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Barclays Bank of Uganda Limited v Etats Limited and 3 Other (Civil Appeal 65 of 2014)

Court of Appeal · [2024] UGCA 54 · 2024 Appeal Dismissed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
Civil appeal from a High Court judgment in consolidated suits, with a cross-appeal by the respondents
Decision
Appeal dismissed; cross-appeal succeeds. The mortgagee's sale held void ab initio; excess acreage of 1.53 acres returned to the respondents and costs awarded to them.

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Holding

The Court of Appeal dismissed the bank's appeal. It held that a mortgagee is duty bound to obtain the true market value of mortgaged property, and that the appellant sold the suit land at a gross undervalue through a fraudulent process — by private treaty, without the mortgagor's consent, public auction, foreclosure or appointment of a receiver — in contravention of the Mortgage Act, rendering the sale void ab initio. A guarantor's liability is secondary and crystallises only on the principal debtor's default after realising its securities, so the guarantees were unenforceable. Applying ex turpi causa, the appellant could not benefit from its illegality. The cross-appeal succeeded: the 1.53 acres in excess of the 2.97 acres mortgaged were returned and costs awarded to the respondents.

Facts

The first respondent obtained credit facilities from the appellant bank between May and November 2005, secured by property at Plot 30-34 Eden Road, Jinja and by personal guarantees from the second, third and fourth respondents as its directors. Before the facilities were advanced, the property was valued by Bageine & Co at a market value of UGX 865,000,000 and forced sale value of UGX 605,000,000 as of 21 December 2004. On default, the appellant sold the securities. It later obtained a second valuation (DW2) of UGX 300,000,000, relying on a photocopy title without a deed plan and without measuring the property, and sold the suit property by private treaty for UGX 265,000,000, plus UGX 95,000,000 from other plots. The appellant withdrew earlier consent allowing the respondents to find a buyer, conducted the sale secretly, and did not call the bailiff who conducted the sale. The individual guarantees were fixed at UGX 360,000,000, yet the appellant demanded UGX 504,998,901 from the guarantors before the principal debtor's default was established.

Issues

  1. Whether the trial judge erred in finding the appellant mortgagee fraudulent, negligent and reckless in selling the suit property at a low price.
  2. Whether the suit property was 5.3 acres or 2.97 acres and whether the respondents were entitled to the excess acreage.
  3. Whether the appellant could enforce the personal guarantees of the second, third and fourth respondents for the outstanding balance.
  4. Whether the trial judge erred in awarding the respondents remedies that were not pleaded.
  5. Whether the trial judge erred in awarding general damages to the respondents.
  6. Whether the appellant could take the benefit of its own illegality and whether costs should have been awarded to the respondents as the successful party (cross-appeal).

Orders

  • This appeal is dismissed.
  • The 1.53 acres in excess of the 2.97 acres mortgaged to the appellant be returned to the respondents.
  • Costs of H.C.C.S No. 272 of 2008 are awarded to the respondents.
  • The respondents are awarded costs of the cross-appeal.

Key headnotes

Mortgages — Power of Sale — Mortgagee's Duty to Obtain True Market Value
A mortgagee exercising its power of sale is duty bound to take reasonable care to obtain the true market value of the mortgaged property at the time of sale; selling at a gross undervalue without peculiar circumstances justifying it supports a finding of fraud, negligence and recklessness.
Mortgages — Realisation of Security — Compliance with the Mortgage Act
A mortgagee must realise its security only in a manner provided by the Mortgage Act; a sale by private treaty without the mortgagor's consent, and without public auction, foreclosure or appointment of a receiver, contravenes the Act and renders the sale void ab initio.
Guarantees — Liability of Guarantor — Secondary Obligation
A guarantor's liability is secondary and crystallises only upon default by the principal debtor; the creditor must first realise the principal debtor's securities before pursuing the guarantor, and the guarantor's liability cannot exceed the sum guaranteed.
Illegality — Ex Turpi Causa Non Oritur Actio
No court will enforce an illegal transaction or allow itself to be made the instrument of enforcing obligations arising from an illegal transaction; a party implicated in the illegality cannot take the benefit of it once the illegality is brought to the court's attention, and illegality overrides all questions of pleading.
Failure to Call Witness or Tender Documents — Adverse Inference
Where a party fails to call a material witness or tender available documents necessary to establish the truth, the court may infer that the evidence of the uncalled witness or untendered document would have been adverse to that party.
Costs — Costs Follow the Event
Costs follow the event; a successful party in contested proceedings is entitled to an award of costs in the absence of special circumstances or misconduct, and a court errs in declining to award costs to the successful party without good cause.
Pleadings — Determination of Unpleaded Matters
A court may decide a matter not specifically pleaded where the parties have led evidence and addressed the court upon it, in order to arrive at a correct decision and fully settle the dispute.

Legislation cited (13)

  • Land Act s.91(1)
  • Land Act s.91(5)
  • Land Act s.91(6)
  • Registration of Titles Act s.59
  • Registration of Titles Act s.156
  • Registration of Titles Act s.158
  • Registration of Titles Act s.159
  • Mortgage Act Cap 229 s.2
  • Mortgage Act Cap 229 s.4
  • Mortgage Act Cap 229 s.8
  • Mortgage Act Cap 229 s.10
  • Civil Procedure Act s.27(1)
  • Judicature (Court of Appeal Rules) Directions S.I 13-10 r.30(1)(a)

Cases cited (11)

  • Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] 2 All ER 633
  • Shokatali Abdulla Dhalla v Sadrudin Merrali (Supreme Court Civil Appeal No. 32 of 1994)
  • Bukenya v Uganda [1972] 1 EA 549
  • Michael Muhuyi Kiveu v IG SACCO Ltd (Tribunal Case No. 035 of 2021)
  • Active Automobile Spares Ltd v Crane Bank (Supreme Court Civil Appeal No. 21 of 2001)
  • Scott v Brown, Doering, McNab & Co [1892] 2 QB 724
  • Pandya v R [1957] EA 336
  • The Executive Director of National Environmental Management Authority (NEMA) Vs Solid State Limited, No. 15 of 2015
  • Makula International v Cardinal Emmanuel Nsubuga (Civil Appeal No. 4 of 1981)
  • Sinba K Ltd v Uganda Broadcasting Corporation (Supreme Court Civil Appeal No. 003 of 2014)
  • Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.