High Court Declares Mortgage Void: Loan Granted to Deceased Borrower Invalidates Sale and Caveat on Company Land

Waboga David
Jun 29
9 min read

Introduction

In the recent High Court’s decision in Bukoyo Jaggery Mill Ltd v. Post Bank Uganda Ltd & Anor (Judgment delivered on 26th June 2025), the Court resolved multiple issues arising from a fraudulent loan transaction purportedly secured against the Plaintiff company’s land.

Central to the dispute was whether a valid loan agreement existed between the Plaintiff and the Defendants, and whether the Defendants lawfully advertised the Plaintiff’s property for sale.

The Court found that the alleged borrower, Musolo Moses, had died in 1989, nearly a decade before the purported loan documents were executed in his name in 1998.

Consequently, the Court held that no valid mortgage or loan agreement was binding on the Plaintiff, and the Defendants' actions, lodging a caveat and advertising the suit property, were unlawful. The judgment reinforces the legal requirement of due diligence in lending transactions and affirms that fraudulent dealings cannot confer enforceable rights or interests.

Facts

The Plaintiff, a registered company and proprietor of land at Bukoyo, Iganga, sued the Defendants seeking declarations, injunctive relief, and damages. The claims stemmed from a 1999 loan that the Defendants alleged had been extended to Musolo Moses t/a Bukoyo Jaggery Mill, secured against the Plaintiff’s land. The Plaintiff denied ever borrowing the funds and argued the loan was fraudulently executed long after Musolo Moses had died in 1989.

In 2014, the 2nd Defendant advertised the suit property for sale, prompting the Plaintiff to investigate and discover the alleged fraudulent mortgage and caveat. The Plaintiff asserted that the 1st Defendant unlawfully lodged a caveat on the suit land and that the 2nd Defendant's attempted sale was illegal, resulting in loss of use of its property and substantial financial inconvenience.

The Defendants denied wrongdoing, arguing that their dealings were not with the Plaintiff but with Musolo Moses personally. They raised a preliminary objection that the suit was barred by the 12-year limitation period.

The Court rejected this objection, ruling that under Section 25 of the Limitation Act, time starts to run in fraud cases from the date of discovery, which in this case was May 2014. The suit, filed in April 2015, was therefore within time.

Issues

Whether the 1st Defendant lawfully lodged a caveat on the suit property.–
Whether the Defendants’ action of advertising the suit property for sale was lawful
Whether the Plaintiff entered into a Loan Agreement with the 1st Defendant.–
Whether there was a breach of the Loan Agreement.
What remedies are available to the parties.

Plaintiff’s Submissions

Counsel for the Plaintiff submitted that:

The loan of UGX 6,977,858/= was advanced by the 1st Defendant on 12th October 1998 and secured by a caveat registered on the Plaintiff’s land on 17th April 1999 under Instrument No. 300712.

However, the 1st Defendant admitted (in paragraphs 3, 4, and 6 of its written statement of defence) that the loan was not issued to the Plaintiff but to a third party, Musolo Moses.

According to Section 184 of the repealed Companies Act, borrowing and pledging company property require a board resolution. The decision in Necta (U) Ltd & John Ndyabagye v Crane Bank (C.A.C.A No. 219 of 2013) supports the requirement of such formal authorization.

The Defendants did not produce any board resolution or power of attorney authorizing Musolo Moses to pledge the Plaintiff’s property.

PW1 (Plaintiff's witness) confirmed in his evidence that no resolution was found at the Uganda Registration Services Bureau.

Therefore, the lodgment of the caveat was unlawful, and the subsequent advertisement of the property for sale was invalid.

2nd Defendant’s Submissions

Counsel for the 2nd Defendant (the official liquidator of the 1st Defendant) argued that:

Musolo Moses t/a Bukoyo Jaggery Mill entered into a Loan Agreement with the 1st Defendant on 12th October 1998 (DEX 3).

The Plaintiff admitted the 1st Defendant is in liquidation and that the 2nd Defendant is acting as liquidator.

The loan was to be repaid by Musolo Moses, and the suit land was pledged as security for the loan.

Although the Plaintiff attempted to alter the name on the loan documentation to insert “Ltd,” it was not counter-signed by the Registrar of Titles.

Therefore, the 1st Defendant was justified in lodging a caveat against the suit land on 7th April 1999.

Plaintiff’s Rejoinder

In response, the Plaintiff’s Counsel submitted that:

PW1 presented PEX 11, a land registry search report dated 1st February 2017, which confirmed that the Plaintiff is the registered proprietor of the suit land.

DW1 failed to link the Plaintiff or its property to the alleged loan transaction involving Musolo Moses.

The 1st Defendant’s caveat was based on a transaction with a third party who had no legal authority over the Plaintiff's property.

Thus, the caveat was fraudulent and illegal.

Key Holding of Issue 1

The High Court held that the 1st Defendant unlawfully lodged a caveat on the suit property registered in the Plaintiff’s name.

The court found no evidence of a valid board resolution or corporate authority permitting the use of the Plaintiff company’s property as security for a loan granted in 1998.

Critically, Musolo Moses, the purported borrower, had died in 1989, nearly a decade before the contested loan was issued. The court thus concluded that either the 1st Defendant dealt with a non-existent person or another individual of similar name, in either case lacking authority over the Plaintiff’s land.

Key Findings

Corporate Authority is Paramount
Lending institutions must ensure that a company resolution is in place before accepting company property as loan security. In its absence, such transactions risk being invalidated for lack of proper authorization under company law (see Necta (U) Ltd v Crane Bank (C.A.C.A No. 219 of 2013)).
Due Diligence in Secured Lending
The court reaffirmed the duty of banks and financial institutions to conduct thorough due diligence, especially when accepting corporate property as collateral. Failure to verify corporate approvals or the identity of borrowers may lead to loss of legal protection under caveats and mortgages.
Improper Caveats are Voidable
A caveat must be backed by a legitimate and legally recognizable interest in land. Where the caveat is based on a void transaction or unauthorized pledge of property, as in this case, it will be struck out for unlawfulness.
Lenders Beware of Posthumous Transactions
The court emphasized the legal impossibility of contracting with a deceased person. Lending based on representations by or for deceased individuals, without proof of legal succession or corporate linkage, is fatally defective.

Key Holding on Issue 2

The Court held that the advertisement of the Plaintiff’s land for sale by the 2nd Defendant was unlawful because the underlying mortgage documents (DEX 3, DEX 4, and DEX 5), which were executed on 12th October 1998, were signed in the name of Musolo Moses, who, according to unrebutted evidence (PEX 9), had died on 6th October 1989.

Since a deceased person cannot contract or create valid legal obligations, the Court found that the 1st Defendant never obtained a valid mortgage interest in the Plaintiff’s property.

As such, the 2nd Defendant (who took over the 1st Defendant’s loan portfolio) could not enforce rights that never legally existed.

Key Findings

Void Mortgage Cannot Ground Foreclosure
The court emphasized that the mortgagor–mortgagee relationship must be grounded in a legally valid and enforceable mortgage. Documents purportedly signed by a deceased person are a legal nullity and cannot support the statutory power of sale.
Illegality of Derivative Title
Under the principle nemo dat quod non habet (one cannot give what one does not have), the 2nd Defendant, having acquired rights from the 1st Defendant, could not derive an interest in land based on a void transaction.
The Transfer Agreement (DEX 2) was therefore ineffective in conferring any rights over the suit property.
Foreclosure Must Be Lawfully Rooted
Citing Section 19(e) of the Mortgage Act and Housing Finance Bank Ltd v Seninde Margaret (OS No. 7 of 2021), the court noted that while foreclosure is a legitimate remedy, it must be exercised based on a valid mortgage.
In this case, the mortgagor was deceased long before the loan documentation was created, voiding any basis for enforcement.
Silence on Material Evidence is Fatal
The 2nd Defendant failed to challenge key evidence, including the death certificate of Musolo Moses and the Plaintiff’s registered ownership of the property. This silence significantly weakened its legal footing.

Resolution of Issues 3 & 4

The Court resolved that no Loan Agreement existed between the Plaintiff company (Bukoyo Jaggery Mill Ltd) and the 1st Defendant (a defunct bank), and therefore no breach of such an agreement could have occurred.

The Court condemned the Defendants’ reliance on loan documents purportedly executed by Musolo Moses, who was proven to have died nearly a decade before the alleged loan transaction.

The Court answered both issues in the negative, finding that the alleged loan transaction was fraudulent, baseless, and legally non-existent.

Key Findings

No Valid Contract Can Arise from a Deceased Person
The Plaintiff's witness (PW1) adduced a medical certificate of death (PEX 9) issued by Uganda’s Ministry of Health showing that Musolo Moses died on 6th October 1989, whereas the purported Loan Agreement was dated 12th October 1998.
The 2nd Defendant did not object to the authenticity of this evidence during trial, nor did they call any witness to rebut it.
Defendants Admitted They Never Dealt With the Plaintiff
The 2nd Defendant consistently maintained that they dealt with Musolo Moses t/a Bukoyo Jaggery Mill, not the Plaintiff company. However, the suit property was and remains registered in the name of Bukoyo Jaggery Mill Ltd, as per PEX 3 and PEX 11. This confirmed that the Plaintiff had no involvement in the loan, and its land was improperly used as collateral.
Due Diligence Failure Results in Fatal Defect
The Court found that no due diligence was exercised by the 1st Defendant when granting the loan. The bank did not verify the borrower’s identity or legal status.
It failed to obtain or rely on any valid company resolution or identification documentation—key requirements when dealing with company property.
Fraudulent Conduct Undermines Transaction Validity
The Court expressed strong concern that a loan could be issued in the name of a deceased individual using property belonging to a corporate entity that had not authorized the transaction. It held that this indicated a clear case of fraud.
No Breach Without a Binding Agreement
Citing Sharif Osman v Hajji Haruna Mulangwa (SCCA No. 38 of 1995) and Section 9 of the Contracts Act, the Court emphasized that a binding contract must involve parties with legal capacity and mutual consent. Since no such contract existed, no breach could occur.

Finally

The Court ruled that there was no legally valid Loan Agreement between the Plaintiff and the 1st Defendant. The purported agreement was based on fraudulent documentation, including the involvement of a deceased person. As a result, no breach of contract could be attributed to the Plaintiff, and the Defendants' actions based on that agreement—including lodging a caveat and advertising the property for sale—were wholly unlawful.

Resolution of the 5th Issue

The Court awarded general damages, interest, and costs to Bukoyo Jaggery Mill Ltd, declaring that the 1st Defendant unlawfully lodged a caveat on the Plaintiff’s land and that the 2nd Defendant’s actions in advertising the property for sale were unjustified and unlawful. The Court also found that no loan agreement existed, and that the transaction at the heart of the dispute was founded on fraud.

Key Remedies Granted:

General Damages – UGX 50,000,000
The Plaintiff was awarded UGX 50 million in general damages as compensation for being wrongfully deprived of its certificate of title since 1998 and suffering substantial operational disruptions for over two decades.
The Court noted that the Plaintiff had been prejudiced by the 1st Defendant's caveat and the 2nd Defendant’s attempts to dispose of the property, which caused economic harm.
Interest – 6% Per Annum
The Court exercised its discretion under Section 26 of the Civil Procedure Act to award interest at 6% per annum on the general damages from the date of judgment until payment in full. The Plaintiff had requested 15%, but the Court found this excessive in light of prevailing economic conditions.
Costs of the Suit
Following Section 27(2) of the Civil Procedure Act, the Court held that since the Plaintiff had succeeded on all substantive issues, it was entitled to recover the costs of the suit.

Court Declarations and Orders

The 1st Defendant illegally lodged a caveat on the Plaintiff’s property.
The Defendants are unlawfully in possession of the Plaintiff’s certificate of title.
The 2nd Defendant is ordered to return the certificate of title to the Plaintiff.
The Commissioner for Land Registration is directed to remove the caveat from the land register.
A permanent injunction restrains the Defendants, their agents, or servants from disposing of the suit property.

Legal Significance:

✅ Due Diligence Is Non-Negotiable

The Court re-emphasized that financial institutions and their successors must verify borrowers' legal capacity and ownership before engaging in secured lending. In this case, a loan was fraudulently executed in the name of a deceased person—rendering the entire transaction void.

✅ Fraudulent or Reckless Conduct Will Be Penalized

This judgment sends a strong message that reckless lending practices, particularly where company property is involved without proper resolutions or verification, will not only be invalidated but may also lead to damages, injunctions, and adverse cost awards.

Conclusion

This decision is a significant reaffirmation of property rights, corporate governance requirements, and the importance of lawful and verifiable transactions in secured lending. Lenders, liquidators, and registrars are advised to take note of the heightened standard of diligence and documentation required when dealing with third-party property, especially in the context of insolvency and asset recovery.

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