https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/10291

Mwingirwa v Mugambi & 2 others (Civil Appeal E070 of 2023) [2026] KEHC 10291 (KLR) (13 July 2026) (Judgment) Neutral citation: [2026] KEHC 10291 (KLR) Republic of Kenya In the High Court at Meru Civil Appeal E070 of 2023 SM Githinji, J July 13, 2026 Between Elijah Mwingirwa Appellant and Eutycus Mwenda Mugambi 1st Respondent Family Bank Limited 2nd Respondent Viewline Auctioneers 3rd Respondent (Being an Appeal from the Judgment of Hon. T.M Mwangi (SPM) in Meru CMCC No. 247 of 2016 delivered on 15th April 2023) Judgment 1.This Appeal arises from the Judgment of the Learned Senior Principal Magistrate Hon. T.M Mwangi delivered on 15.4.2023 in Meru Civil Suit No. 247 of 2016, wherein the Appellant’s suit against the Respondents was dismissed with costs. The Appellant was further ordered to pay on behalf of the 1st Respondent, the 2nd Respondent, all the outstanding loan arrears and costs incidental thereto. 2.Aggrieved by the said Judgment, the Appellant set forth the following grounds in the Memorandum of appeal dated 11/5/2023;1.The Learned Trial Magistrate erred in law and fact in making the Plaintiff privy to a loan contract he was a stranger to between the 1st and 2nd Respondent.2.The Learned Trial Magistrate erred in law and fact by considering issues not pleaded by parties in their pleadings and finding in the affirmative.3.The Learned Trial Magistrate erred in law and fact in by dismissing both the Appellant’s and 1st Respondent’s suits yet finding the Appellant was liable as against the 2nd Respondent to settle the loan arrears.4.The Learned Trial Magistrate erred in law and fact by awarding costs against the Appellant without considering that the 2nd Respondent had awarded punitive costs to their advocate on the 1st Respondent’s account.5.The Trial Magistrate erred in law and fact in regulating the 2nd Respondent’s affairs by asking for loan status without the prayer being sought. Evidence at trial 3.PW1 Elijah Mungirwa Mungori, the Appellant herein, adopted his witness statements dated 30/8/2019 as his evidence in chief and produced the lists of documents dated 28/9/2017 and 5/9/2019 as exhibits. He told the Court that pursuant to a sale agreement dated 27/1/2016, he refunded the 1st Respondent the sum of Kshs. 105,000 that the latter had paid to associated motors and paid a further Kshs. 138.775 directly to associated motors. After paying Kshs. 238,000 being 5%, he and the 1st Respondent went to the Manager seeking release of the log book on an undertaking that he would be servicing the loan in place of the 1st Respondent. He gave the 1st Respondent a token of Kshs. 50,000, and after he paid the Kshs. 190,000 demanded by the bank, the motor vehicle was released to him. When he took possession of the motor vehicle, he made monthly payments of Kshs. 117,000 together with Kshs. 27,000 for insurance making a total of Kshs. 146,000, every 16th day of the month without fail for the 1st 6 months, until the 1st Respondent demanded Kshs. 150,000 stated in the agreement. The motor vehicle was impounded on 25/9/2016, a day before payment was due, and taken to Muthara police station. The bank notified him that the loan was in arrears and demanded Kshs. 10,000, which he paid via the 1st Respondent’s loan account with the bank. He was not in arrears as the vehicle was impounded a day before payment was due, and when it was impounded, the possession fees of Kshs. 500,000 was debited in the 1st Respondent’s account as legal fees. The 1st Respondent wrote to the bank confirming that he was servicing the loan, and expressed no objection to the transfer of the loan account into his name. He had nothing to show that he had been making upto date payments on the loan. The motor vehicle was to be transferred to his name upon full payment of the loan, which had not been achieved. The agreement provided that the vehicle would be impounded in the event of default, and at the time of repossession, Kshs. 146,000 remained unpaid. At the time of purchasing the vehicle from the 1st Respondent, he was aware that it was subject to a loan with the bank. While the vehicle was impounded for 4 months, interest on the loan continued to accrue thereby increasing the outstanding balance. The bank repeatedly demanded payment, but declined his request to transfer the loan account from the 1st Respondent’s name to his own. His witness statement reflected payments upto August 2016 while in the statement by the bank, payments were upto September, 2017. 4.DW1 Eutychus Mwenda Mugambi, the 1st Respondent herein adopted his witness statement dated 16/5/2019 as his evidence in chief and produced the documents filed therewith as exhibits. He entered into an agreement with the Appellant under which the latter was to take possession of the vehicle, and in consideration thereof, service the bank loan of Kshs. 4,536,725. The Appellant breached the agreement by failing to service the loan as agreed, and the bank repossessed the vehicle. The unpaid loan balance stood at Kshs. 5.7 Million, yet the Appellant continued to enjoy possession and use of the vehicle. When the vehicle was repossessed, he did not pay any amount to the bank and arrears of Kshs. 7,000 accrued. The bank did not notify him before charging legal fees to his account. The agreement between the Appellant and himself required the former to service the loan by making monthly instalments of Kshs. 117,000, on 15th of every month. When the bank demanded payment of Kshs. 10,000, he promptly informed the Appellant. He confirmed the loan was not being serviced, and the vehicle was security for the loan facility. They had agreed that ownership of the vehicle would only be effected upon the Appellant, upon full settlement of the outstanding loan. The Appellant was aware that the vehicle was subject to an existing loan with the bank, and it was the Appellant’s responsibility to service it. Clause 2 of the agreement provided that, in the event of repossession of the vehicle, both parties would pay the attendant penalties. Submissions 5.The Appellant, through the Firm of Mutuma & Koskei Advocates filed submissions dated 16/3/2026. Counsel faulted the court for proceeding to bind the Appellant to loan obligations of over Kshs. 5.7 Million contrary to the doctrine of privity of contract and the basic principles of contract formation and well-established jurisprudence, and cited Dunlop Pneumatic Tyre Co. Ltd v Selfridge & Co. Ltd (HL), Savings & Loan (K) Ltd v Kanyenje Karangaita Gakombe (2015) eKLR and Agricultural Finance Corporation Vs Lengetia Ltd (1985) eKLR. Counsel faulted the trial court for erroneously finding that the Appellant was solely liable to pay the outstanding loan arrears, and cited National Bank of Kenya Ltd v Pipeplastic Samkol (2001) eKLR, for the proposition that, “Courts do not manufacture contractual obligations for parties, their role is limited to interpreting the agreements presented before them.” The trial court was further faulted for determining unpleaded issues to wit taking of accounts to establish the alleged arrears, declaring the Appellant liable to pay the bank and authorizing the 2nd Respondent to execute against the Appellant through attachment and sale of the motor vehicle, and cited Odd Jobs v Mubia (1970) EA 476 and Galaxy Paints Co. Ltd v Falcon Guards Ltd [2000] KECA 215 (KLR). Counsel lamented that the trial court ought to have directed that each party bear their own costs, instead of saddling the Appellant alone with the entire costs burden, notwithstanding its own finding that the Appellant had been misled into attempting to take over a loan that the bank had never endorsed. 6.The 1st Respondent, through the Firm of Mithega & Kariuki Advocates, filed submissions dated 19/5/2026. Counsel contended that there was an uncontroverted agreement between the Appellant and the 1st Respondent wherein the Appellant willingly, voluntarily and unequivocally took over the 1st Respondent’s obligation to clear the loan with the 2nd Respondent. Counsel retorted that the Appellant could not continue to be in possession of the motor vehicle, derive profits from its use and purport to run away from his obligations in the agreement, and cited National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd (Supra) and Akshar Industries Limited v Mayfair Cib Bank Limited & another [2026] КЕНC 1121 (KLR). Counsel submitted that the order for the accounts to be taken was made in good faith to ascertain the unpaid loan arrears and to enable the implementation of the orders issued herein. Counsel lauded the trial Court for exercising its discretion on costs in a judicious, fair and on the basis of sound reason, and prayed for the dismissal of the Appeal with costs. 7.The 2nd Respondent, through the Firm of Orende & Associates Advocates, filed submissions dated 19/5/2026. Counsel submitted that the 2nd Respondent, having not been a party to the Agreement between the Appellant and the 1st Respondent, it was not bound by its terms, and relied on City Council of Nairobi v Wilfred Kamau Githua t/a Githua Associates & another [2016] eKLR. According to Counsel, the agreement between the Appellant and the 1st Respondent had a cascading effect on the loan agreement between the 1st and 2nd Respondents. Counsel respectfully submitted that the dismissal of a suit did not bar the court from making consequential findings where the material before it disclosed an underlying obligation, and cited Odd Jobs v Mubia (Supra). Counsel concluded that the 1st Respondent, as the successful party, was entitled to costs, and cited Malakwen & another v Rongoei (Environmental and Land Originating Summons E003 of 2022) [2026] KEELC 1063 (KLR) (26 February 2026) (Judgment). Counsel argued that it was not the business of the Court to rewrite contracts between parties, and cited South Nyanza Sugar Co. Ltd v Lilian Aoko Nyagone (2020) eKLR. 8.The 3rd Respondent did not file any submissions. Analysis and Determination 9.This being a first appeal, the Court is obliged to reconsider and re-evaluate the evidence adduced in the trial Court and to draw its own conclusions on the same. 10.In Selle & another v Associated Motor Boat Co. Ltd [1968] EA, the Court held as follows:“This court is not bound necessarily to accept the findings of fact by the Court below. An appeal to this court is by way of 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 allowance in this respect.” 11.I have considered the appeal herein, the trial Court’s Judgment, which is the subject of this appeal, as well as the submissions by Counsel. 12.From the grounds of appeal, the sole issue for determination is whether the trial court erred in finding the Appellant liable to settle the loan arrears on account of the 1st Respondent. 13.The crux of the appeal is the trial Court’s imposition of contractual liabilities on a party who was not privy to the loan agreement dated 1/10/2015, and the introduction and determination of issues of accounts, which are said to have been wholly outside the pleadings. 14.By way of background, the 1st Respondent successfully applied for and obtained an asset finance facility from the 2nd Respondent vide a loan agreement dated 1/10/2015, for the sum of Ksh. 4,775,500. Subsequently, the Appellant and the 1st Respondent entered into a sale agreement in respect of Motor Vehicle Registration No. KCF 723 Z, pursuant to which the Appellant voluntarily assumed the outstanding loan obligations of the 1st Respondent. 15.The Appellant conceded in his testimony that, “When I took possession of motor vehicle, I used to pay Kshs. 117,000/= and a further Kshs. 27,000/= for insurance making a total of Kshs. 146,000/=. I paid amount every 16th day of the month I paid without delay for the 1st six month. The bank wrote me vide its letter dated 9/7/2016 (P exhibit 8) saying loan repayment was in arrears. It was claiming for Kshs. 10,000/=. I paid money in account of 1st defendant. This is a letter dated 23/12/2017 (P exhibit 14) from Eutychus to manager of 2nd defendant saying money was being serviced by me and loan amount be transferred to me. I did not have any objection. I cannot remember the last time I paid for the loan. I have produced nothing to show I have been up to date in making payment. The motor vehicle was to be transferred upon paying loan in full. I have not finished paying the money. I bought motor vehicle from 1st defendant. I know at the time it was subject of a loan facility. 1st defendant told me he had a loan from family bank. The motor vehicle is registered jointly in names of 1st and 2nd defendant. 1st defendant was given an asset Finance facility.” 16.The evidence on record demonstrates that the Appellant was cognizant of the fact that the motor vehicle was jointly registered in the names of the 1st and 2nd Respondents, and that it had been charged as security for the asset finance facility. The Appellant was equally aware that, in the event of default, the 2nd Respondent was entitled to realize the security by repossessing the motor vehicle. Those facts were equally pleaded at paragraphs 5, 6, 7 and 8 of the Plaint, and explicitly reproduced in the sale agreement dated 27/1/2016. 17.Having freely assumed the obligations to repay the loan with full knowledge of the incidental terms and consequences, the Appellant cannot now be heard to contend that the 2nd Respondent’s repossession of the motor vehicle, upon default, was unlawful. With the admitted default in servicing the loan, the 2nd Respondent was justified in exercising its statutory rights to recover its money. 18.The repossession of the motor vehicle was therefore lawful, and the Appellant cannot approbate and reprobate by accepting the benefits of the transaction while repudiating its resultant obligations when they fell due. 19.The doctrine of privity of contract is exhaustively discussed in Halsbury’s Laws of England, 4th Edition, Reissue 9(1), Para 748, as follows; “The doctrine of privity of contract is that, as a general rule, at common law a contract cannot confer rights or impose obligations on strangers to it, that is persons who are not parties to it. The parties to a contract are those persons who reach agreement and, whilst it may be clear in a simple case who those parties are, it may not be so obvious where several contracts, or several parties, or both, for example in the case of multilateral contracts; collateral contracts; irrevocable credits; contracts made on the basis of the Memorandum and articles of a Company; collective agreements; contracts with unincorporated associations; and mortgage surveys and valuations.” 20.A collateral contract is defined at Para 753 as follows; “A contract between A and B may be accompanied by a collateral contract between B and C, whereby C makes a promise to B in return for B entering into the contract with A or doing some other act for the benefit of C.” 21.The general rule under the doctrine of privity of contract, however, is not without exceptions, which include, inter alia, the transfer of contractual rights, whereby a party can transfer their contracting rights to a 3rd party, as well as ancillary agreements entered into between one of the contracting parties and a 3rd party, through which the latter may enforce obligations connected to the main transaction. 22.Here, the agreement for sale dated 27/1/2016 between the Appellant and the 1st Respondent was a collateral agreement, which qualified as an exception to the doctrine of privity of contract. By that agreement, the Appellant voluntarily assumed the contractual obligations attendant to the asset finance arrangement, thereby acquiring enforceable rights and corresponding obligations arising therefrom, notwithstanding that the Appellant was not a party to the loan agreement dated 1/10/2015 between the 1st and 2nd Respondents. 23.I find that the trial Court properly exercised its discretion in finding that the Appellant was liable to clear the outstanding loan arrears on account of the 1st Respondent. 24.As guided by the Court of Appeal for Eastern Africa in Odd Jobs v Mubia (1970) EA 476, a Court may base its decision on an unpleaded issue, if it appears from the course followed at the trial that the issue has been left to the Court for decision; and on the facts the issue has been left for decision by the Court as the Advocate for the Appellant led evidence and addressed the Court on it. 25.Once default had been established, and in view of the Appellant’s insistence that he was not in any arrears, it became apparent that the exact amount outstanding under the loan facility had to be ascertained. 26.It is trite that costs follow the event, and as the successful parties, the Respondents were entitled to costs. 27.The upshot from the foregoing analysis is that the appeal is in want of merit and it is accordingly dismissed. DATED AND DELIVERED AT MERU THIS 13TH DAY OF JULY, 2026.S.M. GITHINJI –JUDGE13/7/2026In the presence:-Mr. Ashalea for the Appellant.Mr. Kiama for the 1st RespondentMr. Odede for the 2nd Respondent.