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Hon. Justice David Wangutusi discusses principles relating to the validity of a sale in contracts

In the case of Emco Works Limited, Joseph Lujuza, Ponny Lusiba KiwanukaV Eco Bank Limited Misc. Application   No. 936 of 2018.

The Applicants filed this Application seeking unconditional leave to appear and defend Civil Suit No. 860 of 2018 which was instituted under Order 36 of the Civil Procedure Rules.

The 1stApplicant was advanced a short term loan of UGX. 251,184,635/= on 12thApril 2012. The interest rate chargeable on the facility was 29.5% per annum. The facility was secured by a legal mortgage over the Property comprised in Plot 564 Block 569 land at Buddu. The Respondent alleges that the 1stApplicant defaulted in her loan obligations therefore she demanded payment from the 1stApplicant as principal debtor and the 2ndand 3rdApplicants as guarantors. That she subsequently issued a Notice of Default and then a Notice of sale and proceeded to sell the security at UGX. 100,000,000/=. The Applicants submitted that this Application raises four triable issues namely; that the Applicants were not indebted to the Respondent because the interest charges were unlawful. Secondly that the 2nd and 3rdApplicants did not guarantee the Facility therefore the Respondent has no cause of action against them. Thirdly, that the Applicants were never served with the Default Notice or the Sale Notice. Lastly, that the sale of the security was tainted with illegalities because the Respondent conducted the sale without the knowledge of the Applicants who got to know of the realization of the security when they were being evicted from the property.

It is trite that parties to a contract may agree at the time of contracting that in the event of a breach, the party in default shall pay a stipulated sum of money to the other. This sum however should be a genuine pre-estimate of the loss which is likely to  flow from the breach, then it represents the agreed damages, called liquidated damages, and it is recoverable without the necessity of proving the actual loss suffered; Halsbury’s Laws of England fourth edition reissue volume 12(1)paragraph 1065 at page 486.In this present case, no evidence was brought to Court to enable Court ascertain the exact penal interest charged and the penal interest is disputed.

Turning to the issue of the validity of sale, it is a settled position of the law that where money secured by a mortgage is made payable on demand, a demand in writing shall create a default in payment. In this case, the service of the demand was not effected. This was a breach that invalidated the sale. Therefore the sale was illegally conducted and cannot stand.

The foregoing irregularities cannot be ignored because an illegality once brought to the attention of Court, overrides all questions of pleadings.  Makula International Limited vs His Eminence Cardinal Nsubuga & Another [1982] HCB 11.

The court found that triable issues had been presented and therefore allowed the application to appear and defend.