[2024] UGHCCD 207

# **THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA (CIVIL DIVISION) CIVIL APPEAL NO. 15 OF 2021 (ARISING FROM NAKAWA (KIRA) CIVIL SUIT NO. 135 OF 2017)**

**NDYOWAYESU CEASER ::::::::::::::::::::::::::::::::::::::::::::::::::::::: APPELLANT VERSUS SERUBIRI TIMOTHY ::::::::::::::::::::::::::::::::::::::::::::::::::::::::: RESPONDENT**

**BEFORE: HON. JUSTICE BONIFACE WAMALA**

#### **JUDGMENT**

#### **Introduction**

[1] The appellant being dissatisfied with the judgment and decree of **Her Worship Aciro Joan**, then Magistrate Grade One, delivered on 26th February 2021 at Nakawa Chief Magistrates Court Holden at Kira, brought this appeal seeking orders that the appeal be allowed, the judgement and decree of the lower court be set aside, with costs.

#### **Background to the Appeal**

[2] The respondent instituted Civil Suit No. 135 of 2017 against the appellant in the Chief Magistrates Court of Nakawa Holden at Kira for recovery of the sum of UGX 16,500,000/= with interest at the rate of 22% per annum and the costs of the suit. The claim was said to have arisen from a transaction between the parties that led to issuance of two cheques by the appellant to the respondent; one for UGX 10,500,000/= and another for UGX 6,000,000/=. When the cheques were banked by the respondent, they were rejected by the bank allegedly due to insufficient funds. The respondent brought the suit by way of a specially endorsed plaint under summary procedure. The appellant sought and obtained leave to appear and defend the suit. He filed a written statement of defence (WSD) in which he denied the claims. He particularly denied borrowing any money from the respondent and stated that the cheques were given to the respondent as security in a transaction over land in which the respondent had acted as a broker. The trial court heard and determined the matter in favour of the respondent, hence this appeal.

#### **Representation and Hearing**

[3] At the hearing, the appellant was represented by **Mr. Mujurizi Jamir David** of M/s Mujurizi & Tumwesigye Advocates while the respondent was represented by **Mr. Elijah Enyimu** from M/s E. Wamimbi Advocates & Solicitors. It was agreed that the hearing proceeds by way of written submissions which were duly filed by both counsel and have been adopted and considered in the determination of matter before court.

## **The Grounds of Appeal**

[4] The appellant raised three (3) grounds of appeal in his Memorandum of Appeal, namely;

a) *The learned trial Magistrate erred in law and in fact when she failed to properly evaluate the evidence as a whole thereby coming to a wrong conclusion that the appellant was indebted to the respondent to the tune of UGX 16,500,000/= which occasioned a miscarriage of justice.*

*b) The learned trial Magistrate erred in law and in fact when she declined to consider the appellant's evidence that the cheques were issued as security for a land transaction but not for a loan advanced thereby arriving at a wrong conclusion.*

*c) The learned trial Magistrate erred in law and in fact when she awarded excessive interest of 22% per annum from the date of filing the suit till payment in full thereby occasioning a miscarriage of justice.*

## **Duty of the Court on Appeal**

[5] The duty of the first appellate court is to scrutinize and re-evaluate the evidence on record and come to its own conclusion and to a fair decision upon the evidence that was adduced in the lower court. See: *Section 80 of the Civil* *Procedure Act Cap 282*. This position has been restated in a number of decided cases including *Kifamunte Henry v Uganda SC CR. Appeal No. 10 of 1997 [1998] UGSC 20 (15 May 1998); Fredrick Zabwe v Orient Bank Ltd SCCA No. 4 of 2006* and *Baguma Fred v Ug* SC Crim. App. No. 7 of 2004. In the latter case, **Oder JSC** stated thus;

*"First, it is trite law that the duty of a first appellate court is to reconsider all material evidence that was before the trial court, and while making allowance for the fact that it has neither seen nor heard the witnesses, to come to its own conclusion on that evidence. Secondly, in so doing it must consider the evidence on any issue in its totality and not any piece in isolation. It is only through such re-evaluation that it can reach its own conclusion, as distinct from merely endorsing the conclusion of the trial court"*.

#### **Consideration of the Grounds of Appeal**

[6] Counsel for the appellant argued grounds 1 and 2 together and ground 3 separately. I have adopted the same approach.

*Ground 1: The learned trial Magistrate erred in law and in fact when she failed to properly evaluate the evidence as a whole thereby coming to a wrong conclusion that the appellant was indebted to the respondent to the tune of UGX 16,500,000/= which occasioned a miscarriage of justice; and*

*Ground 2: The learned trial Magistrate erred in law and in fact when she declined to consider the appellant's evidence that the cheques were issued as security for a land transaction but not for a loan advanced thereby arriving at a wrong conclusion*.

## **Submissions by Counsel for the Appellant**

[7] Counsel for the appellant submitted that according to the evidence led by the appellant, he did not owe the respondent any money as the consideration for the same failed when the seller failed to give vacant possession and title of the land subject of the transaction. Counsel submitted that the trial Magistrate therefore erred in decreeing that the appellant was indebted to the respondent. Counsel stated that the money lending agreement alleged by the respondent was illegal on account of the fact that it was neither in writing nor was the respondent in possession of a money lending certificate or license.

[8] Counsel further stated that there was ample evidence by the appellant that the money reflected on the cheques was only security for the commission for sale of land which transaction failed. Counsel also stated that the appellant had testified that the cheques were postdated and incomplete; that they were filled in by the respondent and that the appellant had applied to have the cheques examined by a handwriting expert which was wrongly denied by the court. Counsel concluded that the respondent having failed to prove that there was a money lending transaction for UGX 16,500,000/=, the trial Magistrate erred in law and fact to have ruled that the cheques issued were for a loan transaction whereas not, thus occasioning a miscarriage of justice.

#### **Submissions by Counsel for the Respondent**

[9] In reply, it was submitted by Counsel for the respondent that the appellant's indebtedness was rooted both in law and fact based on the legal regime of the Bills of Exchange Act Cap 68. Counsel submitted that the fact of issuance of the two cheques by the appellant was admitted by him in paragraphs 4 and 7 of his WSD at page 98 of the record of appeal. Counsel stated that the cheques were tendered in evidence and admitted by the court as PEX 2 and PEX 3 and, as such, there was no contest as to whether the said cheques were issued and delivered to the respondent. Counsel submitted that the respondent led evidence of lending money to the appellant on two occasions with a different postdated cheque issued by the appellant on each occasion. Counsel argued that upon presentation of the cheques after the lapse of the time agreed upon by the parties, the non-clearance of the cheques automatically triggered the cause of action against the appellant for recovery of the sums reflected on the cheques.

[10] Counsel for the respondent cited the decision in *Naris Byarugaba v Shivam M. K. D Ltd [1997] HCB 71* for the legal position that a bill of exchange constitutes prima facie evidence of the sum of money printed on it and due to the person in whose favour it is drawn. The court further held that such a debt is only discharged when the bill of exchange is honoured. Counsel submitted that in this case, the bills were presented by the respondent and were dishonoured which gave the respondent an immediate right of recourse to section 46(2) of the Bills of Exchange Act. Counsel submitted that the learned trial Magistrate rightly and properly assessed the facts and the law, and came to a correct conclusion. Counsel argued that the story sought to be fronted by the appellant of the cheques being issued as commission for a brokerage fee is unreasonable and financially unrealistic. Counsel argued that it is inconceivable that the appellant could commit to pay brokerage fees amounting to UGX 16,500,000/= for purchase of land worth UGX 20,000,000/=. Counsel prayed to the Court to disallow the appellant's grounds of appeal.

# **Determination by the Court**

[11] Let me begin with the question of fact as to whether the appellant issued the two impugned cheques or not. As was found by the trial Magistrate and has been argued by Counsel for the respondent, the appellant in his WSD admitted to issuance of the cheques but averred that they were issued for a purpose different from that asserted by the respondent. This can be seen from paragraphs 4 and 7 of the WSD (at page 98 of the record of appeal). Indeed, in the said paragraph 4 of the WSD, the appellant indicated that he issued the cheques although they were only undated. He did not aver that they were blank as he later sought to allege in evidence. The law is that a party is bound by their pleadings. A party cannot be allowed to adduce evidence that contradicts or departs from the position espoused in the pleadings.

[12] In *Luyimbazi Sulaimaman v Stanbic Bank (U) Ltd, SCCA No. 02 of 2019*, Prof. Tibatemwa-Ekirikubinza JSC held that it is a cardinal rule that a party is bound by their pleadings and it is not open to the court to base its decision on an un-pleaded issue. Even where there is discordance between what is pleaded and the evidence or submissions, such that either the submissions or evidence cover up for a defect in the pleadings, the cardinal rule still applies. This is because the defence would otherwise be denied an opportunity to make a reply to the new allegations raised and hence the ends of justice will not be served.

[13] On the case before me, the learned trial Magistrate rightly declined from being diverted from the appellant's pleadings into matters that were raised in evidence but were not part of the pleadings. The trial Magistrate rightly rejected the claim that the cheques were given out when blank and were filled by the respondent. She also rightly rejected the move by the appellant's counsel to introduce the need to engage a handwriting expert during cross examination of PW1; which was clearly an afterthought. As it is, therefore, the evidence that was accepted by the trial court and which I find credible is that the appellant issued the two said cheques to the respondent. The next question is as to the purpose for which the cheques were issued.

[14] It was shown in evidence by the respondent that the appellant and himself had a history of dealings which included lending to and borrowing money from each other. The respondent also brokered some land transactions for the appellant. In this case, it is claimed by the respondent that he lent money to the appellant on two occasions; in the sums of UGX 10,500,000/= and UGX 6,000,000/=. The evidence by the respondent is that the lending was upon mutual understanding between the parties which was orally reached. On both occasions, however, the appellant issued postdated cheques to the respondent; one on 30/03/2017 and the other on 8/07/2017. When the respondent did not receive payment within the agreed period, he banked the cheques on 11/07/2017. The cheques were dishonoured for the reason that the "signatures differed".

[15] For the appellant, evidence indicated that there was no borrowing of any money from the respondent but rather, the transaction in issue was a land purchase by the appellant, brokered by the respondent. The appellant stated that there was a history of the respondent brokering land for the appellant. In relation to the present claim, the appellant alleged that it was agreed between the parties that the appellant would pay commission to the respondent after completing payment of the purchase price. For purpose of security for the commission fees, the appellant gave the two cheques to the respondent. The appellant denied existence of any money lending contract and it was argued that none could exist since the respondent was not a licensed money lender. It was also argued that given the sum involved, any such contract would have had to be in writing given the clear provision under Section 10 of the Contracts Act.

[16] The learned trial Magistrate disbelieved the evidence by the appellant and believed that of the respondent. She found that the history of the dealings between the parties and the issuance of the two cheques were consistent with the fact of a friendly loan between the parties and inconsistent with the fact of commission fees over land transactions. From the above sets of evidence and circumstances, I would agree with the reasoning of the learned trial Magistrate. Looking at the facts and evidence adduced by the appellant as seen from the WSD and the appellant's witness statement, the appellant produced two purchase agreements that he claimed were relevant to this claim. The transactions therein were said to have taken place on 11th and 13th November 2016. The first land purchase was for UGX 20,000,000/= and the other was for UGX 21,500,000/=. This totalled to UGX 41,500,000/=. As argued by Counsel for the respondent, it is inconceivable that for a transaction cost of UGX 41,500,000/=, the appellant could issue security by way of postdated cheques in the sum of UGX 16,500,000/=. In cross examination, the appellant who testified as DW1 (at page 20 of the record of appeal) stated that he was to pay to the respondent a commission of 5% per each transaction. 5% of UGX 41,500,000/= would be UGX 2,075,000/=. I do not find any reason as to why the appellant would issue cheques to the tune of UGX 16,500,000/= in lieu of payment of UGX 2,075,000/=. The learned trial Magistrate therefore rightly rejected the appellant's version of facts and evidence.

[17] To my finding, there was ample evidence by the respondent to prove on a balance of probabilities that the transaction between the parties was that of money lending. It was money lending upon mutual agreement with no levy of interest and not in conduct of commercial money lending. The respondent therefore required no money lending licence to offer such assistance to a business colleague. See: *Clessy Barya Kiiza v Jomo Robert Kashaija & 3 Others, HCCS No. 894 of 2019.*

[18] Regarding the fact that the lending contracts were not in writing, it was submitted by Counsel for the appellant that since the sums allegedly lent exceeded UGX 500,000/=, the contract ought to have been in writing as a mandatory requirement under Section 10 of the Contracts Act 2010. It is true that under Section 10(5) of the Contracts Act (**now Section 9(5) of Cap 284**), a "… contract the subject matter of which exceeds twenty five currency points shall be in writing". However, the entire provision under Section 9 of the Contracts Act need to be put into perspective. Where all the elements of a valid contract are satisfied on the facts, as per sub-sections (1) and (2) of Section 9, it would be too much of a technicality to say that a contract is invalid simply because it was not reduced to writing. In my considered view, in such a situation, the requirement for its being in writing would serve more of an evidential purpose than that of validity. As such, I am convinced that the intention of the legislator would be better achieved if the said provision was construed more as directory than mandatory.

[19] In the present case, there is credible evidence that the parties herein entered into an agreement for which the appellant issued two cheques with a total sum of UGX 16,500,000/=. The respondent went ahead and banked the cheques but they were dishonoured. The fact that the agreement was not in writing only goes to lessen proof as to the actual terms of the agreement. It does not negate the fact of existence of the agreement at all. As already analysed above, there is sufficient evidence, that has been accepted by the Court, to prove on a balance of probabilities that the agreement between the parties herein was for the appellant borrowing a total sum of UGX 16,500,000/= from the respondent on two occasions. I find that the trial Magistrate had sufficient grounds to find as she did.

[20] The above finding by the learned trial Magistrate was also fortified by the position of the law regarding issuance of cheques as bills of exchange. In *Naris Byarugaba v Shivam M. K. D Ltd [1997] HCB 71* it was held that a bill of exchange constitutes prima facie evidence of the sum of money printed on it and due to the person in whose favour it is drawn. The Court further held that such a debt is only discharged when the bill of exchange is honoured. In *Kotecha vs. Mohammad [2002] 1 EA 112*, the Court of Appeal of Uganda held that a bill of exchange is to be treated as cash and, unless exceptional grounds are shown, when it is dishonoured, the holder thereof is entitled to judgment. Given this settled position of the law concerning bills of exchange, the respondent was entitled to present the said cheques for drawing cash and their rejection by the bank was actionable as against the issuer.

[21] It was claimed by the appellant that there was an understanding that the cheques were only for security purposes and would not be presented to the bank. The respondent denied existence of any such understanding. Nevertheless, the practice of issuing cheques without an intention or care that the same will be presented before the bank is frowned upon by the law and the courts. In *BIDCO (U) Ltd v Western Distributors Ltd, HCCS No. 271 of 2008*, Mulyagonja J. (as she then was) held that "… it is the duty of court to protect the integrity of cheques. This is so because increasingly cheques have become the grease that facilitates the efficient running of the world of commerce. The business practice in Uganda of issuing cheques as security for payment with the intention that they should not be banked or negotiated should be strongly discouraged because it goes against the very nature of such instruments". In *Maersk Uganda Ltd v First Merchant International Ltd, HCCS No. 143 of 2019,* Madrama J. (as he then was) held that "… the courts will fault any person who issues a cheque for presentment to a bank by the holder thereof knowing or not caring whether it will be dishonoured".

[22] In the present case, like the learned trial Magistrate, I have come to the conclusion that the appellant issued the two cheques bearing the claimed sum. The respondent presented the cheques to the bank and they were dishonoured. He notified the appellant of the fact of dishonor and the appellant did not make good the default. As such, even if there was no proof of an existing lending agreement, the respondent would still have been entitled to judgment on basis of the dishonoured cheques.

[23] In all, therefore, on grounds 1 and 2, the appellant has not satisfied the Court on the complaints raised in the grounds. There was no error on the part of the learned trial Magistrate in finding the way she did. The two grounds are devoid of merit and they accordingly fail.

*Ground 3: The learned trial Magistrate erred in law and in fact when she awarded excessive interest of 22% per annum from the date of filing the suit till payment in full thereby occasioning a miscarriage of justice.*

## **Submission by Counsel for the Appellant**

[24] Counsel for the appellant submitted that in her judgment, the learned trial Magistrate did not give reasons for the award of interest at 22% from the date of filing the suit till full payment. Counsel argued that the said rate of interest was excessive in the circumstances of the case. Counsel cited the provision under Section 26(2) of the CPA and argued that where there is no agreed interest, the court should award interest at the court rate and not at such an exorbitant rate.

## **Submission by Counsel for the Respondent**

[25] In reply, it was submitted by Counsel for the respondent that there was factual justification for award of interest by the court on the decretal sum in that the cheques issued by the appellant were dishonoured in July 2017. The plaintiff filed the suit in August 2017 and judgment was delivered on 26th February 2021. Throughout all that period, the respondent had not received his money back. Counsel argued that in law, even in absence of a promise, interest is payable as compensation for delay in paying a fixed sum or in assessing and paying damages. Counsel relied on the decision in *Spring Freight Logistics Ltd v Amoo Holding International Ltd, HCCS No. 556 of 2019* for the position that going by Section 26(1) of the Civil Procedure Act, where interest was not agreed upon by the parties, the court should award interest that is just and reasonable. In determining a just and reasonable interest rate, courts take into account, among others, the ever rising inflation and depreciation of the currency.

## **Determination by the Court**

[26] The discretion of the court regarding award of interest is provided for under Section 26 of the Civil Procedure Act. The basis of an award of interest is that the defendant has kept the plaintiff out of his money and the defendant has had the use of it himself and ought to compensate the plaintiff accordingly. See: *Premchandra Shenoi and Anor v Maximov Oleg Petrovich, SCCA No. 9 of 2003* and *Harbutt's 'placticine' Ltd v Wayne tank & pump Co. Ltd [1970] QB 447*. In determining a just and reasonable rate of interest, the court takes into account the ever rising inflation and drastic depreciation of the currency. A plaintiff is entitled to such rate of interest as would not neglect the prevailing economic value of money, but at the same time one which would insulate him or her against any further economic vagaries and the inflation and depreciation of currency in the event that the money awarded is not promptly paid when it falls due. See: *Kinyera v the Management Committee of Laroo Building Primary School, HCCS No. 099of 2013*.

[27] It is also the correct position of the law that even where there is no express agreement between the parties regarding payment of interest or a rate thereof, interest is payable as compensation for delay in paying a fixed sum or in assessing and paying damages. See: Black's Law Dictionary, 9th Edition, page 887. In such a case, the court awards interest that is just and reasonable. See: *Spring Freight Logistics Ltd v Amoo Holding International Ltd, HCCS No. 556 of 2019*.

[28] In the present case, the respondent was kept out of use of his money since August 2017 when he sought to recover the same through commencing a summary suit. Judgment in the matter was delivered on 26th February 2021. The respondent was entitled to restoration to the financial position he would have been in had payment been effected by August 2017. In law, an award of interest as well falls under the doctrine of *restitutio in integrum*. See: *Esero Kasule vs Attorney General, HC M. A No. 0688 of 2014*. The respondent was therefore entitled to a reasonable rate of interest from the date of instituting the suit until full payment was effected. I have found no reason to fault the learned trial Magistrate in making the order as to payment of interest.

[29] As to whether the rate of 22% per annum was just and reasonable, the formula to be used for arriving at a just and reasonable interest rate was suggested by the court in *Esero Kasule vs Attorney General (supra)* where the court held that in attempting to arrive at a rate that can be said to be just and reasonable *"… one looks … not at the profit which the defendant wrongfully made out of the money he withheld (as this would indeed involve a scrutiny of the defendant's financial position) but at the cost to the plaintiff of being deprived of the money which he should have had. … In commercial cases, the interest is intended to reflect the rate at which the plaintiff would have had to borrow money to supply the place of that which was withheld."*

[30] In the present case, it has been established on evidence that this was not a commercial transaction. It is accepted and asserted by the respondent that he advanced a friendly loan to the appellant. As such, much as he expected recovery of his money, he did not reasonably expect it to be returned with interest at a commercial rate. The reasonable expectation is that he would have the money back without it being adversely affected by inflation or depreciation of the currency. Such expectation did not call for a commercial rate of interest. The rate of 22% per annum is a commercial rate to which the respondent would not have been entitled in the circumstances of the present case. I agree that the same was excessive in the circumstances. I would therefore exercise discretion and reduce the same to 15% per annum. The interest will run from the date of filing the suit until full payment. Ground 3 of the appeal therefore partially succeeds to the said extent.

## **Decision of the Court**

[31] In all, grounds 1 and 2 of the appeal have failed, and ground 3 has partially succeeded. The appeal is to a larger extent dismissed. The judgement and decree of the lower court is upheld except for the order of interest which is varied from 22% to 15% per annum from the date of filing the suit until full payment. The appellant shall meet three-quarters (3/4) of the costs of the appeal and of the proceedings in the lower court.

It is so ordered.

*Dated, signed and delivered by email this 19th day of December, 2024.*

**Boniface Wamala JUDGE**