Wakilii

R.L Jain v Komugisha & 2 Ors (HCCS 98 of 2013)

High Court · [2015] UGCOMMC 77 · 2015 Application Partly Allowed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit for recovery of loan debt
Decision
Matter remitted to Registrar for reconciliation of accounts on basis of simple interest at 15% per month for three months only, then 24% per annum thereafter; suit outcome to follow reconciliation results

Observed later treatment

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Holding

Held that where a loan transaction is secured by a legal mortgage registered on immovable property, the Moneylenders Act does not apply by virtue of section 21(1)(c). The court has discretion under section 26(1) of the Civil Procedure Act to strike down compound interest rates as harsh and unconscionable where they are not a genuine pre-estimate of damage flowing from breach. Compound interest at 15% per month beyond three months of default was struck down as unconscionable and substituted with 24% per annum simple interest.

Outcome

Matter remitted to Registrar for reconciliation of accounts on basis of simple interest at 15% per month for three months only, then 24% per annum thereafter; suit outcome to follow reconciliation results

Facts

The plaintiff, a licensed moneylender, extended three loans to the defendants: UGX 10,000,000 on 13 May 2010, UGX 20,000,000 on 10 June 2010, and UGX 20,000,000 on 19 July 2010, all at 15% interest per month. The second defendant executed a legal mortgage registered on her certificate of title (Kyadondo Block 185 Plot 4222 at Namugongo) as security for the first two loans, which were repaid. The third loan remained unpaid. The second defendant denied consenting to the third loan or authorising use of her title as security. The plaintiff sued for UGX 64,830,000 being principal plus accumulated compound interest. Interlocutory judgment was entered against the first and third defendants for failure to file defence. The second defendant contended the interest rate was excessive, illegal and unconscionable.

Issues

  1. Whether all the defendants breached the contract?
  2. Whether or not the third defendant's guarantee was in respect of all the three loans?
  3. Whether all the loan transactions were secured by the second defendant's certificate of title?
  4. Whether the transactions are exempted by the Moneylenders Act?
  5. What remedies are available to the parties?

Orders

  • Clause 2 of the loan agreement in so far as it provides for compounded interest at 15% per month upon default beyond three months is harsh and unconscionable and is struck out.
  • The defendants shall pay simple interest at 15% per month for three months upon default (20 August to 19 November 2010).
  • From 20 November 2010, interest shall be at 24% per annum up to the date of filing the suit.
  • If any amount remains owing after reconciliation, interest shall be at 24% per annum from date of filing suit to date of judgment, and 21% per annum from judgment until payment in full.
  • The Registrar of the Commercial Court shall have the accounts reconciled by an officer of court or an official referee.
  • If the defendants have paid the requisite amount according to reconciliation, the plaintiff's suit shall stand dismissed with costs.
  • If an amount remains owing after reconciliation, the suit shall be allowed with costs for the amount established.
  • The orders of the court shall abide the outcome of the reconciliation.

Rules and key headnotes

Moneylending — Exemption from Moneylenders Act — Legal Mortgage as Security
A moneylending transaction is exempted from the provisions of the Moneylenders Act where the security for repayment of the loan and interest is a legal mortgage executed and registered upon immovable property.
Interest — Compound Interest — Harsh and Unconscionable Rates
The court retains discretionary power under section 26(1) of the Civil Procedure Act to strike down contracted interest rates as harsh and unconscionable even where the Moneylenders Act does not apply, where such rates are not a genuine pre-estimate of damage flowing from breach of the contract to pay.
Interest — Penalty Clauses — Genuine Pre-Estimate of Loss
Compound interest at 15% per month prescribed as the consequence of non-payment within the covenanted period amounts to a penalty rather than a genuine pre-estimate of loss where it reaches over 425% simple interest per annum within twelve months.
Defence — Failure to File — Locus Standi
A defendant who fails to file a defence puts himself out of court and has no locus standi to defend the action, though such a defendant may testify as a witness of fact in support of a co-defendant's defence.
Signature on Document — Burden of Proof — Forgery
Where a party presents the original of a signed document, the burden shifts to the party disputing the signature to prove it was inserted fraudulently or was a forgery; mere denial is insufficient to discharge this burden.
Mortgages — Definition — Charge Over Immovable Property
Under the Mortgage Act 2009, a mortgage includes any charge or lien over land or any estate or interest in land for securing payment of an existing, future or contingent debt, and a subsequent loan agreement pledging immovable property to secure a loan amounts to a mortgage even if not registered.

Legislation cited (10)

Cases cited (7)

  • Uganda Ecumenical Church Loan Fund Ltd v Harriet Nankabirwa (HCCS No. 307 of 2002)
  • Alice Okiror and Michael Okiror v Global Capital Save 2004 Ltd and Ben Kavuya (HCCS No. 149 of 2010)
  • Sharif Osman v Hajji Haruna Mulangwa (SCCA No. 38 of 1995)
  • Sengendo v Attorney-General [1972] 1 EA 140
  • Kanji Devji v Damodar Jinabhai & Co. (1934) 1 EACA 87
  • Andrew Tusiime v Hajj Kassim Mulamba (HCCS No. 578 of 2012)
  • Lombard North Central plc v Butterworth [1987] 1 All ER 267

Full judgment

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

R.L Jain v Komugisha & 2 Ors (HCCS 98 of 2013) [2015] UGCommC 77 (14 April 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.