A Purchaser Cannot Claim Ownership or Seek Equitable Remedies Based on Unilateral Actions Undertaken Without Fulfilling Their Contractual Obligations, High Court Affirms.

This recent decision by Lady Justice Nkonge is a must read.

Key Issues Include the interpretation of two competing contracts,

The court has held, that for a contract to remain enforceable, the parties must fulfill their obligations within the stipulated timeframe. Failure to comply with these timelines can render the agreement void. Additionally, contracts that fail to adhere to mandatory legal procedures, especially in public procurement, are deemed invalid.

The case also highlights the consequences of unjustifiable renovations and alterations. A purchaser cannot claim ownership or seek equitable remedies based on unilateral actions undertaken without fulfilling their contractual obligations.

Regarding expropriated properties, aggrieved parties are required to exhaust all statutory remedies before seeking judicial intervention, as stipulated under section 75 of the Expropriated Properties Act (EPA). According to this provision, an aggrieved party may appeal to the High Court within 30 days from the date of communication of the Minister's decision.

The law thus provides a clear avenue for challenging irregularly issued certificates of purchase within this statutory timeframe. However, in this case, the plaintiff failed to pursue this remedy before resorting to court proceedings, thereby undermining the procedural requirements established by the Act.

Lastly, occupancy as a tenant does not confer ownership rights, particularly in the absence of compliance with purchase agreements.

Facts

This case begun with a promise....A publicly advertised expropriated property valued at UGX 25,000,000 was put up for sale through competitive bidding. The plaintiff emerged victorious, offering a bid of UGX 50,200,000, double the reserve price. By all appearances, it was a straightforward transaction: a 10% deposit was to be paid within five days, and the balance within 60 days. A sale agreement was executed on September 22, 1995, and the gavel of finality seemed ready to fall. But what followed was a winding journey into the depths of legal complications.

The First Contract

The plaintiff made an initial payment of UGX 5,200,000, as stipulated in the sale agreement. However, delays soon emerged. The plaintiff failed to meet the deadline for the first installment, paying weeks late on October 20, 1995. The balance of UGX 45,780,000 remained unpaid as the 60-day deadline passed, casting doubt over the plaintiff’s commitment. Years later, amidst ongoing non-payment, the plaintiff alleged that a bank draft for UGX 7,000,000, submitted as part of the purchase price, was misplaced by the first defendant and never cashed.

The Second Contract

Rather than enforcing the first agreement’s terms, a second contract was introduced on August 12, 1997. This new agreement reflected revised terms: the purchase price was reduced to UGX 27,000,000 due to the inhabitable state of the property. Like the first agreement, a 10% deposit was required within five days, with the balance payable within 60 days. However, this second contract was entered without explicitly canceling the first, creating ambiguity about the parties’ intentions

Delays and Cancellation

By March 16, 1998, the first defendant canceled the sale, citing non-payment. The plaintiff had failed to make any payments throughout 1997. Even after the cancellation, payments were irregular. Notably, UGX 7,000,000 was paid on April 24, 1998, months after the contract was terminated, leading to confusion about its status. In May 1998, the first defendant reiterated the cancellation and announced plans to re-offer the property for sale, though this re-tendering never occurred.

Arguments

The plaintiff’s counsel leaned on established principles of equity, citing cases like Senakula v. Sentiba and H.M. Kandingidi v. Essence Alphonse, arguing that the plaintiff had acquired an equitable interest in the property upon payment of the deposit. They contended that the first defendant, as trustee in title, could not unilaterally rescind the sale agreement.

However, the defense argued that procedural irregularities tainted the second contract, as the property was not re-tendered for sale before renegotiating terms.

Court's Analysis

The court acknowledged the principles of equity but emphasized that contracts are binding and must be honored within their stipulated timelines. The plaintiff’s failure to comply with both agreements’ payment schedules undermined their claims. Furthermore, the second agreement, introduced without proper cancellation of the first, created procedural irregularities.

The court also noted that while the plaintiff submitted a bank draft for UGX 7,000,000 as evidence of payment, this occurred after the contract’s cancellation. The draft, neither cashed nor receipted, was deemed irrelevant to the case. Ultimately, the plaintiff’s inability to meet the payment terms of either contract and the procedural flaws in the second agreement left their claims unsubstantiated.

The court ruled that the cancellation of the sale was lawful, citing the plaintiff’s persistent failure to adhere to contractual obligations. Any equitable interest the plaintiff might have had was voided by non-performance. As for the uncashed bank draft, it was not the responsibility of the first defendant to consider payments made after the agreements' termination. The court has also affirmed that,

The doctrine of approbation and reprobation, traditionally limited to trusts, wills, and succession, is extended to pleadings and evidence. It prevents parties from making contradictory statements or actions in the same proceedings.

The court also reaffirmed the principle that, in a sale of immovable property, upon payment of a deposit, the purchaser acquires an equitable interest in the property. This means the purchaser is potentially entitled to specific performance, granting them equitable ownership before full payment or transfer of title. As stated in Senakula v Sentiba, Civil Appeal No. 5 of 2013, In the current case, however, the court was faced with a unique scenario involving two distinct agreements between the plaintiff and the 1st defendant:

1. The First Agreement (22nd September 1995 The plaintiff, after emerging as the best bidder in a tendering process, agreed to purchase the property for UGX 50,200,000, paying an advance of UGX 5,200,000 (10%) within five days. The remaining balance was to be cleared within 60 days.

2. The Second Agreement (12th August 1997) Before completing the payments under the first contract, and without expressly cancelling it, the parties entered into a second agreement. This new contract was negotiated after the plaintiff discovered that the premises were uninhabitable. The purchase price was reduced to UGX 27,000,000, with similar payment terms (10% deposit within five days, balance within 60 days).
   

The second agreement effectively replaced the first contract, reflecting the reduced price and renegotiated terms. However, procedural irregularities were raised, particularly the absence of re-tendering the property before the second contract. In regards to the validity of the contract, the court has held that

A valid contract requires capacity under Section 11(1) of the Contract Act. Any person acting in a representative capacity must have express authority to bind another party. In this case, the person who executed the second contract on behalf of the plaintiff lacked such authority, rendering the agreement invalid.

While equity grants the purchaser an interest in the property upon execution of a sale agreement, this is contingent on compliance with contractual obligations. Non-performance may nullify the purchaser’s claim to equitable remedies.

The second contract’s legality was further undermined by the absence of re-tendering, which violated procedural requirements.

The court ruled that the plaintiff’s failure to fulfill contractual terms and procedural irregularities in executing the second agreement rendered the contract unenforceable. The additional payment of UGX 7,000,000, made after cancellation, did not revive the agreement or create new obligations for the 1st defendant.

Key takeaway

This case serves as a stark reminder of the importance of adherence to contractual terms and procedural integrity in property transactions. While equity may offer protection in certain circumstances, it cannot override fundamental breaches of contract.

Read the full case below https://ulii.org/akn/ug/judgment/ugca/2022/216/eng@2022-08-05 NB The timeline of this case is deeply troubling.

Filed in 2001, the decision was only delivered 25 years later, a glaring example of how justice delayed is justice denied.

The Judiciary must recognize that public perception is a cornerstone of trust in Uganda's legal system. Timely justice is not just a legal necessity but also a critical pillar for maintaining public confidence.