MAENDELEO BANK JUDGMENT

IN THE HIGH COURT OF TANZANIA (DAR ES SALAAM SUB-REGISTRY) AT DAR ES SALAAM CIVIL APPEAL NO. 35 OF 2023 (Arising from the decision in Civil Case No. 19 of 2016 at Resident Magistrate Court of Dar es Salaam- at Kisutu dated 10/12/2021 before Hon. E.N. Kyaruzi-PRM) NAFTAL SAYUMWE JEREMIAH....................................................1ST APPELLANT NEHEMIA ZABLON RUSUMO……………………………..……………..2ND APPELLANT VERSUS MAENDELEO BANK PLC ………………………………………………1ST RESPONDENT EMMANUEL REUBEN SWAI………………………………..………..2ND RESPONDENT TEGETA SECONDARY SCHOOL………………………………………3RD RESPONDENT JUDGMENT 26th August 15th October, 2024 MWANGA, J. The 1st Respondent before this court filed Civil Case No. 19 of 2016 in the Resident Magistrate Court of Dar es Salaam- at Kisutu against the appellants and 2nd and 3rd respondents claiming for the following reliefs: payment of Tshs. 5761,382.17 from the first appellant, Tsh.11,739237.17= from the 2nd appellant, Tshs. 810, 221.68 from the 2nd respondent as the actual amount of money owed by the 1st respondent arising from the loan 1 facility. Other prayers were an order compelling the 4th respondent to pay the defaulted amount, interest at commercial rate on defaulted loan payments from the date the same fell due to the date of judgment, General damages to be assessed by the court, interests rate at court rate of 12 % of the decretal sum from the date of judgment to the date of full payment, Cost of the suit and other relief this court may deem fit to grant. For a better appreciation of the issue in contention, it is necessary to explore the factual setting giving rise to the appeal, which may be recapitulated as follows: discernable from the trial court records, appellants and 2nd respondent borrowed money from the first defendant, in which the 1st appellant secured a loan of Tsh. 5,761,382.17, the 2nd appellant secured a loan of Tsh.11,739237.51, while the 2nd respondent secured a loan facility of Tshs. 810,221.68. It was alleged further that, since the appellants and the 2nd respondent were the employees of the 4th respondent, the 4th respondent entered into a combined guarantee agreement for loans. It is further alleged that one of the terms of the contract in the combined guarantee was that, in case of default, the 4th respondent would step in and be responsible for the outstanding amount. 2 The record revealed further that, when served with the plaint, the appellants and the 2nd respondent admitted their debt and averred that it is the 4th respondent who is responsible for the default since she terminated the employment and withheld terminal benefits, including gratuity to date which suffice to discharge the loan. On his side, the 4th respondent averred that the act done by the headmaster of the 4th defendant was only for recognition that the 1st, 2nd, and 3rd defendant could have been afforded the credit facility. She stated further that the headmaster had no authority to authorize such transactions. After filling out her WSD, the 4th respondent appeared until the mediation stage, later before the final pretrial conference, where her advocate informed the mediator that her client was not ready for mediation as she was not the proper party to be sued. Mediation was marked closed, and the matter was fixed for hearing for the reasons to be apparent later; the case proceeded ex-parte against the 3rd and 4th respondents. After a full trial, the court ruled out that the 4th respondent was not part of the loan agreement and thus cannot be responsible for the payment of the same. Therefore, the appellants and the 2nd respondent were ordered to pay their respective loan amounts, generally damages to Tshs. 1,000,000, interest at commercial rate on the defaulted loan payment from 3 the date the same fall due to the date of judgment, interest at the court rate of 12% on the decretal sum from the date of judgment to the date of payment in full, and cost of the suit. Aggrieved by that decision, which was delivered on 10/12/2021, the appellant is in this court challenging the judgment of the district court on the following grounds; (i) That the honorable Magistrate erred in law and misapprehended the substance of the evidence of PW1 (ii) That the honorable trial magistrate erred in law and fact when they failed to accord the weight exhibit P4 deserves (iii) That the honorable trial magistrate erred in law and, in fact, in relying on the written statement of defense whose case went exparte against him (iv) That the honorable trial magistrate erred in law and, in fact in relying on the written statement of defense of the fourth defendant not tested in law 4 (v) That the honorable trial magistrate erred in law and fact when decided that the 4th defendant is not the guarantor of the appellants. (vi) That the honorable trial magistrate erred in law and when failed to use its discretion power and seek clarification on Whether Tegeta High School and Tegeta Secondary School are one entity or different entities before its decision. Based on the above grounds of appeal, the appellants prayed to this court to allow an appeal with costs. When the appeal was called for hearing, the Appellants appeared to be represented by Mr. Josephati Sayi Mabula. In contrast, the 1st respondent was represented by Ms. Josephine Safiel, a learned advocate. It should also be noted that the 2nd and 3rd respondents did not enter appearance; thus, the appeal was held exparte against them. In support of the appeal, Mr. Mabula started his submission by seeking leave of the court to combine the 1st, 2nd, and 5th grounds and argue them as one ground and grounds 3 and 4 and argued them together; he also prayed to abandon ground 6. He then submitted that parties are bound by the agreements they freely enter into. He contended that the trial Magistrate 5 misapprehended evidence of the PW1, whose evidence is obvious and without any ambiguity that the 1st and 2nd appellants entered into an agreement to borrow money from the respondent, the then plaintiff in Civil Case No. 19 of 2016, and that, the said loan secured by the appellants were to be repaid through monthly deductions from salaries of the appellants. He added that, there is no dispute that the appellants had secured the said loans by providing a guarantee that was executed hand in hand with the loan agreement that if borrowers default to pay the advanced loans, the guarantor shall pay the same on their behalf. He submitted that the loan guarantee agreement was tendered by PW1 and admitted as exhibit P4. He referred the court to Item 4.2 of the loan agreement (credit facility agreement), in which Cleary states that The guarantee shall secure the facility. He also referred the court to items 6.3 and 6.5 of exhibit P4, where it was agreed that when the outstanding amount cannot be cleared from the Borrower's terminal benefits, the Guarantor shall personally be responsible for the exceptional amount."Mr. Mabula submitted that the evidence adduced and tendered by PW1 was in line with the 1st and 2nd appellants' defense. He referred the court to Paragraph 4 of the written statement of defense of the 1st appellant. 6 According to Mr. Mabula, since the respondent has never complained of any fraud, the Trial Court misapprehended evidence from the respondent (plaintiff) who instituted the case and, at the same time, acknowledged in his evidence that the loan agreement was secured by guarantee agreement obliging 4th defendant to repay the loan especially after he has terminated employments of the 1st and 2nd appellants, is not acceptable in law for such misapprehension of PW1 evidence is open that the court was trying to change the clauses which parties have agreed between themselves. In its judgment, he contended that the trial Court decided that the 4th defendant was not the guarantor of the appellants simply because the contract was entered between the plaintiff and Tegeta High School and that Tegeta High School and Tegeta Secondary are different names. It is unclear whether these two names refer to the same School/ legal entity. The other reason was that it is not clear why one Mr. Edward H. Mganga, the headmaster of Tegeta Secondary School, signed the agreement, while Tegeta School was not named the guarantor of that loan guarantee agreement. Lastly, it is unclear whether the named headmaster had a full mandate to sign the loan guarantee on behalf of the guarantor. Finally, it is 7 unclear whether the first, second, and third defendants were employees of Tegeta High School or Tegeta Secondary School. Mr. Mabula argued further that this observation of the trial Magistrate prompted her decision that the 4th defendant is not the guarantor of the appellants. To him, the court was rewriting the new agreement between parties, thus prejudicial to the appellants who were adjudged on new terms of the agreement made by the court. He placed reliance on the Court of Appeal of Tanzania case of Unilever Tanzania Ltd vs. Benedict Mkasa trading as Bema Enterprises, Civil Appeal No.41 of 2009 (unreported), where it was observed thus; "Strictly speaking, under our laws, once parties have freely agreed on their contractual clauses, it would not be open for the courts to change those clauses which parties have agreed between themselves. It was up to the parties concerned to renegotiate and to freely rectify clauses which parties find to be onerous. It is not the role of the courts to re-draft clauses in agreements but to enforce those clauses where parties are in dispute." 8 In conclusion, he implored the court to allow the first, 2nd, and 5th grounds of appeal. In rebuttal, Ms. Safiel submitted that, the appellants in their submission, have admitted to having secured a loan with the 1st Respondent, and they have not paid off all their loan amounts. She said the Appellant submission is also acknowledging that the Appellants had secured the said loans by providing a guarantee, which was tendered by PW1 (the 1st Respondent herein) and admitted as exhibit P4 as correctly reads on page 3, lines 11 and 12 of the judgment of the trial court. Concerning the allegations that the court rewrote its new agreement and the Appellant was adjudged on new terms of the agreement, Ms. Safiel strongly disputed the same and submitted that, there is no clause in the judgment that indicates the alleged rewriting of the Guarantee agreement. She referred the court to Clause 2.1 (iii) of the Credit Facility Agreement admitted as Exhibit which imposed a condition to the Appellants on completion of security arrangements and perfection as required by law and to the satisfaction of the Bank that is to say the Borrowers (Appellants herein) had a duty to disclose correct information of the Guarantor in 9 the perfection of the security. She lamented that the Appellants are aware of the proper name of their employer. Still, denying the employer being a guarantor indicates misrepresentation to the Bank, hence making the guarantee agreement invalid. In her view, since there was a misrepresentation of the name of the employer in the guarantee agreement, the duty to pay the loan amount shifted to the Appellants, she said, in Paragraph 2 on page 4 of the appellant’s submission, the appellants indicated that the 1st Respondent ought to have raised an issue of fraud. This suggests that as the employees of the Guarantor, the Appellant knew the correct name of the surety and the correct signatory of the guarantee contract. To her, allowing the head teacher to sign on behalf of the Appellants’ employer as surety while knowing the head teacher is not the correct signatory can be termed as misrepresentation to the borrower, hence rendering the contract of the guarantee invalid for misrepresentation. She admitted that a court of law cannot rewrite a contract between parties; instead, it is incumbent on the court to enforce what has been agreed, provided that it is not against the law (emphasis added). She submitted further that, in the banking business, there are two kinds of agreements: the first agreement is between the lender and a borrower (the loan agreement), and the second type of 10 agreement is a contract of guarantee; this agreement is between the lender and the guarantor. She clarified that, a guarantee contract is an independent undertaking which arises only when at the first place there is a covenant to make good when the principal debtor defaults to repay the loan as agreed. To her, the question is whether the borrower’s liability is relinquished when the Guarantor fails to pay off the default amount. She said the answer is an affirmative that parties to the contract are obliged to fulfill their covenants under the contract. To bolster her position, she cited to the court the case of Agency Cargo International vs Eurafrican Bank (T) Ltd, HC (DSM) Civil Case No. 44 of 1998, as mentioned in the case of Christopher P Chale vs Commercial Bank of Africa, Miscellaneous Civil Application, No.635 of 2017 HC DSM on testing the balance of convenience where the court stated;" “The Object of security is to provide a source of satisfaction for the debt it covered by it. The Respondent, to continue being in the banking business, must have funds to lend and which are to be repaid by its debtors (emphasis added). Suppose the bank does not 11 recover its loans. In that case, it will seriously be an obvious candidate for bankruptcy... it is only fair (that banks and their customers should enforce their respective obligations under the banking system.”. She concluded that the relation between the Appellants and the 1st Respondent arises from Exhibit P4, which was the credit facility agreement between the Appellants and the 1st Respondent, and the Appellants have admitted having defaulted hence the breach of the credit facility and on that reason, it was her opinion that the order of the trial court that the appellant is liable for payment of their respective default amount was correct. In a short rejoinder, Mr. Mabula reiterated his submission in chief. He attacked the allegation by the 1st respondent that the appellants had a duty to disclose the correct information of the Guarantor to ensure security. He contended that, Appellants never hide information relating to the guarantor. He said Tegeta Secondary School, which comprises O-level as Tegeta Secondary School and A-level as Tegeta High School, had been the appellants' employer since then to the time the appellants' employment was terminated, and the appellants being his employees. The 4th defendant 12 correctly executed the guarantee agreement. He stressed that the respondent used to receive monthly installments from the 4th defendant before the default, a fact which she does not dispute. He admitted that the appellants have not paid back all their loan amount. However, he said, the same 4th defendant has been paying her the monthly installment. It is the same who committed to pay back the loan and ensure that immediate payment to the Bank of any outstanding loan balance, both principal amount, accrued interest, costs for recovery of the balance due, and any other payments related to the loan, is immediately effected in case the borrower ceases to be an employee of the Guarantor due to resignation, abscondment, dismissal, retrenchment, transfer, termination or separation or secondment or any other reason or event likely to affect the Borrower in servicing the loan. She contended that, if the outstanding amount cannot be cleared from the Borrower's terminal benefits, the Guarantor shall personally be responsible for the outstanding amount. Concerning the issue of Tegeta Secondary School and Tegeta High School, he said the same was raised by the trial court suomotto when composing the judgment for the reasons not disclosed by the said trial court contrary to the evidence of both sides in records and without any consultation with the 13 parties. He added that the Respondent had never complained of such misrepresentation, be it when she signed the guarantee agreement with the 4th defendant, when the 4th defendant used to pay her monthly installments, or during the trial. He maintained that, since appellants had prayed their role of disclosing proper and correct information about the guarantor, the fact which the respondent had never disputed before trial when she signed with the guarantor, accepted the money for monthly installments from her, and during the trial of civil case number 19 of 2016, it is now an afterthought to rely on re-written terms and conditions of the trial court. He added that since the guarantor still holds the appellant's gratuity and NSSF, the respondent should seek to discharge her mortgage by enforcing the guarantee agreement, which is still valid to date. I have dispassionately considered and weighed the rival submission by the counsels from both sides, I have also examined the records to see whether the appellant contentions have basis. Going by the records, it is not disputed that the appellants are in debt as they borrowed money from the 1st respondent and they defaulted paying the full amount. The 1st appellant is in debt to the tune of 5,761,382.17 while the 2nd appellant is in debt to the tune of 11,739237.51, the fact that is also admitted even in their 14 submissions. The glaring issue is whether in the said loan the appellants were guaranteed by the 3rd respondent, Tegeta High school and whether the same is responsible for the payment of the said loan. The appellant’s laments that, the trial court rewrote the agreement by excluding the 3rd respondent while she was the guarantor of the loan. I had time to peruse the said judgment in which the trial magistrate concluded that the 3rd respondent is not the guarantor of the appellants based on the following reasons: Firstly, no contract was entered between the plaintiff and Tegeta High School and Tegeta High School and Tegeta Secondary are different names, secondly that, it is not clear whether these two names are referring the same School/ legal entity, thirdly, it is not clear why one Mr. Edward H. Mganga, the headmaster of Tegeta Secondary School who signed the said agreement. In contrast, Tegeta school was not named as the guarantor in that loan guarantee agreement, and lastly, it is not clear whether the named headmaster had a full mandate to sign the loan guarantee on behalf of the guarantor. Finally, It is unclear whether the first, second, and third defendants were employees of Tegeta High School or Tegeta Secondary School. 15 In my fair view, the trial magistrate misdirected himself, as firstly, exhibits P1 and P4 show clearly that Tegeta High School employed the appellants. Further, it was the 3rd respondent who was paying the 1st respondent the monthly installments by deducting the same from the appellant's salaries, which means the appellants were the employees of the 3rd respondent. Thirdly, the issue as to whether Tegeta High School and Tegeta Secondary School are the same entity was not raised and discussed by the parties; it was raised by the court suomottu and decided as such. That notwithstanding, the position of law is apparent if the party is being improperly named. The change is in the form of a misnomer done inadvertently; the settled position is that the court can focus on the rights and substance of the parties and their case rather than punitively trimming the proceedings by striking out the cases. In arriving at such a conclusion, the question that the court will pose is whether a reasonable defendant, in looking at the document as a whole and in all the circumstances, would conclude that they were, in fact, the defendant. If the answer is yes, courts are allowed to be tolerant and, in fitting situations, to order amendment of the pleadings, especially where the error involves the name of a corporate personality of the person sued. See the Court of Appeal case of Alliance 16 Life Ansurance Limited vs Elihuruma Ngowi, Civil Appeal No. 487 of 2021 CT at Dar es Salaam, (unreported) decided on April 2024. In the instant appeal, it is undisputed that the plaint was served to the 3rd respondent, the 4th defendant in the original suit. She filed WSD, to that effect drawn and filed by Locus attorneys, that aside, the 3rd respondent took heed and appeared in court until at the mediation stage, duly represented by different advocates; this means that the 3rd respondent knew that the litigant finger was pointing on him. Since the 3rd respondent decided to abscond the proceedings thus, the case heard exparte against him. It was not right for the court to raise those issues concerning the different names of the 3rd respondent Suo motto and decide them without consultation of the parties, as the same prejudiced the appellants. The position thus remains that the 3rd respondent was the guarantor of the appellants. My stance is backed up by the decision in the case of Abualy Alibhai Aziz vs. Bhatia Brothers Ltd [2000] TLR 288 on page 289, the case which was cited with approval by the Court of Appeal in the case of Simon Kichele Chacha vs. Aveline M.Kilawe, Civil Appeal No 160 of 2018. The parties are bound by the agreement freely entered into, and the contract should be sanctified. Therefore, since the parties had an agreement, exhibits P1 and P4, in which 17 the 3rd respondent guaranteed their loan, it was not suitable for the trial court to exclude the 3rd respondent from being responsible as guarantor on the said loan based on the issues raised without consulting the parties. As a guarantor, 3rd respondent ought to have discharged her obligations as soon as she was notified of the default in repayment of loaned money, as evidenced by (exhibit PE7 collectively since she promised so under item 6.5 of the said contract. It is also trite that the rationale behind a guarantee is that the guarantor or surety undertakes to be answerable to the creditor if the principal debtor fails to pay the debt by making good the same. This principle of law is reflected in section 80 of the Law of Contract Act, [Cap 345 R.E 2019] which provides that: ’’The liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract.’’ This principle was also encompassed in the case of Exim Bank (T) Limited Vs. Dascar Limited and Another, Civil Appeal No 92 of 2009 (CAT Unreported), where the Court of Appeal cited with approval the case of 18 the Supreme Court of India in Bank of India Ltd Vs. Damodar Prasad, IR 1969 SC279, in which it was held that: ’’Under this Act, save as provided in a contract, the surety's liability is co-extensive with that of the principal debtor… this meant that the surety thus becomes liable to pay the entire amount. This liability is immediate. It is not deferred until the creditor exhausts his remedies against the principal debtor.’’ The Court of Appeal further stated that: ’’Once a principal debtor defaults on the payment of the loan, the surety steps into or is placed on equal footing with that of the principal debtor. So, unless the principal debtor sooner discharges the liability, the guarantor is as liable as the principal debtor to the creditor and the same extent under the terms of the overdraft facility (Exh P1).’’ Guided by the above authority and principle of law, it is apparent that the 3rd respondent, the guarantor of the appellants, and the 2nd respondent under the Combined guarantee agreement (exhibit P4) ought to 19 have discharged her duty by paying the outstanding loan. That said and done, the first set of grounds has merit, and the same is allowed. In the combined grounds 3 and 4 of the appeal, Mr. Mabula submitted that the law is settled. Once documents are tendered in court but no explanation is available as to their purpose, the same has no assistance. He contended that, it is clear from the court's record that the case went exparte against the 4th defendant (Tegeta Secondary School); however, the trial court, in its judgment, relied on her written statement of defense, whose significance was not tested or demonstrated. He referred the court to page 5, paragraph 6, where the trial magistrate referred to the written statement of defense in his judgment. He placed reliance on the Court of Appeal case of Shemsa Khalifa and two others v. Suleiman and Hamed Abdalla, Civil Appeal No. 82 of 2012 (unreported), quoted with approval by the Court of Appeal of Tanzania on page 25 in the case of Leonard Dominic Rubuye t/a Rubuye Agrochemical Supplies vs. Yara Tanzania Limited, Civil Appeal No. 219 of 2018 (unreported) where it was held that; "documents, although tendered in court, if no explanation is availed as to its purpose are of no assistance to the court; 20 the duty lied on the party relying on them to demonstrate their significance." It was his prayer that the 3rd and 4th grounds of appeal be allowed as the trial court relied on the written statement of defense of the 4th defendant, whose significance was not demonstrated or tested, for she filed it and failed to come in court to defend its contents and substances. Responding to this, Ms.Safiel contended that, the documents referred by the Appellants were a statement of Defence by the 4th Defendant (the 3rd Respondent) that complies with statements of facts. She believed that the position cited by the Appellants in the case of Leornard Dominic Rubuye is on document tendered and admitted as evidence; therefore, the applied principle is not applicable in this case. She implored the court to dismiss the appeal for lack of merit and good cause. In a short rejoinder, Mr. Mabula submitted that, although the written statement of defense for the 4th defendant is not a document filed, tendered, and admitted in evidence, the same principle applying on a document applies to the written statement of defense filed and the defendant disappeared and causes the court to proceed expert due to his absence as happened to the 4th defendant in this Civil Case No. 19/2016. He stressed that the 4th 21 defendant's written statement of defense lost its significance following the expert order of the trial court. Thus, its contents and substances have no assistance to the court to the extent of influencing its judgment. I have accorded the deserving weight of both parties’ submissions, and in my view, this ground need not detain this court. As can be discerned from the record, the 3rd respondent, who was the 4th defendant by then, filed a written statement of defense to answer the claims against her; however, when the matter was scheduled for mediation, the 3rd respondent, through her advocate, Ms. Christina informed the mediator that, the 3rd respondent is not prepared for mediation, as he is not a proper part to be sued. However, the advocate for the third respondent appeared on seven other adjournments, then 20/02/2019, withdrew instruction. As the law stands, the effect of failure to attend mediation without proper cause attracts either dismissal of the suit or striking out of the defense; the same is provided for under Order VIII C Rule 29 of the Civil Procedure Code, [Cap 33 R.E 2019] 29. Where it is not practicable to conduct a scheduled mediation session because a party fails without reasonable cause to attend within the time appointed for the commencement of the session, the mediator 22 shall remit the file to the trial judge or magistrate who may- (a) dismiss the suit, if the non-complying party is a plaintiff, or strike out the defense, if the non-complying party is a defendant; Therefore, since the 3rd respondent refused to attend mediation, the trial magistrate had to strike out the WSD. Thus, it was unsuitable for the trial magistrate to use the WSD of the 3rd respondent in composing his judgment. Therefore, the second set of grounds also has merit and is allowed. That said and done, the appeal is allowed, and for the avoidance of doubt, the appellants and the 3rd respondent are ordered jointly and severally to pay the 1st respondent the following, (i) Tshs. 5,761,382.17 as the outstanding amount in respect to the 1st appellant loan (ii) Tshs. 11,739,237.51 as the outstanding amount regarding the 2nd appellant's loan to the 1st respondent. (iii) Tshs. 810,221.68 with respect to the outstanding amount arising from the 2nd respondent's loan. (iv) Tshs. 1,000,000 as general damages 23 (v)Interest on the outstanding amount at the 1st respondent’s commercial rates on the defaulted loan payments from the date the same fell due to the date of judgment. (vi) Interest at court rate of 7% per annum on the decretal sum from the date of judgment to the date of total payment. (vii) Costs of the suit. It is so ordered accordingly. MWANGA JUDGE. 15/10/2024 COURT: Judgment has been delivered at Dar es Salaam on the 15th day of October 2024 in the presence of Joseph Mbonimpae Advocate for the appellants and Josephine Safiel Advocate for the respondent and in the absence of the 2nd and 3rd respondent. Right of appeal explained 24 MWANGA JUDGE 15/10/2024 25