Atemba & 4 others v Trans-National Times Sacco Society Limited & another [2024] KECPT 974 (KLR)

Atemba & 4 others v Trans-National Times Sacco Society Limited & another (Tribunal Case 251 of 2021) [2024] KECPT 974 (KLR) (30 May 2024) (Judgment)

Neutral citation: [2024] KECPT 974 (KLR)

Republic of Kenya

In the Cooperative Tribunal

Tribunal Case 251 of 2021

J. Mwatsama, Vice Chair, B Sawe, F Lotuiya, P. Gichuki, M Chesikaw & PO Aol, Members

May 30, 2024

Between

Stephen Atemba & 4 others

Claimant

and

Trans-National Times Sacco Society Limited

1st Respondent

Julius Etemesi Omumalia

2nd Respondent

Judgment

1. The matter for determination is a Statement of Claim dated 16th Day of March 2021. In the Statement of Claim, the Claimants claim that they guaranteed the 2nd Respondent a loan facility of Kshs. 2. 100,000/= from the 1st Respondent. However, the 2nd Respondent defaulted in repaying the loan, and the 1st Respondent deducted the Claimant’s salary to satisfy the loans. The Claimant’s aver that the 2nd Respondent is a man of means working with DT Dobie Kisumu. The Claimants are aggrieved and prays fora.The Plaintiff consequently seeks the assistance of the Honourable court to order the 1st defendant, his workers , employees and/or agents be and are hereby restrained from making deductions from the Claimant’s accounts. And a refund of Kshs. 158,235. 30/= so far deducted from the claimants.b.Cessation of the deductions from the Claimants and attachment of the 2nd Respondent’s salary in recovery of the loan herein.c.Costs and interest of the claim.The Claimants filed a witness statement dated 16. 3.2021 and a List of Documents dated 16. 3.2021 which includeda.Trans-national times letter dated 17th September, 2020. b.Demand letter dated 22nd September, 2020. c.Trans-national times guarantor’s information dated 23. 8.2017. d.Any other documents with leave of Tribunal in support of her claim.

2. The 1st Respondent entered appearance and filed a response to the statement of claim dated 18th January 2023. In their response, the 1st Respondent aver that the loan the loan to the 2nd Respondent was duly granted, and that the Claimants their loan and agreement form accepted jointly and severally liability for the repayment of the loan in the event of the borrower's default. They pray for the claim to be dismissed. The 1st Respondent equally filed a response to the Statement of Claim and reiterated the 2nd Respondent’s response.

3. During the hearing, one of the Claimants, Stephen Atemba Akula, testified on behalf of the other Claimants. He confirmed that he and the other Claimants were indeed guarantors of the 2nd Respondent. That they were notified of the 2nd Respondent’s default and they tried to get in touch with him. That the 2nd Respondent came to write a commitment letter with the 1st Respondent with regard to his salary at DT Dobie, but he has since gotten another job with Nissan Kisumu. The witness stated that he has no claim against 2nd Respondent.

4. One George Malala, the Chief Executive Office of the 1st Respondent, testified for the 1st Respondent. He stated that guarantee was valid and the purpose of a guarantee is in case the borrowers default. That they did not yet attached the salary of the 2nd Respondent because they need another authority.

5. The court ordered the parties to file their submissions, both parties filed their submissions. Claimant filed written submissions dated 9. 1.2024 and respondent filed on 4. 12. 2023.

6. In their submissions, the Claimants argued that the 1st Respondent’s first recourse was to file a claim against the defaulter in the cooperative Tribunal and not to attach the guarantor's salaries. The respondents on the other hand argued that a guarantor is not entitled to relief until the guaranteed debt has become payable by him. Both parties relied on various authorities to support their submissions.

Analysis 7. This Tribunal has taken note of the pleadings filed by the parties together with the evidence adduced during the hearing. It is not in dispute that the Claimants and the 2nd Respondent were members of the 1st Respondent. It is also not in dispute that the 1st Respondent extended a loan facility to the 2nd Respondent, with the Claimants as guarantors. Further, it is not in dispute that the 2nd Respondent defaulted in paying the loan, and the 1st Respondent attached the salaries of the Claimants. What is in dispute is whether the 1st Respondent was right in attaching the salaries of the Claimants (guarantors) when the 2nd Respondent defaulted.

8. A contract of guarantee has been defined “The Law of Guarantees” by Geraldine Andrews & Richard Millet 2nd Edition, at page 156 provides as follows:“A contract of guarantee is an accessory contract, by which the surety undertakes to ensure that the principal performs the principal obligations. It has been described as a contract to indemnify the Creditor upon the happening of a contingency namely the default of the principal to perform the principal obligation. The surety is therefore under a secondary obligation which is dependent upon the default of the principal and which does not arise until that point.

9. In this Tribunal, it has previously been held in the case of Mwindani Kombo Mwinyi v Bandari Savings and Credit Cooperative Society Limited held that“A contract of guarantee requires that the guarantors acknowledge that they would repay the loan in case of default by the loanee. This acknowledgement is done by appending a signature against the provided space in the loan agreement. It is presumed that the person appending their name as a guarantor must have read the loan agreement in order to establish the particulars of the loan, the quantum of the loan, and the quotient of their culpability in the event of default.”

10. This court has also held severally that Guarantors are persons under secondary obligations who come in to satisfy the debt when the principal debtor has failed to service the loans. It is not in dispute that the Claimants were guarantors, and that they were to step in to repay the debt when the principal debtor defaulted.

11. The question that this court asks itself next, is at what point is it said that a debtor has defaulted to warrant attachment of his guarantors?In the case of Martin Kirima Baithambu v Jeremiah Miriti [2017] eKLR, which has the following part – referring to Halsbury’s Laws of England, Fourth Edition Reissue) Vol 20(1) para 239 that this Tribunal cites with affirmation:“...[it] does not mean that the guarantor does not have rights to call upon the principal debtor to pay the guaranteed debt... the guarantor is entitled to call upon the principal debtor to pay the amount of debt guaranteed, so as to relieve the guarantor from his obligation.”

12. The role of guarantors is not only to repay the debt when the debtor defaults but also to try to persuade the borrower to repay his debt upon default. For the guarantor to persuade the borrower to repay his debt, there ought to be notice of default served on the guarantors. In this case, the guarantors confirmed receiving text messages communicating default, and it is even their testimony that they looked for the 2nd Respondent and brought him in to sign a commitment. We find the notice adequate.

13. As such the Claimant’s did their duty as guarantors in assisting to locate the 2nd respondent who went ahead and gave a commitment to the payment of his loan.The 1st respondent having got the 2nd Respondent and his commitment we are at pain to figure out why the 1st Respondent opted to still make deductions from the guarantors.It is and has always been our considered view that the guarantor is secondary and should be used as a last result when a loan is defaulted.

14. The 1st Respondent cannot decide/choose an easy way out to deduct the guarantors savings to repay a loan for a defaulter who they known where to locate him and even have details of his source of income.The question we ask ourselves is also, why should the guarantors suffer loss while the loan defaulter is able and capable to repay their loan.

15. We reiterate the purpose of a guarantor is to assist members secure a loan and not service it for the loanee.We are not disputing the fact that guarantors have an obligation towards the 1st Respondent however we are looking into the circumstances leading to the deductions.In the instant case the (Claimant)guarantors have done their due diligence and located 2nd Respondent who is able to make payment but for some reason the 1st Respondent opted for the easy way out.This is an unacceptable and unconscionable practice which seeks to punish innocent parties.

16. As such from the evidence adduced the 1st Respondent did not give good reasons why they have not pursued the 2nd Respondent in repayment of his loan despite his commitment to pay and capability to make payment.The guarantors cannot be deemed to carry a burden because of the 1st Respondent non-vigilance or indolent actions.As such we find in favour of claimant against respondent and order as follows:a.Refund of Kshs. 158,235. 30 by 1st Respondent to the Claimant.b.Cessation of the deductions from the Claimants and attachment of the 2nd Respondent’s salary in recovery of the loan herein.c.Costs and interest of the claim.

JUDGMENT SIGNED, DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 30TH DAY OF MAY, 2024. HON. J. MWATSAMA DEPUTY CHAIRPERSON SIGNED 30. 5.2024HON. BEATRICE SAWE MEMBER SIGNED 30. 5.2024HON. FRIDAH LOTUIYA MEMBER SIGNED 30. 5.2024HON. PHILIP GICHUKI MEMBER SIGNED 30. 5.2024HON. MICHAEL CHESIKAW MEMBER SIGNED 30. 5.2024HON. PAUL AOL MEMBER SIGNED 30. 5.2024Tribunal Clerk JonahNo appearance by parties.judgment delivered in absence of parties.HON. J. MWATSAMA DEPUTY CHAIRPERSON SIGNED 30. 5.2024