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City Alluminum & Glass Services Limited and Another v Barclays Bank (U) Limited and Another (Civil Suit 867 of 2014)

High Court · [2021] UGCOMMC 144 · 2021 Judgment for Defendants AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit for breach of contract and damages
Decision
Suit dismissed as misconceived with costs to the defendants

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The High Court dismissed the plaintiffs' claim for breach of contract. The court held that the 2nd plaintiff exceeded his authority under the power of attorney when he assigned his powers to the 1st plaintiff company to borrow funds. The 1st plaintiff's subsequent material breach by authorising sale of the security disentitled it from suing for breach. The 1st defendant bank was not bound by the memorandum of understanding between the plaintiffs and the 2nd defendant as it was not party to that agreement. The doctrine of privity prevented the plaintiffs from imposing contractual obligations on the bank arising from an agreement to which it was not party.

Outcome

Suit dismissed as misconceived with costs to the defendants

Facts

The 2nd defendant owned land jointly with another as tenants in common. She executed a power of attorney authorising the 2nd plaintiff to borrow UGX 150,000,000 from Barclays Bank using her land as collateral. The 2nd plaintiff and 2nd defendant entered into a memorandum of understanding regarding distribution of the borrowed funds. Instead of the 2nd plaintiff borrowing directly, the 1st plaintiff company borrowed the funds and a tripartite mortgage was executed with the 1st plaintiff as borrower, the bank as lender, and the 2nd defendant as mortgagor. The 1st plaintiff defaulted after one instalment. The bank recalled the loan. The 1st plaintiff then authorised the bank to sell the mortgaged property. The 2nd defendant subsequently revoked the power of attorney and redeemed the property by paying off the outstanding loan through rental income assignments.

Issues

  1. Whether the plaintiffs have any claim against the defendants.
  2. Whether the 1st defendant is bound by the memorandum of understanding between the plaintiffs and the 2nd defendant.

Orders

  • Suit dismissed.
  • Costs awarded to the defendants.

Rules and key headnotes

Co-ownership — Tenancy in Common — Powers of Attorney — Unilateral Encumbrance
A tenant in common may unilaterally execute a power of attorney to encumber their share in co-owned land, provided the scope and effect does not interfere with the mutual rights of enjoyment of the other co-tenants. A unilateral mortgage does not sever a tenancy in common as it operates by way of security as a charge against title rather than by conveyance.
Third Party Mortgages — Obligations of Borrower and Mortgagor
In a third party mortgage under section 18(1)(a) of the Mortgage Act 2009, it is the obligation of the borrower, not the third party mortgagor, to pay the principal and interest. However, the mortgagor makes a contractual promise to ensure the borrower fulfils obligations and to pay if the borrower fails to do so. A lender's acceptance of mortgage payments from the third party mortgagor is not wrongful as this right arises statutorily from the borrower's default.
Powers of Attorney — Fiduciary Duty of Banks — Scope of Authority
A bank has a fiduciary duty to ensure that powers of attorney are being used for and on behalf of the donor and not to the donor's detriment or for the benefit of the donee. Where an agent uses a power of attorney to do something for the agent's own purposes to the exclusion and detriment of the principal, the actions are outside the scope of the power and are not capable of ratification.
Breach of Contract — First Breach Doctrine — Prior Material Breach
Under the first breach doctrine, if a party commits the first material breach of contract, it cannot sue afterwards to enforce provisions favourable to it even if there is a subsequent breach by the other party. The innocent party may terminate the contract if the breaching party's words or conduct clearly and absolutely evince an intention not to perform its obligations.
Privity of Contract — Third Party Rights — Contractual Obligations
The doctrine of privity provides that a contract cannot confer rights or impose obligations on any person except the parties to it. A person who is not party to a contract cannot have contractual liabilities imposed on them. A third party may not enforce a contract except where it was made expressly for their benefit in circumstances that it was intended to be enforceable by them.

Legislation cited (5)

Cases cited (11)

  • Fredrick J. K. Zaabwe v Orient Bank Ltd and Five Others (Supreme Court Civil Appeal No. 4 of 2006)
  • Imperial Bank of Canada v Begley [1936] 2 All ER 367
  • Williams v Hensman (1861) 70 ER 862
  • Williams and Burgess v Rawnsley [1975] Ch 429
  • Wilson v Bell (1843) 5 IR Eq 501
  • Jackson v Jackson (1804) 9 Ves 591
  • Guma Paulino v Bank of Africa (U) Ltd and Two Others (High Court Civil Suit No. 13 of 2008)
  • SK Shipping (S) Pte Ltd v Petroexport Ltd [2010] 2 Lloyd's Rep 158
  • Dunlop Pneumatic Tyre Co Ltd v Selfridge Ltd [1915] AC 847
  • Drive Yourself Hire Co (London) Ltd v Strutt [1954] 1 QB 250
  • Beswick v Beswick [1968] AC 58

Full judgment

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

City Alluminum & Glass Services Limited and Another v Barclays Bank (U) Limited and Another (Civil Suit 867 of 2014) [2021] UGCommC 144 (28 June 2021)
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.