CRDB Bank PLC versus Africhick Hatchers Ltd and Two Others; Commercial Case No 97 of 2014: High Court of Tanzania (Commercial Division) at Dar es Salaam (Unreported).
- Banking
- Guarantee – creditor varies terms of loan facility without guarantors’ consent – contract of guarantee provides that creditor has reserved the right to vary the terms of the loan facility without prior consent from the guarantors – whether guarantors/sureties are discharged.
- Indemnity- contract entitled a ‘contract of indemnity and guarantee’- whether the title itself makes the contract ‘a contract of indemnity.’
- Indemnity – In every contract of guarantee there is an implied contract of indemnity.
- Notice of default – notice of default does not comply with section 127 of the Land Act, 1999 read together with G.N. 355 of 2009 – whether a mere fact that a loan is secured by mortgage renders a suit thereof to fall under the purview of section 127 of the Land Act, 1999.
- Recovery – whether it is mandatory to give notice of default to a borrower
- Contract
- Rules of Contraction – Rules applicable in construing commercial instruments.
- Oral contracts – Banker promised orally to give additional loan to the borrower – the verbal promise was not reduced into writing – whether amounts to enforceable collateral contract.
- Written contract – under what circumstances verbal evidence will be accepted to vary or qualify written contract?
- Evidence
- Witnesses – Failure to call material witnesses – effect.
Held:-
(i) Material variation of loan contract without the consent of the guarantor / surety discharges the guarantor from the contract notwithstanding the wording of the guarantee. The reason for the decision was that the contract between the banker and the principal debtor will no longer be the contract which the guarantor agreed to guarantee at the time of the execution of the deed of guarantee and that the variation was prejudicial to the guarantor. (Cited Reid v. National Bank of Commerce (1971) E.A 525).
(ii) A mere fact that a contract is entitled ‘a contract of indemnity’ does not by itself make it a contract of indemnity. What makes a contract a contract of indemnity are the terms and conditions and not the title.
(iii) It is a principle of law that in every contract of guarantee, there is an implied contract of indemnity, not as between the creditor and the surety, but between the principal debtor and the surety.
(iv) In the absence of any express provision to the contrary, where a contract of guarantee is entitled ‘a contract of guarantee and indemnity’ the phrase indemnity is relevant is relation to the implied contract of indemnity between the guarantor and the principal debtor which is an essential element of a contract of guarantee.
(v) Section 127 of the Land Act, 1999 applies only in a suit for enforcement of mortgage. Therefore, where a notice of default does not comply with section 127 of the Land Act, 1999, it is not invalid if the suit is for enforcement of the loan agreement and not confined to mortgage.
(vi) A request for payment of debt is quite immaterial unless the parties to the contract have stipulated that it shall be made; if they have not, the law requires no notice or request, but the debtor is bound to find out the creditor and pay him the debt when due. (cited Joachim v. Swiss Bank Corporation (1921) 3 KB 110)
(vii) In construing commercial instruments, the Court should seek to ascertain the intention of the parties so as to give the contract commercial effect. The rationale behind the principle is based on the fact that commercial agreements are made so as to achieve a particular commercial object.
(viii) According to section 101 of the Evidence Act, if there be a contract which has been reduced to writing, verbal evidence will not be accepted so as to add to or subtract from or in any manner to vary or qualify the written contract. The rationale behind the rule is to uphold the value of written proof and effectuate the finality intended by the parties. However, application of the rule is conditional upon there being established that the terms of the parties’ agreement are wholly contained in the written document. (Cited Jos Hansen and Soehne v. GK Jetha Limited (1959) E.A 1563).
(ix) The omission to call material witnesses without any justification entitles the court to draw an adverse inference that if the said witnesses were called, they would testify against the party.
(x) Oral promise to advance additional fund does not amount to an enforceable collateral contract; the reason being the oral agreement is not certain as to its terms and conditions. The oral agreement remains as ‘a promise to agree.’