Wakilii

Nakayi v DFCU Bank (U) Limited (Civil Suit 959 of 2022)

High Court · [2024] UGCOMMC 282 · 2024 Judgment for Defendant AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit arising from mortgage default and challenged property sale proceedings
Decision
Plaintiff's suit dismissed. Defendant awarded judgment for the outstanding loan sum with continuing interest at contractual rate.

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The High Court dismissed the plaintiff's suit challenging a mortgagee sale and held that the COVID-19 pandemic did not frustrate the home loan facility agreement. The court found that the plaintiff failed to demonstrate that performance became wholly impossible due to COVID-19 restrictions and that contractually agreed penal interest rates were not unconscionable. Judgment was entered for the defendant in the sum of UGX 736,405,215 with continuing interest at the contractual facility rate.

Outcome

Plaintiff's suit dismissed. Defendant awarded judgment for the outstanding loan sum with continuing interest at contractual rate.

Facts

On 31 August 2018, the plaintiff obtained a home loan facility of UGX 850,000,000 from the defendant bank, secured by a mortgage over property in Kyadondo Block 249 Plot 1262. The plaintiff made consistent monthly payments from 2018 to 2020 but began defaulting in May 2021, citing business challenges arising from COVID-19 lockdowns imposed in Uganda. The defendant issued a Notice of Default on 4 June 2021 and a Notice of Sale on 30 March 2022. The plaintiff made partial payments and proposed loan restructuring but could not settle the arrears. The defendant advertised the mortgaged property for sale in August and October 2022. The plaintiff claimed theft of over UGX 900,000,000 by workers but did not provide evidence. By November 2022, the outstanding loan balance stood at UGX 736,405,215.

Issues

  1. Whether the home loan facility was frustrated
  2. Whether the penal interest rates are harsh and unconscionable
  3. Whether the defendant is entitled to payment of Ugx 736,405,215/= with interest thereon in the counterclaim
  4. What remedies are available

Orders

  • Plaintiff's suit dismissed with costs to the defendant.
  • Judgment entered in favor of the defendant in the sum of UGX 736,405,215 as at 9 November 2022.
  • Interest to accrue at the contractual facility rate until payment in full.
  • Costs of the counterclaim awarded to the defendant/counterclaimant.

Rules and key headnotes

Contract Law — Frustration of Contract — Effect of COVID-19 Pandemic — Requirements for Discharge
For a contract to be considered frustrated by an event beyond the parties' control, the affected party must demonstrate that performance was wholly impossible, the event was beyond reasonable control, there is a nexus between the frustrating event and inability to perform, and reasonable steps were taken to avoid or mitigate the event or its consequences. The outbreak of COVID-19 in itself is not a frustrating event; its effects must be examined to establish whether they made performance radically different or wholly impossible, not merely more difficult or less profitable.
Contract Law — Frustration of Contract — COVID-19 Pandemic — Distinction Between Difficulty and Impossibility
Where a party continues to receive income from their business during COVID-19 restrictions and is able to make partial loan payments, but defaults due to business challenges and alleged theft, frustration of contract is not established. An event that results in alteration of the manner of performance or increased difficulty for one party does not amount to frustration where performance remains possible. Obligations becoming more difficult do not render them radically different.
Contract Law — Freedom of Contract — Unconscionability of Penal Interest Rates
Where parties freely and willingly agree to loan facility terms including penal interest rates, and the borrower services the loan for a substantial period without raising objection to the rates and makes payments including penal interest without contest, the penal interest rates will not be deemed harsh and unconscionable.
Banking & Finance — Mortgages — Mortgagee's Right of Sale — Statutory Procedure
A mortgagee is entitled to exercise its statutory remedy of sale under the Mortgage Act 2009 after issuing the requisite notices of default and sale and granting the mortgagor reasonable opportunity to redeem the property by settling the arrears. Where the mortgagor acknowledges the debt and expresses willingness to pay but fails to settle within the periods allowed, the mortgagee's exercise of the remedy of sale is lawful.
Contract Law — Frustration — Pleadings — Consequences of Finding Frustration
The doctrine of frustration must be specifically pleaded. Where a plaintiff claims frustration but seeks an order allowing her to continue performing her contractual obligations rather than discharge from the contract, and where the plaintiff has received and utilized the loan monies and retains possession of both the funds and the secured property, the defense of frustration is inapplicable. The remedy for frustration is discharge of both parties from their obligations, not continuation of performance on modified terms.

Legislation cited (2)

Cases cited (5)

  • Life FM 93.8 Limited v Emamba Esazire United Brothers Company Limited (Miscellaneous Application No. 58 of 2021)
  • Taylor v Caldwell (1863) 3 B. & S 826
  • Mogas (U) Ltd v Benzina (U) Ltd (Civil Suit No. 88 of 2013)
  • Davis Contractors Limited v Fareham Urban District Council [1956] AC 696
  • Blackburn Bobbin Co. Ltd v Allen (TW) & Sons Ltd [1918] 1 KB 540

Full judgment

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

Nakayi v DFCU Bank (U) Limited (Civil Suit 959 of 2022) [2024] UGCommC 282 (26 March 2024)
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.