[2022] KEHC 11724 (KLR)

Parkview Shopping Arcade Limited & another v UBA Kenya Bank Limited & another (Civil Case 288 of 2016) [2022] KEHC 11724 (KLR) (Civ) (13 May 2022) (Judgment)

Neutral citation: [2022] KEHC 11724 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Civil

Civil Case 288 of 2016

A Mabeya, J

May 13, 2022

Between

Parkview Shopping Arcade Limited

1st Plaintiff

Nakumatt Holdings Limited (Under Administration)

2nd Plaintiff

and

UBA Kenya Bank Limited

1st Defendant

Garam Investment Auctioneers

2nd Defendant

Judgment

1. The 1st and 2nd plaintiffs are limited liability companies. The 1st defendant is a limited liability company carrying on the business of banking, while the 2nd defendant is a limited liability company carrying on auctioneering business.

2. Vide a plaint dated July 23, 2019 and amended on June 21, 2019, the plaintiffs brought their case relating to loan facilities advanced to the 2nd plaintiff and guaranteed by the 1st plaintiff. It was the 1st plaintiff’s case that it was the owner of the property known as LR No 209/12174 Westlands (“the suit property”). That the 2nd plaintiff was an account holder with the 1st defendant (“the bank”).

3. On December 2, 2015, the bank approved a loan facility of Kshs 250,000,000/= to the 2nd plaintiff. The facility was secured by several personal and corporate guarantees, including a corporate guarantee by the 1st plaintiff which was supported by a charge over the suit property.

4. On October 13, 2016, the bank again approved a loan facility of Kshs 347,756,261/=. It was contended that facility was secured by daily cash collections of Kshs 15,000,000/= from 10 of the 2nd plaintiff’s outlets. That though the facility of December 2, 2015 was fully disbursed, the bank failed to fully remit the facility of October 13, 2016 by failing to disburse Kshs 98,418,177. 09/= on the facility amount.

5. It was the plaintiffs’ further case that the purpose of the loan was to purchase consumer goods/stock and the repayment source was identified as receivables from sales proceeds. That failure to disburse the full amount violated the terms of the facility and compromised operations and thus affected the 2nd plaintiff’s primary repayment source with regard to both facilities. That despite constant requests and reminders, the bank failed to disburse the balance.

6. The plaintiffs further contended that the bank was levying interests in contravention of the facility term. That it was levying interest on undisbursed amount and levying 29% interest on disbursed amounts in contravention of section 3 of the Banking Act.

7. That based on the above violations, the bank instructed the 2nd defendant to issue a notice dated July 6, 2018 threatening to sell the suit property by public auction. The bank demanded Kshs146,050,467. 14/= from the borrower which the plaintiffs claimed it was not entitled to for breach of the loan agreement.

8. It was also the plaintiffs’ case that due to the banks breach of loan agreements and illegal levying of interests, the 1st plaintiff as guarantor was discharged from any liabilities under the facility, and the bank had lost any entitlement to realize the suit property as security. It was contended that without the unlawful interests, the 2nd plaintiff owed not more than Kshs 25,631,446. 49 to the bank and that the plaintiffs were willing to deposit Kshs 26,000,000/= with the court within 45 days of the court’s directions. That the 1st plaintiff procured a valuation report of the suit property which was valued at Kshs474,000,000/=.

9. In the premises, the plaintiffs sought orders against the defendants for; a declaration that the statutory notice dated July 6, 2018 was void, an order to restrain the defendants from dealing with the suit property and a declaration that the guarantor’s liability under the loan agreements of December 2, 2015 and October 13, 2016 was discharged.

10. The defendants filed their statement of defence dated November 11, 2019. It was the 2nd defendant’s case that it was wrongly joined in the suit as it was merely acting as an agent of the 1st defendant, and there was no specific allegation against it.

11. The defendant’s case was that vide a letter of offer dated December 2, 2016, a loan of Kshs 250,000,000/= was advanced to the 2nd plaintiff. It was to be repaid in 12 monthly installments of Kshs 23,398,595/=. The loan was secured by various corporate guarantees including those issued by the 1st plaintiff and a charge over the suit property.

12. The bank agreed to extend another loan on October 13, 2016 of Kshs 347,756,261/= which was to be secured by daily collections of Kshs 15,000,000/= from 10 outlets belonging to the 2nd plaintiff. The bank denied that it had violated the terms of that facility in respect to disbursement of Kshs 98,418,177. 09/=. The bank contended that the loan of October 13, 2016 was an all asset debenture on moveable and immovable assets of the borrower to be shared onpari passu basis amongst the lenders. That however, since some of the lenders were not agreeable to the that debenture ranking pari passu to their, the debenture was not registered. Consequently, the bank was not adequately covered to disburse the entire sum of Kshs 347,756,261/=.

13. That it was a term of the agreement at paragraph 10 of the offer conditions that the bank reserved the right to refuse or withhold disbursements under the facility without notice or reasonable grounds, hence the bank was not obligated to disburse the balance of Kshs 98,418,177. 09/=. That the 2nd plaintiff was to ensure daily collections of Kshs 15,000,000/= from 10 of its outlets, but it only instructed its South C outlet. That the 2nd plaintiff was bound to pay the disbursed amounts on the agreed terms failure to which the bank was to exercise the available remedies under the law.

14. As regards the allegation that the interest rates charged by the bank contravened section 33B of the Banking Act, it was contended that the Banking Act which capped the lending rates for all banks at 4% above the base interest rates set by Central Bank of Kenya came into force on September 14, 2016 and could not retrospectively apply to agreements entered before the commencement. That the 2nd facility was signed in 2016 after the law was enacted, but there was no allegation that the bank had contravened the provision on interest rates.

15. The bank contended that the 2nd plaintiff was in arrears and the bank was therefore within its right to exercise its statutory power of sale over the suit property. That section 106 of the Land Act could not aid the plaintiffs and the value of the charged land vis a vis the amount due was irrelevant for purposes of the bank’s statutory power of sale.

16. The plaintiffs filed the reply to defence dated November 26, 2019 and maintained their position in the amended plaint. They further pleaded that section 3 of the Banking Act was to apply to all monies borrowed including the facility advanced to the 2nd plaintiff as all contracts were subject to variation/review with regards to the current market rate.

17. At the hearing, the 1st plaintiff called one witness, James Kihara Mwangi (Pw1). He was an accountant with the 2nd plaintiff. He adopted his witness statement which reiterated the plaintiff’s pleadings. He told the court that the loan of Kshs250,000,000/= was approved in 2015 of which, a sum of Kshs 98,000,000/= was not disbursed.

18. On the 250 million, interest of 22%PAwas applied whilst on the loan of Kshs 347 million, interest was agreed at 4% above CBK rate which was 10%. However, the bank charged 29% which was an extra 15%. He produced the 1st plaintiff’s bundle of documents as P1Exh1.

19. On cross examination he stated that the 2nd plaintiff did not meet all the conditions precedent. Referring to paragraph 7 of the replying affidavit sworn by Fred Chumo and filed on October 2, 2018, he stated that the 2nd plaintiff was required to execute a debenture, that it was not able to procure daily collections of Kshs 15 million. That the monthly installments were not the same and he was not aware how much was being paid monthly. On re-examination, he testified that if there was default in payment, the interest charged ought to have been subject to the law.

20. The 2nd plaintiff called one witness, Wilfred Abincha Onono (Pw1), a consultant with IRAC. He adopted his witness statement dated August 23, 2018 and produced his report dated September 21, 2018 P2Exh1. He testified that he had done interest recalculation by extracting the terms of the offer letter and the law. That there was section 33B of the Banking Act which came into force on September 14, 2016 and provided for 4% over the base rate. That it was illegal to contract out of the law.

21. On cross-examination, he admitted that under the facility letter produced at pg1 of D1Exh1, the interest rate as of December 2, 2015 was not regulated. That however, by the time the loan was disbursed on December 15, 2016, interest was regulated by section 33B of the Banking Act.

22. On re-examination, he testified that section 33B of the Banking Act came into force on September 14, 2016. That since the first facility letter was issued on December 2, 2015, that section was not applicable. That the section was operational when the second letter of October 13, 2016 was issued hence the contract was subject to the law. That his recalculation was based on 4% as per the law. That any other clause in contravention was to be removed and replaced as per the provisions of the law.

23. The defendants called one witness, George Wanjeru (Dw1), a credit analyst for the bank for 10 years. He adopted his witness statement filed on November 14, 2019 and produced the defendant’s documents as DExh1. His evidence was also a regurgitation of the defendant’s defence.

24. When cross-examined, he testified that there was no deed of variation was executed to reduce the facility by Kshs 98,418,177/= that was not advanced. That the bank began charging interest on December 10, 2016 when the funds were disbursed by which time section 33(B) of the Act had already come into force. That the interest was above the capping. That the bank charged interest as per the offer letter notwithstanding the provisions of the law.

25. He further told the court that the loan was incurred in order to purchase stocks for business purposes. Referring to paragraph 23 of the letter of offer dated October 13, 2016, he admitted that the bank never gave Nakumatt any notice of intention to increase any reasonable grounds in terms of paragraph 23. He further admitted that paragraph 10 was opposite of paragraph 23 of the 1st letter of offer.

26. He further referred to page 79 of DExh1 and admitted that paragraph 23 was similar to paragraph 23 of the letter of December 2, 2021 which provided for 1 month notice in advance for any changes in interest variation.

27. On re-examination, he testified that page 2 of the letter of October 13, 2016 contained precedent conditions which had to be met. That condition 5 was receipt of an inter-lender’s agreement on pari passu debenture.

28. Having considered the record, the issues that fall for determination are: -.1. Whether section 33B of the Act was applicable to the two loan facilities, and consequently, whether the 1st defendant illegally overcharged interest rate on the loan facility of January 2, 2015. 2.Whether the 1st defendant breached the loan facility terms of October 13, 2016 by failing to disburse Kshs 98,418,177. 09. 3.Whether the statutory notice dated July 6, 2018 was void in law.4. Whether the 1st plaintiff’s liability under the loan agreements ought to be discharged.

29. The first issue is whether section 33B of the Act was applicable to the loan facility of January 2, 2015. That section was introduced by the Banking (Amendment) ActNo 25 of 2016 and it came into operation on September 14, 2016. It read as follows: -“1) A bank or a financial institution shall seta)the maximum interest rate chargeable for a credit facility in Kenya at no more than four per cent, the base rate set and published by the Central Bank of Kenya; andb)the minimum interest rate granted on a deposit held in interest earning in Kenya to at least seventy per cent, the base rate set and published by the Central Bank of Kenya.2. A person shall not enter into an agreement or arrangement to borrow or lend directly or indirectly at an interest rate in excess of that prescribed by law.3. A bank or financial institution which contravenes the provisions of subsection (2) commits an offence and shall, on conviction, be liable to a fine of not less than one million shillings or in default, the chief executive officer of the bank or financial institution shall be liable to imprisonment for a term not less than one year.”

30. In Vehicle And Equipment Leasing Limited v Jamii Bora Bank Limited [2017] eKLR, the court analyzed the purport and applicability of section 33B and held that: -“Law as a social tool does not operate in a vacuum. The mischief intended to be cured by parliament, in my view, was the run-away rates of interest then allegedly being levied by licenced banks and financial institutions. This, it may be safe to conclude, was catered for by s.33B (2). One must also be conscious of the fact that as at the time of the amendment and introduction of s.33B, there already existed thousands of Kenyans and other borrowers burdened by high and, occasionally, usurious interest rates. There was a hue and cry by the already burdened borrowers. It may be safe to infer, albeit not conclusively, that s. 33B (1) took care of the lot.…I hold the interlocutory view that s33 of the Act does not apply retrospectively to affect and inhibit rights of parties (both credit providers and credit consumers) which accrued prior to September 14, 2016. Any interest, in my view which was to be charged by banks after September 14, 2016 had (has) to be subjected to the provisions of the law, including s.33B.”

31. This court agrees with the above reasoning. It is the duty of the court to take cognizance of the intention of section 33B of the Act and the injustice that it aimed to cure. Courts are part of a social system. It would be contrary to public policy for any court to interpret laws in a manner that defeats their purpose.

32. It was the plaintiffs’ case that the bank levied interest in contravention of section 33B of the Act and in contravention of the facility terms and conditions. On the other hand, however, the bank contended that that section which came into force on September 14, 2016 could not apply retrospectively to agreements entered before its commencement. That the facility was signed in 2015 before the new law was enacted. That the 2nd facility was signed in 2016 after the law was enacted, but there was no allegation that the bank had contravened that provision in respect of that facility.

33. At the hearing, both P2W1 and Dw1 testified that the loan facility of January 2, 2015 was disbursed in 2016. P2W1 testified that the loan was disbursed on December 15, 2016. Indeed, Dw1 testified that the bank only begun to charge interest on December 10, 2016. By this time, the section had already come into effect.

34. With the admission that the loan with respect to the 1st facility was disbursed in December, 2016 and that the bank began charging interest on December 10, 2016, the conclusion the court arrives at is that the said loan was subject to the said section. It cannot be correct that the rate of interest applicable were those in the facility letter of January 2, 2015 whereas the loan was disbursed when a new law was already in existence and applicable for all intents and purposes.

35. The 1st defendant admitted to have charged interests rate higher than those provided for in the Banking Act. This was illegal and it would be contrary to justice to condemn the plaintiffs to pay a loan amount with over-charged interest. This court finds that the loan having been disbursed at a date after commencement of the section 33B of the Act, the interest applicable should have been that provided for by the Act.

36. It would be absurd to argue that facilities which existed prior to September 14, 2016 could be subjected to any contractual, even usurious, rates notwithstanding the rather express prohibitory provisions of the Act.

37. Furthermore, page 79 of the DExh1 was the letter of offer dated October 13, 2016. Paragraph 23 thereof provided that the bank reserved the right to re-evaluate the basis of the offer including the basis of the interest rate provided that it issued the 2nd plaintiff with a month notice before change in interest rates. Dw1 admitted that no such notice was issued. In this regard, any interest on the loan of October 13, 2016 that was charged at a rate above 14% was thus illegal and violated the terms of the facility.

38. The upshot is that section 33B of the Act applied to both facilities and the bank had overcharged interest on the facility of January 2, 2015.

39. The second issue is whether the bank breached the loan facility terms of October 13, 2016 by failing to disburse Kshs 98,418,177. 09. It was the plaintiff’s case that the loan facility of October 13, 2016 was incurred for purposes of purchasing consumer goods. That the repayment source was identified as receivables from sales proceeds in the letter offer of October 13, 2016, a fact known and acknowledged by the bank. That the bank however, breached the terms of the facility and failed to disburse the full amount of Kshs 347,756,261/= by not disbursing Kshs 98,418,177. 09/=. That this compromised the operations of the borrower and therefore the primary repayment source.

40. On its part, the bank contended that it was a term of the agreement at paragraph 10 of the offer conditions that it reserved the right to refuse or withhold disbursements under the facility without notice or reasonable grounds. Hence, it was not obligated to disburse the balance of Kshs 98,418,177. 09. That the 2nd plaintiff was under a duty to repay the disbursed amount as per the agreed terms being daily collections ofKshs15,000,000/= from 10 of its outlets.

41. In his testimony, Dw1 admitted that there was no deed of variation reducing the facility by Kshs 98,418,177/= that was not advanced.

42. The court has considered the terms of both the facility of January 2, 2015 of October 13, 2016. Paragraph 10 of the letter of offer dated October 13, 2016 provided that the lender reserved the right to refuse or withhold disbursements under the facility without notice or reasonable grounds. However, paragraph 23 of both the letters of offer of January 2, 2015 and October 13, 2016 had twin clauses which provided that: -“The lender reserves the right to refuse or withhold disbursements under the facility with notice and on reasonable grounds. It is the lender’s policy to review facilities from time to time in the light of changing market conditions. The lender reserves the right at any time with notice but without liability, cavil, let or hindrance and at its absolute discretion to re-evaluate the basis of the offer including the basis of the interest rate; provided that Nakumatt shall be notified at least one month in advance of any changes in interest.”

43. The above paragraph 23 is clear that it related to both refusal or failure to make disbursement as well as change of interest.

44. In light of the 2 contradictory conditions of the contract, the court has to examine the intention of the parties. In The Construction of Contracts by Gerald McMeel, 2nd edition at page 150, paragraph 4. 04, the learned author observes: -“In the construction of all instruments it is the duty of the court not to confine itself to the force of a particular expression but to collect the intention from the whole instrument taken together...”Then at page 156 paragraph 422: -“4. 22 The modern principle is that the court will treat as repugnant a clause which is inconsistent with the main purpose of the contract, or with the intentions of the parties objectively ascertained from the whole of the contract in its relevant contextual setting.”

45. In interpreting instruments, a court is to ascertain the intention of the parties not only by what they said but by what the court sees to be the consequence, and by what the court may or may not consider to be absurd or oppressive in the circumstances.

46. Paragraph 10 of the letter of offer dated October 13, 2016 provided that the lender reserved the right to refuse or withhold disbursements under the facility without notice or reasonable grounds. This undoubtedly goes against the intention envisaged in paragraph 23 of both the facility of January 2, 2015 and that of October 13, 2016 wherein both clearly provided for notice and reasonability. Further, since paragraph 23 aforesaid is latter in time, it is construed that the writer, who is the bank, was already aware of what was provided in paragraph 10 aforesaid and intended the latter to amend the former accordingly.

47. In any event, it would be unjust for the court to give effect to a contradictory clause which is not only absurd but oppressive. It could not be the intention of the parties that the contractual terms of the contract could be changed at the whim of either of them and without notice or reasonable grounds. Consequently, the court finds that paragraph 23 of both letters of facility supersedes paragraph 10 of the letter of offer of October 13, 2016.

48. Paragraph 23 of both facilities created the obligation of a one month notice upon the bank in the event of review of policy, or refusal/withholding of disbursement. For purposes of refusal/withholding of disbursement, clause 23 provided for ‘notice and on reasonable grounds.’

49. Dw1 admitted that the bank did not serve any such notice or any notice at all upon the 2nd plaintiff. He also admitted that there was no deed of variation reducing the facility by Kshs98,418,177/= that was withheld.

50. The only explanation advanced was that there was a conditional precedent for the creation of a debenture that was to run parri passu with those of other lenders. That some pf the lenders declined to allow the creation of such a debenture as a result the bank felt exposed.

51. That may be the case. However, its contract with the plaintiffs required that if it was to withhold any further disbursement, it should have given the notice. Such notice would have had two effects. Firstly, it would have enabled the 2nd plaintiff to make an informed decision whether with such reduced financing it was any longer tenable or possible to make a repayment of Kshs 15 million per day. And, secondly, it would have enabled the 1st plaintiff to decide whether it was plausible to continue to have its corporate guarantee in place as it was clear that with reduced financing, the 2nd plaintiff would definitely default thereby exposing its security.

52. The 2nd plaintiff’s case was that, the bank’s refusal to disburse the full loan affected its operations and ability to refund the loan fully. This was a foreseeable outcome which the bank ought to have cautioned itself from by giving the requisite notice and citing its grounds for withholding of the balance.

53. The upshot of the above is that the bank breached the terms of the facility by failing to disburse Kshs 98,418,177. 09 without issuing notice and reasonable grounds for withholding the funds as provided for in the facility letter of October 13, 2016.

54. The 3d issue is whether the statutory notice dated July 6, 2018 was void in law. The plaintiffs contended that the bank instructed the 2nd defendant to issue a notice dated July 6, 2018 stating that the suit property was to be sold by public auction on July 24, 2018 at 11:00am. The bank demanded immediate payment of Kshs 146,050,467. 14 from the plaintiffs.

55. It has already been established that the bank overcharged interest rates, and violated the terms of the both facilities of January 2, 2015 and October 13, 2016, respectfully. The demanded amount was irregular and it would be unjust for the bank to exercise its power of sale and recover any amount before the 2nd plaintiff’s loan account is regularized.

56. The upshot is that the statutory notice dated July 6, 2018 is void in law and of no consequence and an injunction would issue against acting on it.

57. The 4th issue is whether the 1st plaintiff’s liability under the loan agreements ought to be discharged. It was the 1st plaintiff’s case that due to the fundamental breach and/or material variance of the terms and conditions of the loan agreement between the 2nd plaintiff and the bank, it ought to be discharged from any liability under the facilities. That the bank had lost its entitlement to realize the suit property as security in any manner.

58. Amongst other guarantors, the 1st plaintiff had issued a corporate guarantee for the loan facilities which was supported by a legal charge over the suit property. It is not in dispute that a legal charge was created and registered. It has not been discharged.

59. In Rajnikantkhetshi Shah v Habib Bank A.G Zurich [2016] eKLR, in addressing a chargor’s equity of redemption, the court observed: -“As I stated earlier, the charge delineates the rights, obligations and remedies of the parties to the charge. I must repeat once again that, as long as the charge subsist the chargor’s equity of redemption is intact. I say so because redemption of the charged property is of the very nature and essence of a mortgage in equity. It is inherent in the mortgage itself and it cannot be clogged or impeded upon by design, or contrivance, or default or be left to the whims of the chargee.”

60. In that case, the court quoted with approval Lord Mc-Naghton in Noakes Co Ltd v Rice [1900-3] All ER 34 who had stated that;“Redemption is of the very nature and essence of a mortgage as mortgages are regarded in equity. It is inherent in the thing itself and it is, I think, as firmly settled now as it ever was in former times that equity will not permit any device or contrivance designed or calculated to prevent or impede redemption.”

61. The doctrine of equity of redemption applies in Kenya by virtue of section 89 of the Land Act which prohibits any law which entitles a chargee to foreclose the equity of redemption. The bank intentionally over-charged interest on the loan facilities thus the amount claimed cannot be correct. It committed fundamental breaches of its contract with the plaintiffs on the facility of October 13, 2016. It never notified the guarantors of its intention to so alter the terms of the contract. In this regard, it operated the facilities outside the re-alm agreed upon by the guarantor. A lender cannot be permitted to so act.

62. In “The Law of Guarantees” by Geraldine Andrews & Richard Millet 2nd edition, at page 156, it is stated that a contract of guarantee is an accessory contract, by which the surety undertakes to ensure that the principal performs the principal obligations. It is a contract to indemnify the creditor upon the happening of a contingency namely, the default of the principal to perform the principal obligation.

63. The surety is therefore under a secondary obligation which is dependent upon the default of the principal and which does not arise until that point. It follows therefore that if there is no default on the part of the principal, no liability arises on the part of the surety.

64. On discharge of surety by breach of contract by creditor at page 245, the author observes;“9. 17 If the creditor commits a repudiatory breach of his contract with the principal so that the principal is entitled to treat the contract as at end, the surety is also discharged from further liability ...”

65. In Halsbury’s Laws of England, fifth edition, volume 49, pg 561 para. 1214, the learned authors observe: -“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 ...”

66. In Keating on Construction of Contracts, 9th edition, page 394, the learned author states: -“A surety is undoubtedly and not unjustly the object of some favour both at law and in equity and .... is not to be prejudiced by any dealings without his consent between the secured creditor and the principal debtor. Conduct that prejudices the surety’s position may discharge the surety’s obligation.”

67. The court has already found that the banks failure to notify the borrower and guarantor that it had decided to withhold the balance of Kshs 98,418,177. 09 and give reasonable grounds thereto resulted in a breach of the terms of the facility of October 13, 2016.

68. Further, the bank acted in bad faith in applying interest rates that were illegal for both facilities. Moreover, when asked to clarify on the penalties charged on interest for late payment, the bank was not so candid in its responses. All it could have done was to simply avail a clear statement indicating the months with late payments, interest thereon, and justify the penalties.

69. In light of the above, can it be said that the bank acted in good faith towards the guarantor, or even towards the borrower? The answer is in the negative. The bank’s witness testified that he was aware that the loan of October 13, 2016 was incurred for purposes of purchasing stock. Failure to disburse the full amount had a direct bearing on the borrower’s operations and thus ability to pay. The decision to withhold such a colossal amount was material and ought to have been communicated not only to the borrower, but to the guarantor as well. Such a dealing prejudiced the 1st plaintiff and it ought to have been notified of it. The continued dealing between the bank and the 1st plaintiff on a reduced disbursement that affected the 1st plaintiff’s operations without notice to the 1st plaintiff, prejudiced the latter.

70. It is this court’s finding that in the circumstances, there was none performance on the part of the bank by failing, without notice and reasonable ground, to disburse the full loan amount. This was tantamount to a breach of contract.

71. InSurya Holdings Limited & 4 others v ICICI Bank Limited & another [2015] eKLR, the court observed: -“On prima facie basis, it is arguable that non-disbursement of the entire loan is tantamount to breach of contract and the bank may not have the equitable grounding to insist on strict adherence of the contract. A breach of contract is an infringement of a right of the other party. In commercial transactions, performance by parties is a matter in the heart of rights of parties. see J.W Carter in Carter's Breach of Contract that;"A promisor's obligation to perform is discharged only if the performance rendered exactly matches the requirements of the contract, including as to the time of the performance. If performance is not exact, there is failure to perform unless parties have agreed to the contrary.…A guarantor makes a binding promise to the lender that he will be liable for a present or future debt or obligation of the borrower if the borrower defaults. As long as the borrower is repaying the debt, the guarantor will not be liable. His liability attaches when the borrower defaults. There is a presumption of a debt which of course, in commercial transaction between banks and borrowers arises from financial lending. Therefore, where no funds are disbursed no liability will attach to the guarantor. But the issue here is that, in breach of the contract herein, only part of the funds were disbursed by the 1st defendant. I have found that it is arguable the bank breached the agreement. The variation of the borrower’s contract will in law affect the liability of the guarantor unless the guarantor gives his guarantee to the changed situation.”

72. In the present case, the levying of illegal interests and refusal to disburse the full loan amount without the consent of the guarantor and/or reasonable grounds were unilateral variations of the contracts. They were done in bad faith thereby not only prejudicing the borrower but the 1st plaintiff as guarantor.

73. In this regard, the court is satisfied that the 1st plaintiff made out its case for discharge of guarantee.

74. Accordingly, the court finds that the plaintiffs have proved their case on a balance of probability and makes the following orders: -a.The statutory notice dated July 6, 2018 is hereby declared void.b.The defendants are hereby restrained, jointly and severally, whether acting by their servants and or agents howsoever from interfering with, selling, disposing of and/or transferring or causing to be transferred any interest in the property known as title No Nairob I municipality/block 10/287 on the basis of the 2nd defendant’s statutory notice of sale by public auction dated July 6, 2018. c.The 1st plaintiff’s liability under the loan agreements of January 2, 2015 and October 13, 2016 is hereby discharged.d.Costs awarded to the plaintiffsIt is so decreed.

DATED AND DELIVERED AT NAIROBI THIS 13TH DAY OF MAY, 2022. A.MABEYA, FCIArbJUDGE