Kaijuka v Fang (Civil Appeal 23 of 2007) [2009] UGSC 33 (20 January 2009)

# Kaijuka v Fang (Civil Appeal 23 of 2007) [2009] UGSC 33 (20 January 2009) [ Share this document on WhatsApp opens in new tab __](https://api.whatsapp.com/send?text=Kaijuka+v+Fang+%28Civil+Appeal+23+of+2007%29+%5B2009%5D+UGSC+33+%2820+January+2009%29+-+https%3A%2F%2Fulii.org%2Fen%2Fakn%2Fug%2Fjudgment%2Fugsc%2F2009%2F33%2Feng%402009-01-20) [ Share this document on X opens in new tab __](https://twitter.com/intent/tweet?text=Kaijuka+v+Fang+%28Civil+Appeal+23+of+2007%29+%5B2009%5D+UGSC+33+%2820+January+2009%29+-+https%3A%2F%2Fulii.org%2Fen%2Fakn%2Fug%2Fjudgment%2Fugsc%2F2009%2F33%2Feng%402009-01-20) [ Share this document on Facebook opens in new tab __](https://www.facebook.com/sharer/sharer.php?u=https://ulii.org/en/akn/ug/judgment/ugsc/2009/33/eng@2009-01-20) [ Share this document on LinkedIn opens in new tab __](https://www.linkedin.com/sharing/share-offsite/?url=https://ulii.org/en/akn/ug/judgment/ugsc/2009/33/eng@2009-01-20) [ Share this document by email __](mailto:?subject=Take%20a%20look%20at%20this%20document%20from%20ULII:%20Kaijuka%20v%20Fang%20\(Civil%20Appeal%2023%20of%20%E2%80%A6&body=https://ulii.org/en/akn/ug/judgment/ugsc/2009/33/eng@2009-01-20) [ Download DOC (114.0 KB) ](/en/akn/ug/judgment/ugsc/2009/33/eng@2009-01-20/source) Toggle dropdown * [Download PDF](/en/akn/ug/judgment/ugsc/2009/33/eng@2009-01-20/source.pdf) Report a problem ##### Is there something wrong with this document? Problem category *Incorrect informationMissing informationNo PDF downloadDocument is emptyDocument is not accessible on my deviceOther What's the problem? * Your email address * CancelReport problem __ * Share * [ Download DOC (114.0 KB) ](/en/akn/ug/judgment/ugsc/2009/33/eng@2009-01-20/source) * [Download PDF](/en/akn/ug/judgment/ugsc/2009/33/eng@2009-01-20/source.pdf) * * * * * Report a problem __ ##### Kaijuka v Fang (Civil Appeal 23 of 2007) [2009] UGSC 33 (20 January 2009) Copy citation * __Document detail * __Related documents * __Citations \- / 4 Citation Kaijuka v Fang (Civil Appeal 23 of 2007) [2009] UGSC 33 (20 January 2009) Copy Media Neutral Citation [2009] UGSC 33 Copy Court [Supreme Court of Uganda](/en/judgments/UGSC/) Case number Civil Appeal 23 of 2007 Judges [Odoki, CJ](/en/judgments/all/?judges=Odoki%2C%20CJ), [Tsekooko, JSC](/en/judgments/all/?judges=Tsekooko%2C%20JSC), [Mulenga, JSC](/en/judgments/all/?judges=Mulenga%2C%20JSC), [Kanyeihamba, JSC](/en/judgments/all/?judges=Kanyeihamba%2C%20JSC), [Okello, JSC](/en/judgments/all/?judges=Okello%2C%20JSC) Judgment date 20 January 2009 Language English Summary Read full summary __ ##### Ask AI Ask questions and understand this document faster using AI. __Ask AI * * * Skip to document content _**THE REPUBLIC OF UGANDA**_ _**IN THE SUPREME COURT OF UGANDA**_ _**AT MENGO**_ _**(CORAM: ODOKI, CJ, TSEKOOKO, MULENGA,**_ _**KANYEIHAMBA AND OKELLO, JJ.SC.)**_ _**CIVIL APPEAL NO. 23 OF 2007**_ _**B E T W E E N**_ _**DR. KAIJUKA MUTABAAZI EMMANUEL:::::::::::::: APPELLANT**_ _**AND**_ _**FANG MIN :::::::::::: RESPONDENT**_ _**{Appeal from the judgment and orders of the Court of Appeal at Kampala (Kikonyogo, DCJ, Mpagi-Bahigeine and Kavuma, JJA) dated 25**_ _**th**_ _**July 2007, in Civil Appeal No. 38 of 2006}.**_ _**Judgment of G. M. Okello, JSC:**_ This is a second appeal, against the decision of the Court of Appeal which reversed the decision of the High Court (Aweri Opio, J), dated 10th July 2004, in a suit instituted by the appellant. The facts giving rise to this appeal are briefly that on the 10th August 2001, the respondent and the appellant entered into an agreement of sale of property comprised in Freehold Register - Volume 344 - Folio 10, Plot No. 13, Malcolm-X Avenue, Kololo. The property was at the time of the agreement under a mortgage with the Housing Finance Company of Uganda Ltd. (HFCU), and was rented to a tenant. The agreed purchase price was United States Dollars 155,000 (One hundred fifty five thousand only), payable by instalments as follows: 1. _**US $50,000 was to be paid on execution of the agreement.**_ 2. _**US $72,000 was to be paid on or before 30-10-2002.**_ 3. _**The purchase was to be completed by 30-10-2002.**_ 4. _**The outstanding US $23,016 was also payable either on an agreed date or if outstanding on 30-10-2002, then the vendor was to continue to collect the rents due to the purchaser.**_ Other terms of the agreement were that if the purchaser completes payment of the full purchase price earlier than stipulated, he was to be entitled to a proportionate rent; Upon deposit of US$50,000, the purchaser was to be entitled to a rent proportionate to the deposit paid on the agreement. The sum due to the purchaser for the period from August to October 2002, stood at US $9,984 and was to be credited on to the vendor’s account as part-payment of the purchase price. The purchaser was to takeover the mortgage with the Housing Finance Company of Uganda Ltd. which stood at Ug. Shs. 118,332,656= (Uganda Shillings one hundred eighteen million, three hundred thirty two thousand six hundred fifty six only) and to continue to pay the monthly instalment thereon to the Housing Finance Co. of Uganda Ltd. The property was sold subject to and with the benefit of the covenants, conditions, stipulations and other reservations including the Mortgage with the Housing Finance Company of Uganda Ltd. The purchaser agreed to indemnify the vendor against any claims by the tenant in respect of the tenancy agreement and or any claims for improvements. The appellant paid the requisite deposit, informally took over the mortgage with the HFCU and paid the monthly instalments on the mortgage regularly for one year. In July 2002, the tenant requested for renovations on the property and the respondent notified the appellant giving him different quotations from three different companies. The appellant found the quotations very high and requested to procure his own contractors to do the job. The respondent summarily rejected the appellant’s offer of an alternative contractor and opted to use a contractor called _“Goll Builders and Engineers Ltd._ at a cost of Shs. 17,650,170=. Subsequently, she wrote to the appellant to indemnify her in the said sum. The appellant offered to pay that amount by instalments which the respondent rejected. Later, the appellant paid the respondent that amount by cheque but the latter rejected the cheque and unilaterally repudiated the sale agreement. She refunded the deposits paid by the appellant by secretly depositing the amount on the latter’s bank account. The appellant filed the suit claiming the remedies stated above. At the hearing of the suit, the following were the agreed issues for the determination of the trial judge: 1. _**Whether the defendant lawfully terminated/repudiated the sale contract.**_ 2. _**Whether the plaintiff breached any terms of the contract of sale**_ 3. _**Whether the defendant lawfully refunded the deposit.**_ 4. _**Whether the Agreement of sale was avoidable by reason of the mortgagee’s consent.**_ 5. _**Whether the plaintiff is entitled to the remedies prayed for.**_ The trial judge answered issues Nos. 1 to 4 above in the negative and issue No. 5 in the affirmative. He finally held, relying on _**Shariff Osman - vs - Hajj Haruna Mulangwa, Civil Appeal No. 35 of 1995 (SCU),**_ that the appellant is entitled to specific performance of the contract since the property had passed on to him. In the alternative, he ordered that the plaintiff was entitled to a full refund of the deposit paid, i.e: 1. _US $50,000._ 2. _Arrears and instalments of Shs. 1,802,000=_ 3. _Proportionate rent of US $9,984._ 4. _General damages at 20 million shillings._ 5. _Interest at 20% per annum on (a) and (d)._ 6. _Costs of the suit._ The respondent appealed to the Court of Appeal against the judgment and the above orders of the trial court. As pointed out earlier, the Court of Appeal decided in favour of the respondent. It set aside the judgment and orders of the High Court and entered judgment in favour of the respondent with an order that each party bears its own costs. This appeal is against the said decision of the Court of Appeal. The memorandum of appeal comprised five grounds of Appeal. At the hearing of this appeal, Messrs. B. Tumusinguzi and Paul Muhimbura appeared for the appellant while Messrs. Andrew Kasirye and W. Byaruhanga represented the respondent. Mr. B. Tumusinguzi first argued grounds 1 and 2 together. They are framed as follows: “ (1) _**The learned Justices of Appeal erred in law and fact in setting aside the order of specific performance.**_ _**(2) The Honourable Justices of Appeal erred in law and fact when they failed to evaluate the evidence with respect to the entire sale transaction.”**_ Learned counsel contended that the finding of the Court of Appeal that the sale agreement between the parties was illegal for want of a prior written consent of the mortgagee was a wrong decision. He submitted that the sale agreement was legal. He relied on _**Iron Traders Employers Insurance Association - vs - Union of House and Land Investment (1937) 1 ALLER 481, Corbett - vs - Plowden (1884) 25 ChD 678; Dudley & District Benefit Building Society - vs - Emerson & Another (1949) 2 ALLER 252.**_ He argued that where a mortgage places a restriction on a mortgagor not to enter into a contract to transfer the mortgaged property without a prior written consent of the mortgagee, any such subsequent contract entered into by the mortgagor with a third party without a prior consent of the mortgagee would be legal as between the mortgagor and the third party and that failure to obtain a prior written consent of the mortgagee per se would not render the subsequent contract illegal. A problem would arise only when the mortgagee challenges the said subsequent agreement. He submitted that in the instant case, no challenge was made by HFCU to the sale agreement between the appellant and the respondent. Learned counsel criticized the following passage in the lead judgment of Mpagi-Bahigeine, JA: “ _**\- - - - this sale of the mortgaged property was tantamount to breaching the trust with the mortgagee (HFCU) under the prior contract of mortgage -**__Halsbury’s laws of England Vol. 36 (1961) Reprint) para. 427_ _**. The interest of HFCU would be prejudiced and most likely jeopardized.”**_ He contended that the interest of HFCU was well protected in the agreement. He pointed out that under the agreement the mortgage between HFCU and the mortgagor remained intact and subsisting. The mortgagee’s interest, being the recovery of the money under the mortgage, was properly catered for. The appellant took over the mortgage and undertook to continue to pay the monthly instalments and did so regularly for a year. Should there be any default in servicing the mortgage, counsel argued, the mortgagee would still exercise its rights of sale under the mortgage. He relied on _**Duke & Others - vs - Robson (1973 1 ALLER 481.**_ Counsel contended that the termination of the agreement by the respondent was wrongful. He stated that the reason given for the termination was fear to lose the tenancy as a result of the appellant’s alleged failure to pay for the repairs on the mortgaged property demanded by the tenant. That the failure constituted a violation or breach by the appellant of paragraph (e) of the Sale Agreement, justifying the termination. Mr. Tumusinguzi submitted that that reason is not tenable: Firstly, because the record shows that the appellant did not violate or breach paragraph (e) of the agreement as he actually paid for the repairs demanded. Secondly, that paragraph (e) of the agreement places the primary duty to pay for the repairs demanded by the tenants on the respondent. The appellant’s duty was to indemnify the respondent on the repair expenses. Counsel contended that the appellant reimbursed the money spent by the respondent on the repairs demanded by the tenant. The termination was effected on the 8th August 2002, before the repair work had even started on 12-08-02. Mr. Kasirye for the respondent opposed the appeal. He contended that it was erroneous for specific performance to have been granted in the circumstances of this case as the grant offended a number of principles of equity. The first principle offended was that _“he who seeks equity must come with clean hands.”_ He asserted that the appellant who seeks equity did not come with clean hands as he and the respondent had entered into an illegal sale agreement. He stated that where both parties have unclean hands, court cannot compare the cleanliness of the hands of one party against the other. The second principle offended was that, specific performance will not be granted if the contract is illegal. He asserted that the Sale Agreement between the appellant and the respondent was an illegal contract and that granting specific performance would validate and sanctify an otherwise illegal transaction. The third principle that was offended was that specific performance will normally not be granted if that would necessarily involve breach of a prior contract with a third party. He asserted that granting specific performance in the instant case, would necessarily involve breach of a prior contract, the mortgage, between the respondent and the mortgagee (HFCU) which contract places restriction on the respondent not to enter into any contract to convey, transfer or to create any interest in the mortgaged property without a prior written consent of the mortgagee. For the above propositions, learned counsel cited a number of authorities including _**Halsbury Laws of England, 3**_ _**rd**_ _**Ed. Vol. 36, London, Butterworth & Co. (Publishers) Ltd. 1961; Modern Equity 15**_ _**th**_ _**Edition by Jill E. Martin, London Sweet & Maxwell Ltd. 1997 and Equity And The Law of Trust 7**_ _**th**_ _**Edition by Philip H. Pettit MB, Butterworth’s London, Dublin, Edinburgh, 1993.**_ He supported the judgment and orders of the Court of Appeal. Mr. Byaruhanga for the respondent, contended that the termination of the sale agreement by the respondent was proper and justified since the appellant breached paragraph (e) of the agreement. He distinguished the cases cited by Mr. Tumusinguzi as not relevant because they were decided on the basis of British legislations. In my opinion, the attack in grounds 1 and 2 of the appeal before us is targeted at the following passage in the lead judgment of Mpagi-Bahigeine, JA, with which the other two Justices agreed: “ _**In view of both parties contradictory stories, I can straight away conclude that both of them must have known that their transaction was illegal and they deliberately intended to keep it that way , away from the notice of HFCU.**_ _**It is quite unfortunate that the learned trial judge paid scant attention to the mortgage deed and played down the importance of the covenants. With respect, the learned trial judge does not seem to have perused the sale agreement (clause C) brought to his attention during cross-examination of the respondent. I believe that if he had his conclusion would have been different.**_ _**The appellant was under a duty, as mortgagor, to observe all the covenants for which her property was given as security. This includes the covenant not to sell or enter into an agreement to create any interest in the property without a prior written consent of the mortgagee (HFCU).**_ _**This sale of the mortgaged property to the respondent was tantamount to breaching the trust with the mortgagee (HFCU) under the prior contract of mortgage -**_ _Halsbury Laws of England, Vol. 36 (1961 Reprint) para. 427._ _**The respondent is in no better position than the appellant. He has only himself to blame for his reckless disregard of the express conditions governing the property he agreed to purchase. The mortgagee has rights and is only subject to the liabilities which are incidental to the estate thus vested in the mortgagor at the time of executing the mortgage. HFCU acquired a legal estate in the appellant’s property without any encumbrances.**_ _**It therefore has all the rights of a legal owner both as against the appellant and as against third parties, in this case, the respondent.**_ _Halsbury 3_ _rd_ _Edition Vol. 27 Para. 477._ _**Under such circumstances it would be presumptuous for anybody to expect equity to come to the aid of the respondent by granting the order of specific performance. His hands are too tainted and the court would not condone such a blatant illegality.”**_ It can be deduced from the above passage that the Court of Appeal set aside the order of specific performance because it (court) believed that the sale agreement between the appellant and the respondent was illegal for breaching the mortgage between the respondent and the mortgagee and that the interest of the mortgagee would be prejudiced and most likely jeopardised by the sale agreement. The case of the appellant as I understand is this: The sale agreement between the respondent and the appellant is valid as between the contracting parties but not binding on the mortgagee. The interest of the mortgagee, recovery of the money under the mortgage, would not be prejudiced nor most likely jeopardised by the sale agreement. That interest is well protected under the agreement and that in the event of default the mortgagee can still exercise its right of sale under the mortgage. The termination of the sale agreement was wrongful. The question that arises from the arguments of counsel for both parties on these grounds is firstly, whether a contract whose formation breaches an earlier contract with a third party is an illegal contract. In other words, whether the sale agreement between the appellant and the respondent, if it breaches the mortgage between the respondent and the mortgagee, would be an illegal contract. To best answer this question, it is in my view important to consider the situations that make a contract illegal. It is trite law, that a contract is illegal either by statute or at common law if it is against public policy. A contract is illegal by statutory law when it is expressly or impliedly prohibited by a statute or subsidiary legislation. In this regard, where a contract is stated to be impliedly prohibited, it becomes the duty of the court to ascertain whether the object of the legislature is to forbid the contract. This is a question of construction of the statute concerned. Where a contract is expressly prohibited by a statute, no problem arises because the object of the statute is expressly stated. At common law, a contract is illegal on ground of public policy. The learned authors of _**Cheshire Fifoot & Farmseton’s Law of Contract Eleventh Edition, **_set out at page 344 of the said book, the headings of contracts that are illegal on ground of public policy as follows: 1. _**A contract to commit a crime, a tort or a fraud on a third party;**_ 2. _**A contract that is sexually immoral;**_ 3. _**A contract to the prejudice of the public policy;**_ 4. _**A contract prejudicial to the administration of justice;**_ 5. _**A contract that tends to corruption**_ 6. _**A contract to defraud the revenue.**_ The others are: 7. _**A contract to oust the jurisdiction of the courts;**_ 8. _**A contract that tends to prejudice the status of marriage; and**_ 9. _**A contract in restraint of trade.**_ These contracts are illegal on the ground that they are contracts to do prohibited or immoral acts. A contract is therefore, illegal when its object is to do a prohibited or an immoral act. In the instant case, there is no suggestion that the sale agreement between the appellant and the respondent or indeed that an agreement to sell a mortgaged property without a prior written consent of the mortgagee is prohibited by any statute. There is also no suggestion that such a contract is illegal on ground of any public policy. In my view, a contract that breaches a covenant which one of the parties has made in an earlier contract with a third party, is not an illegal contract since a breach of a private covenant does not render the subsequent contract illegal. Mr. Byaruhanga submitted that the cases cited by Mr. Tumusinguzi to support the proposition that the sale agreement between the appellant and the respondent is valid as between the contracting parties are not relevant because they were decided on the basis of certain British legislation. I accept that submission. The cases referred to are - _**Iron Traders Employers Insurance Association**_(supra); _**Corbett**_(supra) and _**Dudley & District Benefit Building Society **_(supra). In I _**ron Traders Employers Insurance Association**_ (supra) for instance, the mortgage contained restrictions on the mortgagor’s statutory leasing powers that such powers should not be exercised without a prior written consent of the mortgagee. The mortgagors also bound themselves to notify the mortgagees’ solicitors of all lettings after every six months. The mortgagors leased out the mortgaged property to a third party without a prior written consent of the mortgagees. The solicitors of the mortgagees later learned of the tenancy agreement from the six monthly notification furnished to them by the mortgagors. In the result, the mortgagees sued the mortgagors contending, inter alia, that the grant of tenancy by the mortgagors to a third party without a prior written consent of the mortgagees violated the covenant in the mortgage namely, _**not to lease the mortgaged property to a third party without a prior written consent of the mortgagee.**_ They further argued that that violation had also relieved the mortgagees of their own covenant _**not to call the mortgage for a period of ten years.**_ Farwell, J, who heard the case, first traced the historical position of the mortgagor and the mortgagee before the British Conveyancing Act of 1881 and The Property Act of 1925 came into force. He found that before the 1881 Act, a mortgagor, in possession, had power to grant a lease to a third party not binding on the mortgagee. The lease was binding only on the lessor and the lessee. When the 1881 Act came into force, it gave the mortgagor in possession, statutory powers to grant lease, subject to certain terms and conditions. The Act did not, however, deprive the mortgagor, in possession, of the right which he had before the Act, that is to grant a lease to a third party without a prior consent of the mortgagee, which lease would not be binding on the mortgagee. It would be binding only as between the lessor and the lessee. The learned judge further held that when the Property Act of 1925 came into force, it did nothing to alter the position. The power of the mortgagor before the 1881 Act to grant a lease to a third party without a prior consent of the mortgagee, with the lease not being binding on the mortgagee, was left intact. Under the statutory power however, the mortgagee and the mortgagor could agree to restrict the power of the mortgagor not to grant lease to a third party without a prior written consent of the mortgagee. Such a lease would be binding on the lessor and lessee as well as on the mortgagee. In dismissing the suit, the learned judge held that the lease that was granted by the mortgagors, without a prior written consent of the mortgagees, was done in exercise of the common law power. Under that power, the lease was not binding on the mortgagee and the grant did not violate the covenant in the mortgage since the restriction was placed only on the statutory power. As the statutory power was not exercised, the covenant in the mortgage was not breached and the lease was not binding on the mortgagee. Similarly, in _**Dudley and District Building Society**_ (supra), FG occupied the house under a tenancy agreement with the mortgagor in possession. The weekly instalments due under the mortgage fell into arrears and the mortgagee claimed possession of the house. FG resisted the eviction on the ground that he was a lawful tenant and was protected by the Rent Restrictions Act against eviction by the landlord. The Court of Appeal allowing the appeal, held that though FG was a lawful tenant under the tenancy, he had no contractual relationship with the mortgagee as the statutory leasing power of the mortgagor was expressly excluded. The protection conferred on a tenant by a provision of the Rent Restrictions Act applied only against landlord and the definition of _“Landlord”_ did not cover the mortgagee who was asserting their paramount title. It is clear to me therefore, that these cases are distinguishable from the instant case in that whereas the mortgagor, in possession, in the English cases had both statutory and common law powers to grant a lease to a third party, the former requiring a prior written consent of the mortgagee, the mortgagor in the instant case has only the common law power. It is against this power that the covenant in the mortgage, places restriction not to be exercised without a prior written consent of the mortgagee. This is so because the provisions of these UK statutes which were considered in the authorities cited by Mr. Tumusinguzi are not, under section 47(1) of the Judicature Act (Cap 13) Laws of Uganda, 2000), applicable to Uganda. This section specifies provisions of certain Acts of Parliament of the United Kingdom that are allowed to continue to apply to and have effect within Uganda with the necessary adaptations and modifications. Therefore, while the sale agreement in the instant case is valid as between the parties, the decisions in those cases though support Mr. Tumusinguzi’s views, were based on the provisions of those UK legislations that are neither applicable to Uganda nor have corresponding provisions in our local legislations that are similar. They are, therefore, not relevant authorities. Mr. Tumusinguzi contended that the termination of the sale agreement by the respondent was wrongful since the appellant had, up to that point, performed all his obligations under the agreement. Mr. Byaruhanga for the respondent submitted that the termination of the agreement by the respondent was justified because the appellant had breached paragraph (e) of the agreement. He unduly delayed to pay the money required for the repairs on the mortgaged property demanded by the tenant. The Court of Appeal held that the sale agreement was illegal and impliedly that it did not exist and therefore, the question of termination did not arise. I have already stated earlier in this judgment that the sale agreement was legal. It is therefore important to examine the circumstances in which it was terminated to determine whether the termination was proper or wrongful. Paragraph (e) of the agreement allegedly breached by the appellant is in the following words: “ _**The purchaser shall indemnity the vendor against any claims by the tenant in respect of the tenancy agreement and or any claims for improvement.”**_ The key word in that paragraph is _“indemnify.”_ __ This is not a technical word but an ordinary English word. The Oxford English dictionary Second Edition, revised, defines that word to mean: “ _**To compensate someone for harm or loss.”**_ Putting the word _“indemnify”_ in the context in which it was used in the agreement, it means that the purchaser is to compensate the vendor against any claims by the tenant in respect of the tenancy agreement and or any claims for improvement. To compensate means to pay for the loss incurred by the vendor against any claims by the tenant in respect of the tenancy agreement and or any claims for improvement. In my opinion, paragraph (e) of the agreement places the duty to initially pay for any such claims for repairs demanded by the tenant or any claims for improvement on the vendor. The purchaser’s duty under the paragraph is to indemnify or compensate the vendor for the loss she so incurred. It does not require the purchaser to pay for such claims before they occur. The evidence of the appellant (PW1) in this regard went as follows: “ _**Then about July 2002, about one year after our agreement I received a letter from the defendant requesting me to pay Shs.17,650,170= to the tenant who was USAID to make repairs on the house and I was given three quotations which I found too high. The repairs consisted of external painting and short wall of less than 75 meters. I thought that amount was too high for the above work. So I requested to have my own contractors but that request was rejected. Then I made a deposit of Shs. 2 million to let the work start while I get the balance. This was rejected. There was an anormally in the contract because USAID does not pay in advance. So I found it not usual to pay 17 instalments for the work that had not commenced. After rejecting the Shs. 2 million, I mobilize the 17 million shillings and paid it to the defendant. After letter exhibit P6. after the defendant rejected the cheque and decided to terminate the agreement.”**_ The evidence of the respondent (DW1) in this connection went as follows: “ _**I got a letter from American Embassy. They asked me to repair the house – painting wall and repairing door nay and to erect a perimeter wall to improve on the security of the place. The letter was dated 15-05-2002. After receiving that letter, I sent my lawyers to inform the plaintiff to prepare money for the above work. My lawyers talked to the plaintiff. I also talked to the plaintiff on telephone about the repairs. The plaintiff did not provide the money. I waited for the money from the plaintiff without any reply. I decided to write to the plaintiff. This is the letter I wrote. It is dated 2**_ _**nd**_ _**July 2002, (Exhb. D3).**_ _**The repairs were worth Shs. 17,650,170=. Finally, I paid for the repairs since the plaintiff had refused to pay. I gave the money to the American Embassy. Before that I told the plaintiff that if he failed to pay that money, I would not sell that property to him because he had breached our contract. After I paid the money to the Embassy, in October 11, 2002 I cancelled the agreement.”**_ The above were the circumstances that led to the termination of the sale agreement. Mr. Byaruhanga submitted that the appellant delayed for over two months to pay Shs. 17,650,170= for the repairs demanded by the tenant. According to counsel, the respondent paid for the repairs on 15-07-2002 and rejected the money subsequently sent by the appellant on 05-08-2002, because the delay had amounted to a breach of paragraph (e) of the agreement which justified the termination.. I respectfully disagree with that view. As pointed out above, paragraph (e) places a duty to make the initial payment for such claims on the respondent. The appellant’s duty was to indemnify her. In the instant case, the respondent wanted the appellant to pay the money before she had spent her own money on the work. This was clearly contrary to the clear intention and wording of paragraph (e) of the agreement. Learned counsel argued that the appellant delayed for two months to pay the money for the repairs demanded. It is noteworthy that the agreement did not make time of the essence to indemnify the respondent. No time frame was stipulated. Two months delay is not too long. In any case, the appellant paid the money before the repair work had started. Equity looks at substance rather than form. In my opinion the respondent misunderstood that paragraph and wrongly terminated the agreement. The Court of Appeal while setting aside the order of specific performance, stated that _“the interest of the mortgagee would be prejudiced and most likely jeopardized”_ by the agreement. Mr. Tumusinguzi criticized the learned Justices of Appeal for that finding. He reasoned that the interest of HFCU is well protected in the agreement. The statement complained of is contained in the judgment of Mpagi-Bahigaine, JA, the relevant portion of which I have already reproduced earlier in this judgment. For ease of reference, the passage reads: “ _**This sale of the mortgaged property to the respondent was tantamount to breaching the trust with the mortgagee.**__Halsbury’s Laws of England, Vol 36 (1961) Reprint para. 427.___**The interest of HFCU would be prejudiced and most likely jeopardized.**__ (emphasis added). I respectfully accept counsel’s criticism of the above finding as well taken. The underlined finding by the Court of Appeal is not supported by the evidence on record. First of all, the facts agreed on by both parties at the scheduling conference in that court include the fact that at the time of executing the sale agreement, there was subsisting a mortgage between the respondent and the HFCU, the mortgagee. Under the sale agreement, the appellant agreed to take over that mortgage with HFCU and to continue to pay the monthly instalments on the mortgage. These are facts that are not disputed. The evidence on record also shows that the appellant, in fact, did not only pay a deposit of US$50,000= as part of the purchase price but also continued to pay the monthly instalments on the mortgage regularly, for twelve months totalling Ug. Shs. 18,020,000= when the respondent unilaterally terminated the sale agreement. These payments have given the appellant equitable interest in the mortgaged property. In these circumstances, and with the greatest respect, I do not agree with the learned Justices of Appeal that the interest of HFCU, which is the recovery of the money due under the mortgage, would be prejudiced and most likely jeopardized by the agreement. On the contrary, the contents of the sale agreement and the evidence on record show that the interest of HFCU was well protected in the agreement and that it would not be prejudiced and or jeopardized. Had they carefully scrutinized the sale agreement and the evidence on record, as they ought to have done, the learned Justices of Appeal would certainly have reached different conclusions. Mr. Tumusinguzi’s major complaint is that the learned Justices of the Court of Appeal erred in setting aside the trial judge’s order for specific performance. Specific performance is an equitable relief, given at the discretion of the court to enforce against a defendant the duty to do what he or she has agreed by the contract to do. That discretion must be exercised on fixed principles but not arbitrarily or capriciously. In _**Haywood - vs - Cope (1858) 25 Beav 140**_ , Romilly MR explained that _“the discretion must be exercised according to fixed and settled rules.”_ Mr. Kasirye submitted that the grant of specific performance in the instant case was wrong as it violated several established principles governing the grant of specific performance. I have earlier on in this judgment shown that the criticism that the sale agreement was illegal and that the appellant had unclean hands for entering into that illegal contract were not tenable as the sale agreement was legal. Another principle which Mr. Kasirye advanced is that _“specific performance will not be granted where it would necessarily involve breach of a prior contract with a third party.”_ He argued that grant of specific performance in this case necessarily involve a breach of the mortgage agreement made earlier between the respondent and HFCU. IN _**Willmott - vs - Barber**_ (supra), which Mr. Kasirye cited in his submission in this court, the court declined to compel the lessee to perform his agreement because it would involve a breach of his prior covenant not to assign the lease without prior written consent of the lessor. It is instructive to point out at this juncture that one of the established principles of equity is that _**“equity treats a contract to do a thing as if the thing were already done where a person is entitled to enforce the contract specifically.”**_ _(See Snell’s Equity 29_ _th_ _Edn., Sweet & Maxwell) pp. 40.___ Agreements for value are often treated as if they had been performed at the time when they ought to have been performed, with the same consequences as if they had then been completely performed. For instance, a person who enters into possession of land under a specifically enforceable agreement for a lease is regarded in court which has jurisdiction to enforce the agreement as being in the same position between himself and the other party to the agreement as if the lease had actually been granted to him. In _**Walsh - vs - Lansdale (1882) 21 ChD9,**_ Lansdale agreed in writing to grant a seven years lease of a mill to Walsh at a rent payable quarterly in arrears, but with a year’s rent payable in advance if demanded. Walsh entered into possession without any lease having been granted, and paid his rent quarterly in arrears. Subsequently Lansdale demanded a year’s rent in advance and, on Walsh refusing to pay, put in a distress. Walsh claimed an injunction and damages for illegal distress on the ground that at law he was a tenant from year to year at a rent not payable in advance and that the legal remedy of distress was therefore not open to Lansdale. The Court of Appeal held in favour of Walsh reasoning that Walsh held the property on the same terms as if a lease had been granted since the agreement was one of which the court would order specific performance. In the instant case, the sale agreement was for value and was therefore specifically enforceable. The appellant met all his obligations under the agreement. However, the respondent who had the duty under the mortgage to obtain a written consent of the mortgagee before entering into the sale agreement with the appellant, did not do so. She is taken by equity to have done what she was expected to do. Equity treats the sale agreement as having been completely performed. In my opinion, it would be inequitable for the respondent to raise her failure to obtain a prior written consent of the mortgagee as a defence to defeat the sale agreement which she entered into voluntarily. In my view, the learned Justices of Appeal erred to treat the sale agreement as illegal and to set aside the trial judge’s order for specific performance. Mr. Kasirye submitted further that by granting specific performance court would put the purchaser and HFCU into contractual relationship of a mortgagor and mortgagee. Mr. Tumusinguzi disagreed with that view and contended that the sale agreement was binding only between the contracting parties and did not bind the mortgagee. I am unable to accept that granting specific performance in this case would put the purchaser and HFCU into contractual relationship of mortgagee to enter into a contractual relationship with a mortgagor and mortgagee. The mortgagee is not a party to the sale agreement and, therefore, is not bound by it. The only thing that connects the mortgagee and the purchaser is the mortgaged property. The mortgagee’s interest in the property is the security it provided for the money due under the mortgage. As long as the money was paid, the mortgagee would have no problem. Under the sale agreement, the appellant agreed to take over her mortgage and to continue to pay in monthly instalments. The mortgagor agreed to transfer the property to the purchaser when the purchase price and money due under the mortgage were fully paid. The evidence on record shows that the appellant had regularly paid the monthly instalments under the mortgage for twelve months. There is no evidence of complaint from the mortgagee. In the circumstances, I find merit in grounds 1 and 2 which ought to succeed. Ground 3 is framed as follows: “ _**The learned Justices of Appeal erred in law and fact when they refused to award interest to the appellant.”**_ The complaint in the third ground of appeal is that the learned Justices of Appeal erred in law and fact when they refused to award interest to the appellant. Mr. Tumusinguzi submitted that the reason given by the Court of Appeal for the refusal did not amount to sufficient cause. He cited _**[Ecta (U) - vs - Geraldine Pamubiru& Another, Civil Appeal No. 29 of 1994](/akn/ug/judgment/ugsc/1995/1), Supreme Court,**_ (unreported), where Odoki, Ag. Deputy Chief Justice as he then was, after quoting section 26 (2) of the Civil Procedure Act stated: “ _**Clearly the court has discretion to award reasonable interest on the discretal amount. But it appears that a distinction must be made between award arising out of commercial or business transactions which would normally attract a higher interest and award of general damages which are mainly compensatory.”**_ There is no doubt that the above section gives court discretion to award interest at a reasonable rate where the decree is for payment of money: 1. _**On the principal sum adjudged from the date of the suit to the date of the decree;**_ 2. _**On such principal sum for any period prior to the institution of the suit; and**_ 3. _**On the aggregate sum so adjudged from the date of the decree to the date of payment or to such earlier date as the court thinks fit.**_ Sub-section 3 of the same section provides that where the decree is silent as to the payment of interest, court shall be deemed to have ordered interest at six per centum per annum. In the instant case, Mpagi-Bahigeine, JA, stated in her lead judgment with which the other two justices agreed, that: “ _**Regarding issue No. 3 concerning the rate of interest, in view of what I have stated above, there would be no justification for awarding any interest on the monies involved. It is noteworthy, however, that all the sums that had changed hands have already been refunded. This court is entitled to decline to award any interest for sufficient cause which I have indicated.”**_ The learned Justices of Appeal had found, wrongly in my opinion, that the sale agreement was illegal. Impliedly, it is on that basis that the interest was declined on the monies paid under what they called _“illegal”_ contract. I have already indicated in this judgment that the sale agreement was legal. The Justices of Appeal clearly erred in declining to award interest basing their decision on a wrong premise. I therefore find merit in the ground which ought to succeed. I now turn to ground 4 which is framed as follows: “ _**The learned Justices of Appeal erred in law and fact when they held that**_ _“all the sums that had exchanged hands had already been refunded”_ _**without examining the manner in which it was done.”**_ Learned counsel for the appellant complained against the failure of the Justices of Appeal to consider the manner in which the respondent deposited the equivalent amount of money paid by the appellant under the agreement into the appellant’s bank account. The money was stealthily deposited into the appellant’s bank account without the appellant’s knowledge and consent. Counsel argued that the appellant had paid the money under the agreement which was a commercial transaction. The respondent kept the money for twelve months and there is no doubt that she must have benefited from the use of the money. It could not be refunded without any interest thereon. It was submitted for the respondent that the equivalent amount of money paid by the appellant under the agreement was refunded and that at the time of filing the suit the money was already on the appellant’s bank account a fact which was not disputed. Section 26(2) of the Civil Procedure Act (supra) gives court discretion to award interest at a reasonable rate _inter alia_ on such principal sum for any period prior to the institution of the suit but that a distinction must be made between award arising from commercial or business transaction and damages which are compensatory. In _**ECTA (U) Ltd. - vs - Geraldine S. Namubiru and Another**_ (supra), Odoki, Ag. Deputy Chief Justice as he then was, emphasised the need to make a distinction between awards arising out of commercial or business transactions and damages which are compensatory. An award arising out of commercial transactions, like the instant transactions, would carry interest at a higher rate than the court’s rate. In the instant case, the respondent had stealthily refunded the monies that the appellant had paid in that commercial or business transaction after she had kept it for twelve months. _**McGregor on Damages 15**_ _**th**_ _**Edition**_ on page 578 states that the award of interest is based on the commercial basis that if the money had been paid at appropriate commercial time, the other side would have had the use of it. In my view, twelve months was an appropriate commercial time and it is not far-fetched to conclude that the appellant has had use of the money. The learned Justices of Appeal, therefore, erred not to award interest on it and to merely state that all the monies that exchanged hands had already been refunded. That was not a good reason for denying the appellant interest on that sum. I would award an interest at the rate of 20% per annum. I would allow this ground. In the result, I would allow the appeal, set aside the judgment and orders of the Court of Appeal and restore the judgment and substantive orders of the High Court with the consequential orders that any monies paid under the sale agreement by the appellant and have been secretly refunded by the respondent be paid back to the respondent. In the alternative, if the specific performance cannot be performed, the respondent is to pay to the appellant, by way of damages, the market value of the suit house. I would award costs in favour of the appellant here and in the two courts below. _**Dated at Mengo this 20**_ _**th**_ _**day of January 2008.**_ _**G. M. OKELLO**_ _**JUSTICE OF THE SUPREME COURT**_ THE REPUBLIC OF UGANDA **IN THE SUPREME COURT OF UGANDA** **AT MENGO** **(CORAM: ODOKI, CJ, TSEKOOKO, MULENGA, KANYEIHAMBA, AND** **OKELLO, JJ.SC)** **CIVIL APPEAL NO. 23 OF 2007** **BETWEEN** **DR. KAIJUKA MUTABAZI EMMANUEL::::::::::::::::::::::::::::::::::APPELLANT** **AND** **FANG MIN:::::::::::::::::::::::::::RESPONDENT** _**[An appeal from the judgment and orders of the Court of Appeal at Kampala (Mukasa-Kikonyogo, DCJ, Mpagi-Bahigeine and Kavuma J.J.A) dated 25**_ _**th**_ _**July 2007 in Civil Appeal No. 38 of 2006]**_ JUDGMENT OF ODOKI, CJ I have had the advantage of reading in draft the judgment prepared by my learned brother, Okello JSC, and I agree with him that this appeal should be allowed. I also agree with the orders he has proposed. As the other members of the Court also agree, this appeal is allowed with orders in the terms proposed by the learned Justice of the Supreme Court. Dated at Mengo this 20th day of January 2009. **B J Odoki** **CHIEF JUSTICE** THE REPUBLIC OF UGANDA **IN THE SUPREME COURT OF UGANDA** **AT MENGO** **(CORAM: ODOKI, CJ, TSEKOOKO, MULENGA, KANYEIHAMBA, &** **OKELLO, JJ.SC)** **CIVIL APPEAL NO. 23 OF 2007** **BETWEEN** **DR. KAIJUKA MUTABAZI. E.:::::::::::::::::::::::::::::::::::::::::::APPELLANT** **AND** **FANG MIN::::::::::::::::::::::::::RESPONDENT** _**{Appeal from the decision of the Court of Appeal at Kampala (Mukasa-Kikonyogo, DCJ, Mpagi-Bahigeine and Kavuma J.J.A) dated 25**_ _**th**_ _**July 2007 in Civil Appeal No. 38 of 2006}**_ _JUDGMENT OF TSEKOOKO, JSC_ I have had the benefit of reading in draft, the judgment prepared by my learned brother, Okello JSC, and I agree that the appeal ought to succeed with costs to the appellant here and in two courts below. I would like to make a brief comment on the third ground whose complaint is that the Court of Appeal erred when it refused to award interest. The ground ought to succeed. Award of interest on damages is essentially discretionary by virtue of S. 26 (2) of the Civil Procedure Act. But in most cases where damages in monetary terms are awarded, interest is also awarded. As stated by Odoki, Ag. DCJ; as he then was, in **[ECTA (U) vs Geraldine Namubiru& Another, Supreme Court Civil Appeal No. 29 of 1994](/akn/ug/judgment/ugsc/1995/1) (Unreported)** in commercial transactions such as the subject matter of this appeal, rate of interest at higher rates is always given. I would therefore award to the appellant interest at the rate of 20% p.a, on the decretal amount. Delivered at Mengo this 20th day of January 2009. **J.W.N Tsekooko** **JUSTICE OF THE SUPREME COURT** THE REPUBLIC OF UGANDA **IN THE SUPREME COURT OF UGANDA** **AT MENGO** **(CORAM: ODOKI, CJ, TSEKOOKO, MULENGA, KANYEIHAMBA, &** **OKELLO, JJ.SC)** **CIVIL APPEAL NO. 23 OF 2007** **BETWEEN** **DR. KAIJUKA MUTABAZI. E.:::::::::::::::::::::::::::::::::::::::::::APPELLANT** **AND** **FANG MIN:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::RESPONDENT** _**[Appeal from the decision of the Court of Appeal at Kampala (Mukasa-Kikonyogo, DCJ, Mpagi-Bahigeine and Kavuma J.J.A) dated 25**_ _**th**_ _**July 2007 in Civil Appeal No. 38 of 2006]**_ _JUDGMENT OF MULENGA JSC._ I have had the benefit of reading in draft the judgment prepared by my learned brother, Okello JSC. I agree that the Appeal ought to succeed and I concur in the orders he proposes. I only wish to comment on one aspect of the case for emphasis. The facts of and background to the case are well set out in the judgment of my learned brother. For purposes of this judgment it suffices to say that the appellant sued the respondent in the High Court for wrongful rescission of a contract of sale of mortgaged property known as plot 13 Malcolm X Avenue Kololo, in the City of Kampala, (“the suit property”). He prayed inter alia for an order of specific performance and in the alternative for general damages and a refund of moneys he paid under terms of the rescinded contract. The trial court held that the appellant was entitled to specific performance “ _**since the right to the property had passed to him**_ ”, and accordingly entered judgment for him. On appeal, however, the Court of Appeal reversed the decision of the High Court. The sole basis of the Court of Appeal decision was that contrary to a term of the mortgage deed between the respondent as mortgagor of the suit property and Housing Finance Company of Uganda Ltd. (HFCU), as mortgagee, no written consent to the sale was obtained from the mortgagee prior to execution of the sale agreement. In the lead judgment, Mpagi-Bahieine JA reviewed the pertinent clauses in the mortgage deed and the sale agreement together with the evidence of the appellant and the respondent on the said term, and concluded that both the appellant and the respondent as purchaser and vendor respectively – “ _**must have known that their transaction was illegal and they deliberately intended to keep it that it that way, away from the notice of HFCU.”**_ The learned Justice of Appeal stressed that failure to comply with what she called a legal duty/covenant not to sell without written consent of HFCU was tantamount to a breach of trust on the part of the respondent; and that the appellant was in no better position for recklessly disregarding the covenant that affected the suit property. She then held – “ _**Under the circumstances, it would be presumptuous for anybody to expect Equity to come to the aid of the [appellant] by granting the order of specific performance. His hands are too tainted and the Court would not condone such a blatant illegality.”**_ With due respect, the learned Justice of Appeal misdirected herself on the law in holding that the contract of sale was an illegality. While it is correct that the court must not condone an illegal contract, it is not correct to treat the sale contract in issue as an illegal contract. An illegal contract is one made in breach of the law or for an illegal or immoral purpose. _**Cheshire and Fifoot’s Law of Contract**_ 10th Ed. Butterworth 1961, describes two classes of illegal contracts, namely illegal contracts by virtue of being prohibited by statute or subsidiary legislation and illegal contracts at common law on grounds of public policy. Example in the latter class include contracts to commit crime, tort or fraud on a third party, as well as sexually immoral contracts and contracts prejudicial to the administration of justice or to public safety. The contract of sale in the instant case was not made in breach of any law or for an illegal or immoral purpose. Nor is it an illegal contract at common law on ground of public policy. It seems to me that the learned Justice of Appeal’s conclusion that the appellant and respondent deliberately intended to keep the sale away from the notice of HFCU, is not based on evidence, and even if it was, I don’t think it would have amounted to a contract to defraud HFCU when the sale contract provided for protection of HFCU’s interests. The mortgage term or covenant requiring the vendor as mortgagor to obtain the written consent of HFCU prior to the sale was not a provision of any law. Failure to abide by the term, therefore, was neither a breach of law nor prejudicial to public policy. At most it was a breach of a term of the mortgage contract, whose effect in law is different from the effect of an illegal contract. The consequences of an illegal contract is _inter alia_ that neither party to it is bound by its terms. Being an illegality, it is a nullity from inception and is therefore unenforceable in law. On the other hand a breach of a term of a contract may render a contract void or voidable at the instance of the wronged party depending on the nature the breach. In the instant case, the effect of the breach of the term or convent not to sell without written consent from HFCU was at most to render the contract of sale voidable at the instance of the mortgagee. In other words, the contract of sale was not binding on or enforceable against HFCU, as it would have been if the written consent had been obtained. The contract, however, was binding on and enforceable against the vendor and the purchaser. Delivered at Mengo this 20th day of January 2009. **J. N. Mulenga** **JUSTICE OF SUPREME COURT** THE REPUBLIC OF UGANDA **IN THE SUPREME COURT OF UGANDA** **AT MENGO** **(CORAM: ODOKI, CJ, TSEKOOKO, MULENGA, KANYEIHAMBA, &** **OKELLO, JJ.SC)** **CIVIL APPEAL NO. 23 OF 2007** **BETWEEN** **DR. KAIJUKA MUTABAZI EMMANUEL::::::::::::::::::::::::::::::::::APPELLANT** **AND** **FANG MIN:::::::::::::::::::::::::::::::::::::::::::::::::RESPONDENT** JUDGMENT OF KANYEIHAMBA, J.S.C I have had the benefit of reading in draft, the judgment of my learned brother, Okello J.S.C, and I agree with his findings and decision. I also concur in the orders he has proposed. Dated at Mengo this 20th day of January 2009. **G.W. KANYEIHAMBA** **JUSTICE OF THE SUPREME COURT** 38 #### __Related documents #### More documents like this one ▲ To the top >