Wakilii

Kaijuka v Fang (Civil Appeal 23 of 2007)

Supreme Court · [2009] UGSC 33 · 2009 Appeal Allowed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
Second appeal from the Court of Appeal, which had reversed a High Court decree of specific performance of a contract for sale of mortgaged property
Decision
Appeal allowed; Court of Appeal decision set aside and the High Court decree of specific performance (alternatively refund and damages) restored, with interest at 20% per annum and costs to the appellant

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Cited — treatment unverified cited in 5 (treatment unverified) Derived from citing cases in the Wakilii corpus — not an assertion that this case is good law.

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Holding

A contract of sale of mortgaged property entered into without the mortgagee's prior written consent, contrary to a covenant in the mortgage, is not an illegal contract; breach of a private covenant renders the later contract at most voidable at the instance of the mortgagee but valid and enforceable between vendor and purchaser. The Court of Appeal erred in treating the sale as illegal and setting aside specific performance. Equity treats as done that which ought to be done, so the vendor's failure to obtain consent could not be raised to defeat the agreement. The termination was wrongful as the indemnity clause placed the initial duty to pay for repairs on the vendor. Appeal allowed; High Court decree restored with 20% interest.

Facts

On 10 August 2001 the respondent (vendor) and appellant (purchaser) agreed to sell freehold property at Plot 13, Malcolm-X Avenue, Kololo, for US$155,000 payable by instalments. The property was mortgaged to Housing Finance Company of Uganda Ltd (HFCU) and tenanted. The appellant agreed to take over the mortgage and to indemnify the vendor against any tenant claims for improvements. He paid a US$50,000 deposit, informally took over the mortgage and paid the monthly instalments regularly for twelve months. In July 2002 the tenant required renovations; the vendor obtained quotations the appellant considered excessive, and his offer to use his own contractor and to pay by instalments was rejected. The vendor paid for the repairs (Shs 17,650,170) and, after the appellant tendered that sum by cheque, rejected it, unilaterally repudiated the sale, and secretly refunded the appellant's deposit into his bank account. The appellant sued for specific performance. The mortgage required the vendor's prior written consent to any sale, which was not obtained.

Issues

  1. Whether a contract of sale whose formation breaches a covenant in an earlier mortgage with a third party (the requirement of prior written consent of the mortgagee) is an illegal contract.
  2. Whether the Court of Appeal erred in setting aside the trial court's order for specific performance of the sale agreement.
  3. Whether the respondent lawfully terminated or repudiated the sale agreement for the appellant's alleged breach of the indemnity clause.
  4. Whether the appellant was entitled to interest on monies paid under the sale agreement and refunded by the respondent.

Orders

  • Appeal allowed.
  • Judgment and orders of the Court of Appeal set aside.
  • Judgment and substantive orders of the High Court restored.
  • Any monies paid under the sale agreement by the appellant and secretly refunded by the respondent to be paid back to the respondent.
  • In the alternative, if specific performance cannot be performed, the respondent to pay the appellant the market value of the suit house by way of damages.
  • Interest awarded at 20% per annum.
  • Costs to the appellant in the Supreme Court and in the two courts below.

Key headnotes

Contract Law — Illegality — Breach of a Private Covenant with a Third Party
A contract is illegal only where its object is to do an act prohibited by statute or contrary to public policy; a contract whose formation breaches a private covenant made by a party in an earlier contract with a third party is not, by reason of that breach alone, an illegal contract.
Land & Property — Mortgages — Sale Without Prior Written Consent of Mortgagee
Where a mortgage covenant requires the mortgagor to obtain the mortgagee's prior written consent before selling the mortgaged property, a sale made without that consent is at most voidable at the instance of the mortgagee and is not binding on the mortgagee, but remains valid and enforceable as between the vendor and the purchaser.
Contract Law — Specific Performance — Exercise of Equitable Discretion
Specific performance is an equitable relief granted at the discretion of the court to enforce a contractual obligation, and that discretion must be exercised according to fixed and settled principles and not arbitrarily or capriciously.
Land & Property — Equitable Maxims — Equity Treats as Done That Which Ought to be Done
A vendor who was under a duty to obtain the mortgagee's prior written consent before selling is taken by equity to have done what she ought to have done, and cannot raise her own failure to obtain that consent as a defence to defeat a sale agreement she voluntarily entered into.
Contract Law — Termination — Construction of an Indemnity Clause
An indemnity clause requiring a purchaser to indemnify the vendor against tenant claims places the primary duty to make the initial payment on the vendor; the purchaser's obligation is only to compensate the vendor for the loss incurred, and a purchaser does not breach such a clause by declining to pay before the vendor has incurred the expense.
Damages & Quantum — Interest — Commercial Transactions Under s.26(2) Civil Procedure Act
Under section 26(2) of the Civil Procedure Act the court has discretion to award reasonable interest, and a distinction must be drawn between awards arising out of commercial or business transactions, which attract interest at a higher rate, and general damages which are mainly compensatory.

Legislation cited (3)

  • Judicature Act (Cap 13) s.47(1)
  • Civil Procedure Act s.26(2)
  • Civil Procedure Act s.26(3)

Cases cited (9)

  • Shariff Osman v Hajji Haruna Mulangwa (Civil Appeal No. 35 of 1995)
  • Iron Traders Employers Insurance Association v Union of House and Land Investment [1937] 1 All ER 481
  • Corbett v Plowden (1884) 25 ChD 678
  • Dudley & District Benefit Building Society v Emerson [1949] 2 All ER 252
  • Duke v Robson [1973] 1 All ER 481
  • Haywood v Cope (1858) 25 Beav 140
  • Willmott v Barber (1880) 15 ChD 96
  • Walsh v Lonsdale (1882) 21 ChD 9
  • ECTA (U) Ltd v Geraldine Namubiru (Civil Appeal No. 29 of 1994)
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.