[2024] UGCommC 119

## THE REPUBLIC OF UGANDA

## IN THE HIGH COURT OF UGANDA AT KAMPALA

## (COMMERCIAL DIVISION)

## CIVIL SUIT NO. 1006 OF 2019

IMAGE FINANCE LIMITED::::::::::::::::::::::::::::::::::::

#### VERSUS

PETER KAMANYIRE::::::::::::::::::::::::::::::::::::

## Before the Hon. Lady Justice Patricia Kahigi Asiimwe

## Judgment

#### Introduction

The Plaintiff, a private limited liability company brought this suit 1. against the Defendant for breach of contract. The Plaintiff seeks an order of specific performance, general damages and interest. the alternative, the Plaintiff seeks a refund of UGX In 200,000,000, interest at a commercial rate of 25% per annum from November 2013 to the time of full payment, special damages of UGX. 1,960,000, general damages, and costs of the suit.

#### The Plaintiff's case

- The Plaintiff stated that on 18^th May 2013, it bought from the $2.$ Defendant a condominium unit comprised in Plot 628 LRV $3035/4$ , land at Ntinda II Road Kampala for a consideration of UGX 200,000,000. Subsequently, the Defendant handed over his copy of the duplicate certificate of title and duly executed transfer forms to the Plaintiff. - On 23^rd March 2017, the Plaintiff lodged the transfer forms and 3. a duplicate certificate of title at the Registry of Lands. The Registrar did not transfer the land because the Plaintiff refused

to conf,rrm the transfer. The Defendant also lodged a caveat claiming an interest as a registered proprietor on 24th March 2017.

4. The Plaintiff stated that it was agreed that the Defendant was to remain in possession of the property for 6 months after execution of the agreement, and then vacate at the end of 6 months. However, the Defendant refused to grant vacant possession to the Plaintiff.

# The Defendant's case

- 5 The Defendant in his defence stated that in January 2Ol2 during a dire economic setback, he borrowed UGX. 25,0OO,OOO from the Ptaintiff at an excessive interest rate of 107o per month. Upon which he was requested to deposit his title deed for the suit property. He stated that he was also made to execute a document purporting to be a sale agreement for the suit property. - The Defendant stated that he was verbally assured by the Defendant's general manager Moses Sadoori that the sale agreement and transfer forms were a form of security and these would be returned upon repayment of the loan. The Defendant stated that he managed to repay the first loan of UGX 25,00O,OO0 with interest. 6 - The Defendant claimed that in May 20 13, he sought another loan of UGX. 5O,OOO,00O using the same property as security. The Plaintiff disbursed the money and after insisting that the Defendant signs a sale agreement. The Plaintiff relied on the previous title deed as security. The Defendant allegedly complied because he was desperate.

- 8. The Defendant contended that he made several deposits with the Plaintiff's office in repayment of the loan. He cleared the principal and substantial sum in interest over three-year period. - 9. The Defendant contended that the Plaintiff prepared no lending agreements on both borrowing occasions. He also claimed that the Plaintiff refused to issue official receipts for the money repaid by the Defendant. According to the Defendant, the Plaintiff's manager, Sadoori Moses, only provided informal hand-scribbled provisional acknowledgments for some of the money received after the Defendant made several demands for receipts. - The Defendant contended that he has repaid all monies 10. borrowed from the Plaintiff but the Plaintiff has refused to hand over the owner's duplicate certificate which was deposited as security. - The Defendant alleges that the Plaintiff has engaged in various 11. acts of fraud such as: falsely alleging that the Defendant sold the suit property to the Plaintiff and yet it was a money lending transaction; presenting a transfer instrument irregularly procured through deceit; presenting consent and valuation documents for the suit property stating a consideration of UGX 130,000,000 which is at variance with what he claims was the purchase price of UGX 200,000,000 thus undervaluing property to defraud taxes on stamp duty.

## Representation

12. The Plaintiff was represented by $M/s$ Gad & Co. Advocates and the Defendant was represented by $M/s$ Kwari-Kyerere & Co. advocates. Both parties filed written submissions

## Issues:

The issues for resolution are as follows: 13.

- $\mathbf{I}$ . Whether the transaction was a sale/purchase of the suit property or a money lending transaction - II. Whether the Plaintiff is entitled to the remedies sought.

# Plaintiff's Evidence

- $14.$ The Plaintiff called one witness Moses Sadoori ("PW"), the general manager of the Plaintiff. He testified that on 18^th May 2013, the Defendant sold the suit property to the defendant for a cash consideration of UGX 200,000,000. The Defendant surrendered a duplicate certificate of title and signed transfer forms in favour of the Plaintiff. When the Plaintiff lodged transfer forms and the duplicate certificate of title for registration on 23^rd March 2017 at the Registry of Lands, the transfer failed because the Defendant declined to confirm the transfer. The Defendant went ahead to lodge a caveat claiming an interest as a registered proprietor of the said property on 24^th May 2017. - 15. During cross examination, PW testified that he first got to know the Defendant in 2012 when he was referred to the Plaintiff's office to borrow money. The Defendant borrowed UGX. 25,000,000 and deposited the title of the suit land as security. The Defendant fully paid back the loan sums. When questioned if he had returned the title of the suit land to the Defendant. PW insisted that he did so and noted in his dispatch book, when asked to if any document was signed by the Defendant acknowledging the return of the title, he did not have any evidence to that effect.

## Defendant's Evidence

- 16. The Defendant testified that he owns the suit property and that it is his matrimonial home. He went to the Plaintiffs ofhces to borrow UGX 25,OOO,0OO and the general manager Sadoori attended to him and asked him to deposit the title. Moses Sadoori gave him an acknowledgment of receipt of the title. He was given a sales agreement to sign, and when he inquired, Sadoori told him that is how they handle their loan transactions with borrowers until they repay. - 17. In May 2013, he requested for a loan of UGX. 5O,O00,000. His title was still in custody of the Plaintiff. PW asked him to sign another set of documents to confirm the same title was security for the new loan. - 18. He requested a loan statement from the Plaintiff, and it was not availed to him. He was surprised when he was called by a registrar of titles seeking confirmation that he had transferred his interest in the condominium property.

## Resolution

Issue I: Whether the transaction was a sale/purchase of the suit property or a money lending transaction

19. It is not in dispute that in January 2072, the Defendant borrowed money from the Plaintiff and he secured the loan with his land title. It also not in dispute that the Defendant paid the money back. Neither is it in dispute that in May 2013 there was a transaction between the parties. It is equally not in dispute that the Defendant signed a sale agreement and transfer forms in respect to the suit property. What is in dispute is whether the

transaction was a money lending transaction secured by the suit property or a sale of the suit property.

- 20. The Defendant testified that in January 2Ol2 when he borrowed the money from the Plaintiff, he was asked to sign documents that he later realised were sa-le agreements. On inquiring from PW he was informed that that is how the Plaintiff treats loan transactions and that they would cancel the agreement when the money advanced is paid in full and he would receive his title back. He further testified that subsequently in May 2013 when he went back to borrow more money he was given a new set of documents to sign and was assured that they would be returned to him with the title upon repa1,rrnent in full. - T,. Counsel for the Plaintiff submitted that the Defendant is bound by his signature. Counsel cited the case of L'Estrange uersus F Graucob Ltd [1934] 2 K. B. 394 where it was held that the clauses of a written contract are binding on those who sign it, even if they are unaware of the futl contents or neglect to read them' - 22. Counsel for the Defendant argued that as much as the law holds a party bound to a contract they signed, the sarne case of L'Estrange uersus F Graucob Ltd (supra) established exceptions to this rule which are misrepresentation or fraud. Counsel for the Defendant argued that the facts of this case fall within the exception of fraud. - 23. Section 15 of the Contracts Act 2010 dehnes fraud and sets out its ingredients. The section provides that:

(1) Consent is induced bg fraud tahere any of the following acls is committed bg a partg to a contract, or with the conniuance of that party, or by the agents of that partg, with intent of deceiuing the other party to the contract or the agent of the other party, or to induce the other party to enter into the Contract—

(a) a suggestion to a fact which is not true, made by $a$ *person who does not believe it to be true;*

(b) the concealment of a fact by a person having $\frac{1}{2}$ *knowledge or belief of the fact;*

$(c)$ a promise made without any intention $of$ *performing it;*

(*d*) any act intended to deceive the other party or any *other person; or*

(e) any act or omission declared fraudulent by any law.

- 27. The Black's Law Dictionary, 11^th Edition at page 802 defines fraud as "A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment. A misrepresentation made recklessly without belief in its truth to induce another person to act... A tort arising from a knowing misrepresentation, concealment of material fact, or reckless misrepresentation made to induce another to act to his or her detriment." - 24. From the above to prove fraud one must adduce evidence that a misrepresentation of the truth was made which the person seeking to prove fraud acted upon to his or her detriment. The claiming fraud should have believed that the person misrepresentation was true, hence their acting on the information. - 25. It is clear from the testimony of the defendant that he was meant to believe that the sale agreement and the transfer forms were meant to secure the loan and on payment in full the document would be returned to him. This testimony is corroborated by the fact that the defendant submitted in evidence chits signed by PW

1 indicating receipt of money from the defendant (DE 3). These chits are dated between August 2O15 and March 2016. These payments were made after the date of the sale agreement in dispute which his dated 18th May 2O13. The chit dated 9th August 2O15 which has the logo and name of the Plaintiff company, reads as follows:

"Receiued 2m on top of 3m earlier receiued for interest."

- 26. Tlne Defendant in his testimony stated that the interest rate for the money he borrowed was UGX. 5,0OO,00O per month. The above stated corroborates the said testimony of the Defendant that he borrowed money and had to pay interest of 5 million per month. - 27. These payments have not been explained. They only point to the fact that the Defendant owed them money and he was paylng the Plaintiff with interest. - 28. This court finds that the facts of this case are similar to the Court of Appeal case of Wakanyira George David Versus Ben Kavuya and others Civil Appeal No. 36 of 2O1O, cited by counsel for the Defendant where the Appellant's case was that he borrowed money from the 2"d Respondent and pledged his land as security. He was also required to sign transfer forms for the property which he did. He was not given a copy of the loan agreement. While the Appellant insisted that the transaction between the parties was a loan agreement, the Respondents stated that there was a sale of the property. The Court of Appeal hetd that "in the absence of evidence that the parties intended to be bound contractually to the sale and transfer, Court should be reluctant in deciding that the executed documents formed that basis of a legal contractual relationship."

29. The Court of Appeal further held that "it is now settled law that one of the essential elements for a valid contract to exist is that there must be an intention to create legal relations which the parties must manifest." The court went ahead to hold that there was no valid contract and stated as follows:

> There must be a positiue intention to create a legal obligation as an element of the contract; deliberate promise or agreement senous made. If reasonable people should assume that there is no intention of the parties to be bound with what they are doing, then there is no contract.

- 30. In the case of Waiga Jacintus Versus Andima Jackson Civil Appeal No. OO2O of 2OL6 Mubiru J, defined intention to create legal relations "as an intention to enter a legally binding agreement or contract." - 31. In the case of Olanya Hannington Versus. Acullu Hellen Civil Appeal No. OO38 of 2016 Mubiru J held that the test of determining whether there was an intention to create a legal contract is whether "a reasonable person would consider that there was an intention so to contract." - 32. In the present case court notes that while the Plaintiff alleges that they returned the title to the Defendant a-fter the 1"t loan transaction, the Plaintiff did not adduce evidence to that effect. - 33. Court notes that the Plaintiff submitted in evidence a sale of land agreement, there is no evidence of payment of the consideration for the land. Given the amount of money allegedly paid for the land that is UGX. 2OO,OO0,O00 for the suit property, a serious company would have evidence of payment of such money.

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- 34. Court further notes that the Plaintiff remained in possession of the suit property after the alleged sale and is still in possession of the property. - 35. Basing on the evidence in the present case, court finds that there was a fraudulent misrepresentation by the Plaintiff that the sale agreement and transfer forms were only to act as security for the loan when in fact they intended to transfer the suit property to the name of the Plaintiff. There was therefore no intention to enter a legally binding contract on the part of the Defendant. - 36. Court further finds that a reasonable person considering the facts in this case would come to the conclusion that there was no intention to sell the suit property. The Defendant borrowed money and secured it with the suit property. - ³⁷. Court therefore hnds that the transaction in May 20 13 between the parties was a money lending transaction and not a sale of property.

Issue 2: What remedies are available to the parties?

- 38. The Plaintiff prayed for an order for specific performance, general damages and in the alternative prayed for a refund of 200,0OO,O00, interest at a commercial rate of 25%o per annum from November 2013 to the time of full payment, special damages of UGX. 1,960,000, general damages, and costs of the suit. - 39. Having found that the transaction was not a sa-le of land but ^a money lending transaction, court declines to grant the prayer

for specific performance. The alternative prayer for a refund of UGX. 2OO,OOO,O0O is also denied.

- 40. In the final result this suit is dismissed with the following orders: - a) The sale agreement dated 18th May 2O13 entered into between the Ptaintiff and the Defendant is null and void; - b) The Plaintiff is hereby ordered to return the Defendant's certificate of title; and - c) The Defendant is awarded costs of the suit.

Dated this 15th day of March 2024.

Patricia Kahigi Asiimwe

Judge

Delivered on ECCMIS

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