Mutuku & 7 others v Rono & 3 others (Tribunal Case E269 of 2023) [2026] KECOPT 263 (KLR) (Civ) (14 May 2026) (Judgment)

Mutuku & 7 others v Rono & 3 others (Tribunal Case E269 of 2023) [2026] KECOPT 263 (KLR) (Civ) (14 May 2026) (Judgment) Neutral citation: [2026] KECOPT 263 (KLR) Republic of Kenya In the Cooperative Tribunal Civil Tribunal Case E269 of 2023 J Mwatsama, Ag Chair, B Sawe, F Lotuiya, M Chesikaw & PO Aol, Members May 14, 2026 Between Bendinar Iloko Mutuku 1st Claimant Monica Ronoh 2nd Claimant Luke Kihara 3rd Claimant Lelei Ronoh Isaac 4th Claimant Cynthia Cheruiyot 5th Claimant Lemayian Nkanae 6th Claimant Helen Waruguru 7th Claimant Ann Muthoni 8th Claimant and Nathan Tarbei Rono 1st Respondent Mwalimu National Sacco Ltd 2nd Respondent and Teachers Service Commission (TSC) 1st Interested Party Board of Trusees TSC 2nd Interested Party Judgment 1.The matter for determination is a Statement of Claim dated 4th April 2023. In the Statement of Claim, the Claimants aver that they were members of the 2nd Respondent. The Claimants claim that they guaranteed the 1st Respondent various loans and that he had approached the Claimants individually. That the 2nd Respondent was either negligent or complacent since they granted the 1st Respondent a loan repayable in 7 years, yet his contract was terminating in 2023, and also that they granted him loans of up to 7 million, against deposits of only Ksh. 1 million. That the 1st Respondent tendered his notice of voluntary retirement immediately he received the various loans. That the 2nd Respondent has not taken any step to recover the loans from the 1st Respondent. That they are apprehensive that the 2nd Respondent will start deducting the defaulted arrears from their salaries soon. They feel aggrieved and pray for;a.A permanent order do issue barring the 2nd Respondent and the Interested Party from attaching, recovering and/or deducting the shares and or the salaries of the Claimants in any manner whatsoever in recovery of the 1st Respondent’s loans.b.An order do issue compelling the 1st Respondent to compensate the Claimants for any loss and/or damages incurred as a result of his default with the 2nd Respondent.c.An order do issue relinquishing the Claimants as guarantors from liabilities of the 1st Respondent loans obligations with the 2nd Respondent.d.In the alternative to the (a) to (c) above), the Interested Parties herein be compelled to pay the loan of the 1st Respondent using his terminal benefits.e.Costs and interest of the suit. 2.The 2nd Respondent entered appearance, and filed a response to the Statement of Claim dated 31st May 2023. In their response, they denied having an obligation n law to pursue the defaulter in the first instance. They also state that the vision loan is given to a member based on 5 times their shares, while FOSA Advance is given up to 20 times a member’s net salary. They also state that TSC employees have always had their contracts automatically renewed. They also state that membership of the 2nd Respondent is for life, hence even retirees are allowed to be members. They further state that the complaints by the Claimants are self-serving and intended to aid the Claimants to avoid their contractual obligations under the contract of guarantee since the 2nd Respondent has no control over the 1st Respondent’s resignation and also over the payment of the 1st Respondent’s terminal dues. That they are aware of their loan policy, and that the Claimants voluntarily agreed to step into the borrowers’ shoes upon default. 3.During the hearing, only the Claimants’ witness testified. The court noted that the 1st Respondent was duly served with the hearing notice, but did not appear, while the 2nd Respondent’s advocate was in court when the hearing date was taken but did not appear as well. Their cases were closed after the close of the Claimants’ case. 4.One Bendinah Kiloko Mutuku, the 1st Claimant herein, testified on behalf of the Claimants. She adopted her witness statement and produced her documents. She informed this Tribunal that the 1st Respondent went for early retirement after approaching them as guarantors and getting a loan. That the 2nd Respondent granted him a loan despite remaining with only two years of service. Analysis 5.The question before this Tribunal is whether the Claimants are entitled to the reliefs sought, to wit nullification of the contract of guarantee. 6.It is not in dispute that the Claimants and the 1st Respondents were members of the 2nd Respondent. It is also not disputed that the 1st Respondent applied for and was granted various loans by the 2nd Respondent guaranteed by the Claimants. It is also not disputed that the Claimants and the 1st Respondent entered into contracts of guarantee willingly. 7.The point of contention is that the 2nd Respondents granted loans to the 1st Respondent knowing very well that his contract term was about to end, and also that the loan that was granted was more than 3 times the 1st Respondent’s deposits of Ksh. 1 million shillings. In response to this, the Respondents have informed this Tribunal that contracts with the 1st Interested party are always automatically renewed, and also that they have no control over people resigning from employment. Further that FOSA advance is given for up to 20 times a member’s net salary, while vision loan is given up to 5 times a members’ shares. 8.In answering the question presented by the Claim, this Tribunal will address itself on the followinga.The nature of a contract of guarantee,b.Whether the 2nd Respondents owed the Claimants a duty of disclosure of material facts before they entered into the contract of guarantee with the Claimantsc.The place of a Cooperative society in a contract of guarantee The nature of a contract of guarantee 9.A contract of guarantee has been defined in “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. 10.In this Tribunal, it has previously been held in the case of Mwindani Kombo Mwinyi v Bandari Savings and Credit Cooperative Society Limited 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.” 11.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. In this case, there is no question, that there has been default. The Respondents did not dispute default, and the 2nd Respondent in their response to the Statement of Claim has informed this Tribunal that they will start attaching the 2nd Respondent’s deposits and then attach the guarantors. The 2nd Respondent has indeed sent notices of default to the guarantors.The place of a Cooperative society in a contract of guarantee and whether they owe the guarantors full disclosure of material facts before they enter into the contract of guarantee with the Claimants 12.A contract of guarantee is a contract between members of a Co-operative Society, the loanee on one part, and the guarantors on the other part. A contract of guarantee is mostly facilitated by the cooperative society, by being incorporated in the loan application form. Therefore, it is safe to say that the Co-operative society drafts this loan form, and the Loanees responsibility is to source for guarantors. Indeed, in the matter before us, the Claimants claim that the 1st Respondents approached them individually. 13.In the loan application forms filed by the 2nd Respondent, which we will rely on with caution since the same were not produced, but we note that the same were not contested by the Claimants, we note that the guarantee section is in standard form, and the only part left to be filled is the amount of loan, and the details of the guarantors. The Co-operative society also vets the guarantors to gauge their suitability in stepping into the shoes of the loanee in case of a default. Indeed, this is clearly indicated under part 4 of the loan application forms. 14.The Co-operative society also enforces a contract of guarantee. Unlike other contracts that are enforced by people who are parties to the contract, the co-operative society, who is not a party, enforces the contract of guarantee. The Co-operative society will issue notices, and attach the guarantor’s property to satisfy the defaulted guarantee sums. The loanee obligation in a contract of guarantee seems to end at the point where he has sourced for guarantors, who have agreed to guarantee him, and have signed the loan form to that effect. The loanee, who is the initiator of the contract, will sit aside and watch as the co-operative society goes after the guarantors to satisfy his defaulted debt. 15.The Co-operative Society is also a custodian of the property that is used as tool of guarantee. This mostly is composed of the deposits of the guarantors. In this case, it is also the entity with which the salaries of the guarantors are paid through, and therefore, this presents an inequality of bargaining power between the guarantors, and the co-operative society which as we have put it above, is a crucial party in the contract of guarantee. In the contract formation process, there is need to focus on whether the weaker party had meaningful choice or they were faced with unequal bargaining power. In enforcing a contract of guarantee, in case of default by the loanee, all the Co-operative society does is to attach the guarantors’ savings which is already in its custody, and if that is not enough, to await the guarantors’ salaries and attach the same. 16.Flowing from above, we note that a Co-operative society plays a very crucial part in a contract of guarantee and that it is not silent by-stander, and this makes a contract of guarantee a special type of contract. We find that the cooperative society is in a position of high influence as far as a contract of guarantee is concerned. 17.We now look at the other crucial party when it comes to the enforcement of a contract of guarantee, the guarantor. First we ask ourselves what is the duty of the guarantor, and this we have answered above, that the main duty of a guarantor is to step in the shoes of the loanee and pay the loans if the loanee defaults. The first question we ask is what is the biggest expectation or hope of a guarantor? We feel that the Co-operative society and the guarantor share one crucial expectation; that the loanee will honour his obligation and repay his loan. The next question we ask is what is the information that a person in the position of the co-operative society and the guarantor, whose main expectation is for a loanee to pay his loan need? And the plausible answer is the information that shows them that the Loanee has ability to repay the loan. We feel that the guarantor needs this information even more than the cooperative society, since the cooperative society is already cushioned by the guarantor. The next question on this is, who is the custodian of all these information? We feel it is the co-operative society. When someone applies for a loan, the co-operative society will ask for their payslips, their contract letters, and even their bank statements if their salaries go through other banks. The Co-operative society finds out the income of a loan applicant, the nature of engagement with their employer, the length of service remaining and it also has information on whether the applicant has other running loans. For example, in this matter, the loan applications that the 2nd Respondent filed, (which we refer to with caution since the same were not produced,) are 3. Loan application number 43628 where he applied for Ksh. 5,295,000, loan application number 57219 where he applied for Ks.1400,00/-, and the FOSA instant loan application form where the 1st Respondent applied for a loan of Ksh. 1,227,100/-. The proposed guarantors are different in each of the 3 loan application forms. This means that it is only the loanee and the cooperative society who is privy to the fact that the applicant has other running loans, and which depend on the same salary, and we think this is crucial information for someone who is expected to repay in case of default. 18.Flowing from above, we feel that the Co-operative Society is the custodian of crucial information, that the guarantor needs to make informed decision, and since it is the one drafting the contract of guarantee it owes both parties full disclosure of material information within its knowledge. We feel that its only then that a guarantor will be in a position to make an informed decision. It would be different if the contract were drafted by the parties to wit the loanee and the guarantor, and then take a duly executed contract to the Co-operative society. But in this case and in most cases the practice is for the cooperative society to draft the contract which is incorporated into the loan contract. 19.In this matter, the 2nd Respondent sought to enforce the contract of guarantee, while the Claimants have come to this Tribunal to seek refuge not be deducted to settle the 1st Respondent’s default. The only way this court can protect the Claimants from the contract of guarantee is if the contract is deemed void or voidable.In the case of Guerra v Urysia Limited (Cause 649 of 2017) [2024] KEELRC 488 (KLR), the court opined thatFor a contract to be valid and enforceable, there is the requirement of essential elements such as offer, acceptance and consideration, inter alia must be present, whereas vitiating factors must be absent. Black’s Law Dictionary [8th Edition] defines the word “vitiate” as follows:“To make void or voidable, to invalidate either completely or in part.”Vitiating factors are those factors which may impair or undermine the validity of a contract and render it either void or voidable. A contract that is void has no legal effect. It is as if the contract was never made. A voidable contract, on the other hand, is on which a party [i.e. the innocent party] has the option to rescind or have declared invalid by the Court. Until this option is exercised, the contract continues on foot and remains valid and legally binding.” 20.Therefore, in this matter, are there any factors that may vitiate the contract of guarantee? The Claimants contention is that the 2nd Respondent gave a loan to the 1st Respondent, whose repayment period is way beyond his remaining contract period yet the same was secured by his salary. They also claimed that the 2nd Respondent granted a loan to the 1st Respondent that was way above three times his savings. The 2nd Respondent responded that the Vision loan is given to a member based on 5 times their shares, while FOSA Advance is given up to 20 times a member’s net salary. They also state that TSC employees have always had their contracts automatically renewed. The 2nd Respondents did not testify and neither did they even file submissions, and therefore, there was no opportunity to interrogate this assertion. They also did not file nor produce any policy document to support the above assertion. Therefore, we take that the Claimants evidence and documents are controverted.That said, we are inclined to believe that the 2nd Respondent did not do due diligence, or was negligent in granting 3 loans, to be repaid by a salary concurrently, to someone whose contract was to expire long before the loan repayment period had lapsed. We also believe that the information, of the 1st Respondent having 3 concurrent loans, to be repaid by the same salary, and with repayment periods going way beyond the 1st Respondent’s contract, is material information, that was within the knowledge of the 2nd Respondent who is also the drafter of the contract of guarantee. We find that had this material information been disclosed to the guarantors, the guarantors would have made a more informed choice. We find that non-disclosure of these material facts is a vitiating factor that goes to the root of the contract and we therefore declare the contract of guarantee herein void ab initio. Upshot. 21.Judgment is entered in favour of Claimant against Respondent.Flowing from above we find merit in the Claimant’s Claim and we hereby make the following ordersi.A permanent order is hereby issued barring the 2nd Respondent and the Interested Party from attaching, recovering and or deducting the shares and or salaries of the Claimants in any manner whatsoever in recovery of the 1st Respondent’s loansii.An order is hereby issued compelling the 1st Respondent to compensate the Claimants for any loss and/or damages incurred as a result of his default with the 2nd Respondent, if any.iii.An order is hereby issued relinquishing the Claimants as guarantors from the liabilities of the 1st Respondent loans’ obligations with the 2nd Respondent.iv.The Claimants are awarded costs of this suit JUDGMENT DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 14TH DAY OF MAY, 2026.HON. J. MWATSAMA AG. CHAIRPERSON SIGNED 14/5/2026Hon. Beatrice Sawe Member Signed 14/5/2026Hon. Fridah Lotuiya Member Signed 14/5/2026Hon. Michael Chesikaw Member Signed 14/5/2026Hon. P. Aol Member Signed 14/5/2026Court Assistant - MutaiKarue advocate holding brief for Chimei advocate for the ClaimantNathan Tarbei advocate – No appearanceHon. J. Mwatsama Ag. Chairperson Signed 14/5/2026