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Necta (U) Limited and Another v Crane Bank Limited (Civil Appeal 219 of 2013)

Court of Appeal · [2021] UGCA 201 · 2021 Appeal Allowed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
First civil appeal from a High Court judgment dismissing consolidated suit challenging a mortgage sale and allowing the respondent's counterclaim
Decision
Appeal allowed; mortgage and sale declared invalid; first appellant awarded aggravated damages; appellants jointly liable for the decretal sum; declaration of membership declined

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Holding

The Court of Appeal allowed the appeal, holding that the special resolution was invalid because it was not signed by all directors as required by the company's articles read with Table A Regulation 106, and that the mortgage and further charges were defective for non-compliance with sections 132, 146(1) and 148 of the Registration of Titles Act (no valid common seal, no power of attorney, signatures not in Latin character). Consequently the sale of the property was a nullity. The court awarded the first appellant aggravated damages but, applying unclean hands and unjust enrichment principles, denied the second appellant damages and upheld the decretal sum, and declined the declaration of membership in Premier Lottery Limited.

Facts

An overdraft facility totalling Ushs. 70,000,000/= was advanced to the second appellant and secured by a mortgage and further charges over the first appellant company's property at Plot 94, High Street, Mbarara, with the company designated as surety. The borrowing was purportedly authorised by a special resolution signed by only two of the company's directors (the second appellant and his wife). After default, the respondent bank froze the facility and advertised the property for sale. Earlier consolidated suits resulted in a consent decree against the appellants, and the property was eventually sold to a third party. The appellants challenged the validity of the resolution, the mortgage instruments and the sale, arguing the resolution did not comply with the company's articles and that the mortgage instruments were not properly executed under the Registration of Titles Act. The trial court upheld the mortgage and sale, dismissed the suit and allowed the bank's recovery of the outstanding decretal amount.

Issues

  1. Whether a company resolution signed by only two directors, and not by all directors as required by the company's articles, was a valid resolution authorising the borrowing.
  2. Whether the loan advanced to the second appellant was for the benefit of the first appellant company and whether the company validly stood as surety.
  3. Whether the mortgage and further charges were duly executed under sections 132, 146(1) and 148 of the Registration of Titles Act given the absence of a common seal and signatures in Latin character.
  4. Whether the sale of the mortgaged property was valid where the underlying mortgage was defective and proper notice was not given.
  5. Whether a subscriber to a company's memorandum becomes a member without producing the register of members or share certificates.
  6. Whether the appellants were entitled to damages for the wrongful sale of the property.

Orders

  • The First Appellant is awarded Ushs. 250,000,000/= as aggravated damages for the sale of its property comprised in LRV 363 Folio 18 Plot 94, High Street, Mbarara.
  • Interest at the rate of 15% per annum is awarded on the aggravated damages from the date of this Judgment until payment in full.
  • The Appellants shall jointly pay the decretal sum of UShs. 218,144,745/= awarded by the Trial Court, if not so paid to date.
  • The decretal sum shall attract interest at 6% per annum from the date of this Judgment until payment in full.
  • The Respondent is condemned to the costs in this Court and the court below.

Key headnotes

Company Law — Directors' Resolutions — Resolution Without Meeting — Requirement of Signature by All Directors
Where a company's articles adopt Table A Regulation 106, a resolution passed without a directors' meeting is valid only if signed by all the directors entitled to receive notice of a meeting; a resolution signed by fewer than all the directors does not satisfy this requirement and is invalid.
Company Law — Indoor Management Rule — Limits of Royal British Bank v Turquand
The rule in Royal British Bank v Turquand entitles a person dealing with a company in good faith to assume internal corporate acts have been duly performed, but it is not a carte blanche; it is grounded on the presupposition that sufficient inquiry into the company's constitutive documents has been made, and unambiguous procedures in the articles cannot be obviated by inference of authority.
Evidence — Burden of Proof — Legal and Evidential Burden — Shifting in Civil Proceedings
The legal burden of proof rests on the party asserting a right or liability, while the evidential burden rests initially on that party and shifts to the opponent once prima facie evidence is adduced; in a civil matter the parties' evidence is weighed on the balance of probabilities.
Land & Property — Execution of Mortgage by Corporation — Sections 132 and 148 RTA — Common Seal, Power of Attorney and Latin Character Signatures
A corporation executing a mortgage under the Registration of Titles Act must either affix its common seal in accordance with the manner prescribed by its articles, or act through attorneys appointed by a registered power of attorney signing in Latin character; a company stamp or an office stamp is not a substitute for the common seal, and unidentified signature scribbles without names contravene section 148.
Land & Property — Effect of Invalid Mortgage on Sale — Nullity
Where a mortgage is invalid for defective execution, the ensuing sale of the mortgaged property is itself illegal and a nullity, since an act founded on a void instrument is incurably bad and the court cannot sanction an illegality.
Banking & Finance — Suretyship — Mortgagee's Duty to Inquire — Undue Influence and Misrepresentation
Where a surety reposes trust and confidence in the debtor, a mortgagee is required to take reasonable steps to satisfy itself that the surety's consent was not procured by undue influence, misrepresentation or other misconduct; failure to do so where such a relationship exists causes the mortgagee to forfeit its contractual benefits under the mortgage.
Company Law — Membership — Subscribers to Memorandum — Section 27 Companies Act
Under section 27(1) of the Companies Act, subscribers to a company's memorandum become members upon registration without need to produce the register of members or share certificates, whereas persons acquiring shares after incorporation become members only upon allotment followed by registration under section 27(2).

Legislation cited (24)

  • Judicature Act s.35
  • Judicature Act s.40(3)(i)
  • Civil Procedure Act s.34
  • Civil Procedure Act s.27(2)
  • Companies Act (Act No. 1 of 2012) s.21(1)
  • Companies Act s.27
  • Companies Act s.186
  • Companies Act Table A Regulation 75
  • Companies Act Table A Regulation 79(1)
  • Companies Act Table A Regulation 98
  • Companies Act Table A Regulation 106
  • Companies Act Table A Regulation 113
  • Evidence Act s.91
  • Evidence Act s.101(1)
  • Evidence Act s.102
  • Evidence Act s.103
  • Registration of Titles Act s.132
  • Registration of Titles Act s.146(1)
  • Registration of Titles Act s.147(1)
  • Registration of Titles Act s.148
  • Registration of Titles Act s.116
  • Registration of Titles Act s.117
  • Court of Appeal Rules r.2
  • Court of Appeal Rules r.86

Cases cited (15)

  • Royal British Bank v Turquand (1856) 6 E & B 327
  • Morris v Kanssen & Others (1946) 1 All ER 586
  • Fredrick J. K. Zaabwe v Orient Bank Ltd & 5 Others (2007) 1 ULR 98
  • Irvine v The Union Bank of Australia (1877) 2 App Cas 366
  • General Parts (U) Limited v Non-Performing Assets Recovery Trust (Civil Appeal No. 5 of 1999)
  • Benjamin Leonard MacFoy v United Africa Company Limited (1962) AC 152
  • National Westminster Bank plc & Another v Inland Revenue Commissioners (1995) AC 111
  • Royal Bank of Scotland plc v Etridge (No 2) (2002) 2 AC 773
  • Barclays Bank plc v O'Brien (1994) 1 AC 180
  • Allcard v Skinner (1887) 36 Ch D 145
  • Rookes v Barnard & Others (1964) AC 1129
  • Obengo v Kisumu Council (1971) EA 91
  • Uganda Development Bank v Florence Mufumba (Civil Appeal No. 247 of 2015)
  • Basiima Kabonesa & Others v Attorney General & Another (Civil Appeal No. 196 of 2018)
  • Attorney General of the Republic of Burundi v Secretary General of the East African Community & Another (EACJ Appeal No. 2 of 2019)
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