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Last Updated: 25 May 2007
Bank Of Baroda (U) Ltd-V- Mpungu & Sons
Transporters Ltd- HCT-00-CC-CS-092-1997 [2007] UGCommC 16 (20
February 2007)
THE REPUBLIC OF UGANDA
IN THE HIGH
COURT OF UGANDA AT KAMPALA
(COMMERCIAL COURT
DIVISION)
HCT-00-CC-CS-0921-1997
Bank Of Baroda
(U) Ltd Plaintiff
Versus
1. Mpungu & Sons Transporters
Ltd
2. Justine Nalunkuma Iga
3. George William Mpungu
4.
Sserunkuma Phillip Defendants
20 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 for recovery from them a sum of Shs.141,944,136-,
together with interest thereon
at the rate of 24% p.a. from 30th
May 1997 till payment in full and costs of the suit. The said debt
arose out of loans of Shs.30,000,000- and Shs.60,000,000- which
were
granted to the first defendant by the plaintiff on 17/6/1993 and
29/12/1994 respectively. The 2nd, 3rd and 4th
defendants guaranteed the repayment of the said loans.
The
first scheduling conference was conducted before another Judge on
31/3/2003. When I took over the case in August 2005, it became
necessary to re-do it. At this subsequent scheduling conference, the
following matters were agreed upon by the parties:
1. Loans were
taken as pleaded.
2. The loans were secured by personal guarantees
and debenture executed by the first defendant.
3. Other than the
amount realised from the sale of the Motor vehicle, the loan balance
is still due and outstanding.
4. The plaintiff holds an equitable
mortgage over a certificate of title deposited with the
plaintiff.
The following issues were agreed upon for Court’s
determination:
1. Whether the defendants are indebted to the
plaintiff, and if so, to what extent.
2. Whether the 3rd
defendant (in the counter claim) is liable on the loan.
3. Whether
the sale of the 1st defendants motor vehicle was
lawful.
4. Whether the plaintiff is liable in conversion.
5.
Remedies, if any.
Counsel:
Mr. John Fisher
Kanyemibwa for the plaintiff.
Mr. Edward Mugogo for the
defendants.
Before I consider the evidence adduced by the
parties in support of their respective claims, I find it necessary to
warn myself on
the burden of proof and the standard thereof.
In
law a fact is said to be proved when Court is satisfied as to its
truth. The general rule is that the burden of proof lies on the
party
who asserts the affirmative of the issue or question in dispute. When
that party adduces evidence sufficient to raise a presumption
that
what he asserts is true, he is said to shift the burden of proof:
that is, his allegation is presumed to be true, unless his
opponent
adduces evidence to rebut that presumption. The standard of proof is
on a balance of probabilities. Relating this principle
to the instant
case, the plaintiff has alleged that the defendants are liable to him
in the sum of Shs.141,944,136- as at the time
of filing the suit in
1997. The burden lies on it to prove that allegation.
As to
whether the defendants are indebted to the plaintiff, and if so, to
what extent.
The case for the plaintiff is mainly based on the
testimony of PW1 Alison Mutakirwa and a number of exhibits. The said
PW1 Mutakirwa
is an employee of the plaintiff, a banking institution.
By the time she appeared as a witness on 1/6/2006, she had, according
to
her, clocked 19 years with the plaintiff. By 1994 she was a Credit
Officer, among other duties, appraising loans and over draft
proposals.
It is her testimony that the first defendant was their
customer. They approached the bank for a facility between 1992 –
94. Addressing
herself specifically to 1994, she said that the
defendants approached the bank for a facility of Shs.90m. The money,
according to
P. Exh. XV, was for purchase of a bus. She appraised the
application and recommended them for a lesser sum of Shs.60m. She did
so
because the company had other outstanding loan which it was
servicing. These were loans of Shs.40m and Shs.30m respectively. The
loan of Shs.30m was formally sanctioned on 11/6/93 and disbursed on
17/6/93. Before then, they had a loan of Shs.40m which they had
got
on 4/6/92.
For the Shs.30m loan, personal guarantors were the
directors, floating debenture and mortgages on some property, namely,
Plot 347
Block 187 Kasangati, Plot 86 Block 53 Kyadondo and Plot 692
Block 57 Bulemezi.
She looked at P. Exh. 11 and identified it
as the debenture, a floating one on the company’s assets both
present and future. It
is her evidence further that at the time the
loan of Shs.60m was approved in favour of the defendants, the
outstanding amount on
the previous loans was Shs.61,164,107-. Then
another loan was sanctioned on 23/8/94 and disbursed on 29/12/94. The
said outstanding
amount of Shs.61,164,107- was as at 9/3/94. The
witness was shown P. Exh. 111, a Bank Statement, which according to
her shows that
by 31/7/97, the principal amount outstanding on this
loan was Shs.85,211,813-, exclusive of interest between 1/10/96 to
31/7/97.
I have considered the evidence of PW1 Mutakirwa. Although
she was clearly involved in the loan appraisals, it would appear that
she
was not involved in the processing of documents on which the
plaintiff’s claim of Shs.141,944,136- is based. I have also looked
at the bank statements annexed to the plaintiff’s plaint. According
to annextures ‘D’ and ‘E’ to the plaint, collectively
marked
P. Exh. 111 at the scheduling conference, as at 9/3/93, one account
operated by the 1st defendant opens with a debit balance
of Shs.47,675,585- as at 9/3/93 and closes with a debit balance of
Shs.56,732,323- as at 31/5/97.
The calculation of interest on this
account ceased effective 1/6/96. The other statement is for a period
between 29/12/94 and 31/7/97.
It opens with a debit balance of
Shs.60m and closes with a debit balance of Shs.85,211,813- as at
31/5/97. Calculation of interest
on this account ceased effective
1/10/96. The plaintiff is bound by its own pleadings. The question
whether the defendants are liable
to the plaintiff in the sum claimed
or at all must be determined on the pleadings and the evidence; on
the pleadings, upon the presumption
that any express or implied
allegations of fact in it are true; and, on the evidence, upon the
presumption that the figure of Shs.141,944,136-
was arrived at by an
expert in that area, which Court is not, after taking into account
all the relevant factors, including the contractual
arrangement
between them as to how the interest would be calculated.
The
two amounts (that is, Shs.56,732,323- and Shs.85,211,813-) give a
total of Shs.141,944,136-, the exact amount claimed by the plaintiff
in the plaint. The defendants have not challenged the method used by
the plaintiff to arrive at this figure. According to the evidence
of
PW2 Mawanda, the bus was sold on 2/4/97 at a price of Shs.35m. The
amount was received by the plaintiff, according to the evidence
of
PW1 Mutakirwa. The money was paid in 3 instalments of Shs.20m on
11/4/97; Shs.5m on 23/7/97; and Shs.10m on 11/12/97. From the
records, the bank statements give the position as at 31/7/97. The
suit was filed on 19/9/97. The figure of Shs.141,944,136-, therefore,
included the Shs.20m realised from the sale of the bus. The other
amounts, that is, Shs.5m and Shs.10m appear not to be accounted
for,
going by the same bank statements. In these circumstances, Court is
satisfied that as at the time of filing the suit, the defendants
loan
accounts had a debit balance of Shs.136,944,136-. Upon the payment of
Shs.10,000,000- also from the bus sale proceeds, the amount
was
reduced to Shs.126,944,136- which the plaintiff is in, my view
justified to claim from the defendants.
PW1 Mutakirwa
testified that as at 1/6/2006, the total indebtedness was
Shs.467,616,829-. I have been invited to find that this is
the
outstanding amount. The figure includes interest from the date of
filing to-date, which interest is clearly disputed by the defendants
although it was not framed as a specific issue for Court’s
determination. In my view, subject to the Court’s finding on the
issue
of interest at a later stage of this judgment, the plaintiff
has proved to the satisfaction of the Court on the balance of
probabilities
that the amount claimed in the plaint, that is,
Shs.141,944,136-, less a sum of Shs.15,000,000- being the balance on
the bus sale
proceeds is still due and owing from the defendants. I
say that it is owing from the defendants because the 2nd,
3rd and 4th defendants guaranteed the repayment
on the loan. This fact was admitted at the scheduling conference. The
guarantors are therefore
equally liable with the principal, the first
defendant, on the said loan facilities. I so find and hold that from
the evidence, the
outstanding amount is Shs.126,944, 136-.
As
to whether the 3rd defendant (in the counter claim) is
liable on the loan, the said 3rd defendant on the
counterclaim is the administrator of the estate of Amos Sekitende
Salongo. In para 10 of the suit by way of counter
claim, the 1st
defendant (Mpungu & Sons Transporters Limited) claimed that it
was entitled to a declaration that the 3rd defendant (on
the counter claim) should contribute towards the payment of the loan
of Shs.60m in proportions as this Honourable Court
may determine.
There is no evidence to show that the plaintiff on the counter claim
made any effort to serve any Court process under
this suit on the
said 3rd defendant on the counter claim.
Before
the plaintiff’s case opened, counsel for the defendants informed
Court thus:
"If we don’t bring a representative of the estate of late Amos Sekitende Salongo next time, we shall drop claim against him and therefore issue No. 2."
The said representative was never brought. The
presumption is that the plaintiff on the counter claim (Mpungu &
Sons Transporters
Ltd) abandoned the pursuit of the said issue. The
said issue is accordingly struck out and no finding made in respect
of that claim
in the counter claim.
As to whether the sale of
the first defendant’s motor vehicle was lawful, from the defence
pleadings, the sale of the Isuzu bus
Reg. No. 422 UAR by the
plaintiff is challenged on the following grounds:
(a). That the
said vehicle was never part of the securities offered by the 1st
defendant to the plaintiff. The first defendant contends that the
only security offered to the plaintiff was land comprised in Plot
116
Block 185 Buddu;
(b). The said vehicle was pledged by the 1st
defendant to UCB and not the plaintiff, that the plaintiff did not
finance the purchase of the said vehicle;
(c). The said vehicle
was undersold by the plaintiff;
(d). The second defendant to the
counter claim (an agent of the plaintiff) to his in-law at a
ridiculously low price; and
(e). The said vehicle was not sold at
an auction.
The plaintiff contends that it was at all times
entitled to sell the first defendant’s vehicle under a Debenture
Deed, P. Exh. 11,
securing a loan of Shs.30m. The certificate of
Registration of the Debenture is part of the said Exhibit. There is
also the Instrument
of Hypothecation dated 12/12/94, P. Exh. V11,
which the plaintiff relies on.
I have seen the Debenture Deed
P. Exh. 11. It is dated 31/8/93. It was executed between Mpungu &
Sons Transporters Ltd and the
plaintiff. It provides (Clause 3
thereof):
"3. The borrower hereby charges in favour of the Bank all its undertaking, good will, plant machinery, current assets, uncalled capital and all other movable assets, and property whatsoever both present and future ................."
From the above, Court is satisfied that the
first defendant’s assets, in existence at the time of the execution
of the said deed
and those it would own in future were charged to the
bank. Accordingly, for as long as the said debenture remained
unsettled, and
it is an admitted fact that other than the amount
realised from the sale of the first defendant’s motor vehicle the
loan balance
is still due and outstanding, any moveable assets
subsequently acquired by the first defendant were subject of the
charge under the
said debenture. Under clause 9, the parties agreed
that the bank could sell any such property by public auction or
private treaty.
In these circumstances, there is no merit in the
defendants’ argument that the said vehicle was not sold at an
auction. Public
auction was not the only agreed mode of selling any
such asset.
There was an attempt by Mr. Mpungu to show that by
the time the parties went in for the second loan of Shs.60m the first
one had been
paid. This is of course a self defeating argument
considering the admitted facts at the scheduling conference, and P.
Exh. IV, a
collection of letters dated 21/7/94, 17/8/94 and 19/8/94
(among others) in which the first defendant clearly admits that it
had an
outstanding loan of Shs.45m at the time it was applying for a
loan of Shs.60m to purchase the Isuzu Bus.
The same said Mr.
Mpungu (DW1) testified that the loan of Shs.30m was repaid and the
securities in respect thereof returned to the
first defendant. My
understanding of D. Exh. IV, an undertaking by the 1st
defendant, is that the title deeds in question were released to the
first defendant on the understanding that as soon as UCB gave
them a
cheque of Shs.50m, they would take the money and pay it to the
plaintiff through Hunter & Greig Advocates. The language
used in
the document is plain and unambiguous. It admits of no other
interpretation. It did not, in my view, discharge the first
defendant
from its liability under the debenture.
In his testimony Mr.
Mpungu (DW1) claimed that the said vehicle was pledged by the first
defendant to UCB and not the plaintiff bank.
By this assertion, DW1
is saying that the said vehicle was not available to the plaintiff
bank under the said debenture.
I have perused the letter
relied on by the 1st defendant, D. Exh. X1. It is dated
7th September, 1994. It makes reference to a letter from
them (UCB) dated 22/12/93 offering the 1st defendant a
facility of Shs.50m to purchase one unit of an Isuzu Bus. It states
that due to some over sight on their part, the bus
had not been
registered in the name of the bank. He was accordingly being asked to
surrender its log book not later than 15th September,
1994. From the records, however, the Isuzu Bus which was sold by the
plaintiff bank arrived in Uganda in December 1994.
In my view, a
vehicle which had not arrived in the country by December 1994 could
not have been having a log book which the first
defendant was being
asked to surrender to UCB by September 1994.
I have been asked
by learned counsel for the plaintiff to find that the vehicle sold by
the plaintiff is not the vehicle which UCB
was threatening to impound
if the first defendant did not surrender its log book and transfer
forms by 15/9/94. I find so. For as
long as by 15/9/1994 the vehicle
sold by the plaintiff had not been imported into the country, it
could not have been the subject
matter of D. Exh. X1. My resolve in
this regard is strengthened by a letter dated November 28th,
1994, part of D. Exh. X11. It is from General Motors Kenya Ltd and
addressed to the 1st defendant. It reads:
"Dear Sir,
RE: MPUNGU BUS NO. 2
Sir, please refer to your letter dated November, 25, 1994 on the above mentioned matter.
We are pleased to confirm to you that your second bus will be ready on the 7th December, 1994.
Please kindly liaise with your Bankers to ensure full payment before the date indicated above.
Thank you.
Yours faithfully,
MUTISYA A. KILONZO."
From this letter, Court is satisfied that prior to
the arrival of the impugned bus in the country, the defendants had
imported from
the same supplier a different bus. Court is satisfied
that the bus sold by the plaintiff was the second bus in D.
Exh. X11. It was not the subject matter of the pledge to UCB. On the
balance of probabilities, what was pledged to UCB was
the one
imported previous to the second one, the one that was in the country
by September 1994. I so find. In the absence of any
evidence that at
the time of the sale UCB protested the sale or ever did so
subsequently, Court is of the considered view that the
claim peddled
by the defendants that UCB had any interest in it is false. It is not
supported by any credible evidence.
As to whether the vehicle was
under sold, there is evidence that it was advertised for sale in the
New Vision of 21/3/1997. There
is evidence that it was sold at a
public auction conducted by DW2 on 2/4/97. The highest bidder paid
Shs.35m. The Chief Government
Mechanical Engineer assessed its value
at Shs.20m. DW2 Muhumuza did not carry out the valuation. The
valuation was carried out by
one David Sempa. The person who assessed
it has since died. Therefore, the assessed value of Shs.70m has not
been substantiated.
Court asked DW2 Muhumuza as to the likely forced
value in view of the market value attached to it by Sempa. His view
was that in
practice the forced sale value would be about 40% of its
market value.
Learned counsel for the defendants has submitted
that 40% of Shs.70,000,000- is Shs.42,000,000-. He is as wrong on
that as his reference
to a Judge of this Court as ‘Your Worship’
in his written submissions opening address. The correct figure is
Shs.28,000,000-,
implying that the amount realised from the vehicle
was more than its forced sale value at the time. The vehicle was sold
in forced
sale circumstances.
As to whether the sale was to an
in-law, no evidence was adduced to that effect. The claim that it was
sold at a ridiculously low
price is devoid of any merit in view of
the credible and unchallenged evidence of PW3, the Chief Government
Mechanical Engineer.
In all these circumstances, the counter
claimants have not proved any of the allegations made in the counter
claim.
It has been submitted by learned counsel for the
defendants that the loans to the 1st defendant were fully
secured and that the plaintiff should have disposed of the same
securities before suing the defendants. This
argument must also fail.
A mortgagee has several options of recovering loans under the
mortgage, including a suit against the defaulter.
There is evidence
that the securities held by the plaintiff in respect of the loans
were advertised for sale but they did not attract
any bidders. I
accept the evidence of PW1 Mutakirwa on this point and also that of
PW2, the auctioneer instructed by the plaintiff
to sell the said
securities, on the unmarketability of the said securities. In any
case, Court has not been appraised of any agreement
between the
parties that in the event of a default, Courts of law would have no
jurisdiction over the matter till after the sale
of the said
securities. Such agreement, if it existed, would be contestable.
As
regards interest, learned counsel for the defendants has argued that
the first defendant’s account was prudentially closed in
1997 and
that interest on loans advanced by the plaintiff to the first
defendant ceased to accrue in 1997. In response, Mr. Kanyemibwa
has
submitted that Bank of Uganda Prudential Norms on Assets Quality for
Financial Institutions obliges a financial institution to
recover
both principal and interest on prudentially closed accounts. His
submission is supported by the decision of this Court in
Pearl
Motors Limited –Vs- Bank of Baroda (U) Ltd HCCS No. 562 of
1996 (un reported). In that case the plaintiff raised an argument
as herein and it was rejected. The Court, per C.A. Okello, J.
observed
that the Regulation is a best practice measure designed to
ensure that as between BOU and commercial banks, the books of
accounts
show the commercial bank’s current financial position. It
is therefore a document for the internal management of a commercial
bank
which does not affect the contractual relationship that a
commercial bank may have with a customer. I’m of the same view. In
the
instant case, however, I notice that for close to 10 years now
the case has remained undecided. This in my view does not give credit
to the parties or even the judicial system. What was in the region of
Shs.141m is now estimated to be in the region of Shs.400m thanks
to a
myriad of factors that have contributed to the delay of the case in
Court. In these circumstances, I think the justice of the
case
warrants that interest be deemed discretionary on equitable
considerations. Lord Denning in the case of Harbutts
‘Plasticide’ Ltd –Vs- Wyne Tank and Pump Co. Ltd [1970] 1
ALL ER 225 held:
"...An award of interest is discretionary. It seems to me that the basis of an award of interest is that the defendant has kept the plaintiff out of his money; and the defendant has had use of it himself. So he ought to compensate the plaintiff accordingly."
I agree.
In the instant case, Court is
more than certain that the defendants did not derive much benefit
from the loans. Not long after the
bus came, it was impounded and
sold. The problem was compounded by the plaintiff’s acceptance of
valueless securities which the
bank cannot sell now to realize the
amount due. The bank does not earn credit for granting a loan on
securities with no sale value.
Liability was then disputed, implying
that reliefs had to be determined by Court. The right to those
reliefs does not normally arise
until they are assessed by Court. I
would in the unique circumstances of this case award interest from
the date of judgment and not
from the date of filing. I do so.
The
plaintiff shall be entitled to the rate of interest prayed for (that
is, 24% per annum) from the date of judgment till payment
in full.
The plaintiff shall also have the costs of the suit.
There
being no merit in the counter claim, it is dismissed with costs to
the plaintiff/1st defendant in the counter claim, and the
2nd defendant in the counter claim.
In the final
result, judgment is entered for the plaintiff against the defendants,
jointly and severally, in the following terms:
(i). Special
damages: Shs.126,944,136-.
(ii). Interest thereon at the rate of
24% p.a. from the date of judgment till payment in full.
(iii).
Costs of the suit and counter claim.
Yorokamu Bamwine
J
U D G E
20/02/2007
20/02/2007
Mr. Kanyemibwa for the
plaintiff.
Mr. Mugogo for the defendants.
3rd
defendant present.
Court: Judgment
delivered.
Yorokamu Bamwine
J U D G E
20/02/2007
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