Background
1. By way of an undated statement of claim, the 1st Respondent herein (then a Claimant) moved the court against the Appellant herein and the 2nd Respondent in this appeal, seeking the following prayers:
a. Judgment in the sum of Kshs. 245, 000/=.
b. Costs of the claim.
c. Other appropriate relief.
d. Committal to civil jail in default of payment.
2. The background of the dispute is that following a memorandum of understanding dated 12th July 2022, the 1st Respondent lent a sum of Kshs. 245,000/- to the 2nd Respondent (SACCO) on the strength of a security (title deed) that was offered by the Appellant, who was said then to be the 2nd Respondent’s (SACCO’s) Treasurer. Ther SACCO (2nd Respondent) defaulted, hence the lower court suit.
3. In response to the statement of claim, the Respondents filed their respective responses and denied liability. The Appellant’s defence was that the loan was owed by the 2nd Respondent (SACCO) and that he was merely an authorised agent at the time. For the 2nd Respondent, its defence was that it did not owe the 1st Respondent any monies. According to the 2nd Respondent, the loan agreement was between the 1st Respondent and the 2nd Respondent, and he was not a party to the contract.
4. On 22nd February 2022, the trial Court delivered its Judgment in favour of the 1st Respondent, finding the Appellant personally laible, thereby awarding the 1st Respondent a sum of Kshs. 245,000/- plus interest and costs from the date of judgment. It is the said judgment and decree which is now the subject of this appeal herein.
The Appeal
5. The appellant, being dissatisfied with the judgment and decree of the trial court, preferred an appeal before this court vide a Memorandum of Appeal dated 6th June 2024, setting forth seven (7) grounds of appeal that;
i. The Honourable trial Court erred in Law and in fact in failing to observe, analyze and re-evaluate the entire evidence showing that the Appellant was an officer and agent of the 2nd Respondent and that the decision he made was sanctioned by the 2nd Respondent.
ii. The Honourable trial court erred in law and in fact by misapplying the laws of agency and vicarious liability that are well established and cemented in decisions of the higher courts that were binding upon it.
iii. The Honourable trial court erred in both law and facts in shifting the burden of proof as to the decision relied upon from the 2nd Respondent to the Appellant.
iv. The Honourable trial court erred in law and in fact in failing to consider facts that it ought to have considered and considering facts that it ought not to have considered.
v. The Honourable trial court erred in law and in fact in failing to appreciate the law on indemnity of officials of a registered society acting in the scope of their duties and in the interest of the society.
vi. The Honourable trial court misapprehended the facts and applied the wrong principles of law and procedure in finding the Appellant personally liable for the debts incurred by and benefitted by the 2nd Respondent.
vii. The Appellant stands to suffer irreparable loss and injustice if he is not allowed to exercise has sundoubted right of appeal.
6. This appeal was canvassed by way of written submissions. Parties filed their respective submissions in support of and in opposition to the appeal. The Appellant’s submissions dated 15th November 2024; the 1st Respondent’s submissions are dated 20th November, 2024 whereas the 2nd Respondent’s 3rd December, 2024.
Appellant’s submissions
7. The Appellant, in his submissions, maintained that the contract on the subject loan was between the 1st Respondent and the 2nd Respondent and that the Appellant only signed the agreement in his capacity as an agent/treasurer of the 2nd Respondent SACCO. According to him, the trial court erred in finding him personally liable for the loan.
8. The Appellant submitted that the trial court ignored the evidence of the Secretary to the SACCO who testified and confirmed to court that the loan was indeed sanctioned by the membership of the SACCO and that the same was used for advancing the business of the SACCO, that is, setting up the pulping factory in support of the farmers.
9. It was further the Appellamt’s submissions that he was entitled to be indemfied by the 2nd Respondent
10. The Appellant maintained that he was entitled to be indemnified by the 2nd Respondent due to the following reasons; -
a) That he was a lawful agent of the 2nd Respondent and signed the contract on behalf of the 2nd Respondent in the exercise of its lawful activities.
b) That the 2nd Respondent, in its by-laws, had the power to borrow money.
c) That there was an AGM where members present ratified and instructed officials of the 2nd Respondent at the time to borrow monies and support the pressing financial needs of the 2nd Respondent, being the completion of the pulping factory and support of farmers through cheap fertilizers and other farm inputs.
d) That the memorandum of understanding/facility agreement names the 2nd Respondent as the borrower. The Appellant only executed the facility on behalf of the SACCO and was doing so together with the Chairperson and the Secretary, a fact which was confirmed by the Secretary to the SACCO.
e) The 2nd Respondent did not challenge the validity of the minutes of the AGM Meeting held on 8th March 2022, authorizing the Appellant and the executive officials to borrow money from other sources, including the 1st Respondent.
f) That the monies advanced by the 1st Respondent benefitted the members of the 2nd Respondent, and this was properly documented in the books of accounts that were handed over by the Appellant.
11. The Appellant therefore urged this Court to allow the appeal and set aside the trial court’s judgment dated 22nd February 2024.
1st Respondent’s submissions
12. The 1st Respondent submitted that the memorandum of understanding dated 12th July 2022, by which the subject loan was advanced, amounted to a binding contract and was, therefore, capable of being enforced.
13. The 1st Respondent maintained that the Appellant and the 2nd Respondent having breached the agreement, he was entitled to pursue his claim against them. The 1st Respondent thereofore urged this Court to dismiss this appeal with costs in its favour.
2nd Respondent’s submissions
14. The 2nd Respondent supported the trial court’s findings and submitted that the 1st Respondent did not have any reasonable cause of action against the 2nd Respondent for the alleged memorandum signed by the Appellant.
15. The 2nd Respondent maintained that the Appellant had no authority to secure a loan on behalf of the 2nd Respondent since the Appellant was never been authorized to act on behalf and or apply for a loan on behalf of the 2nd Respondent, and if that was to happen, the same was to be approved by members and minutes recorded as per its By-laws.
16. Referring to Clause 25 of its By-laws, the 2nd Respondent submitted that the Clause grants the SACCO power to borrow loan from non-members subject to maximum amount and terms approved by the Genral Meeting and the Commissioner for Cooperatives. The 1st Respondent is a non-member, and that the claimed loan could not have been applied without the approval of the General meeting and the Commissioner for cooperatives.
17. It was further the 2nd Respondent’s submissions that the memorandum of understanding by which the loan was advanced was only signed by the appellant and the 1st Respondent and that the same was not signed by its other officials.
18. The 2nd Respondent further submitted that the fact that land reference Number Kisumu/Koru/620 was used as collateral for the loan secured by the appellant is clear proof that such a loan was not for the benefit of the 2nd Respondent but for the Appellant’s own purpose. That in any event, there was no evidence to show that the money was deposited in the 2nd Respondent’s bank account.
19. The 2nd Respondent, therefore, urged this Court to dismiss this appeal with costs in its favour.
Analysis and Determination
20. I have considered the grounds of appeal, the submissions by both parties, and the cited authorities. This being an appeal from the Small Claims Court, I am guided by the provisions of Section 38 of the Small Claims Court Act, which provides for the jurisdiction of this court in determining appeals from the Small Claims Court. The said provision stipulates as follows;
“A person aggrieved by the decision or an order of the Court may Appeal against that decision or order to the High Court on matters of law.”
21. Having carefully perused and considered the memorandum of appeal and the grounds in support and the provisions of the law as cited above, I find that the only issue for consideration in this appeal is whether the trial court erred in finding the Appellant personally liable for the loan.
22. It is not in dispute that the subject loan was advanced by the Appellant. The only issue in this appeal is whether the trial court erred in finding the Appellant personally liable for the loan.
23. The 2nd Respondent in the present appeal is a body corporate capable of holding movable and immovable property. Section 12 of the Cooperative Societies Act provides that:
“Upon registration every society shall become a body corporate by the name under which it is registered, with perpetual succession and a common seal, and with power to hold movable and immovable property of every description, to enter into contracts, to sue and be sued and to do all things necessary for the purpose of, or in accordance with its by-laws”.
24. From the above, it is evident that the Act gives the Cooperative Society power to hold movable and immovable property and to enter into contracts in its own name. A perusal of the memorandum of understanding dated 12th July 2022 reveals that the agreement was signed only by the Appellant, with only Identity card numbers of the other officials affixed on the agreement. The agreement was, however, not signed by those other officials.
25. From the evidence on record, there is no evidence that the subject loan was taken on behalf of Chelele Farmers Cooperative Society, the 2nd Respondent herein. Clause 25 of the 2nd Respondent’s By-Laws is clear that where loans are to be obtained from non-members, then the borrowing is to be “subject to the maximum amount and terms approved by the General meeting and the Commissioner for co-operatives.”
26. In this case, the burden was on the Appellant to prove that the borrowing from the 1st Respondent, being a non-member, was sanctioned by the general membership and/or officials of the SACCO and approved by the Commissioner of Cooperatives as required under Clause 25 of the 2nd Respondent’s By-Laws.
27. The Appellant having failed to provide any credible evidence before the trial court that the borrowing was sanctioned by the 2nd Respondent, then, I find no reason to depart from the finding of the trial court.
28. Accordingly, I find, as the trial court did, that the Appellant is personally liable for the debt of Kshs. 245,000/= borrowed from the 1st Respondent vide the memorandum of understanding dated 12th July 2022.
29. The upshot is that the Appellant’s appeal dated 6th June 2024 lacks merit, and it is hereby dismissed with costs to the Respondents.
30. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT
THIS 13TH DAY OF MARCH 2025
ADO MOSES
JUDGE
In the presence of:
Moses – Court Assistant
………………for the Appellant
…………………for the 1st Respondent
………………..for the 2nd Respondent