High Court Finds Fraudulent Misrepresentation Where Loan-Security Documents Were Passed Off as a Sale: Contracts Based on Fraud Are Void and Condominium Parent Titles Cannot Be Sold

Waboga David
5 days ago
9 min read

INTRODUCTION

The law of contract is founded upon the principles of genuine consent, lawful subject matter, and certainty of obligation. Where a party’s consent is procured through misrepresentation, or where the subject matter of the agreement has ceased to exist in law (res extincta), the resulting contract is rendered void or voidable, depending on the nature and gravity of the defect. These principles assume particular significance in land transactions, where parties predominantly rely on documents such as, title instruments and statutory property regimes to allocate risk and effect the transfer of proprietary interests.

The law further predicates that Misrepresentation occurs where one party makes a false statement of an existing or past fact that materially induces another to enter into a contract. Where such misrepresentation is fraudulent, made knowingly, recklessly, or without belief in its truth, it vitiates consent and renders the contract void.

In Uganda, the law has consistently recognised that fraud unravels all; accordingly, even formally executed written agreements cannot be sustained where they are founded upon fraudulent inducement. In such circumstances, the parol evidence rule under section 92 of the Evidence Act Cap 8, which ordinarily precludes oral evidence from contradicting or varying the terms of a written contract, yields to a settled exception permitting the admission of extrinsic evidence to establish fraud, misrepresentation, want of consideration, or other vitiating factors.

As such, the doctrine of res extincta thus operates to invalidate contracts whose subject matter does not exist at the time of contracting. This doctrine has acquired renewed importance in the context of condominium property, where statutory conversion fundamentally alters the legal character of land. Pursuant to section 3(1) of the Condominium Property Act, the registration of a condominium plan extinguishes the original “parent” or “mother” title and replaces it with distinct unit titles within a statutory framework of shared ownership. Upon such registration, the parent title ceases to exist as a transferable legal interest, and any agreement purporting to deal with it as a single saleable parcel is void for non-existence of subject matter.

These established principles were recently brought into sharp focus by the High Court (Commercial Division) in Twesigye Ephraim v Sendyona Mukasa Edward (Civil Suit No. 0905 of 2020). In that case, the Court dismissed a claim founded on an alleged sale of land, having found that documents intended to operate as security for a loan had been fraudulently transformed into a purported sale agreement, and that the supposed subject matter, the parent land title, had already been extinguished by prior condominium conversion. The decision provides helpful clarification on fraudulent misrepresentation, the parol evidence rule, and the legal effect of condominium registration.

Facts

The plaintiff, Twesigye Ephraim, entered into an agreement dated 15th May, 2019, with the defendant, Sendyona Mukasa Edward, purportedly for the purchase of land comprised in Kyadondo Block 183 Plot 1920 at Busozibulongo for UGX 400,000,000, paid in full as a lump sum at signing.

The plaintiff claimed that, unknown to him, the defendant had previously converted the property into four condominium units on 1st August, 2018, rendering the original "parent" title defunct. When the plaintiff attempted to register the transfer, it was rejected by the Commissioner of Land Registration, leading him to discover this fact.

The plaintiff then demanded a refund, which the defendant refused, prompting the suit for recovery of the purchase price, general damages for breach of contract, interest, and costs.

The defendant denied receiving any money for a land sale, asserting instead that the transaction was security for a UGX 100,000,000 loan extended by the plaintiff (and facilitated by a third party, P.W.3 Binamaryo Sankara) to Dixon Ampumuza alias Kagurusi (D.W.2), repayable over three months with UGX 13,000,000 interest.

The defendant claimed he provided his defunct "residue title" (post-condominium conversion) as collateral, along with signing a loan agreement, blank land sale agreement, and transfer forms, under the assurance they were merely security. He alleged the plaintiff and Kagurusi contrived a scheme to defraud him by altering the documents into a sale agreement.

The plaintiff replied that the transaction was purely a land sale and denied any fraudulent scheme.

ISSUES FOR DETERMINATION

Whether there was a valid contract for the sale of land between the Plaintiff and the Defendant.
Whether the Defendant breached the alleged contract of sale.
What remedies, if any, were available to the parties.

SUBMISSIONS

Plaintiff's Submissions

Counsel argued the contract was clearly for land sale, evidenced by the written agreement dated 15th May 2019. The Defendant admitted signing the contract and transfer forms. Oral evidence cannot alter the written contract under the parol evidence rule. The Defendant fraudulently concealed that the title had been converted to condominium units. Witnesses corroborated the land sale transaction. The Plaintiff was entitled to rescind and recover his payment.

Defendant's Submissions

Counsel submitted the Plaintiff could not even describe the land's location, undermining his claim to have purchased it. The evidence showed the Plaintiff's history of fraudulent land transactions. The lack of communication about the alleged sale for over a year, followed by messages only about locating Dixon Ampumuza, supported the lending narrative. No evidence showed attempts to take possession. The suit should be dismissed as a fraudulent scheme.

LEGAL REPRESENTATION

For the Plaintiff: M/s MACB Advocates
For the Defendant: M/s Byamugisha Gabriel & Co. Advocates

COURT'S FINDINGS

1. Assessment of Evidence, Credibility, and Inherent Probability

The Court reaffirmed the fundamental principle that evidence is assessed qualitatively rather than quantitatively, observing that:

“Evidence is weighed, not measured or counted.”

Justice Mubiru emphasised that the credibility, coherence, and inherent plausibility of testimony are more important than the sheer number of witnesses presented. In evaluating credibility, the Court relied on section 113 of the Evidence Act, which entitles a trial judge to draw conclusions based on common sense, ordinary human conduct, and life experience when determining whether testimony is believable.

The Court explained that:

“A narrative is deemed ‘inherently improbable’ when it defies logic, common experience, or contradicts established, independent facts.”

Applying this standard, the Court identified several red flags undermining the Plaintiff’s version of events.

(a) Irregular Contract Documentation

The alleged sale agreement was a generic printed form containing handwritten insertions that matched the Plaintiff’s handwriting. The Court observed that, at the time the document was prepared, critical details, such as the block and plot number, land size, location, and even the seller’s particulars, were missing. This supported the Defence position that the document was signed with blank spaces, which were later filled in unilaterally by the Plaintiff.

(b) Implausible Buyer Conduct

The Court found it inherently improbable that a purchaser allegedly paying UGX 400,000,000 in cash would fail to conduct proper due diligence. The Plaintiff claimed to have searched the title but somehow missed the clear endorsement indicating condominium conversion as of 1st August 2018. Further inconsistencies emerged from contradictory witness accounts regarding inspection of the property.

(c) Witness Bias and Lack of Independent Corroboration

All three Plaintiff witnesses were employees of the same company, Atlas Impex Limited. The Court noted that such workplace relationships create a risk of bias, making independent corroboration essential. No such corroborative evidence was produced.

(d) Admissions Against Interest

In contrast, Defence witness Dixon Ampumuza (DW2) made admissions exposing himself to potential civil liability, including acknowledging a debt of UGX 85,000,000. The Court recognised that:

A witness who makes admissions against their own pecuniary or legal interest is generally more likely to be truthful, as it is highly improbable that a person would voluntarily make statements damaging to their own position unless they believed them to be true.

(e) Material Falsehood

The Plaintiff claimed this was his first land transaction. However, documentary evidence from Wakiso Chief Magistrate’s Court Civil Suit No. 156 of 2016 showed that he had previously purchased and transferred land in August 2016. Justice Mubiru noted that:

“Deliberate untruthfulness in relation to a material piece of evidence may justify the rejection of the evidence of a witness.”

The Court found that the Plaintiff’s prior experience in land transactions was crucial in assessing the credibility of his alleged conduct.

2. Fraudulent Misrepresentation and the Parol Evidence Rule

Although section 92 of the Evidence Act generally prohibits oral evidence from contradicting the terms of a written agreement, the Court reiterated the settled exception that parol evidence is admissible to prove fraudulent inducement.

The Court found that the Plaintiff misrepresented the nature of the documents presented to the Defendant, inducing him to sign what he believed were loan-security documents, not a sale agreement. This conclusion was supported by multiple objective indicators, including:

The Defendant’s continued possession of the property, inconsistent with a completed sale;
WhatsApp communications focused on tracing Dixon Ampumuza, not enforcing a sale;
Absence of any evidence of steps taken to register a transfer (no stamp duty receipts or registration fees);
No attempt to take possession for over 18 months;
Multiple documents signed with blank spaces; and
A transfer instrument that was neither dated nor attested.

The Court concluded that the Plaintiff knowingly, recklessly, or without belief in the truth of his representations induced the Defendant to sign the documents. It reaffirmed the principle that:

“Misrepresentation of a material fact is actionable fraud. A contract based on fraudulent misrepresentation is void.”

3. Res Extincta and Condominium Titles

Even assuming the transaction had been genuine, the Court held that the contract was void for non-existence of subject matter. Applying the doctrine of res extincta and section 3(1) of the Condominium Property Act, the Court clarified that once a condominium plan is registered:

The original “parent” or “mother” title is closed;
Individual unit titles are created as separate legal entities; and
The property ceases to exist as a single transferable parcel.

The Court stated:

“A contract whose subject is the original ‘parent’ or ‘mother’ land title, after it has been replaced by condominium titles, is void.”

Because the land had been converted to condominiums on 1st August 2018, any purported sale of Kyadondo Block 183 Plot 1920 as a single unit after that date was legally impossible.

4. Failure to Prove Payment and Unjust Enrichment

Finally, the Court found no independent corroborative evidence of the alleged UGX 400,000,000 cash payment. There were no bank records, withdrawal slips, or third-party confirmations. Given the tainted nature of the Plaintiff’s testimony, the Court required independent, extraneous evidence, observing that:

“When evidence is suspected to be fabricated or tainted, independent, extraneous evidence is required to restore the Court’s faith in the testimony.”

In the absence of such evidence, the Plaintiff failed to prove that money was received by the Defendant, that there was any failure of consideration, or that the Defendant was unjustly enriched.

HOLDING

The Court dismissed the suit with costs to the Defendant, finding:

No contract of sale existed between the parties
No breach occurred as there was no valid sale contract
The Plaintiff's version was inherently improbable and contradicted by documentary evidence and witness conduct
The transaction was a loan arrangement fraudulently manipulated by the Plaintiff into appearing as a land sale
Even if genuine, the contract would be void as the subject matter (the original title) ceased to exist upon condominium conversion

KEY TAKEAWAYS

For Legal Practitioners

Parol Evidence Rule Has Exceptions
While section 92 of The Evidence Act prohibits oral evidence contradicting written contracts, fraud, misrepresentation, and mistake are well-established exceptions allowing courts to examine the true nature of transactions.
Condominium Conversion Creates Legal Impossibility
In transactions relating to condominium properties, practitioners must verify whether the original title still exists. A contract purporting to sell the "parent" title after condominium conversion is void for res extincta, regardless of the parties' intentions.
Credibility Trumps Numbers
Evidence is weighed, not counted. One credible witness making admissions against interest outweighs multiple biased witnesses. Courts scrutinize workplace relationships and financial interests when assessing witness credibility.
Material Lies Destroy Entire Testimony
Under the principle established in Alfred Tajar v. Uganda, deliberate falsehoods on material matters justify rejecting a witness's entire testimony, particularly when the lie cannot be separated from the truth.
Inherent Probability Matters
Courts apply section 113 of The Evidence Act to test whether testimony aligns with common human conduct. Behaviour inconsistent with reasonable expectations (like a buyer not taking possession for 18 months) raises serious credibility concerns.

For Conveyancing Practice

Always Conduct Current Title Searches: Never rely on copies of titles provided by sellers. Current searches would reveal condominium conversions, encumbrances, and other critical information.
Document Cash Transactions Properly: Large cash payments require corroboration through bank records, acknowledgment receipts, or independent witnesses. Failure to document payment can be fatal to claims.
Complete Transfer Documents Before Payment: The undated, unattested transfer instrument was strong evidence against the Plaintiff. Best practice requires completing all documentation contemporaneously with payment.
Verify Condominium Status: When dealing with properties that could be condominiums, verify whether conversion has occurred and obtain individual unit titles, not the defunct parent title.

For Lenders and Security Arrangements

Beware Blank Document Schemes
The practice of having parties sign documents with blank spaces creates vulnerability to fraud. All material terms should be completed before signature.
Security Documents Must Match Reality
When taking land as security, ensure documentation accurately reflects the security arrangement, not disguised as an outright sale which could be challenged as fraudulent misrepresentation.
Monitor Loan Arrangements Carefully
The WhatsApp communications showing the Plaintiff tracking the borrower (Dixon Ampumuza) rather than pursuing his alleged land purchase were telling evidence of the true transaction nature.