Wakilii

Stanbic Bank(u) Ltd v Nakanyonyi Development Association(NADA) Ltd & Ors (Civil Suit No. 137 of 2012)

High Court · [2015] UGCOMMC 144 · 2015 Judgment Partly Allowed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit by bank for breach of financial lease agreement and recovery of arrears; counterclaim by lessees alleging improper sale of leased equipment
Decision
Bank's suit succeeded with judgment for net sum of UGX 101,814,442 after set-off of counterclaim damages of UGX 15,000,000 awarded to defendants for bank's breach in failing to give notice.

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that defendants were jointly and severally indebted to the bank under the financial lease agreement notwithstanding default. The bank's failure to give 14 days' written notice before impounding and selling the leased equipment constituted a breach of the lease agreement, but not a fundamental breach invalidating the sale. The sale was not fraudulent or improper; the valuation evidence supported the sale price. Defendants entitled to damages in lieu of notice. Bank recovered net sum after set-off of counterclaim damages.

Outcome

Bank's suit succeeded with judgment for net sum of UGX 101,814,442 after set-off of counterclaim damages of UGX 15,000,000 awarded to defendants for bank's breach in failing to give notice.

Facts

First defendant obtained a financial lease facility of UGX 150,000,000 from plaintiff bank to purchase a water drilling rig mounted on a motor vehicle at total cost of UGX 250,000,000, with defendants contributing UGX 100,000,000. Second and third defendants, as directors, guaranteed the facility. First defendant defaulted on rental repayments. Bank impounded the leased equipment on 8 January 2011 without prior written notice to defendants. Equipment was advertised for sale on 24 January 2011 and eventually sold at UGX 25,000,000 in September 2011 after valuation at market value of UGX 30,000,000. Bank issued demand notice to defendants on 2 September 2011, eight months after impounding. Defendants paid UGX 8,000,000 in October 2011. Defendants counterclaimed alleging improper sale without notice and fraudulent undervaluation.

Issues

  1. Whether the Defendants/Counterclaimants are jointly and/or severally indebted to the Plaintiff as claimed in the plaint or at all?
  2. Whether the valuation and consequent sale of the leased assets was fraudulent, improper/illegal?
  3. Whether the counterclaim discloses a cause of action against the second counter Defendant?
  4. What are the remedies available to the respective parties?

Orders

  • Judgment for the Plaintiff/Bank for Uganda shillings 101,814,442 against the Defendants jointly and severally with costs.
  • Counterclaim against second and third Counter Defendants dismissed with costs.
  • Counterclaim against Plaintiff bank succeeds in part; first Defendant awarded Uganda shillings 15,000,000 as damages in lieu of notice and for inconvenience, to be set off against the bank's claim.
  • Interest awarded at 20% per annum from date of filing suit to date of judgment on both main suit and counterclaim awards.
  • Further interest at 20% per annum on the aggregate net amount due to the Plaintiff after set-off from date of judgment till payment in full.

Rules and key headnotes

Financial Lease Agreements — Guarantees — Liability of Guarantors on Default
The liability of a guarantor arises upon default by the principal debtor in his or her obligations under the guaranteed facility. Where directors execute personal guarantees for a company's lease facility and the company defaults, the guarantors are jointly and severally liable for the outstanding debt.
Breach of Contract — Notice Provisions — Mandatory versus Directory Terms
Where a lease agreement provides for 14 days' written notice before disposal of goods upon default but prescribes no sanction for non-compliance, the notice provision is directory rather than mandatory. Failure to give the stipulated notice constitutes a breach but does not invalidate subsequent acts of repossession and sale, and the appropriate remedy is damages in lieu of notice.
Breach of Contract — Fundamental Breach — Test for Fundamentality
A breach is fundamental only if it goes to the root of the contract and deprives the innocent party of substantially the whole benefit of the contract. Failure to give contractual notice before impounding and selling leased equipment, where the lessee had over seven months to redeem the property after impounding but failed to do so, does not constitute a fundamental breach.
Lease Agreements — Disposal of Leased Assets — Duty of Lessor
A lessor disposing of leased assets upon default by the lessee acts properly where it obtains a professional valuation, advertises the asset publicly, and sells to the highest bidder. The lessee bears the burden of adducing evidence of a better valuation if challenging the sale price; in the absence of counter-valuation evidence, the lessor's valuation and sale cannot be impugned.
Burden of Proof — Fraud — Standard of Proof
Fraud must not only be pleaded but must be strictly proved. The standard of proof is higher than the balance of probabilities though it may be short of proof beyond reasonable doubt. Allegations of fraudulent valuation fail where the evidence shows different assets were valued at different times and no expert evidence contradicts the valuation relied upon.
Financial Leases — Risk and Reward — Depreciation
During the duration of a financial lease, the usual risks and rewards of ownership are transferred to the lessee who bears the risk of loss, destruction and depreciation of the leased equipment. A lessee who mismanages leased property causing its depreciation cannot complain of undervaluation when the lessor sells the depreciated asset to recover arrears.
Parties — Vicarious Liability — Suing Employees for Acts in Course of Employment
An employee who conducts a valuation in the course of her employment for a limited liability company is not personally liable for alleged defects in that valuation. Where a corporate employer is sued for professional acts, the employee cannot be joined as a separate defendant unless personal fault outside the scope of employment is alleged and proved.

Legislation cited (2)

Cases cited (19)

  • Barclays Bank of Uganda Ltd versus Jing Hong and Guo Dong
  • Behange v School Outfitters (U) Ltd (2000) 1 EA 20
  • Imelda Nassanga v Stanbic Bank and Another (Supreme Court Civil Appeal No. 10 of 2005)
  • Gladys Nyangire and Another v DFCU Leasing Company Ltd (High Court Civil Suits No. 106, 150 and 78 of 2007)
  • Glenworth Financial Mortgage Insurance v Hodder Rook & Associates [2010] NSWSC 1043
  • Kestrel Holdings v APG of Properties [2009] FCAFV 144
  • David Sajjaka Nalima v Rebecca Musoke (Court of Appeal No. 12 of 1985)
  • Assets Company v Mere Roihi (1905) AC 176
  • Frederick Zaabwe v Orient Bank and Five Others (Supreme Court Civil Appeal No. 4 of 2006)
  • Edward Byaruhanga Katumba v Daniel Kiwalabye Musoke (Civil Appeal No. 2 of 1998)
  • David Kayondo v The Co-Operative Bank Ltd (Civil Appeal No. 10 of 1991)
  • Steel v Sirs (1980) All ER 529
  • Nassolo Farida versus DFCU Leasing Company Ltd
  • Auto Garage v Motokov [1971] EA 314
  • Kakooza Mutale v Attorney General and Others [2001-2005] HCB 110
  • Fort Hall Bakery v Frederick Muigai Wangoe [1959] EA 474
  • Makula International v Cardinal Nsubuga Foundation [1982] HCB 11
  • Kasekya Kasaijja Sylvan v Attorney General (High Court Civil Suit No. 1147 of 1998)
  • Muwonge v Attorney General [1967] EA 17

Full judgment

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

Stanbic Bank(u) Ltd v Nakanyonyi Development Association(NADA) Ltd & Ors (Civil Suit No. 137 of 2012) [2015] UGCommC 144 (30 November 2015)
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.