Muthama v Afya Sacco Limited & another [2025] KECPT 210 (KLR)

Muthama v Afya Sacco Limited & another (Tribunal Case 708/E674 of 2022) [2025] KECPT 210 (KLR) (27 February 2025) (Judgment)

Neutral citation: [2025] KECPT 210 (KLR)

Republic of Kenya

In the Cooperative Tribunal

Tribunal Case 708/E674 of 2022

BM Kimemia, Chair, Janet Mwatsama, Vice Chair, B Sawe, F Lotuiya & P. Gichuki, Members

February 27, 2025

Between

Charles Makau Muthama

Claimant

and

Afya Sacco Limited & another

Respondent

Judgment

1. The 1st to 8th Claimants are members of the 1st Respondent for membership numbers: -1st Claimant - 00XXX932nd Claimant - 00XXX923rd Claimant - 00XXX084th Claimant - 00XXX475th Claimant - 00XXX986th Claimant - 00XXX667th Claimant - 00XXX738th Claimant - 00XXX22

2. And on diverse dates in June and in November. 2015, the 2nd Respondent approached the claimant individually and collectively requesting them to guarantee an emergency loan amounting to Kshs 100,000/= in order to cater for the funeral expenses for his grandmother.

3. The 2nd Claimant claims he was never approached and never guarantee the 2nd Respondent. The 2nd Respondent submitted three application forms in which he listed the claimants as guarantors for a loan amounting to Kshs 3. 9 million with has not pay declared at Kshs 53,893/=. The 1st Respondent approved a loan of Kshs 3. 12 million on 12th November, 2013 to be paid monthly in the sum of Kshs 71,760/=. The 2nd Respondent defaulted on the loan with two default notices being issued to the guarantors on 17th April, 2019 and 9th July, 2019.

4. Despite the Claimants protesting not to be deducted, the 1st Respondent proceeded to recover the balance in default Kshs 3,038,987 from the Claimants, it is the Claimants position that the 1st Respondent acted negligently and maliciously in approving the loan advanced to the 2nd Respondent and in pursuing them as guarantors in place of the 2nd Respondent. In this Claimants, the particulars of the warm, negligence breach of contract and malice include:i.Failing to inform the Claimants individually that they had been listed as guarantors for a loan of Kshs 3. 1 million dispute having the phone numbers of the Claimants.ii.Failure to exercise reasonable care owed tot eh Claimants by failing to examine the three payslips submitted by the 2nd Respondent.iii.Approving a loan for Kshs 3. 1 million with monthly repayment instalments of Kshs 71,000/= which was above the 2nd Respondent’s basic salary and not pay.iv.Informing the Claimants that he would only be applying for an emergency loan of Kshs 100,000/= and using the signed copies of the application to apply for a loan of Kshs 3. 9 million.v.The 1st Respondent disregards the rights of the Claimants as its members by violating the same through the malicious attachment of the Claimants shares.

5. In the Statement of claim, among others, the Claimants prayed for: -a.General damagesb.Aggravated damages against the 1st Respondent for profiting from the violation of the Claimants rights as its membersc.Kshs 3,120,000/= being a refund of the Claimant’s shares attached by the 1st Respondents.d.Dividends owed to the Claimants.

6. Despite service, the 2nd Respondent did not enter appearance and the Claimants with an application dated 10/11/2023 sought for interlocutory judgment against the 2nd Respondent with this tribunal entering Judgment in favour of the Claimants against the 2nd Respondents on 24/01/2024.

7. The 1st Respondent filed their response to the statement of claim dated 3rd April, 2023 stating among others that:i.They did due diligence before offering the 2nd Respondent to the loan facility.ii.That in default, the terms of the loan were clear that the Claimants would be liable joint and severally for the repayment of the loan facility.iii.That the Claimants were at a material time aware of the implications of appending their signatures and particulars to the loan application form.iv.That they had no obligation to disclose their internal appraisal and lending processes to the claimants.v.That the Claimants suit is frivolous and should be dismissed with costs.

8. At the hearing Charles Makau Muthama testified on behalf of the Claimants and stated among others that:i.The 2nd Respondent was a lecturer and they guaranteed him a loan amount of Kshs 100,000/= to have him give his grandmother a send off.ii.They learnt that the 2nd Respondent took a loan of Kshs 3. 12 million when they got the default notices.iii.That the 1st Respondent did not notify them at any point that they had guaranteed a loan of Kshs 3. 12 million.

9. James Ondieki, the acting Chief Internal Auditor of the 1st Respondent testified on behalf of the 1st Respondent and stated that:i.It’s standard practice to review and appraise all loan application forms which included the examination of signatures to ensure that they match the specimen signatures.ii.That the Claimants guaranteed to loan taken by the 2nd Respondent, and since he failed to pay, the 1st Respondent was entitled to recover the amount due from the guarantors.iii.That guarantee is not limited and all members are liable to be deducted depending on their savings.iv.That when the complaints were lodged by the claimants, they did their investigations but there was no evidence of alterations or forgery.v.That for the type of loan taken by the 2nd Respondent members are allowed to also pay in cash and as such, members salary is not the only consideration during appraisal.

10. That Tribunal on 10th June, 2024 directed parties to file their Written Submissions to dispense with the case, and on 19th August, 2024 the Claimants filed their Written Submissions stating among others that: -a.The Claimants with the exception of the 2nd Claimant agreed to guarantee the 2nd Respondent an emergency loan of Kshs 100,000/=.b.That prior tot eh seizure of the Claimants shares, they were not informed whether the 1st Respondent had conducted any investigations in response to their complaint that they did not guarantee Kshs 3. 12 million.c.That there were red flags in the applications and loan approval which included the 2nd Respondent being an official of the 1st Respondent organization, the page indicating the loan amount being different from the page where the guarantors are listed, 13 guarantors listed the only 11 got default notices, the 2nd Respondent not having the financial capability to services a loan of Kshs 3. 12 million.d.That the 1st Respondent did not exercise due diligence, which included contacting the listed guarantors to verify their association with the loan amounting to Kshs 3. 12 million.e.That the 2nd Respondent’s loan guarantee should be declared null and void as the guarantor liability was discharged when amendments were made to the primary agreement after the guarantee was given.f.That due procedure was not followed in granting the loan and recovering the same from the Claimants.g.That the 1sst respondent owed its members a duty of care in approving, discussing and recovering the subject loan in which they failed on that duty.

11. The 1st Respondent filed their submissions dated 12th September, 2024 stating among others:a.That the 1st Respondent was consistent with its contractual obligations in appraising, approving and disbursing the loan.b.That the 2nd Respondent despite default notices being sent to him, failed to service the loan facility, necessitating the recovery of the same form the claimants who were the guarantors for the loan.c.That the 1st Respondent did not find any illegal and or negligent conduct in the process leading up to the grant of the loan facility.d.That there was a valid contract between the claimants, 1st and 2nd Respondents.e.That no evidence of fraud and forgery or alteration was adduced to confirm the allegations.f.That no solid evidence of negligence was ever adduced by the claimants.g.That the obligation of the guarantor is clear, and a guarantor become liable upon default by the Principal Debtor.

Way Forward. Have ten allegations been proved. 12. The issues and facts in this case, including the allegations raised are very clear, and there is need to restate the same. What is central for those facts and allegations, is the role of guarantors in loan agreements, and whether that role in this particular case can be discharged.

13. First, it is important to note that a contract of guarantee is an accessory contract by which a surety undertakes to ensure that the principal performances the principal obligation- it is a contract to indemnify a credit upon the happening of a contingence. The surety is therefore under a secondary obligation which is dependent, upon the default of the principal. In this particular case, there is no doubt that there was default as evidenced by the default notices.

14. Second, a contract of guarantee requires that the guarantors acknowledge that they would repay the loan in case of default by the loanee. This acknowledging is done by the loanee appending their signature against eh provided space in the loan agreement it is presumed that the person appending their name as a guarantor must have read the loan agreement, the quantum of the loan and the quotient at their culpability in the event of default.

15. In this particular case, the Claimants testified to not have taken keen interest and time inn reading the loan agreement to enable them understand the quotient of their culpability in the event of default.

16. Third, it is also clear that guarantors are persons under secondary obligations who only come to satisfy the debt when the principal debtor has filed to service their loan. In this particular case, it not in doubt that the loanee failed to service their loan and that the claimants were guarantors, and due process of recovery was followed – evidenced by the notices- before attachment was done of the guarantors shares.

17. Fourth, it is also clear that the guarantors once their shares and or salaries are attached, have a right to recover the same from the loanee. The principle of subrogation allows the guarantors once they have paid the debt, to acquire the rights of the creditors and seek the same legal remedies against the counsel.

18. Having considered the facts of the case and the evidence, it is our considered decision that their claimants as guarantors have a right to recover from the 2nd Responded.

Final Orders. 19. The Statement of Claim dated 15th July, 2022 succeeds and the Judgment entered in favour of the Claimants against the 2nd Respondent in the following terms:a.Prayers for general damages and special damages fail (prayer a and b).b.Judgment is hereby entered in favour of the claimant for Kshs 3,120,000/= against the 2nd Respondent having been deducted by the 1st Respondent plus costs and interest and Tribunal rates from the date of filing claim.c.Prayer d failsd.The 2nd Respondent to pay the costs of the Claimant and 1st Respondent in the claim.

JUDGMENT SIGNED, DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 27TH DAY OF FEBRUARY, 2025. HON. B. KIMEMIA CHAIRPERSON SIGNED 27. 2.2025HON. J. MWATSAMA DEPUTY CHAIRPERSON SIGNED 27. 2.2025HON. BEATRICE SAWE MEMBER SIGNED 27. 2.2025HON. FRIDAH LOTUIYA MEMBER SIGNED 27. 2.2025HON. PHILIP GICHUKI MEMBER SIGNED 27. 2.2025Tribunal Clerk J.MutaiMandi holding brief for Kangira for 1-8 claimantNo appearance for RespondentHON. B. KIMEMIA CHAIRPERSON SIGNED 27. 2.2025