Stanbic Bank Uganda Limited-Versus-Cellular Gallore Limited & 2 Ors

In this case, our Senior Partner David S Kaggwa [FCIArb] represented the third defendant who was discharged as a Guarantor in a claim brought by the Bank against him, the first & second defendants.

Background.
The Plaintiff (Stanbic Bank Uganda Limited) initially extended a home loan facility worth Ug Shs 700,000,000 to the 1st plaintiff (Cellular Gallore Ltd), this loan was secured by a mortgage deed over land and property in Kyadondo Block 237 Plot 326 land at Mutungo and Luzira, and it was registered on 16th April 2008. At the request of Steven Kavuma (Second defendant), the bank agreed to grant a fresh facility to the first defendant by way of a term loan of Ug Shs. 200,000,000 dated 9th April 2009 which was sanctioned to offset the borrowers’ existing overdraft and the balance to be used as working capital over and above the existing loan. This brought the outstanding loan to Ug Shs. 900,000,000.
The Bank requested for additional security for this term loan and a first ranking registered chattel mortgage was created over the log book for Porshe Cayenne 2004 model registered in the names of Cellular Gallore Ltd. Secondly, it included personal guarantees made on 16th April 2009 for Ug Shs. 100,000,000 each by the Steven Kavuma(Second defendant) a director in the company and the third defendant John K. Kaggwa (third defendant) the Secretary of the Company.

A further charge and mortgage dated 22nd April 2009 was registered on the said property by the Bank, it was supplementary to the earlier mortgage registered .The first defendant subsequently defaulted in repaying the loan facilities from the plaintiff and in October 2009, the Plaintiff by virtue of the mortgage advertised and sold the Second Defendant’s property which was initially valued at Ug Shs. 1,100,000,000 but was given a forced sale value of Ug Shs. 800,000,000, however the plaintiff sold the property at Ug Shs.700,000,000 which couldn’t fully recover both the Home loan and Term loan facilities. So on the 10th December 2009, the plaintiff sought to recover sums that had accumulated to Ug Shs. 224,956,018 from the third defendant as guarantor in respect to the term loan as he wasn’t a guarantor on the first home loan facility.

Judgment.

Court observed that in assessing whether the guarantor is discharged the contract of guarantee has to be perused to consider the nature of the guarantee. Thereafter, two important facts had to be examined; the first matter is the fact that the plaintiff executed a chattel mortgage which wasn’t realized and secondly the plaintiff sold the mortgaged property which was security for the loan.

On the first matter, the third defendant initially claimed that the plaintiff had already sold the vehicle to recover outstanding sums under the chattel mortgage but Counsel later conceded that the plaintiff did not sell the motor vehicle as it was brought to light in court that the plaintiff had made inquiries with the Uganda Revenue Authority and though it was informed by 23rd March 2012 that the inquiry had been concluded, the plaintiff never received the report until it was availed in court after an order issued on 18th June 2014. In fact the plaintiff’s additional chattel mortgage had been secured with a duplicate log book, the original being held by Cairo Bank International which sold the vehicle upon default on its own facility.

Court also observed that it wasn’t proved by the plaintiff that the third defendant was party to the impugned sale transaction as alleged. Indeed, the plaintiffs’ third witness a one Mrs.Victoria Kawooya who testified that the 1st defendant was a customer of Cairo Bank International said she had never met the third defendant during the sale transaction; she further expressed doubt as to whether he was party to the transaction at all.
However, it became apparent from the URA report that the plaintiff had priority in realizing its money. The process of transfer was found to be fraudulent because the caveat of the plaintiff was concealed when the vehicle was allegedly sold by the Second defendant under his loan recovery arrangement with Cairo Bank International.

It was thus held that there was an omission when the Chattel Mortgage did not exhaust its remedies as a first ranking Mortgage to recover its security which omission couldn’t be taken out on the third defendant. The report of URA demonstrates that the caveat of the Plaintiff was wrongfully or negligently not taken into account in the sale of the chattel the subject matter of the chattel mortgage in issue and thus failure to do this was to the detriment of the third defendant. On the second matter, Court further advised that the money recovered by the plaintiff was supposed to be apportioned to both the home loan and the term loan and not only to the home loan which the third defendant never guaranteed since he wasn’t yet appointed Director at the time of procuring the first Home loan facility which was later amalgamated with the term loan, the effect of this would be a partial offset of the guaranteed loan.

In light of all these observations, the Court discharged the third defendant Mr. John Kizito Kaggwa as guarantor from liability for the term loan, the discharge was from the liability in his personal capacity and was thus done equitably, however, the plaintiff was advised to pursue its contractual rights and whatever remedies it has under the Chattel mortgage against the people who have caused loss to it as well as against other parties to the suit.

Conclusion.
Important to consider is the fact that although the creditor/Bank has a right to move against the guarantor, it also had a corresponding duty to ensure that the securities are made available for the Guarantor to recover any money, in the instant case, the plaintiff never availed the said securities. It is a general principle that where the surety pays off the debt the security held by the creditor for repayment of the debt should be made available for the surety to recoup his losses. Therefore a guarantor is discharged if the creditor, without his consent either releases the principal debtor or enters into a binding agreement with him to give him time without reserving the rights against the guarantor.