Wakilii

Fredrick J.K. Zaabwe v Orient Bank Ltd and Others (Civil Appeal 4 of 2006)

Supreme Court · [2007] UGSC 21 · 2007 Appeal Allowed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
Second appeal to the Supreme Court from a Court of Appeal decision dismissing an appeal in a first-instance civil suit alleging fraud and challenging the mortgage and sale of the appellant's land.
Decision
Appeal allowed against the 1st and 2nd respondents; mortgage, sale and transfer cancelled and the appellant to be reinstated as registered proprietor (or, alternatively, paid the property's current market value); aggravated damages of Shs.200,000,000 awarded; appeal dismissed against the 3rd to 6th respondents.

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Holding

The Supreme Court held that a donee of a power of attorney acts only as the donor's agent and cannot use the power for its own benefit; the 2nd respondent's use of the power to mortgage the appellant's land to secure its own borrowing exceeded the authority granted and was outside the power. The mortgage also failed to comply with sections 147 and 148 of the Registration of Titles Act and was therefore invalid. Fraud was committed by the 2nd respondent's directors and the bank had at least constructive notice; the subsequent purchaser, buying subject to a subsisting caveat, was not a bona fide purchaser. The appeal was allowed against the 1st and 2nd respondents and aggravated damages of Shs.200,000,000 awarded.

Facts

The appellant, an advocate, owed Shs.1,000,000 to the Law Council. His client and friend, Livingstone Sewanyana, offered help: the appellant would execute a power of attorney over his land (Kibuga Block 9 Plot 534) in favour of the 2nd respondent (Mars Trading Co. Ltd, in which Sewanyana was a director) so the company could borrow the money on the appellant's behalf. On 7 November 1996 the appellant executed the power of attorney and surrendered his certificate of title. Sewanyana gave him a cheque for Shs.1,000,000 payable to the Law Council, which was dishonoured twice for want of funds. Instead of borrowing for the appellant, the 2nd respondent used the power of attorney to mortgage the appellant's property to the 1st respondent bank to secure its own borrowing, from which the appellant did not benefit. The 2nd respondent defaulted; the bank sold the property to Ali Hassan for Shs.35,000,000 in December 1998, and the appellant and his family were evicted in May 1999, despite a subsisting caveat on the title.

Issues

  1. Whether the mortgage of the appellant's land was made pursuant to, and within the authority conferred by, the power of attorney granted to the 2nd respondent.
  2. Whether the mortgage was valid and complied with the Registration of Titles Act, in particular sections 115, 147 and 148.
  3. Whether fraud was committed against the appellant and whether the 1st respondent bank and the subsequent purchaser had knowledge or notice of, or participated in, that fraud.
  4. Whether the subsequent purchaser of the property could claim to be a bona fide purchaser for value without notice.
  5. Whether the Court of Appeal, as the first appellate court, properly re-evaluated the evidence on record.
  6. Whether, and in what amount, the appellant was entitled to damages.

Orders

  • Appeal allowed; judgments of the Court of Appeal and the High Court set aside and judgment entered for the appellant.
  • The Registrar of Titles shall cancel the registration of the mortgage to the 1st respondent and the transfer to Ali Hassan, and reinstate the appellant as registered proprietor entitled to vacant possession.
  • In the alternative, if the property was lawfully transferred to a bona fide purchaser for value before judgment, the 1st and 2nd respondents shall jointly and severally pay the appellant the current market value of the property as determined by a valuation surveyor approved by a High Court judge.
  • The 1st and 2nd respondents shall jointly and severally pay the appellant aggravated damages of Shs.200,000,000.
  • The 1st and 2nd respondents shall jointly and severally pay the appellant's costs here and in the courts below, plus costs of valuation if any.
  • Interest at 10% per annum on the market value award from the date of valuation, and on the damages from the date of judgment until payment in full.
  • Appeal dismissed as against the 3rd, 4th, 5th and 6th respondents, with no order as to costs in respect of them.

Key headnotes

Agency — Power of Attorney — Scope of authority of donee
A donee of a power of attorney acts only as agent for and on behalf of the donor and cannot use the power for its own benefit to the exclusion or detriment of the donor; an act done by the agent for its own purposes falls outside the power and is not even capable of ratification by the principal.
Agency — Power of Attorney — Strict construction
A power of attorney must be construed strictly; the authority conferred is only that which falls within the four corners of the instrument, whether in express terms or by necessary implication.
Mortgagee — Duty of disclosure and notice where security given under a power of attorney
Where a bank takes security under a power of attorney over property not belonging to its borrower, it is put on notice that the donee must act within the power and owes a fiduciary duty to disclose to the property owner the purpose of the borrowing; a bank that knows the donee is acting for its own benefit, yet stays silent, is fixed with notice of the fraud.
Registration of Titles — Execution of mortgage — Sections 147 and 148 RTA
A mortgage that does not comply with sections 147 and 148 of the Registration of Titles Act — where signatures are not in Latin character and the signatories and attesting witness are unnamed and their capacity undisclosed — is invalid; such non-compliance is a substantive requirement of law, not a mere technicality that Article 126(2) of the Constitution permits a court to disregard.
Fraud — Bona fide purchaser for value without notice — Caveat and imputed notice
Fraud, once proved and attributable to a transferee directly or by necessary implication, vitiates title; a purchaser who buys property subject to a subsisting caveat, or with notice (including notice imputed through an advocate acting for him), cannot be a bona fide purchaser for value without notice and his title is defeated.
Aggravated damages distinguished from exemplary damages
Aggravated damages remain compensatory, being enhanced to reflect the defendant's malice or arrogance and the plaintiff's humiliation or distress, whereas exemplary damages are purely punitive and confined to the categories recognised in Rookes v Barnard; where the wrongdoers are private persons not acting for government, the case does not qualify for exemplary damages, but enhanced compensatory (aggravated) damages may be awarded.
Appeals — Duty of first appellate court to re-evaluate evidence
A first appellate court is duty-bound to re-evaluate all the evidence adduced at trial and reach its own conclusions; where it fails to do so, a second appellate court, although not ordinarily required to re-evaluate evidence, may exceptionally undertake that exercise itself.

Legislation cited (15)

  • Registration of Titles Act s.114
  • Registration of Titles Act s.115
  • Registration of Titles Act s.116
  • Registration of Titles Act s.132
  • Registration of Titles Act s.146
  • Registration of Titles Act s.147
  • Registration of Titles Act s.148
  • Registration of Titles Act s.181
  • Registration of Titles Act, Eleventh Schedule
  • Registration of Titles Act, Sixteenth Schedule
  • Registration of Titles Act, Eighteenth Schedule
  • Money Lenders Act s.8
  • Money Lenders Act s.13
  • Constitution of Uganda 1995 art.126(2)
  • Rules of the Supreme Court rule 81(1)

Cases cited (19)

  • Powis and Bryant v Le Quebec Bank [1892] AC 170
  • Sidpra v Uganda Rehabilitation Development Foundation, HCCS No. 199 of 1995
  • Imperial Bank of Canada v Begley [1936] 2 All ER 367
  • Bryant, Powis and Bryant Ltd v La Banque du Peuple [1893] AC 170
  • General Parts (U) Ltd v NPART (Civil Appeal No. 5 of 1999)
  • Kampala Bottlers Ltd v Damanico (U) Ltd (Civil Appeal No. 22 of 1992)
  • David Sejjaka Nalima v Rebecca Musoke (Civil Appeal No. 12 of 1985)
  • Obongo v Kisumu Municipal Council [1971] EA 91
  • Rookes v Barnard and Others [1964] AC 1129
  • Construction Engineers and Builders (U) Ltd v Attorney General (Civil Appeal No. 34 of 1994)
  • Kajubi v Kayanja [1967] EA 301
  • Kifamunte Henry v Uganda (Criminal Appeal No. 10 of 1997)
  • Watt v Thomas [1947] AC 484
  • Mattaka v R [1971] EA 499
  • Suleman v Azzam [1958] EA 533
  • Elliahoo M. Cohen v Syed Ali Abdulla E.P. Safi and Brothers (1956) 23 EACA 166
  • Dhramshi Vallabhji v. National & Grindley's Bank Ltd, 1964
  • Sudarilal Ltd v Gusii County Council [1972] EA 253
  • Re McArdle [1951] Ch 669
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