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Fredrick J.k Zaabwe v Orient Bank Ltd and 5 Others ((Civil Appeal No.4 of 2006)) [2007] UGSC 21 (10 July 2007);

Flynote: 

Search Summary: 

This is a second appeal by the appellant, both
his original suit in the High Court and his
subsequent appeal to the Court of Appeal
having been dismissed. The background is
that the appellant thought to borrow money
from the respondent and gave security as his
land, the issued cheque bounced and the
respondent used the security to secure a
mortgage from the first respondent which he
failed to pay and the first respondent sold the
land. The appellant was evicted and the
business closed and the appellant alleged
fraud but was unsuccessful both at high court
and court of appeal hence this appeal on the
grounds of the sale of land using the power of
attorney, the validity of the mortgage on the
appellants land, holding on fraud, improper
consideration of the evidence on record and
complete disregard of the facts.

Headnote and Holding: 

The appellant, amidst financial hardship, conferred power of attorney over his immoveable property upon the second respondent under pretenses that the latter would use it to secure a loan for the appellant’s benefit. The second respondent used the power for its own purposes instead as security for a loan transaction with the first respondent to the appellant’s exclusion. 

Applying general principles of the law of agency, the court found that the agent’s behaviour exceeded the scope of its authority.  It affirmed that an agent may not use the power it wields for its sole benefit to the principal’s detriment. The evidence convinced the court that the second respondent’s intentional conduct met the requirements of fraud. 

The first respondent was found to have breached its fiduciary duty to the appellant in failing to disclose the nature of its loan agreement with the second respondent for which his property was being used as security. Moreover, its knowledge – whether actual or constructive – of the first respondent’s bad faith rendered it complicit in the fraud committed against the appellant.  

Additionally, the mortgage agreement between the first and second respondents was found to be invalid due to non-conformity with the formalities of the governing legislation. 

The appeal was accordingly upheld against the first and second respondents – as the perpetrators of the fraud – and aggravated damages awarded. The appeal against the third to sixth respondents failed as their complicity in the malfeasance against the appellant was not in bad faith.
 

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