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Shumuk Aluminium Industries Ltd and Another v Bank of Baroda (Uganda) Ltd (Civil Suit No. 138 of 2019)

High Court · [2026] UGCOMMC 264 · 2026 Judgment for Defendant ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
First instance civil suit for breach of contract and wrongful recall of credit facilities; defendant counterclaimed for recovery of outstanding debt and foreclosure
Decision
Plaintiffs' suit dismissed; counterclaim allowed; first plaintiff ordered to pay outstanding debt of UGX 16,029,628,120.90 and USD 122,900.05 with interest; second plaintiff liable as guarantor to the extent of UGX 6,360,000,000; foreclosure not granted at this stage due to non-compliance with Mortgage Act notice requirements

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Holding

The court held that the plaintiffs' suit disclosed a cause of action but failed on the merits. The first plaintiff breached the credit facility agreements by failing to pay accrued monthly interest on an overdraft of UGX 6,360,000,000 and a letter of credit facility of USD 350,000, and by failing to maintain the required 20% cash margin on the letter of credit account. The defendant bank's recall of the facilities was lawful as the facilities were repayable on demand and the plaintiff had defaulted for three consecutive months, rendering the accounts non-performing. The second plaintiff, as guarantor, was liable under the personal guarantee. The court awarded the defendant UGX 16,029,628,120.90 and USD 122,900.05 with interest at 10% per annum from judgment until payment in full, but declined to grant foreclosure as the bank had not complied with all statutory notice requirements under the Mortgage Act.

Facts

The first plaintiff, a long-standing customer of the defendant bank since 1992, obtained an overdraft facility of UGX 6,360,000,000 and a letter of credit facility of USD 350,000 on 29 June 2018 for twelve months, guaranteed by the second plaintiff and secured by mortgages over two properties. The facilities were repayable on demand and required monthly interest payments on the overdraft and maintenance of a 20% cash margin on the letter of credit account. The first plaintiff utilized USD 52,859.83 of the letter of credit facility on 26 November 2018. By January 2019, the first plaintiff had failed to pay accrued interest for three consecutive months, rendering the accounts non-performing. On 25 January 2019, the defendant issued statutory default notices demanding payment of UGX 6,622,193,474 and USD 54,010.45 within forty-five working days. The plaintiffs refused to pay, contending the recall was premature and wrongful. The facilities were written off on 31 December 2019. As of 11 September 2025, the outstanding amount with unapplied interest was UGX 16,029,628,120.90 and USD 122,900.05.

Issues

  1. Whether the suit discloses a cause of action against the Defendant?
  2. Whether either party breached the terms of the overdraft and letter of credit facilities between them?
  3. What remedies are available to the parties?

Orders

  • The 1st Plaintiff shall pay UGX 16,029,628,120.90 and USD 122,900.05 being the total outstanding balance arising from the overdraft and letter of credit facilities.
  • The 2nd Plaintiff is liable to pay the outstanding balance to the extent of UGX 6,360,000,000 as per the terms of the personal guarantee deed.
  • Interest is awarded on the sums at the rate of 10% per annum from the date of judgment until payment in full.
  • Costs of the suit and the counterclaim are awarded to the Defendant/Counterclaimant.
  • The plaintiffs' suit is dismissed with costs.
  • The counterclaim succeeds.

Key headnotes

Overdraft Facilities — Repayment on Demand — Premature Recall
An overdraft facility is repayable on demand and it is a cardinal characteristic of that kind of loan; it is a misnomer to speak of the premature retirement of an overdraft where the facility agreement expressly provides for repayment on demand.
Credit Facilities — Default — Non-Performing Accounts — Recall
Where a borrower defaults on paying accrued interest on credit facilities for three consecutive months, the accounts become non-performing and the bank is entitled to recall the facilities before the expiry of the agreed term, provided the facility agreement permits repayment on demand.
Breach of Contract — Credit Facilities — Failure to Pay Interest
A borrower breaches a credit facility agreement by failing to pay monthly accrued interest as stipulated in the facility terms, and such breach justifies the lender's issuance of a statutory default notice and recall of the facility.
Guarantee — Liability of Guarantor — Default by Principal Debtor
A guarantor is obliged to pay the loan of a principal debtor in case of default and the liability takes effect upon default and to the extent of the defaulter's liability; once the principal borrower defaults, the guarantor has a duty to repay the loan upon demand.
Mortgage — Foreclosure — Statutory Notice Requirements
Before a mortgagee can obtain an order for foreclosure or sale of mortgaged property, the mortgagee must comply with all mandatory notice requirements under the Mortgage Act, including the thirty-day demand notice, the forty-five working days' statutory notice, the twenty-one working days' notice of intention to exercise remedies, and the twenty-one working days' notice of sale with newspaper advertisement; failure to issue all requisite notices precludes the grant of a foreclosure order.
Interest on Written-Off Loans — Non-Performing Loans — Suspense Accounts
When a credit facility is classified as a non-performing loan and subsequently written off, interest is no longer recognized on an accrual basis but is posted to a suspense account; interest on such written-off facilities should be computed as unapplied interest rather than continuing to accrue at the contractual rate.
Cause of Action — Disclosure in Plaint — Test
A plaint discloses a cause of action if it shows that the plaintiff enjoyed a right, the said right was violated, and the defendant is liable; in determining whether a plaint discloses a cause of action, the court must look only at the plaint and its annexures.

Legislation cited (19)

  • Contracts Act Cap. 284 s.9(1)
  • Contracts Act s.32
  • Evidence Act Cap. 8 s.91
  • Evidence Act s.101
  • Evidence Act s.102
  • Evidence Act s.103
  • Evidence Act s.104
  • Mortgage Act s.18(1)
  • Mortgage Act s.18(2)
  • Mortgage Act s.18(4)
  • Mortgage Act s.19
  • Mortgage Act s.25(2)
  • Mortgage Act s.27(2)
  • Civil Procedure Act Cap. 282 s.26
  • Civil Procedure Act s.27(2)
  • Civil Procedure Rules Order 7 rule 1
  • Civil Procedure Rules Order 7 rule 11
  • Civil Procedure Rules Order 7 rule 11(a)
  • Civil Procedure Rules Order 15 rule 5(1)

Cases cited (22)

  • Oriental Insurance Brokers Limited v Transocean (U) Limited (Supreme Court Civil Appeal No. 55 of 1995)
  • Attorney General v Major General David Tinyefuza (Constitutional Appeal No. 1 of 1997)
  • Auto Garage and Others v Motokov (No.3) [1971] EA 514
  • John Bwiza v Patrick Yowasi Kadama (Court of Appeal Civil Appeal No. 35 of 2011)
  • Tororo Cement Co. Ltd v Frokina International Limited (Supreme Court Civil Appeal No. 02 of 2001)
  • Kapeka Coffee Works Ltd and Another v NPART (Court of Appeal Civil Appeal No. 03 of 2000)
  • Ainomugisho Winifred and Others v Fatuma Dusto Nalumansi and Others (High Court Miscellaneous Application No. 2084 of 2016)
  • William Kasozi v DFCU Bank Ltd (High Court Civil Suit No. 1326 of 2000)
  • Meridiana Africa Airlines (U) Ltd v Avmax Spares (EA) Ltd (High Court Civil Suit No. 111 of 2017)
  • Omega Bank Plc Vs O.B.C Limited [2005] 8 NWLR (pt.928) 547
  • Fina Bank Ltd v Spares and Industries Ltd [2000] 1 EA 52
  • Rahul J. Patel v DFCU Bank (formerly Gold Trust Bank Ltd) (Civil Suit No. 146 of 2002)
  • Barclays Bank of Uganda Limited and Others v Emerald Hotel Limited and Others (Court of Appeal Civil Appeal No. 70 of 2017)
  • Shumuk Properties Limited and Another v Emerald Hotel Limited and Others (Court of Appeal Civil Appeal No. 72 of 2017)
  • Bank of Uganda v Banco Arabe Espanol (Court of Appeal Civil Appeal No. 23 of 2000)
  • Moshi Vs Rep Air Services Ltd and Another [1972] 2 All E.R 393
  • Bank of Uganda v Banco Arabe Espanol (Supreme Court Civil Appeal No. 1 of 2001)
  • Byaruhanga Mohamood v Montclair Schools Ltd (High Court Civil Suit No. 64 of 2022)
  • Milly Masembe v Sugar Corporation (U) Ltd and Another (Supreme Court Civil Appeal No. 1 of 2000)
  • Wallersteiner v Moir [1975] 1 All ER 849
  • Mohanlal Kakubhai Radia v Warid Telecom Uganda Ltd (High Court Civil Suit No. 224 of 2011)
  • Uganda Development Bank v Muganga Construction Co. Ltd [1981] HCB 35
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.