MORTGAGES

• S.2 Mortgage Act gives a definition of a mortgage

• In the case Matambulire v Yozefu Kimera [1975]
HCB 150 a mortgage was defined as a transaction
where the owner uses his/her interest in land as
security for the repayment of a loan.
• Who is a mortgagor
• Who is a mortgagee
 Cont’d
Who can create a mortgage
• S.3( 1)

Types of mortgages
i) Legal mortgages
ii) Equitable mortgages ( Informal)
 Legal Mortgages
• This is a mortgage that is registered as
provided under s.3(4) of the Mortgage Act
• A legal mortgage is created by deed. It is
created by signing a mortgage deed which is
then registered as an encumbrance on a
certificate of title.
 Advantages of a registered mortgage

• Rights are automatic e.g sale without recourse

to court
• Third party is put on notice of the legal
interest.
• Creates rights in rem and priority over all
subsequent mortgages.
Equitable mortgages/ Informal mortgages

• S.2 M.A defines an informal mortgage.

• S.3(5) is to the effect that unregistered
mortgage shall be enforceable between
parties.
• There are two types of equitable mortgages
i) Equitable mortgages on registered land
ii) Equitable mortgages on customary land
 Cont’d
• An informal mortgage is created according to
s.3(8) when the holder of registered land deposits
any of the following:

i) The certificate of title to the land

ii) A certificate of customary ownership
iii) A lease agreement
iv) Any other document which may be agreed upon
evidencing a right to an interest in land
 Cont’d
• Any other document which may be agreed
upon to secure any payments
• Barclays Bank D.C.O v Gulu Millers [1959] EA
540 court held that under the doctrines of
equity a deposit of title deeds by way of
security whether or not accompanied by a
memorandum was equivalent to an
agreement to execute a legal mortgage
 Cont’d
• Simon Kato Bugoba v S. Kigozi & M. Mbabali
HCCS No. 0543 of 2004 . Court noted that the
law provides that an equitable mortgage of
land may be made by the registered proprietor
of his/her certificate of title with intent to
create security thereon whether or not
accompanied by a note or mamorandum
thereon.
 Dangers with unregistered mortgages

• When a mortgagor transfers ownership of the

property to an innocent third party, the
mortgagee cannot enforce it against the third
party.
• If the unregistered mortgage is created after
the registered mortgage, the latter takes
priority over the unregistered mortgage.
 Nature of Mortgages
• S.8 (1)(2)(3)
• In Erisa Wamala v Musa Musoke (1920) 3
ULR 120 court held that a mortgage is always
security and not a transfer. Provisions that
property would revert to lender when a
certain event occurs is void.
 Cont’d
• In Muhindo Enterprises v Greenland Bank
H.C.C.S 125 of 1987, court held that a
mortgage is a mere security for payment of a
debt and does not operate as a transfer.
 Duty to disclose information
• S.4 (1) (2)
 Mortgage of matrimonial home
• S.5 and S.6 of the Mortgage Act
• What makes mortgage of a matrimonial home
valid? ( S.5(1)(a) (b)
• What are the duties of the intending mortgagee
and mortgagor? (S.5 (2)(a)(b), S.6(1)
• How are the above duties discharged (S.5(3),
(1)a, S. 6(1)(a)(i)(ii) (b) (3), Regulation 3 of the
Mortgage Regulations, 2012
 Mortgages on Customary Land
• Which law is applicable to creation and operation of
mortgages on customary land? S.7 (1)
• Steps to undertake in exercising customary remedies.
S.7(2)
• On what grounds can the terms of a mortgage on
customary land be re-opened. S.7 (3)
• Under what circumstances would common law and
Doctrines of equity be invoked with respect to
customary land? S. 7(4)a,b
• Spousal and Children consent. S.7(6)
 Cont’d
• Waswa v Asumani Kikungwe (1952-6)7 ULR
court held that where a contract resembling a
mortgage between natives is sought to be
enforced the courts could apply the English
law of equity applicable to mortgages
 Implied covenants by the mortgagor

• S.18 (1)(2)(3)
Remedies available to a mortgagee incase of
breach
• Where the mortgagor is in breach of any term
of the mortgage agreement the mortgagee
may pursue any of the remedies provided in
the Mortgage Act of 2009.
 Cont’d
• In the case of Michael Ojatum Chuma v
Joseph Matovu HCCS No. 823 of 2000, [2000]
KALR 749, a mortgagee is free to pursue
anyone or all the remedies provided for under
the Mortgage Act.
 Cont’d
• The Act requires that notice in writing of the
default must first of all be served to the
mortgagor . (S.19(2) M.A)
• The purpose of the notice would be to require
the mortgagor to rectify the default within 45
working days.
 Cont’d
• A default warranting a notice to be served on
the mortgagor must have subsisted for 30
days from the date when the obligation to pay
becomes due. (S.19 (4)
 Contents of the notice
• To Inform the mortgagor of the following :
(S.19(3)
i) The nature and extent of default made by the
mortgagor
ii) The amount that must be paid to rectify the
default in not less than 21 working days.
iii) Action the mortgagor must take or desist from
taking so as to rectify the default in not less
than 21 working days
 Cont’d
iv) That if the default is not rectified within
the time specified in the notice, the
mortgagee will proceed to exercise any of
the remedies.
• In the case of General Parts (U) Ltd v N Part
SCCA No. 5 of 1999 court held that the
demand must be unequivocal and must state
the consequences
 Cont’d
• Mubiru v Uganda Credit and Savings[1978]
HCB 109 – The mortgagee must ensure that
the mortgagor is served personally and
evidence is obtained, if personal service can’t
be effected then the mortgagee must obtain
from the registrar direction for substituted
service.
 Cont’d
• Epaineti Mubiru v Uganda Credit and Savings
Bank[1978] HCB- The service of notice is
mandatory and the mortgagor should be
served personally
 Remedies of the mortgagee
• The remedies are provided for under s.20 M.A
a) Mortgagee’s action for money secured by
mortgage (s. 21)
• Mortgagee may sue for the money secured by
the mortgage.
b) Appoint a receiver of the income of the
mortgaged land
 Appointment of a receiver
• A receiver is a person appointed to receive
income of the mortgaged land and to use the
proceeds to reduce the mortgage debt.
• S.22(2) is to the effect that before appointing a
receiver, the mortgagee shall first serve a
notice on the mortgagor and shall not proceed
until the expiration of 15 working days from
the date of the service of the notice of
appointment of receiver.
 Cont’d
• How is a receiver appointed? S. 22(3) (4)
• A receiver deemed to be an agent of the
mortgagor . S. 22 (6)
• What are the powers of a receiver? S. 22 (7)
• How is a receiver remunerated? S. 22(8 )
• How is the money received by the receiver
disbursed? S. 22 (9)
 Mortgagee’s power of leasing
• S.23 of the Mortgage Act empowers a
mortgagee to grant leases in respect of the
mortgaged land or any part of the land and to
accept a surrender of any lease granted by the
mortgagor.
• Notice of 15 working days must be served
before granting a lease.
 Entering into possession of the mortgaged
land
• A mortgagee may enter into possession of the
mortgaged land after serving a notice of five
working days of his her intention to do so.
• How is possession effected? S.24 (2) a, b, c
• What are the duties of a mortgagee in
possession of any mortgaged land? S. 24 (5)
• Under what circumstances can a mortgagee
withdraw from possession of the mortgaged
land? S. 25 (1)
 MORTGAGEE’S POWER OF SALE
• This is the most common remedy .
• A mortgagee may exercise his or her power to
sell the mortgaged land where a mortgagor is in
default and remains in default at the expiry of
the period given to him to rectify. S.26(1)
• A notice to sell the mortgaged land must first be
served on the mortgagor and the sale must
proceed after 21 days from the date of the
service.
 Cont’d
• Who should be served with a copy of the notice
under s.26(3)?
• What are the duties of the mortgagee exercising
power of sale? S. 27(1) (2)
 Duty of care
 Where sale is by public auction mortgagee
must ensure that the sale is publicly advertised
in advance of the sale by auction. S. 28 (2), Reg 8
 Cont’d
The advert should be placed in a newspaper
that has wide circulation in the area
concerned.
It should include the picture of the mortgaged
property
Should specify the place of the auction
Specify date of the auction not earlier than
30days from the date of the first advert.
 Cont’d
• The duty of care is based on Lord Atkin’s well-
known ‘neighbour’ principle espoused in
Donoghue v Stevenson.
• The proximity between the mortgagee and the
mortgagor gives rise to a duty on the
mortgagee to take reasonable care to obtain
the market value of the land at the moment
the mortgagee chooses to sell.
 Cont’d
• The mortgagee also has to ensure that the
property is properly advertised before sale.
• In Mubiru v Uganda Credit Savings Bank [1978]
HCB 108 the mortgagee advertised in the
newspaper the mortgage sale of the suit
property by public auction simply as a parcel of
land being 4.26acres. The advertisement omitted
to mention that the land has been developed
and a permanent house constructed thereon.
 Cont’d
• It was held that failure to state these facts in the
advertisement was negligence because the
property could have been valued differently.
• In Sajabi v Amreliwala and Wamala[1956] 22
EACA 71 it was observed that if a mortgage sale
is by public auction which is duly advertised and
to all appearances properly conducted,
primafacie the mortgagee’s dual duty to sell in
good faith and with reasonable care was fulfilled
 Cont’d
• Where the sale is by private treaty, the mortgagor
must consent in writing. ( Reg. 10). It is incumbent
upon the mortgagee to make particularly sure that
the interests of the mortgagor are protected.
• Where the mortgagee fails to take reasonable
precautions or observe preliminary statutory
requirements prior to the sale, the mortgagor may
seek a temporary injunction to restrain the sale
from proceeding.
 Cont’d
• Where the sale is completed, the only available
remedy to a mortgagor is to institute proceedings
for compensation for loss suffered as a result of
the unlawful mortgage sale.
• This is reflected in S.29(4) MA.
• In Mubiru’s case the mortgagor was awarded
damages calculated as the difference between the
true market value of the property and the value
realised from the improperly conducted sale.
 Cont’d
• In Sajabi’s case where court found that the
mortgagee sold the land by private treaty
without serving the mortgagor the statutory
notice and conspired with the purchaser to
sell the land below its market value, it
awarded damages against the mortgagee and
the purchaser.
• Sec 29 protects purchasers.
 Cont’d
• S. 30 bars the sale of the mortgaged property
to the mortgagee, member of his family, his
agent etc. except with leave of court.
Application for relief against the exercise of
any of the remedies
• Who can apply for relief? S. 33(1)
• When can this application be made? S.33(3)
• Under what circumstances can a court review
a mortgage? S.34
• Who can apply for a review? S.35(1)
• When can this application be made? S. 35 (3)
• What orders can court make with respect to
mortgages that need to be reviewed? S.36
Remedies of Equitable mortgages
• In the case of Barclays Bank (U) Ltd V Northcote
and Another CS No 1467 of 1974 Ssekandi Ag J held
that the difference between an equitable mortgage
and a legal mortgage as regards remedies is that
whereas a legal mortgagee may realise his security
under a mortgage by exercising most of the
statutory powers conferred upon him without
recourse to the courts an equitable mortgagee must
apply to the courts for exercise of any of these
powers.
EQUITY’S PROTECTION OF A MORTGAGOR

• Equity’s protection of a mortgagor is summed

up in the maxim “once a mortgage always a
mortgage .”
• This maxim applies in two broad ways:
i) The test of a mortgage is substance and not
form
ii) There should be no clogs on the equity of
redemption
The test of a mortgage is substance and not form

• This means that irrespective of the form the

transaction or contract takes if in essence it is
a mortgage, then in equity it will be regarded
as a mortgage and all the consequences of a
mortgage will follow.
 No clogs on the equity of redemption

• This means that courts will not permit any

attempt by the mortgagee to exclude the
mortgagor’s right to redeem his or her
property.
• This maxim was explained in the case of
Samuel v Jarrah Timber & Wood Paving
Corporation [1904]AC 323 at 329
 Cont’d
• The doctrine once a mortgage always a
mortgage means that no contract between a
mortgagor and a mortgagee made at the time
of the mortgage as one of the terms, can be
valid if it prevents the mortgagor from getting
back his or her property on paying off what is
due on his security.
 Justification for Equity’s intervention
• Mortgages tend to be entered into by needy people
who would accept whatever terms crafty creditors
imposed on them.
• Matambulire v Yosefu Kimera CA 37 of 1972
The plaintiff in desperation to go on a pilgrimage to
Mecca mortgaged his land to the defendant on
condition that if the plaintiff failed to pay off the
loan within a specified period of time the defendant
would become the absolute owner of the land.
 Cont’d
• After the contractual date for payment had
expired, the defendant claimed ownership of
the land and rejected the plaintiff’s
subsequent attempts to redeem.
• It was held that the plaintiff was entitled to
redeem until his right to do so was foreclosed
by order of court or the land was disposed off
in a mortgage sale.
Clogs on the equity of redemption
• A clause in a mortgage agreement that gives
the mortgagee an option to purchase the
mortgaged property is a clog because it
deprives the mortgagor of his right to redeem
• A clause in a mortgage contract that provides
that a mortgage may not be redeemed earlier
from the date of contract is a clog on the
equity of redemption.
 Cont’d
• Fairclough v Swan Brewery Company Limited
[1912] AC 565. The mortgagor had a lease over a
hotel for a period of 17 years. He mortgaged his
lease to the respondent, a brewery company. The
mortgage was subject to a condition that the
mortgagor should not redeem earlier than six
weeks before his lease had expired and during the
continuance of the mortgage only beer brewed by
the plaintiff should be sold on the premises.
 Cont’d
• The defendant sought an earlier redemption
so that he could be released from the
restriction of having to sell only the plaintiffs
beer. The issue was whether a clause post
poning redemption was a clog on the equity of
redemption. Court held in the affirmative
because the right to redeem was illusory or
valueless.
 Collateral advantage
• This is any additional benefit to the payment of the
secured debt and interest which accrues to a
mortgagee under a mortgage agreement.
• Fairclough case. The collateral advantage in that case
was the monopoly for the marketing of the
mortgagee’s product.
• The traditional view in courts of England, was that
the essence of a mortgage was to secure money lent
and so any other advantage beside the basic object
was void.
 Cont’d
• This rule was gradually relaxed in line with
economic developments and the notion of
freedom of contract.
• More recent cases support the proposition
that a collateral advantage is not necessarily a
clog on the equity of redemption especially
where the advantage terminates upon
redemption.
 Restraint of trade
• Courts have inherent powers to intervene in
mortgage agreements on the ground that the
agreement is in restraint of trade.
• A contract that operates as an unreasonable
restraint of trade is invalid as being contrary to
public policy.
 Oppressive or unconscionable terms
• Courts will intervene if the terms are shown to be
morally reprehensible especially where one party
seeks unfairly to take advantage of another.
• In Juma v Habibu [19795] EA 108 , a mortgagor
sought a declaration that 60% interest rate per
annum was harsh and unconscionable. Mapigano
Ag J held that the interest rate was evidently
unconscionable and extortionate
 Cont’d
• Sub- mortgage
• Guarantee
• Third- party mortgage
• Tacking
• Consolidation
• Variation
• Transfer of mortgages
 Guarantee
• S.68 of the Contract Act defines a guarantee to
mean a contract to perform a promise or to
discharge a liability of a third party in case of default
of that third party.
• According to the Oxford Dictionary of Law, 6 th
Edition at page 246, a guarantee is a secondary
agreement in which a person known as the
guarantor is liable for the debt or default of another
person known as the principal debtor who is the
party primarily liable for the debt.
 Cont’d
• The obligation of the guarantor is to see to it
that the debtor performed his own obligations
to the creditor.
• Under S.71(1) of the Contract Act, a guarantor
is only liable to the extent to which the
principal debtor is liable.
• The liability of the guarantor takes effect upon
default of the principal debtor
 Implied promise to indemnify guarantor

• In every contract of guarantee, there is an

implied promise by a principal debtor to
indemnify a guarantor. S.85(1)
• A guarantor is entitled to recover from a
principal debtor any sum the guarantor
rightfully paid under the guarantee on the
contract.
• Karangwa Joseph v Kulanju Willy Civil Appeal
No. 03/ 2016
 Third-Party Mortgage
• It arises when security for the borrowing is
given by an individual or entity (a third party)
for the liability of a borrower.
• It is a secondary obligation in the form of a
guarantee.
• The mortgagor makes a contractual promise to
ensure that a borrower fulfils his or her
obligations and/or pay an amount owed by the
borrower if he/ she fails to do so.
 Cont’d
• In a third party mortgage, the mortgagor
secures credit advanced to another. In this
type of arrangement, the providers are
referred as “ 3rd party mortgagors” because
they are not a party to the loan contract
between a borrower and the bank.
• Guma Paulino v Bank of Africa and Others
Civil Suit No. 0013/2008