Wakilii

DMK Capital v Tezitta Fred Mukobe and Others [2023] UGHC 558

High Court · 2023 Application Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for vacant possession by mortgagee in default proceedings
Decision
Application for vacant possession dismissed; mortgagors remain in possession pending resolution of substantive suit challenging the mortgage

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The High Court dismissed an application for vacant possession by a mortgagee (DMK Capital) against mortgagors who had executed a third party mortgage to secure a loan advanced to co-respondents. The court held that while a third party mortgage creates a valid secondary obligation allowing enforcement against the mortgaged property even where the mortgagors did not personally receive the loan proceeds, the mortgagee must prove the precise extent of liability. A discrepancy existed between the amount claimed in the default notice (UGX 368,000,000) and the amount claimed in the application (UGX 647,334,000) without supporting bank statements. Where the extent of liability is contentious and a substantive suit has been filed, it is premature to grant vacant possession before all questions in controversy are settled.

Outcome

Application for vacant possession dismissed; mortgagors remain in possession pending resolution of substantive suit challenging the mortgage

Facts

DMK Capital advanced a facility of UGX 200,000,000 and a further UGX 104,035,000 to the 3rd and 4th Respondents, secured by a third party mortgage over property owned by the 1st and 2nd Respondents. The mortgage deed dated 28 May 2021 was signed by all four respondents as borrowers, but the 1st and 2nd Respondents denied receiving any money. A third party legal mortgage dated 19 October 2021 was later executed by the 1st and 2nd Respondents over their property (Freehold Register Volume UA525 Folio 18 Plot 7059 Kainogoga Block 3, Butembe, Jinja District). Upon default, DMK Capital issued a notice of default dated 27 January 2022 claiming UGX 368,000,000, followed by a notice of sale dated 1 April 2022. The 1st and 2nd Respondents filed a substantive suit challenging the validity of the mortgage. DMK Capital then applied for vacant possession, claiming UGX 647,334,000 was now owing. The Respondents opposed the application, arguing they had never received the loan proceeds, the mortgage was irregular, and the application was premature pending resolution of the substantive suit.

Issues

  1. Whether the application ought to have been filed by way of plaint or originating summons instead of miscellaneous cause.
  2. Whether the affidavit in support contravened Order 19 Rule 3 of the Civil Procedure Rules by including information from other sources.
  3. Whether the Applicant fulfilled the statutory requirements under Section 26 of the Mortgage Act to exercise the power of sale.
  4. Whether the third party mortgage executed by the 1st and 2nd Respondents was valid and enforceable.

Orders

  • Application dismissed.
  • No order as to costs.

Rules and key headnotes

Banking & Finance — Mortgages — Third Party Mortgages — Nature and Enforcement
A third party mortgage creates a secondary obligation in the form of a guarantee whereby the mortgagor makes a contractual promise to ensure that a borrower fulfils obligations and will pay an amount owed by the borrower if the borrower fails to do so. Unlike an indemnity, it is contingent on the obligation of the principal debtor and does not impose a personal or primary obligation to pay on the mortgagor. Consequently, it is a limited recourse guarantee where the mortgagor's liability is limited to the amount realisable upon disposal of the security.
Banking & Finance — Mortgages — Third Party Mortgages — Enforcement Against Non-Borrowing Mortgagors
Where persons execute a third party mortgage over their property to secure a loan advanced to others, the mortgagee may enforce the security against the mortgaged property notwithstanding that the mortgagors did not personally receive the loan proceeds, provided the mortgage was duly executed and the statutory requirements for enforcement are met.
Banking & Finance — Mortgages — Power of Sale — Proof of Extent of Liability
Before a court may grant an order for vacant possession to enable a mortgagee to exercise its power of sale under Section 26 of the Mortgage Act, the mortgagee must prove not only the existence of the mortgage and default, but also the precise extent of liability. A significant unexplained discrepancy between the amount claimed in the default notice and the amount claimed in the application, without supporting bank statements or other evidence justifying the increase, renders the extent of liability contentious and warrants refusal of the order.
Civil Procedure — Originating Process — Directory vs Mandatory Provisions
Order 37 Rule 4 of the Civil Procedure Rules, which provides that mortgage-related relief 'may' be sought by originating summons, is directory rather than mandatory. The use of the word 'may' permits alternative forms of originating process where appropriate. Rules of procedure are handmaidens of justice, not justice themselves, and do not constitute an end in themselves.
Civil Procedure — Affidavits — Information from Other Sources — Order 19 Rule 3
Order 19 Rule 3(1) of the Civil Procedure Rules requires affidavits to be confined to facts within the deponent's own knowledge, except on interlocutory applications where statements of belief may be admitted if grounds are stated. Where the deponent is a managing director deposing to facts within his knowledge by virtue of his position in the company, such facts do not constitute information from undisclosed sources and do not contravene the rule. Further, inclusion of some inadmissible matter does not nullify an entire affidavit.
Banking & Finance — Mortgages — Vacant Possession — Premature Applications
Where mortgagors have filed a substantive suit challenging the validity of a mortgage and the extent of liability is contentious, it is premature and contrary to the interests of justice to grant an order for vacant possession before all questions in controversy between the parties are settled by the court.

Legislation cited (10)

Cases cited (6)

  • Stanbic Bank v Anjani Natvarlol Rajoni & Another (HCMC No. 0087 of 2021)
  • Sitenda Sebalu & Another v Sam K. Njuba & Another (Supreme Court Election Petition No. 26 of 2007)
  • Bakaluba Peter Mukosa v Nombooze Betty Bokireke (SCEP Appeal No. 04 of 2009)
  • Rtd. Col. Dr. Kizza Besigye v Yoweri Kaguta Museveni & Electoral Commission (Supreme Court Presidential Election Petition No. 1 of 2006)
  • Kasaara Growers Cooperative Society v Kokooza Jonathan & Another (SCCA No. 19 of 2010)
  • Guma v Bank of Africa (U) Limited & 2 Others (Civil Suit No. 13 of 2008)

Full judgment

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

DMK Capital v Tezitta Fred Mukobe and Others 2023 UGHC 558 (28 August 2023)
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.