The Supreme Court of Uganda restates the law and the application of the parol evidence rule. Was it a sale or loan transaction?
1.0 Introduction
There has been a resurgence of claims brought to court by litigants alleging that the agreement or contract they signed or a document they appended their signature to is not what they intended to or that what they put in writing to form a document that was actually adjusted by oral clauses.
The parol evidence rule provides that where a contract is embodied in a written document, then, save for exceptional circumstances, extrinsic evidence is not admissible to add, vary, subtract from or contradict the terms of a written document. The Supreme Court has revisited and emphasised several aspects of the rule and its application as we have laboured to break them down as hereunder.
At High Court, the Respondent/then Plaintiff sued the Appellant/then defendant claiming mesne profits, rent and recovery of movable property. This followed the eviction of the respondent by the Appellant. The Respondent’s case at trial was that at a given date, he obtained a loan from the 2nd appellant (Global Capital Save 2004 Ltd) at a tune of 170,000,000/= which was payable in instalments for a period of 6 months at an interest rate of 10% per month.
The Respondent further executed an agreement of sale of land, issued a power of Attorney and signed transfer forms as further security for the Loan. In defence to the claim, the Appellant/Defendant at trial contended that the property in dispute was the subject of a sale agreement, duly executed by the respondent, who had further executed transfer forms. The Appellants denied the transaction ever being a loan as opposed to an outright sale of property.
i. There was no meeting of the minds between the parties in relation to the sale agreement.
The appellants were aggrieved and preferred an appeal to the Supreme Court. The foregoing and other reasons as found by the Justices of Appeal formed the basis and grounds of the appeal to the Supreme court.
The crux of the Appellant’s appeal to the Supreme court was whether the decision of the Court of Appeal on the finding that there was sale but rather a loan transaction, was supported in law and by the evidence on record.
Conclusively on this point, the Supreme Court found that the loan agreement that the Respondent/Plaintiff attempted to introduce in evidence had the effect of modifying and in fact fundamentally changing the nature of the transaction between the parties contrary to the baring of such evidence under Sections 91 and 92 of the Evidence Act. The Respondent having signed a sale agreement and having not sought to impeach it was bound by its terms.
In this segment, we will pick out key takeaway points that can probably guide or inform decisions by transactional lawyers, litigants and clients in as far as contracts for sale of land or loan agreements where land forms part of the securities or other agreements are concerned;
This decision comes at such a time to emphasise that a person is bound by their signature on the document and this so whether or not they read the document or having read it, whether or not they understood it, unless they can prove that they fall in any of the exceptions. This therefore calls for vigilance and diligence while signing or entering into agreements. There has to be a proper understanding of the document signed to avoid such scenarios as we have seen in this case. It can never be a loan agreement when you actually signed a sale agreement.
5.0 The practical implications
The decision further speaks to practices and transactions by money lenders and borrowers. Some money lenders will lend money to a borrower and insist that though it is a loan, the borrower should execute an agreement of sale and further surrender the certificate of title with duly executed transfer documents. The understanding, albeit an oral one, is that if the loan is repaid, all the documents will be returned to the borrower. However, where there is default, the lender will transfer the property either into their names or their nominees. That causes the dispute as to whether it was a sale or a loan transaction.
The second scenario is where it is a clear sale of property but the vendor subsequently becomes wiser, after realising that they sold the property at a lesser sum and have a better offer. They resort to challenging the transaction, claiming that it was a loan and not a sale in an attempt to recover the property. Either way, the guidance from the Supreme Court is that save where the litigant can prove that they fall within the permitted exceptions to the parol evidence rule, they will be bound by the terms of the available document executed by them.