[2025] KECPT 320 (KLR)

Mogonchi & 3 others v Nyasetia & another (Tribunal Case 1043/E031 of 2023) [2025] KECPT 320 (KLR) (Civ) (12 June 2025) (Judgment)

Neutral citation: [2025] KECPT 320 (KLR)

Republic of Kenya

In the Cooperative Tribunal

Civil

Tribunal Case 1043/E031 of 2023

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

June 12, 2025

Between

Nashon Kembero Mogonchi

1st Claimant

Evans Tinego Aberi

2nd Claimant

Doreen Kemunto Kennedy

3rd Claimant

Sarah Nyabeta Arita

4th Claimant

and

Evans Nyangoya Nyasetia

1st Respondent

Mwalimu National DT Sacco

2nd Respondent

Judgment

1. The matter for determination is a Statement of Claim dated 13th December, 2023 in which the Claimants claim that they guaranteed the 1st Respondent a loan of Kshs. 300,000/- from the 2nd Respondent. That the 1st Respondent defaulted and the Claimants were made to bear the defaulted amounts. The Claimants feel aggrieved by the actions of the 2nd Respondents and prays for:a.A mandatory injunction to the 1st Respondent to fully pay the outstanding debt.b.Interest at sacco rates on (a) from the date of defaulting loan repayment until full paymentc.Special damagesd.General damagese.Interest at court rates on c and d from the date of judgment until full payment.f.Any other relief (s) that the Honourable court will deem fit and just to grant.g.Costs of this suit.The Claim is accompanied by a witness statement, and documents in support of the claim.

2. The 1st Respondent in their response, admitted that indeed the Claimants guaranteed him a loan on 4th May 2022, but he is no longer indebted to him because he was fully paid by the second Respondent.

3. The 2nd Respondents also entered appearance and filed a Statement of Defence. According to them, the 1st Respondent indeed procured a loan facility from the 2nd Respondent guaranteed by the Claimants. They aver that when the 1st Respondent defaulted, the 2nd Respondents recovered from the guarantors in accordance with the loan and credit policy of the 2nd Respondent, and that the 3rd Claimant is still servicing the guaranteed loan, and has a balance of Kshs. 33,309. 55/=.

4. During the hearing, the 1st Claimant testified on behalf of the Claimants. He informed this court that the 1st Respondent took a loan with the 2nd Respondent which he was to pay within 24 months but he defaulted causing the 2nd Respondent to recover the defaulted amounts from the Claimants. The witness testified that the 1st Respondent is a man of means but the 2nd Respondent has not taken any steps to recover the loan from him. He also testified that they pay a risk fund of Kshs. 400/- monthly. His prayer before this Tribunal is for the Tribunal to require the 1st Respondent to present an alternative security and commit to court how he will bear his financial obligation and how he will compensate the Claimants. On cross examination, the witness said that the notice he received was long after the attachment.

5. The Respondent, on the other hand, testified that indeed he took a loan that was guaranteed by the Claimants. He testified that he was a teacher and was indicted and that he currently doesn’t have a job. On cross examination, he agreed that they met with the elders and he was to pay. He also testified that he would repay the guarantors immediately he gets a job.

6. One Julius Chirchir testified for the 2nd Respondent. He informed this court that he was the 2nd Respondent’s Debt Recovery Manager. He testified that the 1st Respondent defaulted in his loan repayment and they got in touch with the 1st Respondent before looking for the guarantors, and that they attached the 1st Respondent’s shares before the guarantors’. He testified that the 2nd Respondent notified the Claimant’s over the 2nd Respondent’s default and also that they would be attached via a notice dated 28th April 2022 and another text message on 22nd April 2022 notifying them that they have been attached. That the letters were sent through last known address. He also testified that there was a share capitalization and share promotion drive that the Claimants did not take part by virtue of the attachment.

7. Both parties filed their submissions. According to the Claimants, the 2nd Respondent did not undertake due diligence before attaching the loan of the 2nd Respondent, and that this includes coming to the Tribunal first. They further submit that guarantors are persons of secondary liability and that they can only be attached as a last resort after efforts to recover from the loanee fail. They also submitted that the 2nd Respondent knowingly excluded other guarantors thereby overburdening others. Further that they were not notified of the 1st Respondent’s default and that the notice purportedly sent to them was just but an afterthought by the second Respondent. Further the Claimants submit that they lost the opportunity to participate in the 2nd Respondent’s share capital promotion which would have given them a chance to scoop a price. They also submitted on the special damages they have incurred pursuant to the actions of the 2nd Respondents and pray that this court awards them. They pray that the 1st Respondent be ordered to repay the loan or deposit security for his outstanding loans. They pray this court to enter judgement as prayed in the Statement of Claim.

8. The 2nd Respondent, on the other hand, submits that there was no Claim by the Claimants against it, and therefore were an unnecessary party to the suit and therefore their name should be expunged from the suit and the suit against them be dismissed with costs. They also submitted that they notified the Claimants of the 1st Respondent’s default through SMS and also through their last provided address. They also submitted that the risk fund is only used for the loans that were performing and the loanee was deceased. Further they submitted that they acted within the scope of its by-laws, credit policies and loan agreement and that the recovery was lawful procedural and devoid of any negligence.

Analysis 9. This Tribunal has considered the pleadings, documents and the submissions of the parties.

10. It is not in dispute that the 1st Respondent and the Claimants are all members of the 2nd Respondent. It is also not in dispute that the 2nd respondent advanced a loan facility to the 1st Respondent the same being guaranteed by the Claimants. Further it is not in dispute that the 1st Respondent defaulted on the loan repayment and the 2nd Respondent recovered and it is still recovering the amounts from the Claimants. What is in dispute is whether the recovery of the amounts from the guarantors was procedural. Before this court considers the special damages and the opportunities lost by the Claimants by virtue of the recovery, it first has to consider whether the recovery was procedural.

11. The Claimants Claim that the 2nd Respondent moved in to enforce the contract of guarantee before following the due process. They claim that guarantors should be attached as a last resort after efforts to recover from the loanee have failed, and these efforts including coming to the Tribunal to enforce the debt. They also averred that they were not served with default notices as required by the law. The 2nd Respondents, on the other hand, claim that the attachment was lawful and that they followed all the requisite steps. They state that they served notice of default to the Claimants through SMS as well as through their last known places of address. The question before this tribunal, therefore, is whether the Claimants has sufficiently proved his claim on a balance of probabilities that they were unprocedurally attached.

12. This court has pronounced itself severally on the issue of guarantee. It is not disputed that a contract of guarantee is a contract whereby one person undertakes to carry the liabilities of another person when that other person defaults. The question that has always been asked is what constitutes default for the purposes of guarantor attachment. This is normally a crucial question owing to the existence of an imbalance of power between the Cooperative Society and the guarantors. This is because the Cooperative Society is normally the custodian of whatever is used as guarantee, and sometimes these can act as low-hanging fruit for the cooperative society.

13. According to the submitted documentation

14. Flowing from above, we find merit in the Claimants Claim and order as follows- judgment is entered in favour of claimant against Respondent.a.Immediate refund of Kshs. 74,000/- to the Claimantb.The Claimant is awarded costs of this suit together with interest from date of filing suit at Tribunal rates until payment in full.

JUDGMENT SIGNED, DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 12TH DAY OF JUNE, 2025. Hon. J. Mwatsama Deputy Chairperson Signed 12. 6.2025Hon. Beatrice Sawe Member Signed 12. 6.2025Hon. Fridah Lotuiya Member Signed 12. 6.2025Hon. Philip Gichuki Member Signed 12. 6.2025Hon. Michael Chesikaw Member Signed 12. 6.2025Hon. P. Aol Member Signed 12. 6.2025Tribunal Clerk MutaiSaenyi advocate for the 2nd RespondentNahashon Kembero – No appearanceSaenyi advocate – We pray for a copy of the judgmentTribunal orderJudgment to be uploaded with requisite time frame.Hon. J. Mwatsama Deputy Chairperson Signed 12. 6.2025