Mundia & another v Stima Sacco Limited & another [2023] KECPT 919 (KLR)

Mundia & another v Stima Sacco Limited & another (Tribunal Case 216 of 2019) [2023] KECPT 919 (KLR) (Nairobi) (21 September 2023) (Judgment)

Neutral citation: [2023] KECPT 919 (KLR)

Republic of Kenya

In the Cooperative Tribunal

Nairobi

Tribunal Case 216 of 2019

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

September 21, 2023

Between

Grace Wangui Mundia

1st Claimant

Eunice Ngai Nyaga

2nd Claimant

and

Stima Sacco Limited

1st Respondent

Joash Mumo Ndangi

2nd Respondent

Judgment

Summary of the Case 1. The Claimants moved to court on 16th April, 2019 feeling aggrieved by the act of the 1st Respondent to attach their salaries after they had guaranteed the 2nd Respondent on two occasions, the first being a loan of Kshs. 3,000,000/= which he had applied far on or about 30th October, 2014 and the second being a loan of Kshs. 6,000,000/= which he had applied for on or about 19th December, 2014.

2. It was the Claimants position, that the 1st Respondent had violated the Sacco by-laws by approving the loans without carrying out proper appraisals on the eligibility of the 1st Respondent to get the loans. To the Claimants, if proper appraisals would have been done, it would have been detected that the 1st Respondent was not an active member, neither was he a regular depositor with Stima Sacco and his history would have also revealed that he is not creditworthy. Proper appraisal according to the Claimants would have also revealed that by awarding the loan to the 2nd Respondent, it would have put them at risk of losing their deposits.

3. The Claimants filed a Notice of Motion application seeking the Courts Intervention for injunction orders pending the determination of the case, and on 23rd April, 2019, this court ordered for temporary injunction orders restraining and prohibiting the 1st Respondent from in any way deducting the Claimants salaries or attaching their deposits or properties to recover the loan pending the determination of this suit.

4. The 1st Respondent in their response have stated that they conducted a loan appraisal analysis for both loans and only issued the loans once the set conditions were complied with. To them, the 2nd Respondent complied with the conditions issued and the Claimants consented to be guarantors of the two loans. In their Defence, the 1st Respondent has presented evidence confirming the employment status and eligibility of the 2nd Respondent to pay the 1st loan, and the demand of deposit of further security to secure the loans in the event off a default.

5. To the 1st Respondent, the requirement of the extra security was in the best interest of the guarantors to cushion or reduce their guarantors’ liability in the event of default. The 1st Respondent in their Defence have also presented evidence to show that the 2nd Respondent started defaulting back in 2015, and they issued him with a 1st Notice on 16th September 2015, 2nd Notice on 13th June 2016 with all notices copied to all the guarantors, and they only attached the guarantors salaries in March 2019 after they had exhausted all other possible options of recovery even after selling the Property Title Number Kiambaa/Kanunga/2680 which was offered as security.

6. To the 1st Respondent, the Claimants as guarantors had accepted liability jointly and severally for the repayment of the two loans in the event of default and that other guarantors had either approached them with settlement proposals for their fair share of the guaranteed amount, or cleared their fair share of the guaranteed amount and as such this suit should be dismissed.

Issues for Determinationi.Whether the two loans were issued irregularly.ii.Contractual obligation/liability of guarantors in repayment of loans.iii.Cost of the suit. Whether the two loans were issued irregularly; 7. From evidence before court, we are not convinced that the loans were issued unprocedurally. The Claimants have alluded to some conditions for issuance of loans in the by-laws which conditions they say included; A loan appraisal analysis being conducted.

Loans not being advanced to members in the event that they are not active, they are not regular depositors, or that they have not met the deposit ratio.

8. Unfortunately, we have not been presented with the by-laws, those specific sections of the by-laws alluded to have not been presented as evidence. What has been presented as evidence is by the 1st Respondent showing the steps they undertook in the loan appraisals before awarding the loans.

9. Given that the appraisal process of the two loans have not been challenged with evidence as irregular, we find no reason to agree with the Claimants that the loans were not awarded procedurally.

Contractual obligation/liability of guarantors in repayment of loans; 10. It is important to state from the onset, that by willingly agreeing to be someone’s guarantor, you immediately create contractual obligations with liability implications between yourself, that person you are guaranteeing and the other party or parties in that transaction. In this particular case, that relationship is not in doubt as the Claimants guaranteed both the first and the second loan.

11. InMichael Muhuyi Kiveu Vs IG Sacco Limited [2022] eKLR , this Tribunal dealt with the contractual obligation or liability obligation of guarantors and stated that:“Guarantors are constitute persons under a secondary obligation: persons that come in to satisfy the debt in the event that the principal debtors fails to service the loan. Guarantors are like the back-up plan for the Creditor, and only become relevant once the Debtor lacks facilities and/ or ability to pay the debt. As such, a guarantor must not be treated as a principal debtor. Their role sets in once the principal debtor has been pursued and all possible avenues of compelling the principal debtor have been exhausted.”

12. From evidence adduced, we find that the 1st Respondent has pursued and exhausted possible avenues of recovery, and as such the liability obligation of the Claimants as guarantors has now set in. The 1st default in payment by the 2nd Respondent was in 2015 and after pursuing options for recovery including selling the security attached, the only other remaining option available to the 1st Respondents after four years, is to pursue the guarantors for recovery.

Cost of the Suit 13. Award of costs is discretionary and the guiding section to this is the Civil Procedure Act at section 27. This Tribunal has always exercised that discretion on reasonable grounds and in this particular case, in the interest of justice, it is our ruling that all parties to bear their own costs.

Final Orders:i.The Case filed on 16th April, 2019 -to be more specific CTC Number 216 of 2019 is dismissed.ii.The guarantors are liable for the repayment of the two loans issued to the 2nd Respondent.iii.All parties to bear their own costs.

JUDGMENT SIGNED, DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 21ST DAY OF SEPTEMBER, 2023. HON. BEATRICE KIMEMIA CHAIRPERSON SIGNED 21. 9.2023HON. J. MWATSAMA DEPUTY CHAIRPERSON SIGNED 21. 9.2023HON. BEATRICE SAWE MEMBER SIGNED 21. 9.2023HON. FRIDAH LOTUIYA MEMBER SIGNED 21. 9.2023HON. PHILIP GICHUKI MEMBER SIGNED 21. 9.2023HON. MICHAEL CHESIKAW MEMBER SIGNED 21. 9.2023HON. PAUL AOL MEMBER SIGNED 21. 9.2023Tribunal Clerk Jemimah/JonahMillicent Small advocate for the ClaimantMs Acheyo advocate for the 1st Respondent.HON. J. MWATSAMA DEPUTY CHAIRPERSON SIGNED 21. 9.2023