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Kesacon Services Ltd v Stanbic Bank Ltd (Civil Appeal No. 109 of 2022)

Court of Appeal · [2025] UGCA 328 · 2025 Appeal Dismissed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
First civil appeal from a judgment of the High Court (Commercial Division) in a suit for breach of a loan and mortgage agreement
Decision
Appeal dismissed; the High Court judgment, including the order that the appellant repay the advanced sum with interest and the bank's right to foreclose, upheld and confirmed

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Holding

The Court of Appeal dismissed the appeal, upholding the finding that the appellant fundamentally breached the loan facility agreement by failing to pay any monthly instalments and by diverting first-phase funds earmarked to settle the Housing Finance Bank debt. As the appellant breached first, the bank's refusal to disburse working capital was a justified response, not an independent breach. The trial judge's order that the appellant refund the advanced sum with interest, and that the bank could foreclose, was a valid consequential restitutionary order flowing from the breach despite the absence of a counterclaim. The judge's remark that the mortgage was 'questionable' was obiter and could not ground an appeal; the Mortgage Act permits subsequent mortgages.

Facts

In 2011 the appellant agreed with the respondent bank for a loan facility of UGX 600,000,000, repayable over sixty monthly instalments, secured by the appellant's certificate of title and a mortgage. A variation deed provided that the loan be disbursed in two phases: the first to clear the appellant's outstanding debt with Housing Finance Bank, after which the title would be obtained and the second phase (working capital) released. The respondent disbursed funds and accrued interest to settle the Housing Finance Bank debt and registered its mortgage on the title. The appellant, however, diverted part of the first-phase funds to purposes other than settling that debt and made no monthly payments to service the loan. The respondent declined to release the working-capital phase. The appellant sued for breach of contract and breach of the mortgage deed. The High Court found the appellant in fundamental breach, ordered repayment of the advanced sum with interest, and permitted foreclosure. The appellant appealed.

Issues

  1. Whether the trial judge erred in holding that the appellant fundamentally breached the loan agreement by not paying any monthly instalments towards the loan.
  2. Whether the trial judge erred in holding that the appellant breached the loan agreement by diverting money meant to buy out the mortgage from Housing Finance Bank.
  3. Whether the trial judge erred in failing to properly evaluate the evidence and in concluding that both parties breached the loan agreement.
  4. Whether the trial judge erred in making awards to the respondent that had not been pleaded.
  5. Whether the trial judge erred in ordering forfeiture of the security and foreclosure after finding the respondent's mortgage questionable.

Orders

  • The judgment and orders of the lower court, including the finding that the appellant fundamentally breached the loan agreement and that the respondent is entitled to recover the advanced sums, are upheld and confirmed.
  • The appeal is dismissed.
  • Costs to the respondent in this court and in the court below.

Key headnotes

Contract Law — Sanctity of Contract — Pacta Sunt Servanda
Parties are bound by the terms of a contract they freely and lawfully enter into, and it is not the business of the court to rewrite the contract for them; the written document is the authoritative guide to interpretation.
Contract Law — Fundamental Breach — Discharge for Breach of Condition
Where there is an actual breach of a condition of a fundamental nature, the requisite repudiatory intent is inferred regardless of the severity of its impact, entitling the innocent party, if it so chooses, to treat the contract as discharged from further performance.
Contract Law — Order of Breaches — Party in Prior Fundamental Breach
Where both parties allege breach, regard must be had to the order in which the breaches occurred; a party in prior fundamental breach cannot demand performance from the other, whose subsequent refusal to perform is a justified response rather than an independent breach.
Evidence — Admissions — Admission by a Party
There is no better evidence than an admission by a party; a witness's admission in his statement and under cross-examination that no payments were made and that funds were diverted directly establishes the breach.
Civil Procedure — Consequential Orders — Relief Without Counterclaim
Where a defendant successfully defends a breach-of-contract claim and the court finds the plaintiff in breach and indebted, an order for repayment of the disbursed funds and for foreclosure is a direct and inherent consequential order flowing from that finding, and may be made even without a formal counterclaim, to avoid unjust enrichment of the contract-breaker.
Civil Procedure — Grounds of Appeal — Challenge to Obiter Dictum
A ground of appeal must be based on an issue in controversy and challenge the ratio of the decision; a statement made obiter that does not determine any issue in controversy cannot be challenged as a ground of appeal.
Land & Property — Mortgages — Subsequent Mortgages and Foreclosure Procedure
The Mortgage Act expressly permits the creation of second and subsequent mortgages, so a prior registered mortgage does not invalidate a later one; and the statutory power of sale on default does not, in the first instance, require a formal court application provided statutory notice requirements are met.

Legislation cited (10)

  • Contracts Act 2010 s.33
  • Contracts Act 2010 s.34
  • Contracts Act 2010 s.35
  • Contracts Act 2010 s.60
  • Contracts Act 2010 s.61(1)
  • Mortgage Act Cap 239 s.2(2)
  • Mortgage Act Cap 239 s.8(1)
  • Mortgage Act Cap 239 s.79
  • Civil Procedure Act Cap 282 s.80
  • Judicature (Court of Appeal Rules) Directions SI 13-10 r.30(1)(a)

Cases cited (9)

  • Interfreight Forwarders (U) Ltd v East African Development Bank (Civil Appeal No. 33 of 1992)
  • Ms Fong Min v Belex Tours and Travel Limited (Civil Appeal No. 06 of 2013)
  • Kifamunte Henry v Uganda (SCCA No. 10 of 1997)
  • Asuman Mutekanga v Equator Growers (U) Ltd (SCCA No. 7 of 1995)
  • Golden Construction Company Ltd v Stateco (Nig) Ltd (2014) 8 NWLR (pt 1408) p. 171
  • Goss v Chilcott [1996] AC 788, 798
  • Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, 682-3
  • Sykes v Abbey [1995-1996] 1 GLR 81 SC
  • Son International Pte Ltd v Keppel Engineering Pte Ltd [1998] 3 SLR (R) 447
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.