Wakilii

Francis Xavier Muhoozi t a Kabale Kobil Station v National Bank of Commerce (U) Ltd (HCT-00-CC-CS 303 of 2006)

High Court · [2007] UGCOMMC 37 · 2007 Suit Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance commercial suit for breach of guarantee deed
Decision
Suit dismissed on the ground that the plaintiff was not privy to the guarantee contract and could not sue on it

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The High Court held that the plaintiff was not privy to the bank guarantee deed executed between the defendant bank and Kobil Uganda Ltd, and therefore could not sue on it. The guarantee was a separate contract between the bank and Kobil, distinct from the offer letter and mortgage deed between the plaintiff and the bank. Although the plaintiff was intended to benefit from the guarantee, he furnished no independent consideration for it and remained a stranger to that contract. The suit was dismissed.

Outcome

Suit dismissed on the ground that the plaintiff was not privy to the guarantee contract and could not sue on it

Facts

The plaintiff operated a fuel station under a dealership with Kobil Uganda Limited. He was the defendant bank's customer at its Kabale branch and had difficulty repaying overdraft facilities. In February 2006, the plaintiff requested the defendant to negotiate a guarantee facility with Kobil. The defendant issued a bank guarantee dated 13 March 2006 in favour of Kobil for UGX 100,000,000, valid for one year, guaranteeing payment of cheques issued by the plaintiff to Kobil. When the plaintiff drew a cheque for UGX 43,910,229, the defendant dishonoured it. Kobil subsequently terminated the plaintiff's dealership. The plaintiff sued the defendant for breach of the guarantee, claiming UGX 403,000,000 in damages.

Issues

  1. Whether the defendant breached the terms of the guarantee agreement.
  2. Whether the plaintiff is entitled to the remedies sought.

Orders

  • Plaint struck out.
  • Suit dismissed.
  • Each party to bear its own costs.

Rules and key headnotes

Contract Law — Privity of Contract — Third Party Beneficiaries — Stranger to Contract
A stranger to a contract cannot take advantage of its provisions even where it is clear from the contract that some provision was intended to benefit him. Only a person who is party to a contract can sue upon it.
Banking & Finance — Bank Guarantees — Nature of Guarantee — Parties to Guarantee
A bank guarantee is a secondary agreement in which the guarantor (bank) promises the creditor that if the principal debtor defaults, the guarantor will pay. The promise is made by the guarantor to the creditor, not to the principal debtor, even though it is made in the debtor's favour. The principal debtor is not a party to the guarantor's contract with the creditor, and there is not necessarily privity of contract between the guarantor and the principal debtor.
Contract Law — Consideration — Independent Consideration for Guarantee
A principal debtor could only become privy to a guarantee agreement between a guarantor and a creditor by furnishing independent consideration to that agreement. Where the debtor furnished consideration only for a separate contract with the guarantor, he remains a stranger to the guarantee deed.
Commercial Law — Multiple Contracts — Separate Agreements — Privity
Where a bank guarantee constitutes a contract between a bank and a supplier, and a separate offer letter and mortgage deed constitute another contract between the customer and the bank, these are distinct contracts. A customer's claim based on the guarantee deed, to which he furnished no consideration, cannot succeed where he is not privy to that agreement.
Damages & Quantum — Special Damages — Pleading and Proof — Speculative Claims
Special damages must be pleaded with particularity and strictly proved. A plaintiff must prove the net income lost as a result of breach of contract by showing gross income less expenses through oral evidence or documents. A claim for special damages that fails to indicate how the figure was arrived at and is not supported by records of cash flow is legally unsustainable as offending against ordinary rules of pleading and being highly speculative.

Cases cited (2)

  • Jeraj Shariff & Co. v Chotai Fancy Stores [1960] EA 374
  • Midland Silicones Ltd v Scruttons [1962] AC 446

Full judgment

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

Francis Xavier Muhoozi t a Kabale Kobil Station v National Bank of Commerce (U) Ltd (HCT-00-CC-CS 303 of 2006) [2007] UGCommC 37 (18 April 2007)
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.