Wakilii

Lukula v DFCU Bank Ltd & 5 Ors (HCT-00-CC-CS 185 of 2011)

High Court · [2015] UGCOMMC 196 · 2015 Judgment for Plaintiff AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit seeking injunction and declaration that mortgage deed was defective and void
Decision
Mortgage deed declared void; property title ordered returned to plaintiff; permanent injunction granted restraining defendants from dealing with the property

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that a mortgage deed obtained by presenting only two pages to a property owner for signature in a parking yard, without explaining the effect and without power of attorney, was fundamentally defective and void for lack of consensus ad idem. The court declared the mortgage unenforceable and ordered the property title returned to the plaintiff with permanent injunction against further dealing.

Outcome

Mortgage deed declared void; property title ordered returned to plaintiff; permanent injunction granted restraining defendants from dealing with the property

Facts

The plaintiff was registered proprietor of Plot 12 Oboja Road, Jinja. In August 2009, his late father took him to DFCU Bank's premises where, in the parking yard, the third defendant gave him two sheets of paper to sign. The plaintiff's father told him the signatures were required to deposit the land title with the bank for safe custody. Unknown to the plaintiff, these sheets formed part of a 15-page mortgage deed securing a UGX 170,000,000 overdraft facility to Prime Contractors Ltd, in which the third and fourth defendants were directors. The plaintiff signed only two pages; the directors signed all pages. When Prime Contractors defaulted, DFCU advertised the plaintiff's property for sale in April 2011. The plaintiff then discovered his property had been mortgaged without his knowledge or consent. The overdraft facility letter indicated the plaintiff's property was to be swapped after 12 months with another property at Kawempe, but this never occurred.

Issues

  1. Whether it was a fundamental breach when the Bank dealt with the Plaintiff's property when the Plaintiff was not a borrower nor had he given Powers of Attorney under Sections 147 and 148 of the Registration of Titles Act Cap 230, thereby rendering the transaction fundamentally defective, null and void?
  2. Whether the Mortgage deed was fundamentally defective, null and void for want of execution/attestation?
  3. Whether the 1st Defendant bank's failure to swap the Plaintiff's suit title as agreed with the title comprised in Kyadondo Block 208 Plot 2366 at Kawempe was a fundamental breach prejudicial to the Plaintiff's interest?
  4. Whether the advert to seek the Plaintiff's property was premature before the Bank first seeking recovery from the guarantors whose company was the borrower?
  5. Whether the Plaintiff is entitled to the remedies sought in the plaint?

Orders

  • An order staying or stopping the sale of the suit property is hereby issued.
  • An order for the release and return of the land title of the suit property is hereby issued.
  • A permanent injunction is granted restraining the Defendants, their agents or assignees from dealing in the suit property.
  • General damages of Ugx 10,000,000/= awarded.
  • Interest on general damages at court rate from date of judgment til payment in full.
  • Costs awarded to the Plaintiff.

Rules and key headnotes

Formation of Contract — Consensus ad idem — Essential Requirements
For a contract to be valid and legally enforceable there must be: capacity to contract, intention to contract, consensus ad idem, valuable consideration, legality of purpose and sufficient certainty of terms. If any of these elements is missing, the agreement cannot constitute a valid contract.
Mortgage — Execution and Validity — Duty of Explanation
Where a bank official presents only selected pages of a mortgage deed for signature and fails to explain the effect of the signature to a property owner who is told the document is merely for depositing title for safe custody, the mortgage deed is fundamentally defective and cannot establish an enforceable contractual relationship.
Mortgage — Power of Attorney — Requirement for Third Party Dealing
For third parties to use a property owner's land as security for their loan, it is necessary for the property owner to have given a Power of Attorney under Sections 147 and 148 of the Registration of Titles Act spelling out all actions the donee may take. Absent such power of attorney, the transaction is fundamentally defective.
Mortgage — Power of Sale — Notice Requirements under Mortgage Act
Under Section 19 of the Mortgage Act 2009, where money secured by a mortgage is payable on demand, a demand in writing must be served on the mortgagor who is required to rectify the default within 45 working days before the mortgagee may proceed to sale. A move to advertise property for sale without prior written demand is premature.
Property Rights — Deprivation — Strict Adherence to Law
A property owner can only be deprived of his property through strict adherence to the law in its entirety. Where a mortgage deed is obtained through illegalities and in an irregular manner, it cannot lawfully operate within the confines of the Mortgage Act.
Void Contracts — Lack of Meeting of Minds — Effect on Intended Security
Where parties agree that particular property is temporary security to be swapped with other property after a specified period, but the mortgage deed purports to make the temporary property the primary security, there is no meeting of the minds and the mortgage deed is void for lack of consensus ad idem.

Legislation cited (4)

Cases cited (7)

  • Fredrick Zaabwe v Orient Bank & 5 Others (SCCA No. 4 of 2006)
  • Greenboat Entertainment Ltd v City Council of Kampala (HCCS No. 580 of 2003)
  • James Fredrick Nsubuga v Attorney General (HCCS No. 13 of 1993)
  • Erukana Kuwe v Isaac Patrick Matovu (HCCS No. 177 of 2003)
  • Uganda Commercial Bank v Kigozi [2002] 1 EA 305
  • Crescent Transportation Co. Ltd v B.M Technical Services Ltd (CACA No. 25 of 2000)
  • Star Supermarket (U) Ltd v Attorney General (CACA No. 34 of 2000)

Full judgment

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

Lukula v DFCU Bank Ltd & 5 Ors (HCT-00-CC-CS 185 of 2011) [2015] UGCommC 196 (27 May 2015)
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.