Wakilii

Patel & 2 Others v National & Grindlays Bank Limited (Civil Appeal 33 of 1969)

Court of Appeal · [1969] UGCA 1 · 1969 Appeal Allowed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Civil appeal from a High Court decree dismissing the appellants' defence to a claim under contracts of guarantee
Decision
Appeal allowed; High Court judgment set aside and suit dismissed with costs

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Court of Appeal held that a creditor may not, without the guarantor's consent, so alter the course of dealings with the debtor as to create a debt arising from a different course of dealings from that guaranteed. By closing the old overdraft account and opening a new, separately guaranteed account, the bank discharged the appellants from liability. The wide clauses in the guarantees did not authorise this, and no implied agreement to consent could be found where it was never pleaded. As to the second appellant, whose guarantee fell under the Indian Contract Act, section 133 was construed not to preserve liability, so he too was discharged. The appeal was allowed and the suit dismissed.

Outcome

Appeal allowed; High Court judgment set aside and suit dismissed with costs

Facts

The appellants, by different guarantees with different maxima signed on different dates, guaranteed repayment of sums advanced by the bank to a debtor carrying on a coffee hulling business. The advances were made by way of an overdraft account. Most guarantees contained a clause entitling the bank to open a fresh account when the guarantee ceased to be continuing, which would occur on the guarantors giving one month's notice. The bank held a debenture over the debtor's assets. On or about 29 June 1964 the bank, without the guarantors' notice or consent, closed the debtor's account maintained under the guarantees and opened a new account guaranteed by a separate guarantor, into which future amounts were credited. Six months later the bank appointed a receiver under the debenture and credited sums received only to the new account, reducing that account while obscuring the debtor's total indebtedness. The bank then sued the appellants for sums allegedly owing under their guarantees as at 10 April 1965.

Issues

  1. Whether the appellants were discharged from liability under their guarantees by reason of the bank closing the old account and opening a new account without their consent.
  2. Whether the appellants consented, in the guarantees or by a separate implied agreement, to the bank's action of opening a new account.
  3. Whether the second appellant's liability, governed by the Indian Contract Act, was discharged by the variance under section 133.

Orders

  • Appeal allowed.
  • Judgment and decree of the High Court set aside.
  • Judgment and decree substituted dismissing the suit with costs.
  • Costs of the appeal to the appellants, with a certificate for two advocates.

Rules and key headnotes

Guarantee — Discharge of Surety — Alteration of Course of Dealing by Creditor
A creditor may not, without the consent of the guarantor, so alter the course of his dealings with the debtor as in effect to create a debt arising from a different course of dealings from that which gave rise to the debt guaranteed; doing so discharges the guarantor.
Guarantee — Opening of New Account — Consent Required
Where a guarantee permits the bank to open a fresh account only upon the guarantee ceasing to be continuing after one month's notice, the bank cannot rely on that clause to open a new account and cease operating the old overdraft where no such notice was given.
Guarantee — Construction of Wide Clauses — Relation to Nature of Debt
Wide terms in a guarantee must be related to the nature of the debt and the course of dealing existing when the guarantee was given; such clauses do not give a bank carte blanche to change the course of dealings to the guarantor's detriment.
Implied Agreement — Pleading Requirement
A court should not find an implied provision in an implied agreement in favour of a party who never pleaded such an agreement and at times denied it; a substituted verbal agreement must be proved as understood by both parties.
Guarantee — Indian Contract Act s.133 — Effect of Variance
Section 133 of the Indian Contract Act should not be construed so as to retain liability under a contract of guarantee that would otherwise be discharged; a material variance made without the guarantor's consent discharges the guarantor.

Legislation cited (4)

  • Indian Contract Act s.133
  • Indian Contract Act s.134
  • Indian Contract Act s.135
  • Indian Contract Act s.139

Cases cited (3)

  • Harilal vs. Standard Bank Ltd. (1967) E.A. 512
  • Nurdin v. Lombank (1963) E.A. 304 at p.315
  • Moholalbhai v. Setalwad (1934) 62 I.A. 23

Full judgment

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

Patel & 2 Others v National & Grindlays Bank Limited (Civil Appeal 33 of 1969) [1969] UGCA 1 (1 November 1969)
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.