Uganda Baati v National Insurance Corporation Limited and Another (Civil Suit 458 of 1995) [1997] UGHC 8 (23 October 1997)

Full Case Text

### THE REPUBLIC OF UGANDA

#### IN THE HIGH COURT OF UGANDA AT KAMPALA

#### CIVIL SUIT 458/95

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UGANDA BAATI PLAINTIFF

- VERSUS -

$5$

N. I. C. ................................. NAJJUMA CAPIDEV .............................. 2ND DEFENDANT

## BEFORE THE HONOURABLE MR. JUSTICE G. TINYINONDI

# **JUDGMENT**

In its amended plaint the Plaintiff company sought to recover $l \circ O$ Shs.43,150,000/=(forty three million one hundred and fifty thousand shillings only) and general damages. The facts alleged

to have constituted the cause of action were stated in the plaint $as:-$

> $15$ $"3.$ [a] That on or about the 18th day of November, 1994, the Plaintiff entered into a Security Guarantee Bond No. 01419400358, wherein the First Defendant undertook to 20 pay on behalf of the M/s Najjuma Capidev Ltd. the sum of Ug. Shs.43,150,000/= in consideration $\verb|of|$ the $25$ Plaintiff registering and allowing to release Galvanised Corrugated Iron

said M/s (See marked Sheets to the Najjuma Capidev Ltd. copy Annexed hereon "A") .

- [b] The Plaintiff on the and 29th annexed ■D" , I! G» "C" , and 23, of 26th, and29th days November, 1995 released to the said M/s Najjuma Capidev Ltd. the said galvanisedcorrugated iron sheets. (See copies of Invoices and Delivery Notes hereto marked "B", 11 E 11 , " F11 respectively. - 4. But in breach of said Agreement without lawful cause, the M/s Najjuma Capidev Ltd. failed and/or neglected to pay for the galvanised iron sheets. - 5. The Plaintiff then notified Security Guarantee Bond. the Defendant on the 17th day of January, 1995 and asked it to honour the - 6 . **2 s** That to date, despite several reminders in that respect, the Defendant has neglected, failed and/or refused tohonour of the Security Guarantee Bond. - 7. as a result use That as a result of the Defendant's breach, the Plaintiff has suffered loss of profits arising our of lack of of the said money and general damages

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# for breach of contract."

Z *0* The Defendant, in its written statement of defence, denied the contents of the plaint quoted above. It averred that it undertook to pay to the Plaintiff Shs. 15,150,000 (Fifteen million one hundred and fifty thousand shillings only) if after 3 0 days of delivery M/s Najjuma Capidev Ltd. failed to pay; that the Plaintiff waived its right to payment under the guarantee agreement when it made the claim out of the stipulated time andby conceding to an extension by seven days to M/s Najjuma Capidev Ltd. (hereafter "M/s N. C Ltd") without the knowledge or consentof the Defendant.

PW1 Joseph Makwaya testified that he was the administrative Manager of the Plaintiff company for the last seventeen years1. M/s N. C. Ltd desired to purchase from the Plaintiff corrugated iron sheets worth Shs.43,150,000/= (forty three million one\* hundred and fifty thousand only). The Plaintiff required of the said M/s N. C. Ltd. a Security guarantee. M/s N. C. Ltd. procured one such guarantee from the Defendant. It was tendered as Exhibit "P1". Consequently the Plaintiff made and M/s N. C. Ltdtook the following deliveries

- [a] On 23/11/94 under delivery note No. 0272701. It was received as Exhibit "P2". - [b] On 26/11/94 delivery note No.0272771. This was received as. Exhibit "P3" . - [c] On was as against which 29/11/94 No.0272808 Exhibit n p4 ii delivery note received

That all these delivery notes were signed by M/s N. C. Ltd.

PW1 further testified that as of December, 1994 M/s N/ . had not paid for these goods (within the 30 days as stipulat \* e Security Guarantee).

■'•The witness also testified that it was their practice to close down between December and early January every year.

1995 and not was 17th This re-opened on Defendant. reply on 27/1 '/95. On this occasion they immediately wrote to the exhibited. They received a exhibited as "P5". January letter was The reply

It reads / *O*

**IT** RE: SHS 43,150,000/= UNDER CLAIM OF SECURITY GUARANTEE BOND NO 01419400358

1. We are in receipt of your letter of claim dated 16/1/95 demanding payment of (U) Shs.43,150,000/= under Security Guarantee Bond No. 01419400358 .

2. *IO* However, we regret to advise that the Corporation is under no obligation to pay the said sum of money for the reason that this claim was lodged long after the period of the Contract had expired, contrary to condition Number three of the Deed. Our liability had, therefore ceased\*

That on receipt of this letter the witness went to discuss the issue with the Defendant but without success.

During cross-examination PW1 testified that he did not know for

their first That certain when they made their first written demand to the Defendant and that he was not aware that the Plaintiff had extended the period within which M/s N. C. Ltd. was to pay. closed the Plaintiff's evidence.

/ *O* DW1*,* Kabiswa Henry, testified as follows. He was the Accident *£* and Fire Manager of the Defendant. That the Plaintiff supplied the said corrugated iron sheets to M/s N. C Ltd on credit. The Defendant guaranteed that M/s N. C. Ltd. would pay. The guarantee required that the Plaintiff make a demand 3 0 days after delivery-. In this case this would mean around the end of November. No demand was made in time. Instead it was made three weeks late. Whereupon the Defendant refused to pay because

- [a] the demand was made late; - [b] instead of making the demand the Plaintiff entered into another agreement with M/s N. C Ltd granting an extension of time without the Defendants knowledge or consent.

The witness clarified that demand in time is necessary so that 2^ the Defendant can exploit the strategies already put in place to there is no demand the Defendant to be any claim on them and they That is exactly what happened here. make the recoveries. When assumes there is not going abandon the said strategies.

3 During cross-examination DW1 testified that supposed to make a demand around December 1994. heard of companies which close for the New Year and re-open early January. That Plaintiff made the demand on 17/1/95, fourteen days after the Yew Year was not such a period as would compel the Defendant to adjust its strategies. The strategies consisted in sending an intermediary to monitor M/s N. C. Ltd every two days. This trailing was confined within the 30 days of the guarantee. The witness did not know M/s N. C Ltd's offices. The Defendant the Plaintiff was' That he had

land title from M/s N. C Ltd. as The witness did not know where that That closed the defence evidence. had taken a certificate of security for the guarantee, security was.

appear to be the issues to be settled by this The following court: =

- [1] demand Did the Plaintiff make a immediately? - / *Z>* [ii] Whether the Plaintiff extended the time limit within which M/s N. C. Ltd. was supposed to pay without the consent of Defendant.

[iii]Whether the Plaintiff is entitled to the above mentioned amount specified in the guarantee from the Defendant.

In order to appreciate the gist of the first issue one has to *2 &* start off by looking at Exhibit "Pl". Clause 3 thereof reads:-

> "3. Maximum liability of the Guarantor shall be Shs.43*,*150*,* 000/= (Forty Three Million one Hundred Fifty Thousand only)*,* and all claims here in anticipated (if and when they arise) must be sent to and be received by the Guarantor immediately after the expiration of 30 days from the date of receipt of the said goods as here above stated.\*1 [Emphasis supplied].

2 6? It is common ground between the parties that the Plaintiff supplied and M/s N. C Ltd took the last delivery of the goods on 29/11/94. The Plaintiff would thus comply with the aforesaid clause if he made the demand **"immediately after the expiry of 30** days" counting from 29/1194. Another ground on which the parties are at one is that the Plaintiff communicated the demand and the Defendant received it on 17/1/1995.

Simple arithmetic gives us 29/12/94 as the period when thirty days expired after the delivery. What amounts to a reasonable application of the word "immediately" in this context? I looked. ; *o* at JOHN SAUNDERS' WORDS AND PHRASES LEGALLY DEFINED (2nd Ed.) £^5.

> reasonably requisite for doing the R vs FRANCIS (1735) LEE tenep: HARP "-- A provision to the effect that a thing must be done 'forthwith' or 'immediately' means that it must be done as soon as. possible in the circumstances, the nature of the act to be done being taken into account. -- though the word immediately, in strictness includes all mesne time, yet to make good the deeds and intents of parties\* it shall be construed such convenient time, as is thing" **113"**

The author of the dictionary continues:.

''The great question is, whether the condition in this contract, that the goods shall be taken from the vessel immediately she was ready to discharge, has been satisfied or not-- The first point is, what is the effect of the word 'immediately' here? Under ordinary circumstances, when a man is called upon by a contract to do an

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act, and no time is specified, he is allowed reasonable time for doing it; and what is a reasonable time may depend on all the circumstances of the case. But here the word used being immediately, it implies that^ there is a more stringent requisition than what is ordinarily implied in the word reasonable-- ALEXANDI VS ROBINSON (1861) 2 F & F 679 AT PP.688, 684."

*10* From the evidence already summarised above the circumstances of the Plaintiff were that they closed down the company for the New Year and re-opened on 17/1/95. On that day they wrote a demand letter. For the Defendant it is claimed that when there was no demand after 30/12/94 the Defendant it was too late and felt no longer obliged to adjust their strategies which strategies consisted in unleashing their emissary to shadow M/s N. C. Ltd every two days during the 30 days' period.

Certainly DW1 was not cross-examined about closure for seventeen days which was the situation in this case. The Plaintiff did not satisfy this court about the existence of the mercantile practice of closing down for the New Year. DW1 was not pinned down during cross-examination as to how long a company should remain closed for this purpose.

*2 0* It was of essence for the Plaintiff to convey their demand within reasonable time after 30/12/95 in order for the Defendant to exploit its strategies laid against M/s N. C Ltd. I find and hold that seventeen days was to overstretch the "immediately" that was agreed upon. If indeed there existed a practice of closing down, the Plaintiff who signed the security guarantee on 18/11/94 would have insisted that the period of closure anticipated immediately, after the expiry of the thirty days which would fall at the year's ends should be taken into account. The Plaintiff did not. I answer the first issue in the negative.

called was an the to With regard to the second issue the evidence canea was as follows. PW1 testified that on 17/1/95 his company wrote to the Defendant about the failure of M/s N. C. Ltd to pay for the goods. That they got a reply to this letter from the Defendant which reply was dated 25/1/95. PW1 did not exhibit their said letter. JT DW1, on the other hand, testified that they received the Plaintiff's said letter and that because that letter disclosed that the Plaintiff had entered an agreement with M/s N. C Ltd \* granting an extension of time with which to pay without Defendant's knowledge or consent, the Defendant declined accept the Plaintiff's demand.

Section 16 of " DI11 . I so directed because Counsel argued, inter alia, that the letter was not annexed to the Defendant's pleadings. At first I agreed with the Plaintiff's Counsel. However, on further perusal of the ZcT pleadings, the Civil Procedure Rules and the evidence called I' directed the defence Counsel to produce the letter, invoking the JUDICATURE STATUTE Section 101 of the CIVIL When DW1 offered to tender this Plaintiff's letter Plaintiff'scounsel resisted. PROCEDURE ACT , and Section 163 of the EVIDENCE ACT. received as Exhibit It was

- [a] the Defendant first raised this on issue (See para 6 of the written statement of defence filed 20/6/95). - [b] on and never statement of defence. The Plaintiff filed its amended pliant on4/7/95 alluded to the said paragraph 6 of the written - [c] in its said amended *2d* the Plaintiff the Defendant on asked However, pliant stated (para that 5) it "notified 17/1/95 and

him to honour the (Defendant) security guarantee".

- [d] wrote to about non-payment by M/s N. C Ltd and that the Defendant replied by a letter dated 25/1/95. PW1 testified that on 17/1/95 one Bavisi wroteto the Defendant - [e] DW1 testified in similar terms. - [f] *I o* 2nd issue and made submission on it actually thus: In framing the issues Counsel for the Plaintiff raised this as his

contract is from a of or that contract should be as a fact and the letters, and circumstances set out alleged conversations generally." implied conversations or otherwise from a number of circumstances alleged to have been series ofletter "Where a

When this court examined Exhibit I found its contents evidence. It was such ' letter' as court was Counsel referred to. to both parties. "DI" the consideration. The pertinent paragraph is 3. tallying with the above Therefore the matter was common knowledge The Plaintiff failed to exhibit the document-. At the same time they resisted its tender by the Defendant. The Plaintiff's notice was, because it in my view, to conceal the document from, squarely about the issue under PW1 testified he was not aware of any extension. It reads:

> "In reference to a letter from Capidev Ltd dated 2nd January 1995 copies of which are attached Capidev requested for an extension

/S'

## of seven days to which we agreed which dated has long expired."

[Emphasis is mine].

orx *I O* eat its cake and that they made a But they, at the It is thus clear that the Plaintiff wanted to have it at the same time. They wanted to show demand as required by the security guarantee, same time, desired to conceal that they had violated a provision of that guarantee which violation would deprive them of a benefit under the guarantee. I hold that the Plaintiff extended the timewithin which M/s N. C Ltd was to pay without the knowledge consent of the Defendant.

/ 5 *2.0* 2/ covers three million one hundred and fifty only). this in figure paragraphs 3 and 9 of the plaint. "Exhibit DI". The last issue is whether the Plaintiff is entitled to the amount specified to the agreement. One little matter need clarification first. The security guarantee covers Shs.43,150,000/= (forty The Plaintiff pleaded So to the Plaintiff's letter DI". However in paragraph 4 of the written statement of defence the Defendant contends that they "undertook to pay the Plaintiff the sum of Shs.15,150,000/= (fifteen million one hundred and fifty thousand only) if after 30 days from the date of delivery the (2nd) Defendant failed to pay." I was not assisted by the defence evidence about the \* disparity in these figures. I find and hold that the Defendants liability^ if it was so found would be\_ Shs.43,150,000/=(forty three million one hundred and fifty thousand only).

With respect to the issue of the liability, the law is said to be this:-

> "When a person becomes a surety for another in a specific transaction or obligation, the terms and conditions of the principal obligation are also the terms and conditions of the suretyship contract and if the

*O*

## **the** *I V* creditor, without the consent of the surety alters those terms to the prejudice of the 7- surety, the latter will be free, it being clearest and most evident equity not to carry on any transaction without the privity of the surety who must necessarily have a concern in every transaction with the principal debtor and who cannot as surety be made liable for default in the performance of a contract which is not the one fulfilment of which he guaranteed-- . So a surety for payment of an annuity is wholly discharged from liability by the alteration, without his consent, of the time for and terms of its redemption."

## **(3rd Ed.) paragraph** [See: VOL. 18 HALSBURY'S LAWS OF ENGLAND 922 .]

*Id* The above quote declares the legal consequences of the Creditor varying a guarantee contract without the knowledge or consent of the surety. The surety stands wholly discharged from liability. I have already held that the Plaintiff without the Defendant's knowledge or consent extended the time within which M/s N. C Ltd was to pay. I hold that this act wholly discharged the Defendant from any liability. The Plaintiff's action stands dismissed with costs to the Defendant.

G. Tinyinondi **JUDGE** . 23/10/97.

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