[2021] KECPT 270 (KLR)

REPUBLIC OF KENYA

IN THE CO-OPERATIVE TRIBUNAL

AT NAIROBI

TRIBUNAL CASE NO.57 OF 2021

SAMUEL ODHIAMBO OKOPE..........................................................................................................1ST CLAIMANT

GERALD PHILIP OCHIENG’.............................................................................................................2ND CLAIMANT

MOSES AMOKE AHAO ......................................................................................................................3RD CLAIMANT

(suing through their authorized agent, ISAAC ALUOCH POLO ALUOCHIER)

VERSUS

MWALIMU NATIONAL SAVINGS & CREDIT CO-OPERATIVE SOCIETY LIMITED.. 1ST RESPONDENT

CHARLES GWADA SUDHE...........................................................................................................2ND RESPONDENT

JUDGMENT

1. The statement of Claim dated 4. 9.2020 filed on 29. 1.2021. The Claimant filed suit on behalf of Samuel Odhiambo Okope, Gerald Philip Ochieng and Moses Amoke Ahao members of the Mwalimu National Savings & Credit Society Limited who are the 1st Respondent.

The Claimants were guarantors to a loan of Kshs.1,018,916. 46 advanced by the 1st Respondent to the 2nd Respondent on 19. 6.2015.

The 2nd Respondent defaulter and the 1st Respondent attached assets of the claim and the burden of servicing the defaulters loan is on the guarantors.

They Claimant’s claim By-laws 76 of the Mwalimu National Savings and Credit society Limited revised on February 2017 states :

“ At every regular meeting of the Board the item LOANS shall appear on the agenda. At the meeting, the chief Executive shall present an up-to- date listing of delinquent borrowers showing:

Name of borrower

Account Number

Date of loan

Date of last payment

Unpaid balance of loan

Number of months delinquent

Borrowers share balance

Security or guarantors if any

The Board shall thereupon take action to collect the overdue accounts. Any loan three months overdue shall be referred to the co-operative Tribunal as a dispute.

The Board shall thereupon take action to collect the overdue accounts by attaching guarantors.”

The 1st Respondent had a duty to bring the 2nd Respondent to Tribunal first before resulting to the guarantors.

The 1st Respondent did not comply with the mandatory provisions of the legally binding By-law 76. The 1st Respondent actions are illegal by attaching the guarantor’s assets before 1st referring the loan default to the Tribunal.

2. The 1st Respondent filed their Memo of Appearance dated 7. 10. 2020 on 1st February 2021 and their statement of Defence dated 27. 10. 2020 filed on 1st February 2021 and responded as follows:

“ That the strict ready and interpretation of By-law 76 outlines the actions of recovery of defaulted loans and that the attachment of guarantors is a recovery action independent of referring the principal borrower to the Tribunal.

In guaranteeing repayment of the loan the claimant’s accepted the liability to repay the loan upon default by the borrower which forms a separate agreement between the claimant and 1st Defendant.

That the attachment of the Claimant’s assets was done in strict adherence to the law where the 1st Respondent was exercising its right of recovery of the loan advanced to the 2nd Respondent whom the Claimants guaranteed.”

3. The parties consented to have the matter determined by way of written submissions which claimant submissions – dated 9. 5.2021 were filed on 12. 5.2021. The 1st Respondent filed their written submissions dated 26. 5.2021 on 15. 6.2021.

We take note the 2nd Respondent did not enter Appearance neither did he file a statement of Defence. To this end the Claimant filed a Request for Judgment Application dated and interlocutory judgment was entered in favour of claimant against the Respondent with costs and interest.

Having perused the pleadings and written submissions of the parties herein the issues for determination are:

Issue one

Whether the Claimant’s had a duty towards the 1st Respondent to repay the 2nd Respondent loan on default

Issue two

Whether the 1st Respondent was right in attaching the Claimant’s assets upon default of the 2nd Respondent loan on default of the 2nd Respondent.

Issue three

Costs

4. Issue one

Whether the claimant’s had a duty towards the 1st Respondent to repay the 2nd Respondent loan on default

It is trite law that any guarantor has a responsibility to repay any loan they guaranteed once the same is defaulted. The guarantors are the 1st contact upon a loan being defaulted.

The Claimant’s therefore had and have a duty towards the 1st Respondent upon the 2nd Respondent having defaulted the loan.

Claimants guaranteed the 2nd Respondent and accepted to repay the loan in the event of the borrower default.

5. The 1st Respondent aver there is an enforceable contract between the claimant’s and 1st Defendant due to the loan Application Form.

Several authorities cited by the 1st Respondent state the Claimant’s have a duty as guarantors.

Fidelity Commercial Bank Limited - vs- Kenya Garage Vehicle Industries Limited [2017] eKLR.

“ Because a contract of guarantee is essentially a contract the following basic principles of contract law will apply. A contract of guarantee binds the person giving a guarantee to honour its terms irrespective of any dispute that may be existing between the parties to the transaction for which the guarantee was given. A guarantee is therefore an accessory contract by which the guarantor undertakes to be answerable to the provisions for the debt or default of another person whose primary liability to the promise must exist..”

6. To this extent the 1st Respondent have laid their case. As much as there is the contract adduced above, there is the By-laws which are the driving engine on any society.

The By-laws would override any other agreements between the parties.

We therefore find as much as the claimant’s were guarantors to the loan which was advanced to the 2nd Respondent and is now defaulted. The 1st Respondent ought to follow the By-laws strictly and the same is outlined.

However, upon readingSection 76 of the Mwalimu National Savings and Credit Co-operative Society Limited Sacco By- laws which reads:

“ At every regular meeting of the Board the item LOANS shall appear on the agenda. At the meeting, the chief Executive shall present an up-to- date listing of delinquent borrowers showing:

Name of borrower

Account Number

Date of loan

Date of last payment

Unpaid balance of loan

Number of months delinquent

Borrowers share balance

Security or guarantors if any

The Board shall thereupon take action to collect the overdue accounts. Any loan three months overdue shall be referred to the co-operative Tribunal as a dispute.

The Board shall thereupon take action to collect the overdue accounts by attaching guarantors.”

The understanding of the same and the order in how the default should be handled is:

1st - Tribunal

2nd Guarantors

To this end we agree with the Claimant’s that the 1st Respondent had a duty to file suit against the 2nd Respondent first upon default. Once they do not recover their monies the 2nd point of interest is the Claimants who guaranteed the said loan.

7. Issue two

Whether the 1st Respondent was right in attaching the Claimant’s assets upon default of the 2nd Respondent.

Section 76 By-laws of Mwalimu National Savings and credit co-operative society Limited

Clearly states the guarantors will only be called out once the 1st Respondent has filed suit against any defaulter.

This was not done neither have the 1st Respondent stated there is a case against the 2nd Respondent. Nothing has been adduced to show they that is the 1st Respondent have followed up with the 2nd Respondent after default to warrant them to attach the claimants assets.

The procedure is laid out quite clearly in its By-laws and they did not follow the procedure outlined.

8. The 1st Respondent further brings out the issue of the Verifying Affidavit being defective.

The said issue is that the Verifying Affidavit was sworn in plural and thus fatally defective as it offends Order 19 Rule 1 Civil Procedure Rule 2010 and Section 18 of Oaths and Statutory Declarations Act Cap 15.

The Claimant’s response was Section 1A, Civil Procedure Act, that we should look into the overriding objective being just, expeditious, proportionate and affordable resolution of the Civil disputes.

To this end there is a substantive claim filed and the Tribunal shall not be dragged into ‘technicalities’ at this stage of judgment.

9. Issue three

Costs follow the event

10. Conclusion

We find in favour of Claimants herein and as such the prayers are allowed as follows:

1. 1st Respondent to reimburse the Claimant’s the amounts deducted towards the loan defaulted by 2nd Respondent.

2. Costs to be borne by the Respondents.

JUDGMENT SIGNED, DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 19TH DAY OF AUGUST, 2021

Hon. B. Kimemia Chairperson Signed 19. 8.2021

Hon. J. Mwatsama Deputy Chairperson Signed 19. 8.2021

Mr. Gitonga Kamiti Member Signed 19. 8.2021

Tribunal Clerk R. Leweri

Oluochier for Claimant present

Ayisi for 1st Respondent present

1st Claimant : Kshs.124,630/37

2nd Claimant : Kshs.134,509/83

3rd Claimant: Kshs.445,275/07

Ayisi for 1st Respondent : We pray for 30 days Stay of Execution

1. To confirm Appeal

2. If not we pay after internal mechanisms

Oluochier Advocate for Claimant: no objection

Order : 30 days stay of execution granted.

Hon. B. Kimemia Chairperson Signed 19. 8.2021