[2023] UGCommC 232

### THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA ICOMMERCIAL DIVISION]

### CIVIL SUIT NO. 0792 OF 2OI9

### HAJJI SULAIMAN KIZITO : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : PLAINTIFF VERSUS

- 1. KAMPALA FINANCIAL SERVICES - 2. JULIUS MUHURUZI - 3. MODrA TNVESTMENTS (U) LTD - 4. SARAH KASASA : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : :DEFENDANTS

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

The Plaintiff filed this suit against the Defendants seeking for a declarations that the loan agreement executed on 29'h January 2013 is invalid and enforceable; the sale of the Plaintiffs property was invalid and unlawful; the Defendant is not entitled to evict the Plaintiff and his tenants from the suit property and handover to the purchaser and the 3'd Defendant; that the 3'd Defendant did not lawfully acquire the suit land and that his name be cancelled from the register, and that the Plaintiff be reinstalled on the register.

The brief facts constituting the Plaintiff s case are that the 4th Defendant borrowed the Plaintiffls land title for property comprised in Kibuga Block 4 Plot 539 land at Namirembe, to secure a loan facility from the 1'1 Defendant. Upon the Plaintifls confirmation with the 2nd Defendant, and upon appending his thumbprint on

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several documents, a loan facility of UGX 20,000,000/ was advanced to the 4th Defendant. The land title was withheld as security and the Plaintiff was informed that it would be returned upon completion of repayment of the loan amount plus interest amounting to UGX 32,000,000/ by the 4th Defendant. The Plaintiff was surprised later when he went to inquire about his title and he was informed that the property was up for sale and that they ignored his request for a copy of the mortgage deed.

The Plaintiff avers that he had no intention of borrowing money, and that Counsel Tibajjuka Charles who witnessed on the Mortgage Deed has never been his lawyer. That the 4th Defendant has informed the Plaintiff that the Defendants had refused to accept the money she sent through her agents, only for the Plaintiff to receive ^a letter from the l't Defendant informing him that they had sold the property to the 3'd Defendant. That the 3'd Defendant fraudulently purchased the land with an encumbrance by virtue of a non-existent mortgage and participating in the disposal of the suit land contrary to the law, as the mortgage document was not read over and translated to the Plaintiff in a language he understands. That the property was disposed without an order of foreclosure, was sold at a low price and that the Plaintiff was not served with a default notice; which has caused the plaintiff inconveniences, torture and mental anguish, hence this suit.

The I't and 2nd Defendants filed a joint Written Statement of Defence in which they averred that the 4th Defendant approached the 2nd Defendant who is the Managing Director of the 1't Defendant for a loan facility of UGX 32,000,000/. That she had powers of attorney from the Plaintiff to get a loan on his behalf with security of ^a land title in the Plaintifls names. That when the 2nd Defendant explained that loans are only given to a person in whose names the land title is, the 4th Defendant retumed with the Plaintiff who would borrow in his names. That the 2nd Defendant

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explained to the Plaintiff the requirements and the Plaintiff agreed to borrow in his own names. The loan was processed, the Plaintiff executed the loan agreement and mortgage deed in the presence of the 4th Defendant who executed a guarantee as additional security.

Subsequently, the loan funds were extended to the Plaintiff on 4th February 2013, and he handed over the money to the 4th Defendant before they left. That the documents were read out to them both and explained in Luganda. That the plaintiff was involved in all the transactions and never pleaded to being illiterate. when the Plaintiff defaulted on the loan repayment and the 4th Defendant had failed to make good on her guarantee, the Plaintiff s mortgaged property was lawfully sold to the 3'd Defendant to recover the loan and interest, the 1.t Defendant notified the Plaintiffofthe intended sale but he ignored the default notice.

That in a bid to defraud the l't Defendant, the Plaintiff applied for a substirute certificate and deliberately omitted to disclose his own caveat previously registered on the original certificate of title and the search conducted revealed none, therefore the mortgage was duly registered on 13th August 2013. The 1't Defendant avers that the mortgage was enforceable against the Plaintiff and that the ultimate sale of the Plaintiff s property was valid and effectual. The l't and 2"d Defendants pray that the case be dismissed with costs.

The 3'd Defendant filed a written statement of Defence and counterclaim wherein they denied fraudulently purchasing the suit property and that they had no knowledge of any encumbrance before purchase or registration onto the Register. The 3'd Defendant further contends that the property was advertised in the Daily Monitor Newspaper dated l0th February 2014, and that she purchased the property after carrying out due diligence. In her counterclaim, the 3'd Defendant contends

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that the Plaintiff has refused to hand over the suit property and continues to receive rent from the tenants, denying her the right to quiet possession which acts amount to trespass. The 3'd DefendanVCounter claimant prays for mesne profits, eviction order, a permanent injunction restraining the Plaintiff/Counter Defendant from further trespass, general damages and costs of the suit.

The 4th Defendant in her written statement of defence contends that she was the borrower of the loan at all material times. That she sent UGX 32,000,000/ to the lawyer who declined receipt and said he would first consult with the 2nd Defendant. Thereafter, she personally carried the money to the office of Counsel Tibajjuka who first received the money but retumed it upon consultation with the 2nd Defendant who informed him that the property had already been sold. She further avers that the l't and 2nd Defendant's refusal to receive money within time was ^a deliberate intent to defraud the Plaintiff of his property.

In reply to the 3'd Defendant's Counterclaim, the Plaintiff avers that the 3'd Defendant's claim of being a bonafide purchaser lacks merit because there was an existing caveat at the time of sale and registration, and that the mortgage was never registered on the original certificate of title therefore the search was irrelevant. That the 3'd Defendant ought to have made further inquiries upon finding out about the caveat. The Plaintiff further avers that the land was not disposed of lawfully, and that since the mortgage was not registered on the original certificate of title, the 1't Defendant had no interest to pass on to the 3'd Defendant.

In addition, that the 3'd Defendant was incorporated in 2009 and had never conducted business, therefore they were unable to purchase the property. Also that the purchase was made contrary to the 3'd Defendant's Articles of Association and therefore that the Counterclaim lacks merits.

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### REPRESENTATION

The Plaintiff was represented by Counsel Simon Kizza, the l'' and 3'd Defendants are represented by Counsel Nicholas Twesigye and the 4th Defendant was represented by Counsel Gerald Nuwagira.

### JUDGMENT

The Issues for determination by this Court are:

- 1. Whether the Plaintiff was advanced any money in any form of a loan by the l't Defendant? - 2. Whether the Plaintiff was an illiterate person or not' if so whether the mortgage deed and loan agreement were executed in contravention of the llliterates Protection Act. - 3. Whether the 4th Defendant was competent to witness the mortgage deed? - 4. Whether the 4th Defendant ever attempted to repay the loan? - 5. Whether the 1't and 2nd Defendants lawfutly disposed of the suit land? - 6. Whether the 3'd Defendant is a bonafide purchaser of the suit land? - 7. What are the remedies available to the parties?

#### Issue One

Whether the Plaintiff was advanced any money in any form of a loan by the l't Defendant?

Counsel for the Plaintiff submitted that from the pleadings of the l't and 2nd Defendants and from the witness statement of DW3, the Defendants concede that it was the 4s Defendant who approached them for a loan and, therefore, that it was never the Plaintiffs intent to take a loan. He added that the Plaintiff only assisted the 4th Defendant by offering his certificate oftitle as security, he had no intention to contract, and is not legally bound by the loan agreement or mortgage deed.

He added that it was the 4ft Defendant who wanted to borrow money and that no money was advanced to the Plaintiff by the I't Defendant since the plaintiff had no intention to borrow. That the 1't and 2nd Defendants took advantage of the illiteracy of the Plaintiff and 4th Defendants with the aim of grabbing the land through a loan scheme.

In reply, it was submitted for the 1't,2nd and 3'd Defendants that if the narrative is that the Plaintiff granted a power of attorney to the 4rh Defendant to borrow a loan using his certificate of title as security, that means that the 4th Defendant borrowed the money as the Plaintifls agent, and therefore it amounts to the plaintiff borrowing through an agent. That the Loan Application form (Dl), the loan agreement (D3), Mortgage Deed (D4), and payment voucher (D6) all indicate that it was the Plaintiff who was the l't Defendant's client, and not the 4th Defendant who only witnessed the documents. Further, D5 is an LCI letter introducing the Plaintiff as a bonafide resident and owner of the suit land for the purposes of processing the loan, and that the 4th Defendant signed a guarantee deed (Dl l) for the loan.

counsel submitted that since the Plaintiff did not deny the thumbprints as being his, he discharged the evidential burden that he was the 1't Defendant's client, and therefore accessed the loan.

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I have considered the submissions and authorities cited and looked at the evidence on record. It is not a disputed fact that the Plaintiff signed all the necessary forms for loan acquisition i.e. the Loan Application form (Dl), the loan agreement (D3), Mortgage Deed (D4), and even received the entire loan sum and signed the payment voucher (D6). Section 92 of the Evidence Act (Cap 6,) is clear on the exclusion of evidence of oral agreements where the terms of the contract are required to be reduced to the form of a document and has been proved, but in specific circumstances listed therein like fraud, intimidation, illegality among others.

Therefore, in relation to this case, mortgage deeds are required by law to be reduced in form of a document (in this case it was D4); and it was duly signed by the parties where the Plaintiff signed as the Mortgagor. Therefore, in the absence of fraud and all the other exceptions, D4 acts as conclusive evidence on the transaction and the oral evidence of claims that the Plaintiff only signed the deed as a witness cannot stand. Besides, if the loan had not been advanced to the Plaintiff he would not have been the one to receive the money, but in this case he did sign for it and handed it to the 4th Defendant. That alone shows that the contract was between the Plaintiff and the I't Defendant.

There is no evidence on record to show that the Plaintiff questioned why he signed all the documents or why he was the one receiving the money. This only shows that he was probably explained to and he knew that the money was being advanced to him. In addition, the mortgage was duly registered and entered on the certificate of title of the suit property given by the Plaintiff at the time of acquiring the loan. This is sufficient evidence to establish that a mortgage agreement existed between the parties and that the l't Defendant advanced money to the Plaintiff in form of ^a loan. The arrangement of handing the money to the 4th Defendant was their private

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arrangement, outside the loan agreement and the documents signed. The first issue is answered in the affirmative.

### Issue Two

Whether the Plaintiff was an illiterate person or not, if so whether the mortgage deed and loan agreement were executed in contravention of the Illiterates Protection Act.

It is the Plaintiff s submission that he is an illiterate person who does not know the English language, yet he was made to sign documents written in the said language but were not read and translated to him. That the Defendants admit to the Plaintiff s illiteracy when they say they read and translated the documents to him.

In reply, it was submitted for the l'r, 2nd and 3'd Defendants that the issue was only raised for academic purposes and does not resolve the case. Nevertheless, that despite the fact the Plaintiff is pleading illiteracy, he is only doing it to run away from his contractual obligations of repaying the loan plus interest, after failing to deny having executed the said documents. Counsel added that the Plaintiff avers in the plaint that since he was illiterate, he requested for translation before signing but the 2nd Defendant did not do so. That the Plaintiff has not adduced evidence to show that he was induced either through misrepresentation or fraud to execute the documents. He added that during cross examination, the Plaintiff contradicted himself when he denied being involved in any loan transaction and said he never appeared at the l't Defendant's offices and yet the 4th Defendant said she always appeared with the Plaintiff at the said offices.

Counsel added that the Plaintiffs conduct only shows that he has not come to terms with losing his property by his own default in repaying the loan. That despite the Plaintiff s denial, HEXD, a letter written by his lawyer shows that the plaintiff

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knew what transaction he had entered into with the l't Defendant. That in cross examination, PWl admitted that he used to write his name but that he thumbprints because his hands shakes, not due to illiteracy.

It is important to note that the purpose of the Illiterates Protection Act (Cap 78) is to protect illiterate persons. According to Section I (b) of the said Act, an illiterate person refers to:

" illiterate" means, in relation to any document, a person who is unable to read and understand the script or language in which the document is written or printed. "

PW1, in paragraphs 6 and7, stated that he is not well conversant with the English language and that he cannot read and understand it on his own. He added that he requested the 2nd Defendant to translate the content of the documents he thumb printed, but the 2nd Defendant paid a deaf ear and said the 4th Defendant understood. PWl went ahead and thumb printed the documents. It is clear that the Plaintiff is raising the common law defence of "non est faclum", which literally means "it is not the deed". This defence was available for blind and illiterate persons, and if proved, the defence protects a person from liability arising out of ^a document they signed.

However, it must be proved that the person signed the said document believing it to have a particular character or effect and the signed document must be radically different in character or effect from what the person thought they were signing. The mistaken belief must have resulted from an erroneous explanation or description of the document provided to them by someone else; and he must show that he acted with all reasonable care in the circumstances despite the mistake, and finally if the mistaken belief arises because of reliance on a trusted adviser like ^a

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lavryer, and they did not take steps to read and understand the document before signing, the plea cannot stand.

In summary, the person pleading it must show that they were not careless and that the document they initially signed was not the same document they thought they were signing. If successful, the effect is that the contract is void, and therefore, unenforceable. In addition, the person should not have signed the document under duress, undue influence, misrepresentation, unilateral mistake, and common mistake among others.

The general rule goveming signing of documents was established in the case of L'Eslrange v E. Graucob Ltd [19341 2 KB 394 where the Court, in determining that the express provisions of the contract were binding and effectively excluded the relevance of statutory sales provisions, held that the party signing a contractual document is bound whether he has read the document and is aware of its contents or not. Therefore, the claimant's failure to properly read the small print in the contract did not impact its validity, because signing the contract meant that she consented to be bound by its contents.

The general rule is that a person who signs a contract is bound by their signature because they are expected to have read and understood the terms of the contract before signing (See Aida Aliku V Centenary Rural Developmenl Bonk Limiled Civit Suit No. 0754 of 2020). The only exceptions are when the signature was made by the plaintiff under circumstances that it was not his/her act and where the plaintiff can prove that he/she was induced to sign by misrepresentation'

In this case, I have noted the Plaintiff claims to have been illiterate and not understood the terms of what he was signing, and that he asked the 2nd Defendant to explain but he did not, but he has not adduced any evidence to show that he was

s\$b induced by misrepresentation, duress or threats to sign the documents. ln Aida Aliku V Centenary Rural Development Bank Limiled (supra) Justice Mubiru held,

"lt is ordinarily sfficient if the bank fficer ensures that the customer understands the particular nature of the transaction to which he has agreed and comprehends its legal effect."

In this case, therefore, the 2nd Defendant said in his witness statement that he explained to the Plaintiffthe documents in the Luganda language and he, therefore, signed the documents wilfully and he is bound by his signature. In addition, other than claiming that he is an illiterate, there is no evidence that suggests so meaning the Plaintiff understood what he was signing. There was no need for translation. I therefore find that the mortgage deed and loan agreements were not made in contravention of the Illiterates Protection Act.

The second issue is resolved in the negative and fails accordingly

## Issue three

## Whether the 4th Defendant was competent to witness the mortgage deed

The Plaintiff submits that the Mortgage Deed was witnessed by the 4th Defendant, but her capacity was not indicated. The Plaintiff avers that the 4th Defendant is a poultry farmer is not a competent witness under section 147 of the Registration of Titles Act to attest to instruments. That during cross examination the 2nd Defendant said she had signed as a friend to the Plaintiff; which is against the law on attestation of documents. Counsel for the Plaintiff added that she was not competent to witness the Mortgage Deed, and therefore that there was no mortgage executed between the Plaintiff and I't Defendant.

In reply, it was submitted for the 1't, 2nd and 3'd Defendants that the issue is an admission by the Plaintiff that indeed the 4th Defendant was a witness to the mortgage executed between the Plaintiff and the lstDefendant; which is the true position amplified by Exh. D3, D4 and Dll. In light of Section 147 of the Registration of Titles Act, Counsel submitted that the Mortgage Deed was attested to by Counsel Tibaijuka Ateenyi, an Advocate and that the 4s Defendant's role in witnessing was only of evidential value, and that the Plaintiff had an independent person in executing the mortgage.

## Section 147 (1) (a) (iii) of the Registration of Titles lcl provides:

" Instruments and powers of attorney under this Act signed by any person and attested by one witness shall be held to be duly executed and that witness may be within the limits of Uganda an advocate. "

The Mortgage Deed, in this case D4, was witnessed by Counsel Tibaijuka Ateenyi, an advocate, as required under Section 147 (1) (iii) of the Registration of Titles Act. It is true that the 4th Defendant also witnessed the Mortgage Deed, but that does not in itself render it invalid. Under the above section, an instrument is considered duly executed if attested to by one witness and in this case, I find that the Mortgage Deed was lawfully attested to.

### Issue Four

### Whether the 4th Defendant ever attempted to repay the loan?

As to whether the 4th Defendant attempted to repay the loan, Counsel for the Plaintiff submitted that both the Plaintiff and the 4th Defendant gave evidence that the 4th Defendant attempted to repay the loan to Counsel Tibaijuka who first received the money and put in his drawer before retuming the same after

contacting the znd Defendant. That the 4th Defendant's evidence was uncontroverted and that Counsel Tibaijuka was never brought as a witness for fear that he would speak the truth. He added that the refusal to take the money was intended at cheating the Plaintiff of his land yet he only gave it as security. He added that the l't Defendant failed to investigate the Plaintiffs ability to repay the loan and the intended investment because they wanted to deprive him of his land from the beginning, and to defeat redemption of the property which is illegal.

In reply, Counsel for the Defendants submitted that the 4th Defendant was ^a guarantor who duly executed the guarantee instrument (Exh. D1l), yet the Plaintiff and 4m Defendant both claim that the 4th Defendant was the borrower. That the 4th Defendant had the obligation to pay in case the principal borrower failed to pay; and that she has the burden to prove her claims on a balance of probabilities. That paragraph 4 (c) of her witness statement is silent on who delivered the money to Counsel Tibaijuka and yet according to the pleadings she had personally taken the money to Tibaijuka's Chambers, and that he declined to receive saying the land had already been sold. That she contradicted herself during cross examination by saying that she met Counsel at the l sr Defendant's Offices.

Counsel cited authorities to the effect that grave inconsistencies and contradictions result in the rejection of a witness, unless explained. He submitted that the place where the 4th Defendant allegedly took the money is central in proving whether or not she made any attempts to repay the loan. That if this had been true, the 4th Defendant would have utilised Section 16 of the Mortgage Act to deposit the money with the Secretary to the Treasury.

I have carefully looked at the submissions and evidence on record in relation to the 4th Defendant's attempt to repay the loan. In paragraph 4 (c) to (d) of her Written

Statement of Defence, the 4th Defendant stated that she first sent UGX 32,000,000/ to Counsel Tibaijuka Charles but he declined to receive the money saying he would first consult with the 2nd Defendant, and that later she personally carried the money to his Chambers, and that he first received the money, put it in his drawer before retuming it after consulting with the 2'd Defendant who said the land had been sold. She reiterated the same in paragraphs 7, 8 and 9 of her witness statement except that she named the late Habib Mbabazi as the person she had set with the money to give Counsel Tibaijuka. On page 97 of the record of proceedings, DW3 (4th Defendant) during cross examination by DW2 confirmed that she got Counsel Tibaijuka in the Offices of the l't Defendant. When asked to clariff that her witness statement said she went to him in his Chambers, she again confirmed that she met him at the l't Defendant's offices.

I find that the contradiction as to the place where the monies in issue were allegedly paid grave because in her statement DW2 stated that Counsel Tibaijuka first received the money and put in his drawer then retumed it after contacting the 2nd Defendant. If Counsel was at the offices of the 1't Defendant where the 2nd Defendant sits, there would have been no need to first contact him. In addition, even Habib Mbabazi that the 4th Defendant claims to have sent at first to take the money is now deceased, therefore, the evidence is not corroborated, and yet it is contradictory. The 4th Defendant has not laboured to explain the contradictions, either during re-examination or through submissions.

The law on contradictions is clear and was well stated by Counsel for the Defendants, that grave inconsistencies and contradictions unless satisfactorily explained usually result in the rejection of a witness; and that minor ones which do not point to deliberate untruthfulness are ignored (See Ugando V Kavuma CSC No.0819 of 201Q.

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In this case, the issue is about whether or not the 4th Defendant attempted to repay the loan, therefore the place where she took the money and the person to whom she took is important. I find that the 4s Defendant's contradiction in cross examination that she gave the money to Counsel Tibaijuka from the 1't Defendant's Offices yet she had stated that she went to his Chambers in her Written Statement of Defence, is a grave contradiction that cannot just be ignored. It raises doubt in the mind of the Court in as far as the contention is concerned and to make it worse, the only other witness who could confirm the evidence is deceased. Counsel Tibaijuka who could have thrown more light on this issue was not presented as a witness to testiff to and confirm DW4's allegations.

Therefore, I find that the evidence is not sufficient to prove, on a balance of probabilities that the 4th Defendant attempted to repay the loan. However, the 4d Defendant has intimated that she is stilt willing to pay the monies in issue and that she has the said monies.

#### Issue Five

## Whether the I't and 2nd Defendants lawfully disposed of the suit land

As to whether the I't and 2nd Defendants lawfully disposed of the suit land, Counsel for the Plaintiff submitted that the land was illegally sold to the 3'd Defendant, because the l't two Defendants confirmed that the sale was through private treaty which requires the mortgagor's consent under Regulation l0 of the Mortgage Regulations. He cited the case of Sendagire Stephen & Nonyombi Gladys V DFCU Limiled & 2 Others HCCS No. 26 of 2008 for good practice requirements for a mortgagee in exercising their right to sell mortgaged land upon default by a mortgagor.

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He added that the Plaintiff was not involved in the auction of the land and that it was sold without his consent, the property was not valued before sale, no proofof service ofthe notice of default on the Plaintiff, the Plaintiff is still in possession of the land and that no steps towards foreclosure have been taken, no proof of sale in form of a sale agreement except the newspaper advert, no resolution allowing the 3'd Defendant to purchase, no receipt issued by the I't Defendant therefore the l't Defendant just transferred the land into the name of the 3'd Defendant to defeat redemption of the suit land but that there was no sale at all.

In reply, Counsel for the Defendants submitted that the Mortgage Deed was rightly executed, and that upon receiving the money, the Plaintiff had never bothered the pay the loan or the interest which accrued. That a notice (Dl4) was sent to him but he ignored the same; and that the Plaintiff also admits to having gone to the l't Defendant's Office where the information in the notice was verbally communicated to him. That the advert was then made in Dl7, and a sale made evidenced by Dl0. That the process cannot be impeached because one bidder responded to the advert. Therefore, that foreclosure, advertisement and sale were lawfully done.

Section 8 of the Mortgage Act No. I of 2009 provides that mortgage of land only takes effect as security and does not amount to a transfer, however, in case of default by the mortgagor, a mortgagee has all the powers and remedies provided for in the Act, subject to redemption. Sale of the mortgaged property is one of the remedies that a mortgagee has under Seclion 20 of the Mortgage lcl in the event of default by a mortgagor, or where he or she does not comply with the notice served on him or her under section 19 ofthe Act. Specifically, under Section 26 (l) of lhe Mortgage Act, a morlgagee has power to sell the mortgaged property where a mortgagor is in default of his or her obligations under the mortgage and remains

in default at the expiry of the time provided for the rectification of the default in the notice served on him. Section 26 (2) requires that before such sale, a mortgagee shall serve a notice to sell on the mortgagor, and that no sale is concluded until after twenty-one days have lapsed fiom the date of service of the notice.

According to Seclion 27 (1), a mortgagor who exercises his power to sell the mortgaged land has a duty to take all reasonable steps to obtain the best price, and Section 28 (l) (d) provides that the sale may be by public auction unless the mortgagor consents to sale by private treaty. In summary, every mortgagee has a power of sale provided that the mortgage was made by a deed and that the mortgage money is due or the legal date of redemption has passed (See Megorry & l/'ade, 'The Law of Reol Properfit", Seventh Edition, Sweet & Maxwell, par, 25- 014 at 1102-3).

The above good practices of sale were listed in the case of Sendagire Stephen & Nanyombi Gladys V DFCU Limited & 2 Others HCCS No. 26 of 2008 which as cited by Counsel for the Plaintiff, Court held that,

"It is now the statutory duty that despite the right ofa mortgagee to sell the mortgaged property in recovery of the debt owned by the mortgagor, it owes a duty of care to do thefollowing:

- l. The first rule is not to act in secret. The Mortgagee should also obtain the best price and not act in bad faith. - 2. Value the property before sale to establish the current market and forced sale value, obtain the best price and not to sell the secured property under the forced sale and under value price.

- 3. Property before sale should be advertised after the mortgagor has been notified. - 4. Method of sale. Public auction is competitive and more transparent and if private treaty is used, the best price and involvement of the mortgagor is preferable especially access to information. "

In this instant case, according to Clause 2 of D4 (Mortgage Deed), the loan and interest was to be repaid within four (4) months. Clause 4 (a) gives the mortgagor power to sell the mortgaged property by public auction or private treaty without first applying to court. It is not a disputed fact that the Plaintiff (mortgagor) defaulted on repaying the loan. In fact, the Plaintiff and 4s Defendant in their witness statements admit to it except that they aver that the 4s Defendant is still willing to pay the money.

I will now handle whether the sale was lawfully done. First, although there is no evidence of proof of service of the notice upon the Plaintiff, there is a notice dated ^0510212014(D14) on record which DWl stated in paragraph 20 of his witness statement that the Plaintiff refused to receive a copy of and his lawyers would receive them. DWl said he informed the Plaintiff about his default and that the property would be put on sale.

The Plaintiff in paragraph 10 of his witness statement admitted that when he had gone to the 1't Defendant's offices, he was informed that his property had been put on sale. I find that this is sufficient notice of the notice of default to the Plaintiff, and that the Plaintifls refusal to accept service was deliberate to frustrate the l't Defendant.

In the circumstances, the verbal communication amounted to sufficient notice of default on repayment of the loan and interest which had become due. Thereafter,

the Plaintiff neither responded to the notice nor effected payment, leaving the 1't Defendant with no option but to sell and recover the loan.

I will now proceed to apply the rules cited in the case above to the present case before me.

# The first rule is not to act in secret. The Mortgagee should also obtain the best price and not act in bad faith

As to whether the l't Defendant acted in good faith to obtain the best price, Section 27 (1) of the Act as I mentioned earlier is clear on that issue. From PWI's witness statement, the sale was advertised in the Monitor Newspaper (D17), therefore it was not done in secret. DWI further avers that the 3'd Defendant was the only one who responded and offered to buy. I find that the Defendants therefore took reasonable steps and acted in good faith.

# Second rule. Valuation of property to ascertain current market price and forced sale value.

In cross examination of DWl, he admitted that the Valuation Report (D25) dated 3'd September 2012 was made before the loan was given, and that he did not revalue the property before sale. According to Regulation 1l (l) of the Mortgage Regulations, the purpose of valuation before selling the property is to ascertain the current market value and the forced sale value of the property at the time of sale so as to avoid selling below the forced sale value, and to obtain the best price. It is true that the discretion lies with the Mortgagee to sell at a certain price depending on the circumstances of each case.

In this case, according to Dl0, the transfer forms between the l't Defendant and 3'd Defendant were signed on 3'd July 2014, therefore it is presumed that the property was sold then. The only Valuation Report on record D25 is dated 3'd September 2012 therefore it means that the sale was made one (1) year and ten (10) months after the date of valuation which is way more than the 6 months allowed in Regulation 1l (2) of the Mortgage Regulations. Therefore, it can be concluded that valuation before sale ofthe prope(y was not done.

# Third Rule: Advertisement of property before sale, after mortgagor has been notified.

From paragraph l0 of PWl's witness statement, it is clear that the Plaintiff was duly notified and indeed he instructed his lawyers who wrote to the Defendants a letter dated 21't April 2014 (Dlz) requesting for a copy of the Mortgage Deed. The property was advertised in the Monitor Newspaper dated 1Oft February 2014. ln addition, the advert had a photograph ofthe property, the time and place ofsale as required by Regulation 8 (3) of the Mortgage Regulations 2012. According to paragraph 20 of DWI's witness statement, the loan became due on 5fr February 2014, then he wrote a default notice that the Plaintiff refused to receive, and that it's upon that refusal that he advertised the property on 10th February 2014. The evidence is therefore clear that the Plaintiff was duly notified of the default before the property was advertised.

# Fourth Rule: Public auction is competitive and transparent method, if private treaty is used, best price and involvement of mortgagor is preferable especially access to information

The heading in the advert in issue is "Notice of intended sale by public auction/private treaty". It goes on to state the condition of sale to be at the expiry of60 days from the date ofthe advert. The sale was effected on 3'd July 2014, after the expiry of the 60 days. In cross examination, DWI confirmed that they sold the

s,^\* property by private treaty, and that he did not seek the Plaintiffs consent, except in the Mortgage Deed.

According to Regulation 8 (1) of the Mortgage Regulations 2012, a mortgagee exercising a power of sale shall sell the mortgaged property by public auction and under Regulation 10 (1) may also sell by private treaty with the consent of the mortgagor. It goes on to say that the consent shall be by written notice, and that the consent shall not be retrospective. The l't and 2nd Defendants have not produced any evidence to show that they sought the Plaintifls consent before selling the mortgaged property by private treaty to the 3'd Defendant. Despite the fact that the property has already been sold, there was an omission in seeking the Plaintifls consent.

In the result and from the fore going, I find that the I't and 2nd Defendants unlawfully disposed of the suit land and the sale of the mortgaged property to the 3rd Defendant was unlawfully done.

#### Issue six

# Whether the 3'd Defendant is a bonafide purchaser of the suit land

Counsel for the Plaintiff pointed out that the demeanour of DW2, a director of the 3'd Defendant; and his lack of knowledge about the company affected his credibility. In relation to whether or not the 3'd Defendant is a bonafide purchaser, Counsel relied on the case of Hannington Njuki V George lYilliam Musisi [1999] KALR 794 where 4 elements must be proved for one to be a bonafide purchaser. These are that the defendant holds a duplicate certificate of title, the purchaser purchased the property for valuable consideration, he bought it in good faith without any such defect in title, and that the vendor was a former registered owner ofthe property.

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Counsel submitted that the 3'd Defendant only meets the first element as being the registered proprietor of the suit land but they did not even produce the duplicate certificate of title so it cannot be presumed that they possess it. That the 3d Defendant failed to show that it paid valuable consideration as it failed to produce a sales agreement, or receipt to show proof of payment of the UGX 100,000,000/. Further, that there was a caveat lodged on the land by the Plaintiff, and that the Plaintiff was still in physical possession of the land as the Defendant had not foreclosed. That the same day 3'd March 2016 when the caveat was removed is when the transfer into the 3'd Defendant's name was done, meaning there was no instrument of transfer. That a Notice to Caveator (D8) was issued on the same day therefore the caveat was removed even before the 90 days started counting, the notice was posted 4 days after removal ofthe caveat.

In reply, Counsel for the Defendants submitted that the Plaintiff knew that there was a caveat yet he went ahead to give the land title to the 4th Defendant to secure a loan. That he committed an offence under Section 4 (2) of the Mortgage Act, and that he wanted to defraud the l't Defendant of their hard earned money. The Defendants aver that by the time the mortgage was registered, a search by the l.t Defendant revealed that there was no encumbrance (D I 9).

Counsel relied on the case of Mariam Nanlezo & Others V Nasani Rwamunono & Another COA Civil Appeol No. 28 of 2013 where it was held:

"The Appellants had the burden to prove that the registration of the respondents was tainted with fraud so as to defeat their claim as bonafide purchasers for value ".

He therefore submitted that the Plaintiff had failed to adduce evidence of fraud on the 3'd Defendant, who then sails through as a bonafide purchaser as in the cited

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case of Nanteza (supra) because he fulfilled the requirements listed in that case which include: held certificate of title, purchased in good faith, held no knowledge of any fraud, purchased for valuable consideration, vendor had apparent title, and that the purchase was without fraud. He also relied on Section 29 of the Mortgage Act to submit that the 3'd Defendant as a purchaser is protected from impeachment of his title except for fraud, misrepresentation or other dishonest conduct of the Mortgagee which he/she had constructive notice. That since the Plaintiff failed to adduce evidence of any of the above reasons, therefore the 3'd Defendant's evidence that he is a bonafide purchaser stands uncontroverted.

Section 29 of the Mortgage Act offers protection of a purchaser and in sub section 1 it is provided that:

"A purchaser in a sale efected by a mortgagee acquires good tille except in a case of fraud, misrepresentation or other dishonest conduct on the part of the mortgagee ofwhich the purchaser has actual or constructive notice."

Similarly, bonafide purchasers for value are protected under Sections 176 and 181 of the Registration of Titles Act, except where there is fraud. A bonafide purchaser is defined by Black's Law Dictionary, 8th Edition at page 1291 as:

"One who buys something for value without notice of another claim to the property and without actual and constructive notice of any defects in or informalities claims or equities against the seller's title, one who has in good faith paid valuable consideration for property without notice of prior adverse claims."

The term 'bonafide purchaser'and the tests applied in determination is well settled. In David Sekajja Nalima V Rebecca Musoke, Supreme Court Civil Appeal No. I2 of 1985 it was dehned as:

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"A person who purchased the land without the notice of any suitable interest or claim. The tests ofa bonafide purchaser are that (she) he:

- I) Must have a valid certificate of title from a person registered as proprietor not through fraud or otherwise. - 2) Must have paid valuable consideration for the land. - j) Must have acted in good faith without notice of fraud whether actual or constructive or implied. "

In this instant case, from the evidence of DWI and from D26, the evidence is clear that the 3'd Defendant is the registered proprietor of the suit land, and that he acquired valid title from the l't Defendant whose encumbrance was duly registered on the same. It is true that the Plaintiff pleaded fraud in their Plaint but laboured to explain how the 3'd Defendant's name was entered on the same day that the caveat was cancelled, however, the substitute copy of the certificate of title (Dl9) which the Plaintiff presented did not contain the said caveat and there is no other way that the 3'd Defendant could have known, therefore, there was no fraud on his part.

Fraud has been defined to mean some act of dishonesty (See l{ainihi Saw Milling Co. Ltd V Wuinone Timber Co. Lttl (1926) AC IU).lt was well elaborated by Lord Lindley in the case of Assets Co. V. Mere Roihi (1905) A. C. I76 that:

" Fraud in these actions i.e. actions seeking to affect a registered title means actual fraud, dishonesty of some sort not what is called constructive fraud an unfortunate expression and one very apt to mislead, but often used for want ofa better term to denote transactions having consequences in equity similar those which /low from fraud."

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Secondly, despite the Plaintiff s claims that there was no payment receipt to show that the 3'd Defendant paid the said UGX 100,000,000/, I find no merit in that argument because the both the seller (1't Defendant) and the purchaser (3'd Defendant) confirm that the latter purchased the property and upon payment, the transfer was effected on 3'd July 2014 as evidenced by D10. Without concrete evidence to the contrary, I find that the 3'd Defendant paid valuable consideration for the land.

Finally, as to whether the 3'd Defendant acted in good faith without notice of fraud whether actual or constructive, or implied, the Plaintiff has not produced evidence to impute any notice of fraud on the part of the 3'd Defendant. lnAssels Co. Ltd v Mere Roihi & others (supra) it was held that,

"Further it appears to their Lordships that the fraud which must be proved in order to invalidate the title of a registered proprietor for value whether he buys from a person claiming under a title certified under the Native Lands Act must be brought to the persons whose registered title is impeached or to his agents. A fraud by persons from whom he claims does not affect him unless knowledge of it is brought home to him or his agents. The mere fact that he might have found out the fraud had he been more vigilant and had made further inquiries which he omifted to make does not itself prove fraud on his part. But if il be shown that his suspicions were aroused and that he abstained from making inquiries for fear of learning the truth, the case is very different andfraud maybe properly ascribed to him."

In addition, in "The Law of Real Properg", Megarry and Wade (supra) par. 25- 016 at page I l0:

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"The purchaser's title is not impeachable merely because none of the three specified events has occurued or the Power of sale has in some way been irregularly or improperly exercised. "

In line with the above, there is no evidence that the 3'd Defendant had notice of any fraud as to invalidate his title, and being that certificates of title are indefeasible evidence of ownership except where there is fraud, I find that the 3'd Defendant is a bonafide purchaser for value. He has met all three requirements. There is no evidence of involvement of the 3'd Defendant in applying for D8, the notice to remove caveat, therefore the Plaintifls claim is baseless.

This Issue is resolved in the afhrmative.

### Issue seven

# What are the remedies available to the parties?

The Plaintiff had prayed that the mortgage between the Plaintiff and I't Defendant be declared a nullity because it was not executed according to the law, and therefore that the sale of the property was invalid, the Plaintiff should not be evicted, the 3'd Defendant did not lawfully acquire the suit property and that his name should be cancelled from the Register and the Plaintiffs name reinstated.

In reply, Counsel for the Defendants prayed that according to the 3'd Defendant's counterclaim, the Plaintiff be declared a trespasser on the suit land, and an order for damages, mesne profits be made from the date the 3'd Defendant got registered on the land till date of judgment. He further prayed that Court considers D.25 to calculate the compensation due, based on the annual eaming of UGX I 0,000,000/'

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Considering that the Mortgage was duly executed between the Plaintiff and the l"t Defendant, the Plaintiffs prayers of declaring the mortgage a nu11ity, and subsequently that the sale was invalid do not stand. The suit in this regard is therefore dismissed with costs to the 1"t,2nd and 3'd Defendants.

In regard to the 3rd Defendant's counterclaim, I will not make any order of mesne profits or general damages as the l"t Defendant did not exercise their power to take possession of the mortgaged land under Section 24 of t}:,e Mortgage Act.

In summar5r, therefore, the suit succeeds in part and fails in part. It has been proved that the Plaintiff was given money in form of a loan by the 1't Defendant and that the Mortgage deed and loan agreement were not executed in contravention of the Illiterates Protection Act. The Mortgage is therefore legal and duly executed.

In addition, since Counsel Tibaijuka witnessed the Mortgage as an advocate, the 4ur Defendant was a competent witness to sign the mortgage as a witness of the Plaintiff.

Further, considering that there was no fraud, either actual or perceived brought to the notice of the 3.4 Defendant, I find that he is a bonafide purchaser for value although the sale of the Plaintifl's mortgaged property was conducted unlawfully in contravention of the law and his interest cannot therefore be protected.

Consequently, and in the result, I make the following orders:

- 1. The Plaintilf shall retain ownership of the mortgaged property but must pay to the 1rt Defendant the amount due on the loan and interest at the time of default. - 2. The 3rd Defendant's name be cancelled from the Certificate of Title and the Plaintilfs name be restored.

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- 3. The l"t Defendant shall refund the value ofthe purchase price ofthe property to the 3'd Defendant. - 4. Each party to bear their own costa.

### HON. LADY JUSTICE ANNA B. MUGENYI