Surgipharm Ltd v Awuondo & another [2003] eKLR

Key Facts

Transaction Type

Issues

• Whether a demand letter was necessary to enforce the continuing guarantee.
• Whether increasing the credit limit from Kshs 75,000 to Kshs 1,750,000 affected the guarantee's validity.
• Whether closing account PO22 in August 1998 discharged the defendants' liability under the continuing guarantee.
• Whether an unsigned, extrinsic guarantee could modify or revoke the signed guarantee.

Holdings

• The court determined that the guarantee was unlimited in amount and of a continuing nature, covering all sums including the claimed Kshs 8,243,407. The judge ruled that the initial credit limit of Kshs 75,000 in the application did not restrict the guarantee's scope, as the guarantee explicitly stated 'all moneys now or at any time... become due to you from the Company.'
• The court held that no demand letter was required to activate the guarantee, citing Halsbury's Laws of England. The judge emphasized that for a continuing guarantee without express requirements, the guarantor is immediately liable upon default of the principal debtor, and the defendants' awareness of default was evidenced by their participation in creditors' meetings.
• The court found the unsigned guarantee (SMP2) did not discharge or vary the signed guarantee (VM2). It was deemed extrinsic to the signed guarantee and addressed a different scenario (forbearance during winding-up proceedings). The judge cited Halsbury's on extrinsic evidence inadmissibility to support this conclusion.
• The court concluded there was no 'bona fide triable issue' in the defendants' defenses, including claims of material alteration and time-barred obligations. Summary judgment was granted in favor of Surgipharm Ltd, with costs awarded to the plaintiff.

Remedies

• The court awards the costs of the application to the plaintiff, in addition to granting summary judgment on the principal claim.
• The court grants summary judgment to the plaintiff as prayed in the plaint, finding no bona fide triable issue or defence. The judgment includes the amount claimed for goods supplied (Kshs 8,243,407 with interest) and awards the costs of the application to the plaintiff.

Monetary Damages

Legal Principles

• The court applied the doctrine of continuing guarantees, holding that the guarantee (VM2) was unlimited in amount and duration, covering all transactions including accounts P022 and P002. Revocation or exhaustion of the guarantee was not established by the defendants.
• The court ruled that no demand letter was required for liability under the guarantee, citing Halsbury's Laws (paras 194-195). The defendants' awareness of default was inferred from their participation in creditor meetings and proposals for payment.
• The court held that extrinsic evidence cannot be used to vary or contradict the terms of a written guarantee under the Evidence Act (sections 97/98) and Halsbury's Laws (para 1478). The unsigned guarantee in SMP2 was deemed irrelevant to the signed guarantee (VM2) as it was extrinsic and addressed a different situation.

Key Disputed Contract Clauses

• The 30% annual interest rate for delayed payments was stipulated in the credit application and guarantee documents. The court found no punitive intent and confirmed its enforceability under commercial standards.
• The guarantee explicitly stated it was unlimited in amount and continuing in nature, covering all moneys due from the principal debtor at any time. The court held this clause was clear and not subject to the initial credit facility's limitations.
• The guarantee did not require a demand letter for enforcement. The court cited Halsbury's Laws, ruling the defendants' awareness of default was sufficient without formal notice, based on their participation in creditors' meetings.

Cited Statute

• Evidence Act
• Halsbury's Laws of England

Judge Name

Passage Text

• "Where there is no express or implied requirement in the Guarantee for a demand... the guarantor is liable without being requested to pay."
• "In consideration of your supply of goods and giving and continuing to give credit to Pharma Med Ltd... we hereby jointly and severally guarantee you the payment of all moneys now or at any time or times hereafter to become due to you from the Company. This guarantee is to be a continuing guarantee..."
• "The second unsigned guarantee... did not discharge or vary the signed Guarantee because it was extrinsic to it and was dealing with a different situation."

Damages / Relief Type

• Costs of the application awarded to the plaintiff.
• Compensatory Damages: Kshs 8,243,407 with interest at 30% pa from 31st December 1999 until payment in full.