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Lubega Fazil and Others v Uganda Central Cooperative Financial Services Limited (Miscellaneous Application No. 1331 of 2022)

High Court · [2022] UGCOMMC 200 · 2022 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for unconditional leave to appear and defend arising from summary suit for recovery of loan facility
Decision
Applicants granted unconditional leave to appear and defend the summary suit

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that the applicants as guarantors raised triable issues warranting unconditional leave to defend. The question of whether there was default by the principal debtor could not be conclusively determined without evidence of compliance with Mortgage Act 2009 s.19 notice requirements. The respondent's seven-day demand notice did not conform to the statutory requirement of 45 days' notice to rectify default. Since a guarantor's liability under Contracts Act 2010 s.71(2) arises only upon default by the principal debtor, the issue of default was triable and merited investigation through trial. The action could not be commenced until proper notice under Mortgage Act 2009 s.21(2) had been given and the time for compliance had expired.

Outcome

Applicants granted unconditional leave to appear and defend the summary suit

Facts

Mubende Boda Boda Transporters SACCO obtained a UGX 30,000,000 loan from the respondent on 18 September 2018, repayable within 12 months. The applicants entered into loan guarantor agreements as guarantors. The loan was secured by land valued at approximately UGX 100,000,000. The respondent alleged default leaving UGX 30,000,000 principal outstanding plus interest and penalties totalling UGX 63,577,500 as at 11 August 2022. The respondent instituted summary suit against the SACCO and the applicants as guarantors. On 20 August 2020, the respondent's lawyers sent a demand notice to the SACCO requiring payment within seven days and threatening foreclosure. The applicants applied for leave to defend, arguing the suit was premature because no proper recovery process had been taken against the principal debtor, who remained in existence, and the respondent held sufficient collateral to recover the debt.

Issues

  1. Whether the Applicants have raised a bonafide defence or triable issues warranting the grant of unconditional leave to appear and defend the main suit.

Orders

  • The Applicants are granted unconditional leave to appear and defend Civil Suit No. 0709 of 2022.
  • The Applicants shall file a Written Statement of Defence within 15 days from the date of this ruling.
  • The costs of this application shall abide the final outcome of the main suit.

Rules and key headnotes

Mortgage Law — Default Notice Requirements — Mortgage Act 2009 s.19
Where money is secured by mortgage under the Mortgage Act 2009, the mortgagee must serve notice on the mortgagor in the prescribed form adequately informing the mortgagor of the nature and extent of default and requiring rectification within 45 working days before exercising remedies. A demand notice giving only seven days does not conform to the statutory requirements of section 19 of the Mortgage Act 2009.
Mortgage Law — Commencement of Action — Mortgage Act 2009 s.21(2)
An action for money secured by mortgage shall not be commenced until the time for complying with a notice served under section 19 of the Mortgage Act 2009 has expired. In the absence of sufficient evidence of the legally required notice, the question of whether there is default cannot be conclusively determined.
Guarantee and Suretyship — Liability of Guarantor — Contracts Act 2010 s.71(2)
The liability of a guarantor under the Contracts Act 2010 s.71(2) takes effect upon default by the principal debtor. The issue of whether there is default is key to determining the question of liability of guarantors.
Summary Suits — Leave to Defend — Test for Triable Issues
Where a suit is brought under summary procedure on a specially endorsed plaint, the defendant is granted leave to appear and defend if able to show a good defence on merit, or that there is a difficult point of law involved, or a dispute to the facts which ought to be tried, or a real dispute as to the amount claimed which requires taking an account to determine, or any other circumstances showing reasonable grounds of a bonafide defence. The defendant need not show a good defence on the merits but must satisfy the court that there is an issue or question in dispute which ought to be tried.
Summary Suits — Prematurity of Action Against Guarantors
A summary suit against guarantors may be premature where there is no evidence that proper statutory notice was given to the principal debtor and no evidence of efforts to recover from the principal debtor, particularly where the principal debtor remains in existence and sufficient collateral security is held. Such circumstances raise triable issues of fact and law which merit investigation through trial.

Legislation cited (6)

Cases cited (4)

  • Anita Among v Ndagiro Innocent Ndaaga (Miscellaneous Cause No. 972 of 2013)
  • Kotecha v Mohammed (2002) 1 EA 1121
  • Maluku Interglobal Trade Agency v Bank of Uganda (1985) HCB 65
  • Yabo Microfinance Ltd v Kafuzi & 2 Others (Civil Suit No. 228 of 2016)

Full judgment

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

Lubega Fazil and Others v Uganda Central Cooperative Financial Services Limited (Miscellaneous Application No. 1331 of 2022) [2022] UGCommC 200 (17 February 2022)
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.