The directors of Alumasi Co. Ltd borrowed Shs.20 million from Maendeleo Bank. The Bank was informed that the money was intended to be used to expand the company‟s horticultural business. The bank however, did not ask for the company‟s Memorandum of Association and lent the money. The money was spent for purposes not intended. These facts have come to light and Maendeleo Bank seeks your advice on whether the bank can successfully recover the money. Advise the bank.

• This is a case of abuse of power by directors i.e. excesses of directors.
• In this case, directors borrowed for a purpose other than that for which it was intended.
• This borrowing is intra vires, the company and is enforceable, since the bank was unaware of the misuse of the power to borrow.
• My advise to the Maendeleo Bank is that it can successfully recover the amount borrowed as it is not party to the abuse of power. My advise is based on the decision in re: David Payne & Co. where a company with a general power to borrow, borrowed from the plaintiff bank, but used the amount for an ultra vires purpose. The lending party was unaware of the abuse of power and it was held that the borrowing was enforceable.

Leave a Reply

Your email address will not be published. Required fields are marked *