Wakilii

Centinary Rural Development Bank Limited v Tejas ,Tanna, Dhirajlal and 2 Others (HCT-05-CV-CS 106 of 2020)

High Court · [2023] UGHC 61 · 2023 Suit Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit for recovery of loan debt under Order 36 rule 2, proceeding ex-parte against guarantors after principal debtor deceased
Decision
Suit dismissed against 2nd and 3rd defendants; plaintiff may pursue debt against estate of 1st defendant or guarantors subject to limitation

Observed later treatment

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Holding

Held that guarantors are liable only for debts covered by the guarantee agreement they signed. Where a borrower obtained two loans but guarantors signed a guarantee after the first loan was advanced, the guarantee covers only the second loan. A plaintiff seeking to recover a lumpsum debt from guarantors must prove how much of that debt falls within the guarantee contract. The plaintiff failed to prove the 2nd and 3rd defendants owed the full sum claimed. Suit dismissed.

Outcome

Suit dismissed against 2nd and 3rd defendants; plaintiff may pursue debt against estate of 1st defendant or guarantors subject to limitation

Facts

The 1st defendant obtained two loans from the plaintiff bank: UGX 24,000,000/= on 10 June 2019 and UGX 30,000,000/= on 27 November 2019. The 2nd and 3rd defendants signed a guarantee agreement on 27 November 2019 guaranteeing repayment up to UGX 30,000,000/= plus interest. The 1st defendant defaulted. The plaintiff sued for recovery of UGX 46,701,794/= from all three defendants. The 1st defendant died before trial. The court granted unconditional leave to defend but the matter proceeded ex-parte against the 2nd and 3rd defendants after they could not be located. The plaintiff did not serve the estate of the deceased 1st defendant. At trial, the plaintiff sought to recover the full outstanding amount from the guarantors without specifying how much of the debt related to the first loan (obtained before the guarantee was signed) versus the second loan (obtained after the guarantee was signed).

Issues

  1. Whether the plaintiff proved on a balance of probabilities that the 2nd and 3rd defendants owed the full sum of UGX 46,701,794/= under the guarantee agreement.
  2. Which of the two loans obtained by the 1st defendant were guaranteed by the 2nd and 3rd defendants.
  3. How much of the outstanding debt fell within the scope of the guarantee contract signed on 27th November 2019.

Orders

  • Suit dismissed.
  • Plaintiff to bear own costs.

Rules and key headnotes

Contract Law — Guarantee — Scope of Guarantor's Liability — Temporal Limits
A guarantee agreement covers only debts incurred after the guarantee is signed unless the agreement expressly provides otherwise. Guarantors who sign a guarantee after a borrower has already obtained a prior loan are not liable for that prior loan.
Banking & Finance — Guarantee Contracts — Interpretation — Extent of Liability
Under Section 71 of the Contracts Act 2010, the liability of a guarantor is to the extent to which the principal debtor is liable unless otherwise provided by contract. The guarantor's liability depends upon the terms of the indemnity contract and takes effect upon default by the principal debtor.
Evidence — Burden of Proof — Formal Proof — Ex-Parte Proceedings
Where a court proceeds ex-parte and sets down a suit for formal proof, the plaintiff bears the burden of proving the case on a balance of probabilities even in the absence of cross-examination or rebuttal. Pleadings and written submissions are not evidence. The plaintiff must place before the court evidence to sustain the averments in the plaint.
Banking & Finance — Loan Recovery — Proof of Debt — Specificity Required
Where a plaintiff bank seeks to recover a lumpsum debt from guarantors arising from multiple loans, the bank must prove how much of the outstanding debt falls within the scope of each guarantee contract. A failure to specify which portions of the debt relate to guaranteed versus non-guaranteed loans is fatal to recovery from the guarantors.
Contract Law — Guarantee — Death of Principal Debtor — Effect on Guarantor's Liability
The death of a principal debtor does not discharge the debtor's estate from liability for debts contracted prior to death, and does not discharge a guarantor for those debts. A creditor may pursue the debt against the estate of the deceased principal debtor or against the guarantors, subject to the law of limitation.

Legislation cited (7)

Cases cited (3)

  • Miller v Minister of Pensions [1972] 2 All ER 372
  • Kirugi and Another v Kabiya and Three Others [1987] KLR 347
  • Moschi v Lep Air Services Ltd [1973] AC 331

Full judgment

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

Centinary Rural Development Bank Limited v Tejas ,Tanna, Dhirajlal and 2 Others (HCT-05-CV-CS 106 of 2020) [2023] UGHC 61 (31 August 2023)
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.