CORPORATE AND COMMERCIAL PRACTICE

OMODO MORRIS
FIRM D1
INDIVIDUAL ASSESSMENT

BRIEF FACT
Balamu Productions Ltd a company engaged in music promotion, production and
entertainment and decided to organize a Reggae Festival scheduled on 26 th December
2019. Due to lack of sufficient resources BPL decided to obtain a loan from their
banker Axiom Bank Uganda Ltd to a tune of 1,200,000,000/= repayable not later
December 30th 2019. The loan was secured by a debenture on the company assets, a
prime property worth USD 1,500,000/= and a lien on the company’s account.
The loan was secured by a personal guarantee of the managing director Mr. Enoch
Opio-Ottu to a tune of UG 700,000,000/=. The show was a success however Nsimbi
Balyeeko (director) and the Chief Finance withdrew all the money realised from the
festival leaving only Ugx 90,100/=. The bank demands payment of the loan with
interest totaling to Ugx 1,320,000,000/=

LEGAL ISSUES
1. Whether there is default by Balamu production Ltd in discharging its obligation to
ABC?
2. Whether Enoch is liable for the default of Balamu production Ltd and to what
extent if so?
3. Whether Enoch Opio-Ottu has any rights available to him as a guarantor ?
4. Whether Enoch opio-Ottu is discharged on account of the bank allowing Nsimbi
and Chief finance officer to withdraw the money
5. Whether the bank had to first realise the security of the principal debtor (Balamu
production Ltd) before that of the guarantor (Enoch Opio)?
6. Whether Enoch Opio-Ottu has any available remedies to him in the circumstance?
LAW APPLICABLE
1. The Contracts Act of 2010
2. The Companies Act 2012
3. The Bank of Uganda Financial Consumer Protection Guidelines 2011
4. The relevant case laws

RESOLUTIONS
1. Whether there is default by Balamu production Ltd in discharging its
obligation to ABC?
Balamu production Ltd obtained the sum of Ugx 1.200.000.000 which had to be paid
by December 30th 2019. However, the director Nsimbi and chief finance officer
withdrew money from the bank account leaving a balance of 90,100/= and under the
Agreement Clause 9 (9.1.4).
2. Whether Enoch is liable for the default of Balamu production Ltd and to what
extent if so?
The threats are based on a contract of guarantee. In DFCU V MANJIT KENT and
Anor HCCS 193 of 2000 it was held that; The extent of liability of a guarantor is
dependent on the contract and that a guarantor is a favored debtor who is entitled to
insist upon rigid adherence to the terms of his obligation by the creditor and cannot be
made liable for more than he has undertaken.”
Section 68 of the contracts act 2010 defines a contract of guarantee to mean a contract
to perform a promise or discharge the liability of a third party in case of default of that
third party which maybe oral or written ; Section 71(1) provides that the liability of a
guarantor shall be to the extent to which a principal debtor is liable, unless otherwise
provided by the contract.
Paul Kasagga &Andrew kasagga versus Barclays Bank HCMA 113/2008 a
guarantee is a contract with another to pay a debt of a third party who notwithstanding
remains primarily liable for such payment. The guarantors’ liability for
nonperformance of the principle debtor obligation is the co-extensive with that
obligation. A guarantee obligation is secondary and accessory to the obligation the
performance of which is guaranteed.
The guarantor undertakes that the principal debtor will perform his obligation to the
creditor and that the guarantor will be liable to the creditor if the principal debtor does
not perform. Therefore, Opio is only liable to pay the 700,000,000/= as a guarantor
clause 2.2.4 of the loan Agreement.
3. Whether Enoch Opio-Ottu has any rights available to him as a guarantor ?
(5) Guarantor under the consumer protection guideline
Prior to a person acting as a guarantor, a financial services provider shall in writing:
(a) advise the person of the quantum and nature of his or her potential liabilities; and
(b) advise the person to seek independent legal advice before acting as a personal
guarantor.
However, it should be noted that in every contract of guarantee, there is an implied
promise by a principal debtor to indemnify a guarantor.
A guarantor is entitled to recover from a principal debtor any sum the guarantor
rightfully paid under the guarantee on the contract. This is provided for under S. 85
Contracts Act 2010.
Even if the guarantors pay, Balamu productions Ltd is liable to indemnify Enoch.
The law provides for circumstances under which a guarantor can be discharged.
S. 76 provides that a contract between a creditor and a principal debtor where the
creditor makes a compromise with the principal debtor or promises to give time to or
not to sue the principal debtor, discharges the guarantor unless the guarantor assents
to the contract.
In Stanbic Bank (U) Ltd V. Cellular Galore & two others HCCS (Comm. Div.)
50/2010 Court quoted Halsbury's laws of England Fourth Edition Reissue volume 20,
and paragraph 304 for the proposition;
"a Guarantor is discharged if the creditor, without his consent, either releases the
principal debtor or enters into a binding arrangement with him to give him time
without reserving his rights against the Guarantor. Since, by virtue of the guarantee,
the Guarantor is as much concerned in every transaction with the principal debtor
affecting the guaranteed liability as the creditor, any variation of the principal contract
made without his consent discharges him from his guarantee, unless the variation is
clearly unsubstantial or obviously cannot prejudice him."

4. Whether opio-Ottu is discharged on account of the bank allowing Nsimbi and

Chief finance officer to withdraw the money
The bank had an obligation to honour any request made by Balamu production Ltd to
withdraw money as long as the request was when there was money on the account.
The repayment of the loan was due on 30th December 2019 and the withdrawal was
made on the 29th December 2019 and there was no right of set-off at the time the
money was withdrawn and the bank was not negligent in allowing Balamu production
withdraw the money.
However, the ABC could be held negligent because they were aware that the source
of money to pay the loan was from the collections from the festival paid in the ABC
account. And thus making the guarantor discharged.

5. Whether the bank had to first realise the security of the principal debtor
(Balamu production Ltd) before that of the guarantor (Enoch Opio)?
There is no obligation on the lender to first realize the securities of the principal
borrower and thus the guarantor Mr.Opio-ottu being entitled to securities of the
principal borrower upon payment of the debt. The lender (bank) could therefore
proceed to realise the security of the guarantor even if it has security for the principal
debt.
6. Whether Enoch Opio-Ottu has any available remedies to him in the
circumstance?
Guarantor is ordinarily liable for the debt or default of another (the principal debtor)
who is the party primarily liable for the debt according to the Oxford Dictionary of
Law, 6th Edition at page 246.
The obligation of the Guarantor to the Creditor in the words of Lord Diplock in
Moschi vs. Lep Air Service Ltd And Others, (1973) AC 331 348/ [1972] 2 ALL ER
393, is: “to guarantee the performance by a debtor of his obligations to a creditor
arising out of a contract gives rise to an obligation on the part of the Guarantor to see
to it that the debtor performs his obligations to the creditor”.
A guarantor is entitled to recover from a principal debtor any sum the guarantor
rightfully paid under the guarantee on the contract. This is provided for under S. 85
Contracts Act 2010. Even if the guarantors pay, Balamu productions Ltd is liable to
indemnify Enoch.

He can the suit the ABC for negligence and account that his obligation had be
discharged when the bank allowed the withdrawal of money from its account. This is
in order to stop foreclosure of his property pledged as security for the loan.