Q&A – 8 November 2010

Bank pursuing under personal guarantee

Several years ago a friend of mine was finalizing a loan with a bank in Mwanza. The bank manager who knew me at the time, asked the borrower to get my guarantee as I was well known to the bank. I did sign the guarantee without really looking at the wording of it. My friend has defaulted and the bank is now after me. Even the bank manager’s tone has changed when he speaks to me. I have not borrowed the money nor did I use the amount. The friend has genuinely lost money in a gold deal and the bank is pursuing me. In fact a few weeks ago, the bank even tried to block me from withdrawing money from my company account, which they later allowed us to. This situation is worrying me. What should I do? Can they come after my matrimonial home?
KJ, Mwanza

It is a well known fact that bank managers tones change when there is a default! We need to read the guarantee to understand what you have guaranteed and to what amount. However one thing is clear, under your personal guarantee, the bank cannot and should not try and offset the loan amount from your company account, which we assume is a limited liability company. In the eyes of the law, your company and you are two distinct personalities. Should they try this again, you can sue the bank and claim damages.

Most personal guarantees hold you personally liable for the amounts unpaid by the borrower. At the time of signing it, you should have read the guarantee. It is very difficult to disown this guarantee at this hour.

As for the bank coming after your matrimonial home, it all depends on the wording of the guarantee. The matrimonial home is a very sensitive asset and its seizure affects many people including your children. Whilst the bank may try to go for your dearest asset, your home, it will not be an easy task for the bank as your wife might not have consented. Either way you need to contact your attorney.

Detaining properties unlawfully

In August 2009 a friend of mine requested me for my Toyota vehicle to tour the Serengeti. My vehicle was to be returned in October and todate the vehicle has not been returned. I have seen the vehicle being driven in Dar by other unknown people. What can I do to recover my Toyota? I am losing out on rental.
JW, Dar

It is clear that your friend obtained your car with your consent for the two month period. After the said two months it seems your friend has wrongly detained your vehicle, which you have a right of possession to. You have demanded its return but your friend has refused to return it. In law this is known as detenue and/or conversion and it is actionable under the law of Tort. The remedy, upon proof in a Court of law, will be the return/delivery of the vehicle or its value. In addition damages may also be awarded. However in order to succeed in the action for detenue you must prove that you demanded the return of the said Toyota and your friend has refused. We advise you to consult your attorneys to write a formal demand notice which will serve as evidence during trial that you had formally demanded for the vehicle.

Legal effect of omitting part of claim

In 2008 I was unlawfully terminated by my employer and filed an employment case. After a long hearing, the commission for mediation and arbitration decided in my favour and granted payments in lieu of notice, leave payment, severance allowance, etc. The total amount came to Tsh 3,500,000. The employer complied with the order and I was accordingly paid. Recently I discovered that I’d not claimed against the employer an overtime of Tsh 800,000. What procedures should I use to get my overtime payment? Please advice me accordingly.
HM, Morogoro

Essentially, it is in the interest of justice that disputes should one day come to an end. Claimants should always claim the entire sum and/or reliefs unless completely relinquished. For your case, you ought to have claimed the overtime in your original suit because it involved directly and substantially the same matter. The law is very clear that once a party elects to sue for part of their claim at the time when other parts of their lawful claims are fully matured between the same parties arising out of the same parties and cause of action, then the omission or part so relinquished cannot usually be claimed afterwards. It is likely that the remaining part of your claim will be barred under the law under a principle of law known as res judicata.

Bank demanding life insurance

I am about to borrow Usd 8M from a bank in Dar. The bank is now demanding that I also provide them with a life insurance policy of the same amount. I fail to understand why they require this as the mortgage we have created is over Usd 11M. Is this life policy necessary? What should I do?
GG, Dar

The bank is obviously trying to protect its interests. Your company may be a one man show or you may be the key person in the company and in the event of your demise, the bank feels that there might still be an exposure that they may not be able to recover.

There are a couple of things we wish to bring to your attention. First, the amount of the policy need not be the full amount of the loan. The bank has adequate cover on the property you have pledged and in view of that, you can negotiate for a lower sum insured on the life policy.

Second, you can negotiate with the bank on who pays the premium for the policy. If the bank is willing to contribute, which some banks do agree to, you may get some relief there. A life insurance policy is not a bad idea- what you need to look into is how you offload the premium you pay under the policy. It ultimately depends on how you negotiate with the bank. This practice is not uncommon in the market, especially for big loans, and we are not surprised that the bank has asked for such a policy.