Wakilii

National Enterprises Corporation & 2 Others v Nile Bank Limited (Civil Appeal 17 of 1994)

Supreme Court · [1995] UGSC 29 · 1995 Appeal Partly Allowed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
Civil appeal from a High Court judgment dismissing the appellants' suit for wrongful seizure of vehicles
Decision
Appeal partly allowed; seizure held unlawful, judgment on special damages substituted for the appellants and the case remitted to the High Court for assessment of damages

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Holding

The Supreme Court held that although a debenture made on behalf of the not-yet-incorporated NEC Bakery was a nullity, the first appellant, having contracted as ostensible agent for a non-existent principal and received the loan, was personally liable; the veil of the related companies could be lifted to treat the group as one economic entity. However, clause 6(a) of the debenture fixed only when money became payable, not a means of enforcement: the security was realisable only through a receiver under clause 7, and the Mortgage Decree did not apply to vehicles. The seizure was therefore unlawful. The appeal was allowed in part, judgment substituted for the appellants on special damages, and the case remitted for assessment.

Facts

The first appellant, National Enterprises Corporation, a statutory body, sought to establish a subsidiary, NEC Bakery and Confectionary Limited. Before that company was incorporated, the first appellant applied for an overdraft, its board resolved to borrow Shs. 16 million, and on 22 October 1990 it executed a debenture in favour of the respondent bank charging the company's assets to secure advances. NEC Bakery was registered on 24 October 1990 and never entered a new contract adopting the debenture. A loan account opened in NEC Bakery's name became overdrawn to about Shs. 160 million. After unpaid demands, the respondent seized two lorries registered in the names of the first and second appellants and advertised them and three others for sale, asserting a right under the debenture. The vehicles were held by the third appellant under powers of attorney. The appellants sued for wrongful seizure and recovery; the High Court dismissed the suit, holding the first appellant liable on the debenture and the seizure lawful.

Issues

  1. Whether a debenture executed on behalf of a company that did not yet exist could be enforced against the first appellant who concluded it as ostensible agent.
  2. Whether the court was entitled to lift the corporate veil of the subsidiary companies and treat them as one economic entity with the first appellant.
  3. Whether the respondent was entitled to admit evidence of the relationship between the first appellant and its subsidiaries given its pleadings.
  4. Whether clause 6(a) of the debenture authorised the respondent to enforce the security by distress or execution rather than by appointment of a receiver.
  5. Whether the seizure and advertised sale of the appellants' vehicles was lawful, including under the Mortgage Decree 1974.
  6. Whether the third appellant could have instituted objection proceedings under Order 19 rule 55 instead of hiding the vehicles.
  7. Whether the suit was barred by the special legislation governing the first appellant as a statutory corporation.

Orders

  • Appeal allowed in part.
  • Judgment and decree of the High Court dismissing the appellants' claim for special damages for unlawful seizure and threatened seizure, and the order for costs, set aside.
  • Judgment substituted for the appellants in respect of that claim.
  • Case remitted to the trial judge for assessment of damages.
  • Appellants awarded two-thirds of the costs of the appeal and of the court below.

Key headnotes

Company Law — Pre-incorporation Contracts — Contract Made on Behalf of a Non-existent Company
A contract made on behalf of a company before it is incorporated is a nullity, and the company cannot, by adoption or ratification, take the benefit of it; it can only be bound by entering a fresh contract on the same terms after incorporation.
Contract Law — Agency — Personal Liability of Agent Contracting for a Non-existent Principal
A person who contracts ostensibly as agent for a non-existent principal, such as a company not yet formed, may be held personally liable on the contract, since it is only by holding him personally liable that effect can be given to it.
Company Law — Corporate Personality — Lifting the Veil — Group Enterprises and Cloak for Improper Conduct
A court may lift the corporate veil and treat related companies within a group as a single economic entity where corporate personality is used as a cloak for fraud or improper conduct, or to prevent a controller escaping the consequences of its obligations.
Banking & Finance — Debentures — Enforcement of Security — Distinction Between Default Events and Means of Realisation
A debenture clause specifying the events on which the principal sum becomes payable does not authorise realisation of the security by distress or execution; where the instrument provides for a receiver, the security can be realised only through the appointment of a receiver.
Banking & Finance — Mortgage Decree 1974 — Scope — Movable Property
The Mortgage Decree 1974 applies only to land and not to movable property such as vehicles, and even where it applies a mortgagee may not sell without a foreclosure order of the court.
Civil Procedure — Objection Proceedings — Order 19 rule 55 — Availability
Objection proceedings under Order 19 rule 55 of the Civil Procedure Rules are available only during the execution of a decree of court; they cannot be invoked where there is no suit, judgment, decree or attachment in execution.

Legislation cited (6)

  • National Enterprises Corporation Ordinance 1989 s.3
  • National Enterprises Corporation Ordinance 1989 s.14
  • Mortgage Decree 1974 s.2
  • Mortgage Decree 1974 s.7
  • Mortgage Decree 1974 s.8
  • Civil Procedure Rules Order 19 rule 55

Cases cited (10)

  • Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45
  • Kelner v Baxter (1866) LR 2 CP 174
  • Salomon v Salomon and Co [1897] AC 22
  • Touche v Metropolitan Railway Warehousing Co (1870) 6 Ch App Cas 671
  • Howard v Patent Ivory Manufacturing Co (1888) 38 Ch D 156
  • Colonization Co Ltd v Pauline and Colliery Syndicate [1904] AC 120
  • Manley Inc v Fallis (1977) 38 CPR (2d) 74
  • Schools v Canadian Meat Processing Corporation (1980-84) LRC Comm 778
  • The Roberta (1937) 58 Ll L Rep 159
  • Harold Holdsworth and Co (Wakefield) Ltd v Caddies [1955] 1 WLR 352
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.