Wakilii

Diamond Trust Bank (U) Ltd v Muhindo Enterprises Ltd & 2 Ors (High Court Civil Suit No. 356 of 1998)

High Court · [2002] UGCOMMC 6 · 2002 Judgment for Plaintiff AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit for recovery of unpaid loan balance, heard on pleadings with oral submissions and counterclaim for mesne profits
Decision
Plaintiff awarded judgment for Shs.37 million subject to set-off of mesne profits to be determined by Registrar's inquiry

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The court held that all three defendants could be sued jointly and severally under a demand guarantee deed and Civil Procedure Rules O.1 r.3. Taking possession of mortgaged property under section 9 of the Mortgage Decree for purposes of sale does not constitute realisation of security under section 6, and the plaintiff bank remained entitled to claim the unpaid balance. A mortgagee in possession must account for rents and profits received or reasonably receivable during the period of possession. The matter was referred to the Registrar for inquiry into mesne profits accruing during the 16 months the bank held possession before sale.

Outcome

Plaintiff awarded judgment for Shs.37 million subject to set-off of mesne profits to be determined by Registrar's inquiry

Facts

The plaintiff bank advanced a loan of Shs.75 million to the first defendant company, guaranteed by the second and third defendants who also mortgaged property as security. The loan agreement provided for 33 equal monthly instalments at 23% interest per annum plus 2% penalty interest on arrears. The first defendant defaulted from April 1996. By June 1998, the outstanding amount was Shs.112,107,924. The guarantors paid Shs.29 million towards the debt. The bank obtained a court order for vacant possession in September 1997 and took possession of the mortgaged property. The property had been valued at Shs.185 million in 1994, Shs.90 million in 1997, and Shs.80 million in 1998. The bank sold the property in January 1999 for Shs.75 million. The defendants counterclaimed for mesne profits of Shs.19.2 million for the 16-month period during which the bank held possession before selling.

Issues

  1. Whether the plaintiff bank, by taking possession of the mortgaged property under a court order, had thereby realised its security and is now estopped from any further claim against the defendants.
  2. Whether the defendants are entitled to mesne profits to be deducted from the plaintiff's overall claim, and if so, whether the mesne profits amount to Shs.19.2 million.
  3. Whether the first defendant can be sued jointly and severally with the second and third defendants.

Orders

  • Defendants liable to pay outstanding balance of Shs.37 million (Shs.112 million claim less Shs.75 million sale proceeds).
  • Defendants entitled to set off such amount of rents/mesne profits for the 16-month period (September 1997 to January 1999) as they are able to prove.
  • Registrar of the Commercial Court directed to carry out an inquiry under Order 18, rule 12(1)(b) of the Civil Procedure Rules as to the rent/mesne profits that accrued or should have accrued on the property during the material period.
  • Registrar may engage such professional services as deemed desirable in carrying out the inquiry.
  • Registrar to report findings to the court within 3 weeks from 19 June 2002.
  • Costs of the suit to abide the final decree pursuant to Order 18, rule 12(2) of the Civil Procedure Rules.

Rules and key headnotes

Banking & Finance — Demand Guarantees — Joint and Several Liability — Joinder of Principal Debtor and Guarantors
Where a guarantee deed provides that guarantors undertake to pay on demand, the creditor is entitled to sue the principal debtor and guarantors jointly and severally without first demanding payment from the principal debtor, and all parties may be joined as defendants under Civil Procedure Rules Order 1 rule 3 as persons against whom a right to relief arises out of the same transaction.
Land & Property — Mortgages — Realisation of Security — Distinction Between Sections 6 and 9 of Mortgage Decree
Taking possession of mortgaged property for the purpose of facilitating sale under section 9 of the Mortgage Decree does not constitute realisation of security by way of foreclosure under section 6, and does not extinguish the mortgagee's right to claim any deficiency remaining after sale.
Banking & Finance — Financial Institutions — Statutory Prohibition on Acquiring Immovable Property
Section 19(1) of the Financial Institutions Statute prohibits a financial institution from purchasing or acquiring immovable property except as reasonably necessary for conducting its business or housing staff, but permits securing a debt on immovable property and holding such property for realisation in the event of default, thereby preventing a bank from proceeding under section 6 of the Mortgage Decree which involves acquisition of ownership.
Land & Property — Mortgages — Mortgagee in Possession — Duty to Account for Rents and Profits
A mortgagee in possession is bound to account to the mortgagor for rents and profits which the mortgagee has received or ought with proper management to have received, and the principle is that the mortgagee must get no advantage out of the mortgage other than payment of principal, interest and costs, being made to account not only for what was actually received but also for what might have been received but for wilful default or neglect.
Civil Procedure — Inquiry by Registrar — Court's Power to Direct Inquiry into Mesne Profits
Under Civil Procedure Rules Order 18 rule 12(1)(b), the court may direct the Registrar to carry out an inquiry as to rents or mesne profits that accrued or should have accrued on property during a material period, and the Registrar may engage professional services as deemed desirable in conducting such inquiry.

Legislation cited (12)

  • Mortgage Decree No. 17/74 s.2
  • Mortgage Decree No. 17/74 s.3
  • Mortgage Decree No. 17/74 s.4
  • Mortgage Decree No. 17/74 s.5
  • Mortgage Decree No. 17/74 s.6
  • Mortgage Decree No. 17/74 s.9
  • Financial Institutions Statute s.19(1)
  • Civil Procedure Rules O.1 r.3
  • Civil Procedure Rules O.34 rr.3A
  • Civil Procedure Rules O.34 r.7
  • Civil Procedure Rules O.18 r.12(1)(b)
  • Civil Procedure Rules O.18 r.12(2)

Cases cited (2)

  • Ahmed Issa Sukri v Kwongiyiki Bank (1990 LRC 335)
  • Uganda Baati v …

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

Diamond Trust Bank (U) Ltd v Muhindo Enterprises Ltd & 2 Ors (High Court Civil Suit No. 356 of 1998) [2002] UGCommC 6 (18 June 2002)
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.