CIVIL APPEAL NO

IN THE COURT OF APPEAL OF TANZANIA AT PODOMA (CORAM: LEVIRA, J.A.. GALEBA, J.A. And ISMAIL, J.A.^ CIVIL APPEAL NO. 34 OF 2021 YUSUFU MULLA......................................................................... 1st APPELLANT SHAHDAD MULLA...................................................................... 2nd APPELLANT VERSUS INTERNATIONAL COMMERCIAL BANK (TANZANIA) LIMITED................................................................ RESPONDENT (Appeal from the Judgment and Decree of High Court of Tanzania, Commercial Division, at Dar es salaam (Nanqela, 3.^ Dated the 8th day of May, 2020 in Commercial Case No. 108 of 2018 JUDGM ENT OF THE COURT 10th & 19th February, 2025 LEVIRA. J.A.: The appellants were personal guarantors of the loan facility amounting US$ 1,000,000.00 that was advanced to one Nawab Abdulrahim Mulla (the Principal Debtor) by the respondent in 2014. Upon failure by the Principal Debtor to service the said loan as agreed, he was sued by the respondent vide Commercial Case No. 106 of 2017 in the High Court of Tanzania, Commercial Division at Dar es Salaam (the High Court). The said suit ended by an order on compromise of suit where the respondent obtained a decree of US$ 999.550.81 plus interests. It transpired, however, that the Principal Debtor failed to pay the decretal sum whereupon, the respondent decided to institute Commercial Case No. 108 of 2018 at the High Court against the appellants as guarantors for payment of US$ 1,910,193.67 being amount outstanding and due from the Principal Debtor's loan facility as of 11th July, 2018. The case was decided in favour of the respondent. Aggrieved, the appellants have preferred the instant appeal advancing 12 grounds. For convenience purposes, at the commencement of the hearing of the appeal, Mr. Alex Mgongolwa, learned advocate who appeared for the appellants condensed the grounds into three complaints. The first complaint comprised grounds number 3, 6, 7, 9, 10 and 11. In those grounds the main complaint was that, it was not proper for the learned High Court Judge to consider the guarantee agreements in Commercial Case No. 108 of 2018 and to hold the appellants responsible for the loan advanced to the Principal Debtor after issuance of a decree on compromise of suit in Commercial Case No. 106 of 2017. The second complaint falls under ground 12 of appeal, in which the appellants' complaint is that, Commercial Case No. 108 of 2018 was res judicata following the High Court's decision in Commercial Case No. 106 of 2017. The third complaint was that the appellants were not accorded the right to be heard on account that the learned High Court Judge suo motu raised a new issue in the course of composing Judgment and determined it without inviting the parties to address the court on that issue. Thereafter, Mr. Mgongolwa adopted the appellants' written submissions which they had filed in Court on 14th April, 2021 to form part of his oral submission before the Court. Likewise, the learned counsel for the respondent, Mr. Zacharia Daudi adopted the respondent's reply submissions filed in Court on 11th May, 2021 as part of his oral submission before the Court. As regards the effect of decree in the compromise of suit against the guarantee agreements, Mr. Mgongolwa submitted that, in the year 2017 the respondent lodged Commercial Case No. 106 of 2017 against the Principal Debtor and through a compromise of suit, the consent decree was entered on 28th August, 2017 by the High Court. It was ordered through that decree that, the loan together with interests totaling US$ 999,550.81 be paid to the respondent in full by 30th November, 2017. According to Mr. Mgongolwa, the appellants, with no apparent reason, were not made parties to the compromise of suit. It was much later in 2018, when the respondent lodged Commercial Case No. 108 of 2018 following failure of the Principal Debtor to pay the decretal sum, that the appellants came to know of the existing decree from Commercial Case No. 106 of 2017. He further submitted that, initially, the appellants challenged in vain Commercial Case No. 108 of 2018 for being res judicata and incompetent for misjoinder of the necessary party by raising a preliminary point of objection. As a result, the matter ended up with a second decree in respect of the same loan facility against the appellants. According to Mr. Mgongolwa, at the time of institution of Commercial Case No. 108 of 2018, the appellants' obligations in the guarantees had already been discharged by the decree on the compromise of suit in Commercial Case No. 106 of 2017. As such, he contended that, the executable terms were of the decree and not of the guarantee agreements. He referred us to the case of Exim Bank (Tanzania) Lim ited v. Dascar Lim ited and Another, Civil Appeal No. 92 of 2019 (unreported), in which the Court identified conditions under which a surety can be discharged from his/her liability; including when the guarantors were not made parties to the compromise of suit, as in the present matter. Mr. Mgongolwa faulted the trial Judge for holding that, the compromise decree could not supersede the terms of guarantee agreements. He insisted that, a lawful decree of the court cannot be equated or be subordinated to an agreement between parties to a contract. He urged us to find merit in this complaint. In reply, Mr. Daudi while making reference to the respondent's reply submissions which he had adopted, stated that, the appellants were not discharged from liability after compromise of suit and its subsequent decree in Commercial Case No. 106 of 2017. The reason for his stance was founded on the impugned decision which made reference to exhibit P4 which was tendered during trial as can be observed at page 343 of the record of appeal. According to him, the said exhibit clearly shows that, there was a prior consent of the appellants to the compromise of suit as it can be seen at paragraph 4 of the guarantee agreements. He thus argued that, the High Court was correct in holding that the appellants were not discharged from liability as they continued to be liable until the amount is fully paid. He added that the case of Exim Bank (Tanzania) Lim ited cited by the counsel for the appellants is 5 distinguishable from the circumstances of the present case because, in that case, there was no consent of the guarantor at the time when the principal debtor opted for compromise of suit which is not the case in the present matter. He added, in the case at hand, there was a consent in the deed of guarantee between the parties. Therefore, the appellants' complaint lacks merit, he concluded. Mr. Mgongolwa made a brief rejoinder insisting that, normally, loan and guarantee go together and even the reliefs have to be sought together. In that sense, it was wrong in the circumstances of the present case for the respondent to sue the Principal Debtor alone without joining the guarantors and later sue the guarantors. He reiterated the previous position that the liability of a guarantor has limitations as he cannot be liable after a decree of the court. Adding that the consent by the guarantors could not be im puted or im plied, it had to be express. For that reason, the consent in the guarantees could not be used to enter a compromise of suit. He referred us to page 517 of the record of appeal with a vie w to show th a t the amount which was due was US$ 999,550.81 which the Principal Debtor committed himself to pay. The commitment was followed by the decree of the court which is enforceable. However, at page 549 of the record of appeal, the 6 respondent came with a new decree of US$1,910,193.67 against the appellants over the same subject matter which is equally enforceable. We have dispassionately considered submissions by the learned counsel for the parties and the main issue calling for our determination in this complaint is, whether the compromise of suit had any effect to the guarantee agreement. There is no dispute between the parties that the respondent sued one Nawab Abdulrahim Mulla vide Commercial Case No. 106 of 2017 claiming repayment of loan facility advanced to him. The said loan was guaranteed by the appellants; however, they were not made parties to that suit. The suit ended up by the deed of compromise reached between the parties in terms of Order XXIII Rule 3 of the Civil Procedure Code, Cap 33 (the CPC), which provides: nWhere it is proved to the satisfaction o f the Court that the suit has been adjusted wholly or in part by any law ful agreement or compromise, or where the defendant satisfies the plaintiff in respect of the whole or any part of the subject matter of the suit, the Court shall order such agreement■ compromise or satisfaction to be recorded, and shall pass a decree in accordance therewith so far as it relates to the s u it" [Emphasis added] We wish to reproduce part of the agreed terms of compromise of suit as reflected at page 175 of the record of appeal as hereunder: "1. Judgment be entered in favour o f the p la in tiff for the amounts and reliefs claim ed in the plaint. 2. The defendant is required to pay the Judgment debt in full on or before 30th November, 2017 in default o f which the p la in tiff shall be at liberty to enforce the Judgment in any manner the p la in tiff deems fit including the sale of the Judgment debtor's immovable properties located on Plots Nos. 1 and 2 Block 'C ' Mbeya Township, Tittle Numbers 13996 and 13997 by Public Auction or by private treaty without further court process; and 3. The terms o f this Compromise be recorded as a final non appealable decree o f this Hon. Court and to be enforceable as such. " [Emphasis added] The above deed of compromise of suit was signed by the parties and filed in court on 17th August, 2017. The High Court made an order that the same constitutes a decree of the court on 28th August, 2017. It is apparent from the excerpt above that the deed of compromise varied the terms of agreement initially entered between the respondent and the Principal Debtor. In other words, there was novation thereby replacing the initial obligations of the Principal Debtor and guarantors by the agreement of compromise of suit. The provision of the law under which the deed of compromise was entered is very clear that the Principal Debtor consented to take full responsibility to repay the loan advanced to him. Thus, the new terms were set and he committed himself to pay the Judgment debtor the decretal amount of US$ 999,550.81 plus interests in full on or before 30th November, 2017. We further observe that, by implication, even the initial guarantee was abandoned to the extent that, the Judgment Debtor found another security to secure full payment of the decretal sum as he consented to the sale, as a way of enforcement, in case of default, of his immovable properties located on plots Nos. 1 and 2 Block 'C Mbeya Township, Title Numbers 13996 and 13997 without further court process. Notably, the new agreement under the compromise of suit was entered without involvement of the initial guarantors of the loan facility, the appellants herein. Since the decree of the High Court was issued 9 under the compromise of suit, it became enforceable under the law. For that reason and in our considered view, the respondent ought to have executed the decree in accordance with the law. We are unable to go along with the reasoning of the High Court Judge in respect of the new agreement between the respondent and the Principal Debtor. According to him, the appellants were not discharged from liability as guarantors despite the fact that they were not privy to and did not consent to the terms of a new agreement between the respondent and Principal Debtor. Section 85 of the Law of Contract Act, Cap 345 (the LCA) provides: "Any variance, made without the surety's consent in the terms o f the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance. " At page 547 of the record of appeal, the High Court Judge had the following to say in relation to the liability of guarantors: "Further, I am also satisfied that\ even if the compromise amounted to novation, it is not necessarily that a surety or guarantors should be released from liability where the agreement between the creditor and principal debtor is novated. It w ill only depend on the circumstances o f each case, and at least not in this case. " [Emphasis added] The basis of the above holding was the clauses, particularly, clause four of the guarantees signed by the appellants (exhibits P3 and P4) as security for the loan facility advanced to the Principal Debtor. We examined part of the said clause which was relied upon by the High Court Judge at page 543 of the record of appeal and found that, it reads: "4. Arrangement with the Debtor and Others The bank may in its absolute discretion as it thinks fit, and without the consent of the guarantor, and without releasing or reducing or otherwise affecting whatsoever the liability of the guarantor under this guarantee or the validity o f the security hereby created do any o f the following: 4.1. enter into, review, vary or determine any agreement or other agreement or other agreement with the debtor or any other person; and without prejudice to the generality o f the foregoing, grant to the debtor any new or li increased facility and increase any rate o f interest o f charge. 4.2... to 4.6 N/A 4.7 and the security thereby created shaii not be discharged nor shall the liability of the guarantor under clause 2 be affected by anything which would not have discharged, released, reduced or otherwise affected the liability of the guarantor if the guarantors had been a Principal Debtor o f the Bank instead o f guarantor". [Emphasis added] We have carefully examined the above clause. However, in our opinion the novation envisaged under that clause relates to new and or increase of facility and rate of interest as items in the loan agreement. That is where the liability of a surety could not have been discharged. We are alive to the position of the law that in contract, the liability of the surety is co extensive with that of the principal debtor. However, we note that, the circumstances stated in the above clause are not synonymous with the present case where the substance and character of the underling instrument creating the obligation completely changed, that is from a commercial loan to a court decree. In Exim Bank (Tanzania) Lim ited (supra), six conditions within which a surety can be discharged from liability were set and two of them, which are relevant in this matter are these: i. When the terms o f contract between the principal debtor and the creditor are varied without the consent o f the surety; and, ii. When the creditor enters into a composition with the principal debtor, or prom ises to give time to the principal debtor, or not to sue the principal debtor, unless the surety assents to such contract" With the above conditions at the back of our mind, we are not convinced by the holding of the High Court that basing on clause 4 of the agreement, the sureties undertook to pay any judgment debts or settle any court decrees. Being guided by section 85 of the LCA, we find and hold that the subsequent agreement made by the respondent and Principal Debtor in court without sureties' consent discharged them from any kind of liability. In our considered view, had the intention been to rely on the previous security, he would have involved the sureties or at least indicated so in the compromise of suit. Thus, in view of the observations, the issue we have raised has been answered in the affirmative. We now turn to the second complaint where the appellants claim that the subsequent suit (Commercial Case 108 of 2018) was res judicata following the existence of the decree of the High Court in Commercial Case No. 106 of 2017. Submitting in support of this complaint, Mr. Mgongolwa stated that, the High Court Judge grossly erred in law to entertain Commercial Case No. 108 of 2018 because the matter was directly and substantially the same as was in Commercial Case No. 106 of 2017. He went on to submit that, the issue in both cases was recovery of the advanced loan facility. Therefore, it was the duty of the respondent to sue the Principal Debtor and the guarantors together, but she decided to first sue only the Principal Debtor in Commercial Case No. 106 of 2017 and later guarantors alone omitting the Principal Debtor in Commercial Case No. 108 of 2018. As a result, there are, in existence, two decrees both for recovery of the same debt. He argued that, the respondent may decide to execute both decrees and unlawfully get extra benefits. He thus urged us to find merit in this complaint. Responding to the complaint that Commercial Case No. 108 of 2018 was res judicata, Mr. Daudi firmly argued that this ground is misconceived due to the fact that the said case was all about enforcement of the guarantee executed by the appellants in favour of the respondent. He referred us to the plaint found at page 9 of the record of appeal which shows that, there was a decree against the principal debtor. According to him, the respondent was justified to sue in both cases (Commercial Cases No. 106 of 2017 and 108 of 2018) so as to recover the loan facility advanced to the Principal Debtor. He thus urged us to dismiss the complaint. Having heard the parties in respect of this complaint, we wish to restate that the liability of a surety is co-extensive with that of a principal. In the book titled: Law o f Pleadings in India, Eighteenth Edition by S. N. Dhingra and G. C. Mogha, Eastern Law House, New Delhi at page 504, the general position is elaborated in the following terms: "The p la in tiff can, in the absence o f a dear intention to the contrary, sue either o f them [the principal or surety] without suing the other and it is not necessary [that] the creditor should exhaust a ll remedies against the debtor or should give notice o f the principal's default to the surety; nor is it necessary to make a demand upon the principal before proceeding against the surety, unless such a notice is stipulated in a co n tract" As a general rule, in the present case, the respondent was entitled to sue either the Principal Debtor or the appellants as guarantors. As intimated above, the respondent who was the plaintiff in Commercial Case No. 106 of 2017 decided first to sue the Principal Debtor and obtained a court decree. The said decree required the Principal Debtor to pay the decretal amount within a specified time and in default, the respondent would be at liberty to enforce the decree in the manner she would think fit including, sale of the Principal Debtor's immovable properties specified in the decree without any further court order or process. In the circumstances, the respondent ought to have executed the decree of the High Court instead of instituting Commercial Case No. 108 of 2018, subject of the present appeal. In the circumstances of this case and as per the discussion above, we find that the compromise of suit in Commercial Case No. 106 of 2017 affected the guarantee agreement between the appellants and the Principal Debtor as the former were constructively discharged from liability. We thus hold that, in effect the respondent had no cause of action against the appellants in Commercial Case No. 118 of 2018 before the High Court. Having determined the second complaint as above, determination of the third complaint on the right to be heard would necessarily be inconsequential. Based on the deliberations above, we allow the appeal with costs. DATED at DODOMA this 19th day of February, 2025. M. C. LEVIRA JUSTICE OF APPEAL Z. N. GALEBA JUSTICE OF APPEAL M. K. ISMAIL JUSTICE OF APPEAL The Judgment delivered this 19th day of February, 2025 via video link in the presence of Mr. Alex Mgongolwa, learned counsel for the appellant and Mr. Zacharia Daudi learned counsel for the respondent is hereby certified as a true copy of the original.