Wakilii

Nelima & 2 Ors v Bank of Baroda (Uganda) Ltd (Civil Suit No. 55 of 2015) 2017 UGHCLD 47 (2017-05-02)

High Court · [2017] UGHCLD 47 Judgment for Plaintiff AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit seeking declarations that a mortgage is null and void for fraud and illegality, and permanent injunction restraining sale of the mortgaged property
Decision
Mortgage declared null and void; defendant ordered to release certificate of title to plaintiffs free of incumbrances; permanent injunction issued restraining defendant from selling the suit property

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that a mortgage deed purporting to bind minors as sureties is void ab initio under the Contract Act 2010 s.11(1)(a), which prohibits persons under eighteen from contracting. Held further that where a mortgage deed doubles as a loan agreement, both mortgagor and mortgagee must sign it; failure by the mortgagee to execute the deed renders it invalid. Held that a bank which dishonestly misapplies loan proceeds intended for a specific business purpose, and conceals a prior indebtedness of a related party in order to induce a mortgagor to pledge property, commits actual fraud and breaches its fiduciary duty. The mortgage was declared null and void.

Outcome

Mortgage declared null and void; defendant ordered to release certificate of title to plaintiffs free of incumbrances; permanent injunction issued restraining defendant from selling the suit property

Facts

The plaintiffs, including two minors represented by their guardian (the 2nd plaintiff), were registered proprietors of land in Mbale. The defendant bank advanced an overdraft facility of UGX 200,000,000 to M/s Era Shine Ltd, secured by a mortgage over the plaintiffs' land. The 2nd plaintiff had obtained a Guardianship Order authorising her to mortgage the property for the benefit of the minors. M/s Era Shine Ltd defaulted on repayment and the defendant commenced foreclosure. The plaintiffs alleged that the loan proceeds were misapplied: UGX 30,000,000 was used to settle an outstanding loan of Dr Dominic Waburoko (the 2nd plaintiff's estranged husband), and a further UGX 50,000,000 was paid directly to him, rather than being applied to the shoe manufacturing business of M/s Era Shine Ltd as stated in the mortgage deed. The defendant had not disclosed the prior indebtedness of Dr Waburoko to the plaintiffs before inducing them to execute the mortgage deed.

Issues

  1. Whether the plaintiffs have a cause of action against the defendant.
  2. Whether the mortgage registered on the suit land by the defendant is illegal.
  3. Whether the guardianship order issued to the 2nd plaintiff in respect to the suit property was contravened by the defendant.
  4. Whether the plaintiffs are entitled to the remedies prayed for.

Orders

  • Declaration that the mortgage registered on land comprised in LRV 2705, Folio 6, Plot No. 40 Bungokho Road, Mbale District is null and void.
  • Consequential order directing the defendant to immediately release the duplicate certificate of title held in respect of the illegal transaction to the plaintiffs free of any incumbrances.
  • Permanent injunction restraining the defendant from selling the suit property or at all enforcing the illegal contractual terms of suretyship.
  • General damages refused for want of cogent evidence.
  • Costs of the suit awarded to the plaintiffs.

Rules and key headnotes

Contract Law — Capacity to Contract — Minors — Void Contracts
Under the Contract Act 2010 s.11(1)(a), a person has no capacity to contract unless that person is eighteen years or above. A mortgage deed which purports to create contractual obligations of suretyship binding upon minors is illegal and void ab initio.
Land & Property — Mortgages — Execution Requirements — Mortgage Deed Doubling as Loan Agreement
Where a mortgage deed doubles as a loan agreement, both the mortgagor and the mortgagee must properly execute it by signing the deed. Failure by the mortgagee to sign the deed is a fatal defect which renders the mortgage invalid.
Land & Property — Mortgages — Guardianship Orders — Scope of Authority
A Guardianship Order authorising a guardian to mortgage land on behalf of minors does not extend to binding the minors as sureties with full contractual obligations. A mortgage deed which exceeds the terms of the Guardianship Order by imposing suretyship obligations on minors is null and void.
Banking & Finance — Fiduciary Duty — Duty of Disclosure — Conflict of Interest
Where a bank has been put on clear notice that the property to be used as security for a loan does not belong to the borrower, a fiduciary relationship exists between the bank and the owner of the property which requires the bank to make full disclosure of all material facts, including any existing indebtedness of related parties. Failure to disclose amounts to fraud.
Tort Law — Fraud — Actual Fraud — Dishonest Misapplication of Loan Proceeds
Fraud means actual fraud or some act of dishonesty. Where a bank dishonestly misapplies loan proceeds otherwise intended for a stated business purpose, and conceals material information in order to induce a mortgagor to pledge property, the bank commits actual fraud — an intentional perversion of the truth for the purpose of inducing another to part with valuable property in reliance upon it.
Banking & Finance — Undue Influence — Imbalance of Bargaining Power — Bank's Duty to Advise
Where a bank has a conflict of interest with its customer and a third party who mortgages property, it gives rise to a fiduciary relationship where the bank has a duty to advise the owner of the property about the implications of mortgaging it. Failure to discharge this duty means the bank cannot obtain any advantage from the transaction.

Legislation cited (5)

Cases cited (10)

  • Kapeeka Coffee Works Ltd & Another v NPART (Court of Appeal Civil Appeal No. 3 of 2000)
  • Mulindwa Birimumaso v Government Central Purchasing Corporation (Court of Appeal Civil Appeal No. 3 of 2002)
  • Auto Garage v Motokov [1971] EA 514
  • Kampala Bottlers Ltd v Damanico (U) Ltd (Supreme Court Civil Appeal No. 22 of 1992)
  • Waimiha Saw Milling Co Ltd v Waione Timber Co Ltd [1926] AC 101
  • Fredrick Zaabwe v Orient Bank (Supreme Court Civil Appeal No. 4 of 2006)
  • Diana Nansikombi Bbosa v Stanbic Bank (U) Ltd (High Court Civil Suit No. 406 of 2014)
  • Alice Okiror & A'nor vs. Global Capital Save, 2004 Ltd
  • Lloyds Bank Ltd v Bundy [1974] 3 All ER 737
  • Takiya Kashwahiri & Another v Kajungu Denis (Court of Appeal Civil Appeal No. 85 of 2011)

Full judgment

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Nelima & 2 Ors v Bank of Baroda (Uganda) Ltd (Civil Suit No. 55 of 2015) 2017 UGHCLD 47 (2017-05-02)
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.