[2020] KECA 675 (KLR)

IN THE COURT OF APPEAL

AT NAIROBI

[CORAM: OKWENGU, MUSINGA & SICHALE, JJ.A.]

CIVIL APPEAL NO. 32 OF 2019

BETWEEN

EDWARD NYINGI MUKUNDI..……………APPELLANT

AND

TERRY WANJIRU KARIUKI ……...1STRESPONDENT

EQUITY BANK LIMITED ………....2NDRESPONDENT

(Being an appeal from the judgment and decree of the High Court of Kenya at Nairobi (Nzioka,J.) dated 20th November, 2018INHCCC NO. 343 OF 2009)

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JUDGMENT OF THE COURT

The appellant, Edward Nyingi Mukundi (Edward), filed the appeal hereinagainst the judgment ofNzioka, J.delivered on20thNovember, 2018.

A brief background to this appeal is that Terry Wanjiru Kariuki, (Terry)(the 1strespondent herein and the then plaintiff), filed a suit at the High Court ofKenya at Nairobi against Equity Bank Ltd (the Bank), (the then 1st defendant andthe 2nd respondent herein), and Edward Nyingi Mukundi, (Edward) (the then 2nddefendant and the appellant herein), seeking the following orders against theappellant and the Bank:

“

i. An urgent temporary injunction do issue restraining the 1stand 2nddefendants, their agents, servants, employees and whosoever from interfering in any manner with the plaintiff’s possession and from forcefully evicting the plaintiff on the site of the suit premises known as Title No. Nairobi Block 91/213 pending the hearing and determination of this suit.

ii. General damages and aggravated damages.

iii. An order do issue by this Honourable Court registering a caveat against Title No. Nairobi/Block 91/213 pending the hearing and determination of this suit.

iv. An order do issue hereby cancelling the sale and transfer dated 1stSeptember, 2008 of the property known as Nairobi/Block 91/213 bythe 1stdefendant (Equity Bank Limited) to the 2nddefendant (Edward Nyingi Mukundi).

v. Special damages of Kshs 7,749,773. 00

vi. Interest

vii. Costs of this suit”.

In the plaint dated 18th May, 2009, Terry alleged that on or about 25th January, 2002, she borrowed a loan of Kshs 6,000,000. 00 fromthe Bank,which was secured by registration of a charge on property known as No. Nairobi/Block91/213 ,(the suit property). It was further contended that on or about14thApril,2008,Terry, with the consent ofthe Bank,entered into a sale agreement with Edwardfor sale of the charged property for a sum of Kshs 30,000,000. 00 whichsale agreement was duly executed by Terry and Edward. On diverse dates inMay, 2008,the Bankwrote toTerrypurporting that the loan amount was Kshs 22,000,000. 00, which amount Terry strongly denied and disputed. Terry instructed the firm of Kamuruci & Associates Auditors to audit the various loan accounts she had with the Bank and the audit revealed that the Bank had overcharged Terry with written off interest and non -existent loans which amounted to a total of Kshs 7,749,773. 00. On or about 10th September, 2008,Edwardandthe Bank in breach of the aforesaid sale agreement of 14th April, 2008fraudulently, illegally and unlawfully caused the transfer of the suit property to Edward purportedly in exercise of the Bank’s statutory power of sale. Terry contended that the Bank as a chargee did not act in good faith and did not have regard to her interests as a chargor, but instead colluded with Edward to defraud her. It was Terry’s further claim that she did not benefit from interest on the 5,000,000. 00 which was to be paid as deposit to earn an interest of 18% p.a; that she was entitled to general damages since she had other potential purchasers who were willing to purchase the suit property at Kshs 50,000,000. 00; that conditions precedent before a financial institution exercises its statutory right of sale were not adhered to, hence the purported sale of the suit property to Edward by the Bank was null and void ab initio. Terry therefore prayed for cancellation of the sale and transfer of the charged property toEdward.

In a defence dated 20th June, 2012, the Bank denied the allegation of breach of the sale agreement dated 14th April, 2008, and/or fraudulently, illegally and unlawfully causing the transfer of the suit property to Edward. The Bank contended that it had exercised its statutory power of sale through sale by private treaty and not by public auction, thus denying all the particulars of breach of contract, misrepresentation, collusion, fraud, unlawful and illegal actions set out in the plaint. The Bank asked that Terry’s suit be dismissed.

In his defence, Edward argued that the suit property was sold to him byTerrywith the express consent ofthe Bankby private treaty and not at a public auction; that thereafter, Terry gave vacant possession of the suit property to him and thus, the subject agreement was fully performed and completed by all the parties. Edward further averred that the transfer of the suit property was lawful and proper; that although Terry duly executed the transfer of lease dated 25th June, 2008, the transfer form by the Chargee dated1stSeptember, 2008waslawfully used with the express and or implied consent and knowledge of all the parties and hence the transfer was valid, proper and neither was there any fraud or illegality in the transaction.

The dispute between the parties was heard by Nzioka, J., who in ajudgment dated20th November, 2018held that:

“In my considered opinion, it will serve the interest of justice, if the current status quo is maintained save for the 1stdefendant to withdraw the transfer documents signed and the same be replaced with the document that was signed by the plaintiff and the 2nddefendant. That the 1stdefendant, who in my considered opinion [was] mainly responsible for the prevailing circumstances herein, together with the 2nddefendant should “bite the bullet” and compensate the plaintiff for any loss suffered. This includes the delay in payment of the balance of the purchase price within the agreed time of 90 days and the subsequent loss that may have been suffered as a result of the illegal transfer of her property to the 2nddefendant. The parties may consider calculating the appreciation value of the property less the development thereof, and compensate the plaintiff accordingly since all through the 2nddefendant was on the property. A valuation of the property as of the date of this judgment will be guideful and the court will be willing to supervise the subsequent amicable settlement of the matter. This is informed by the fact that, if the plaintiff were to repay the loan with interest and redeem the physical possession on the same, she cannot levy claims on the development thereon.

In conclusion, I find and make the following orders:

a. Prayers (a) and (c) of the plaint are spent;

b. Prayer (b) of the plaint is not allowed;

c. Prayer (d) of the plaint is not allowed in so far as the cancellation of the sale is concerned and the plaintiff is at liberty to treat the agreement of sale as repudiated and /or rescinded and refund the deposit and all other sums she has benefited from with interest at court rates from the date of payment to the date of full refund, or conclude the sale agreement by lodging and registering thetransfer form she signed in favour of the 2nddefendant. However, prayer (d) is allowed in so far as transfer dated 1stDecember, 2008 over (sic) the suit property is concerned. The 1stdefendant is at liberty to pursue recovery of the arrears if any procedurally and lawfully.

d. Prayer (e) and (f) of the plaint are not allowed. No interest is payable in view of the fact that no damages have been awarded;

e. In view of the surrounding circumstances of this case, and in particular the findings that, the plaintiff still has liability to repaythe loan in arrears in favour of the 1stdefendant and that the defendants caused the illegal transfer and the 2nddefendant did not pay the balance of the purchase price in time, I find that each party has a portion of blame to bear and I order that each party meets its own costs”

The appellant was aggrieved by the findings of the learned judge and in aMemorandum of appeal dated 29th January, 2019, listed five (5) grounds of appealfaulting the learned judge: for failing to appreciate the nature and weight of theappellant’s evidence thus arriving at an erroneous decision of cancelling thetransfer of the suit property merely on technicality for want of form; forerroneously making conflicting orders by correctly finding that there was a validsale agreement for the suit property and performance by the appellant buterroneously proceeding to hold that Terry was still at liberty to treat the saleagreement as repudiated and /or rescinded and demand a refund of the depositand all sums paid with interest at court rates; for failing to consider the bindingnature of the sale agreement entered into by the parties and making orderswhose implication would be to rewrite the contract for the parties contrary tothe law and, for making inconsistent and contradictory decisions incapable ofexecution thus leaving the dispute unresolved. The appellant urged the court toallow the appeal, set aside the High Court judgment dated 22nd November, 2018together with all the consequential orders and decrees with costs to theappellant.

On 26th March, 2019, Terry filed a Supplementary Record of Appeal and aCross-Appeal. In the Notice of Cross-Appeal, Terry challenged the decision ofthe learned judge, contending that the trial court having ordered the cancellationof the transfer of the suit property by the Bank to the appellant, the learnedjudge should have ordered title to the suit property to revert to Terry and not tothe Bank; for failing to find that the mandatory statutory notice had not beenserved on her and, for failing to assess the quantum of damages payable to her bythe Bankor the appellant or by both of them, jointly and severally, upon findingthat Terry suffered loss and deserved compensation as a result of the delay inpayment of the balance of the purchase price and for the illegal transfer of thesuit property to the appellant by the Bank; for failing to make a finding thatTerrywas entitled to damages for the loss of use of the suit property from 10thSeptember, 2008to date, as a result of the unlawful and illegal transfer thereofby the Bank to the appellant, who is in possession thereof to date; for failing tomake a finding that the participation of the appellant in the execution of thetransfer dated 1st September, 2008 with the Bank purportedly in exercise of thechargee’s statutory power of sale expressly and or impliedly cancelled, rescinded,repudiated and or abandoned the agreement for sale dated 14th April,2008between the appellant and Terry. In the Cross-Appeal therefore, Terry sought tohave the appellant’s appeal and the Bank’s cross-appeal dismissed; that her crossappeal be allowed and an order issued reversing the registration of the suitproperty (Nairobi Block 91/213) to the name ofTerry Wanjiru Kariuki.

The appeal came up before us for plenary hearing on 22nd January, 2020.

Dr.Amollo,learned counsel leadingMr. John KinyoriandMr. Paul Munglaforthe appellant highlighted the appellant’s written submissions dated 29th April,2019and a list of authorities dated4thSeptember, 2019. He posited that Terryborrowed 6 million in 2002 from the Bank and by 21stNovember, 2007, sheowed the Bank Kshs 25. 9 million; that a notification of sale was issued and ademand made but Terry requested to have the property sold by private treaty;that the highest offer came from the appellant for 30 million; that on 14th January2008,a sale agreement was signed; that Terry asked for the loan to be re-adjusted; that the Bank agreed to have the loan owing reduced to 22 million; thatby 10th September, 2008, all the money had been paid from the sale and the debtof Kshs 22 million had been fully repaid ; that Terryreceived the balance ofKshs 6. 7 million which she said she had used for school fees; that possession ofthe suit property changed hands; that Terry signed the transfer form (RL -2) toeffect the transfer but that she now says that the sale must be cancelled becausethe Bankused form RL4 (transfer by a chargee in the exercise of its statutorypower of sale) instead of form RL2; that form RL2 is the transfer document shevoluntarily signed pursuant to an agreement before her advocate and finally, thatthe court found the agreement was valid but proceeded to nullify the transferon the basis that a wrong form for the transfer was used.

In support of the appeal, Mr. Mungla associated himself with Dr. Amollo’ssubmissions. He was of the view that Terry cannot back-track on the sale,having utilized part of the proceeds of the sale, the bulk of which went to clearher indebtedness with the Bank and that she cannot now take refuge in form asopposed to substance.

Mr.Odera, learned counsel forTerryhighlighted her submissions dated25thJune, 2019and a list of authorities filed on24thJanuary, 2020. He submitted thatthe Bank failed to carry out its obligations, being conditions precedent beforeexercise of its statutory power of sale; that the sale herein having been byprivate treaty, the appropriate form to effect the transfer was RL 2 and notRL4, and further that the “Full payment of the purchase price or utilization of thesame by Terry is no licence to the Bank to use form RL4”; that there was delayin payment of the balance of the purchase price which was done in September,2008,well past the completion date of13thJuly, 2008, entitling the 1st respondentto damages, having executed the transfer on25thJune, 2008.

On its part, the Bank relied on its written submissions filed on 7th June,2019and a list of authorities dated30thMay, 2019. In its cross- appeal dated14thDecember, 2018, it also sought to set aside the judgment and decree ofNzioka, J.

We have considered the record, the rival oral and written submissions, theauthorities cited and the law.

This is a first appeal. In the case of Abok James Odera & Associates v JohnPatrick Machira t/a Machira & Co. Advocates [2013] eKLR,this Court stated asfollows regarding the duty of first appellate court:-

“This being a first appeal, we are reminded of our primary role as a first appellate court namely, to re-evaluate, re-assess and re-analyze the extracts on the record and then determine whether the conclusions reached by the learned trial Judge are to stand or not and give reasons either way. See the case of Kenya Ports Authority versus Kusthon (Kenya) Limited 2000 2EA 212 wherein the Court of Appeal held, inter alia, that:-

‘On a first appeal from the High Court, the Court of Appeal should consider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind it has neither seen nor heard the witnesses and should make due allowance in that respect. Secondly that the responsibility of the court is to rule on the evidence on record and not to introduce extraneous matters not dealt with by the parties in the evidence.”

There is no dispute that the appellant cleared the 1st respondent’sindebtedness to the Bank and a sum of Kshs 6,751,362. 00 was released to her.

The Bank did communicate this position to Terry in its letter of 22nd September,2008which is reproduced herein:

“September, 22, 2008

EBL/CORP/0010101202737

Terry Wanjiru Kariuki

Po Box

NAIROBI

Dear Madam,

REF: SALE OF LR. NO. 91/213 TO EDWARD NYINGI MUKUNDI

We wish to advise that the process of transferring the above security to the purchaser with Edward Nyingi Mukundi as per the Sale Agreement executed on 14thApril, 2008 has been finalized.

The proceeds have been applied into your account as follows:

Agreed purchase price Kshs 30,000,000. 00

Less loan due to EquityKshs 22,000,000. 00

Land rentKshs 1,178,757. 95

Rates (NCC)Kshs69,680. 00(23,248,437. 95)

Amount credited into your acc. 0010101202737Kshs 6,751,562. 05

We enclose copies of demand notes for your records.

Yours Faithfully

Ambrose Ngari Purity Kinyanjui

Branch Manager. Head of Debt Records

Encls. CC. Kahuthu & Kahuthu Advocates”

It is also not in dispute that Terry owed and defaulted in paying moneyowed to the Bank. Terry requested to be allowed to sell the property by privatetreaty, the request was granted, she then entered into an agreement with theappellant and voluntarily executed the transfer form (Form RL 2). The learnedjudge found that:

“However in my considered opinion the sale agreement was not executed under duress. The plaintiff was represented by a legal counsel being the law firm of Kahuthu and Kahuthu Advocates. She conceded that she signed the sale agreement. In her evidence she admitted that she signed the sale agreement and maintained that she has not rescinded it. She did not plead duress nor prove the same. In her own evidence and pleading, she admits the will and intention to sell the property to the 2nddefendant. Therefore, I dismiss the plea of duress as a factor that can vitiate the contract herein”.

The judge having found that there was a valid sale agreement, it is ourview that the judge, with respect, erred in finding that Terry was at liberty torepudiate the sale agreement. The appellant may have failed to pay the balanceof the purchase price within 90 days but as noted by the judge, Terry failed torepudiate the contract, but instead, she went ahead to accept and utilize thebalance of the purchase price whilst the rest of the monies was used to clear herindebtedness with the Bank. The fact of use of Form RL 2 as opposed to Form RL4 did not affect the sale. She cannot blow hot and cold, fast and loose orapprobate and reprobate at the same time. In this Court’s decision of NationalBank of Kenya Limited vs Hamida Bana & 103 others [2017] eKLR,it was re-stated that no party can reject and accept an instrument depending on his/herwhims - reject it and term it void but accept it if it is conferring a benefit to it.

By parity of reasoning, Terry cannot disown the sale agreement entered betweenher and the appellant as it is this agreement that led to the clearance of herindebtedness to the Bank. She then utilized the balance of the purchase pricethat was paid to her by the Bank. That suited her. On the other hand, she wantsto disown the sale agreement on account of the fact that a wrong form (FormRL2) was used. She is now challenging the form and not the substance.

In any event, section 72 of the Interpretation & General Clauses Act (Cap 2of the Laws of Kenya) provides a cure to the alleged use of the wrong form, inthis case form RL4. It provides:

“Save as is otherwise expressly provided, whenever a form is prescribed by written law an instrument or document which purports to be in that form shall not be void by reason of deviation there from which does not affect the substance of the instrument or document or which is not calculated to mislead (emphasis added)”.

The upshot of the above is that the appeal by the appellant dated 24thJanuary, 2019and filed on30thJanuary, 2019is allowed. Terry’scross-appealdated 26th March, 2019 is dismissed whilst the Bank’s Notice of Appeal dated 14thDecember, 2018is hereby allowed. The judgment ofNzioka, J.dated20thNovember,2018is hereby set aside and the suit byTerryagainst the appellantand the Bank at the High Court is dismissed. In each instance thereof and in thisappeal, the costs are to be borne by the 1strespondent.

Dated and Delivered at Nairobi this 8thDay of May, 2020.

HANNAH OKWENGU

…………………………….

JUDGE OF APPEAL

D.K. MUSINGA

…………………………….

JUDGE OF APPEAL

F. SICHALE

………………………………

JUDGE OF APPEAL

I certify that this is atrue copy of the original

Signed

DEPUTY REGISTRAR