Bank petition ordering guarantor to pay Dh2.4m debt turned down

ABU DHABI — The Supreme Federal Court has rejected a petition submitted by the Sharjah National Bank, ordering a guarantor to pay Dh2.4 million debt, and asked the debtors to settle the loan they had borrowed from the bank in addition to the 14 per cent interest from the date of filing the lawsuit until the payment is fully made.

By Adel Arafah

Published: Thu 23 Feb 2006, 10:09 AM

Last updated: Sat 4 Apr 2015, 6:51 PM

According to court records, the Sharjah National Bank had filed a case demanding Ameer Motors, owned by Othman Mohammed, Abu Bakr Rashid and Fatima Mohammed to pay it an amount of Dh2,752,111,46 and the legal interests from the date of taking the loan until the full payment is made. The bank also called for affirming the mortgage registered on the two plots of land the third respondent (Fatima) had submitted as guarantee for the loan taken by the other respondents (Othman and Abu Bakr).

In its lawsuit, the bank said the first and second respondents have refrained from paying the amount, and the third respondent did not take the initiative to pay, though she had guaranteed the debt as per the aforesaid mortgage deposit contract. Therefore, the bank had sued them at the Federal Sharjah Court of First Instance. The court delegated an accounts expert to verify the matter. Acting upon the report of the expert, the court ordered the first and second defendants to jointly pay the Sharjah National Bank the said amount plus 14 per cent legal interest effective from the date of filing the suit until the full payment is made. The court turned down the lawsuit filed by the guarantor. The bank, however, appealed against the verdict, but the Sharjah Court of Appeal upheld the issued ruling.

The bank contested the verdict at the apex court, arguing that the ruling contravened the law. The bank said the request on affirming the mortgaged deposit is unjustifiable, because the mortgage was registered before the competent employee. Besides, it should have been proved by an official document, which the bank has nothing to do with, though Article 1401/2 of the Civil Transactions Act treats the in rem guarantor on par with the debtor on obligations towards the creditor, who is entitled to demand the settlement of the debt. Affirming the mortgage, the court was told, is the protection of the right of the petitioner so the guarantee on the mortgaged real estate should not be exposed to any disputes when ordered to be carried out by the in rem guarantor.

In reply to the petition, the apex court said the contest is baseless as Article 1399 of the Civil Transactions Law and thereafter rules stipulate that the deposit mortgage is a symbolic contract, which will not take a formal shape unless it is registered at the competent body concerning the registration of in kind real estate rights.

If the mortgaged real estate is owned by other than the debtor, it will be regarded as the in rem guarantee to be submitted as mortgage in favour of the debtor, the court said. It added that the latter will therefore become jointly responsible, along with the debtor, in settling the debt which is due unless it is stipulated in the mortgage deposit contract as joint liability, which will then not be hypothetical, but stipulated in the law or the agreement.

The provision of the article is not in compliance with the deposit mortgage in this case, for it lacks the conditions referred to in the provisions of the article thereof. This prompted the court to uphold the issued verdict and dismiss the bank’s petition.