The Republic of Uganda

In the High Court of Uganda at Kampala

Commercial division

HCT -  00 - CC - CS - 259 - 2010

MULENGA AND COMPANY LTD.   ………………………………….………….  PLAINTIFF

VERSUS

DFCU BANK LTD.   …………………………………….........................................   DEFENDANT

BEFORE:  THE HON. JUSTICE GEOFFREY KIRYABWIRE

J u d g m e n t

The plaintiff company filed this suit against the defendant bank for a permanent injunction restraining the defendant, its servants or agents from selling off property comprised in LRV 1284 Folio 25 Plot 31 Kabale Road being land at Kisoro (hereinafter referred to as the “suit property”), a declaration that the advertisement for sale of the suit land by the defendant is illegal and or unlawful, a declaration that the registered proprietor has never pledged the suit property as security to the bank, a declaration that the suit property is company property and is not the subject of sale for recovery of the loan advanced by the defendant, a declaration that the registration of the mortgage and further charge based on the forged title is null and void, an order for cancellation of the mortgage, further charge and special certificate from the registry, general damages and costs.

The case for the plaintiff is that it is the registered proprietor of the suit property at Plot 31 Kabale Road land at Kisoro. Furthermore that on or about 14^th June 2010, the directors of the plaintiff company read in the New Vision Newspaper about a sale of the suit property due on 14^th July 2010. The Managing Director of the plaintiff company then contacted the auctioneers who indicated that they were advertising the said property on behalf of the defendant bank who holds a mortgage and further charge on the suit property. Furthermore, that the plaintiff’s directors were shown copies of the mortgage, further charge, resolution and a copy of the special title by the defendant. The plaintiff avers that its directors informed the defendant’s officials that the documents relating to the mortgage, further charge were forged and that the stamps and seals thereon were not of the company. Furthermore, that the plaintiff had never obtained a special certificate of title, since the original copy was and is still in custody of the company. The plaintiff avers that its directors demanded to see the particulars of the proprietors of the accounts purportedly in its name but to date, the defendant has not availed the same. The plaintiff avers that it issued a caveat emptor in the press warning the public not to deal with the defendant over the suit property, but the defendant has not retracted the advertisement and they intend to sell the plaintiff’s property to its loss and detriment.

The plaintiffs further aver that the defendant’s actions are fraudulent because the defendant knowingly advertised the plaintiff’s property for sale, whereas the plaintiff is not indebted in any way to the defendant. Furthermore, that the application for a special certificate and registration of the mortgage and further charge without the knowledge of the plaintiff’s directors was fraudulent. The plaintiff further avers that the defendant failed to exercise due diligence before granting the credit facility.

On the other hand, the defendant denied the claims in the plaint. The defendant contends that the plaintiff applied for and was granted a finance lease facility (herein after referred to as the first facility) of Ushs. 80,000,000/= to purchase a ten ton truck for the plaintiff’s transport business, and as security, the defendant executed a legal mortgage over the suit land. The defendant contends that pursuant to thisfinance lease agreement, the defendant purchased a Fuso truck Registration No. UAH 065X, which was operated by the plaintiff for hire purposes.

Furthermore, that by a facility letter dated 19^th June 2007, the plaintiff obtained another lease facility (hereinafter referred to as the second facility) of Ushs. 85,000,000/= from the defendant, under which the defendant purchased and supplied a Fuso truck Registration No. UAJ 277F. That as security the defendant registered a mortgage and further charge on the special certificate of title.

The defendant contends that the plaintiff defaulted on the same facilities and the defendant issued a demand notice to pay up the loans. Furthermore, that by a letter dated 25^th March 2008, the plaintiff acknowledged indebtedness to the defendant, in the sum of Ushs. 40,000,000/=. The defendant also contends that in April 2008, the plaintiff disposed off the Fuso truck Reg. No.  UAH 065X and the proceeds of sale were credited to the plaintiff’s lease account. Furthermore, that by a letter dated 22^nd April 2008, the plaintiff requested the defendant to restructure the lease facilities, and the defendant accepted the request by a letter dated 22^nd May 2008.

The defendant contends that both facilities were consolidated, and a new monthly rental payment of Ushs. 6,214,397/= was provided for, but the plaintiff still defaulted on payment under the new arrangement causing the defendant to issue a final demand on 31^st December 2008.

The defendant contends that it repossessed the Fuso truck UAH 277F which was then sold for Ushs. 20,000,000/=. The defendant further contends that a reconciliation of the plaintiff’s account revealed that the plaintiff was indebted to the defendant in the sum of Ushs. 87,813,721/= and the defendant appointed Auctioneers to sale the suit property.

The defendant bank counterclaimed for the sum of Ushs. 87,813,721/=, being the arrears and other charges outstanding on the finance lease facilities, general damages, interest and costs.   

In reply to the written statement of defence and counterclaim, the plaintiff avers that it has never applied for a finance lease facility nor executed a lease agreement with vehicle schedule secured by the suit land. Furthermore, that the defendant has never extended the said facility to the plaintiff and the documents purportedly signed by the plaintiff in execution of the same are forged. The plaintiff also avers that it has never operated the said trucks in the course of its business. Furthermore, that the obtaining of a special certificate for purposes of creating a legal mortgage was done on the basis of forged documents, and therefore, the plaintiff is not liable to pay the said loan.

At the hearing, the plaintiff was represented by Mr. Kandeebe while Mr. Mpanga represented the defendant.

Pretrial hearing/Scheduling Conference

At the pretrial /scheduling conference the court decided that this was a matter to be determined under O. 17 r 4 of the Civil Procedure Rules, because the parties agreed to the material facts of the case. It was clear at the scheduling that it was Mr. Rogers Mugambwa, a son of Mr. Mulenga, the Director of the plaintiff company who committed the fraud by signing the lease documents in respect of both facilities, and obtaining the special certificate of title on which the plaintiff registered the mortgage and further charge. Attempts at resolving the dispute out of court were not successful, and therefore since all the facts and documentation was clear, there was no need for oral evidence under oath and therefore the matter could be conveniently determined under O. 17 r 4 of the Civil Procedure Rules.

Order 5 r (1) 5 of the Civil Procedure Rules provides for the power of the court to frame issues. According to O. 5 r 1(5),

“At the hearing of the suit the court shall, after reading the pleadings, if any, and after such examination of the parties or their advocates as may appear necessary, ascertain upon what material propositions of law or fact the parties are at variance, and shall thereupon proceed to frame and record the issues on which the right decision of the case appears to depend.”

Having considered the pleadings and the facts, which were extensively explored at the scheduling, I find that the appropriate issues for determination of the dispute are as follows;

1. Whether the mortgage and further charge registered by the defendant are valid.
2. Whether the defendant is entitled to the prayers sought in the counterclaim.
3. What are the remedies available to the parties?

Issue one: Whether the mortgage and further charge registered by the defendant were valid.

At the pretrial/scheduling conference counsel for the defendant bank conceded that the mortgage was registered on a fraudulent title.

The Managing Director of the plaintiff company presented in Court the copy of the duplicate certificate that was still in the plaintiff’s possession. It is also an admitted fact that Mr. Rogers Mugambwa, the son of Mr. Chrisptopher Mulenga the Director of the plaintiff company committed the fraud.

I have perused the duplicate certificate of the land comprised in LRV 1284 Folio 25 Plot 31 Kabale Road land at Kisoro, which was presented before the court, and is not disputed by the parties. It follows therefore that the said certificate of title bears the genuine signature of Mr. Mulenga. I have also perused the special certificate of title in respect of the suit land, attached to the written statement of defence as Annexture H2, the application for a special certificate dated 6^th December 2005, marked Annexture H1 and the statutory declaration dated 12^th December 2005, accompanying the application, marked Annexture H2. These documents are purportedly signed by Mr. Mulenga. However, I find that the signature on these documents differs from that on the duplicate certificate of title and therefore, the said documents were indeed executed fraudulently.

With regard to the first finance leasing facility for the ten ton Fuso truck Reg. No. UAH 065X, valued at Ushs. 80,000,000/=, I perused the documents attached to the written statement of defence in relation to this facility. These include Annex A1 a letter approving the lease facility, dated 19^th January 2006, addressed to Mr. Christopher Mulenga; Annex A2 the master lease agreement between the Plaintiff Company and the defendant bank; Annex A3 the vehicle lease agreement dated 22^nd February 2006, and Annex A4 is the mortgage dated 22^nd February 2006. All these documents are purportedly signed by Mr. Christopher Mulenga. I have considered the signatures on these documents and I find that they differ from the signatures on the Lease Agreement attached to the duplicate certificate of title. I therefore find that the signatures on these documents were forged.

This is the same finding in relation to the second lease facility for the Mitsubishi Fuso truck Registration No UAJ 277F.

In the case of FREDRICK ZAABWEV ORIENT BANK & ORS(SCCA NO. 04 of 2006), the term fraud is defined as follows;

“An intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right.  A false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which deceives and is intended to deceive another so that he shall act upon it to his legal injury.  Anything calculated to deceive, whether by a single act or combination, or by suppression of truth, or suggestion of what is false, whether it is by direct falsehood or innuendo by speech or silence, word of mouth, or look or gesture…”

I have already found that the documents executed in relation to both lease facilities and the special certificate had forged signatures and therefore, there is no doubt that the acts of Mr. Mugambwa, who executed the said documents amount to fraud.

Since the duplicate certificate was still in existence, at the time of obtaining the special certificate of title the subsequent certificate of title was issued in error.

In the premises, I find that the mortgage and further charge registered by the defendant bank are invalid.

ISSUE TWO: Whether the defendant is entitled to the prayers sought in the  counterclaim

Having found for the plaintiff in issue one above, I find that the counterclaim fails. Counsel for the defendant at the scheduling also conceded that the counterclaim fails.

ISSUE THREE:  What are the remedies available to the parties?

Having found for the plaintiff, I order a permanent injunction issues restraining the defendant or its servants or agents from selling off property comprised in LRV 1284 Folio 25 Plot 31 Kabale Road land at Kisoro.

I further declare that the advertisement for sale of the suit property by the defendant is illegal and or unlawful.

I also declare that the registered proprietor has never pledged the suit property as security to the bank.

I declare that the suit property is company property and is not the subject of sale for recovery of the loan as originally claimed by the defendant bank.

I declare that the registration of the mortgage and further charge based on the said forged title is null and void.

I order for cancellation of the special certificate for the land comprised in LRV 1284 Folio 25 Plot 31 Kabale Road land at Kisoro, and the mortgage and further charge registered on the certificate of Title comprised in LRV 1284 Folio 25 Plot 31 Kabale Road land at Kisoro by the Registrar of Titles in accordance with Section 177 of the Registration of Titles Act (Cap 230).

As counsel for the plaintiff withdrew the prayer for general damages because the defendant bank had lost money to the acts of a fraudster no order is made for general damages.

In light of the early concession in Court by the defendant bank of the fraud; the loss it sustained, and in consideration of the fact that the fraudster was the son of the plaintiff’s director, I find that each party should bear its costs in the interest of justice.

Justice Geoffrey Kiryabwire

JUDGE

Date:  17/08/2012

17/08/12

9:46

Judgment read and signed in Court in the presence of;

• F. Mpanga for Defendant

In Court

• None of the parties
• Rose Emeru – Court Clerk

Court:  The Plaintiffs may collect the duplicate certificate of title for the suit property from the Registrar of this Court.  The collection should be properly documented.

…………………………………

Geoffrey Kiryabwire

JUDGE

Date:  17/08/2012