Wakilii

Green Land Bank Limited ( In Liquidation) v Rwenzori Properties Limited (Civil Appeal 73 of 2005)

Court of Appeal · [2020] UGCA 2158 · 2020 Appeal Partly Allowed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
Civil appeal from High Court judgment enforcing a guarantee against the appellant
Decision
Appeal partly succeeded; trial court's interest award reduced from 24% to 8% per annum, otherwise judgment upheld

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Cited — treatment unverified cited in 1 (treatment unverified) Derived from citing cases in the Wakilii corpus — not an assertion that this case is good law.

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Holding

The Court of Appeal held that a guarantor's obligations are accessory to and co-extensive with the principal debtor's obligations, so the doctrine of privity did not exonerate the appellant guarantor from the tenancy agreement's terms. The appellant was bound by clause 8 of the tenancy agreement, which preserved its liability despite the respondent's forbearance in enforcing rent payment. However, the Court found the 24% per annum interest awarded on the US Dollar decretal sum unconscionable and reduced it to 8% per annum from the date of judgment. The complaint of inordinate delay in delivering judgment was rejected as no resulting injustice was shown. The appeal partly succeeded.

Facts

On 28 February 1996, the appellant bank executed a guarantee with the respondent guaranteeing payment of any sum due from J. Lutta & Co. Inc under a tenancy agreement of the same date. The tenant defaulted, and the respondent invoiced it on several occasions, with the final invoice of USD 59,185.62 dated 1 September 1997 remaining unpaid. On 21 November 1997 the respondent made its first demand on the appellant under the guarantee, which the appellant did not honour. The appellant contended that its liability was discharged because the respondent had varied the tenancy terms by allowing the tenant freedom over the timing of rent payments without the appellant's consent, prejudicing it; had the guarantee been called promptly the claim would have been only USD 23,620.09. Clause 8 of the tenancy agreement provided that any forbearance or delay in enforcing rent would not release the guarantor. The High Court held the guarantee enforceable and awarded USD 37,908 plus interest at 24% per annum and costs.

Issues

  1. Whether the guarantee dated 28 February 1996 was enforceable against the appellant on the strength of clause 8 of the tenancy agreement to which the appellant was not privy.
  2. Whether the trial Judge erred in awarding interest at 24% per annum on the decretal sum in US Dollars from the date of filing the suit till payment in full.
  3. Whether the delay of over five years in delivering judgment occasioned a miscarriage of justice.

Orders

  • Ground 1 of the appeal disallowed.
  • Ground 2 of the appeal answered in the affirmative; interest reduced from 24% to 8% per annum.
  • Ground 3 of the appeal failed.
  • Appeal partly succeeds.
  • Appellant to pay interest of 8% per annum on the decretal sum of USD 37,908 or its equivalent in Uganda Shillings from the date of judgment till payment in full.
  • Each party to bear its own costs in the Court of Appeal.

Key headnotes

Guarantees — Accessory Nature — Co-extensiveness with Principal Obligation
A contract of guarantee is accessory to the principal debtor's obligation, and the guarantor's obligations are co-extensive with those of the principal debtor; the guarantee arises from and cannot be wholly independent of the underlying agreement that creates the liability guaranteed.
Privity of Contract — Inapplicability to Guarantor's Obligations Under Underlying Agreement
The doctrine of privity does not exonerate a guarantor from terms of an underlying agreement which create the very liability guaranteed, where the guarantee was issued pursuant to and incorporates that agreement.
Guarantees — Effect of Forbearance Clause — Non-discharge of Guarantor
Where a tenancy agreement contains a clause providing that neglect, forbearance or delay by the creditor in enforcing payment shall not release the guarantor, the guarantor is not discharged from liability despite the creditor's forbearance toward the principal debtor.
Interest — Appellate Interference with Discretionary Award — Unconscionable Rate
The award and rate of interest lie within the discretion of the trial court, but an appellate court will interfere where the rate is so high as to be unconscionable; a rate of 24% per annum on a US Dollar decretal sum may be reduced where it is excessive relative to the court rate and the circumstances.
Judgments — Delay in Delivery — Miscarriage of Justice
Inordinate delay in delivering a judgment does not, of itself, occasion a miscarriage of justice; an appellant must demonstrate actual errors or injustice attributable to the delay before the judgment will be disturbed.

Legislation cited (2)

  • Judicature (Court of Appeal Rules) Directions r.30(1)
  • Contracts Act

Cases cited (6)

  • Pandya versus R [1957] EA 570
  • Stanbic Bank Uganda Ltd v Hajji Yahaya Sekalega t/a Sekalega Enterprises (Civil Suit No. 185 of 2009)
  • Nipun Norratam v Crane Bank Ltd (Civil Appeal No. 75 of 2006)
  • Omunyokol v Attorney General (Civil Appeal No. 6 of 2012)
  • Crane Bank Ltd v Nipun Norrattam Bhatia (Civil Appeal No. 2 of 2014)
  • Division Ltd & Ors Versus Standard Chartered Financial Services Ltd & Anor, Court of Appeal (Nairobi) Civil Appeal No.88 of 2000
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.