https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/10260

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT KISUMU** **CIVIL APPEAL NO. E233 OF 2024** **MICHAEL OTIENO GONDO……………….……….………..APPELLANT** **-VERSUS-** **KENNEDY OCHIENG OBARA……………..……….……RESPONDENT** (***Being an Appeal from the Judgment of Hon. G. Serem delivered on 5th November 2024 in Kisumu Small Claims Court Case No. E295 of 2024)*** ***JUDGMENT*** **Introduction** 1. This appeal emanates from the decision of Hon. Serem in Kisumu CMCC No. E295 of 2024. The suit was in respect of motor vehicle Registration No. KBZ 257V. 2. The Plaintiff (1st Respondent in the Appeal) had purchased the motor vehicle in question from the 2nd Respondent on 2nd March, 2019. However, the 2nd Respondent went ahead and in February, 2020 used the vehicle as a security for a facility obtained from the Appellant (Mwananchi Credit). The 2nd Respondent together with the Appellant had the vehicle transferred to their joint names and it is alleged that the Appellant started harassing the 1st Respondent through police officers. 1. The 1st Respondent filed the suit in the lower court. The orders sought through the plaint were: - 2. **An order of permanent injunction restraining the 2nd Respondent and Appellant from claiming ownership of the vehicle or repossessing it.** 3. **An order directing NTSA to issue a new log book or** **force transfer of the log book to the name of the 1st Respondent.** 1. **A declaration that the loan agreement between the Appellant and the 2nd Respondent was null and void.** 2. **Compensation or breach of agreement by 2nd Respondent and SBM bank, that was party to the primary suit**. 3. The Trial Magistrate heard the suit and finally granted an order of permanent injunction, restraining the Appellant from taking possession or interfering with the 1st Respondent’s ownership and control of the vehicle. The trial court declined to declare the agreement between the Appellant and 2nd Respondent null and void. 4. On the forced transfer, the court directed that there were procedures to be followed to effect a transfer through NTSA if the 2nd Respondent declined to effect the same. 5. Dissatisfied by the decision of the trial court, the Appellant filed this Appeal and listed several grounds of Appeal which can be summarized as: - 6. *That the trial Magistrate erred in granting the 1st Respondent the order of permanent injunction.* 7. *That the trial Magistrate erred in using the wrong principles to determine ownership.* 8. *That the trial Magistrate erred in holding that the property in the goods had passed, yet full payment had not been made.* 9. *That the trial Magistrate erred in ignoring the Appellant submissions on the validity of the agreement between the 1st Respondent and 2nd Respondent.* 10. *That the trial Magistrate erred in discharging the loan agreement between the Appellant and 2nd Respondent.* **Evidence at Trial Court** 1. At the trial court the 1st Respondent testified of how he bought the vehicle in question from the 2nd Respondent. He had paid most of the purchase price and only remained with a balance of about Kshs.67,000/-, which was payable upon transfer of the log book to the name of the 1st Respondent. 1. That in fact the 2nd Respondent had initiated the transfer process and had handed over the motor vehicle to the 1st Respondent, however, before the vehicle could be registered in his name, the Appellant herein repossessed it. That upon following up on why the vehicle was being repossessed, the 1st Respondent realized that the 2nd Respondent had acquired a loan facility with the Appellant and used the motor vehicle as security, and that is when he filed the primary suit in court. 2. The 1st Respondent testified that when he entered into a sale agreement with 2nd Respondent, the vehicle had an outstanding loan with SBM Bank and part of the agreement was that he would pay off the loan. He told court that he paid off the loan and the facility was discharged. 1. He told court that the agreement with the 1st Respondent was that once he paid the amounts as agreed, the 2nd Respondent would have the vehicle transferred to his name. He told court that the 2nd Respondent colluded with the Appellant herein to have the vehicle registered in their joint names without his consent, yet he had already taken possession of the vehicle. 2. The 2nd Respondent did not enter appearance in the lower court, neither has he filed any submission in the instant Appeal. 3. In the primary suit, SBM Bank (Former Chase Bank) had been named as the 2nd Defendant. The bank witness testified and confirmed that the 2nd Respondent had sold the vehicle to the 1st Respondent when it had an outstanding balance. They were however paid the outstanding amount by the 1st Respondent and they discharged the motor vehicle. They therefore had no interest in the proceedings herein. 1. The Appellant herein was named as an Interested Party in the primary suit. His case was that the 2nd Respondent presented to them a logbook for the security of the facility that he had applied for. That the logbook was in his name. The case of the Appellant was that they were not aware that the vehicle had been sold. The Appellant had stated that the loanee defaulted and they wanted to repossess and exercise power of sale, because the vehicle was a chattel charged to the Appellant, as security. Their case was that the 1st Respondent, should seek recourse from the 2nd Respondent. **Submissions by the Appellant** 1. The Appellant submitted that the agreement dated 2nd March 2019 between the 1st and 2nd Respondent was not valid, reason being that the vehicle was a Chattel/security for a loan with Chase Bank (SBM). The Appellant submitted that the vehicle was sold without the knowledge of the bank and the trial court erred in finding that the said agreement was valid and enforceable. 2. Counsel for the Appellant submitted that the court erred in directing the payment of the balance of the purchase price and transfer of the vehicle. 1. The Appellant further submitted that the trial court judgment was contradictory in that it found the sale agreement between the 1st and 2nd Respondent valid and still went ahead to find that the loan agreement between the Appellant and 2nd Respondent valid, and then proceed to injunct the Appellant from claiming ownership or possession of the vehicle. That the court ordered the 2nd Respondent to transfer the vehicle to the 1st Respondent, which in effect discharged the loan agreement. That such a finding cannot stand the test of law. 2. The Appellant submitted that its right cannot be overridden, because at the time of the loan agreement the logbook was in the name of the 2nd Respondent, and no fraud has been attached to them. It submitted that the loan agreement between it and the 2nd Respondent remains valid. 3. According to the Appellant, they have a superior right as chargees which cannot be overridden. The Appellant submits that the court ignored this superior right and constructively, stripped the Appellant of its right and unjustly discharged the terms of the loan agreement. **Submissions by 1st Respondent** 1. The 1st Respondent submitted that he acquired the vehicle vide an agreement dated the 2nd March 2019. He submitted that he paid the purchase price except for Kshs.67,000/= which was to be paid upon successful transfer of the log book to his name. Counsel for 1st Respondent submitted that the 2nd Respondent did not file appearance at the lower court and therefore his (1st Respondent’s) testimony remains uncontroverted. 1. He Cited ***Peter Ngigi –vs- Thomas Ondiki & Another (2019) eKLR*** and urged the court to attach weight to his testimony since it is uncontroverted. Counsel submitted that the non-participation of the 2nd Respondent in the proceedings is a confirmation of the conspiracy between the Appellant and the 2nd Respondent to defraud the 1st Respondent of the vehicle. 2. He further submitted that the Appellant failed to conduct due diligence and had they sought the vehicle for valuation, they would have discovered that it is in the hands of a 3rd Party. That even the tracker installation was not done physically on the vehicle and the tracking company did not testify that any tracker was installed. 3. Counsel cited the case of ***Jones –vs- Smith (1841) I Hare 43***, and urged the court to find that had the Appellant conducted due diligence, they would not have got into the loan agreement. That the operations manual of the Appellant requires that the asset be provided physically to undergo valuation to ascertain its value when a loan is applied for. 1. The Respondent submitted that the Appellant took shortcuts and issued a loan with only a logbook and without having seen the physical security. Counsel urged the court to apply the doctrine of equals and find that where two equities are equal, then the earlier in time shall prevail. 2. He also submitted that the Appellant had entered into a loan agreement with a subject matter that did not exist and therefore the agreement was voidable. 3. He cited ***Kalamuzi –vs- Santogo (Civil Suit No. 393 of 2008) (2014) UGHCLD 109*** where the court held:- “***where a contract is made without the subject matter being present/seen, the contract then becomes a mistake which is void under the law if it was a requirement that the property must have existed for one reason or another***” 1. Counsel submitted that the loan agreement is voidable. He submitted that the 2nd Respondent had no title to pass when he presented the log book. 2. The 1st Respondent urged the court not to interfere with findings of the trial Magistrate, and to dismiss the Appeal. **Analysis and Determination** 1. This being a first appeal, I am alive to the duty of the court as stated in by the Court of Appeal in **Kenya Horticultural Exporters Ltd vs Julius Munguti Maweu Civil Appeal No. 9 of 2004,**where it was held that: - ***“On a first appeal the Court has the duty of re-evaluating the evidence, assess it and make its own conclusions without overlooking the conclusions of the trial court and bearing in mind that unlike the trial court it neither saw nor heard the witnesses.*** 1. I have considered the Memorandum of Appeal, the submissions in support and in opposition to the appeal, the trial court’s evidence and the decision of the trial court and I will frame the following issues for determination: - 2. *Whether the agreement dated 2nd March 2019 between the 1st and the 2nd Respondents was valid.* 3. *Whether the trial court had erred in granting the orders of permanent injunction against the Appellant and the 2nd Respondent* 4. *Whether the loan agreement entered into between the Appellant and the 2nd Respondent was valid.* 5. *Whether the court had erred in directing the 2nd Respondent to transfer the motor vehicle in question to the 1st Respodents.* 6. *Who should bear the costs of the suit?* ***Whether the agreement dated 2nd March 2019 between the 1st and the 2nd Respondents was valid.*** 1. The argument by the Appellant is that the agreement dated 2nd March, 2019 was not valid because the vehicle was charged to SBM bank at the time of the agreement and that the bank had not given its consent for sale. 2. I have considered this submission and the evidence tendered in the lower court. The testimony of the 1st Respondent was that the bank was aware of the sale by private treaty. In fact, the 1st Respondent told court that the bank had a copy of the agreement and that is why he paid the money directly to the bank after which the bank gave instructions to Colinet Auctioneers who had retained the vehicle at their yard to release it to the 2nd Respondent. This was also evidenced by the email dated 2nd March, 2019 from one Fredrick Opas, Branch manager, SBM Bank, Kisumu Branch and Certificate of Release dated the same 2nd March, 2019 from Colinet Auctioneers. It cannot therefore be true that the bank was not aware of the transaction. 1. Further I have looked at the provisions of Section 19 of the Sale of Goods Act. It states as follows: - 1. *That where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.* 2. *That for purposes of ascertaining the intention of the parties, regard shall be made to the terms of the contract, the conduct of the parties and the circumstances of the case.* 2. The 2nd Respondent herein had released the subject motor vehicle to the 1st Respondent on the date of the agreement. Meaning that the parties’ intention was that the vehicle is sold and proprietary interest passed on immediately on the date of the agreement. The parties had a meeting of mind on what they wanted to transact, they transacted, consideration was paid according to their intention and agreement and to me basically, all the essentials of a valid contract had been fulfilled. 3. On whether the law allows sales by private treaty, the witness by the name Stephanie Kioko from SBM Bank testified and confirmed that the bank was aware of the sale and was aware that the 1st Respondent herein cleared the asset finance loan on behalf of the 2nd Respondent. The witness confirmed that the bank had received the sale agreement between the parties. The witness told court that for them what mattered is that the loan was paid. 4. I have considered this evidence and the submission by the Appellant herein. It is a matter of law that a defaulting party is allowed to sell the chattel by private treaty, especially if the private sale is likely to realize better returns than a public auction. In the case of **Real People Kenya Ltd v Joseph Tuwei t/a Chepsonoi Posho Mills [2022] KEHC 11849 (KLR)** where the borrower had defaulted and the institution went for a private sale, the court did not invalidate the sale merely because it was a private treaty sale, but instead examined whether the lender acted properly, obtained a fair value and complied with its duties as a mortgagee. So that the court should examine the process rather than impugning a private treaty sale without interrogating it. 5. In the present case, SBM bank has not complained about the agreement between the 1st and 2nd Respondent. The bank was aware that the agreement had been entered into and that the 1st Respondent was clearing the asset finance loan on behalf of the 2nd Respondent and they did not object to the agreement. The 2nd Respondent has also not complained and in fact did not defend the proceedings. The Appellant herein was not party to the agreement and in fact had no rights over the vehicle by the time the transaction between the Respondents took place. 6. My finding on this issue is that the sale agreement dated the 2nd March, 2019 between the 1st and 2nd Respondent was valid and is still valid. ***Whether the trial court had erred in granting the orders of permanent injunction against the Appellant and the 2nd Respondent*** 1. A permanent injunction fully determines the rights of the parties before the court. The injunction is granted upon prove of a case. Under Section 109 of the Evidence Act, the burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person. 2. The 1st Respondent herein testified in court and explained to court how he purchased the vehicle and paid the sums as agreed except for Kshs.67,000/- that he states was to be paid upon registration of the logbook to his name. The Sale agreement was exhibited in court and I have earlier on found that it is a valid agreement. The 1st Respondent explained how he even took possession of the vehicle and used it until it was repossessed on account of the new facility with the Appellant herein. In the case of **Kirugi & Ano. v Kabiya & 3 Others [1987] KLR 347** the Court of Appeal stated that the burden was always on the Plaintiff to prove his case on the balance of probabilities, and that such burden was not lessened even if the case was heard by way of formal proof. My finding is that the 1st Respondent had discharged the burden of proof by his evidence in court, which was not controverted. 3. The Appellant has argued that the terms of the contract had not been met because the 1st Respondent had a balance of Kshs.67,000/- which remained unpaid. It is correct that the balance of Kshs.67,000/- was unpaid. The 1st Respondent explained that this amount was to be paid upon successful transfer of the logbook to him. The Appellant cannot challenge this because he was not party to the agreement between the 1st and 2nd Respondents. As earlier stated, the testimony of the 1st Respondent was not challenged by the main party, who did not participate in the proceedings and has a judgment against him. 4. To date, the logbook has not been transferred to the name of the 1st Respondent and it is reasonable for him to hold onto the Kshs.67,000/- pending the registration of the logbook to his name. 1. My finding is that the 1st Respondent was entitled to the order of permanent injunction which now fully settles the rights of the parties herein. ***Whether the loan agreement entered into between the Appellant and the 2nd Respondent was valid.*** 1. I have considered the loan agreement between the Appellant and the 2nd Respondent herein. It is true that the agreement secured a loan facility to the 2nd Respondent and the motor vehicle Registration number KBZ 257V, was the security. Indeed the 2nd Respondent signed the loan agreement and the chattels as a guarantor. He availed the original log book to the Appellant to secure the loan facility. 2. However, by the 4th January, 2020 when the 2nd Respondent applied for the facility and 4th February, 2020 when the Appellant made the offer for the facility, the security, being motor vehicle Registration number KBZ 257V was not available to be used as security having been sold to the 1st Respondent on the 2nd March, 2019. Although the 2nd Respondent was still holding the logbook and he used it to obtain a facility, he withheld material information regarding the status of the said logbook. He had already handed over the vehicle to its new owner and it was fraudulent of him to use the logbook to secure a facility. So that to the extent that the loan agreement refers to the said logbook as security, it is void and unenforceable. 3. In this case I will apply the doctrine of severability and separate the particular unenforceable clause from the rest if the loan agreement. This means that the particular clause is void, but the rest of the agreement remains a valid loan agreement. And the consequence is that the Appellant cannot enforce the loan agreement clause that lists the motor vehicle in question as security. However, the Appellant has other legal avenues through which he can enforce the rest of the contract to recover the loan amount from the 2nd Respondent and one avenue could be a suit to recover the amount as a liquidated claim. In this I am guided by the case of **Independent Electoral and Boundaries Commission (IEBC) v. National Super Alliance (NASA) & 2 Others (2017) eKLR**. In the said case, the Court of Appeal established that: - “*whether a contract is severable depends primarily on the terms of the contract itself. Where the contract contains a severability (or "savings") clause, the court will sever the illegal/void part and enforce the rest. If no such clause exists, the court will analyze the nature of the obligations to determine if the contract is divisible or essentially a single or indivisible whole.* 1. My finding is that the loan agreement even without the security clause, remains a money lending agreement that can be enforced and the advanced amounts recovered. 2. The Appellant has argued that its rights as charge are superior to those of the 1st Respondent and urged the court to uphold them, since no fraud is attributable to them. Clearly, and as I found elsewhere, the Appellant may not have known about the previous sale, but probably better due diligence was necessary on the part of the Appellant. The fraud herein was only perpetuated by the 2nd Respondent, who obtained a facility using material nondisclosure. 3. On this submission, I will use the doctrine of equal equities. The doctrine dictates that where two parties have equally valid, competing claims over the same property, the party whose claim was created first, takes priority. This would mean that the priority in the circumstances would go to the 1st Respondent, his claim having come in 2019 while the Appellants came in 2020. 4. My finding therefore, is that the agreement between the Appellant and the 2nd Respondent was valid except for the clause/clauses listing the security as motor vehicle registration number KBZ 257V. ***Whether the court had erred in directing the 2nd Respondent to transfer the motor vehicle in question to the 1st Respondents.*** 1. The order sought at the trial court was that an **order directing NTSA to issue a new log book or force transfer of the log book to the name of the (Plaintiff) 1st Respondent be issued.** 2. The trial court issued the following order: - that upon full payment of the purchase price, the 1st Defendant (2nd Respondent in the Appeal) to transfer the said vehicle to the Plaintiff, in default or failure to do so, the Plaintiff to follow the correct procedure for a forced transfer. 3. From the pleadings, the order that was sought was against NTSA or in the alternative, forced transfer. The trial Magistrate herein gave orders for the 2nd Respondent to transfer, which order had not been sought in the plaint. 4. Parties are bound by their pleadings and a court cannot issue orders that are not sought. The Court of Appeal in **David Sironga Ole Tukai vs Francis arap Muge & Others, Ca No. 76 of 2014,** expressed itself as follows: - “ *“It is well established in our jurisdiction that the court will not grant a remedy, which has not been applied for, and that it will not determine issues, which the parties have not pleaded. In an adversarial system such as ours, parties to litigation are the ones who set the agenda, and subject to rules of pleadings, each party is left to formulate its own case in its own way. And it is for the purpose of certainty and finality that each party is bound by its own pleadings”* 1. The trial court should have confined itself to the pleadings, but it went over and above the orders sought and granted an order outside the pleadings. For that reason, my finding is that the trial Magistrate erred in granting an order that had not been sought by the Plaintiff. 2. On the question of costs, the principle is that they follow the event. In the instance case, I order that both the Appellant and the 1st Respodents are awarded costs to be borne by the 2nd Respondent. 3. In summary therefore, I find that the Appeal partially succeeds and I issue the following orders: - 1. **An order of permanent injunction restraining the Appellant and the 2nd Respondent from claiming ownership of the vehicle or repossessing it.** 2. **I set aside the order directing the 2nd Respondent to transfer the vehicle to the 1st Respondent and in its place direct that NTSA do proceed to issue a new log book in the name of 1st Respondent.** 3. **That the loan agreement between the Appellant and the 2nd Respondent is valid except for the clause listing the motor vehicle Registration number KBZ 257V as the security.** 4. **That the Appellant and the 1st Respondent are awarded the costs of the Appeal, to be borne by the 2nd Respondent.** Orders Accordingly. **JUDGMENT** delivered, dated and signed virtually at Nairobi This **10th** day of **July**, 2026. **…………………………..………………** **L. M. WACHIRA** **JUDGE** **In the Presence of:** *Leadys* –Court assistant N/A for the Appellant. N/A for the Respondent.