IN THE COURT OF APPEAL OF UGANDA AT KAMPALA
CORAM:HON. JUSTICE S.G.ENGWAU, JA
HON. JUSTICE A. TWINOMUJUNI, JA
HON. JUSTICE S.B.K. KAVUMA, JA
HOUSING FINANCE CO. (U) LTD
The appellant borrowed a sum of shs. 40.000.000/= from the 1st respondent in 1995 repayable with interest in ten years. The appellant mortgaged his property comprised in Kibuga Block 28 plot No. 256 situate at Makerere Kavule to the 1st respondent. At times, the appellant would be in arrears on his loan repayments and at one time the 1st respondent instructed the 2nd respondent to sell the appellant’s said property. The property was advertised by the 1st respondent.
On the 18/01/2002, the date set for the sale of the property in the advertisements, the appellant made some payments into the bank account he held with the 1st respondent. Those payments were duly accepted and receipted by officials of the 1st respondent.
The appellant, accompanied by one, Kaggwa, P.W.2, then rushed to the offices of the 2nd respondent. They took a letter together with the receipts from the 1st respondent showing the appellant had paid shs 3.300.000. The Appellant presented the receipts to the 2nd respondent stating that he had paid up all the money that was due and owing from him to the 1st respondent. The appellant demanded that his property should not be sold. The 2nd respondent declined to take the letter and the receipts and referred them to one, Micheal Mugabi, DW1, the legal officer of the 1st respondent who was at the auction. Mugabi rejected the said letter and receipts. He said the auctioning of the appellant’s property would go on and that the buyer, one Dorothy Nabatanzi from Med-Net was already at the auction and ready to pay. The appellant then put the letter and the receipts at the office table in the 2nd respondents’ office.
DW1, soon thereafter, instructed the 2nd respondent to sell the property. The 2nd respondent complied. The property was said to have been sold to the appellant’s tenant M/s Med-Net at shs 170,000,000/=. The appellant objected and soon thereafter instructed his counsel to file a suit against the 1st and 2nd respondents challenging the sale of his property. The trial judge dismissed the suit hence this appeal.
That the learned trial judge erred in law and fact in holding that the sale of the mortgaged property was lawful.
That the learned judge erred in law and fact in failing to consider the equitable principle of redemption.
Submitting on ground 3, counsel pointed out that the respondents relied on clauses 11.1 and 12.2 in the mortgage deed to fetter the appellants’ inviolable equity of redemption. This could not be taken away by any provision in the mortgage deed. Where the contractual right of redemption is illusory, counsel contended, equity grants relief by allowing redemption. He relied on Knights Bridge estates Trust Ltd vs Byrne (1939) 1ch.441. He prayed court to allow ground of appeal No.3 and the appeal and grant the appellant’s prayers.
On ground 3, counsel submitted that the appellant was given adequate notice and time to exercise his equity of redemption but failed to do so. According to him, the appellant was not justified in asking the trial judge to set aside the sale of the property since it had already attracted interests of a third party which had bought the same. Counsel asked court to pay attention to clause 7.3 of the mortgage deed. He prayed court to find in favour of the respondents on this ground an finally dismiss the appeal with costs.
The following 3 issues emerge from the above grounds of appeal.
Whether the sale of the appellant’s property on the 18th January 2002 was lawful
Whether the trial judge property considered the appellants right of the equity of redemption.
See Rule 30 of the Judicature (court of Appeal Rules) Directions S.I.13-10. Pandya VR  EA 336, Okeno V Republic  E.A 32 and Kifamunte Henry V Uganda SCCA NO. 10 of 1997 (unreported).
Courts resolution of the issues
On a careful perusal of Exhibit P.5 and review of the relevant evidence on record on this matter, including the final bank statement dated the 31/12/001, we are persuaded that the appellant owed to the 1st respondent shs.4.744.316.76 and not shs.31,000,000 as of the 18th Jan 2002.
We also find from the evidence on record that the appellant had paid to the 1st respondent a sum of shs.3,300,000/= on the morning of the 18th Jan 2002. This was in addition to shs.2,000,000/= the appellant had paid to the 1st respondent earlier on in the month of January 2002. The appellant presented to the 2nd respondent and a representative of the 1st respondent, DW1, the evidence of such payment at the offices of the 2nd respondent, well before 10.00 am on the 18th January 2002 and before the auctioneer’s hammer fell. We find that this amount was more than enough to cover the appellants’ arrears as of the date of and before the sale. We find clause 7.2 of the mortgage deed very instructive on the situation obtaining at that time. It provides:
“The receipt of the company or any of its officers for any money paid to it by virtue of this mortgage shall effectually discharge
the person paying the same there from and from being concerned to see to the application thereof.”
The trial judge had this to say with regard to this issue.
sale was lawful. I so find and hold thus answering the second issue framed in the affirmative.” (sic)
We have covered some aspects of our concern here while resolving issue I above and we need not repeat them.
As the trial judge noted, the documentation of the sale had problems. In our view, these problems were fundamental. The sale agreement, the single piece of documentary evidence that would have provided the evidence in support of the sale bore no endorsement that stamp duty had been paid on it in accordance with the Stamps Act S42. It could not therefore be used in evidence. We find the trial judges’ contention that the property was transferred and that stamp duty would have been paid speculative.
Neither a properly executed and stamped form of transfer nor a certificate of title was tendered in evidence. Further, there is no evidence on record that shs 17,000,000/= the deposit in respect of the purchase price, was ever paid by Med-Net. The cheque for shs 153,000,000/= whose value represented the alleged balance on the purchase price bears no evidence of it ever having been presented and paid.
The trial judge asserts that sale was duly announced and that it was by public auction. The law requires advertisement by the auctioneer. The 2nd respondent admitted in his evidence that he did not advertise the sale. It was the mortgagee who advertised it. Prior to the advertisement, the most vital statutory notice of foreclosure and the demand notices were, somehow, posted by the 1st respondent to the wrong address. This was admitted by DW1. The required statutory notice was, therefore, never served on the appellant.
The trial judge appears not to have been bothered that the property was stated to have been sold to a known tenant of the appellant M/s Med-Net. The appellant explained his concern. From a very early stage of the happenings about his property, he had learnt of connivance between this known purchaser, his tenant and the 1st respondent to deprive him of his property. The buyer would, according to the unchallenged evidence of the appellant, withhold from him vital information regarding the operations of his account and the tenancy between the two in areas where the 1st respondent showed interest. The 1st respondent had even advised the purchaser to bid for the appellant’s property when advertised and this was well before the 1st respondent advertised it. This indicated prior common interest between the 1st respondent and the appellant’s tenant to disposes the appellant of his property.
On the 18th Jan 2002 at the 2nd respondent’s offices where the auction sale was conducted, it was only Med-Net who offered a bid for the property.. This was, at shs170,000,000/= of which shs17,000,000/= was supposed to be paid as deposit on the purchase price although no evidence of such payment is on record. Interestingly, the same property had been valued at shs300,000,000/= at the time the loan it secured was extended to the appellant. A proper and diligent auctioneer would have avoided to appear reckless in the sale transaction. He would have had to use approved skills in the art of auctioneering to protect the interests of both mortgagor and the mortgagee. What happened instead, as clearly brought out by the evidence of PW.1 and P.W.2 at the sale site, D.W.1, an employee of the mortgagee effectively took over the conduct of the auction.
In view of all this, we find that whether the property was lawfully sold and transferred or at all remains disproved.
We, therefore, resolve issue 2 in the affirmative.
terms by the Company against the Borrower as if such time indulgence variation waiver or release had not been made.”
“The giving of time to the Borrower the neglect or forbearance of the company in requiring or enforcing the terms hereof as to payment
of the moneys hereby secured or otherwise or any variation or other dealing between the Company and the Borrower shall not in any way prejudice or affect this security or the joint and several covenants of the Borrower
and the Surety herein contained or deemed and as between the Company and the Surety the Surety is to be considered a principal debtor for all moneys and obligations secured hereby”.
due from him to the 1st respondent, those provisions would not be enforceable against the appellant in the circumstances of this case. We are fortified in this view by what Lindey M R said in Stantley Vs Wilde 2 cap. 474. His Lordship stated.
is what is meant by a clog or fetter on the equity of redemption and therefore void…. A “clog” or “fetter” is something inconsistent with the idea of “security”.
The case of Nurdin Bandali VS Lombak Tanganyika Ltd  EA.304 cited to court and relied on by the respondents is distinguishable from the case before this court. The Nurdin Badali case (supra) arose out of a hire purchase agreement. The case before court arises from a mortgagor –mortgagee relationships. The two transactions are fundamentally different in law.
The 1st respondent could not, therefore, invoke clauses, 11.1 and 12.2 of the mortgage deed against the appellant. To allow clauses 7.3, 11.1and 12.2 (supra) to extinguish the appellants proprietary rights in his property would amount to placing a clog on the appellant’s right of the equity of redemption.
It would render the right illusory.
It was also contended for the respondents that the appellants’ right of the equity of redemption was defeated because the property was sold to a 3rd party.
We are not persuaded by this line of argument in light of our earlier findings in this judgment. Further there is ample evidence of connivance between the 1st respondent and Med-Net over the intended deprivation of the appellant of his property. Med-Net was so closely connected with the irregularities that surrounded the disputed sale that even if it had purchased it, it could not claim to have bought it in good faith. It had notice of the irregularities in the conduct of 1st and 2nd respondents which culminated into the claimed sale of the appellants property.
We therefore find that had the learned trial judge properly considered all the above factors, he would not have found that the appellant had lost his right of the equity of redemption at the
stated time of the sale of his property on 18th January 2002. We, therefore find in the negative on this issue.
In the final result, we allow this appeal. The sale of the appellant’s property comprised in Block 28 plot 256 is set aside. We order that the appellant’s proprietary rights in the said property be fully restored to him and his certificate of title be returned to him free from any encumbrance.
According to the uncontroverted evidence on record, before the purported sale of the appellant’s house, he was renting it out to Ms Med-Net Ltd at a monthly rent of shs 1,200,000/=. Since January 2002, he has not received any income from his house. This is a period of 103 months. Taking into account all the circumstances of this case, the court further orders that the sum of shs 100,000,000/= be paid to the appellant in general damages with interest thereon at the rate of 12% p.a from the date of judgment till payment in full.
The appellant be paid costs both at this court and at the Court below.
We so order
Dated at Kampala this …26th …day of …August... 2010
JUSTICE OF APPEAL
JUSTICE OF APPEAL
JUSTICE OF APPEAL