Court awards woman Sh67M after bank misled her to guarantee a loan for a stranger

April 14, 2023

The High Court has ordered Family Bank to compensate a client more than Sh67 million for misleading her to guarantee a loan.

In a ruling Wednesday, Justice Alfred Mabeya directed the local bank to compensate Deborah Ngugi Karanja, saying it was unfair for the bank to punish the businesswoman for her ignorance in guaranteeing the loan which caused her to lose her Sh65 million apartments.

The businesswoman had sued Family Bank claiming that its employees misled her to be a guarantor for another trader who defaulted in repaying his loan.

Ms Karanja said she took a loan of Sh24 million from the bank in 2014 to increase her residential apartments in Ruiru, Kiambu Countfrom 21 to 41 units. She noted she was repaying the loan in monthly installments of Sh203,000.

She said that in June 2014, Family bank’s credit analyst Mary Wamaitha called her to the bank and pleaded with her to guarantee one Jackson Kirika who wanted a Sh3 million loan for LPO financing.

Karanja mentioned she did not know Kirika and was misled by the bank official to sign the loan agreement.

When Kirika defaulted on his loan, the bank added it to her existing loan, which Ms Karanja struggled to service.

Family Bank then went after her apartments seeking to auction them to recover the money.

But in an attempt to save her property, Ms Karanja approached the Kenya Women Finance Trust (KWFT) for another loan to buy out the bank loan.

The plan failed as the KWFT facility had a higher rate which she failed to sustain, and KWFT sold off her property.

In court, Justice Mabeya faulted Family Bank for the plight of the businesswoman, saying it was responsible for the mistakes and negligence of its employees.

“She should have been discharged from her guarantee and absolutely had no liability whatsoever to settle the LPO loan which she was misled to sign.

“The court finds that the bank owed the client a fiduciary and contractual duty, but it was in breach of those duties which caused her to lose her property. She is entitled to compensation similar to the value of her lost property plus interest accrued,” ruled Justice Mabeya.

The Judge also mentioned that it was the bank’s threats that led the businesswoman to seek refuge in a worse place, KWFT.

“All she was doing was trying to run away from the unlawful actions of the bank. If the bank had not breached its fiduciary and contractual obligations then she would not have found herself where she finally landed,” ruled the court.

Justice Mabeya ordered Family Bank bank to pay Deborah Ngugi Karanja Sh47,526,945 as special damages plus Sh19,961,361 as interest.

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