[2024] UGCommC 219

# THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA ICOMMERCIAL DIVISIONI MISCELLANEOUS CAUSE NO. OI44 OF 2023

## KABALE INSTITUTE OF HEALTH SCIENCES LTD:::::::::::APPLICANT VERSUS

#### THE MICROFINANCE SUPPORT CENTRE LTD:::::::::::::RESPONDENT

## BEFORE: HON. LADY JUSTICE ANNA B. MUGENYI RULING

The Applicant brought this cause under section 33 of the Mortgage Act and Order 52 rule I of the Civil Procedure Rules(CPR) seeking orders for;

- a) The cancellation ofthe advertised sale ofthe Applicants properties comprised in LRV 3620 Folio 2l Plot 6,.4' Bunigo Road Kabale Municipality, Block ¹ Plot 1 2 land in Katokye Kigezi District, FRV 460 Folio 21 Plot 107 167 Block I Kihumuro Katokye Kabale District, FRV HQT 727 Folio 22 Plot l9 Cohen Road, Kabale District in the new vision newspaper dated the l Tth of November 2023 by the Respondent. - b) A permanent injunction be issued against the Respondent, and its agents from taking further action in the aforementioned advertisement. - c) Court grants such other relief as it may deem fit to preserve the Applicant's statutory rights in the suit property. - d) Costs of this Application be provided for.

This cause was supported by the affidavit of Mr. Melvin Mpambara, the managing director of the Applicant and opposed by the affidavit in reply of Ms. Karungi Winner, the legal officer of the Respondent. Mr. Melvin Mpambara also swore an affidavit in rejoinder on behalf of the Applicant.

The brieffacts relating to this case are that by a credit faciliry letter dated the 17fr of February 2020, the Respondent extended a loan facility of Ugx 2,700,000,000/:

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(Two Bitlion Seven Hundred Million Shillings) to the Applicant which was secured by the suit properties comprised in LRV 3260 Folio 2l Plot 6,4 Bunigo Road Kabale Municipality, Block ptot 12 Katokye Kigezi Kabale, FRV 460 Folio 2l Plot ¹⁰⁷ &167 Block I Kihumuro Katokye and LRV HQT 727 Folio22 Plot l9 Cohen Road Kabale. The Applicant defaulted in the repayment of the loan and the Respondent advertised the Applicant properties in the New Vision newspaper on the 17fr of November 2023 through Armstrong Limited for sale by public auctior/private treaty.

The Applicant contends in his affidavit in support that they were never served with a notice of sale and they did not give any written consent to sale by private treaty. The Applicant averred that it is a violation of the Mortgage Act for a sale to be advertised simultaneously by both public auction and private treaty. The Applicant further averred that the Respondent did not issue a notice for the registered valuer to value the stated properties and thus the Respondent's actions are in violation of the law and amount to a breach of the Respondent's statutory duty to take due care to achieve the best price and also their beneficial interest in the mortgaged property.

The Respondent filed an affidavit in reply and averred that they issued a statutory notice as required by law upon the Applicant defaulting and subsequently issued a notice of default dated the l3th of December 2022throughthe Applicant's registered postal address and the notice expired without the Applicant remedying the default.

The Respondent further averred that a notice of sale dated the 28th of February 2023 was served through the registered postal address of the Applicant and the Respondent then issued instructions to its auctioneers Armstrong Limited to advertise and sell the properties under the mortgage. The Respondent stated that there is no requirement for notice to be issued before visiting the mortgaged property for re-evaluation but to only have a valid valuation report.

The Applicant filed an affidavit in rejoinder and averred that he is not aware of any notice of default served on the Applicant and no statutory notices were issued in respect of the properties offered for sale as in the Mortgage Act and Regulations.

#### REPRESENTATION

The Applicant was represented by M/s Byenkya, Kihika & Co Advocates whereas the Respondent was represented by M/s MACB Advocates.

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### RULING

I have read the pleadings of the parties and listened to the submissions of both counsel in this matter.

Three issues were raised by the parties in this case and I shall address each issue individually.

Issue l: Whether the notice of default and sale was effectively served on the Applicant(Mortgagor) as required by the law

Section l9 (2) of the Mortgage Act provides for the condition of issuing a notice ofdefault thus:

"Where the mortgagor is in default of any obligation to pay the principal sum on demand or interest or any other periodic payment or any part of it due under any mortgage or in the fuffilment of any covenant or condition, express or implied in any mortgage, the mortgagee ma)) serve on the mortpagor a notice in writing of the default and require the mortaapor to rectifu the default within fortv-five workins dalts. "

This provision makes it a requirement that upon default the mortgagee must serve the mortgagor with a notice of default requiring them to rectify their default within 45 days. This requirement is mandatory and its purpose is to make the mortgagor aware of his default and give him an opportunity to remedy it.

The general purpose of service is to make a party aware of a claim against them or an action about to be taken against them and the primary mode ofservice is personal service. Other modes of service should only be used where it is impossible to effect personal service.

In the instant case, the mortgagor is a leaming institution with a well-known address and it would have been appropriate and more effective to personally serve them at their known address. I believe that service through the post and other modes should only be resorted to on instances where the mortgagor has failed to be located and all the party is left with is their address.

With that being said, in the instant case service was said to be effected through the post. Under the law, this is one of the permissible modes of service.

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While it is permissible under the law that service of documents can be effected through the post, the same must meet the conditions set down under section 35 of the Interpretation Act.

### Section 35 of the Interpretation Act Cap 3 provides that:

"Where any Act authorizes or requires any document to be served by post, the service shall be deemed to be effected by properlv addressing, orepaving and posting bv registered post a lelter conlainine lhe document and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of the post".

In the instant case, the Respondent attached to their affidavit in reply as evidence of service, a notice of default dated the 13th of December 2022 addressed to the Applicant and a letter addressed to the officer in charge registered mails office Posta Uganda marked as annexure D and E respectively. The letter bears the stamp "EMS Counters Kampala, Received, POSTA UGANDA" but the same is not signed.

The Respondent also attached to their affidavit in reply as proofofservice a notice of sale dated the 28s of February 2023 addressed to the Applicant and a letter addressed to the officer in charge registered mails office Posta Uganda marked as annexure F and G respectively. The letter bears a stamp of EMS Counters Kampala, Received, POSTA UGANDA, and is signed.

From the attachment it can be seen that both the notice of default and notice ofsale are properly addressed to the Applicant, however, there is no evidence of the Respondent having made payments for posting and proofto show that the documents were indeed posted and received by the Applicant. The notice ofdefault is not signed by the postmaster.

Service through post remains challengeable until there is proof of receipt (effective service) and in this case, the duty is on the party asserting that service was effective to prove their assertion. I find that the Respondent has failed to discharge this duty

I therefore find that the service of the notice of default and sale was not effective as it did not comply with the requirements of the law.

Issue l, therefore, disposes off this matter and this court's decision consequentially invalidates the advertisement for sale in the New Vision newspaper since the Respondent failed to comply with the requirement for the service of the notice of default and notice of sale.

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## Issue 2: Whether a sale of mortgaged property can be by both public auction and private treaty

Under Section 26 of the Mortgage Act, the mortgagee who has complied with Section 19 of the Act (service of notice of default), may exercise his/trer power of sale of the mortgaged property upon service of a notice to sell in the prescribed form on the mortgagor and shall not proceed to complete any contract for the sale of the mortgaged land until twenty-one working days have lapsed from the date of the service of the notice to sale.

The law permits a mortgagee who has effectively served a notice of default and a notice of sale to exercise his power ofsale. This sale can either be by public auction or private treaty as provided by Section 28(1Xd) of the Mortgage Act thus:

"Were a mortgagee becomes entitled to exercise the power of sale, that sale may be by public auction, unless the mortgagor consents to a sale by private treaty. "

Regulation 8(l) of the Mortgage Regulations also provides that a mortgagee exercising a power of sale under the Act shall subject to the Act and these Regulations sell the mortgaged property by public auction.

The above provisions therefore imply that a mortgagee can only sale the mortgaged property by public auction and a sale by private treaty can be exercised by ^a mortgagee where the mortgagor has consented to a sale by private treaty.

As per the Act and Re(,ulations the sale of a mortqaqed propertv cannot therefore be bv both public auction and orivate treatv. The mortgagee has to adoot one mode of sale in compliance with the law

Where the mortgagee wants to exercise the right of sale through private treaty, they must obtain the consent of the mortgagor and this consent shall not be retrospective. Regulation l0 of the Mortgage Regulations provides for this as follows:

## "Sale by private trea\$

(1) A mortgagee exercising a power of sale under the Act may, with the consent of the mortgagor, sell the mortgaged property by private treaty.

(2) For purposes of sub-regulation (l) consent of the mortgagor shall, subject to section 26 of the Act, be by written notice.

(3) For the avoidance ofdoubt, a mortgagor's consent shall not be retrospective. "

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The above provision was discussed in the case of **Letshego Uganda Limited vs** Felix Kulayigye OS No 5 of 2020 where Justice Boniface Wamala held that:

"However, looking at the provisions under Regulation 10 of the Mortgage" *Regulations, as laid out above, it appears to me that the consent has to be specifically* given by notice issued by the mortgagor and the same must not be retrospective. This means that the consent shall not have been made or given prior to the time of sale. Consent expressed by the mortgagor at the time of executing the mortgage agreement is definitely retrospective and is outlawed by the provision under Regulation 10 (3) cited above."

This therefore implies that the mortgagor's written consent to sale by private treaty must be obtained during the time of sale. It is not enough that there was consent during the signing of the mortgage deed, the mortgagor's written consent to sale by private treaty must be obtained during the time of sale.

#### **Issue 3: Whether the mortgaged property was valued**

#### **Rule 11(1) of the Mortgage Regulations provides that:**

"The mortgagee shall before selling the property, value the property to ascertain the current market value and the forced sale value of the property."

The rules require that the valuation of the mortgaged property must be done to ascertain the current market value and forced sale value before the sale. Rule 11(2) requires that the valuation report shall not be made more than six months before the date of sale.

In the instant case, the Respondent has not attached any valuation report as evidence that the mortgaged property was valued.

I therefore find that the mortgaged property was not valued in accordance with the law.

In conclusion, therefore, I allow this Application with the following orders:

a) The advert of the Applicants properties at LRV 3260 Folio 21 Plot 6A Bunigo Road Kabale Municipality, Block plot 12 Katokye Kigezi Kabale, FRV 460 Folio 21 Plot 107 &167 Block 1 Kihumuro Katokye and LRV HQT 727 Folio 22 Plot 19 Cohen Road Kabale in the New Vision newspaper dated the 17th of November 2023 is canceled.

- b) A permanent injunction be issued against the Respondent, and its agents from taking further action in the aforementioned advertisement as mentioned in $(a)$ above. - c) Costs of the suit are awarded to the Applicant.

Om Bratie

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HON. LADY JUSTICE ANNA B. MUGENYI DATED...................................