Housing finance Bank Ltd v Mayanja T/A Mat Hotel and Leisure Centre (Originating Summons No. 6 of 2021) [2022] UGCommC 75 (30 August 2022)

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THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

ORIGINATING SUMMONS No. 06 OF 2021

IN THE MATTER OF LAND COMPRISED IN BLOCK 261 PLOTS 939 AND 942

LAND SITUATED AT LUKULI

AND

IN THE MATTER OF AN APPLICATION FOR FORECLOSURE, EVICTION AND SALE OF THE MORTGAGED PROPERTY

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HOUSING FINANCE BANK LIMITED PLAINTIFF/MORTGAGEE

VERSUS

MAYANJA ABDU TONDO T/A MAT HOTEL AND LEISURE CENTRE ....................................

BEFORE: HON. LADY JUSTICE SUSAN ABINYO

JUDGMENT

Introduction

The Plaintiff brought this suit against the Defendant by Originating summons under Order 37 Rules 4 and 8 of the Civil Procedure Rules SI No. 71-1, and the provisions of sections 20(d), 26, 27 and 28 of the Mortgage Act, 2009, and Regulations 8 and 25 9 of the Mortgage Regulations SI No. 2 of 2012, seeking the determination of the following questions:

- 1. Whether the Defendant/Mortgagor having failed to pay the Plaintiff's/Mortgagee's outstanding monies in the sums of UGX 258,953,301 should be foreclosed of his right to redeem the mortgaged properties? - 2. Whether the Plaintiff/ Mortgagee should evict the Defendant from the mortgaged properties?

- 3. Whether the Defendant should give free access to the Plaintiff/ Mortgagee to enter, inspect and revalue the mortgaged properties? - 4. Whether the Plaintiff/ Mortgagee should be permitted to sell the mortgaged properties upon foreclosure in accordance with the law? - 5. Whether the Plaintiff /Mortgagee should be granted costs of this suit?

10 Facts

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The Plaintiff's Manager Credit at Head Office Branch, Mr. Byabazaire Richard deponed the affidavit in support of the originating summons in paragraphs 1-20 as follows:

That on the 20^th day of November, 2012, the Defendant made an application to the Plaintiff for a loan facility. A copy of the loan application is hereto attached 15 and marked Annexture" B". That on the 9^th day of September, 2013, the Plaintiff made an offer to advance the Defendant a sum of UGX 236, 000,000(Uganda Shillings Two Hundred Thirty Six Million only), payable in 10 years with a variable interest of 20.5% per annum, which was the then Bank's prime lending rate, and

that the same was accepted by the Defendant. A copy of the offer letter is 20 attached, and marked Annexture" C".

That on 23^rd September, 2013 the Plaintiff and the Defendant executed a Mortgage Deed wherein, the Plaintiff (hereinafter referred to as the "Mortgagee") agreed to advance to the Defendant (hereinafter referred to as the "Mortgagor") a loan facility of UGX 236,000,000 (Uganda Shillings Two Hundred 25 Thirty Six Million only). A copy of the Mortgage Deed is attached, and marked Annexture" D". That the Mortgagor executed a Deed of assignment with the Mortgagee on the 23^rd day of September, 2013 wherein, the Mortgagee agreed to punctually bank all sale proceeds from its business on its account No.

0121142300700. A copy of the said Deed of assignment is attached, and marked 30 Annexture "E".

That the loan was secured with land comprised in Block 261 Plots 939 and 942 land at Lukuli-Kyadondo (mortgaged property), registered in the name of the Mortgagor. Copies of the Certificates of Title are attached, and marked Annextures "F" & "G" respectively. That the Mortgagee performed its obligation,

35 and advanced to the Mortgagor the loan as agreed.

- ⁵ Thot the Mortgogor defoulted in poyment of the loon, ond hos foiled to cleor his indebtedness despile service of oll lhe required notices upon him, ond os o resuli, the totol outstonding omount inclusive of interest ond other chorges os of I6rh Seplember, 2021 slonds ot UGX 258,953,301(Ugondo Shillings Two Hundred Fifty Eight Million Nine Hundred Fifty Three Thousond Three Hundred One only). A copy - of the loon stotemenl is olloched ond morked Annexture "H". Thot pursuoni to the Mortgoge Deed, the Mortgogor hod to give free occess to the Mortgogee in order for ii 1o enter, inspect, ond revolue the mortgoged properiy upon her def oult. 10

Represen totio n

- ¹⁵ The Plointiff wos represented by Counsel Mukoso Jonothon of Rem Advocotes' Service of Court process upon the Defendonl wos effected ihrough the Monitor newspoper of 1'1 April, 2022, however, the Defendont foiled to file o reply to the suil. This Court direcled Counsel for the Ploiniiff to proceed exporte. ond file written submissions, which wos complied with. - ²⁰ Queslions for eterminolion - l. Whether the Def endo n l/Moriqo ^or hovino foiled lo oov the Plointilf 's/Mort oooee's outstondinq mo ⁿres in the sums of UG 2s8.953.301 should be foreclose d of his rioht to red eem ihe mortoooed orooerlies ? - 25 Counsel reiteroted the evidence of the Ploinliff in porogrophs 5,6,9,12' 13' ¹⁴ ond l5 of the offidovit in support of this opplicotion, lo submit thot the Defendont hoving foiled to perform his obligolion of cleoring his indebledness, the Plointiff is enliiled lo foreclose the Mortgogor's right to redeem the mortgoged properly, ond thot it is the only ovoiloble option for the Plointiff to reolize lhe oulstonding monies of the loon. - ³⁰ Counsel further cited the provision of Order 37 Rule 4 of the Civil Procedure Rules, ond relied on the cose of Housing Finonce Bonk Limtted Vs Seninde Morgorel & Anor Civil suil No. 0oo7 of 2021 (os) , to submit thot lhe Plointiff performed oll the required legol steps of

odvertising the property, ond effeclive service of the required notices lo the Defendont bul the Defendont still declined to cleor his - indebledness. Thot the Defendonl's righi lo redeem the mortgoged property be foreclosed in order for the Plointiff to sole the some, ond reolise ihe outstonding monies of ihe loon in UGX 258,953.301(Ugondo Shillings Two Hundred Fifty Eight Million Nine Hundred Fifty Three Thousond Three Hundred One only) 35

$\mathsf{S}$ Decision

Order 37 Rule 4 of the Civil Procedure Rules SI 71-1 provides that:

"Any Mortgagee or Mortgagor, whether legal or equitable, or any person entitled to or having property subject to a legal or equitable charge, or any person having the right to foreclosure or redeem any mortgage, whether legal or equitable, may

- take out as of course an originating summons, returnable before a Judge in 10 Chambers, for such relief of the nature or kind following as may be by the summons specified, and as the circumstances of the case may require; that is to say, sale, foreclosure, delivery of possession by the Mortgagor, redemption, reconveyance or delivery of possession by the Mortgagee." - In construing the above provision, the Mortgagee may apply to Court by 15 originating summons for the following reliefs; foreclosure, delivery of possession by the mortgagor, and sale on a mortgage whether legal or equitable.

The term foreclosure means a legal proceeding to terminate a Mortgagor's interest in property, instituted by the Lender (the Mortgagee), either to gain title

or to force a sale in order to satisfy the unpaid debt secured by the property. (See 20 Black's Law Dictionary, Ninth Edition pg 719)

Section 8(1) of the Mortgage Act No. 8 of 2009 provides that:

"On and after the date of the commencement of this Act, a mortgage shall have effect as a security only and shall not operate as a transfer of any interest or right

in the land from the mortgagor to the mortgagee; but the mortgagee shall have, 25 subject to this Act, all the powers and remedies in case of default by the mortgagor and be subject to all the obligations conferred or implied in a transfer of an interest in land subject to redemption." (Emphasis is mine)

Section 20 of the Mortgage Act, provides for the remedies of the mortgagee as follows:

"Where the mortgagor is in default and does not comply with the notice served on him or her under section 19, the mortgagee may—

(a) require the mortgagor to pay all monies owing on the mortgage;

(b)appoint a receiver of the income of the mortgaged land;

- (c) lease the mortgaged land or where the mortgage is of a lease, sublease the $\mathsf{S}$ land; - (d) enter into possession of the mortgaged land; or - (e) sell the mortgaged land.

A mortgagor will be deemed to be in default, when the mortgagor fails to meet any obligation to pay the principal sum on demand or interest or any other 10 periodic payment or any part of it under the mortgage, after the lapse of a period of 30 days from the date when the obligation to pay becomes due. (See section $19(4)$ of the Mortgage Act)

It's an established principle in law that failure to file a defence raises a presumption or constructive admission of the claim made in the plaint and the 15 Plaintiffs story must be accepted as the truth. (See United Building Services Limited Vs Yafesi Muzira T/A Quickset Builders and Co. H. C. C. S No. 154 of 2005)

In the instant case, it was the Plaintiff's evidence that a sum of UGX 236,000,000(Uganda Shillings Two Hundred Thirty Six Million only), was advanced to the Defendant in a loan facility, and that the Defendant agreed to punctually

20 pay. That the loan was secured with land comprised in Block 261 Plots 939 and 942 land at Lukuli–Kyadondo (mortgaged property) registered in the name of the Defendant, and that the Mortgagor executed a Deed of assignment with the Mortgagee on the 23^rd day of September, 2013 wherein, the Mortgagee agreed

to punctually bank all sale proceeds from its business on its account No. 25 0121142300700. That the Defendant defaulted in payment of the loan, and has failed to clear his indebtedness, despite service of all the required notices upon him by the Plaintiff.

The Plaintiff's evidence as above, was uncontested by the Defendant, who failed to file a reply to the suit. This Court therefore finds that the Plaintiff has discharged 30 the evidential burden to the required standard, and proved that the Defendant is in total breach of the credit facility agreement, having failed to clear its indebtedness in the sums of UGX 258,953,301 (Uganda Shillings Two Hundred Fifty Eight Million Nine Hundred Fifty Three Thousand Three Hundred One only).

In the result, this question is answered in the affirmative that the Mortgagor, having 35 failed to pay the Mortgagee's outstanding monies in the sums of UGX 258,953,301, (Uganda Shillings Two Hundred Fifty Eight Million Nine Hundred Fifty Three

- ⁵ Thousond Three Hundred One only), be foreclosed of its right to redeem the mortgoged properlies. - 2. Whether the Ploinliff / Mortoooee should evict the ^D fendoni f rom the morlqoo ed orooerties?

10 It wos submitted for the Plointiff lhoi this Courl mokes on order evicting the Defendont from ihe mortgoged property ofter foreclosing his right to redeem the some, so thot the Plointiff con successfully sole the properly to reolize lhe outstonding bolonce of the loon.

This Court found in (l) obove. thol the Morigogor be foreclosed of its righl to redeem the mortgoged properties os it defoulted to poy lhe loon; lt follows thot

15 the Mortgogor, who is still in possession of lond comprised in Block 261 Plots 939 ond 942 lond ot Lukuli -Kyodondo (morlgoged property), be delivered lo the Plointif f .

This Courl lherefore, mokes orders for eviciion of the Mortgogor from ihe mortgoged properties in occordonce with lhe provision of section 20(d) of the Mortgoge Act obove, thol gives o Morlgogee the right to enler possession when the Morlgogor defoulls, which is lhe cose here.

- 3. Whelher the Defe clonl shotJ cloive free occess to ihe Plointiff Morloooee lo enter. insoecl ond revolue the mortqoqed properties? - 30 Counsel reiteroted the Plointiff 's evidence under porogroph 'lB of the offidovit in support ihot the Defendont blocked the Plointifl from occessing the mortgoged properiy ond it could nol moke free entronce, inspecl ond volue of lhe some ond yet there is need to moke o voluolion report before the property is sold, 1o submit thot this Court mokes on order lhot the Defendont gives free occess of the mortgoged property 1o lhe Ploinliff, to enoble it to successfully loke oll ihe required legol steps to sell the mortgoged property, ond reolize the outslonding monies of the loon.

ln the given circumstonces of lhis cose, where the mortgogor is in defouli, ond hos not complied with the notice served on him or her os required under seclion 19, the mortgogee hos lhe righl to enter inlo possession of the mortgoged lond. in occordonce with the provision of seclion 20 (d) obove of lhe Mortgoge Act.

This Courl finds in the offirmolive lhot free occess be given by the Mortgogor to the Morlgogee to enter, inspect, ond revolue ihe morigoged properties.

4. Whether the Plaintiff/ Mortgagee should be permitted to sell the $\mathsf{S}$ mortgaged properties upon foreclosure in accordance with the law?

Order 37 Rule 4 of the Civil Procedure Rules SI 71-1 cited above, provides for the rights of the mortgagee to include foreclosure, and sell of the mortgaged property, in order to recover the monies due to it from the Mortgagor.

I have looked at clause 14.2 of the letter of offer of the Mortgage, in which, it was 10 stated that, in the case where the loan facility is further secured under a mortgage, the lender shall be at liberty to exercise its rights as a mortgagee.

Section 20(e) of the Mortgage Act, provides for the remedy of sell of mortgaged land by the Mortgagee, where the mortgagor is in default, and does not comply with the notice served on him or her as required under section 19 of the Act.

In the instant case, it is not in dispute that the Defendant defaulted, and he did not respond to the notices that were served upon him.

In the result, I find that the Mortgagee has a right to sell the mortgaged properties upon foreclosure in accordance with the law.

With regard to costs, section 27 (1) of the Civil Procedure Act, Cap 71 provides as 20 follows:

"subject to such conditions and limitations as may be prescribed, and to the provisions of any law for the time being in force, the costs of and incident to all suits shall be in the discretion of the Court or Judge, and the Court or Judge shall

have full power to determine by whom and out of what property and to what 25 extent those costs are to be paid, and to give all necessary directions for the purposes aforesaid."

Taking into consideration the above provision on costs, and that costs follow the event unless for justified reasons the Court otherwise orders (See section 27(2) of

the Civil Procedure Act, Cap 71), and the decision in Uganda Development Bank 30 Vs Muganga Construction Co. Ltd (1981) H. C. B 35 where Justice Manyindo (as he then was) held that:

> "A successful party can only be denied costs if its proved, that, but for his or her conduct, the action would not have been brought, the costs will follow the event where the party succeeds in the main purpose of the suit."

⁵ ^Ifind no reoson to deny lhe Plointiff cosls, ond occordingly the Plointiff is oworded costs of lhis suii.

For reosons obove, this Court enters Judgment for the Plointiff ogoinst the Defendont in the following terms:

- An Order thol the Defendonl gives free occess to lhe Plointiff to enler, inspect, ond revolue the morlgoged properly. - 10 - An Order of eviction ogoinsl the Defendont from the mortgoged property. 2 - An Order thot the Plointiff sells the morlgoged property. J - Cosls of this suit ore gronled to ihe Plointiff . 4

Doted, signed ond delivered by emoil this 301h doy of Augusi, 2022

\ SUSAN ABIKYO JUDGE 30/0812022

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