Wakilii

Multi Constructors Limited v Uganda Commercial Bank [1996] UGSC 14

Supreme Court · 1996 Appeal Dismissed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
Civil appeal from a High Court judgment dismissing a suit to set aside the sale of charged property
Decision
Appeal dismissed; the High Court's dismissal of the suit upheld

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Holding

The Supreme Court dismissed the appeal. The appellant's debenture independently secured its own borrowing, so discharge of the holding company's receivership did not extinguish the appellant's liability, and the suit property was validly available as security. A receiver/manager appointed under a debenture is the agent of the debtor company alone; the agency between mortgagor and mortgagee is merely suspended during the receivership. Because the receiver sold the property as the appellant's agent, the appellant should have sued the receiver, not the respondent bank, so a wrong party was sued. The bank could lawfully buy in the property under s.9(c)(ii) of the Banking Act 1969, and the appellant's long, inexcusable delay barred any relief.

Facts

The appellant company borrowed from the respondent bank on overdraft, secured by a debenture (Exh. P1) charging its assets, including a building on Plot 7, Nyondo Road, Industrial Area, Kampala. The appellant's finances were pooled with those of an associated holding company and several subsidiaries, each of which issued similar debentures. After the companies defaulted and ignored demands for repayment, the bank appointed receivers/managers under the debentures in October 1969. The receiver was unable to find a buyer for the building at a reasonable price, and in 1974 advised the bank to take over the property in part realisation of its security. The bank purchased it for Shs. 480,000 in July 1974, reducing the appellant's debt; the appellant remained indebted. Most directors had left Uganda following the 1972 expulsion of Asians. The appellant's managing director returned in 1982, investigated, and in 1989 sued to set aside the sale and recover ownership. The High Court dismissed the suit.

Issues

  1. Whether the appellant's debenture (Exh. P1) was merely collateral to the holding company's debenture (Exh. P7) so that discharge of the principal debenture discharged the appellant's liability.
  2. Whether the sale of the suit property to the respondent was valid.
  3. Whether the agency relationship between the appellant and the respondent terminated upon the appointment of a receiver/manager, and whether the receiver acted as agent of the appellant.
  4. Whether the suit was brought against the right defendant.
  5. Whether section 9(c)(ii) of the Banking Act 1969 prevented the respondent bank from purchasing the mortgaged property outright.

Orders

  • Appeal dismissed.
  • Appellant to pay the costs of the appeal and of the court below.

Key headnotes

Company Law — Receivership — Receiver appointed under a debenture as agent of the debtor company
A receiver/manager appointed under the powers contained in a debenture is the agent of the debtor company, which alone is liable for his acts, defaults and remuneration, and he is personally liable on contracts entered into in the performance of his functions.
Civil Procedure — Proper party — Action against the creditor for acts of a receiver who is the debtor's agent
Where a receiver, as agent of the debtor company, sells charged property, a debtor aggrieved by the sale must seek redress against the receiver and not the appointing creditor; suing the creditor bank is to sue the wrong party.
Land & Property — Mortgage — Suspension and revival of the mortgagee's agency on appointment and removal of a receiver
The agency relationship between mortgagor and mortgagee is suspended, not extinguished, on the appointment of a receiver/manager, and revives automatically in favour of the mortgagee upon the receiver's death or removal where the agency is still required for sale and conveyance.
Banking & Finance — Mortgagee's power of sale — Bank buying in mortgaged property under s.9(c)(ii) Banking Act 1969
Section 9(c)(ii) of the Banking Act 1969 permits a bank to secure a debt on immovable property and, on default, to buy in and hold such property for realisation at the earliest moment suitable to it where no other purchaser is available; it does not oblige the bank to hold the property indefinitely for the mortgagor.
Land & Property — Setting aside sale — Effect of inexcusable delay by the mortgagor
A mortgagor guilty of inexcusable delay in challenging a sale of the charged property is not entitled to have the sale set aside, even where the sale might otherwise be impugned.
Company Law — Debentures — Independent security of a subsidiary's debenture for its own borrowing
Where a subsidiary executes a debenture securing advances made to it, the discharge of the holding company's principal debenture and receivership does not absolve the subsidiary of its own outstanding liability secured by its debenture.

Legislation cited (2)

  • Companies Act (Cap. 85) s.352(2)
  • Banking Act 1969 s.9(c)(ii)

Cases cited (12)

  • Multi-Holdings and Multi-Construction Ltd v Uganda Commercial Bank (1971) 1 ULR 241
  • Stephen Lubega v Barclays Bank (U) Ltd (Civil Appeal No. 2 of 1992)
  • Mehta v A.A.E. Sequeira (1965) EA 729
  • Farrar v Farrar (1889) 40 Ch D 395
  • Tse Kwong Lam v Wong Chit Sen (1983) 1 WLR 1349
  • Snowman v David Samuel Trust Ltd (1978) 1 All ER 616
  • Household Centre Ltd v Achelis Ltd (1967) EA 823
  • Gosling v Gaskell (1897) AC 595
  • Owen vs. Cronk (1985) 1 265
  • Achelis (Kenya) Ltd. vs. Nazarali and Sons Ltd. and Another (1967) 382
  • George Barker (Transport) Ltd v Eynon (1974) 1 All ER 900
  • Re B Johnson & Co (Builders) Ltd (1955) Ch 634
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.