Where a Loan Transaction Is Disguised as a Land Sale, Such Transactions are Fraudulent and Unenforceable. High Court at Kabale Rules.

Atukunda Joan (Patel)
Mar 27
6 min read

Facts

The appellant, Niyonsaba Arthur, sued the respondents, Bizimutuma George (1st) and Nyirabasangwa Esther (2nd), alleging trespass over land situated in Gasuri village, Sooko Parish, Muramba Sub-county, Kisoro District.

The appellant's case rested on a sale agreement dated 27 August 2021 (PEX1), allegedly executed by the 1st respondent with witnesses including the 2nd respondent (wife to the 1st respondent), a broker, Hategeka Charles, and the LC1 Vice Chairman of Gasuri village. It was further alleged that upon sale, the 1st respondent surrendered his own purchase agreement dated 10 May 2019 (PEX2) to the appellant. The stated consideration was UGX 25,000,000.

The respondent maintained that the transaction was not a sale but a loan of UGX 4,700,000/= advanced by the appellant to the 1st respondent on 20 August 2021.

That PEX1 and PEX2 were executed merely as security for the loan, not as instruments of sale. Partial repayments of UGX 3,000,000/= had been made (including proceeds from the sale of two cows in December 2021). That the appellant was a habitual money lender who demanded sale agreements as a condition for advancing loans.

Two independent witnesses corroborated the respondents DW3, Hategeka Charles (broker and witness to PEX1), testified he was engaged as a broker for loan security, not a land sale and that no boundary marks were planted. DW4, Mwikarago Wilson (LC1 Vice Chairman) testified that the 1st respondent approached him to act as a guarantor for a loan, not as a party to a land sale, and that the appellant's modus operandi was to demand sale agreements when advancing loans.

Issues

The Chief Magistrate framed two issues for determination at trial:

1. Whether there was a valid transaction of sale of land.

2. What remedies were available to the parties?

On appeal, the appellant raised four grounds of appeal before the High Court:

Ground 1: The learned Trial Magistrate erred in law and fact when he failed to rely on the written sale agreement (PEX1).
Ground 2: The learned Trial Magistrate erred in law and fact when he relied on DW3's testimony, which was alleged to be full of falsehoods.
Ground 3: The learned Trial Magistrate erred in law in relying only on the respondents' oral evidence without corroboration.
Ground 4: The learned Trial Magistrate erred in law and fact when he relied on locus proceedings not on the court record.

LEGAL REPRESENTATION

Party	Counsel
Appellant (Niyonsaba Arthur)	M/S Bikangiso and Co. Advocates (Ms. Fiona Kiconco appeared at judgment)
Respondents (Bizimutuma George & Nyirabasangwa Esther)	M/S Beitwenda and Co. Advocates (Elizabeth Bomugisha held brief for Rebekah Ayesiga at judgment)

SUBMISSIONS

Appellant’s Submissions

The appellant submitted that the learned trial magistrate erred in law and fact by failing to give due weight to PEX1, the written sale agreement, which had been validly executed between the parties. It was argued that this agreement ought to have been accorded primacy over any oral testimony, in line with the parole evidence rule under Section 92 of the Evidence Act, Cap. 8. According to the appellant, the admission of oral evidence contradicting the terms of PEX1 amounted to a violation of that rule. Counsel further contended that the testimony of DW3 was unreliable and riddled with falsehoods, and that the learned magistrate improperly relied on such oral evidence without any independent corroboration. Additionally, the appellant challenged the trial court’s reliance on locus proceedings, asserting that no such proceedings appeared on the court record.

Respondent’s Submissions

In response, the respondents maintained that the impugned oral evidence fell squarely within the statutory exception to the parol evidence rule under Section 92(a) of the Evidence Act. This provision permits the admission of evidence to prove any fact capable of invalidating a document, including fraud, intimidation, or illegality. The respondents argued that the execution of the purported sale agreement was, in reality, a device employed to secure a loan, and therefore constituted fraud. On that basis, they contended that PEX1 was invalid and unenforceable, and that the courts could not lend their aid to the enforcement of a contract founded on an illegal or fraudulent transaction.

PROCEDURAL ISSUE

On 11 December 2025, the High Court dismissed the appeal, having procedural issue arose in the course of the appeal. On 11 December 2025, the High Court initially dismissed the appeal on the basis of only the respondent’s written submissions, under the mistaken belief that the appellant had failed to file submissions. However, it later emerged that the appellant’s submissions had in fact been duly filed on 29 October 2025 and served on the respondents.

Therefore, on 3 March 2026, the Court, exercising its powers under Section 82 of the Civil Procedure Act, Cap. 71, reviewed and recalled its earlier judgment, recognising the omission as a clear and discernible error on the face of the record. The Court ordered a review of its judgment, a recall of its orders, and that judgment be delivered on notice, with no order as to costs. The present decision thus represents the Court’s reconsidered determination on the merits.

COURT’S FINDINGS

Ground 1 on Parol Evidence Rule & Fraud

The Court rejected the appellant’s contention that the written sale agreement (PEX1) should have prevailed over oral testimony. It found that the testimonies of DW3 and DW4 fell squarely within the exception to the parol evidence rule under Section 92(a) of the Evidence Act, which permits proof of fraud to invalidate a document.

Applying the definition of fraud from Black’s Law Dictionary (6th ed., p. 660), as endorsed by the Supreme Court in Frederick J.K. Zaabwe v Orient Bank & 5 Others (Civil Appeal No. 4 of 2006, [2007] UGSC 21), the High Court identified two specific acts of fraud that the concealment of the true nature of the transaction, namely that PEX1 and PEX2 were security for a loan and not instruments of a genuine land sale and the mischaracterisation of the transaction as a “sale,” which deprived both parties of equitable relief (such as an account for amounts owed on the loan).

The Court held that;

“I find from the evidence on the record that two acts of fraud are disclosed by the testimony on the record; and the admission of oral evidence, DW3 and DW4, who are third parties whose testimony fell within the exception to the parol evidence rule permitted by Section 92(a) of the Evidence Act. Fraud is illegal, per se, and fraud creates an illegality as a collateral finding.”

On the appellant’s culpability, the Court was emphatic that;

“While a litigant is at liberty to prosecute legitimate claims in courts of justice, he or she is not entitled to win by whatever means possible, including acts of dishonesty, infidelity, faithlessness, perfidy, and unfairness, which are synonymous with fraud. It is unfortunate that, in the instant case, the appellant, a money-lender, presented the fraud as a sale in court and sought to benefit from it. He was not the victim but the perpetrator of fraud.”

As such, Ground 1 was dismissed.

Grounds 2 & 3 — Effect of Fraud on Proceedings

The Court held that a finding of fraud has a “debilitating effect,” bringing proceedings to an end and vitiating all judicial acts associated with the fraudulent conduct.

Citing Vipin Kumar v Jaydeep & Others (2025 INSC 169, 21 November 2025);

“Fraud is thus an extrinsic collateral act which vitiates all judicial acts, whether in rem or in personam. Any order obtained by fraud by a successful party is vitiated. Such an order cannot be held to be legal, valid, or in consonance with the law.”

The Court further applied Makula International v His Eminence Cardinal Nsubuga (Civil Appeal No. 4 of 1981, UGCA 2, 8 April 1982), which held that any act tainted by illegality:

“…is a nullity and must be set aside.”

The Court concluded that the reasoning in both decisions is good law and forecloses consideration of all grounds of appeal.

Grounds 2 and 3 accordingly failed.

Ground 4 on Locus Proceedings

Similarly, Ground 4, concerning the alleged reliance on locus proceedings, was rendered moot, as the Court could not proceed with an appeal founded on a transaction vitiated by fraud.

HOLDING

The entire appeal was dismissed. The High Court upheld the judgment of the learned Chief Magistrate.

Consequential orders;

The sale agreement PEX2 (previously deposited in the lower court) is to be returned to the 1st Respondent.
Costs of the appeal are awarded to the Respondents.

Lower Court orders (affirmed);

PEX1 and PEX2 were to remain deposited in court, pending return of PEX2 per the High Court’s order. The appellant’s claims for trespass, permanent injunction, eviction, and declaration of title were dismissed.

Read the full case below

EDITORS KEY TAKEAWAYS

1. Fraud as a Complete Bar to Proceedings

Where fraud is established, it operates as an extrinsic collateral act that vitiates all proceedings, regardless of any other merits.

2. Exception to the Parol Evidence Rule (Section 92(a))

The rule does not exclude oral evidence aimed at proving fraud, illegality, or other invalidating factors.

3. Money Lending Disguised as Land Sales

Such arrangements constitute fraud and are unenforceable.

4. Courts Will Not Assist a Fraudster

A party who comes to court with unclean hands will be denied relief.

5. Review Jurisdiction under Section 82 of the Civil Procedure Act

Courts may recall judgments where there is an error apparent on the face of the record.

6. Practical Guidance

Avoid disguising loans as land sales.
Use proper legal securities (mortgages/charges).
Plead fraud or illegality explicitly where applicable.