Wakilii

Formula Feeds & 3 Ors v KCB Bank (U) Ltd (Civil Appeal No. 0076 of 2016)

Court of Appeal · [2019] UGCA 186 · 2019 Appeal Dismissed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
First appeal from a High Court (Commercial Division) judgment in a civil suit concerning a credit facility, mortgage and personal guarantees
Decision
Appeal dismissed; trial judgment requiring appellants to pay the outstanding credit facility upheld, with the illegal mortgage unenforceable unless rectified under section 91 of the Land Act but personal guarantees remaining enforceable

The full judgment

Read the complete, verbatim text of this judgment.

Sign in to read the full judgment
Cited — treatment unverified cited in 2 (treatment unverified) Derived from citing cases in the Wakilii corpus — not an assertion that this case is good law.

AI-generated summary. This summary was generated by AI from the full text of the judgment. It may contain errors or omissions — always read the source judgment before relying on it.

Holding

The Court of Appeal upheld a preliminary objection that the partial judgment of UGX 2,159,000,000 was a consent judgment that could not be appealed under section 68 of the Civil Procedure Act. On the merits, the court found no breach of the banker-customer relationship by the bank, holding that the appellants had themselves authorised the disputed transactions including the conversion of USD 549,000. The court held that although the mortgage was illegal because Mailo land was registered in the names of non-Ugandans, a mortgage is mere collateral independent of the credit facility, so the loan and the personal guarantees remained valid and enforceable. The appeal was dismissed with costs.

Facts

In June 2011 the respondent bank offered the appellants a credit facility of UGX 3,700,000,000, later increased to UGX 4,531,000,000, comprising overdrafts and term loans to finance the appellants' feed business, a buyout of Bank of Baroda facilities, and the purchase of a feed mill co-financed under an agriculture finance credit scheme. The facility was secured by a mortgage over Kyadondo Block 101 mailo land and by personal guarantees from the second, third and fourth appellants. The first appellant's majority shareholders were Kenyan nationals. The appellants alleged the bank breached the agreement by failing to open letters of credit, opening illegal loan accounts, charging excessive interest, and converting USD 549,000 to shillings causing an exchange loss. The bank countered that these acts were done on the appellants' instructions, including the express instruction to convert the currency at prevailing rates and the appellants' decision not to complete the feed mill purchase due to declining business. A partial judgment of UGX 2,159,000,000 had been entered earlier by consent.

Issues

  1. Whether the partial judgment on the sum of UGX 2,159,000,000 was a consent judgment incapable of appeal under sections 67(2) and 68 of the Civil Procedure Act.
  2. Whether the trial judge erred in holding that the respondent bank was not liable for breach of the credit facility agreement.
  3. Whether the appellants were in breach of the credit facility agreement.
  4. Whether the personal guarantees executed by the directors were legal and enforceable despite the mortgage being declared illegal.
  5. Whether the trial judge erred in awarding the respondent UGX 4,272,740,118 with interest and costs without evidence supporting the counterclaim.

Orders

  • Preliminary objection upheld under section 68 of the Civil Procedure Act.
  • Grounds one, two, three and four of the appeal dismissed.
  • Appeal dismissed with costs.

Key headnotes

Civil Procedure — Consent Judgments — Bar on Appeal under Section 68 Civil Procedure Act
A partial judgment arrived at by the consent of the parties through their counsel and entered by the court is a consent judgment, and a party who does not appeal a preliminary decree is precluded from disputing its correctness on appeal.
Banking & Finance — Banker-Customer Relationship — Breach where Acts Authorised by Customer
The relationship between a banker and its customer is contractual, but a bank does not breach that relationship where the acts complained of, such as currency conversion or cancellation of letters of credit, were carried out on the express instructions of the customer.
Land & Property — Mortgage as Security — Distinction between Defective Mortgage and Underlying Debt
A mortgage is collateral to and independent of the credit facility it secures, so where the mortgage is illegal or defective the underlying loan or credit facility is not thereby rendered illegal but merely cannot be recovered from that security.
Contract Law — Guarantees — Enforceability Independent of Illegal Mortgage
Personal guarantees premised on a valid loan facility agreement remain a separate and enforceable security upon default of the principal debtor, even where a mortgage securing the same facility has been declared illegal.
Land & Property — Mailo Land — Prohibition on Non-Citizens Holding Mailo Tenure
Non-Ugandans cannot hold mailo land and may only hold a lease, and a mortgage registered over mailo land held in the names of non-citizens is illegal and unenforceable unless rectified under section 91 of the Land Act.

Legislation cited (7)

  • Civil Procedure Act s.67(2)
  • Civil Procedure Act s.68
  • Civil Procedure Act s.2
  • Contracts Act 2010 s.75
  • Contracts Act 2010 s.71(2)
  • Land Act 1998 s.91
  • Judicature (Court of Appeal Rules) Directions SI 13-10 rule 30(1)(a)

Cases cited (16)

  • Pandya vs. R [1957] EA 336
  • Kifamunte Henry v Uganda (Criminal Appeal No. 10 of 1997)
  • Incafex Ltd v James Kabatereine (Civil Appeal No. 16 of 1997)
  • Juliet Kalema v William Kalema (Civil Appeal No. 95 of 2003)
  • Makula International V His Eminence Cardinal Nsubuga & anor [1982] HCB 11
  • Broke Bond Liebig (T) Ltd vs Mallya [1975] I EA 266 AT 269
  • Hirani vs. Kassim (1952) EACA 131
  • Esso Petroleum Co v Uganda Commercial Bank (Civil Appeal No. 14 of 1992)
  • Mwaniki Wa Ndegwa v National Bank of Kenya Ltd (HCCS No. 86 of 2000)
  • Active Automobiles Spares Ltd v Crane Bank (Civil Appeal No. 21 of 2001)
  • Woods V Martins Bank (1959) 1 QB55
  • Kisugu Quarries Ltd vs. Administrator General (1999) 1 EA 162 (SC)
  • Alcon International v NSSF (Civil Appeal No. 15 of 2009)
  • General Parts Uganda Limited v Non-Performing Assets Recovery Trust (Civil Appeal No. 5 of 1999)
  • INDUSTRIAL INVESTMENT BANK OF INDIA VS BISWANATH JHUNJHUNALA 2009
  • Bank of Uganda v Banco Arabe Espanol (Civil Appeal No. 23 of 2003)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.