Wakilii

United Bank of Africa (U) Limited v Makafra Contractors Limited & 2 Others (Civil Suit 902 of 2016)

High Court · [2023] UGCOMMC 210 · 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 outstanding loan balance following foreclosure and sale of mortgaged property
Decision
Judgment entered for plaintiff for payment of outstanding loan balance plus interest and costs; defendants' counterclaim dismissed

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Court held that defendants breached loan facility agreements by failing to repay loans within the 90-day tenor periods. Foreclosure and sale of mortgaged property held lawful despite procedural irregularities in notice periods and purchaser payment by instalments, as plaintiff substantially complied with Mortgage Act and Regulations. Plaintiff awarded UGX 153,967,568.92 being the outstanding loan balance, plus contractual interest at 31% per annum from date of default, plus costs.

Outcome

Judgment entered for plaintiff for payment of outstanding loan balance plus interest and costs; defendants' counterclaim dismissed

Facts

On 13 August 2012, first defendant executed a loan facility with plaintiff for UGX 125,000,000 repayable in 90 days, secured by legal mortgage over property in Kasese and personal guarantees by second and third defendants. On 26 March 2013, a further UGX 75,000,000 was advanced with additional charge on same property. First defendant defaulted on repayment. Plaintiff issued demand notices and initiated foreclosure proceedings on 5 November 2014. Property was valued by East African Consulting Surveyors at UGX 1,000,000 due to alleged encumbrances, though an earlier 2012 valuation by CBRE valued it at UGX 1,200,000,000 with forced sale value of UGX 600,000,000. Property advertised in New Vision on 7 April 2014 and sold for UGX 120,000,000. Proceeds applied to outstanding debt leaving balance of UGX 174,339,518. In September 2015, defendants approached plaintiff intending to settle debt and paid UGX 5,000,000 but made no further payments. Defendants challenged the sale alleging undervaluation and procedural breaches. Plaintiff's loan statement showed outstanding balance of UGX 153,967,568.92 when loan was written off on 23 August 2016.

Issues

  1. Whether the Defendants breached the finance facility agreements executed with the Plaintiff.
  2. Whether the foreclosure and sale of the mortgaged property was lawful.
  3. Whether the Plaintiff is entitled to the remedies sought.

Orders

  • Judgment entered for the plaintiff.
  • Payment of UGX 153,967,568.92 awarded to the plaintiff.
  • Interest at 31% per annum awarded on UGX 153,967,568.92 from the date of default until payment in full.
  • Costs of the suit awarded to the plaintiff.
  • Defendants' counterclaim dismissed.

Rules and key headnotes

Contract Law — Breach of Contract — Loan Facility Agreements — Default in Repayment
Breach of contract occurs when a party who entered a contract fails to perform their promised obligations. In the context of loan facility agreements, failure to repay the principal sum and interest within the stipulated tenor period constitutes a breach regardless of communications indicating financial difficulties.
Banking & Finance — Mortgages — Foreclosure Proceedings — Notice Requirements — Substantial Compliance
Under the Mortgage Act s.19(2), a mortgagee must serve written notice of default requiring the mortgagor to rectify default within 45 working days before exercising the power of sale. Where a mortgagee issues demand notices giving shorter periods but the actual sale occurs several months later, the failure to comply with the 45-day notice requirement has no effect on the validity of the sale where the mortgagor had not settled the outstanding sum and more than 45 days had elapsed before sale.
Land & Property — Mortgaged Property — Sale Procedures — Advertisement and Valuation Requirements
Under Mortgage Regulations reg.13(2) and (7), the requirement to re-advertise mortgaged property before sale applies only where the sale was adjourned or stopped. Where property is advertised in accordance with Mortgage Act s.28(2) providing for sale not earlier than 30 days from the date of advertisement, and the sale occurs within a reasonable period after advertisement without adjournment or stoppage, there is no requirement for fresh advertisement even where the sale occurs several months after the initial advertisement.
Banking & Finance — Mortgages — Valuation Requirements — Timing of Valuation Report
Under Mortgage Regulations reg.11(1) and (2), a valuation report relied upon for the sale of mortgaged property must not be made more than six months before the sale. Where property is sold within six months from the date of the valuation report, the mortgagee complies with the statutory requirement regardless of the existence of earlier valuation reports obtained for other purposes.
Banking & Finance — Mortgages — Duty of Mortgagee — Obtaining Best Price — Good Faith
A mortgagee exercising the power of sale over mortgaged property owes a duty to take reasonable precautions to obtain the fair or true market value of the property and not to act in bad faith. Where the mortgagee advertises the property as required by law and obtains a valuation before sale, there is no evidence of bad faith or failure to act reasonably to obtain the best price, even where the sale price differs substantially from an earlier valuation obtained for different purposes.
Banking & Finance — Mortgages — Payment by Instalments — Mortgage Regulations — Effect on Validity of Sale
Under Mortgage Regulations reg.14(1), a purchaser of mortgaged property must deposit 30% of the purchase amount within one working day and complete payment within twenty-one working days, failing which the money is refunded and the property either resold to the second highest bidder or re-advertised. Where a purchaser is allowed to pay in instalments contrary to this requirement but the full purchase price is ultimately paid, the contravention of reg.14 does not in itself render the sale unlawful.
Damages & Quantum — Loan Recovery Actions — Quantum of Outstanding Debt — Evidence Required
In an action for recovery of outstanding loan balance following foreclosure and sale of mortgaged property, the plaintiff must justify the amount claimed by reference to the loan statement. Where the loan statement shows a different figure from the amount claimed in the plaint, the court will award the amount supported by documentary evidence rather than the pleaded amount.

Legislation cited (18)

Cases cited (4)

  • Ronald Kasibante v Shell Uganda Limited (High Court Civil Suit No. 542 of 2006)
  • Sendagire Stephen & Nanyombi Gladys v DFCU Limited & 2 Others (High Court Civil Suit No. 26 of 2008)
  • Uganda Commercial Bank v Kigozi (2002) 1 EA 305
  • Barclays Bank of Uganda Ltd v Bakojja (Civil Suit No. 53 of 2011)

Full judgment

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

United Bank of Africa (U) Limited v Makafra Contractors Limited & 2 Others (Civil Suit 902 of 2016) [2023] UGCommC 210 (14 November 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.