[2025] UGHC 456

# **THE REPUBLIC OF UGANDA**

# **IN THE HIGH COURT OF UGANDA HOLDEN AT MBALE CIVIL**

# **APPEAL NO. 0103 OF 2024**

## **(ARISING FROM BUDUDA CIVIL SUIT NO. 17 OF 2021)**

**WANEROBA PATRICK :::::::::::::::::::::::::::::::::::::::::::::::::::::::::: APPELLANT**

#### **VERSUS**

# **BUMUTSUKHU FINANCIAL SERVICE LTD :::::::::::::::::::::::::::: RESPONDENT**

# **BEFORE: HON. JUSTICE LUBEGA FAROUQ**

## **JUDGMENT**

## 1. **Introduction:**

2. The Plaintiff/Respondent instituted a summary suit under Civil Suit No. 17 of 2021 against the Defendant/ Appellant for payment of Ugx: 6, 305,000/= being the principal sum borrowed by the defendant, interest at Court rate from the date of accrual till payment in full, general damages and costs of the suit.

## 3. **Background:**

- 4. *The Respondent's case* - 5. The Respondent's claim in the lower court was that, on the 17th day of September, 2019, the Defendant/Appellant at his special request and instance approached the Respondent for a loan of Ugx: 2,805,000/= to be pay in one instalment which had an interest of 10% per month at annex branch. That the defendant agreed to hand over his Stanbic ATM card on the 17th day of September, 2019. - 6. That at the end of September 2019, the managing Director went to withdraw the money and made a withdrawal but instead withdrew Ugx: 260,000/= instead of Ugx: 2, 805, 000/=. The managing director informed

Mr. Shimani Patrick who is the loan officer of annex branch about what had happened on the account who also informed the defendant and then the defendant allowed them to continue withdrawing the remaining money as a monthly interest from the loan as he processes the bank loan.

- 7. The Respondent further contended that between February to September 2020, the money on the defendant's account was insufficient and the money accumulated to Ugx: 6,305,000/=. Several demands were made but the Defendant/Appellant refused, ignored and adamantly did not bother to pay. - 8. *The Appellant's case:* - 9. The Appellant in his written statement of defence denied all the Respondent's allegations and averred that on 2nd of February, 2018, he applied for a loan facility from the plaintiff and that he was advanced a sum of Ugx: 805,000/= at an interest of 20% which he was supposed to pay for a period of one year. That he surrendered his ATM card of Stanbic Bank together with a pin number on an understanding that the plaintiff was supposed to withdraw half of his salary which amounts to Ugx: 205,000/= per month. - 10. He contended that the Respondent withdrawal from the Appellant's account from the month of March, 2018 to September 2019 a total amount of Ugx: 3, 895,000/=. That on the 17th September, 2019, he again went to the Respondent company and requested for a top up loan of Ugx: 2, 805,000/= of which the same was advanced to him with revised interest reduced from 20% to 10% per month. That the Respondent continued to withdraw money from the Appellant's account through the ATM card from 30th October, 2019 to October 2020 and that this money withdrawn by the plaintiff amounted to Ugx: 2,065,000/=. - 11. The Appellant further alleged that he does not owe the plaintiff any money as he paid back all the principal amount plus interest. That he does not know Khawanga Tom Robert and he has never transacted with him in any

business apart from Shiman Patrick whom he gave ATM card of Stanbic Bank and returned it to him after payment of the loan.

12. He contended that the plaint under summary suit was brought in bad faith, no evidence and fictitious, among others.

#### 13. **Issues for the trial court's determination**

- (a) Whether the loan transaction of Ugx: 2,805,000/= entered into on the 19th day of September, 2019 between the Plaintiff and Defendant was a new loan transaction or a top up loan? - (b) Whether the Defendant is indebted to the sum of Ugx: 6,305, 000/= being the principal sum and interest? - (c) What are the available remedies to the parties? - 14. His Worship Maloba Ivan, determined all the above issues in favour of the Respondent. He found that the loan of Ugx: 2,550,000/= extended to the defendant by the Plaintiff on 17th September, 2019 was not a top up loan and that the defendant is indebted to the Plaintiff to a tune of Ugx: 6, 090,000/=. He further awarded interest of 10% per annum from the date of judgment, general damages of Ugx: 3,000,000/= and costs of the suit. - 15. The Appellant was aggrieved with that decision hence this appeal.

#### 16. **Grounds of Appeal.**

- (a) The learned trial magistrate erred in law and in fact when he relied on the Plaintiff's evidence of loan agreement that the loan of Ugx: 2, 550,000/= was extended to the defendant/appellant by the Plaintiff/Respondent and yet Ugx: 2,550,000/= was not pleaded and the plaint is deficient. - (b) The learned trial magistrate erred in law and in fact when he held that the defendant/appellant did not fulfill his obligation as a borrower to pay the plaintiff the principal amount and interest of Ugx: 6, 090,000/= and yet the plaint is deficient.

- (c) The learned trial magistrate erred in law and in fact when he held that the defendant did not fulfil his obligation as a borrower to pay the plaintiff the principal amount and interest of Ugx: 6,090,000/= and yet the money lending licence was not adduced in court by the plaintiff. - (d) The decision of the learned trial magistrate that the defendant did not fulfil his obligation as a borrower to pay the plaintiff the principal amount and interest of Ugx: 6,090,000/= is in departure with the Plaintiff's pleadings in the plaint. - (e) The learned trial magistrate erred in law and in fact when he awarded annual interest of 10%, general damages of Ugx: 3,000,000/= and costs of the suit to the Plaintiff. - 17. The Appellant prayed that the appeal be allowed, the judgment and orders of the lower court against the Appellant be set aside and costs of the appeal and that of the lower court be awarded to the Appellant.

# 18. **Legal Representation**

- 19. Counsel Wetete Ronald represented the Appellant and Counsel Tonny Okweny holding brief for Counsel Obedo Deogratius represented the Respondent. - 20. This appeal proceeded by way of written submissions and those of the Appellant are on the court record. They have been considered by this court. - 21. **Duty of the first appellate court.** - 22. This court's duty as the first appellate court is to evaluate and scrutinize all the evidence on the lower court record putting into account the fact that it did not get the chance to see the witnesses testify in court. - 23. That principle was reechoed by Justice MULENGA (RIP) JSC in **Fr. M. Begumisa & Ors V. E. Tibegana SCCA No. 17 of 2003** when he stated- *"The appellate court has to bear in mind that its duty is to rehear the case and the court must consider the trial before*

*the Judge with such materials as it might have decided to admit. The court must then make up its own mind not disregarding the judgment appealed from but carefully weighing and considering it and not shrinking from over ruling it if on full consideration, the court comes to the conclusion that the judgment is wrong"*

#### 24. **Analysis of court**

- 25. I will argue the grounds of appeal following the format adopted by counsel for the Appellant. Counsel for the Appellant argued grounds No. 1, 2, 3 and 4 together and ground No. 5 was argued separately. - 26. Grounds No.1: *The learned trial magistrate erred in law and in fact when he relied on the Plaintiff's evidence of loan agreement that the loan of Ugx: 2, 550,000/= was extended to the defendant/appellant by the Plaintiff/Respondent and yet Ugx: 2, 550,000/= was not pleaded and the plaint is deficient.* - 27. Ground No.2: *The learned trial magistrate erred in law and in fact when he held that the defendant/appellant did not fulfill his obligation as a borrower to pay the plaintiff the principal amount and interest of Ugx: 6, 090,000/= and yet the plaint is deficient.* - 28. Ground No.3: *The learned trial magistrate erred in law and in fact when he held that the defendant did not fulfil his obligation as a borrower to pay the plaintiff the principal amount and interest of Ugx: 6,090,000/= and yet the money lending licence was not adduced in court by the plaintiff.* - 29. Ground No.4: *The decision of the learned trial magistrate that the defendant did not fulfil his obligation as a borrower to pay the plaintiff the principal amount and interest of Ugx: 6, 090,000/= is in departure with the Plaintiff's pleadings in the plaint.*

- 30. I have studied the lower court record and noted that the Respondent called three witness who collectively testified that on 17th of September, 2019, the Appellant was advanced a loan of Ugx: 2,550,000/= to be paid as a single instalment at an interest of 10%. Upon receipt of the said loan, the Appellant handed over his Stanbic Bank ATM to PW2. The said loan was to be paid at the end of September, 2019 in one instalment and the Respondent was supposed to withdraw Ugx: 2,805,000/= from the Appellant's account being the principle sum plus 10% interest. However, at the end of the month of September, the Respondent went to withdraw the said money from the Appellant's account and to its surprise, the Respondent only found Ugx: 260,000/=. The Appellant was informed about the less amount on his account and he allowed them to continue withdrawing any money which could be on his account as he pays the interest and the balance be used to pay the loan principle. - 31. The Respondent and its witnesses contended that from September, 2019 to 2nd October, 2020, it withdrew Ugx: 2,325,000/= but the Appellant took Ugx: 205,000/= through PW2. - 32. PW1, and PW2 further testified that from 2nd of October, 2020 to April, 2021 nothing was remitted by the Appellant and the money accumulated to Ugx: 6, 302, 500/=. - 33. In cross- examination, PW1 however contracted himself regarding the exact amount which the Respondent is demanding the Appellant. He first said Ugx: 6,305,000/= and later changed to Ugx: 6,090,000/=. - 34. PW1 further contradicted his evidence in chief when he said in crossexamination that- *"I have recovered Ugx: 2, 326,000/= from the defendant…"* - 35. PW2 also in cross-examination contradicted with the evidence of PW1 when he testified that- *"he is supposed to pay Ugx: 6, 425,000/= as of now."*

- 36. The position of the law is that contractions and inconsistencies which are substantial to the main issue ought not to be undermined, but trivial and minor contradictions can be ignored. **(See: Kayinamura V. Uganda (Criminal Appeal No.0124 of 2022)** - 37. As indicated above, the contradictions and inconsistencies in the evidence of the Respondent is in regard to the exact amount which the Respondent demands the Appellant. However, the Appellant tendered in court DEX.2 which court used to cure the contradiction. - 38. Be the above as it may, the upshot of the Respondent's evidence is that, it advanced a loan facility of Ugx: 2, 550,000/= to the Appellant at 10% interest which was to be paid as a single instalment. The Appellant who testified as DW1 on the other hand stated that the said amount was only a top up loan but he did not lead evidence to prove that fact. DEX.1 which is the loan agreement for the first loan facility of Ugx: 8O5,000/= does not show that the Appellant ever received any top up loan. The said loan was advanced on 2nd of February, 2018. - 39. According to the evidence of the Appellant the aforementioned loan was for one year. Hence, it expired on 2nd of February, 2019. - 40. The loan currently in dispute, was advanced to the Appellant in September, 2019 way beyond the time when the first loan was supposed to be completed, hence, the two loan facilities are distinct. - 41. What is however obvious from the evidence of both sides is that, Ugx: 2, 550,000/= was advanced by the Respondent to the Appellant. Hence, there existed a contract between the Appellant and the Respondent. - 42. I will now discuss the law applicable to establish whether the said contract was valid or not. - 43. Section 2 of the Contract's Act Cap 284 defines a contract to mean; *"An agreement enforceable by law made with free consent of the parties with capacity to contract, for a lawful consideration and with a lawful object, with the intention to be legally bound".* - 44. The law which governs money lending institutions is the Tier 4 Microfinance Institutions and Money Lenders Act Cap 61 and the Regulations arising therein. - 45. Section 84 (1) of the same Act provides that-

*"A money lending contract shall be in writing and shall be signed by the money lender and the borrower and shall be witnessed by a third party".*

46. Section 84 (2) of the same Act further provides that-

*"The contract shall take the form of a note or memorandum which shall contain all the terms of the contract, and in particular, shall show-*

- (a) *the date on which the loan is disbursed;* - (b) *the amount of the principal of the loan;* - (c) *the interest on the loan expressed in terms of a percentage per year;* - (d) *the nature of security, if any;* - (e) *the duties and obligation of the borrower;* - (f) *the mode of repayment;* - (g) *the nature of guarantorship, if any; and* - (h) *the right to early repayment"* - 47. I have had a benefit to review the loan agreement for Ugx: 2,550,000/= dated 17th of September, 2019 and noted that, it contains only the signature of the borrower. It does not contain the signature of the lender and that of the third party. The period for payment of the said loan was one month. - 48. The provision of the law above cited makes it mandatory for a money lending contract to be in writing, signed by both the borrower and the lender and the same must be witnessed by a third party.

- 49. However as discussed, the loan agreement for the loan facility of Ugx: 2, 550,000/= between the Appellant and the Respondent was only signed by the borrower. Hence, it did not meet the test of a legally enforceable contract. - 50. The position of the law is that court cannot enforce what is illegal and once an illegality is brought to its attention, it overrides all pleadings including admissions made thereon. **(See: Makula International V. His Eminence Cardinal Nsubuga [1982] HCB 12)** - 51. I am aware from the evidence of both parties that the loan facility agreement was varied when the Respondent agreed orally with the Appellant to continue withdrawing money on the Appellant's account despite the default. - 52. However, as guided by the Tier 4 Microfinance Institutions and Money Lenders Act, the varied oral agreement also ought to have been written. - 53. According to the evidence of the parties, it is evident that the Appellant pledged his Stanbic Bank ATM card as security for the loan facility of 17th of September, 2019. - 54. **Regulation 18 (1) (b) of the Tier 4 Microfinance and Money Lender (Money Lenders) Regulations, 2018 provides** that-

*"A money lender shall not demand or accept the following collateral for any money advanced to a borrower as a loan- (b) bank savings, ATM cards and security codes for the ATM cards or deposit account books…"*

- 55. Guided by the above provision, it was illegal for the Respondent to accept the Appellant's ATM card as a collateral for the loan facility. - 56. It follows therefore that, Ugx: 2,325,000/= which was withdrawn from the Appellant's bank account by the Respondent using his ATM card, was done illegally and the same shall be refunded to the Appellant. - 57. From the foregoing discussion, it is clear, there was no legally binding money lending contract between the Appellant and the Respondent as it

is required by the law. **(See: Civil Appeal No. 106 of 2023 Wakwale Dison and Anor V. Bamutsukhu Financial Services (U) Ltd).**

- 58. However, what is obvious is that the Respondent advanced Ugx: 2,550,000/= to the Appellant as the principle sum and he was under a duty to refund the same. - 59. Therefore, the Respondent having illegally withdrawn Ugx: 2,325,000/= from the Appellant's account, by way of arithmetic, the Respondent's balance of the principle loan facility would be Ugx: 225,000/=. - 60. Counsel for the Appellant submitted that the Respondent departed from its pleadings when it stated under paragraph 4 of the amended plaint that the Appellant took a loan of Ugx: 2, 550,000/= at an interest of 10 % and

yet the loan agreement dated 17th of September, 2019 at the 2nd page indicates that, the appellant/defendant was given a loan facility of Ugx: 2, 805,000/= to be paid in one month. I do not agree with counsel for the Appellant.

- 61. Ugx: 2,550,000/= was the principle loan facility which was extended to the Appellant and Ugx: 2,805,000/= was the principle sum or principle loan facility plus interest which the Appellant was under a duty to pay as a single instalment. This is properly explained in the loan repayment agreement schedule. - 62. On the issue of whether the Respondent is a licensed company or not. In the amended plaint, the 1st paragraph indicates that the Respondent is a registered company. - 63. It should however be noted that, questions like this, can only be answered better in the lower court. This is so because, it is at that level, that each party can be afforded a right to be heard. - 64. Consequently, grounds No. 1, 2, 3, and 4 are answered in the affirmative. - 65. Ground No. 5: *The learned trial magistrate erred in law and in fact when he awarded annual interest of 10%, general damages of Ugx: 3,000,000/= and costs of the suit to the Plaintiff.* - 66. From my discussion in the foregoing, I have found that the transaction between the Appellant and the Respondent was illegal. - 67. I have further found that, since the money lending transaction was illegal, court cannot enforce an illegality. For that reason, the trial magistrate erred when she awarded general damages and interest in respect to an illegal transaction. - 68. Ground No. 5 is answered in the affirmative. - 69. In the premises, this appeal hereby succeeds in the terms below. - (a) The judgment and orders of the lower court are set aside.

- (b) The Appellant shall pay to the Respondent Ugx: 225,000/= (Two hundred twenty-five thousand shillings) as balance of the principle loan facility. - (c) Each party shall bear its own costs. - I so order.

**………………………….. LUBEGA FAROUQ Ag. JUDGE**

*Judgment delivered via the emails of the Advocates of the parties on 26th day of June, 2025.*

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