[2000] KEHC 70 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI (MILIMANI COMMERCIAL COURTS)

Civil Case 1502 1999

NDEGWA KABOGO.......................................................................………..PLAINTIFF

VERSUS

CO-OPERATIVE MERCHANT BANK LTD....................………...1st DEFENDANT

JULIUS MAINA……………………………………….……………2nd DEFENDANT

JUDGMENT

On 6/7/1995, Ndegwa Kabogo the plaintiff herein, charged hisproperty namely LR.No 12825/1 to the Co-operative Merchant Bank Ltd(hereafter called 'the bank) to secure a facility of shs. 7,000,000. 00. The bank exercised its statutory power of sale and disposed of the subjectproperty by way of public auction on 24/5/1999, when Julius Maina, the 2defendant herein acquired it, and has since disposed of it atshs. 8,000,000. 00.

It is the plaintiff's contention that the auction and the sale wasunlawful, improper and irregular and that it amounted to a conspiracybetween the auctioneer and the 2nd defendant. He however does not specifically plead the nature, of conspiracy, but contends, that otherprospective and bidders who were willing to offer more for it were denied anopportunity to make their bids. It is also his contention that while the currentcommercial market value of the property is shs.30,000,000. 000 the price atwhich it was sold, being shs. 7,400,000. 00, was an undervalue.

Thus, by his re-amended plaint, he prays for judgment against thebank and Maina for damages equivalent to shs.22, 500,000. 00. This I discernis the difference between the value of the said the said property as at whenhe had it valued on 5/8/1999 and the forced sale value.

He also prays for costs of the suit and interest therein.

The defendants deny that the auction was carried out improperly orirregularly and further that there was any conspiracy between the auctioneerand the 2nd defendant. The bank avers that the property's open market valuehad been assessed at shs. 10,000,000. 00, and that it's forced sale value wasshs. 7,000,000. 00, and that it was sold to the highest bidder.

The bank has also counterclaimed for shs. 15,392,030. 95 being thebalance outstanding as at 15/10/1999 after having credited the sale proceedsto the plaintiff's account, which sum continues to accrue interest at 36% p.auntil payment in full.

In his evidence, the plaintiff conceded that the bank was right inexercising its statutory power of recovering the loan when the property wassold by public auction on 24/5/99, It was however his evidence that,although the highest bid was for shs, 7,900,000. 00 which bid was acceptedby the auctioneer without calling out thrice for other higher bids, it was laterdocumented as shs. 7,400,000. 00.

.It is not in dispute that at the time when he created the charge overthe property in 1995, it had been valued at shs. 12,000,000. 00, but at anearlier attempted auction, in December 1998, the highest bid had been shs. 3,000,000. 00.

He did concede that he had not developed it further since charging itto the bank, and it remained a coffee plantation, which he had not yetsubdivided. He however urged the court to base its findings and judgment onthe current. Value of the plot, which had been estimated by his value at shs. 30,160,000, as at August 1999.

The evidence of Solomon Kiragu Thandi, one of the allegedprospective bidders for the property at the auction did not appear credible.He informed the court that he attended an auction, where he did not knowwho the auctioneer was, to buy a property which he had not seen priorthreto, nor did he know on whose behalf the property was being sold, and neither could he remember it's registration number. It was his evidence, thathe had intended to purchase the property at the auction and had set aside shs.18,000,000. 00 for the purpose, but that he had not been allowed to raise hislast bid of shs. 7,700,000. 00 as the hammer fell before being given anopportunity to do so. His bids were based on his his belief that the propertywas residential and not an agricultural. However, it was evident, and the court was later informed, the property was actually an agricultural property. It was quite clear that he was not being truthful in his evidence. In any event as was disclosed by the, auctioneer in his evidence, Thandi had gone to the auction mart to oversee the sale by auction of his brother's property which was also due for sale on the same day. Thandi had actually not made any bids for the purchase of the subject property. The auctioneer's evidence would appear to be more credible and I choose to rely on it..

Likewise, the evidence of the other prospective bidder, J. Muli, was not credible, as he had, during a previous auction of the same property made a bid, which he did not fulfill. In any event, as it later on transpired, during cross-examination he was a friend of the plaintiff and both had been parties in an earlier transaction, whereby he would buy an adjacent property for shs. 10,000,000. 00. The agreement for sale in that transaction had been dated 17/12/1998, a day prior to the day when the bank initially intended to sell the subject property by public auction. It is worthy of note that it was at thatauction, where though he had been declared the highest bidder, he did notmake any payment and thus rendered the auction unsuccessful. After thatauction, that they had they had abandoned the idea of the agreement of thesale of the said adjacent property. To my, mind that transaction had beenconcocted with a view to hoodwinking or stopping the bank from proceedingwith its recovery efforts during that particular sale of 18/12/1998, which hadaborted due to his inability to fulfil his bid.

I shall now deal with the issue of the value of the property on whichthis claim is based.

By his original plaint of 25/5/1999 the plaintiff had based his claim ona value of shs 15,000,000. 00 for the subject property. Upon re-amendment,on 11/7/2000, the value was enhanced to read shs. 30,000,000. 00

The valuer who had undertaken the valuation of the property on 5/8/1999, and on which the plaintiff bases his claim, gave it a value of shs.30,160,000. I shall however have to disregard the valuation report, as thevaluer's credibility was questionable. He conceded during cross-examination, that not only had he been untruthful in his evidence about thenumber of years that he had been suspended by the Institute of the Surveyors& Valuers, but that he had been suspended for having overvalued a property and for which he was made to the difference between the amount lent on thebasis of that valuation and the amount realised by the mortgagor upon sale.He was also not licensed to undertake valuations having not renewed hispractising licence for the year 1999, yet he carried out the valuation of thesubject property contrary to the requirements of section 21 of the ValuersAct.

The evidence of the, back's appointed valuer was more credible and I

do accept her valuation figure of shs. 10,000,000. 00 even though priorthereto some years earlier, the property had been valued by the bank at shs12,000,000. 00. She attributed the decline in value to the prevailingeconomic conditions,"-which have led to a decline in the market forproperties, especially large properties such as this one.

To my mind the issues that arise in this suit therefore are, under whatcircumstances would a mortgagor be entitled to damages in a case where themortgagee has exercised its 'statutory power of sale, and completed thetransfer of the mortgaged property.

In my understanding, the plaintiff would only succeed in his claimwhere the property has been sold at a gross undervalue and/or where fraud isalleged and proven, in which case it must be specifically pleaded andparticularised..

Though it is the mortgagees duty to obtain the best price available atan auction, being a forced sale, he however does not owe a duty of care tothe mortgagor. I am convinced that when the bank obtained the price ofshs.7,400,000. 00, it was the best possible price, based on a valuation of shs10,000,000. 00.

The plaintiff further alleges a conspiracy, on the basis of the fact thatalthough it was a term of the sale that the deposit of 25% of the accepted bidshould have been made at the fall of the hammer to the auctioneer, it was notmade, until 7/6/1999, to the bank. Thereafter the balance was not paid until2/9/1999. That was a delay of over two months. However in view of thefact that no ample evidence of was advanced of the conspiracy, none can andshould be inferred. Evidence was adduced by the "nd defendant that thedelay in remitting final payment arose out of the fact that the applicant hadmoved the court and filed his application for an injunction on 28/5/1999. But, I find that was four days after the sale and the initial deposit that shouldhave been made on 24/5/1999 was not made until 7/6/99. It is quite evidentthat the delay was not solely as a result of the filing of the suit, but due toother factors, In view of the fact that the property has already beentransferred, I am of the opinion, that delay should not be prejudicial to theplaintiff. The interest charged on the balances that would have remained outstanding, after 24/5/1999 and 23/6/1999, when the deposit and balance ofthe sale price should have been paid, should not have been debited to hisaccount. Those entries should thus be reversed.

Otherwise, I agree with the submissions of Mr Ohaga, for both thedefendants, that an allegation of conspiracy cannot by itself found orconstitute a cause of action, as the plaintiff has sought to do in this case.The conspiracy must be between two people who intend to commit aparticular illegal act. No fraud was specifically pleaded and that being thecase, that no cause of action has been disclosed. In any event the auctioneer,against whom the allegation is conspiracy is alleged, was not made a party tothe proceedings, and not being a party, an allegation of conspiracy can lieagainst the 2nd defendant only.

In view of the above, the re-amended plaint has failed to disclose acause of action against the 2nd defendant and the same is hereby dismissedagainst him with costs.

Further I find that the plaintiff has failed to prove his case on abalance of probability against the bank and the suit is likewise dismissedwith costs.

I do enter judgment for the bank for the sum claimed in thecounterclaim, which was not disputed or challenged, save for the interest

which I have referred to hereinabove which should be reversed in the account, as ordered.

Dated and delivered at Nairobi this 4th day of October 2000.

JEANNE W.GACHECHE

COMMISSIONER OF ASSIZE