[2024] UGHC 1124

## **THE REPUBLIC OF UGANDA**

## **IN THE HIGH COURT OF UGANDA AT FORT PORTAL**

## ³ **CIVIL SUIT NO. 65 OF 2022**

## **BRAIN BRIDGE HIGH SCHOOL LTD :::::::::::::::: PLAINTIFF VERSUS**

## ⁶ **1. MONTCLAIR SCHOOLS LIMITED**

# **2. OPPORTUNITY BANK LTD ::::::::::::::::::: DEFENDANTS BEFORE: HON. JUSTICE VINCENT WAGONA**

## ⁹ **JUDGMENT**

## **Introduction**

The claim by the plaintiff against the defendants is rooted in illegality, ¹² detinue and fraud, seeking the following reliefs: a declaration that the takeover of the plaintiff's students, staff members, operations and properties on the 18th of August 2022 was unauthorized by the plaintiff, ¹⁵ high handed and illegal; a declaration that the defendant's actions of taking over the plaintiff's school amounts to trespass; a declaration that the defendants were fraudulent in dealing and transacting in the suit ¹⁸ property well aware of the plaintiff's equitable interest on the same; a declaration that the defendant's action of taking over the plaintiff's school and property amount to civil theft; a declaration that the


continued running of the plaintiff's school is illegal; a mandatory injunction stopping the 1st defendant's agents from continuing to run the ³ plaintiff's school, changing it from its current name Brain Bridge High School and return of all operations of the school to the plaintiff; an order of recovery of all properties of the school unlawfully taken over by the 1 st ⁶ defendant; an order for payment of mense profits for the lost income

- per student consequent to the unlawful takeover of the school; an order for payment of deterrent punitive damages for the high handedness in - ⁹ taking over a fully operational school; General damages and costs of the suit.

## **The Case of the Plaintiff**

¹² The plaintiff is a corporate limited liability company which was running a school in its names on rented premises comprised in FRV KBO29, Folio 10, Block 29 at Kisomoro II, Kabarole District, registered in the ¹⁵ names of Byaruhanga Muhamood. The school was licensed by the Ministry of Education and sports and had a total enrolment of 324 students who were cumulatively increasing. That on 18thof August 2022, ¹⁸ the defendants and their agents without any claim of right took over the plaintiff's school, the school name, students, operations, good will and license to the plaintiff's loss and detriment.


The plaintiff employed all amicable channels to regain its property and operations that binds the successor in title in vein. That whereas the ³ plaintiff's agent was aware of the sale of the plaintiff's premises, the sale did not include private properties of the plaintiff which were never subject of any charge or claim by the 2nd defendant. That the continued ⁶ occupation and use of the plaintiff's properties amount to a tort of detinue and the plaintiff sought to recover special damages for use of her properties by the 1^sdefendant which were detailed in the plaint.

⁹ The plaintiff further averred that the execution and sale was illegal and fraudulent since the plaintiff had not consented to the sale and was not a party to the mortgage deed. The concealing of the plaintiff's interest and

¹² the illegal takeover of the possession of the premises and the properties therein were further acts of fraud. That the defendants were also negligent in as far as dispensing with the consent of the plaintiff as a ¹⁵ third party and the failure to recognize her interests in the mortgaged property. Similarly, that the defendants' acts amounted to trespass since the entry was without the plaintiff's consent and permission. The ¹⁸ plaintiff thus asked for judgment to be entered in her favour in the terms prayed for in the plaint.

## **The Case of the Defendants**


The plaintiff's claim was opposed by the defendants who in addition included a counter claim against the plaintiff. It was contended by the ³ defendants that the suit by the plaintiff discloses no cause of action against them; it is barred by limitation and irregular before court and ought to be rejected.

- ⁶ Without prejudice to the above contentions, the defendants contended that on the 31st of October 2018, the plaintiff's director; Byaruhanga Muhamood executed mortgage deeds for land comprised in FRV - ⁹ KB029, Folio 10, Block 29, Kisomoro II, Kabarole District to secure a loan sum of shs 1,300,000,000/= (One Billion and Three Hundred Million Shillings). The plaintiff was aware of the said mortgage since - she executed a corporate guarantee in favour of the 2 nd ¹² defendant. That Byaruhanga Muhamood is the mortgagor of the subject land and the director and owner of the school operated by the plaintiff. - That upon default on the loan, the 2nd ¹⁵ defendant went through the processes required where they served a notice of default upon the plaintiff's director on 26/02/2022 and later a notice of sale. That the ¹⁸ plaintiff as a guarantor failed to act on the statutory notices issued by - paying the outstanding loan by then of shs 1,108,116,380/- after the same was recalled. That the notice served was sufficient per clause 9.1 - of the guarantee deed executed by the plaintiff in favor of the 2 nd ²¹ defendant. The 2nd defendant followed all due process of the law in


exercising its right to foreclose on the said property. That the property was later valued, advertised for sale and numerous persons expressed interest in the same where the 1st ³ defendant emerged as the highest bidder.

That after the sale, on 18th August 2022, the 2nd defendant peacefully handed over the possession of the said school to the 1st ⁶ defendant in the presence of the plaintiff's head teacher, the local council chairperson and other community leaders as witnesses. That the plaintiff's headmaster later informed the 1st ⁹ defendant that the plaintiff had been dissolved on 17th August 2022 and that he together with the staff were willing to take up new employment which was done voluntarily. That the plaintiff has ¹² never made any request for her properties and was fully aware of the consequences of the corporate guarantee which she issued to the

- ¹⁵ That the mortgage realization process followed the due process of the law and no loss was occasioned to the plaintiff. The fraud and negligence alleged by the plaintiff has no legal foundation and evidential ¹⁸ support and thus ought to be ignored. That the suit was brought as an afterthought after the mortgagor failing to honor her obligations under the mortgage and the plaintiff under the corporate guarantee as such the - ²¹ suit ought to be rejected with costs.


plaintiff.

## **Counter Claim of the 2nd Defendant**

The 2nd defendant (Opportunity Bank) added a counter claim against ³ *Mashunga Enterprise (U) Ltd, Brain Bridge High School Ltd and Byaruhanga Muhamood* in which she claimed a sum of shs **1,204,970,832.25/=** being the loan outstanding as of 11th October 2022 together with contractual standard interest of 22% per annum from 31st ⁶ October 2018, contractual default interest of 2% per months from 26th February 2020, a declaration that the counter claimant or any person ⁹ acquiring the property through her is not bound by the tenancy agreement between the plaintiff and the registered proprietor of the property, General damages, aggravated damages, interest on damages

¹² and costs of the suit.

It was averred by the counter claimant that she advanced a credit facility of **shs 1,300,000,000/=** at an interest of 22% per annum to Mashunga ¹⁵ Enterprises Ltd and the suit property was pledged as collateral. The counter defendants breached the terms of mortgage deed by failing to pay the loan advanced by the counter claimant/2nd defendant. That as a result of the breach, the sum due and owed as of 11 ¹⁸ th October 2022 when the bank recovered the loan is **shs 1,204,970,832.25/=** and the same is due and owing. The counter claimant thus seeks to recover the same and

²¹ other reliefs in the counter claim.


## **Reply by the Plaintiff**

In reply, the plaintiff maintained that her suit was about illegality jointly ³ committed by the defendants leading to unlawful detinue all of which are sustainable causes of action. The written statement of defense by the defendant is vague and evasive and thus ought to be struck out. The ⁶ counter claim is not maintainable in the currency of the breach of the law by the defendants. That the amount received from the proceeds of sale were above the loan in default as such the 2nd defendant/counter ⁹ claimant should be the one ordered to compensate the counter defendants. That the allegations of fraud are not maintainable and owing to the deliberate illegality committed by the counter defendant, the ¹² counter claim ought to fail and the counter defendant ordered to indemnify the counter defendants. That the counter claim is not accompanied by the computation of how the sum claimed arose as such ¹⁵ it ought to fail and consequently dismissed with costs.

## **Issues**

Four issues were agreed upon during scheduling thus:

¹⁸ **(1) Whether the plaintiff was a party to the loan agreement and if so, whether the plaintiff's school, assets, students and name were legally and lawfully taken over by the** ²¹ **defendants.**


- **(2) Whether the school properties, equipment and students formed part of the said corporate guarantee between Mushunga Enterprises (U) Ltd and the 2nd** ³ **defendant.** - **(3) Whether the counter defendants are indebted to the counter claimant.** - ⁶ **(4) What remedies are available to the parties?**

## **Representation and Hearing**

*Mr. Alex Luganda of Newmark Advocates* represented the ⁹ plaintiff/counter defendants while *Mr. Amanyire Justus* appeared for the 1st defendant and *Kasimbi Phillip* for the 2 nd defendant and the counter claimant. Both counsel filed written submissions which I have ¹² duly considered herein.

## **Submissions for the Plaintiff / Counter Defendant**

Mr. Luganda in his submissions contended in relation to the first issue, ¹⁵ that the plaintiff rented school premises on land comprised in FRV KBO29, Folio 10, Block 29 at Kisomoro II, Kabarole District from Mr. Byaruhanga Mohamood as the proprietor (PE3). That the plaintiff ¹⁸ operated a modern secondary school and aimed at making money and enlighten the people of Bunyangabo. The plaintiff was not a party to the loan dealings between Mushunga Enterprises Ltd and the 2nd defendant.


The school was never the borrower or guarantor as such its properties were illegally sold.

- ³ Learned counsel further submitted that the right of a mortgagee to sale mortgaged property is not absolute. That such right is caveated by the duty to exercise care. (See: *Sendagire Stephen & Anor v DFCU Ltd).* It - ⁶ was submitted that the acts of the defendants taking over the plaintiff's school and denying her access was illegal and as such all subsequent acts are a nullity. The school was duly registered and licensed by the - ⁹ Ministry of Education, running peacefully with an enrolment of 324 students. It had modern equipments which are listed in the plaint, (PE5) and DE4. That those items were in the school at the time the defendants - ¹² took over the same. That the defendants in their defense admitted taking over the school under paragraph 5(i) and (m) yet the plaintiff was not a party to the loan dealings. - ¹⁵ That notwithstanding the above, even if the plaintiff was a guarantor as argued by the defendants, due process should have been followed in selling the plaintiff's school assets and equipment, including students, - ¹⁸ license, center number, laboratory, office furniture, medical equipments, and computers among others. The alleged sale did not follow the due process of the law. Section 28(2) of the Mortgage Act and Regulation - ²¹ 8(1) of the Mortgage Regulation require that a mortgage exercising a power of sale under the Act is required to sale mortgaged property by

 Public Auction. (See also: *Majid Akuze v Centenary Bank Uganda Ltd, O. S No. 5 of 2020&Ssendagire Stephen (supra)*.

- ³ It was pointed out that the steps to be followed in a sale by public auction were laid down by Hon. Justice Margret Mutonyi in *Formula Feeds Limited &Anor v KCB Bank Uganda Limited, HCMA No. 208* - ⁶ *of 2020* where she cited with approval the position in *Pitchfork Ranch Co. v Bar TL 615, P2d 541* which include; (a) there must be an advertisement of the public sale and auction, (b) there must be a list of ⁹ people who submitted their bids, (c) there must be bidding documentation, (d) viewing of the property by interested bidders must be documented, (e) property must be sold to the highest bidder, (f) the sale - ¹² must be conducted by a licensed bailiff, (g) the goal or aim is to get the best financial returns, (h) there must be free and fair competition by bidders, (i) the bidding should be public unless ordered by court to be by - ¹⁵ private treaty, (j) the law pertaining to timelines must be observed, (k) the auctioneer must act in good faith and (l) where a reasonable value is not realized, the auction should be postponed. - ¹⁸ It was submitted that the above requirements were not complied with by the 2nd defendant. There was no advert of the school properties and equipments, no bidding, no valuation or compliance with any of the - ²¹ requirements above. That DW1, Ahumuza Julius, the Acting Company Secretary of the 2nd defendant stated in cross examination that what was


sold was the land and not properties, equipments, students and other assets. (DE10). That as such the sale of the plaintiff's properties and ³ equipments was illegal.

In relation to the second issue, learned counsel submitted that the school properties were never part of the collateral for the loan and never ⁶ mortgaged. That as such they did not form part of the corporate guarantee between the borrower and the 2nd defendant.

On the third issue, Mr. Luganda submitted that the burden of proof ⁹ under section 101-103 of the Evidence Act rests on the plaintiff or a party who alleges a fact. It was submitted that the counter claimant did not lead evidence to prove that the 1 stcounter claimant was indebted to

- her. That the properties mortgaged by the 1 st ¹² defendant were sold including the one in dispute. That DW2 who testified in support of the counter claimant did not offer an explanation as to the actual amount due - ¹⁵ and owed. He failed to account for the proceeds realized from the sale of the 1st defendant's properties and DW2 was not aware of the amount which the borrower had paid. Learned counsel thus argued that the ¹⁸ counter claimant failed to meet the required threshold and therefore the counter defendant is not indebted to her.

For the remedies, learned counsel prayed for special damages in respect ²¹ of all items illegally bought by the defendants as indicated in the plaint


all amounting to **shs 1,294,096,000/=**. He also asked for general and punitive damages for the loss caused and wanton conduct of the ³ defendants. He prayed for interest on special, general and punitive damages and costs of the suit.

## **Submissions for the Defendants / Counter Claimants**

- ⁶ In reply, the defendants insisted that the sale did not affect the properties claimed by the plaintiff herein. That the 1st defendant after taking over the premises, came up with her own name which was registered. That ⁹ for the other items, the plaintiff has never demanded for the same. - Learned counsel for the 1st defendant asserted, that the sale conducted by the 2nd defendant was in respect of property comprised in FRV KBO29, - ¹² Folio 10, Block 29, Kisomoro II, Kabarole District and all developments thereon. It was contended that properties that the plaintiff used to operate the school are part and parcel of the suit property which was sold. Thus the 1st ¹⁵ defendant lawfully took over the same. He further argued that the sale in issue was in full compliance with the Mortgage Act and the Mortgage Regulations and thus the suit at hand has no merit. - Learned counsel for the 1st ¹⁸ defendant asked court to dismiss the suit with costs. The 2nd defendant's counsel did not file written submissions thus I considered the pleadings and evidence on record.

## ²¹ **Burden of Proof and Standard of Proof**


It is a settled position of law that in civil cases, the plaintiff bears the burden to prove his/her claim on the balance of probabilities. Section ³ 101 of the Evidence Act is to the effect that whoever desires any Court to give judgment as to any legal right or liability dependent on the existence of facts which he or she asserts must prove that those facts

⁶ exist. (See: *Kamo Enterprises Ltd Vs. Krytalline Salt Limited, SCCA No. 8 of 2018*). The evidential burden per section 102 and 103 of the Evidence Act keeps shifting depending on facts as alleged by a given ⁹ party to prove the existence of such facts.

## **Consideration by Court:**

¹² I will consider issues one and two concurrently since they relate to legality of the defendants acts as regards the properties of the plaintiff. Tobegin with, the binding document between the plaintiff and the 2nd ¹⁵ defendant establishing a form of relationship between the two is the corporate guarantee dated 31st October 2018 (*DE2*). The term '*guarantee*'in corporate law refers to a pledge by a person (guarantor), ¹⁸ other than a party upon whom the contractual or other legal obligation is imposed, to the effect that if the party so bound (principal) fails to perform the act in question, the guarantor, will either perform or make ²¹ good any loss or claim arising from the principal's non-performance. These guarantees take the form of corporate guarantee, performance


guarantee or demand guarantees. In all these guarantees, the guarantor takes the collateral duty to pay another person's debtor (principal) in the ³ event of default. (See: *Ebony Dev't Co. Ltd v Standard Chartered Bank Ltd (2008) eKLR& Eco Bank Kenya Ltd v Francis ToleMwakidedi, Insolvency Cause No. 1 of 2017*). Thus in general terms, a corporate ⁶ guarantee takes the same form of an ordinary guarantee where both the principal debtor, the guarantors and the corporate guarantors are jointly responsible for the debt in the event of default.

⁹ In *[Loomcraft Fabrics CC v Nedbank Ltd and Another](https://www.saflii.org/za/cases/ZASCA/1995/127.html) [\(Loomcraft\)](https://www.saflii.org/za/cases/ZASCA/1995/127.html) [1996] 1 All SA 51 (A); 1996 (1) SA 812 (A) at 815 GJ,* the Supreme Court of Appeal of South Africa held that demand guarantee is ¹² akin to an irrevocable letter of credit, which establishes a contractual obligation on the part of the bank to pay the beneficiary on the occurrence of a specified event, and is wholly independent of the ¹⁵ underlying contract of sale between the buyer and the seller. The bank will escape liability only upon proof of fraud on the part of the beneficiary. Therefore, a corporate guarantee in this case takes the form ¹⁸ of the letters of credit where the corporate guarantor assumes the duty and liability to pay the sum advanced to the principal borrower in the event of default on demand. What the lender or creditor is required to do ²¹ is to inform the corporate guarantor of the default and call on him or her to pay the sum due and owing.


This was emphasized by the Supreme Court of India in *[Ansal Energy](https://indiankanoon.org/doc/514858/) [Projects Limited v Tehri Hydro Development Corporation Limited and](https://indiankanoon.org/doc/514858/)* ³ *[Anor](https://indiankanoon.org/doc/514858/) [1996] 5 SCC 450* that; **"***It is settled law that bank guarantee is an independent and distinct contract between the bank and the*

*beneficiary and is not qualified by the underlying transaction and the* ⁶ *validity of the primary contract between the person at whose instance the bank guarantee was given and the beneficiary. Unless fraud or*

*special equity exists, is pleaded and prima facie established by strong*

- ⁹ *evidence as a triable issue, the beneficiary cannot be restrained from encashing the bank guarantee even if dispute between the beneficiary and the person at whose instance the bank guarantee was given by the* - ¹² *bank, had arisen in performance of the contract or execution of the works undertaken in furtherance thereof. The bank unconditionally and irrevocably promised to pay, on demand, the amount of liability* - ¹⁵ *undertaken in the guarantee without any demur or dispute in terms of the bank guarantee. The object behind is to inculcate respect for free flow of commerce and trade and faith in the commercial banking* ¹⁸ *transactions unhedged by pending disputes between the beneficiary and the contractor."*

I am persuaded by the reasoning in **Ansal Energy Projects Limited** ²¹ **(supra**) that the spirit under a bank guarantee equally applies to corporate guarantees in the sense that the corporate guarantor undertakes


to pay the loan advanced to the borrower on demand. Therefore he or she cannot raise issues of validity of the loan agreement or merits of the ³ dispute between the lender and the borrower. Once notice is given to the corporate guarantor that the principal borrower has defaulted, his or her duty is to pay the sum in default or act as agreed upon in the corporate ⁶ guarantee deed. However, all this applies subject to the terms of the corporate guarantee.

In the corporate guarantee executed between the plaintiff and the 2nd ⁹ defendant, it was agreed under clause E that; "*The Guarantor executes or causes to be executed this instrument of guarantee as security for the repayment of the entire facility sum together with any and all* ¹² *interest, fees, costs and charges payable thereon or connected*

*therewith*."

It was further indicated under clause 1 titled Covenant to pay thus; "*In* ¹⁵ *consideration of the Lender granting the loan facility or continuing to make available credit facilities or other accommodation for so long as the Lender may think fit, to the Borrower, the Guarantor hereby* ¹⁸ *irrevocably, absolutely and unconditionally guarantees on demand to pay the lender all the moneys and discharge all obligations and liabilities whether actual or contingentnow or at any time hereafter* ²¹ *due, owing or incurred to the Lender by the Borrower in whatever currency whether on any current or other account or in any manner*

**16 |** P a g e

*whatsoever whether alone or jointly and in whatever style, name or form and whether as principal or surety when the same are due* ³ *including all liabilities in connection with foreign exchange transactions, accepting, endorsing or discounting any note, bills or under bonds, guarantees, indemnities, documentary or other credits or* ⁶ *any instruments whatsoever entered into by the Lender for or at the*

- *request of the Borrower together with interest before or after any demand or judgment for sums as may from time to time be payable by* - ⁹ *the borrower or which would have been so payable but for the liquidation, administration or other incapacity of the Borrower and all commission fees and other charges and all legal and other costs and* - ¹² *expenses incurred by the Lender in relation to the Borrower or this Guarantee or security for any moneys, obligations or liabilities hereby guaranteed on a full indemnity basis. Any statement of account of the* - ¹⁵ *Borrower signed as correct by any authorized officer of the Lender shall be conclusive evidence against the Guarantor of the indebtedness of the Borrower to the Lender*." - ¹⁸ The guarantor under clause 1.2 also committed to pay any interest from the date of demand until payment in full of all the moneys due from the principal borrower. Under clause 2.1, the guarantee was intentioned to - ²¹ be a continuing one until the money advanced to the borrower is fully paid. Therefore this was a demand guarantee where the plaintiff was to


pay the sum advanced to the borrower (Mashunga Enterprises (U) Ltd) on demand. The corporate guarantee was signed by Mr. Byaruhanga ³ Muhamood and Sulainah Haroon Nyondo as Directors of the plaintiff. The plaintiff also passed a resolution permitting the issuance of the corporate guarantee to the tune of **shs 1,300,000,000/=** and interest and ⁶ charges that accrued thereon for the loan advanced to Mashunga Enterprises (U) Ltd & the 2nd defendant (*DE3*).

The Defendants contended that after the loan was advanced to ⁹ Mashunga Enterprises (U) Ltd, the same was not paid and a notice of default was sent to the Directors of Mashunga Enterprises (U) Ltd who were at the same time the directors of the plaintiff (*DE5*) and the notice ¹² was sent through the registered Postal address of Mashunga Enterprises Ltd (*DE5*). The plaintiff even after notice of default, also defaulted to pay the sum advanced to Mashunga Enterprises (u) Ltd as indicated in ¹⁵ the corporate guarantee.

In the written statement of defense, the defendants alluded to the fact that a corporate guarantee was executed by the plaintiff in favour of the 2 nd ¹⁸ defendant. The plaintiff failed to honor the terms under the said guarantee.

In the reply to the written statement of defense and counter claim, the ²¹ plaintiff did not deny executing the corporate guarantee. She maintained

 under paragraph b of the reply to the counter claim that the properties sold were in excess of the entire claim and as such the counter claimant ³ is liable to compensate the defendants and extinguish any guarantee. This means the plaintiff admitted being aware of the said guarantee. In cross examination, PW1 admitted being one of the directors of the ⁶ plaintiff and the other director was his wife. He denied signing DE2 which was the corporate guarantee. He stated that the signature thereon does no match with his known signature. He went on to state; that he did ⁹ not remember whether he signed a board resolution (DE1). I find this evidence an afterthought and contrary to the pleadings filed by the plaintiff. Be that as it may, PW1 did not dispute signing the board ¹² resolution by the plaintiff where the company issued the corporate guarantee in issue. It is thus illogical to argue that he did not sign what the company authorized by way of a resolution.

¹⁵ Court being the expert of experts, I have carefully considered the signature of PW1 on all the pages of DE2 and on DE3 which he did not dispute plus PE3 which document the plaintiff sought to rely thereon ¹⁸ bearing the signature of PW1 and found that the signature on DE2 clearly matches with the one on DE3 and PE3 in terms of the manner of execution, handwriting, letter quality and spacing between letters. I

²¹ therefore find that PW1 executed DE2 and raised this objection as an afterthought.


The above being the case, I disagree with the submissions of Mr. Luganda that the plaintiff had no obligation in relation to the loan ³ advanced to the mortgagee (*Mashunga Enterprises (U) Ltd*). The plaintiff breached the corporate guarantee which she executed with the 2 nd defendant when she defaulted on payment of the loan in issue. That ⁶ being the position, the fundamental question is whether upon default by a guarantor, the creditor has capacity to exercise a right of foreclosure against the properties of the guarantor. The right of foreclosure is only ⁹ exercisable on properties pledged as collateral for a loan. Section 25(1) of the Mortgage Act Cap. 239 limits the powers of sale to mortgaged property. Therefore any right of sale beyond what was given as ¹² collateral can only take place with an order of court.

In the case before me, what the borrower pledged as security for the loan was land comprised in Plot 21, Bunyangabu Block 29, Kisomoro II, ¹⁵ Kabarole District and the developments thereon. The movable properties of the plaintiff were never pledged as collateral and the 2nd defendant could not exercise a right of sale under the provisions of the Mortgage ¹⁸ Act Cap. 239 and the regulations made thereunder. Additionally, in *DE9* being the valuation report for the property pledged as collateral by the

borrower/debtor, the items in the school were not valued. Thus the 2nd defendant cannot purport as submitted by learned counsel for the 1st ²¹ defendant, that the items claimed by the plaintiff were fixtures and


fittings to the structures on the land. This argument is alien to the pleadings of the defendant and their evidence which is to the effect that ³ the items were never sold.

The follow up question is whether or not the items of the plaintiff as itemized in the plaint were indeed sold to the 1st defendant by the 2nd ⁶ defendant. The plaintiff shouldered the burden to prove this fact per section 101, 102 and 103 of the Evidence Act. The plaintiff apart from alleging the sale and the steps which were never followed in the alleged ⁹ sale, did not point at any evidence of sale of the items of the school by the 2 nd defendant to the 1st defendant. The 1st defendant denied any sale of the plaintiff's properties and in proof attached the advert *DE10* which ¹² is the advert for the mortgaged property which did not include the plaintiff's properties. In *PE5* which is a sale agreement between the 1 st and 2nd defendant, the properties claimed by the plaintiff are not among ¹⁵ those which were sold. What was sold was land comprised in FRV KB029, Folio 19, Block 29, Plot 21 at Kisomoro II, Kabarole District which was mortgaged as collateral for the loan advanced to Mashunga ¹⁸ Enterprises (U) Ltd. In the evidence of DW1 and DW2, they clearly indicated that the properties claimed by the plaintiff were not part of the properties sold to the 1st defendant by the 2nd defendant. Therefore the

2 nd ²¹ defendant has no right over such items and the provisions of the


Mortgage Act and the Regulations in relation to the items in issue are not applicable since they were never sold.

- ³ That being the case, the plaintiff contends that the takeover of the school premises and her properties was illegal since she was not part of the mortgage transaction. I have already observed above that the plaintiff as - ⁶ a corporate guarantor had the unequivocal obligation to ensure that the money in issue is paid on demand which she failed to perform. Further, Section 23(1), (2), (3) and (4) of the Mortgage Act Cap. 239 provides ⁹ that:

## *Power of mortgagee to take possession of mortgaged land*

- 1. A mortgagee may, after the end of the period specified in [section](https://ulii.org/akn/ug/act/2009/8/eng@2009-10-30#part_V__sec_19) ¹² [19,](https://ulii.org/akn/ug/act/2009/8/eng@2009-10-30#part_V__sec_19) and after serving a notice of not less than five working days of his or her intention to do so, enter into possession of the whole or a part of the mortgaged land. - 15 - 2. A mortgagee may exercise the power of entering into possession of the mortgaged land by— - 18

*(a)entering into and taking physical possession of the land or a part of it during the day time using only such force as shall be* ²¹ *reasonable in the circumstances;*


- *(b)asserting management or control over the land by serving a notice in the prescribed form requiring any lessee of* ³ *the mortgagor or any other occupier of the land to pay to the mortgagee any rent or profits which would otherwise be payable to the mortgagor; or* - ⁶ *(c)an order of court.* - *3. The mortgagee shall be regarded as being in possession on the date—* - ⁹ *(a)on which he or she enters into possession in accordance with subsection (2)(a) or (c); or (b)on which he or she first receives any rent or profit from the* ¹² *land.* - *4. A mortgagee who has entered into possession may remain in* ¹⁵ *possession, without prejudice to his or her right to withdraw from possession, so long as the mortgaged land continues to be subject to any liability under the mortgage.* - ¹⁸ Therefore, the moment foreclosure is commenced; the mortgaged property becomes property of the mortgagee which he or she must turn into cash to recover the sum in default. (See: *Sendagire Stephen & Anor* - ²¹ *v DFCU Ltd & 2 others, HCCS No. 26 of 2008*). That being the case, section 23 of the Mortgage Act allows a mortgagee to enter into


possession of mortgaged property either for purposes of managing the same to raise income to repay the loan or for purposes of selling the ³ same. What is required under the Act is that in the event of entry without an order of court, such entry should be with reasonable force.

In the present case, the Mortgagor had defaulted on payment of the loan

- ⁶ and the mortgagee who was exercising a power of sale thus entered into possession of the mortgaged property for purposes of handing over possession of the same to the buyer (1st defendant). There is no evidence - ⁹ to suggest that the force used was unreasonable. I therefore find no issue with the 2nd defendant's entry into the premises and subsequent handover of the mortgaged property to the 1st defendant. - The last segment of contestation is whether the 1st ¹² defendant's takeover of the properties of the plaintiff as itemized in the plaint amounted to a tort of detinue. The learned authors of the **Black's Law Dictionary 8 th** - ¹⁵ **Edition** attempted to draw a distinction between the two torts of Detinue and conversion since the two seem to be similar thus;

*"Detinue is a common law action to recover personal property* ¹⁸ *wrongfully taken or withheld by another. A claim for detinue lies at the suit of a person who has an immediate right to the possession of the goods against a person who is in actual* ²¹ *possession of them and who upon proper demand fails or refuses to deliver them up without lawful excuse.*


*Conversion is the wrongful possession or disposition of another's property as if it were one's own an act or series of acts of willful* ³ *interference without lawful justification with an item of property inmanner inconsistent with another's right whereby that other person is deprived of the use and possession of the property it is* ⁶ *an act that interferes with the dominion of the true owner's right and depriving him of the possession of the goods to an extent as to be inconsistent with the rights of the owner."*

⁹ It is deducible from the above commentary, what whereas conversion is the act of taking one's property unlawfully, detinue occurs where the tortfeasor takes the chattel lawfully but the permission of the owner gets

¹² withdrawn or terminated and a demand is made for the return. (See:*W V H ROGERS, Winferd & Jolowicz on Tort, 15th Edition*). Therefore a claimant under the tort of detinue must lead evidence to prove that he or ¹⁵ she is indeed the owner of the properties or chattels in issue, that they are in the possession of another person without his consent or assent and that he or she made a demand for the return of such chattels or goods ¹⁸ and the same were never returned. Thus, evidence of a demand, that was not heeded, is crucial in detinue claims.

In the present suit, the plaintiff contended that her items (chattels) as ²¹ particularized in the plaint were taken over by the plaintiff without any claim of right and they continue to hold onto the same which constitute a


tort of detinue. The defendants on the other hand denied any illegal takeover of the properties of the plaintiff and contended that the plaintiff ³ has never demanded for the same.

PW1 and PW2 stated in their evidence in chief that the plaintiff prior to its takeover by the defendants was operating as a school with students, a ⁶ license, centre number and items used in its operation. That the defendants illegally tookover the same including the students, license, centre number and all other items which amount to detinue. DW1 and ⁹ DW2 on the other hand contended that the takeover of the mortgaged property was in accordance with the law and as for the properties sought to be recovered by the plaintiff, the plaintiff has never demanded for the

same. DW1, a director of the 1 st ¹² defendant categorically stated in cross examination that the 1st defendant bought land and the buildings thereon and not the school items and properties which were in the school. That ¹⁵ ever since the takeover of the school, the plaintiff has never asked for the properties in issue.

I have critically examined the evidence on record and the pleadings of ¹⁸ the parties. Whereas the plaintiff's claim is rooted in detinue, it is apparent from the record of court that after the takeover of the school premises, the plaintiff never made any effort to demand for her items ²¹ that the plaintiff alleges were in the school. Evidence of demand for the goods is very central in a claim for detinue and evidence of such demand


must be in writing. In the present case, there is no evidence at all to prove that the plaintiff demanded for the items claimed in the plaint and ³ the defendants declined, neglected or refused to hand over the same to her. It appears the plaintiff merely rushed to court when the 1 st defendant took over possession of the school and did not make any effort either to ask the 1 st ⁶ defendant to allow her take out her items and properties at the time of the takeover or after the takeover. It is evident from *PE6* that the takeover took place on 4 thSeptember 2022 and the current suit was filed on 26th ⁹ September 2022 before any effort was taken by the plaintiff to

- demand for her properties in the school including the students, licence, centre number and other properties used in the operation of the school. I ¹² therefore find that in the absence of any demand for the return or - handover of the items in issue from the plaintiff, there is no tort of detinue that was proved as committed. Thus the claim fails. - ¹⁵ Further to the above, no inventory of the properties which were in the school at the time of takeover was taken. Court cannot therefore conclude that those items that are missing were taken or damaged by ¹⁸ plaintiff. The inventory taken on the orders of court (*DE14*) clearly indicates that some of the plaintiff's properties are within the school premises and were used by the 1st defendant. That being the case, since - the 1 st ²¹ defendant has been in use of properties which are not necessarily hers and derived a benefit therefrom, I would in the interests of justice

 order that the 1st defendant pays nominal damages to the plaintiff of *shs 10,000,000/= (Ten Million Shillings)* for the use of her properties for ³ the last two years. The plaintiff is at liberty to demand for the return of the items currently in the school from the 1st defendant and / or pick the same at will.

## ⁶ *Issue Three: Whether the counter defendants are indebted to the counter claimant.*

The 2 nd defendant sought to recover a sum of **shs 1,204,970,832.25/=** being outstanding loan as of 11 ⁹ th October 2022. The counter claimant went ahead to aver that it advanced a sum of **shs 1,300,000,000/=** to the 1 st defendant and the same was guaranteed by the 2 nd and 3rd counter defendants. That the 1 st ¹² counter defendant defaulted on payment of the loan and by 11th October 2022, the outstanding sum was shs **1,203,970,832.25/=.** That the 2nd and 3rd counter claimants failed to ¹⁵ honor the obligations to pay the sum in defaulted as guaranteed. The plaintiff went ahead and attached the facility agreement between the counter claimant and the 1st counter defendant plus all the notices of ¹⁸ default. The counter claimants on the other hand contended that the counter clamant sold properties pledged as collateral and recovered her loan. That it is not clear from the counter claim as to the exact sum ²¹ which is outstanding.


## **Consideration**

| 3 | The right of a mortgagee to sue for recovery of money secured by a<br>mortgage is provided for under section | |----|--------------------------------------------------------------------------------------------------------------| | | 20. Mortgagee's action for money secured by<br>mortgage | | | 1.<br>The<br>mortgagee<br>may<br>sue<br>for<br>the<br>money<br>secured<br>by | | 6 | the<br>mortgage<br>only in the following cases— | | | where the<br>mortgage<br>deed provides that if there is default by<br>(a) | | | the<br>mortgagor, the money secured by the<br>mortgage<br>becomes | | 9 | payable in full; | | | where<br>the<br>mortgagor<br>is<br>personally<br>bound<br>to<br>repay<br>the<br>(b) | | | money; | | 12 | where a<br>surety<br>has agreed to be personally liable to repay<br>(c) | | | the money in circumstances that have arisen; | | | where the<br>mortgagee<br>is deprived of the whole or a part of<br>(d) | | 15 | his or her security or the security is rendered insufficient | | | through or in consequence of the wrongful act or default of | | | the<br>mortgagor. | | 18 | 2.<br>An action shall not be commenced under subsection (1) until the | | | time for complying with a notice served under<br>18<br>has expired. | | | 3.<br>The<br>court<br>may, on the application of the<br>mortgagor<br>or a<br>surety, | | 21 | order a stay of any proceedings brought under this section, until |

*the mortgagee has exhausted all his or her other remedies*


*against the mortgaged land, unless the mortgagee agrees to discharge the mortgage on payment of the money secured by* ³ *the mortgage*.

It appears from the reading of the above legal provisions that the right to sue for recovery of the money in default is conditional and not general. ⁶ Section 20(1) seem to suggest that the right is only exercisable in the occurrence of events under section 20(1)(a), (b), (c) and (d). Therefore where the collateral pledged as security is available and sufficient and no ⁹ effort has been made to foreclose the same to recover the sum in default, a mortgagee may not apply to court for recovery of the money secured by a mortgage. The spirit under section 21 was to empower mortgagees ¹² to exercise rights under the mortgagee deeds and not to make recourse to courts which may be costly to both the borrower and the lender and time consuming. Therefore where the collateral is available and ripe to ¹⁵ generate the sum claimed by the mortgagee, then the right to sue for recovery of the money secured by a mortgage becomes premature at that point. The Mortgagee must demonstrate to court that he or she invoked ¹⁸ all the powers under the mortgage deed and no results were gathered therefrom.

In the present suit, the counter claimant was given a range of properties ²¹ as collateral which she could sale to recover the money in default. DW2 indeed admitted that most of the properties were sold including land


comprised in Plot 21 at Kisomoro II, land at Busiro Block 197, Plot 19 at Wakiso, land at Busiro comprised in Block 265, Plot 826, land at ³ Kabumba in Wakiso. The counter claimant did not lead evidence to prove that she could not foreclose to recover the sum advanced to the counter defendants. The fact that the 1st counter defendant challenged ⁶ the process through which land comprised in Plot 21 at Kisomoro II was sold, in itself did not take away the property from the reach of the counter claimant. The counter claimant still retains the right to apply the ⁹ proper foreclosure process and have the property in issue sold to recover the money advanced to the 1 st counter defendant and guaranteed by the 2 nd and 2rd counter defendants. I would therefore find that the counter ¹² claim in issue is premature before this court before exhaustion of other remedies under the Mortgage Act and the Regulations.

Further to the above, DW2 in his evidence admitted that some of the ¹⁵ properties pledged as collateral were sold and the counter claimant recovered part of her money. The counter claimant did not lead clear evidence of how much was realized from the sale and what is due and ¹⁸ owing. I find it unsafe to order the counter defendants to pay money which is not clearly ascertained. Whereas the plaintiff claims that the outstanding loan as of 11th October 2022 was shs. 1,204,970,832.25, part ²¹ of the said money was recovered through the foreclosure process which



adduced by the counter claimant as to the sum outstanding at the time the counter claim was filed and currently. I would therefore find it better

- ³ for the counter claimant to pursue the foreclosure processes and all the rights under the Mortgage deed before recourse is made to court. Therefore, the counter claim by the counter claimant is premature and in - ⁶ anycase, the counter claim failed to prove the same.

## *Remedies available*

The plaintiff prayed for a number of remedies which he failed to prove.

- ⁹ Therefore the plaintiff's case substantially fails as well as the counter claim by the 2nd defendant with the following orders: - **1. The suit by the plaintiff substantially fails.** - ¹² **2. The plaintiff is only awarded nominal damages of shs 10,000,000/= (Ten Million) against the 1st defendant arising from the use of properties items by the 1 st defendant for the** ¹⁵ **last two years.** - **3. The plaintiff is at liberty to demand for the handover of the plaintiff's properties as specified in DE14 from the 1st** ¹⁸ **defendant, which it is hereby ordered be availed to the plaintiff immediately upon demand.**

**4. The counter claim by the 2 nd defendant fails and is thus hereby** ²¹ **dismissed.**


- *5.* **Each party shall bear their own costs of the suit and the counter claim.** - ³ **It is so ordered.**

**Dated at Fort Portal this 11th day of December 2024.**


⁶ Vincent Wagona **High Court Judge FORT-PORTAL**