Wakilii

Bank of Uganda v Banco Arabe Espanol (Civil Appeal 23 of 2000)

Court of Appeal · [2000] UGCA 40 · 2000 Appeal Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Civil appeal from a High Court judgment holding the appellant liable as guarantor for breach of a loan agreement
Decision
Appeal dismissed; High Court judgment holding the appellant liable as guarantor upheld

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Court of Appeal dismissed Bank of Uganda's appeal against a judgment holding it liable as guarantor of a USD 1,000,000 loan. The Court held that the parties had chosen English law (Clause 16(a)), under which the Corporate Bodies' Contracts Act 1960 does not require a corporate seal for a contract to be valid, so the absence of the Bank's seal did not render the guarantee unenforceable. Variations of the draw down date and reminders on repayment dates were unsubstantial, non-prejudicial, or favourable to the guarantor and did not discharge it. Demand was sufficient, the Clause 18 liability was personal, and the frustration defence failed as it was self-induced.

Outcome

Appeal dismissed; High Court judgment holding the appellant liable as guarantor upheld

Facts

In 1987 the Government of Uganda concluded a loan agreement with the respondent, Banco Arabe Espanol, for USD 1,000,000 to purchase railway wagons. The appellant, Bank of Uganda, through its representative George Nteeba, signed the agreement as guarantor under Clause 18. The loan was repayable in seven installments. The respondent was to release the funds within 180 days, later extended. The first installment with accrued interest was paid in 1991, but no further installments were paid despite demands. The respondent demanded payment from the appellant as guarantor; none was made. The appellant's officer Walusimbi sent a telex in February 1991 admitting the claim. The respondent sued the appellant under Clause 18. The appellant denied liability, arguing the guarantee was unsealed, that variations discharged it, that no proper demands were made, that its obligation was only to cause the borrower to pay, and that the contract was frustrated by Uganda's coffee trade liberalisation policy.

Issues

  1. Whether the loan agreement was enforceable against the appellant guarantor despite not being executed under the appellant's seal.
  2. Whether the appellant's liability as guarantor was discharged by the variation of the draw down period for the loan made without its consent.
  3. Whether the appellant's liability was discharged by extensions of the repayment dates granted to the borrower without its consent.
  4. Whether the respondent's failure to make prompt and contemporaneous demands upon the appellant amounted to a waiver or release of liability.
  5. Whether the appellant's liability under Clause 18 of the loan agreement was personal.
  6. Whether the appellant's obligations as guarantor were extinguished by frustration.

Orders

  • Appeal dismissed.
  • Costs to the respondent in this court and in the High Court.

Rules and key headnotes

Guarantees — Execution Under Seal — Choice of Law Clause
Where parties expressly agree that their contract is governed by English law, the requirement of a corporate body's bye-laws that guarantees bear the corporate seal does not apply, and under the Corporate Bodies' Contracts Act 1960 a contract entered into without a corporate seal is not invalid by reason only of the absence of a seal.
Suretyship — Discharge of Guarantor — Alteration of Terms
An alteration to the terms of the underlying agreement made without the surety's consent will exonerate the surety, unless it is self-evident that the alteration is unsubstantial or cannot be prejudicial to the surety, or unless it is provided for in the guarantee.
Suretyship — Demand and Forbearance
Mere temporary inaction or forbearance by a creditor to take action against a guarantor does not discharge the guarantor from his obligations, and where the guarantee does not specify when demand must be made, a single demand made upon default is sufficient.
Suretyship — Nature of Guarantor's Liability
Where a guarantee unconditionally and irrevocably guarantees due and punctual payment by the borrower, the guarantor's liability is personal to repay the loan upon the borrower's default and is not limited to merely causing the principal debtor to pay.
Frustration — Express Contractual Provision and Self-Induced Frustration
Where a contract expressly provides for the event alleged to have frustrated it, the contract is not frustrated; further, a party cannot rely on frustration that is self-induced, being due to its own conduct or that of those for whom it is responsible.

Legislation cited (4)

Cases cited (3)

  • A.R. Wright and Sons Ltd v Romford Borough Council [1957] 1 QB 431
  • Holme v Brunskill (1878) 3 QBD 495
  • Alwi A. Saw v Ahmed Ari Alhereri [1961] EA 767

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

Bank of Uganda v Banco Arabe Espanol (Civil Appeal 23 of 2000) [2000] UGCA 40 (20 October 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.