Wakilii

Margherita Millers Limited and Anor v Housing Finance Bank (HCCS 390 of 2018)

High Court · [2021] UGCOMMC 45 · 2021 Counterclaim Granted; Damages Awarded AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit challenging validity of mortgage and debenture securing credit facilities and the subsequent enforcement actions by the lender
Decision
Plaintiffs' challenge to validity of mortgage and debenture dismissed; bank's counterclaim for outstanding loan balance allowed; plaintiffs awarded damages for bank's breach of duty of care in exercising power of sale

Observed later treatment

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Holding

The court held that although the mortgage deed was not executed by the lender bank, it created a valid equitable mortgage upon registration, which was enforceable. The debenture was also valid despite late registration. However, the bank breached its duty of care in exercising its power of sale by selling the Mpererwe property at UGX 85 million below forced sale value 18 months after advertisement and by mishandling machinery disposal, resulting in missing items. The bank was ordered to pay general damages and compensation to the plaintiffs while the plaintiffs remained liable for the outstanding loan balance of USD 443,654.92 plus interest.

Outcome

Plaintiffs' challenge to validity of mortgage and debenture dismissed; bank's counterclaim for outstanding loan balance allowed; plaintiffs awarded damages for bank's breach of duty of care in exercising power of sale

Facts

The 1st Plaintiff, Margherita Millers Limited, obtained credit facilities totalling USD 701,432 from the 1st Defendant bank in 2012, comprising an overdraft, term loan, and finance lease facility. The facilities were secured by mortgage over three parcels of land and a debenture over the company's assets. The 2nd Plaintiff and Edrida Nimwesiga Musiimenta were directors of the 1st Plaintiff and provided personal guarantees. Powers of attorney were executed to use properties to secure the loans. The 1st Plaintiff serviced the facilities briefly before defaulting. The bank issued notices and proceeded to sell the secured properties. The bank sold land at Mpererwe for UGX 280 million (UGX 85 million below forced sale value) 18 months after advertisement. Machinery was also sold, with some items missing at the time of court-appointed audit. An independent audit established the outstanding debt at USD 116,420 before considering accrued interest post-write-off.

Issues

  1. Whether the Mortgage was valid?
  2. Whether the debenture was valid?
  3. Whether the sale of the land and the plant and machinery pursuant to Mortgage and the debenture was valid?
  4. Whether, if the Mortgage and debenture were valid, the 1st Defendant negligently and/or wrongfully and/or improperly exercised its power of sale of the security properties, thereby breaching its duty of care to the 1st Plaintiff?
  5. Whether the 2nd Plaintiff is entitled to take out of the factory at Najeera his personal Dell Computers (3 in number), 1 printer and 1 scanner valued at Shs. 30m/= or whether the 1st Defendant should not pay the 30m/= if it fails to return the items?
  6. What remedies are available to the parties?

Orders

  • Payment by the 1st Defendant to the 1st Plaintiff of UGX 50,000,000 in general damages.
  • Payment by the 1st Defendant to the 1st Plaintiff of UGX 85,000,000 in compensation for the difference between the forced sale value and the price at which property at Block 206, Plot 1358 Mpererwe was sold.
  • Interest to accrue on general damages at the rate of 8% per annum from the date of judgment until payment in full.
  • Interest to accrue on compensation at the rate of 18% per annum from the date of sale of the property at Block 206, Plot 1358 Mpererwe until payment in full.
  • 2nd Plaintiff to take his personal Dell Computers (3 in number), 1 printer and 1 scanner valued at Shs. 31,500,000 out of the factory at Najeera. Defendants to enable release of the said property within 5 work days from the date of judgment failure upon which the Plaintiff to be compensated in the sum of Shs. 31,500,000 by the 1st Defendant.
  • Payment by the plaintiffs/counter defendants to the 1st defendant, of the outstanding sum of USD 443,654.92 as at 23rd May 2018 and 5th February 2018 in respect of the overdraft, term loan and VAF facilities.
  • Accrued interest on the outstanding sum at the agreed interest rate, being 11% per annum from date of first default, until payment in full.
  • Default interest on the outstanding sum at 5% per annum from date of first default until payment in full.
  • Every party to bear their own costs in respect of the main suit and the counter claim.

Rules and key headnotes

Mortgage — Execution Requirements — Effect of Registration
Where a mortgage deed is executed by the mortgagor but not by the mortgagee bank, and the deed is subsequently registered, the registration creates a valid equitable mortgage enforceable by the lender, notwithstanding the defect in execution by the lender.
Mortgage — Form and Substance — Effect of Non-Compliance with Prescribed Form
While execution of a mortgage deed is a matter of substance, the format of signature or manner of execution is a matter of form. Where a company affixes its seal to a mortgage deed, such affixation is sufficient for validating the deed even if the prescribed form is not strictly complied with, in accordance with the constitutional principle that substantive justice takes precedence over technicality.
Debenture — Registration — Late Registration
Registration of a charge or debenture by the Registrar signifies that all necessary consents and requirements have been fulfilled. Where a debenture is registered albeit belatedly beyond the statutory period, and the borrower enjoyed the benefits of the transaction without challenging the registration for over six years until after default, the challenge to validity on grounds of late registration lacks merit and will not be sustained.
Mortgagee's Power of Sale — Duty of Care — Obtaining Proper Price
A mortgagee exercising its power of sale owes an equitable duty to the mortgagor to take reasonable care to obtain the true market value of the mortgaged property. This requires that the property be properly advertised and that the sale be conducted within a reasonable period from advertisement such that the advertised price remains reflective of market value. A period exceeding six months from advertisement to sale, coupled with sale at a price significantly below forced sale value, constitutes a breach of the duty of care.
Debenture — Power of Sale — Appointment of Receiver
Where a debenture grants the lender alternative options for realisation of secured assets, including both appointment of a receiver and direct sale as attorney of the borrower, the lender may exercise either option without being required to appoint a receiver or obtain a court order. The inclusion of a power of attorney clause in the debenture provides a complete and separate option for recovery without appointment of a receiver.
Debt Write-Off — Effect on Liability
A debt write-off by a financial institution is an in-house accounting and financial book statement which, unlike debt cancellation, does not extinguish the borrower's liability. Where a debt is written off but not cancelled, interest continues to accrue on the outstanding balance unless specifically frozen, and the lender retains the right to pursue recovery from the borrower.

Legislation cited (14)

Cases cited (25)

  • Lucy Nelima & 2 Ors v Bank of Baroda (Uganda) Ltd (HCCS No. 55 of 2015)
  • Olinda De Souza Figueiredo V Kassamali Nanji [1963]1 EA 381
  • Diana Nansikombi Bbosa v Stanbic Bank (U) Ltd (HCCS No. 406 of 2014)
  • Target Holdings Ltd v Priestley
  • Helden v Strathmore Ltd and Roller team v Riley [1999] Lexis Citation 2496
  • Harshad Globe Cinema Ltd & Others [1960]1 EA 1046
  • General Parts (U) Ltd v Non-Performing Assets Recovery Trust (SCCA No. 5 of 1999)
  • Bank of Scotland V Waugh & Others [2014] EWHC 2117 (Ch)
  • Shah V Shah [2001] EWCA Civ 527 (CA)
  • Law Commission (Deeds and Escrow), Law Commission Report No 163 June 1987
  • Nanjibhai Prabhudas Co. Ltd V Standard bank Ltd [1968] EA 670
  • Summerfruit (U) Ltd v Chris Sserunkuma & Anor (Company Cause No. 5 of 1995)
  • Equip Agencies Ltd V I & M Bank Ltd [2017] eKLR
  • Al-Jahal Enterprises Ltd V Gulf Bank Ltd (2014) eKLR
  • King'orani Investments Co. Ltd V KCB and Another (2017) eKLR
  • National Enterprises Corporation and 2 Ors v Nile Bank Ltd (SCCA No. 17 of 1994)
  • NSSF v MTN Uganda Ltd and Another (HCCS No. 0094 of 2009)
  • Shamji V Johnson Mathey Bankers Ltd (1968) BCC 98
  • Yorkshire Bank V Hall [1991] 1 WLR 1713
  • Cuckmere Brick Co. Mutual Finance Ltd [1971] EWCA Civ 9
  • Gosling V Gaskell (1897) AC 575
  • Samuel Black t/a SB Coaches v dfcu Bank Limited (HCCS No. 416 of 2009)
  • Simon Mbalire v Moses Mukiibi (HCCS No. 85 of 1995)
  • Uganda Revenue Authority v Stephen Mabosi (SCCA No. 1 of 1996)
  • Ritter v. Godfrey (1920) 2 KB 47

Full judgment

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Margherita Millers Limited and Anor v Housing Finance Bank (HCCS 390 of 2018) [2021] UGCommC 45 (31 August 2021)
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.