THE REPUBLIC OF UGANDA,
IN THE HIGH COURT OF UGANDA AT KAMPALA
CIVIL SUIT NO 483 OF 2005
VISIT AFRICA LIMITED}..................................................................PLAINTIFF
THE MANAGEMENT COMMITTEE}
SHIMONI DEMONSTRATION SCHOOL}.........................................DEFENDANT
BEFORE HON MR. JUSTICE CHRISTOPHER MADRAMA IZAMA
The Plaintiffs suit against the defendant as disclosed in the amended plaint is for payment of Uganda shillings 140,592,150/=, general damages, interest and costs of the suit. The facts disclosed in the plaint are that by a hire purchase contract dated 17th of July 2001 executed between the plaintiff and the Royal Compu Enterprises Ltd (referred to as the supplier company) the defendant acted as a guarantor and surety for the supplier company guaranteeing payments to the plaintiff on items purchased on hire purchase terms supplied to the defendant school. The defendant has since 18 February 2002 paid only Uganda shillings 4,000,000/= despite various reminders. It was agreed that interest of 10% per month would be chargeable upon default in payment calculated from the first day after the due date and thereafter a weekly delay fees of Uganda shillings 25,000/= was chargeable. Consequently an accumulated balance of Uganda shillings 140,592,150/= was due by August 2003. The plaintiff further claims general damages for financial constraints suffered and interest at court rate from the date of judgement till payment in full.
The written statement of defence of the defendant avers that the suit against the defendant is not sustainable in law. Liability was completely denied on the ground that the first defendant has never guaranteed payment of any amount claimed. If there was such a guarantee, the people who executed it were acting on their own behalf without authority of the defendant and the defendant was not liable.
At the hearing the plaintiff was represented by Counsel Godfrey Luwalinda while the defendant was represented by Counsel Barnard Mutyaba.
Counsels filed written submissions after the closure of the respective cases. The plaintiff’s case is that the supplier company supplied several IBM computers and accessories to the defendant for a consideration of Uganda shillings 14,182,275/= on hire purchase terms. The plaintiff acknowledge the receipt of Uganda shillings 3,000,000/= leaving a balance of Uganda shillings 11,182,275/=. In the agreement exhibit P1 interests of 10% per month would be chargeable upon default in payment calculated from the first day after the due date and then a weekly delay fee of Uganda shillings 25,000/= would be charged which led to the accumulation of the balance of Uganda shillings 140,592,150/= due for payment by August 2003, the money claimed by the plaintiff in the suit. The following issues were agreed upon namely:
Whether or not the defendant is liable to pay the plaintiffs monies arising from the guarantee agreement dated 17th of July 2001 as claimed?
What remedies are available to the parties?
Whether or not the defendant is liable to pay for the plaintiffs monies arising from the guarantee agreement dated 17th of July 2001 as claimed?
The plaintiff's counsel relied on the testimony of the plaintiff's managing director Mr Alex Mutaremwa that the supplier company approached the company to supply them with the computers as the defendant school wanted them and that the said company had requested for 19 computers but it was later agreed that the supplier supplies only 15. Before supply of the items, the plaintiff obtained a guarantee from the defendant and the headmaster of the school one Gerald Musaazi who signed the guarantee agreement dated 17th of July 2001 exhibit P10. The principal debtor failed to pay the plaintiff company and the defendant/guarantor issued a cheque which bounced. The cheque was worth Uganda shillings 3,000,000/= and upon notification, the defendant started paying cash to the plaintiff. The monies were always paid by the headmaster of the school bursar. The monies were always paid by the headmaster of the defendant or the school bursar and the plaintiff then issued the receipts to the defendant. The plaintiff relied on the evidence of the bounced cheque issued by the PTA of the defendant.
The crux of the plaintiff’s case is that the defendant guaranteed payment under the contract between the plaintiff and the supplier company. The defendant should not avoid liability by asserting that the headmaster did not act without the requisite authority in signing the hire purchase agreement as a guarantor.
In reply the defendants counsel primarily raised questions of law as a defence and did not dispute the averments in the plaint as such. The basis of the plaintiffs claim is an agreement dated 17th of July 2001 exhibit P 10 in which it is claimed that the defendant guaranteed payments there under. The first contention of the defendant is that in exhibit P 10 Royal Compu Enterprises is not a party to the alleged the guarantee on which the plaintiff is basing its claim. The alleged the party is a limited liability company Royal Compu Enterprises Ltd. Consequently the application of the provisions of the agreement to Royal Compu Enterprises cannot be sustained and therefore it cannot apply to the defendant.
Secondly if any of the contracts was enforceable against the defendant, no court should allow an interest at 10% per month as that would be usury because it would be tantamount to charging interest of over 75% per annum.
Thirdly the defendants counsel contended that the alleged cheques which were issued as payment were PTA cheques payable to Jasper Anderson. Secondly the receipts allegedly issued were issued by another company altogether namely Visit Africa Entebbe Ltd and not the plaintiff sought the payments were not intended for the plaintiff.
Fourthly documents exhibit P1, P2, P3, before, P5, P6, P7, P8 and P9 witness handing over of computers by the plaintiff to Royal Compu Enterprises, and the late Musaazi Wasswa signed as a witness and not guarantor. Furthermore the headmaster has no power to commit the Management Committee of the defendant under regulation 3 (2) of The Education (Management Committees) Regulations Statutory Instrument 127 – 3. A headmaster is not a member of the Management Committee. A headmaster cannot even vote at the committee meetings and may be excluded from the meeting. The headmaster is only the Secretary and cannot commit the management committee.
In rejoinder the plaintiff submitted that the suit against the defendant is for failure to pay the claimed sum, general damages, interests and costs of the suit in which the defendant acted as a guarantor of one Mulumba Patrick trading as Royal Compu Enterprises Ltd. This is reflected in exhibit P10. The said Mulumba Patrick was a director of the company. The computers were delivered to the defendant school. Consequently the plaintiff knew that it dealt with the defendant. Counsel reiterated submissions that the defendant should not shelter behind its own internal mismanagement to cheat outsiders who dealt with its agent bona fides and honestly.
As far as charging of interest at 10% per month as an overcharge is concerned, the transaction was a hire purchase transaction to which the plaintiff was entitled to charge interest. The interest charged was fair and justifiable in an economic sense. Moreover there was freedom of contract and the defendant ought to have objected to the interest at the time of signing the contract and not guaranteed payment to the plaintiff. Moreover the defendant acknowledged that it had paid the cheque to one of the former directors of the plaintiff Mr Jesper Andersen.
The plaintiff owns visit Africa Entebbe Ltd as the subsidiary and issuance of the receipt does not avoid the liability of the defendant as a guarantor. As far as the exhibits P1 – P9 are concerned, the computers were delivered to the defendant school. The actions of the headmaster prove that he dealt with the plaintiff company not in breach of any known commercial rules and practice. Counsel relied on the doctrine in the case of Royal British Bank versus Turquand (1856) 6 E & B 327 for the assertion that persons contracting with a company/body and dealing in good faith may assume that the parties with whom they deal acted within the constitution of the company and were not required to inquire into the internal management of the company. Counsel further relied on article 126 (2) (6) of the Constitution of the Republic of Uganda for the submission that the court has mandate to look at the substance of the dispute without regard to technicalities. Consequently the Education (Management Committee) Regulations rule 3 thereof should not be used to defeat the guarantee agreement and the defendant should be bound by the acts of the head teacher who is a Secretary to the Management Committee.
I have carefully considered the submissions of the defendant and the response thereto by the plaintiff's counsel. As noted earlier the submissions amount to points of law.
The plaintiff called one witness, its managing director PW1 Mr. Mutaremwa Alex. In brief his testimony was that Royal Compu Enterprises Ltd had a dispute with the school/defendant. Royal Compu Enterprises did not pay the instalment payments under the hire purchase contract and the school/defendant which was the guarantor started paying. The defendant paid up to about 9 million Uganda shillings. Some cheques were issued by the PTA. Copies of receipts were tendered in evidence as exhibits P13, P 14 and exhibit P 15. They were issued to Shimoni Demonstration School by the plaintiff who is described as Visit Africa Entebbe Ltd. The witness stated in cross examination that this was a subsidiary or sister company. Royal Compu Enterprises Ltd sued the defendant in court and won the case. On cross examination PW1 testified that when Mr Patrick Mulumba of Royal Compu Enterprises Ltd failed to pay, the plaintiff resorted to the guarantor. He admitted through exhibit D1 a consent withdrawal of the plaintiff’s suit against Mr Patrick Mulumba.
On the other hand DW1 Mr. Buyinza John the head teacher of the defendant's school replaced Mr Wasswa Musaazi. He testified that there was no resolution from the Management Committee of the defendant approving resolving that the headmaster signs on behalf of the defendant as the guarantors to the hire purchase agreement. Secondly the school was not the beneficiary of the computers and payments were made by PTA and not the Management Committee of the defendant. In cross examination he admitted that the head teacher was responsible for paying suppliers. Secondly Royal Compu Enterprises Ltd was paid by the defendant for services rendered to the school. The computers were never handed over to him and where the property of Royal Compu Enterprises Ltd. Lastly he testified that there was no authorisation from the Ministry of education to levy any fees for the computer program.
Apparently the defendant does not dispute the facts asserted by the plaintiff in the plaint. I would therefore review the submissions by examining exhibit P10 which is the foundation of the plaintiff’s case.
Exhibit P 10 is entitled "Hire Purchase Contract." It is executed between the Visit Africa Ltd represented by Mr Jesper Nymand-Andersen and Royal Compu Enterprises Ltd. It further provides that Shimoni Demonstration School: “is acting as a personal guarantor and surety for the fulfilment of all payments. Alternatively a six-month post dated cheque of 50% of the contracted amount shall be deposited”. The agreement was for a total of 19,355,000/=. The Hire Purchaser, Royal Compu Enterprises Ltd, was to fulfil obligations of payment by issuing instalment payments to the bankers of Visit Africa Limited. The duration of the hire purchase agreement was 28 months. Specific dates or schedule of payment ranging from 15 August 2001 and ending on 1 June 2003 provided for as follows:
15th August 2001 to pay Uganda shillings 1,500,000/=
20th September 2001 to pay Uganda shillings 2,220,500/=
10th October 2001 to pay Uganda Shillings 2,220,000/=
1st February 2002 to pay Uganda shillings 3,226,000/=
1st June 2002 to pay Uganda shillings 3,226,000/=
1st October 2002 to pay Uganda shillings 3,226,000/=
1st February 2003 to pay Uganda shillings 3,226,000/= and finally
1st June 2003 to pay Uganda shillings 3,226,000/=
The hire purchase contract provides that in the case of delay in the instalment payments according to the dates of payments recorded, the plaintiff would charge a weekly delay fee of Uganda shillings 25,000/= in addition to an interest fee of 10% monthly from the first day of every maturity date of the instalment payment. Last but not least as far as is relevant to the resolution of issues in this suit, provision is made for the termination of the agreement in the following terms:
"TERMINATION. The supplier VISIT AFRICA LIMITED CANNOT TERMINATE THIS HIRE/PURCHASE CONTRACT, if the Hire/Purchaser fulfil his payment obligations. The hire/purchaser can however terminate the contract, at any given time, though subjected to the client’s prior written notice of 3 monthly payments sent via EMS to Visit Africa Limited PO Box 841 Entebbe, as the date noted by EMS shall determine the final dates of payment obligations of the Hire/Purchaser. The client is therefore liable for minimum three months hire in addition to the value of any missing items of damages to/re-installation of programs of the equipment specified in the contract. The client shall return the equipment at his costs to Visit Africa Limited before or latest on the date of the final payment. If returned later than three days hence this deadline, the client shall be liable to yet another month of hire."
On the last page of the agreement the supplier is described as Visit Africa Limited and they hire purchaser as Royal Compu Enterprises Ltd. Under the contract Royal Compu Enterprises Ltd the client is described as Mulumba Patrick. The guarantor has the names Musaazi Wasswa headmaster Shimoni Demonstration School. It also has the stamp of the headmaster of the school. Further exhibits are delivery notes issued by Visit Africa Limited/the plaintiff. Exhibit P1 is a delivery note issued to the client Mr Mulumba Patrick for the delivery of 2 IBM computers and some accessories. It is witnessed by the headmaster Mr Musaazi Wasswa. Exhibit P2 is also delivering computers and accessories to Mr Mulumba Patrick. Exhibit P3, P4, P5, P6, P7, P8 and P9 all deliver computers and accessories to Mr Mulumba Patrick and are witnessed by the same persons.
Going back to the submission of the defendants counsel that the Royal Compu Enterprises is not a party to the hire purchase agreement, this is true. The party to the hire purchase agreement is Royal Compu Enterprises Ltd. The client who signed at the signature page of exhibit P10 being the Hire/Purchase contract is Royal Compu Enterprises Ltd and thereafter the client is described as Mulumba Patrick on the same signature page below the signature of the Hire/Purchaser. A critical examination of exhibit P10 shows that Mulumba Patrick signed on behalf of Royal Compu Enterprises Ltd which is also described as the client. This is demonstrated by the signature of the plaintiff namely Visit Africa Limited described as the supplier and below is a written Visit Africa Limited and further below is written in the names of the managing director who signed just like Mulumba Patrick signed on behalf of Royal Compu Enterprises Ltd.
The submission of the defendants counsel that the Royal Compu Enterprises is not a party cannot be sustained because the suit is against the defendant as a guarantor for payments under the Hire Purchase Contract. And the defendant concedes in the written submissions of the defendants counsel that the proper party to the hire purchase contract is Royal Compu Enterprises Ltd. The defendant is a guarantor of the party named in the hire purchase agreement. The only aspect that needs to be resolved is the question of delivery of the computers to Mr Mulumba Patrick. Evidence on record shows that Royal Compu Enterprises Ltd ran a program for training of pupils in the defendant's school. This leads to a valid inference of fact that the computers delivered to Mr Mulumba Patrick were used for the training program. I will return to this point later after examination of other exhibits showing what kind of program was being run by Royal Compu Enterprises Ltd.
The agreed documents show that in miscellaneous application number 811 of 2002 arising from High Court civil suit number 653 of 2002, the defendant applied to set aside a default judgement entered on 13 November 2002 in a suit brought by Royal Compu Enterprises Ltd against the defendant. The ruling of honourable Mr Justice James Ogoola dated 11 July 2003 reviews the matter. Judgement had been entered upon the failure of the defendant to file a defence after being served. The defendant indicated that the headmaster was duly served with process but misplaced the summons and forgot to bring its contents to the attention of the school's management committee. Secondly the contract relied upon by the respondent namely Royal Compu Enterprises Ltd was illegal because it lacks the requisite ministerial approval. It could not bind the management committee which was not privy to the contract.
On the question of the authority of the headmaster at page 9 of the ruling the honourable judge ruled as follows:
"… It is even more incomprehensible why the school went along with the program for so long without calling the matter to a halt. Instead, the school proceeded on the course of tendering the program, executing a contract, and releasing circulars and letters to Parents and bankers concerning the program – and thereafter embarked upon the practical implementation of the programme (i.e. training all the pupils of the school and their teachers) for not just one, but two consecutive academic terms of the school year. In all of this, SHIMONI held themselves out as having all the requisite authority to do what they were doing. Any outsider dealing with them could only conclude that the school was fully clothed with that authority. Royal Compu would not in these circumstances suspect, and certainly had no reason to suspect any irregularity in the internal procedures of the school.
It is quite evident to me that the applicants having embarked upon the freely chosen course as described above, a course from which they have reaped obvious benefits, they cannot at this stage be allowed to turn back and rescind the contract with the ROYAL COMPU. The fruits that the applicants have harvested from that contract cannot be allowed to remain uncompensated for. To do so would amount to manifest injustice and would be blatantly contrary the well-known principle of restitution under quasi-contract:"… Even more insidiously, it would amount to allowing the applicants to keep the fruits of their ill gotten benefits by relying on their own wrong doing…"
Consequently the defendant's application to set aside the default judgement was dismissed with costs.
That was not the end of the matter. The plaintiff initially brought this action against the defendant and Mr Patrick Mulumba Trading As Royal Compu Enterprises. Paragraph 4 of the written statement of defence of Patrick Mulumba trading as Royal Compu Enterprises is particularly revealing. It is averred therein that he was wrongly sued as he had never dealt with the parties to the suit in his personal capacity and would apply to have the suit struck out with costs. He attached a copy of the certificate of Royal Compu Enterprises Ltd. In an agreement filed on 8 September 2009 on the court record and dated first of August 2008, a consent withdrawal of the plaintiff’s suit against Patrick Mulumba trading as Royal Compu Enterprises was noted on the court record and is exhibit D1. The order of the court is dated 8th of September 2009 withdrawing the plaintiff's suit against Patrick Mulumba trading as Royal Compu Enterprises. Subsequently the suit only survived against the defendant only. No suit was maintained against Royal Compu Enterprises Ltd by the plaintiff. The basis of the suit is clearly the contract of guarantee with the defendant.
There is no evidence as to what kind of order was made against the defendant in the suit filed by Royal Compu Enterprises Ltd in this suit. However the pleadings in the defendant's application to set aside the default judgement and execution proceedings in the main suit show that the defendant was ordered to pay Uganda shillings 136,100,000/= and Uganda shillings 3,301,600/= as costs of the suit. The applicant/defendant to this suit filed an appeal against the decision dismissing the application to set aside the default judgement. Their applications also demonstrate in the attached documents that there was an agreement between the defendant and Royal Compu Enterprises for provision of 15 computer units and to conduct training for the students of the school from 11 to December 2000 for a period of two years. The provision of computers was an integral part of the arrangement or contract that culminated in a civil action filed by Royal Compu Enterprises Ltd against the defendant to the suit. What is clear is that the hire purchase agreement was made between the plaintiff and Royal Compu Enterprises Ltd. The defendant is only indicated therein as a guarantor. The agreement is a tripartite agreement having the supplier/plaintiff, the hire purchaser/Royal Compu Enterprises Ltd and the Guarantor, namely the defendant. The plaintiff’s action against the defendant is in its capacity as the guarantor in the hire purchase agreement. Further submissions were made on the capacity of the headmaster to bind the defendant because the headmaster is not a member of the management committee and cannot even vote in the meetings of the management committee. The conclusion of the matter is that as between Royal Compu Enterprises Ltd and the defendant, the question of whether there was a binding contract and the school program was conclusively decided by honourable justice James Ogoola in High Court miscellaneous application number 811 of 2002. The defendant is raising exactly the same objection to the suit as it raised against Royal Compu Enterprises Ltd in civil suit number 653 of 2002. The applicant's application to set aside the default judgement in favour of Royal Compu Enterprises Ltd was dismissed. An argument was raised that the contract relied upon by Royal Compu Enterprises Ltd was illegal because it lacked the requisite ministerial approval and was not binding on the management committee which was not privy to that contract. The honourable judge exhaustively considered the evidence in the affidavits of the computer program and ruled that the defendant could not avoid the contract. He also ruled that the headmaster had ostensible authority. Royal Compu Enterprises would not in the circumstances suspect and had no reason to suspect any irregularity in the internal procedures of the school. By that a ruling, the defendant is estopped by the judgement of the court from raising the same arguments against the signature of the head teacher guaranteeing the contract of hire purchase by Royal Compu Enterprises Ltd and against the very same program challenged in the defendants application in that suit.
The second objection raised by the defendant to the claim of the plaintiff concerns the charging of interest at 10% per month as being unconscionable and not enforceable. There is no direct authority on what the rate of interest would be unconscionable. Interest at 10% per month amounts in the long run to 120% per annum. The question is whether the agreement of the parties envisages the charging of interest for more than one year? The table of computation of the plaintiff reveals what has been done. It gives the outstanding amounts for the period 17th of July 2001 to 10 April 2005. The plaintiff's calculations are based on the weekly and monthly delay fees as well as monthly fees of 10%. The period for charging the interest range with regard to the delay fees from between 10 weeks to 186 weeks at the rate of 25,000 shillings a week. Secondly for the monthly fee of 10% it ranges from three months to a maximum of 39 months for the period under consideration. The table furthermore shows that the defendant had paid the total of Uganda shillings 9,015,000/= as a guarantor. The weekly delay fees amounted to Uganda shillings 25,400,000/= while the monthly interest of 10% amounts to Uganda shillings 88,686,600/=. The scheduled amount was calculated at Uganda shillings 35,520,550/=.
The first critical observation that needs to be made is that the plaintiff was entitled under the Hire Purchase agreement to repossess its equipment upon default of the Hire Purchaser in payments. The provision on termination is critical in determining the rights of the parties upon default of the Hire Purchaser. The first observation to be made on the clause is that the plaintiff could not terminate the hire purchase agreement or contract except if the purchaser did not fulfil payment obligations. In either case the client was obliged to return the equipment at his costs. As far as the purchaser of the equipment is concerned, he was entitled to terminate the contract at any time upon giving prior written notice of three months payments through EMS. The date noted by EMS shall determine the final dates of payment obligations of the hire purchaser. The equipment was supposed to be returned on the date of the final payment and if returned three days later than the date of final payment, a further one month payment would be charged. The plaintiff is obliged under this clause to mitigate its losses by terminating the agreement and reprocessing the equipment from Royal Compu Enterprises Ltd or its representative Mr Patrick Mulumba.
The hire purchase contract gave the parties scheduled dates upon which payments would be made by Royal Compu Enterprises Ltd. The agreement specifically provides that the last date of payment is 1 June 2003. It also provides that the equipment will remain the property of the plaintiff until full payment and the transfer takes place upon payment of the sale price of 9.5% of the contract amount.
Documents tendered in evidence by the plaintiff show that the pupils of the defendant's school were supposed to be trained in computer sciences and given computer lessons. A circular given to Parents, exhibit P 17 and P 18, informs Parents and Guardians that the school had contracted Royal Compu Enterprises to establish a fully fledged computer laboratory at the school and the train pupils in computer science. Each child was required to pay a small fee of only 6,500/= per academic term. The circular exhibit P 18 informs the Parents and Guardians in a circular dated 8th of May 2002 that students were required at the beginning of the term to pay a sum of Uganda shillings 10,000/= only for the computer program. The documentary evidence clearly shows that the Royal Compu Enterprises Ltd was the hire purchaser and the defendant remained the guarantor for payment by the hirer.
It was not envisaged by the parties that the contract will not be terminated upon a breach of the payment clauses by Royal Compu Enterprises Ltd. The fact that Royal Compu Enterprises Ltd the hirer was not sued by the plaintiff can lead to an incomplete picture about what happened to the computers. Did the plaintiff repossess the computers? The testimony of DW1 is that as the head teacher he had never inherited any computers from the previous headmaster. Did Royal Compu Enterprises Ltd go away with its computers after it fell out with the defendant? In the hire purchase agreement, it is essential that the property remains vested in the supplier. In this case the contractual provision shows that the property remains in the supplier of the computers namely the plaintiff. The provision on termination clearly indicates that the property remains in the supplier. It is an essential component of the supplier’s cause of action for the appropriate remedy to specify whether there was repudiation of the contract of hire by non-payment and whether it repossessed its equipment, and in what state.
Secondly, upon termination of the contract, payments cannot continue infinitely. According to the authorities on hire purchase, the plaintiff is entitled to damages up to the date of breach and the recovery of its equipment. In the case of Financings Ltd v Baldock  1 All ER 443 Lord Denning MR at page 445 summarised the law:
“It seems to me that, when an agreement of hiring is terminated by virtue of a power contained in it and the owner retakes the vehicle, he can recover damages for any breach up to the date of termination, but not for any breach thereafter, for the simple reason that there are no breaches thereafter. I see no difference in this respect between the letting of a vehicle on hire and the letting of land on a lease. If a lessor, under a proviso for re-entry, re-enters on the ground of non-payment of rent or of disrepair, he gets the arrears of rent up to date of re-entry and damages for want of repair at that date, but he does not get damages for loss of rent thereafter or for breaches of repair thereafter. In this and many hire-purchase agreements, the owners have sought to avoid that general principle by inserting a “minimum payment” clause such as we see in cl (11)(a) here, which provides that, should the hiring be terminated, whether by the owner or the hirer, the hirer has got to pay at least two-thirds of the total hiring cost. By a series of cases ... such a clause has now been held to be a penalty clause. The owners by such a clause are really seeking, on an early termination of the hiring, to recover damages for loss of future rentals, when they have not lost any. They have no right to future rentals after they have terminated the agreement and got the vehicle back. ... The owners in that event are entitled to the unpaid instalments or other moneys due.”
By charging interest the way the plaintiff did, the hiring of the equipment did not come to an end despite non payment. Instead, the plaintiff would continue charging the weekly fee and interest of 10% per month without ever recovering the schedule of payments or instalments unless and until it brings the contract to an end. In this way they can recover indefinite amounts. The proper remedy was to terminate the hire purchase agreement and repossess the equipment in a timely fashion. Secondly the plaintiffs are obliged to mitigate their losses by immediately taking possession of the equipment upon default i.e. of about three instalments or so. To wait for accumulation of arrears infinitely is not only unconscionable but goes against the principle stated in Financings versus Baldock (supra). The clause relied upon for charging of the fee amounts to a penalty interest and is unenforceable. In Uganda it is unenforceable under section 26 (1) of the Civil Procedure Act if the court deems the clause to be harsh. Section 26 (1) provides that:
"Where an agreement for the payment of interest is sought to be enforced, and the court is of the opinion that the rate agreed to be paid is harsh and unconscionable and ought not to be enforced by legal process, the court may give judgement for the payment of interest at such a rate as it may think just."
In this case the defendant had already paid Uganda shillings 9,015,000/= against due payments of scheduled instalments. When the agreement was executed between the parties, the plaintiff was paid Uganda shillings 500,000/=. Consequently the remaining instalment payments amount to Uganda shillings 22,570,000/=. Upon the defendant paying Uganda shillings 9,015,000/=, the balance on the scheduled payments is Uganda shillings 13,555,000/=. As I have indicated above the clause for payment of a penalty of 25,000 per week and interest at 120% per annum is unenforceable. Secondly, in the absence of any knowledge of what happened to the computers, it is difficult for the court to establish whether the plaintiff was able to mitigate its losses by repossessing its equipment. Secondly the plaintiff who delivered the computers to Messieurs Royal Compu Enterprises Ltd, sought not to sue them. Finally the plaintiff's case against the defendant is based on a contract of guarantee. The question is what kind of guarantee it was.
There are two kinds of contracts of guarantee defined by Lord Reid in the House of Lords case of Moschi v Lep Air Services Ltd and another  2 All ER 393 at page 398. He said:
“With regard to making good to the creditor payments of instalments by the principal debtor there are at least two possible forms of agreement. A person might undertake no more than if the principal debtor fails to pay any instalment he will pay it. That would be a conditional agreement. There would be no prestable obligation unless and until the debtor failed to pay. There would then on the debtor’s failure arise an obligation to pay. If for any reason the debtor ceased to have any obligation to pay the instalment on the due date then he could not fail to pay it on that date. The condition attached to the undertaking would never be purified and the subsidiary obligation would never arise.
On the other hand, the guarantor’s obligation might be of a different kind. He might undertake that the principal debtor will carry out his contract. Then if at any time and for any reason the principal debtor acts or fails to act as required by his contract, he not only breaks his own contract but he also puts the guarantor in breach of his contract of guarantee. Then the creditor can sue the guarantor, not for the unpaid instalment but for damages. His contract being that the principal debtor would carry out the principal contract, the damages payable by the guarantor must then be the loss suffered by the creditor due to the principal debtor having failed to do what the guarantor undertook that he would do.”
The contract of hire purchase is the contract that contains a clause on the guarantee. It provides as far as is relevant the question of guarantee as follows:
"Shimoni Demonstration School is acting as a personal guarantor and surety for the fulfilment of all payments. Alternative a six months post dated cheques of 50% of the contracted amount shall be deposited."
Of course there is the question of whether the defendant was properly described in the contract. However the defendant has been properly identified in the ruling of honourable justice James Ogoola referred to above. In other words the obligation of the defendant school is to ensure that Royal Compu Enterprises Ltd fulfils all the payment terms. In this case the defendant undertook to insure that the principal debtor would fulfil its obligations of payment. It cannot be sued for the instalment payments but for damages. The penalty clauses are unenforceable against the defendant. However the evidence shows that the computers had been used for a period of two years which is the period of the contract. In those circumstances, the plaintiff is awarded Uganda shillings 13,555,000/= as general damages for failure to ensure that Royal Compu Enterprises Ltd fulfil its obligations. I must comment that in the previous case between Royal Compu Enterprises Ltd the question of the hire purchase agreement ought to have been raised. However there was a default judgement and the plaintiff was not a party to the action. The defendant would in those circumstances be entitled to indemnity in appropriate proceedings if possible against Royal Compu Enterprises Ltd.
Secondly the plaintiff is awarded interest from the date of filing the action at 14% per annum up to the date of judgement on the amount of Uganda shillings 13,555,000/=. The plaintiff is further awarded interest at 14% per annum from the date of judgement till payment in full.
As far as costs are concerned, the plaintiff is entitled to costs and costs are awarded to the plaintiff.
Judgment delivered in open court on 14 June 2013.
Christopher Madrama Izama
Judgment delivered in the presence of:
Godfrey Luwalinda for the plaintiff
MD of Plaintiff Alex Mutaremwa in court
Fiona Kunikira holding brief for Barnard Mutyaba for the defendant
Godfrey Senfuma the Secretary to the Management Committee of Shimoni Demonstration School in court
Charles Okuni: Court Clerk
Christopher Madrama Izama
14th June 2013