Some rulings stand out as quintessential—this is one of them.
In this recent decision, Justice Boniface Wamala of the High Court has clarified that the mandatory requirement for contracts exceeding 25 currency points (UGX 500,000) to be in writing, as stipulated under Section 9(5) of the Contracts Act, 2010 (formerly Section 10(5) of Cap 284), is more flexible than it seems.
He has emphasised that Courts are inclined to treat this requirement as a directory rather than mandatory, focusing instead on the clear intentions and obligations of the parties involved.
The Backstory
This case arose from an appeal against the judgment of Her Worship Aciro Joan, Magistrate Grade One, delivered on February 26, 2021, at Nakawa Chief Magistrates Court, Kira. The dispute began with Civil Suit No. 135 of 2017, where the respondent sought UGX 16,500,000 plus 22% annual interest, claiming the amount stemmed from dishonored cheques issued by the appellant.
The appellant countered that the cheques were not for a loan but were issued as security in a land transaction where the respondent acted as a broker. The trial court ruled in favor of the respondent, leading to this appeal.
Consideration of Grounds of Appeal
Grounds 1 and 2 The appellant challenged the trial Magistrate's ruling, arguing that the court failed to properly evaluate the evidence and wrongly concluded that the appellant owed UGX 16,500,000/=. The appellant maintained that the cheques in question were issued as security for a failed land transaction and not as a loan.
The appellant also argued that the respondent's claim of money lending was illegal since it was not in writing, as required by law, and the respondent lacked a money-lending license. Additionally, the appellant criticized the court’s denial of his request to have the cheques examined by a handwriting expert.
Respondent’s Position The respondent countered that the appellant’s indebtedness was legally grounded under the Bills of Exchange Act, as the appellant admitted to issuing the cheques. The respondent argued that the dishonored cheques constituted prima facie evidence of the debt, as per the decision in Naris Byarugaba v Shivam M.K.D Ltd [1997] HCB 71. The respondent dismissed the appellant’s claim that the cheques were issued as commission for brokerage, calling it financially unrealistic given the UGX 20,000,000/= value of the land transaction. The respondent argued that the trial Magistrate had correctly assessed the facts and the law and prayed for the grounds of appeal to be dismissed.
Analysis of Grounds 1 and 2 Analysis
The court reviewed whether the appellant issued the cheques and their intended purpose
The appellant admitted to issuing the two cheques in his written statement of defense (WSD), contradicting his later claim that the cheques were blank.
The court reiterated that courts adhere to the principle that parties are bound by their pleadings as stated in Luyimbazi Sulaimaman v Stanbic Bank (U) Ltd. The trial Magistrate rightly rejected the appellant’s contradictory evidence as an afterthought, including his request to engage a handwriting expert.
Evidence revealed a history of financial dealings between the parties. The respondent claimed the cheques were issued as repayment for friendly loans totaling UGX 16,500,000/=, supported by the issuance of postdated cheques. The appellant, however, argued the cheques were issued as security for commission related to a land transaction.
The trial Magistrate disbelieved the appellant’s version, noting inconsistencies such as the disproportionate value of the alleged commission (5% of UGX 41,500,000/= was UGX 2,075,000/= compared to the cheque sum of UGX 16,500,000/=).
Validity of the Money-Lending Agreement
The court found that the loans were friendly and lacked interest, so they did not require a money-lending license. Although the agreement was oral and exceeded the UGX 500,000/= threshold under Section 10 of the Contracts Act, the absence of written documentation did not invalidate the contract since the essential elements of a contract were met.
Legal Implications of the Cheques
The court reaffirmed that, under the Bills of Exchange Act, and with reference to the decisions in Naris Byarugaba v Shivam M.K.D Ltd and Kotecha v Mohammad,
A dishonored cheque constitutes prima facie evidence of debt.
The appellant's cheques were dishonored, thereby entitling the respondent to judgment, regardless of the underlying transaction.
The court criticized the practice of issuing cheques as mere security, emphasizing that such behavior undermines the integrity of cheques as financial instruments as was observed in BIDCO (U) Ltd v Western Distributors Ltd.
On The Writing Requirement
The court acknowledged that the contract exceeded the UGX 500,000 threshold and was oral. However, it upheld that this did not invalidate the agreement since all essential elements of a valid contract were met.
Money-Lending Concerns
The court found that the loans were friendly and interest-free, meaning they didn’t require a money-lending license.
Evidential Purpose Over Formality
The court clarified that while written agreements for contracts exceeding 25 currency points are strongly recommended to simplify proof of agreement, the absence of writing doesn’t automatically void a contract. As long as the key ingredients—offer, acceptance, consideration, and intent—are in place, the contract remains valid.
What Are the Best Practices for Upholding Written Agreements After This Decision?
Following this decision, it becomes evident that while oral agreements may be valid under certain circumstances, written agreements remain the gold standard for clarity and enforceability. For contracts exceeding 25 currency points, it is strongly recommended to:
Draft a Comprehensive Written Agreement Ensure all key terms and conditions are documented clearly, including the obligations of each party, payment terms, and dispute resolution mechanisms.
Comply with Legal Requirements Adhere to statutory requirements, such as Section 10 of the Contracts Act, which mandates that contracts exceeding 25 currency points be in writing. This strengthens the validity and evidentiary weight of the agreement.
Seek Legal Advice Engage a legal professional to draft or review contracts to ensure they meet legal standards and reflect the intentions of both parties.
Incorporate Signatures and Dates Include signatures from all parties, along with dates, to confirm their consent to the terms of the agreement.
Retain Copies Safely Maintain copies of the signed agreement in secure and easily accessible locations for future reference.
Written agreements not only reduce the risk of disputes but also provide a strong basis for enforcement in case of breach. They are an invaluable tool for safeguarding the interests of all parties involved.
Takeaway
This ruling reinforces the principle that substance matters more than form. While writing is encouraged for evidential clarity, courts will not disregard clear agreements simply because they lack a formal document.
Conclusion The court upheld the trial Magistrate’s findings, confirming that the respondent provided sufficient evidence to prove the loans, and that the dishonored cheques constituted actionable claims. The appellant’s grounds of appeal lacked merit and were dismissed. By
Waboga David
Read the full decision below
https://ulii.org/akn/ug/judgment/ughccd/2024/205/eng@2024-12-19
Happy New Year
.jpg)
Commentaires