moshi electrical light co ltd others vs equity bank t ltd others 2017 tzhc 2027 24 july 2017

IN THE HIGH COURT OF TANZANIA

MWANZA DISTRICT REGISTRY

AT MWAIMZA LAND CASE N0.55 OF 2015 MOSHI ELECTRICAL LIGHT CO. LTD...... ......................... l^PLAINTIFF LIVINGI ROGATI MOSHY ............................... ?ND ...................................... .. PLAINTIFF JOHN MAPESA SHINYELA ...................... , RD .......... ............................ .. PLAINTIFF

VERSUS EQUITY BANK (T) L T D ............................... sr 1 DEFENDANT M/S NKYA CO. LTD .......................................... ?ND 2nd DEFENDANT AROBOGAST SHIRIMA.................... _RD ........... 3 rd DEFENDANT

JUDGMENT Before: M airp, i- In this suit, the plaintiffs claim against the defendants and each of them for the following reliefs: First, declaration that the sale of the * - plaintiff's farm at Nyang'homango in Misungwi District ("suit property number 1") is illegal and ineffectual. Second, permanent and perpetual injunction to restrain the first and second defendants from selling the plaintiffs properties with C.T. nos. 26376 and 8889 ("suit property no. 2" and "suit property no. 3", respectively). Third, payment of-general damages for a breach of contract as may be assessed by the Court. It is not in dispute, according to pleadings and evidence that; sometimes in December, 2014, the first plaintiff procured a credit facility from the first defendant which was secured by third party mortgages on suit properties nos. 1, 2 and 3. While suit properties nos. 1 and 2 belong to the second plaintiff,suit property no. 3 belongs to the third plaintiff. Equally not in dispute is the fact that; the suit property n o .l was sold on 18.10.2015,by the 1st defendant, under the instruction of the 2nd defendant to the 3rd defendant,in purported exercise of powers of sale under the mortgage security. The debate between the parties Is on the legality and validity of the sale of the suit property no. 1 and the intended sale of the suit properties nos. 2 and 3. The plaintiffs claim that the

purported sale was illegal and ineffectual for want of statutory notice. The plaintiffs therefore, seek to proceed against the first and second defendants on the basis that there was an Illegal exercise of the power of sale and also against the third defendant, seeking to set aside the sale, alleging that the former did not have better title to transfer to the latter. The defendants claim that notices were duly served on the plaintiffs. On account of that factual background, three issues have been framed for determination. First, whether or not the sale of the suit property no. 1 by the 1st and 2nd defendants to the 3rd defendant was legal and effectual.Two, whether or not the intended sale of the suit properties nos. 2 and 3 by the first and second defendants is legal and effectual. Last, to what reliefs are the parties entitled. In the conduct of this suit, the plaintiffs were represented by Mr. Outa, learned advocate whereas the first and second defendants by Mr. Sifael Muguli, learned advocate. Dr. Mwaisondola, learned advocate, appeared for the third defendant. In a bid to establish their case, the plaintiffs called three witnesses namely: Living Rogati Moshy, the second defendant and director to the first defendant (PW-l),Zakia Said, the wife of the second defendant (PW-2) and Fimus Rubmgwa Shinyeli(PW-3). Moreover, they produced through PW-1, a letter purporting to be a

demand note dated 17.06.2015 from the first defendant to the first plaintiff (exhibit P-l). By way of cross examination of DW-2, the plaintiffs also exhibited a document purporting to be a notice of public auction o f the suit properties. (Exhibit P-2) On their part, the defendants paraded three witnesses. Two of them: Martin Shasha, the loan manager of the first defendant (DW-l) and Hassan Jumaa Magongo, the managing director of the second defendant (DW-2), testified on behalf of the first two defendants. The last one, Hillary Assey (DW-3), testified in favour of the third defendant. On top of that, the defendants exhibited three documents namely: a notice of default dated 2nd July 2015 addressed to the second plaintiff (D-i), a similar document dated 2nd July 2015 addressed to the third defendant (D-2) and an advert for sale of the suit properties published on a Majira news paper dated 3rd October 2015 (D-3). After the trial, the advocates from both parties were afforded an opportunity to address the Court generally by way of written submissions. I confess that their submissions have been very material in preparation of this my judgment. I will now examine the framed Issues in light of the pleadings, evidence and the submissions made by the parties. I will start with the first Issue as to the legality of the sale of the suit property no.l. It is common ground thatjin terms of

sections 126 and 127 (1) and (2) of Land Act, Cap.113 R.E. 2002, (henceforward, "the LA"), the right to sell a mortgaged property on account of default accrues after the mortgagor has committed any events of default under the mortgage, and is exercisable upon expiry of 60 days notice of default. While Mr. Outa submits that, the notice was not duly served, Messers. Sifael and Mwaisondole claim that the same were duly served. In light of the issue framed, I will decide who is right and who is not. The claim of the plaintiffs in this case is premised on a negative proposition. They are asserting that the sale of the suit property no. 1 was not preceded by a notice of default under section 127 of the LA. The second plaintiff who testified as (PW -l)denied service of a notice of default. As a director of the first defendant's company however, he admitted to have seen a letter from the first defendant to the first plaintiff dated 17.06.2015. He claims that it was sen/ed to his wife, PW -2. His evidence is confirmed by PW- 2. Besides the document in exhibit P - i, it is the case of the plaintiffs that they have not received any other document from the defendants and either of them. This being the case, and because the plaintiffs were not privies to the sale agreement of the suit property no.l; the fact that the sale of suit property no.l was preceded by a notice of default is within

the knowledge of the defendants. In terms of section 115 of the Evidence Act therefore, the burden of proof is on them. The section reads as follows:- Perhaps, in an endeavor to establish the legality of sale, the defendants Claim, through D W -1, to have served the second plaintiff, subsequent to the service of exhibit P -l, a notice of default in respect ofthe suit property no.l(Exhibit D -l).In effect, exhibit D - l requested the second plaintiff to pay the outstanding loan within 60 days from the date thereof or else the property would be sold in realization of the mortgage. The notice bears a signature of the mortgagee. Immediate upon the signature of the mortgagee, there is a receipt clause suggesting that the notice was received on 20a July 2015. Thereafter, there is a signature space with the name of the of the second Plaintiff as the mortgagor appearing. The intention of the drawer of the notice, it would seem to me, was to make the mortgagor sign in the space upon receipt of the notice as acknowledgement of the receipt. Quite unexpectedly however, the signature of the mortgagor is not there. In the absence of other proofs to the contra^, the acknowledgment clause in the notice with a gap in the signature space Is a signification that the notice was not served on the mortgagor. In his evidence, DW-1 claims to have served the notice on PW-2 for and on behalf of the

second plaintiff. He has relied on the name of PW-2 and her initials written at the bottom of the notice in handwriting. In his submissions, the counsel for the third defendant contends that the signature in question resembles with the signature of PW-2 appearing in exhibit P- l.Conversely, while PW-2 vehemently denied in evidence to have received the document, she was not cross examined on the validity of the handwritten words appearing in exhibit D-2. She was only cross examined, by the advocate of the third defendant, on the validity of exhibit P -l. She was not even shown the notice in exhibit D-2 by either of the defense advocates. The advocate for the first and second defendants did not bother even to put any question on her. It is now a settled law that, evidence that passes without being questioned by way of cross examination, is deemed to have been proved. (See George Mailu Kembeae V.R. r>. Appeal No. 327/2013). In my opinion therefore, the defendants have not been able to prove service of a the document in exhibit D-2 on the second defendant Even if it is to be assumed, for the sake of argument that, the initials appearing at the bottom of exhibit D -l represent the signature of PW-2; that would have been of no assistance to the defendants for two main reasons. First, on the face of it, the signature appears to have been signed on behalf of the borrower and not the

mortgagor. This is implied by the fact that the handwritten words and the initials in question,are placed immediately below the name of the first plaintiff as the borrower. Had PW-2 intended to receive the document on behalf of the second defendant as the mortgagor, she would have signed or put her initials in the signature space of the mortgagor. More to the point, unlike the signature space for the mortgagor which is preceded by the date of receipt of the document, there is nothing in the handwritten words to indicate the date of receipt. The transection having happened in July 2015, it is unexpected for a serious institution like the first defendant to rely solely on undocumented evidence of its employee to prove date of service of an essential document in the transection such as the notice of default. It would have some records to establish the same. In his submissions, Mr. Sifael contends that; the disposal of the suit property no. lw a s legal as the second plaintiff had been aware of the default since June 2015 when he was served with demand note in exhibit P-l. With greatest respect to the learned counsel, I cannot agree with him for three main reasons. First, on the face of it, exhibit P-l was not addressed to the second plaintiff as the mortgagor or at all. Instead, it was addressed to the first plaintiff as the borrower. The mortgage in dispute was in the form of a

third party mortgage. The borrower was not the mortgagor. The notice envisaged in section 127 of the LA is required to be served on the mortgagor and not the borrower. Second, the notice period in the said letter was 7 days as opposed to the mandatory 60 days notice. It cannot in any way amount to a notice in terms of section 127 of the LA. Third, the letter in exhibit P -l does not meet the requirements under section 127 of the Act and is not in the prescribed form. It does not even describe the mortgaged property. It is thus void under section 127 (3) of the LA. Yet, the defendants have relied on D-3. This was a 14 days notices of sale of the suit properties by the second defendant. As correctly submitted by Mr. Outa, such notices are issued under section 12 (2) of the Auctioneers Act, Cap. 227, R.E.

2002. Ordinarily, a notice of this kind would be issued after the notice under section 127 of the LA had matured. The determination of the validity or otherwise of the said notice therefore, would be relevant if the defendants had established by evidence that; a demand notice under section 127 of the LA was duly served on the mortgagor 60 days before the sale. From the foregoing discussion therefore, I have no doubt that the defendants have failed to establish service of the notice of default on the second plaintiff. I will thus hold as a point of fact that the notice of default in exhibit D -l was not served on the second defendant as the mortgagor. Dr. Mwaisondola has submitted, with all forces that, the third defendant being a bonafide purchaser of the suit property no. 1 for value without notice, is protected under section 135 (2) and (3) of the LA such that the title on the property would pass to him even if the mortgagor was not served with a notice of default. He submitted further that, under the express provisions of the respective section, it was not necessary for the third defendant, before purchasing the mortgaged property in question, to inquire into the validity of the exercise of powers by the mortgagee. Neither was he obliged to enquire whether the notice of default was ever served on the mortgagor, the counsel further submitted. For the proper appreciation of

the argument by the learned counsel, I find it pertinent to reproduce the provisions of section 135 (2) and (3) of the Land Act here below:- 135-(1) This section applies to - (a ) a person who purchase mortgaged land from the mortgagee or receiver, excluding a case where the mortgagee is the purchaser; (b )a person claiming the mortgaged land through the person who purchases mortgage land from the mortgagee or receiver. Including a person claiming through the mortgagee where the mortgagee is the purchaser where, in such a case, the person so claiming obtained the mortgaged land in good faith. (2 ) A person to whom this section applies- ( a) is not answerable for the loss, misapplication or non application o f the purchase money paid for the mortaaoed land. (b ) Is not obliged to see to the application o f the purchase price. (c) Is not obliged to inquire whether there has been a default by the m ortgagor or whether any notice required to be given in connection with the exercise o f the pow er o f sale has been duly given or whether the safe is otherwise necessary proper or irregular. (3 ) A person to whom this section applies is protected even if at any time before completion o f sale, he has actual notice that there has not been default by the mortgagor, or that a notice has not been duly served or that the sale is in some way unnecessary, improper, or irregular, except in the

case of fraud, misrepresentation or other dishonest conduct on the part o f the mortgagee o f which that person has actual or constructive notice. It may plausibly be worthy to note right from the out set that, the protection under section 135 (2) and (3) of the LA is not a new phenomena in the law relating to real property in Tanzania. In essence, the protection emanates from the common law practice of striking a balance between protection of property and protection of commercial transection. As I understand the law, the protection has in no time been applied as to disregard the well established principle in the law of real properties that; the purchase of a possession from someone who has no title, denies the purchaser any ownership title. This principle is incorporated in the Latin maxim Nemo dat quad non habet. The modern law position of the rule cannot be explained much better than in the words of Lord Denning in the famous case of 11 M ia a sg a tg jy iotor Finance Corporation I M V Transport Brakes I m where he remarked that;- °f0U r 'aW' P ™ W e s have striven for mastery, he first IS the protection of property: no one can give a better title than ‘SSZ Under section 116 (1) of the LA read together with sections 126 and 127 of the same, a saleable Interest does not pass to the mortgagee upon execution and registration of a mortgage deed. It remains in the name of

the mortgagor until the mortgagor commits an event of default and, upon his failure to redeem the property during notice period. It follows therefore that, a bonafide purchaser of a mortgaged property cannot purchase a real property without establishing title of the vendor on the property. This position was clearly stated by the Court of Appeal of Tanzania in NBC V. WALTER T. CZURN, (1998) TLR 380 relied by both the counsel for the plaintiffs and the third defendant.Although the decision was made before the coming into force of the LA, it is relevant in the instant case because the protection under discussion, as we shall see, was at that time already part of our law. 12 In his PhD thesis entitled "the Modern Law of Mortgage in Tanzania; the Role of the Land Act, 1999", (School of Law, the University of Birmingham),Dr. George Mwaisondole has made an account on the power of sale under mortgage. Of interest for the purpose of this judgment, is the introductory remark on section 135 appearing at page 294 of the Thesis which is at par with the position of the CAT in the authority just referred. I will reproduce the relevant part hereunder:- Tthe question o f protection o f the purchaser centres on validity or ieqalitv o f mortgage and the availability o f pow er o f sale There Z T & , 5 sr°PP0Sed * lnV3"d in va lid o r made invalid for reasons such as lack o f registration, the

defect may leave the mortgagee without title to pass. In addition, the mortqaaee 777s "w il m tk t T , t0 ^ by 13,6 if he contracted not t0 MU- redundant qUeSti0n °f Protectlon °f the purchaser In Tanzania, the first domestic legislation to contain such protection was Land Registration Act ("LRA")whose section 51 has more or less the same protection. More so, the protection would be found in section 21(2) of English Law of Conveyance Act, 1881 which applied in Tanzania as a statute of general application by virtue of section 2 (2) of the Judicature and Application of Laws Ordinance (now Act).Section 51 (1) of the LRA provides as follows 13 51-(1) a bonafide purchaser fo r value o f a registered estate from a lender selling in the professed exercise o f his pow er o f sale shall not be bound, nor sh a ll the Registrar when a transfer is presented fo r registration be bound, to inquire whether default has occurred, or whether any notice has been d u ly served o r otherwise into the propriety or regularity o f any such sale, but the Registrar shall serve notice o f such transfer on the owner o f the estate and shall suspend registration o f such transfer for one month from the date o f such notice. A t the expiration o f such period the Registrar shall register the transfer as a t the date o f the presentation, unless in the meanwhile the High Court shall otherwise order, and

thereafter the transfer sh all not be defeasible by reason that default had not occurred or that any notice was not duly served o r on account o f any im propriety or irregularity in the Since the provision of section 51 of the LRA has survived upon the fundamental reforms brought by Land (Amendment) Act No. 2 of 2004 and Mortgage and Finance (Special Provisions) Act No. 17 of 2008, and in so far as the interest of the mortgagor in the mortgaged property passes to the purchaser, according to section 134 (4) of the LA, upon registration of the right of occupancy in the name of the purchaser, it is my opinion that, the protection under section 135 of the LA accrues upon registration of the transfer. It does not ever seem to have been the intention of the legislature to protect a purchaser without affording corresponding protection to the mortgagor. 14 It is in the sprit of striking such a balance that, section 51(1) of the LRA requires the Registrar, before registering the transfer, to avail the mortgagor with a 30 days notice within which he can initiate proceedings to the High Court to challenge the sale. The protection under section 135 of the LA therefore, presupposes that a sale agreement has been made between the mortgagee and the purchaser and has been duly registered in due compliance with the provision of section 51 (1) of the LRA and of course, after the mortgagor has

been afforded an opportunity to raise any question on the validity and legality of the transfer to the High Court. Where the mortgagor does not raise any defect and/or irregularity during the notice period under s. 51(1) of the LRA, the obvious presumption is that the mortgagee complied with the conditions precedent for the exercise _ of his power of sale under the mortgage. Once the transfer is registered therefore, the sale becomes absolute such that it cannot be nullified at the instance of the mortgagor on account of any defect of the mortgagee title on the mortgaged property or any irregularities of any kind in the exercise of the power of sale except only where there is a proof of fraud, collusion or misrepresentation in the transfer transection. 15 In this case, there has not been adduced any evidence from the defendants and each of them to establish that any transfer of the suit property no. 1 has been duly registered in terms of section 51 (l) of the LRA. More so, the defendants have not been able to produce a duly registered mortgage instrument which would be the basis for the exercise of power. Again, the third defendant who claims to have purchased the mortgaged property for value did not afford even to produce any document to prove purchase of the suit property no.

1. In his pleadings, I have noticed, the third defendant pleaded existence of a certificate of sale. Perhaps, this would be a conclusive evidence that he purchased the suit property for the purchase consideration therein stipulated. Alas, for the reason better known to himself, the third defendant through DW-3, did not afford to produce such a vital evidence. The inference that can be reasonably drawn in the circumstances is that; had the certificate of title been produced, it would have operated against his case. I will so infer. I have also noted from pleadings and evidence that, the nature of the mortgage created on suit property no. 1 is not clear and parties, it seems to me, are contentious on that issue. In his submissions, Mr. Outa suggests that, the same was in the nature of a customary mortgage while Dr. Mwaisondole suggests that it was a legal mortgage. Yet, there is a suggestion from the pleadings and evidence that, it is in the form of an informal mortgage. Since the dispute at hand revolves around the legality of sale of the suit property no. 1 and in so far as neither of the parties has moved the Court to determine the forms of the mortgage existing between the parties, I will avoid to make any comment on that issue. I am also mindful of the fact that in the absence of the said mortgage deed in the record, I am not entitled to make any comment on it. In addition,

the parties pleadings, the way they have been framed, imply that the execution of the mortgage deeds in question is not contentious. For the fore going reasons therefore, it is my considered opinion that the purported sale of the suit property no. 1 by the first defendant through the second defendant to the third defendant was illegal and in effectual. It is also my firm view that; the instant case does not in the circumstance fail within the purview of the protection under section 135 of the LA. Issue number 1 is thus answered in favour of the plaintiffs. This now takes me to the issue no.2 as to the legality of the intended sale of suit properties nos. 2 and 3. It has been questioned for want of notice. The plaintiffs through PW -1 testified that they have never been served with any notice of default in connection to the said suit properties. The first and second defendants who are deemed to have knowledge of the same, produced, through DW-l,a documents purporting to be a notice of default (Exhibit D-2). Like in D -l, the mortgagor's signature space in exhibit D-2 does not bear the signature of the third defendant who is the mortgagor of suit property no.

3. The oral evidence of DW-1 is also silent on whether and to whom the said notice was served. It is also absolutely mute on whether there was a notice of default in respect to suit property no.

3. For those reasons therefore, I find that the intended sale of the suit property nos. 2 and 3 are illegal and ineffectual for want of a mandatory notice of default. Now, I will proceed with the last issue which is to what reliefs are the parties entitled to. The plaintiffs have claimed for nullification of the sale of suit property no. 1 for the reason that it was disposed of illegally. I have already held in relation to the first issue that; the sale of the said property was Illegal for not being preceded by a mandatory 60 days notice of default. Accordingly therefore, the sale of the suit property no. 1 by the second defendant on behalf of the first defendant to the third defendant is hereby nullified and set aside. I have also been called upon to, for the same reason, restrain the defendants from selling the suit properties nos. 2 and 3. As it has been manifested in evidence that; there has not been served any statutory notice of default on the plaintiffs in relation to the said properties, the first and second defendants are hereby restrained permanently and perpetually from selling the same without issuing notices of default on the plaintiffs. The plaintiffs have prayed for general damages for a breach of contract. It was testified through PW -l and PW-3 that; before the sale of the suit property no. 1, there was going on some negotiations between the second plaintiff

and Mr. David Silanga for the disposal of the said suit property. Mr. Silanga had, according to the testimony of PW-3, offered TZS 300,000,000/= as the purchase price of the property and negotiation was still going on. Before any contract was concluded, it is further testified, the suit property n o . l was illegally sold to the third defendant at the purchase price of TZS 60,000,000/=. The plaintiffs claim that for the reason of illegal sale of the suit property n o .l,th e y have suffered damages in that they were denied to sell the suit properties no. la t the purchase price of TZS 300,000,000/=. Through the evidence o f PW-l, the second plaintiff prays for damages at the tune of TZS 300,000,000/ = I have noted with interest however the silence in the evidence of PW-1 on whether he had taken any step to notify the first defendant of his intention to dispose of the suit property no. 1 with a view to settling the outstanding loan. There being created a mortgage on suit property no. 1 in favour of the first defendant, the second plaintiff as a mortgagor, would not, according to section 124 (1) (g) of the LA, dispose of the same without seeking and obtaining consent from the mortgagee. On top of that, TZS 300,000,000/= being the value of the suit property no. 1, would, if well proved, only be grantable as an alternative relief to an order for nullification of the sale of

the property and not in addition to. It would follow therefore that, once an order for nullification of sale is granted, the plaintiffs cannot be entitled compensation of the value of the illegally sold mortgaged property. On that account, and, in consideration of the confession of the plaintiffs to have defaulted to service the loan, I do not think that this can be the basis for assessing damages. In the circumstance of this case however, a nominal general damages of TZS 5,000,000/= for a breach of an implied term of the contract is fair and appropriate. It is accordingly awarded with court interest rate of 12% from the date of judgment to the date when the decree shall be satisfied. The defendants shall as well pay the costs of the case. In the final result it is hereby decreed as follows:- 1. The sale of the suit property no.l by the second defendantat the instance of the first defendant to the third defendant is hereby nullified and set aside.

2. The defendants and each of them are hereby restrained permanently from selling any of the suit properties without complying with the conditions and legal formalities under the LA.

3. The first plaintiff is awarded TZS 5,000,000/= as general damages for a breach of an implied term of the contract and interest thereon at the rate of 12% from the date of judgment to the date of full settlement of the decretal sum.

4. The defendants are hereby condemned to pay the costs of the case. It is so ordered. 21 Date: 24/7/2017 Coram: Hon. Maige,J 1st plaintiff: Living Rogati Mushi (Director) 2nd Plaintiff: Present in person 3rd Plaintiff: Absent 1st Defendant: Mr. Sifael Muguli 2nd Defendant: Mr. Sifael Muguli ■ 3rd Defendant: Absent B/C: M.Said Court: Judgment delivered in the presence of Mr. Living Rogati Mushi for 1st plaintiff, 2nd plaintiff in person, Mr. Sifael Muguli for 1st and 2nd defendants and in absence of 3rd plaintiff and 3rd Defendant, this 24th day of 22