Wakilii

Topline Investments Limited v Namuli and Another (Civil Suit 966 of 2019)

High Court · [2023] UGCOMMC 72 · 2023 Judgment for Plaintiff AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit for recovery of loan monies, heard exparte after defendants failed to appear despite filing defences
Decision
Defendants ordered to pay jointly and severally UGX 89,040,000 with interest at 25% per annum until payment in full, plus costs

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The High Court held that the 1st Defendant defaulted on a loan agreement and two subsequent memoranda of understanding. The 2nd Defendant, as guarantor, became liable upon the 1st Defendant's default under section 71 of the Contracts Act 2010. The court found the agreed interest rate of 10% per month (120% per annum) to be harsh and unconscionable under section 26(1) of the Civil Procedure Act, and reduced it to 25% per annum. Judgment was entered for the plaintiff for UGX 89,040,000 plus interest at 25% per annum until payment in full.

Outcome

Defendants ordered to pay jointly and severally UGX 89,040,000 with interest at 25% per annum until payment in full, plus costs

Facts

The plaintiff extended a loan of UGX 120,000,000 to the 1st defendant at 10% interest per month, repayable within one month. The 2nd defendant guaranteed the loan and granted powers of attorney to mortgage his land as security. The 1st defendant made partial payment of UGX 25,500,000, leaving a balance of UGX 89,040,000. On 29 March 2018, the 1st defendant signed a memorandum of understanding to pay the balance within two months but defaulted. On 20 August 2018, the parties entered a second memorandum under which the 1st defendant undertook to transfer two acres of land valued at UGX 40,000,000 each in full settlement, but again defaulted. The plaintiff instituted a summary suit. The defendants were granted leave to defend and filed written statements of defence, but failed to appear at the hearing. The court proceeded exparte.

Issues

  1. Whether the Defendants defaulted on their undertakings under the Loan Agreement and the memoranda of understanding and whether the 2nd Defendant is liable as guarantor.
  2. Whether the Plaintiff is entitled to the remedies sought, including the principal sum, accrued interest, and costs.

Orders

  • Judgment entered for the Plaintiff against the Defendants jointly and severally.
  • Payment of UGX 89,040,000.
  • Interest on the principal sum at 25% per annum until payment in full.
  • Costs of the suit awarded to the Plaintiff.

Rules and key headnotes

Guarantee — Liability of Guarantor — Default by Principal Debtor
Under section 71 of the Contracts Act 2010, the liability of a guarantor takes effect upon default by the principal debtor. Once the principal debtor defaults and the creditor demands payment which is not honoured, the lender is not precluded from proceeding against both the principal debtor and the guarantor.
Pleadings — Deemed Admissions — Evasive or Non-Specific Denials
Under Order 8 Rule 3 of the Civil Procedure Rules, every allegation of fact in the plaint, if not denied specifically or by necessary implication, or stated to be not admitted, shall be taken to be admitted. Evasive denial or non-specific denial constitutes an implied admission in civil proceedings.
Interest Rates — Unconscionable Bargains — Court's Power to Reopen Transactions
Under section 26(1) of the Civil Procedure Act, where an agreement for payment of interest is sought to be enforced and the court is of the opinion that the rate agreed is harsh and unconscionable, the court may give judgment for payment of interest at such rate as it thinks just. Excessive interest of itself is sufficient to render a contract harsh and unconscionable.
Interest Rates — Assessment of Unconscionability — Comparison with Commercial Rates
An interest rate of 10% per month (120% per annum) is excessive when compared to commercial bank lending rates of 18% to 25% per annum, and is therefore harsh and unconscionable. The court may reduce such a rate to a just rate reflecting commercial norms.
Cause of Action — Disclosure in Plaint — Loan Default and Guarantee
For a cause of action to be disclosed, the plaint must show that the plaintiff has a right, that the right has been violated, and that the defendant is liable. Where a loan agreement and guarantee are attached to the plaint and memoranda of understanding show default by the borrower, the plaintiff has a cause of action against both the principal debtor and the guarantor.

Legislation cited (5)

Cases cited (11)

  • Motor Garage and others Vs. Motorkov East Africa Law Reports 1971 E.A pg. 514
  • Kapeka Coffee Works Ltd v NPART (Court of Appeal Civil Appeal No. 3 of 2000)
  • Praful Chandra R Patel v Abbas Manafwa (High Court Civil Appeal No. 0013 of 2015)
  • Uganda Finance Trust Ltd v Alloys Muhumuza and Another (High Court Civil Appeal No. 03 of 2015)
  • Uttam Chand Kothari vs Gauri Shankar Jalan and Ors. AIR 2007 Gau 20, 2007 III GLT 37
  • VAMBECO v Attorney General (Miscellaneous Application No. 0265 of 2014)
  • Bank of Uganda v Banco Arabe Espanol (Court of Appeal Civil Appeal No. 23 of 2000)
  • Alice Okiror v Global Capital Save 2004 Ltd (Civil Suit No. 149 of 2010)
  • Alpha International Investments Ltd v Nathan Kizito (High Court Civil Suit No. 131 of 2001)
  • Samuel V. Newbold (1906) A.C. 461
  • Avathani Muthukrishnier vs Sankaralingam Pillai, (1913) 24 MW 135

Full judgment

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

Topline Investments Limited v Namuli and Another (Civil Suit 966 of 2019) [2023] UGCommC 72 (28 July 2023)
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.