Court Upholds Equitable Mortgage and Non-Judicial Foreclosure in Loan Default Case, Affirms That A person May Not Raise the Defence of Non-est factum if Guilty of Negligence in Signing a Document.

Waboga David
Oct 26
12 min read

Introduction

Imagine a small business owner in Wakiso who borrows UGX 50 million from a microfinance institution to expand his transport business. The lender retains a portion of the funds for “fees,” demands 10% monthly interest on a top-up facility, and later auctions his kibanja land after alleged default—claiming a balance exceeding UGX 80 million. The borrower insists the agreement was forged, that he never consented to a merger of loans, and that the interest charged was “daylight robbery.” When he sues, arguing that he was misled, illiterate, and exploited, the lender counters with a signed contract and loan ledgers.

At the heart of such disputes lies a question between freedom of contract and judicial intervention against unfair terms. How far can a borrower go in disowning a signed contract on grounds of forgery, illiteracy, or unconscionability? Can courts reopen interest terms in commercial lending without undermining contractual certainty? And what protections exist for borrowers who pledge unregistered or customary land as security?

Overview

In a significant decision, the High Court (Commercial Division) confronted these very questions in Nasser Galiwango Mukasa v Uganda Micro Credit Foundation Ltd and Others (Civil Suit No. 12 of 2018) [2025] UGCommC 383 (20 October 2025). The case, which turned on loan enforcement, equitable mortgages, and borrower protections, offers a clarification of the doctrines of non est factum and unconscionability in Uganda’s credit market.

The Court rejected the defenses of non est factum and procedural unconscionability but intervened on substantive unconscionability grounds to reduce excessive interest rates. It underscored the heavy evidentiary burden on borrowers alleging forgery or illiteracy-based defenses, reaffirmed that repealed laws continue to apply to vested contractual rights, and confirmed the Court’s equitable jurisdiction to reopen harsh or oppressive loan terms.

Facts

On August 25, 2016, the Plaintiff, Nasser Galiwango Mukasa, obtained a business loan of UGX 50,000,000 from the Defendant, Uganda Micro Credit Foundation Ltd, for a 24-month repayment period at 3% monthly interest (36% per annum). Security included:

A land sales agreement for an unregistered kibanja (customary land holding) at Bulenga–Sumbwe, Wakiso District (approximately 45.5 x 73.5 x 38 feet);
A Mercedes Tractor Head (Reg. No. UAX 814W); and
A Flat Bed Truck (Reg. No. UAD 378Z).

The loan was guaranteed by the 2nd, 3rd, and 4th Counter-Defendants—Katende Erisa, Baliddawa Joseph, and Biddawo Stella (the Plaintiff’s wife). The Defendant disbursed UGX 40,000,000, retaining UGX 10,000,000 for insurance, security perfection, and administrative fees.

On October 21, 2016, the Plaintiff secured a top-up “emergency” loan of UGX 25,000,000, repayable in one month at 10% monthly interest (120% per annum), guaranteed by the 2nd and 3rd Counter-Defendants. The Defendant disbursed UGX 24,000,000, retaining UGX 1,000,000 as fees. The Plaintiff alleged that he was not provided copies of the agreements and that several repayments (totalling approximately UGX 41,343,950 across both loans) were not reflected in the Defendant’s ledgers.

The Defendant contended that, at the Plaintiff’s request, both loans were merged on December 19, 2016, resulting in a consolidated agreement dated March 31, 2017, for UGX 79,476,400 (including accumulated interest), at 3% monthly interest (36% per annum), guaranteed by the 2nd, 3rd, and 4th Counter-Defendants. By the time the suit was filed in January 2018, the alleged outstanding balance stood at UGX 88,643,407.

Upon default, the Defendant issued a notice of default (October 28, 2017) and a notice of sale (October 19, 2017), later advertised in The Monitor (December 12, 2017). The kibanja was valued twice (per a report dated March 4, 2019) and sold at public auction on July 9, 2019, for UGX 28,000,000, leaving an alleged balance of UGX 63,643,407. The vehicles were never recovered.

The Plaintiff denied the existence of the merger agreement, alleging forgery, unconscionable interest, under-disbursement, and illegal sale without court order.

The 4th Counter-Defendant denied guaranteeing any loan post-merger.

Issues

The parties framed the following issues for determination:

Whether the loan agreements between the Plaintiff and Defendant are legally valid and enforceable.
Whether there was a breach of the loan agreements by the Plaintiff and, if so, by how much.
Whether the Plaintiff’s property at Bulenga–Sumbwe, Wakiso District, is liable for attachment.
Whether the attachment and sale of the property were legal.
What remedies are available to the parties.

Submissions

Plaintiff’s Submissions

Counsel argued that the loans fell under the repealed Money Lenders Act, as the contracts predated the commencement of the Tier 4 Microfinance Institutions and Money Lenders Act, 2016 (effective July 1, 2017). Under section 12(1) of the repealed Act, interest exceeding 24% per annum was presumptively unconscionable, warranting reopening under section 11.

The Plaintiff denied signing the March 31, 2017 merger agreement, alleging forgery—citing inconsistencies in signatures and dates, and the Defendant’s failure to produce the attesting witness. He also challenged the mortgage deed (dated June 21, 2016) for lacking attestation or seal and for omitting any waiver of court oversight in the event of sale.

Counsel further submitted that the sale was illegal, as section 7 of the Mortgage Act required court approval for the sale of customary land, and that substantial repayments were made prior to auction. The outstanding balance, after accounting for repayments and recalculating the 10% interest, was UGX 43,656,050. The Plaintiff sought declarations of unconscionability and forgery, account reconciliation, an injunction, damages, and costs.

Defendant’s Submissions

Counsel argued that the Defendant was exempt from the Money Lenders Act under section 21(1)(c), as the loan was secured by an equitable mortgage on immovable property. The Plaintiff was estopped by conduct from denying the merger, having requested it, signed all pages, and benefited from the funds. Breach was established through loan ledgers showing underpayments, default on the top-up loan, and post-merger non-repayment.

An equitable mortgage, it was argued, arose by deposit of the land sales agreement with intent to secure a debt, requiring no memorandum. Clause 8.3 of the agreement waived the need for court intervention. The sale process—including notice, valuation, and advertisement—was regular and lawful, and proceeded despite the pending suit since the Plaintiff offered no alternative security. The Defendant counterclaimed for UGX 88,643,407 (later reduced to UGX 63,643,407 after the auction).

4th Counter-Defendant’s Submissions

Counsel denied any guarantee, contending that the June 29, 2017 form was forged and illogical as it post-dated the initial loans. She only provided spousal consent (Exhibit D.4) and should not be held liable.

Plaintiff’s Rejoinder

Counsel maintained that the merger ledger showed false disbursements (entry dated March 1, 2017), and unreflected payments totaling UGX 32,552,350. The sale, he reiterated, required a court order under section 7 of the Mortgage Act.

Legal Representation

For the Plaintiff: M/s Sserunjogi & Partners Advocates.
For the Defendant: M/s Frank Tumusiime & Co. Advocates.
For the 4th Counter-Defendant: M/s Sserunjogi & Partners Advocates.

Court’s Findings

Issue 1: Validity and Enforceability

The Court rejected the non est factum defense, holding the agreements valid. Producing signed agreements served as prima facie proof of execution, shifting the burden to the Plaintiff to prove forgery or lack of consent—a “heavy burden” requiring “clear, positive, and convincing evidence” beyond mere assertion (Sebuliba v. Cooperative Bank Ltd [1987] HCB 130).

No expert handwriting analysis revealed discrepancies, and acknowledged signatures on earlier documents matched those in dispute. The claim of illiteracy (a primary four dropout) was unsubstantiated. The Court observed:

“A person may not raise the defence of non-est factum if he has been guilty of negligence in appending his signature to the document which he wishes to disown. He must prove that he took all reasonable precautions in the circumstances.”(citing Saunders v. Anglia Building Society [1971] AC 1004).

The Plaintiff understood the general nature of the loan documents and even made repayments for 18 months—conduct inconsistent with his fraud claim.

On unconscionability, the Court found that the Money Lenders Act was inapplicable due to the section 21(1)(c) exemption for secured loans. Nonetheless, substantive unconscionability existed in the 10% monthly (120% annual) rate, which was “manifestly predatory, oppressive, unfair, or overly harsh as to shock the conscience,” far exceeding the 2017 market average of 20% (Bank of Uganda Lending Survey).

Procedural unconscionability was absent, as the Plaintiff was not coerced, and terms were negotiable. Retrospective application of the Tier 4 Act and the 2024 Interest Rate Notice (capping at 33.6%) did not affect vested rights under section 13(2) of the Interpretation Act.

“Although there is some level of disparate bargaining power... the contract formation process has not evinced significantly unequal bargaining power, coercive tactics, deceptive language, or hidden terms. On the other hand... the rate of 10% per month (hence 120% per annum)... is nearly four times over the standard rate... almost certain to result in default for the average borrower.”

Breach and Quantum

Breach was established through the Defendant’s ledgers showing underpayments, default on the top-up loan, and post-merger non-repayment. However, the Court adjusted the quantum downward for unreflected payments and reduced the interest rate.

Property Liability

The Court held that the kibanja was liable for attachment, finding that an equitable mortgage had been created by deposit of the sales agreement with intent to secure the debt, even without a memorandum.

Legality of Attachment and Sale

The sale was held legal, as proper notices were served, valuations conducted, and advertisements published. Clause 8.3 waived the requirement of court recourse, and section 7 of the Mortgage Act did not apply to customary land transactions.

Interest Rates (Issue 1)

Some rates were found to be unconscionable under the Contracts Act (for example, excessive penalties), but adjustments were made without a full declaration.

“Aspects of the interest charged were unconscionable, and I made the necessary adjustments.”

Breach by Default (Issue 2)

Breach was proven. The loans were fully utilized, and partial repayments were acknowledged but insufficient. The burden shifted to the Plaintiff to prove payments or deductions, which he failed to do without corroboration. Unreflected payments amounting to UGX 29,010,750 (pre-merger) were deducted, reducing the outstanding amount to UGX 50,465,650 as of 31 March 2017.

“The Defendant has proved, on the balance of probabilities, that the Plaintiff breached his contractual obligations when he failed to pay the sum of UGX 50,465,650 and interest that has accrued thereon since then.”

On disbursements:

“The Plaintiff’s version, not having been corroborated by any other evidence, means he has not discharged the burden of proving that the Defendant made deductions in amounts that exceeded what was agreed upon.”

On the merger:The signatures matched, and the guarantors signed the documents.

“I therefore reject the Plaintiff’s denial and find that he applied for and was granted a restructured arrangement which combined both loans.”

Property Liability (Issue 3)

The property was liable as a valid equitable mortgage over the unregistered kibanja. The mortgage was created by the deposit of ownership documents with the intent to secure the loan (Sections 129 of the RTA and 2 of the Mortgage Act). It operated as a continuing security covering both loans. Spousal consent was valid, and no fraud was proven.

“The transaction between the Plaintiff and the Defendant meets all these criteria.” “The Plaintiff’s assertion that the land was never mortgaged to the Defendant is not supported by the evidence and is therefore hereby rejected.”

Legality of Sale (Issue 4)

The sale was valid as a non-judicial foreclosure. The power of sale under Clause 8.3 did not constitute a clog on the right of redemption:

“A power of sale in a loan agreement or mortgage deed, not being a condition intended to prevent the borrower from reclaiming their property, is not a clog on the right of redemption.” [¶114]

The kibanja was not customary tenure requiring mediation; hence, Section 7 of the Mortgage Act was inapplicable:

“Transactions relating to a kibanja holding are not exclusively regulated by the civil customary law... Section 7 of the Mortgage Act is intended for a different context.”

Procedures were duly complied with:

Demand and Default Notices: Served on 18 September 2017 (D.Ex.15).

“A lawful demand notice has to be made which is unequivocal and unconditional.”

Mode of Sale:
Public auction (Section 28(2) of the Mortgage Act; Regulation 8).
“The land was advertised for sale by public auction... There is no evidence to show that the Defendant set the price and on that basis entered into negotiation.”
Valuation:
Conducted on 6 March 2019, with sale in July 2019, valuing the land at UGX 26 million (forced value) and sold for UGX 28 million.
“The valuation was thus undertaken within the statutory period.”
Notice and Possession:
21-day notice (D.Ex.16) was issued, and possession was peacefully handed over.

“The power of sale accrues upon the expiry of forty-five (45) working days... The sale can only take place after twenty-one working days.” “There not having been an error in the notice, and the default not having been rectified, there was no need for a fresh notice.”

Advertisement: Published in The Daily Monitor on 12 December 2017 with sufficient details.

“The advertisement serves two purposes: one is to notify intending buyers, and the other is to give time to the borrower.”

Sale and Payment:

Conducted by public auction to the highest bidder; full payment made upon signing. Directory timelines under Regulation 14 were substantially met, and no substantial injury arose from any procedural irregularity.

“Having undertaken a thorough evaluation, I have not found any irregularity that occasioned substantial injury.”

The purchaser therefore acquired good title under Section 29(1) of the Mortgage Act.

Remedies (Issue 5)

The Plaintiff’s claims were dismissed, as no fraud or unconscionability was proven beyond the earlier interest adjustments. No injunction or damages were awarded. The Defendant, Uganda Micro Credit Foundation Ltd (UMCF), was entitled to recover the principal sum, interest, and costs.

The guarantors were held jointly and severally liable, as they had executed binding personal guarantees:

“The 2nd, 3rd, and 4th Counter-Defendants executed irrevocable personal guarantees and assume primary liability.”

Where default is established on the part of the principal debtor, the guarantors are immediately liable to the full extent of the obligation and it does not matter whether or not there has been any notice to them or even other options first explored by the creditor in a bid to recover the debt.

Both parties, i.e., the principal debtor (the borrower) and the guarantor, are jointly and severally liable to pay the loan. This means they can be pursued separately or together for any outstanding balance. For as long as there is money due and owing to the creditor, all guarantors are jointly and severally liable to the creditor insofar as the recovery of outstanding sums is concerned. Although a guarantor is ordinarily liable for the debt or default of another (principal debtor) who is the party primarily liable for the debt, the creditor may pursue all the guarantors and the principal debtor jointly or separately in different kinds of proceedings (see Mian Aqueel and another v. Exim Bank (U) Limited, H.C. Misc. Application No. 497 of 2017). The fact that the obligations of the guarantor arise only when the principal has defaulted in his or her obligation to the creditor does not mean that the creditor has to demand payment from the principal or from the guarantor, or give notice to the guarantor before the creditor can proceed against the guarantor. The question of whether demand is necessary is a matter of construction of the relevant contracts, i.e. it is a matter on the merits of each case.

No separate general damages were awarded, as the interest awarded was deemed sufficient compensation.

Holding

The Plaintiff’s suit was dismissed with costs to the Defendant.
Judgment entered for the Defendant on the counterclaim as follows:a. UGX 50,465,650 (outstanding principal as of 31 March 2017);b. Interest at 36% per annum from 31 March 2017 until payment in full; andc.
Costs of the suit and counterclaim.
The 2nd, 3rd, and 4th Counter-Defendants were held jointly and severally liable as guarantors.
Proceeds of the sale were properly applied, and no surplus was due to the Plaintiff.

Key Takeaways

Non Est Factum Burden: Borrowers alleging forgery or illiteracy must produce expert signature evidence and prove non-negligence. Post-repayment conduct undermines such defenses (Saunders principle).
Unconscionability Sliding Scale: Courts may reduce excessive rates (e.g., 120% per annum) to market-aligned levels despite valid contracts, balancing fairness with freedom of contract.
Mortgage Exemptions: Loans secured on immovable property are exempt from usury limits under the Money Lenders Act. Equitable mortgages may arise from deposit and intent, without formal registration.
Retrospectivity Limits: Repealed laws govern contract validity at formation, while new laws apply prospectively to enforcement—protecting vested rights (Interpretation Act, s. 13).
Guarantor Risks: Post-dated or forged guarantees are void; spousal consent alone does not constitute a guarantee.
Practical Guidance: Lenders should justify high-risk pricing with documentation, while borrowers must retain copies, disclose illiteracy, and seek legal advice. This ruling strengthens lender recovery in microfinance yet signals judicial scrutiny of predatory lending terms.
Evidentiary Burden on Borrowers: Borrowers must corroborate claims of under-disbursement or unreflected payments with evidence beyond self-serving testimony. Ledgers/acknowledged documents prevail unless rebutted (e.g., via independent witnesses or records). Lenders should maintain detailed, accessible ledgers to shift the burden effectively.
Equitable Mortgages on Unregistered Land: Valid via deposit of ownership documents with intent to secure (no formal registration needed). Continuing security clauses extend coverage to future/merged facilities. Spousal consent is mandatory for matrimonial homes (Mortgage Act, s.5).
Power of Sale Clauses: Waivers of judicial foreclosure are enforceable if limited to default scenarios; not "clogs" on redemption. Lenders can proceed non-judicially, but must prove waiver in agreements.
Kibanja Holdings and Customary Tenure: Not automatically "customary" under Land Act ss.2-3; statutory rights (Land Act s.29) govern, exempting from mediation/foreclosure mandates (Mortgage Act s.7). Clarifies distinction from pure customary systems.
Foreclosure Procedures: Strict compliance with notices (45-day default, 21-day sale), valuation (within 6 months), and advertisement (30 days, wide circulation) is mandatory, but minor/directory breaches (e.g., payment timelines) do not void sales absent "substantial injury." Fresh notices unnecessary for accruing interest/delays without cure. Valuations focus on "forced sale value" in distress scenarios, not full market value.
Guarantor Liability: Joint and several from execution; no prior demand/recourse to principal debtor required. Lenders can pursue guarantors independently post-default.
Interest and Damages: Courts may adjust unconscionable rates but award contractual rates (or "just and reasonable" under Civil Procedure Act s.26) from breach date. Interest compensates for "time value of money"; separate general damages duplicative in pure debt cases.
Broader Implications: Reinforces lender protections in microfinance/SME lending, but underscores fairness (e.g., pro rata application of proceeds). Borrowers: Retain all payment proofs. Lenders: Document every step to avoid "material irregularity" challenges. Appeals may test kibanja classification or "substantial injury" thresholds.