Wakilii

William Sebuliba Kayongo & Anor v Barclays Bank of Uganda Ltd (HCT-00-CC-MA 325 of 2008)

High Court · [2010] UGCOMMC 6 · 2010 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for unconditional leave to defend summary suit arising from banking facility secured by mortgage and personal guarantees
Decision
Applicants granted unconditional leave to defend the summary suit

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that an on-demand guarantee given collaterally to a mortgage is subject to Section 16 of the Mortgage Act, which provides that obligations collateral to a mortgage cannot be greater than the mortgagor's obligations under the mortgage. The guarantee, though payable on demand, is not autonomous where it secures a mortgage facility. Triable issues existed requiring leave to defend, as the extent of obligations under the mortgage deed was not before the court.

Outcome

Applicants granted unconditional leave to defend the summary suit

Facts

Barclays Bank brought a summary suit against Berkerly Educational Enterprises Ltd and its directors William Sebuliba Kayongo and George William Semivule to recover UGX 1,743,864,285 under personal guarantees. The loan was secured by a mortgage over school properties and unlimited personal guarantees by the directors. The bank advanced an overdraft facility of UGX 411,141,555 in 2004 and an apex loan of UGX 328,913,244 in 2006, both secured by mortgages over land at Bunamwaya. The parties attempted to jointly sell the school to settle the debt but failed. Kayongo and Berkerly Educational Enterprises Ltd applied for leave to defend, arguing that the bank was wrongly pursuing both mortgage and guarantee simultaneously, that the wrong interest rate (21% instead of 7%) was applied, and that funds were wrongly disbursed to a third party without authority.

Issues

  1. Whether an on-demand guarantee given to a bank in addition to a mortgage is subject to the limitation in Section 16 of the Mortgage Act that the obligations of a guarantor cannot be greater than the obligations of the mortgagor under the mortgage.
  2. Whether a defendant against whom a summary suit is brought on an on-demand guarantee may raise defences relating to the underlying secured facility and mortgage.

Orders

  • Application for leave to defend granted.
  • Applicants to file their defence within 14 days of this ruling.
  • Costs in the cause.

Rules and key headnotes

Banking & Finance — On-Demand Guarantees — Statutory Limitation on Collateral Security
Where an on-demand guarantee is given to a bank in addition to a mortgage over property, the guarantee constitutes an obligation collateral to the mortgage within the meaning of Section 16 of the Mortgage Act, and the guarantor's obligations under the guarantee cannot be greater than the mortgagor's obligations under the mortgage.
Banking & Finance — On-Demand Guarantees — Autonomy Principle
While on-demand guarantees are generally autonomous and payable on demand without reference to disputes in underlying contracts, this principle developed in the context of international trade and performance bonds does not override statutory provisions such as Section 16 of the Mortgage Act where the guarantee secures a mortgage facility.
Civil Procedure — Summary Procedure — Leave to Defend
Leave to defend a summary suit will be granted where a defendant shows by affidavit that there is a bona fide triable issue of fact or law; the defendant is not required to show a good defence on the merits, but must satisfy the court that there is an issue which ought to be tried, and the defence must be stated with sufficient particularity to appear genuine.
Civil Procedure — Summary Procedure — Unconditional Leave
Leave to defend will normally be granted unconditionally and will only be granted subject to payment into court where there is ground for believing that the defence is a sham.

Legislation cited (4)

Cases cited (6)

  • Maluku Interglobal v Bank of Uganda [1985] HCB 65
  • Kundalal Restaurant v Deushi & Co [1952] EACA 77
  • Zola & Another v Ralli Brothers Ltd & Anor [1969] EA 691
  • Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] 1 QB 159
  • Comdel Commodities Ltd v Siporesc Trade SA [1997] 1 Lloyd's Rep 424
  • Habottle (R.D) (Mercantile) Ltd v National Westminster Bank [1978] 1 QB 146

Full judgment

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

William Sebuliba Kayongo & Anor v Barclays Bank of Uganda Ltd (HCT-00-CC-MA 325 of 2008) [2010] UGCommC 6 (10 March 2010)
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.