In or about June 2014, the bank’s Credit Analyst Mary Wamaitha Muriu summoned Deborah Ngugi to the bank and pleaded with her to guarantee an LPO financing loan in favour of one Jackson Migwi Kirika T/A Quan Systems for Ksh. 3m. It was presented to her that the proceeds would then be applied towards settling her loan with the bank, but it turned out not to be the case
Cases of commercial bank employees colluding with fraudsters to con customers out of their money are not a new phenomenon in the country. An attempt by one Family Bank employee to defraud a client failed after High Court Judge A. Mabeya ruled in favour of the client, Deborah Ngugi.
The matter involves case No. E274 of 2020 at the High Court whose ruling was delivered on 24th March 2023. According to court papers, Deborah Ngugi took various loans from the bank totalling Ksh. 24,220,000 repayable in monthly instalments of Ksh. 203,000. She utilized the loans to develop residential apartments on her property LR No. Ruiri/East Block 5/118 which at the time, already had 21 pre-existing apartments with a monthly rental income of Ksh. 250,000, the intention was to increase the same by a further 41 units.
The bank assigned one of its officers, Mary Wamaitha Muriu a Credit Analyst, as her point of call and reference in her engagement with the bank. Mary had processed the aforementioned mortgage facility and worked closely with her. In or about June 2014, Mary summoned her to the bank and pleaded with her to guarantee an LPO financing loan in favour of one Jackson Migwi Kirika T/A Quan Systems for Ksh. 3m. It was represented to her that the proceeds there from the Kenya National Examination Council would be applied towards settling her loan with the bank as it would be made through Jackson Migwi Kirika ’s account with the bank.
Upon disbursement of the loan and supply, KNEC made payment through the bank in two instalments however, the bank failed to recover the said sum but allowed the said Jackson Migwi Kirika to withdraw the entire sum. The bank then wrongfully demanded that Deborah honour the guarantee.
Investigations reveal that there was a conspiracy by the bank and Jackson Migwi Kirika to defraud Deborah. Subsequently, the bank consolidated the guaranteed amount and arrears into the plaintiff’s Mortgage Loan Account without notice causing the account to be in huge arrears and increased interest of between 16% to 23% PA.
Under the above circumstances, Deborah lost her property valued at Kshs. 65 million as a direct consequence of the bank’s breach of contractual obligation. It also came out that Deborah did not know Jackson and that it was Mary who pleaded with her to guarantee the LPO loan and that there was evidence that the bank received payment from KNEC but failed to recover its entitlement.
The judge found out that Family Bank acted to the contrary. It either acted recklessly or in connivance with the said Jackson, it failed to open an escrow account and permitted the proceeds to be deposited in Jackson’s account who withdrew the entire sum. The bank therefore failed and refused to recover the loan from the proceeds of the LPO.
The events led to the eventual loss of Deborah’s property LR No. Ruiri/East Block 5/118 were a result of the bank’s breach, such that the prayer for restitution and damages is justified.
It has also been discovered that because of the circumstances leading to the utilization of the LPO proceeds by Jackson, the bank caused the arrest of its officer, Mary Wamaitha, who was charged with defrauding the bank. Further, in a bid to rescue the property from sale by the bank, she approached the KWFT to seek another loan to buy out the loan with the bank. Unfortunately, the latter loan had an even more expensive rate such that the rental income could not sustain it and KWFT eventually sold off the property.
The Judge ruled that Deborah be refunded Ksh. 3m plus penalties and interest as of 11/11/2015. The judge further ruled that she is refunded the amounts paid to the bank’s advocates and valuers before securing the discharge of the property for it to be charged to KWFT, and the amounts paid to KWFT’s advocate and the bank’s advocate in the transfer of the mortgage to KWFT and fresh charging of the property. All these totalled to Ksh. 2,332,165. The final prayer was for general and exemplary damages which the judge awarded Ksh. 4,800,000.