Legality of inter-personal loan

A friend in need is a friend indeed. This is a common English proverb that simply means that a person who helps you at a difficult time is a person who you can rely on. This kind of help extends to numerous life scenarios including the financial aspect.

The High court of Uganda in a recent decision found that a person without a money lender licence, can lend money to another and demand it back, provided he or she does not does not represent himself or herself to the public as a money lender.

The above decision was delivered by His Lordship Boniface Wamala on the 5th day of January 2022 in Ndyareeba Ronald v Joseph Arinaitwe Miscellaneous Application No.173 of 2019.

In this case, the applicant sought for leave to appear and defend the claim made by the respondent in the main suit. The background of the main suit was that the respondent /plaintiff between the 2017 and 2018 advanced to the applicant/defendant UGX 257,150,000/=. However, the defendant was unable to pay. Thus, by a memorandum of understanding dated 7th December 2018, the two parties agreed to a payment schedule. The defendant only made part payment of UGX 27,000,000/=.

The applicant in his application for leave to appear and defend laid down grounds such as (1) the alleged sum of UGX 230,150,000 was not liquidated sum capable of being recovered under summary procedure. (2) the applicant did not owe the respondent that kind of money (3) the respondent was not licensed to advance and or lend money in his individual capacity (4) the applicant had a good defence to the claim set out in the summary suit.

His Lordship while making his ruling laid down the considerations for leave to appear and defend a suit.

In addition, he found that the applicant did not deny receipt of the sum claimed neither did he deny part payment. More so, on the allegation that the applicant was coerced to make a memorandum of understanding, he found that the alleged coercion was intention to sue which does not amount to coercion since it is within the law.

On the question of legal authority to lend, he considered the provisions of the Tier 4 Microfinance Institutions and Money Lenders Act 2016 and other laws thus espoused that lending is a business and the lender charges interest on the money.  He elucidated that “there is nothing illegal within the said framework or under and other law for a person to lend money to another person under agreement. What is illegal is for a person to do so as a business without a license or without compliance with existing provisions of the law”. Thus, there was no evidence to show that the respondent was engaged in the business of money lending without a licence.

The application for leave to appear and defend was found not to have merit and a judgment entered for payment of UGX 230,150,000/= by the applicant to the respondent. And costs of the application and of the main suit.

This decision is an eye-opener to any person that intends to borrow money from a friend. It instills confidence to any person willing to lend money with assurance that he or she can reclaim it even in courts of law. Therefore, this is a great contribution to the jurisprudence of Uganda.

Related articles