Wakilii

Guma v Bank of Africa (U) Limited & 2 Ors (CIVIL SUIT No. 0013 OF 2008)

High Court · [2018] UGHCCD 28 · 2018 Suit Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit for breach of fiduciary duty and return of title deed
Decision
Plaintiff's suit dismissed; judgment on counterclaim for second defendant in sum of shs. 4,000,000/= principal plus shs. 6,000,000/= general damages with interest at 8% per annum and costs

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that in a third party mortgage arrangement, a bank owes no fiduciary duty to the mortgagor who provides security for another's loan. The duties owed are analogous to those in guarantee arrangements and are limited to disclosure of unusual terms and reasonable care when proffering explanations. The plaintiff executed both a power of attorney and a mortgage deed, the latter clearly identifying him as mortgagor and the second defendant as borrower. Having signed the mortgage deed voluntarily, the plaintiff was bound by its express terms under the parol evidence rule. The plaintiff failed to establish any breach of duty or the existence of a fiduciary relationship. Suit dismissed.

Outcome

Plaintiff's suit dismissed; judgment on counterclaim for second defendant in sum of shs. 4,000,000/= principal plus shs. 6,000,000/= general damages with interest at 8% per annum and costs

Facts

The plaintiff granted the second defendant power of attorney to secure a loan from the first defendant using the plaintiff's land title as security. The plaintiff claimed he was to receive the loan himself and that the bank breached a fiduciary duty by disbursing funds to the second defendant's account instead. The loan offer letter and mortgage deed clearly identified the second defendant as borrower and the plaintiff as third party mortgagor. The second defendant fully repaid the loan and the title was returned to the plaintiff, who subsequently sold the property. The plaintiff admitted under cross-examination to receiving shs. 4,000,000/= from the second defendant as part of the loan proceeds.

Issues

  1. Whether the first defendant breached its fiduciary duty owed to the plaintiff.
  2. Whether the first defendant gave notice to the plaintiff before paying the loan amount of shs. 20,000,000/= to the second defendant.
  3. Whether the second defendant was entitled to receive shs. 20,000,000/= from the first defendant for the first defendant's sole benefit.
  4. Whether the plaintiff received shs. 20,000,000/= or at all as part of the loan amount from the second defendant.

Orders

  • Suit dismissed with costs to the first and second defendants.
  • Judgment entered on the counterclaim in favour of the second defendant against the plaintiff.
  • Principal sum of shs. 4,000,000/= awarded to second defendant.
  • General damages of shs. 6,000,000/= awarded to second defendant.
  • Interest on the award at 8% per annum from the date of judgment until payment in full.
  • Costs of the counterclaim awarded to the second defendant.

Rules and key headnotes

Banking & Finance — Third Party Mortgages — Nature and Legal Character — Distinction from Indemnity
A third party mortgage is a secondary obligation in the form of a guarantee, not an indemnity. The mortgagor makes a contractual promise to ensure the borrower fulfils obligations or pay the debt if the borrower fails. Unlike an indemnity which creates a primary obligation independent of the principal debtor's obligation, a third party mortgage creates a secondary obligation contingent on the borrower's obligation to the bank. It does not impose a personal or primary obligation to pay on the mortgagor and technically is a limited recourse guarantee so that liability is limited to the amount realisable from disposal of the security.
Banking & Finance — Fiduciary Duties — Bank to Third Party Mortgagor — General Rule
The general relationship between a bank and its customer is contractual, and the mere existence of a lender-borrower relationship does not impose fiduciary obligations on the lender. In a third party mortgage, the bank's duties to the mortgagor are not those owed to customers but are analogous to duties in guarantee and indemnity arrangements. A mortgagor must allege and prove some degree of dependency on one side and some degree of undertaking by the bank to advise, counsel, and protect the weaker party. The bank must know or have reason to know that the mortgagor is placing trust and confidence in it and relying on it for counsel.
Banking & Finance — Third Party Mortgages — Duties of Bank to Mortgagor
In a third party mortgage arrangement, a bank's duties owed to the mortgagor are ordinarily limited to: (i) disclosing matters peculiar to the transaction or different from what the mortgagor might naturally expect, facts which are unusual and which the mortgagor cannot be reasonably expected to know; (ii) where the bank proffers to explain the nature and effect of the mortgage, a duty to exercise reasonable care in doing so; (iii) a duty to carry out adequate credit checks on the borrower's ability to repay; (iv) explaining to the mortgagor the borrower's liabilities under the loan agreement; and (v) under Regulation 4(3) of The Mortgage Regulations 2012, disclosing information about the borrower in respect of the mortgage to a surety and a donor of power of attorney.
Contract Law — Signed Documents — Binding Effect — Exceptions
When a document containing contractual terms is signed, then in the absence of fraud or misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not. A person who signs a lawful contractual document may not dispute his or her agreement to the terms it contains unless he or she can establish one of five defences: fraud, misrepresentation, duress, undue influence, or non est factum.
Contract Law — Parol Evidence Rule — Exclusion of Extrinsic Evidence
Once the terms of a contract are reduced to writing, any extrinsic evidence meant to contradict, vary, alter, or add to the express terms of the agreement is generally inadmissible. A contract without ambiguity is to be applied, not interpreted. In the absence of fraud, illegality, want of due execution, want of capacity, the need to clarify an ambiguity, or to prove a condition precedent, oral evidence that contradicts the express provisions of a written contract is inadmissible. The parol evidence rule prevents the admission of oral evidence to prove that some particular term was verbally agreed upon but had been omitted from the contract.
Contract Law — Interpretation of Multiple Documents — Commercial Transactions — Reconciling Conflicts
When multiple documents of a contractual nature are executed within a single commercial transaction, courts are reluctant to hold that such contract documents are inconsistent but will rather seek to give effect to an interpretation which avoids or reconciles the conflict. The court will attempt to make sense of the contract by reading all of the contractual documents in context as complementing each other in expressing the parties' commercial intentions. It is only where there is a clear and irreconcilable discrepancy that a hierarchy clause, if it exists, should be resorted to or otherwise the court may determine which document takes precedence.
Civil Procedure — Judgment on Admission — Requirements and Exercise of Discretion
Under Order 13 rule 6 of The Civil Procedure Rules, the court is empowered to enter judgment on admission at any stage of a suit where an admission of facts has been made either on the pleadings or otherwise. A judgment on admission is not a matter of right but a matter of discretion. To justify such a judgment, the admission must be unambiguous, clear, unequivocal and positive. The matter must be plain and obvious. Unless the admission is clear, unambiguous and unconditional, the discretion of the court should not be exercised to deny the defendant's valuable right to contest the claim.

Legislation cited (4)

Cases cited (25)

  • Fredrick J. K. Zaabwe v Orient Bank Limited and Five Others (Supreme Court Civil Appeal No. 4 of 2006)
  • Byaruhanga Byabasajja Serwano v Barclays Bank of Uganda Ltd [1978] HCB 150
  • Bolton v Salmon [1891] 2 Ch 48
  • Perry v National Provincial Bank of England [1910] 1 Ch 464
  • London General Omnibus Co Ltd v Holloway [1912] 2 KB 72
  • Cooper v National Provincial Bank Ltd [1946] KB 1
  • Woods v Martins Bank Ltd [1959] 1 QB 55
  • HM Customs and Excise v Barclays Bank Plc [2007] 1 AC 181
  • Tai Hing Cotton Mill v Liu Chong Hing Bank Ltd [1986] AC 80
  • Silven Properties Ltd v Royal Bank of Scotland Plc [2004] 1 WLR 997
  • Turnbull & Co v Duval [1902] AC 429
  • Barclays Bank Plc v O'Brien [1993] 3 WLR 786
  • Cornish v Midland Bank plc [1985] 3 All ER 513
  • Barclays Bank v Khaira [1992] 1 WLR 623
  • L'Estrange v F Graucob Ltd [1934] 2 KB 394
  • Steel Makers Ltd v AB Steel Products (U) Ltd (High Court Civil Suit No. 824 of 2003)
  • Jacob v Batavia and General Plantations Trust [1924] 1 Ch 287
  • Muthuuri v National Industrial Credit Bank Ltd [2003] KLR 145
  • Robin v Gervon Berger Association Ltd [1986] WLR 526
  • Cassam v Sachania [1982] KLR 191
  • Industrial and Commercial Development Corporation v Daber Enterprises Ltd [2000] 1 EA 75
  • Continental Butchery Ltd v Ndhiwa [1989] KLR 573
  • Sowah v Bank for Housing & Construction [1982-83] 2 GLR 1324
  • Mohanlal Kakubhai Radia v Warid Telecom Ltd (High Court Civil Suit No. 234 of 2011)
  • Kinyera v The Management Committee of Laroo Boarding Primary School (High Court Civil Suit No. 099 of 2013)

Full judgment

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Guma v Bank of Africa (U) Limited & 2 Ors (CIVIL SUIT No. 0013 OF 2008) [2018] UGHCCD 28 (9 April 2018)
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.