Wakilii

National Enterprises Corporation & 2 Ors v Nile Bank Limited [1995] UGSC 22

Supreme Court · 1995 Appeal Partly Allowed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Civil appeal from a High Court judgment dismissing the appellants' suit for wrongful seizure of vehicles and damages
Decision
Appeal allowed in part; seizure held unlawful and the case remitted to the High Court for assessment of damages

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Supreme Court held that a debenture executed before NEC Bakery was incorporated was a nullity as against that company, but that the first appellant, having contracted ostensibly as agent for a non-existent principal and received the loan, was personally liable; the trial judge had rightly lifted the veil of the subsidiaries to treat the group as one economic entity. However, clause 6(a) of the debenture did not authorise enforcement by distress or execution—only appointment of a receiver—and the Mortgage Decree did not apply to vehicles, so the seizure was unlawful. The appeal was allowed in part and the case remitted for assessment of damages.

Outcome

Appeal allowed in part; seizure held unlawful and the case remitted to the High Court for assessment of damages

Facts

The first appellant, a statutory corporation, sought to establish a subsidiary, NEC Bakery and Confectionary Limited, and applied to the respondent bank for an overdraft to capitalise it. A board resolution authorised borrowing of Shs.16 million, and on 22 October 1990 the first appellant executed a debenture in the bank's favour charging the company's assets as security. NEC Bakery was only incorporated on 24 October 1990, after the debenture was executed. The loan account, opened in NEC Bakery's name, became overdrawn at about Shs.160 million. After unpaid demands, the bank seized two lorries registered to the first and second appellants and advertised five vehicles for sale, purportedly exercising rights under the debenture. The third appellant, holding the vehicles under powers of attorney, hid three further vehicles threatened with seizure. The appellants sued for wrongful seizure and detention, recovery or value of the vehicles, and damages, and the High Court dismissed the suit.

Issues

  1. Whether a debenture executed on behalf of a company not yet incorporated is a nullity.
  2. Whether the first appellant, having contracted ostensibly as agent for a non-existent company, could be held personally liable on the debenture.
  3. Whether the court was entitled to lift the corporate veil of the subsidiary companies to treat the group as one economic entity.
  4. Whether clause 6(a) of the debenture authorised the respondent to enforce its security by distress or execution without appointing a receiver.
  5. Whether the seizure of the appellants' vehicles was lawful.
  6. Whether the third appellant could have instituted objection proceedings under Order 19 r.55 instead of hiding the vehicles.
  7. Whether the case should be remitted to the trial judge for assessment of damages.

Orders

  • Appeal allowed in part.
  • Judgment and decree of the trial court dismissing the appellants' claim for special damages for unlawful seizure and threatened seizure, and the order of costs, set aside.
  • Judgment substituted for the appellants in respect of that claim.
  • Case remitted to the trial judge for assessment of damages.
  • Appellants awarded two-thirds of the costs of the appeal and of the court below.

Rules and key headnotes

Company Law — Pre-incorporation Contracts — Nullity as Against the Company
A contract made on behalf of a company before it is incorporated cannot bind the company once formed, and the company cannot by adoption or ratification obtain the benefit of such a contract; a new contract must be made after incorporation on the terms of the old one.
Contract Law — Agency for a Non-existent Principal — Personal Liability of the Agent
Where a person contracts ostensibly as agent for a non-existent principal, such as an unformed company, and receives the benefit of the contract, he may be held personally liable on it, because only by holding him personally liable can effect be given to the contract.
Company Law — Lifting the Corporate Veil — Group Enterprises and Improper Use of Corporate Personality
A court may lift the corporate veil and treat related companies within a group as one economic entity where corporate personality is used to defeat justice or where the controlling shareholder, especially a parent company, exercises full control over its subsidiaries.
Banking & Finance — Debentures — Enforcement of Security Limited to Appointment of a Receiver
A clause specifying the events on which the principal sum secured by a debenture becomes payable does not itself authorise the creditor to realise the security by distress or execution; where the debenture provides for enforcement only through the appointment of a receiver, seizure and sale without such appointment is unauthorised.
Land & Property — Mortgage Decree 1974 — Application Confined to Land
The Mortgage Decree 1974 applies only to land and not to movable property such as vehicles, and even where it applies it does not permit a mortgagee to sell the mortgaged property without a foreclosure order of the court.
Civil Procedure — Objection Proceedings — Availability Confined to Execution of a Decree
Objection proceedings under Order 19 r.55 of the Civil Procedure Rules can only be instituted during the execution of a decree passed by the court; where there is no suit, judgment, decree or attachment in execution, the procedure is unavailable.

Legislation cited (5)

  • National Enterprises Corporation Ordinance 1989 s.3
  • National Enterprises Corporation Ordinance 1989 s.14
  • Mortgage Decree 1974 s.2
  • Mortgage Decree 1974 s.7
  • Civil Procedure Rules Order 19 r.55

Cases cited (10)

  • Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45
  • Kelner v Baxter (1866) LR 2 CP 174
  • Touche v Metropolitan Railway Warehousing Co (1870) 6 Ch App Cas 671
  • Howard v Patent Ivory Manufacturing Co (1888) 38 Ch D 156
  • Colonization Co Ltd v Pauline and Colliery Syndicate [1904] AC 120
  • Salomon v Salomon & Co Ltd [1897] AC 22
  • Manley Inc v Fallis (1977) 38 CPR (2d) 74
  • Schools v Canadian Meat Processing Corporation [1980-84] LRC (Comm) 778
  • The Roberta (1937) 58 Ll L Rep 159
  • Harold Holdsworth & Co (Wakefield) Ltd v Caddies [1955] 1 WLR 352

Full judgment

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

National Enterprises Corporation & 2 Ors v Nile Bank Limited [1995] UGSC 22 (21 June 1995)
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.