Necta (U) Limited and Another v Crane Bank Limited (Civil Appeal No. 219 of 2013)

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Court of Appeal allowed the appeal, holding that the special resolution authorising the mortgage was defective because it was not signed by all the company's directors as required by its articles, and the Turquand rule could not cure the defect absent due diligence by the bank. The loan was not shown to benefit the company, and the further charges were unauthorised. The mortgage instruments were defective for want of the common seal, non-Latin signatures and absence of powers of attorney, rendering the sale a nullity. Applying unjust enrichment against the second appellant (who came with unclean hands), the court upheld the decretal sum but awarded the first appellant UGX 250,000,000 aggravated damages for the wrongful sale of its property.

Outcome

Appeal allowed; first appellant awarded aggravated damages of UGX 250,000,000 with interest; appellants jointly to pay upheld decretal sum with interest; declaration of shareholding declined

Facts

The second appellant obtained overdraft facilities totalling UGX 70,000,000 from the respondent bank, secured by a mortgage and two further charges over property at Plot 94, High Street, Mbarara, registered in the name of the first appellant company, which stood as surety. The mortgage was purportedly authorised by a special resolution signed by only two of the company's directors (the second appellant and his wife). Following default, the bank froze the facility and advertised the property for sale. Earlier consolidated suits produced a consent decree against the appellants; upon their failure to pay, the property was attached, sold and registered to a third party. The appellants challenged the sale, alleging the resolution and mortgage instruments were invalid for want of proper authorisation, the common seal, and Latin-character signatures. The company had seven subscribers (including five children who were minors at incorporation), whom the trial court had wrongly equated with directors. The bank advanced the credit to the second appellant personally as its account holder rather than to the company.

Issues

1. Whether the special resolution authorising the mortgage was valid given that it was not signed by all the company's directors as required by the articles of association.
2. Whether the loan advanced to the second appellant was for the benefit of the first appellant company or was validly authorised by the company's resolution.
3. Whether the further charges and mortgages over the company's property were authorised by the resolution.
4. Whether the mortgage instruments were validly executed under the Registration of Titles Act, given the absence of a common seal, non-Latin signatures and lack of powers of attorney.
5. Whether the sale of the mortgaged property was valid and preceded by proper notice.
6. Whether the second appellant was a member/shareholder of Premier Lottery Limited.
7. Whether the appellants were entitled to damages for the sale of the property.

Orders

• Appeal allowed.
• First Appellant awarded Ushs. 250,000,000 as aggravated damages for the sale of its property comprised in LRV 363 Folio 18 Plot 94, High Street, Mbarara.
• Interest at 15% per annum on the aggravated damages from the date of judgment until payment in full.
• Appellants to jointly pay the decretal sum of Ushs. 218,144,745 awarded by the Trial Court, if not already paid.
• The decretal sum to attract interest at 6% per annum from the date of judgment until payment in full.
• Respondent condemned to costs in the Court of Appeal and the court below.

Rules and key headnotes

Legislation cited (24)

• Judicature Act s.35
• Judicature Act s.40(3)(i)
• Civil Procedure Act s.34
• Civil Procedure Act s.27(2)
• Companies Act s.21(1)
• Companies Act s.27
• Companies Act s.186(1)
• Companies Act s.186(7)
• Companies Act Table A Regulation 75
• Companies Act Table A Regulation 79(1)
• Companies Act Table A Regulation 98
• Companies Act Table A Regulation 106
• Companies Act Table A Regulation 113
• Registration of Titles Act s.116
• Registration of Titles Act s.117
• Registration of Titles Act s.132
• Registration of Titles Act s.146(1)
• Registration of Titles Act s.147(1)
• Registration of Titles Act s.148
• Evidence Act s.101(1)
• Evidence Act s.102
• Evidence Act s.103
• Court of Appeal Rules rule 2
• Court of Appeal Rules rule 86

Cases cited (15)

• Royal British Bank v Turquand (1856) 6 E & B 327
• Morris v Kanssen & Others (1946) 1 All ER 586
• Fredrick J. K. Zaabwe v Orient Bank Ltd & 5 Others (2007) 1 ULR 98
• General Parts (U) Limited v Non-Performing Assets Recovery Trust (Civil Appeal No. 5 of 1999)
• Irvine v The Union Bank of Australia (1877) 2 App Cas 366
• Benjamin Leonard MacFoy v United Africa Company Limited (1962) AC 152
• National Westminster Bank plc v Inland Revenue Commissioners (1995) AC 111
• Rookes v Barnard (1964) AC 1129
• Obongo v Kisumu Municipal Council (1971) EA 91
• Uganda Development Bank v Florence Mufumba (Civil Appeal No. 247 of 2015)
• Basiima Kabonesa & Others v Attorney General & Another (Civil Appeal No. 196 of 2018)
• Royal Bank of Scotland plc v Etridge (No 2) (2002) 2 AC 773
• Barclays Bank plc v O'Brien (1994) 1 AC 180
• Allcard v Skinner (1887) 36 Ch D 145
• Attorney General of the Republic of Burundi v Secretary General of the East African Community & Another (EACJ Appeal No. 2 of 2019)

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