https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1197

Consolidated Bank of Kenya Ltd & another v Chebon (Civil Appeal E120 of 2021) [2026] KECA 1197 (KLR) (26 June 2026) (Judgment) Neutral citation: [2026] KECA 1197 (KLR) Republic of Kenya In the Court of Appeal at Eldoret Civil Appeal E120 of 2021 PM Gachoka, L Ndolo & WK Korir, JJA June 26, 2026 Between Consolidated Bank Of Kenya Limited 1st Appellant Protus Wanga t/a Timeless Dolphin Auctioneers 2nd Appellant and Chepkonga Chebon Respondent (An appeal against the judgement and decree of the High Court of Kenya at Eldoret (O. Sewe, J.) delivered on 29th June, 2020 in HCCC No. 62 of 2018 (Formerly ELD ELC No. 251 of 2014)) Judgment 1.One of the worst kept secrets in Kenya, as demonstrated by litigation history, is that the bank-customer relationship that starts on a friendly note often ends in vicious fights. This is one such dispute and the trial court was called upon to determine who was in the wrong. It is common ground that loan facilities were advanced to an entity known as Lomsons Enterprises Ltd and that the appellant was one of the guarantors. That is the only issue that is not disputed, and as will appear later in the judgment, the main issues were what amounts were advanced to Lomsons Enterprises Ltd, what amount was guaranteed by the appellant, and whether the 1st respondent’s statutory power of sale could be exercised. 2.The respondent instituted a claim in the Environment and Land Court (ELC), vide an amended plaint dated 15th July 2015 in Civil Suit ELC No. 251 of 2024, Eldoret, seeking a declaration that the appellant’s intended exercise of statutory power of sale over his parcel of land known as Eldoret/ Municipality Block 10/1747 was a nullity. The suit was opposed by the 1st appellant vide an amended defence dated 23rd July 2015. The suit was later transferred to the High Court at Eldoret and registered as Civil Case No. 62 of 2018. 3.A summary of the facts giving rise to the dispute is that the 1st appellant disbursed a loan facility to Lomsons Enterprises Limited for the sum of Kshs. 6,000,000/-. It is common ground that further sums were advanced to Lomsons Enterprises Ltd. In the suit, the respondent claimed that: the appellant was seeking to recover a sum 66,673,424,60 which was not subject to the charge and guarantee instruments; that the amount sought to be recovered flouted the in duplum rule; that the appellant tolerated a breach of the loan agreement by the principal borrower; that the charge document did not specify the exact amount that was required to be paid to remedy the breach; that the appellant did not exhaust remedies against the principal debtor before enforcing the statutory power of sale against the respondent; that no valuation of the property was done; that the payments made by the principal debtor extinguished the right to recover the amount covered by the guarantee; and that therefore the attempt to enforce the statutory power of sale was a nullity. 4.On its part, the appellant’s position was that: the respondent guaranteed the loan; the respondent together with the other guarantors collectively guaranteed a sum of Kshs. 72,228,217.60; that the respondent owed a prorated sum of Kshs. 5,650,488 as at 18th March 2015 and that the requisite statutory notices were served on the borrower and the guarantor. 5.Upon hearing the parties, in a judgment dated 28th June 2020, Sewe, J. found that there was no indication that the statutory notice under section 96 Land Act was not served and held as follows:“Having carefully considered the evidence presented herein by the 1st defendant, including the bundle of documents marked the defendants exhibit 1B, there appears to be no indication that the section 96 notice was ever issued by the 1st defendant or served on the plaintiff. It is instructive that the provision is couched in peremptory terms and is therefore a mandatory requirement.” 6.On restructuring of the agreement dated 7th November 2012, the trial judge highlighted clauses 3.1 and 5.1 of the Deed of Guarantee & Indemnity, which she interpreted as follows;“What that means, to my mind, is that so long as the facility remained unpaid, the Guarantee would subsist until and unless the advanced sums were fully paid.” 7.The court posed the question as to the extent of the respondents’ liability to the appellant and upon considering clause 2.2 of the Guarantee, and the testimony of Bernard Javan Oliko (DW1), the learned judge held that it was impermissible for the appellant to issue a notice for the entire sum due to it of Kshs. 72,228,217.60/- and further, that the respondent’s liability was limited to Kshs. 5,650,468/- as at 18th March 2015. 8.The learned judge analyzed the testimony of Bernard Javan Oliko (DW1) on the restructuring and the so-called splitting of the loan, holding that;“Granted, the facilities were not increased from what was offered in the initial letter of offer dated 16 May 2012, nevertheless, it was significant that the nature of the facilities were converted from 12 months’ overdrafts and invoice discounting to term loans in the names of the individual guarantors…I am therefore satisfied that the restructuring fundamentally altered the initial obligations as conceived and committed to by the parties and therefore ought to have been done with the participation and consent of the plaintiff. In any event, the plaintiff having not participated in the restructure cannot be held to account on those altered terms. Consequently, it is my finding that the restructure has the effect of fully discharging the plaintiff from his obligations as a guarantor for purposes of the initial letter of offer dated 16th May 2012 as well as the subsequent Letter of Offer dated 7th November 2012” 9.The learned judge consequently made a declaration that the intended exercise of statutory power of sale was a nullity and that the respondent was discharged from his obligations as a guarantor. The learned judge held;a.That a declaration be and is hereby issued that the 1st defendant’s intended exercise of its statutory power of sale is a nullity.b.That a declaration be and is hereby issued that the plaintiff is discharged from his obligations as a guarantor; and that the Charge executed by him in favour of the 1st defendant over Land Parcel No. Eldoret Municipality/Block 10/1747 be discharged forthwith.c.That a permanent injunction be and is hereby issued restraining the defendants by themselves or their agents or servants, from selling, advertising for sale or in any manner whatsoever dealing with or disposing of Land Parcel No. Eldoret Municipality/Block 10/1747.d.That costs of the suit be borne by the 1st defendant.” 10.The appellants are dissatisfied with these findings. They filed a notice of appeal dated 3rd June 2020 and a memorandum of appeal dated 24th June 2021. The appellants raised 4 grounds challenging the judgement of the learned judge. We have taken the liberty to summarize them as follows: the learned judge erred in ignoring the appellants’ evidence and finding in favour of the respondent who had not proved his case; that the learned judge erred by making a declaration that the appellants’ exercise of statutory power of sale was a nullity and that the respondent be discharged from his obligation as a guarantor; and the learned judge erred in making a finding based on facts never pleaded by the respondent but only came out in cross examination. In the premises, the appellants urged this Court to allow the appeal with costs and set aside the judgement of the High Court dated 29th June 2020. 11.When the appeal was heard virtually on 21st April 2026, learned counsel Mr. Mukhabani, who held Mr. Siboe’s brief, appeared for the appellants while learned counsel Mr. Mogambi appeared for the respondent. Both parties relied on their written submissions. The appellant’s submissions are dated 31st March 2026 while those of the respondent are dated 20th April 2026. 12.The appellants briefly abridged the facts of the suit to fault the trial court’s reasoning on the basis of the discharge, to wit, the alleged restructuring of the facility by the bank. They urged that their problem with the reasoning of the court was twofold. Firstly, that the terms of the contract between the principal borrower and the bank were never varied and most critically, the negotiation and accommodation was given to a co-guarantor and not the principal debtor, which accommodation was contractual. In his view, that negotiation prorated the debt and increased repayment time by converting an overdraft which was already due to a term loan. 13.It was submitted that the court misapprehended the negotiations and further, that the charge contained express clauses that anticipated and authorized what the High Court treated as discharge-triggering events. It was additionally submitted that the deed of guarantee also contained an express anti-discharge clause. For this argument, reliance was placed on the decisions in Paramount Bank Limited vs. First National Bank Limited & 2 others [2023] KECA 1424 (KLR) and Kenindia assurance Company Limited vs. Commercial Bank of Africa Limited & 2 others [2006] KECA 347 (KLR). 14.The appellants distinguished the decision in David Harris vs. Middle East Bank Kenya Limited & 3 others [2019] KECA 820 (KLR) from the facts and circumstances giving rise to this appeal. They urged that, in the David Harris (supra) case, the court rightly ordered a discharge because the bank failed to prove that the appellant executed the alleged second guarantee for additional accommodation. Furthermore, the changes increased and/or extended the exposure on the charger without his consent; hence, liability was created without proof and without his consent. 15.The appellant argued that where parties, like in this case, have expressly contracted that a variation, indulgence, or splitting is expressly included in the guaranteed documents, the court cannot ignore those clauses. The appellant’s position was that a variation in the charge was contemplated in the contract and the splitting of the loan could not be treated as a discharge of the guarantee. 16.The appellants posited that the High Court rewrote the charge and guarantee by resurrecting a default suretyship principle that the respondent expressly waived, which was an error in law. They fortified that argument with reliance on the case of National Bank of Kenya Limited vs. Pipelastic Samkolit (K) Limited & Another (2001) KECA 362 KLR. 17.On the declaration by the trial Judge that the intended statutory sale was a nullity, the appellant argued that even if the statutory notices were not served, that is not a ground for nullification, but rather the judge should only have stopped the sale pending compliance with the law. Further, the remedy of nullifying the contractual securities, coupled with a perpetual injunction, was a remedy inconsistent with the Land Act. calibrated approach. 18.It was then submitted that the respondent bore the burden to prove the pleaded particulars, which he failed to do. The decision of the learned judge was faulted on account of failure to satisfy the burden of proof. Additionally, urging that a court cannot grant relief not founded on pleadings, unless the matter was left fully to the court by consent, counsel submitted that the respondent never pleaded on issues of restructure or that the guarantee and indemnity had been voided. Finally, it was submitted that the court’s decision was erroneous as the threshold for granting of the orders was not met. 19.The respondent on his part urged that by a restructuring agreement dated 7th November 2012, between the 1st appellant and the principal debtor, the overdrafts initially granted were converted to a term loan of Kshs. 76, 023, 660/- repayable over 60 months at Kshs. 1,972,096/- monthly. He conceded that the security therein was ELDORET MUNICIPLAITY/BLOCK 10/1747. He urged that he was never consulted on the conversion of the overdraft and for that reason, the changes, without consultation, amounted to a breach of the guarantee agreement. He invited the court to be guided by Halsbury’s Laws of England 5th Edition volume 49 at page 561 paragraph 1214 where the learned authors observed;“A guarantor will also be discharged if the creditor acts in bad faith towards him, or connives at the default by the principal debtor in respect of which the guarantee is given.” 20.Further, he urged that the said sentiments are also contained in Halsbury’s Laws of England, 4th edition volume 20 (1) paragraph 324 at page 210 where it is explained;“The basis of the principle that a guarantor is discharged by an agreement between the creditor and the principal - debtor which has the effect of varying the guarantee, is that it is the clearest and most evident equity not to carry on any transaction without the privity of the guarantor who must necessarily have a concern in every transaction with the principal debtor, and which cannot as a guarantor be made liable for default in the performance of a contract which is not the one of which the fulfilment of which he had guaranteed.” 21.He additionally placed reliance on the holding in Holme vs. Brunskill (1878) 3 QBD 495 and Cooperative Bank of Kenya Limited vs. Washington Otieno Ogindo (2012) eKLR on the discharge of a surety from the obligations under contract, and David Harris vs. Middle East Bank Kenya Limited & 3 Others (2019) eKLR. 22.The respondent posited that the 1st appellant could not unilaterally tender an offer to one guarantor to split the loan and convert it to a term loan for one guarantor at Kshs. 3,423,700/-. The respondent maintained that the said actions entitled him to be discharged from any obligations under the contract on account of fundamental breach. 23.It was further submitted that the 1st appellant had no right to exercise a statutory power of sale as there was no evidence of outstanding indebtedness. Withal, the intended recovery was said to have flouted the in-duplum principle and the provisions of the Banking Act. Further, the statutory notices were said to be invalid for indicating the amount to be recovered from the respondent as Kshs. 72,228,217.60 which flouted section 90(2) of the Land Act. Additionally, the chargor, who was the borrower that the respondent had guaranteed, was not informed of the sum he was to pay himself. He invited this Court to be guided by the decision in Amina Hersi Moghe & 2 Others vs. Diamond Trust Bank Limited & Another (2019) eKLR. For those reasons, the respondent prayed that the appeal be dismissed with costs. 24.We have considered the memorandum of appeal, the submissions, as well as the authorities cited by the parties, examined the record of appeal and analyzed the law. As a first appellate court, an appeal is by way of a retrial and the principles upon which this Court acts in such an appeal are well settled. Briefly put, they are that this Court must reconsider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowances in this respect. [See Gitobu Imanyara & 2 others vs. Attorney General [2016] eKLR]. 25.To formulate the germane issues for determination, it is important that we summarize the facts as captured in the record of appeal before us. The facts as captured in the record are as follows: the respondent, Chepkonga Chebon who testified as PW1, conceded that he was a guarantor for Lomsons Enterprises Limited using Eldoret Municipality/Block 10/1747. He stated that his reason for suing the bank was that it renegotiated the loan with other guarantors without involving him. Further, that he never received any statutory notices from the 1st appellant. He additionally stated that one of the guarantors who negotiated with the 1st appellant was Cherono Elizabeth. He stated that the loan was for Kshs. 76 million as per the letter of offer dated 7th November 2012 and, that his property was only to guarantee Kshs. 6 million. He conceded that Lomsons Enterprises Limited had not repaid the loan. 26.The 1st appellant, in its defence, called Bernard Javan Oliko, (DW1), a credit officer, working for the 1st appellant. He stated that the respondent provided his suit property as one of the securities for a loan facility of Kshs. 76,032,660/- by way of a charge. Oliko further testified that the respondent’s guarantee was for Kshs. 6,000,000/-, but the amount that was due was Kshs. 66,673,424/- at the material time. He stated that the plaintiff signed a charge document and further, that he was served with a statutory notice through P.O. Box 6424 Eldoret which was the address used in the charge and the guarantee. According to Oliko, the bank aggregated the amount due and apportioned it among the guarantors. 27.The witness stated that the amount that was due at the time of the trial was Kshs. 50,074,919 and that the respondent had not proposed as to how he wanted to liquidate the loan. The trial court was further told that Lomsons Enterprises Limited had never paid the loan. 28.The dispute herein revolves around the discharge of the charge over Eldoret Municipality Block 10/1747 on the basis of the restructuring of the loan agreement and the exercise of statutory power of sale by the 1st appellant. One of the issues for determination is whether the restructure of the facility amounted to a variation of the guarantee agreement. In its analysis, the trial court premised its discharge of the obligations of the respondent as a guarantor on the ‘splitting’ of the loan which was essentially its conversion into a term loan from an overdraft, which was considered a breach. 29.We have perused the subject Charge and the Deed of Guarantee and there are clauses which contemplate the restructuring that the 1st appellant effected. 30.Clause 10.3 states:“ 10. 3The Bank shall be at liberty without affecting its rights hereunder at anytime:- 10. 3.1Consolidate, split, determine or vary any credit to or accounts of the charger and mode of repayment thereof.” 31.Clause 10.51 provides:“Pursuant to section 82(1) in the LA, the Chargor hereby gives irrevocable authority to the bank to utilize this charge instrument as security to give further financial accommodation by way of a loan, time credit, banking facilities, overdraft advances and other financial facilities to the charger or others for whom the charger is a surety on a current or continuing account.” 32.Our attention is also drawn to clause 4 of the Deed of Guarantee which provides:“ 4.The Lender may in its absolute discretion as it thinks fit and without the consent of the Guarantor and without releasing or reducing or otherwise affecting whatsoever the liability of the Guarantor under this guarantee or the validity of the security hereby created do any of the following; … 4.3grant time or indulgence to or compound with the Debtor or any other person;… 4. 6...And the security hereby created shall not be discharged nor shall the liability of the Guarantor under Clause 2 be affected by anything which would not have discharged, released, reduced or otherwise affected the liability of the Guarantor if the Guarantor had been a principal debtor of the Lender instead of a guarantor.” 33.Looking at the terms of the charge and the guarantee, it is apparent that the variation referred to was indeed contemplated in the guarantee contract. 34.In Paramount Bank Limited vs. First National Bank Limited & 2 others [2023] KECA 1424 (KLR), the Court held that conversion of an overdraft facility into a term loan was a variation of the principal contract. However, the said variation was contemplated in the guarantee contract and therefore a challenge on that front was unsustainable. Likewise, in the present scenario, as the variation was contemplated, we find that the obligations could not be challenged on this front. 35.Additionally, in finding that the splitting of the loan was a variation meriting the discharge of the charge without settlement of the liability, the trial court erred. The decision amounted to a rewriting of the terms of the guarantee, a situation which the law abhors. In National Bank of Kenya Ltd vs. Pipelastic Samkolit (K) Ltd & another (2001) KECA 362 KLR the Court held;“Having directed himself so far quite properly, the learned judge proceeded to assume (when there was no basis for such an assumption) that the appellant bank would be willing to waive some of the interest charged. Stepping into the shoes of the appellant bank the learned judge decided that a large part of the interest would or could be waived. This, in our view, is a serious misdirection on the part of the learned judge. A Court of law cannot re-write a contract between the parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved. There was not the remotest suggestion of coercion, fraud or undue influence in regard to the terms of the charge.” [Underlining ours] 36.More specifically, there was an express term that security could not be discharged by anything which would not have discharged the liability of the guarantor had he been a principal debtor. This is buttressed by clause 4.6 of the deed of guarantee and the testimony of Bernard Javan Oliko, the 1st appellants’ credit officer who testified that for the Bank to release the plaintiff’s title, it must be paid the full amount of Kshs. 72,000,000/-. 37.In view of the forgoing the finding by the trial court that the obligation by the respondent as a guarantor had been discharged and that, therefore, the statutory power of sale could not be considered to have crystallized in the circumstances was erroneous. 38.On the question whether the requisite statutory notices had been served, we have reviewed the record and confirm that all the notices were served on the principal borrower and guarantors. Further, there is evidence that the valuation of the property was done. 39.The upshot of our analysis is that the present appeal is meritorious. We hereby set aside the findings of the learned judge in their entirety and issue the following orders:1.The judgment delivered on 29th June 2020 is hereby set aside in its entirety.2.The suit in the trial court is dismissed with costs to the appellant.3.The appellant is at liberty to exercise its statutory power of sale.4.The costs of the appeal shall be borne by the respondent. DATED AND DELIVERED AT ELDORET THIS 26TH DAY OF JUNE, 2026.M. GACHOKA C.Arb, FCIArb.......................................JUDGE OF APPEALW. KORIR......................................JUDGE OF APPEALL. M. NDOLO......................................JUDGE OF APPEALI certify that this is a true copy of the original.SignedDEPUTY REGISTRAR