of reliefs.
The plaintiff’s head
prayers, are for declarations that the transfers of the land into the
names of the 1st defendant were illegal and orders that
they be cancelled.
The big problem lies here. It is the
plaintiff’s own evidence that upon failing to pay Kigozi in time,
they agreed that one Plot
be sold off. I have already accepted this
piece of evidence in favour of the plaintiff. I have also already
accepted the evidence
that the person contacted by the plaintiff and
Kigozi for purposes of buying that one Plot was the 2nd
defendant. They did not pursue the matter to completion due to the
stated supervening event of the Wembley people causing the plaintiff
to go into hiding.
From the evidence, the second defendant
paid Shs.40m for the two Plots but took the valuers to land whose
developments thereon were
in the region of Shs.26m. I accept the
plaintiff’s evidence that the land in dispute comprises six houses,
three on each certificate
of title. However, in the application for
transfer, the defendants indicated the land as undeveloped. The 2nd
defendant sought to shift the blame for this to his lawyers. I’m
unable to accept that. The lawyers must have acted on his
instructions.
He has been shown to have after all personally taken
the valuers to Seeta where he showed them different land. He cannot
attribute
that to his lawyers as well. After all, the principal who
does something through his agent must be deemed to have done it
himself.
Court is of the opinion that all this was done to conceal
from the valuers the fair market value of the suit property, a fact
that
cannot be over looked completely. I have addressed my mind to
all the above, including the fact that the interests of justice
require
that litigation between the same parties ought to indeed come
to an end, particularly so after the disappearance of the 1st
defendant on pocketing the sale proceeds. I have considered the fact
that the plaintiff had personally accepted to sell off Plot
1526 and
personally looked for the buyers. He failed to get a buyer that would
give him what he wanted. In my view, it matters less,
all factors
considered, that the eventual buyer was the 2nd defendant.
The plaintiff himself sought his involvement. Subject to what I’m
about to say in respect of Plot 2282, am of the considered
view that
the commercial justice of the case requires that the plaintiff’s
interest in Plot 1526 be foreclosed in the 1st defendant’s
favour for the loan amount from him to clothe him with power to
transfer it to the 2nd defendant. For this reason, I have
seen found no sufficient cause to interfere with the 2nd
defendant’s title in respect of that Plot. I would therefore
confirm the transfer in the 2nd defendant’s favour
together with the rent proceeds realised there from since 2004
to-date in full and final settlement of the plaintiff’s
indebtedness to Kigozi in respect of the loan amount and interest
to-date. I do so.
As for Plot 2282, Court considers the
falsification of the amounts paid by the 2nd defendant to
the 1st defendant, and the 2nd defendant’s
act of showing the valuers different property to impute knowledge on
the part of the 2nd defendant that the combined value of
the two Plots far exceeded the loan amount and/or the Shs.40m paid by
the 2nd defendant to the first defendant. The transfer to
the 2nd defendant in respect of this Plot cannot therefore
be upheld. I take cognizance of the fact that it is on Plot 2282 that
the plaintiff’s
family resides. The wife appears not to have been
consulted before the mortgaging of he matrimonial holding. The
evidence of the
plaintiff and that of the 2nd defendant is
inconclusive on this point, information that she filed a suit in
Jinja Court notwithstanding. For the reasons stated
above, I’m
inclined to cancel the transfer in the 2nd defendant’s
favour in respect of Plot 2282 and restore it to the plaintiff. I do
so. He shall be at liberty to seek restoration
of his name in the
Register Book as by law established.
The above two orders do
in my view dispose of prayers (c) and (d), in the plaint and (a) and
(b), in the defendant’s counterclaim.
Prayer (c) in the counter
claim is allowed in as far as it relates to Plot 1526. Prayers (d)
and (e) in the counterclaim are disallowed.
The plaintiff has
prayed for general damages and costs. Given the role played by each
in the entire saga, especially the plaintiff’s
ill-advised signing
of the transfer forms in favour of the 1st defendant as if
the loan was a matter of life or death; and the 2nd
defendant’s afore said dishonest acts, I do not consider this case
to be a proper one for the award of general damages and/or costs
to
either party. There will be no order as to general damages and each
party shall bear its own costs. I order so.
Yorokamu
Bamwine
J U D G E
Order: This judgment shall be
delivered on my behalf by the Registrar of this Court on the due
date.
Yorokamu Bamwine
J U D G E
6/2/2007
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