https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/12246

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT NAIROBI** **MILIMANI LAW COURTS** **COMMERCIAL AND TAX DIVISION** **COMM. CASE NO.017 OF 2014** **BETWEEN** **SUNRISE HOMES LIMITED......................................................................PLAINTIFF** **AND** **NATIONAL BANK OF KENYA LIMITED……………………....….1ST DEFENDANT** **SPOTLIGHT INTERCEPTS AUCTIONEERS……………..………...2ND DEFENDANT** **AND** **BY WAY OF COUNTERCLAIM** **BETWEEN** **NATIONAL BANK OF KENYA LIMITED ………………………………PLAINTIFF** **AND** **SUNRISE HOMES LIMITED…………………………….……..…..1ST DEFENDANT** **CHARLES WACHIRA NGUNDO…………………………….….2ND DEFENDANT** **MARTIN MUNYAO KIMEU………………………………….….3RD DEFENDANT** **JUDGMENT** **Introduction and Background** 1. It is common cause that the Plaintiff (“Sunrise” or “the Company”) was at all material times to this suit a customer of the 1st Defendant (“the Bank”) and it took a credit facility and charged its property, **KWALE/DIANI/1446** (“the suit property”) to the Bank. Over time, Sunrise defaulted in servicing the facility and the Bank issued a notice of intention to sell the property on 1st July 2013 and then instructed the 2nd Defendant (“the Auctioneers”) to advertise the suit property for public auction on 24th January 2014. The suit property was sold and this is not controversial, however, through its Plaint dated 20th January 2014 that was amended on 10th March 2021, Sunrise challenges the legality or otherwise of the notice preceding the sale and the sale itself. 2. Sunrise alleges that after defaulting on repayments, the Plaintiff requested more time to find funds to redeem the loan, which the Bank allegedly agreed to. It claims that the notice to sell the suit property was defective and void *ab initio* because it failed to properly state the amount due to rectify the default as required by law. That following the notice, Sunrise underwent management changes and through its new directors, claims to have reached an agreement with the Bank to suspend the sale and allow for a repayment proposal. That this proposal included plans to generate income from the suit property to repay the loan and subdividing the suit property to sell off cottages. 3. Sunrise claims that despite these agreements, the Bank instructed the Auctioneers to advertise the suit property for public auction and then went on to sell the property, which action it contends, was done in breach of their agreement. Sunrise states that the sale process was illegal and irregular due to failure to serve all new directors with the mandatory sale notice, failure to have a proper forced sale valuation as required by law as it claims the valuation was skewed and undervalued the suit property. That the public auction itself was fraudulent as Sunrise claims the Defendants failed to adhere to their own advertised terms and conditions and it asserts that no legitimate auction took place and that it was a pre-arranged sale at a price below market value, which deprived the Plaintiff of its equity of redemption. 4. For the above reasons, Sunrise seeks the court to declare the Bank’s exercise of its statutory power of sale and the auction conducted on 24th January 2014 as illegal, irregular and null and void and that it be awarded special damages of Kshs.180,000,000.00/-, the claimed value of the suit property, general and special damages for the alleged unlawful exercise of the power of sale and costs of the suit. 5. The Bank responded to the suit through the defence and counterclaim dated 4th September 2025 that was amended on 13th May 2021. The Bank denies Sunrise’s allegations and states that the sale of the suit property was conducted lawfully. It asserts that it complied with all legal requirements by issuing multiple notices to Sunrise including a statutory notice on 11th August 2010 under the repealed ***Registered Land Act***, a statutory notice on 1st February 2013 under **section 90(1)** of the ***Land Act(Chapter 280 of the Laws of Kenya)***, a Notice of Intention to Sell on 1st July 2013 under **section 96(2)** of the ***Land Act*** which adequately stated the amount due as Kshs.88,427,115.85/-. 6. The Bank claims that a valuation of the suit property was undertaken on 26th June 2013 to establish its Open Market and Forced Sale values, which the Bank claims was done in compliance with the law. That Sunrise filed an application to stop the sale, but the court (Gikonyo J.,) heard and dismissed the application on 23rd January 2014, clearing the way for the auction. The Bank confirms that the suit property was sold by public auction on 24th January 2014 for Kshs.60,000,000.00/- and it contends this price was above 75% of the market value which was Kshs.51,750,000.00/- and thus fulfilling its duty of care to obtain a fair price. 7. The Bank denies entering into any alternative repayment agreement or giving permission to subdivide the suit property as alleged by Sunrise and it also denies any fraud or irregularity in the auction process. The Bank avers it was not legally required to serve the new directors with the notice of sale and that its obligation was to the guarantors, which it fulfilled. The Bank concludes that since the suit property has already been sold, Sunrise’s prayers for an injunction are now spent and the entire suit should be dismissed with costs. 8. In its counterclaim, the Bank is suing Sunrise and its two directors for the outstanding loan balance after the sale of the suit property as the two directors are joint and several guarantors for the facility. That the suit property was sold for Kshs.60,000,000.00/- and the full purchase price was eventually paid by the buyer with the final payment made on 18th February 2015. The Bank claims that as of 23rd January 2014, before the sale, the total outstanding debt was Kshs.87,397,404.52/- and after crediting the Kshs.60,000,000.00/- from the sale, a residual balance of Kshs.40,501,655.12/- remained. 9. The Bank contends that despite a demand for payment, Sunrise and its guarantors have refused or neglected to pay the outstanding sum and the Bank is now claiming the sum of Kshs.41,352,143.17/- as of 24th February 2015, plus interest at 22% per annum until the debt is fully paid. It also prays for the costs of both the main suit and the counterclaim. The 3rd Defendant in the counterclaim (“Martin”) responded to the amended counterclaim through the defence dated 23rd August 2021. He states that he and his wife sold and transferred their entire 50% shareholding in Sunrise to ***United Way Kenya Limited***on 25th March 2013 and that this transfer was completed and registered with the Companies Registry. That the Bank was formally informed of this change of directorship and shareholding through a letter dated 5th July 2013 from the Company's advocates which included a copy of the updated *CR12* form confirming his resignation. 10. He claims that as part of the share sale agreement, the new owners, *United Way Kenya Limited* and its directors, the 2nd Defendant in the counterclaim (“Charles”) and GWW agreed to take over all the Company's liabilities, including the Bank loan and the personal guarantees he had signed. That since he was no longer a director or shareholder when the Bank issued the statutory notices and sold the suit property, he states it is unconscionable and unjust for the Bank to pursue him for the outstanding debt and he claims this amounts to unjust enrichment by the Bank. He also states that the Bank sold the suit property for a price significantly below market value, which inflated the residual debt he is now being asked to pay. He thus avers that the Bank is not entitled to any reliefs sought in its counterclaim and that the same ought to be dismissed with costs. 11. At the hearing, Sunrise called two witnesses; Charles (PW1), who adopted his witness statement dated 14th January 2021 and produced the List and Bundle of Documents dated 22nd December 2020 **(PExhibit 1-24)** and Supplementary List and Bundle of Documents dated 14th January 2021 **(PExhibit 25**) and; Nicodemus Mwangangi (PW2), a registered valuer who produced the Valuation Report dated 11th August 2010**(PExhibit 1).** On its part, the Bank called three witnesses; Morris Tiema(DW1), its Remedial Manager who adopted his witness statement dated 25th August 2015 and produced the Bank’s List and Bundle of Documents dated 4th September 2015**(DExhibit 1-25)** and Further List and Bundle of Documents dated 28th July 2021 **(DExhibit 26-32)**; Rashid Shake (DW2), a registered valuer who produced the valuation report dated 25th June 2013(**DExhibit 6)** and; Peter Gichuki(DW3), a licensed auctioneer trading in the Auctioneers’ firm who adopted his witness statement dated 28th July 2021 and produced the Auctioneers 45-day notice dated 11th October 2013**(DExhibit 27)** and the Attendance List at the Auction **(DExhibit 28).** Martin (DW 4) also testified on his own behalf relying on his witness statement dated 30th September 2021 and producing the List and Bundle of Documents dated 11th December 2015 **(3rd DExhibit 1-22).** 12. After hearing the parties, the court directed them to file written submissions which are on record and since the same are a mirror of the parties’ positions highlighted above, I will not rehash the same but make relevant references in my analysis and determination below. **Analysis and Determination** 1. As these are civil proceedings, it should not be lost that the court’s determination is on a balance of probabilities and is guided by the principle that he who alleges must prove. Denning J., in **Miller v Minister Of Pensions [1947]2 All ER 372** discussed the burden of proof and he stated as follows:- *“****That degree is well settled. It must carry a reasonable degree of probability, but not so high as is required in a criminal case. If the evidence is such that the tribunal can say: ‘we think it more probable than not’, the burden is discharged, but, if the probabilities are equal, it is not. Thus, proof on a balance or preponderance of probabilities means a win, however narrow. A draw is not enough. So, in any case in which the tribunal cannot decide one way or the other which evidence to accept, where both parties’ explanations are equally (un) convincing, the party bearing the burden of proof will lose, because the requisite standard will not have been attained.”*** 1. The aforementioned position has now been espoused by our superior courts and finds statutory comfort in **sections 107 and 108** of the ***Evidence Act(Chapter 80 of the Laws of Kenya)*** which provide as follows: ***107. Burden of proof.*** *(1) Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.* *(2) When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.* ***108. Incidence of burden.*** *The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side.* (Also see **Ignatius Makau Mutisya v Reuben Musyoki Muli [2015] KECA 612 (KLR**) 1. From the parties’ submissions, I find that the court is being asked to determine the following abridged issues: 2. *Whether the statutory notice issued under Section 90 of the Land Act was valid.* 3. *Whether the Bank complied with its duty under Section 97(2) of the Land Act to obtain the best price reasonably obtainable.* 4. *Whether the public auction was conducted lawfully and in accordance with prescribed terms.* 5. *Whether Martin is liable to pay the loan outstanding as at 24th February 2015 under the terms of the Guarantee* 6. *Whether the Bank’s counterclaim has merit.* 7. *Whether the Plaintiff is entitled to the reliefs sought.* **Validity of the statutory notice under section 90 of the Land Act** 1. Sunrise submits that the statutory notice dated 1st February 2013 issued by the Bank under **section 90(1) and (2)** of the ***Land Act*** is fatally defective and therefore incapable of grounding a valid exercise of the statutory power of sale. That **section 90(2)** requires that a chargee's notice adequately inform the chargor of the nature and extent of the default, the specific amount required to rectify the default and the time which is not less than three months allowed to do so, that where the default is non-monetary, the act required to rectify it and the time being not less than two months allowed, the consequences of failing to rectify the default within the specified time and the chargor's right to apply to court for relief. 2. Sunrise submits that the notice issued merely demanded payment of Kshs.87,391,154.50/- without disclosing how that figure was computed or providing any breakdown between principal, interest, and charges, and without stating the specific sum required to rectify the default contrary to the mandatory requirement in **section 90(2)(b)**. It further submits that the notice failed to inform it of its statutory right of redemption or of the consequences of failing to rectify the default, contrary to **section 90(2)(d) and (e)**. In support of this position, Sunrise calls to aid this court’s decisions in **Yusuf Abdi Ali Co Ltd v Family Bank Limited [2015] KEHC 2800 (KLR)** and **Florence Njeri Karanja v Molyn Credit Limited [2014] KEHC 8745 (KLR)** and on this basis, submits that the Bank’s failure to issue a valid notice in strict compliance with **section 90** nullifies all subsequent steps, including the purported auction, rendering every act taken pursuant to the notice a nullity. 3. Martin adopts Sunrise’s submissions on this issue wholesale and advances no separate argument of his own, beyond stating his reliance on them. On its part, the Bank submits that the Statutory Notice dated 1st February 2013 is proper and lawful and satisfies the requirements of **section 90(2)** of the ***Land Act***. That the notice demanded immediate payment of Kshs.87,391,154.50/=, which was described as "the principal amount together with interest and costs thereon," and warned that if the sum was not paid within three months, the Bank would proceed to exercise its remedies, including sale of the suit property while also advising Sunrise of its right to apply to court for relief. 4. The Bank asserts that the amount to be settled to rectify the default was, in the circumstances, the entire debt because the Charge made the secured amounts payable on demand, so a demand not honoured within a reasonable period itself constitutes the relevant default under **section 90(1),** such that the full sum then becomes the amount required to rectify that default. That on this reading, no breach of **section 90(2)(b)** arises. The Bank urges the court to adopt a purposive, rather than a narrow textual, approach to **section 90(2),** pointing to the statutory word "adequately" as signaling that substantial and not exact compliance suffices and it stresses that the section must be read to preserve a fair balance between the chargor's right of redemption and the chargee's right to enforce its security. 5. The Bank relies on the late Onguto J.,’s decision in **First Choice Mega Store Limited v Ecobank Kenya Limited [2017] KEHC 7152 (KLR)** for the proposition that where a charge makes the secured sum payable on demand, non-payment of that demand within a reasonable time is itself a default under **section 90(1),** so the chargee may lawfully demand the entire outstanding sum in the statutory notice; that reading a strict limitation on installments alone into **section 90(2)** would produce an illogical result allowing defaulting chargors to perpetually string out repayment in three-month cycles and would defeat the purpose of the security; and that the demanding test is simply whether there is a default under the charge, whether by an event of default or an unmet demand. The Bank also draws on the ***First Choice Mega Store Limited(supra)*** decision's holding that a valuation discrepancy and the mere fact that a purchaser could not settle within 90 days, do not by themselves invalidate a chargee's exercise of the power of sale and that the court retains wide discretion under **section 104(2**) of the ***Land Act*** to suspend a chargee's remedy only where the chargor shows a realistic ability to pay within a reasonable time which, the Bank notes, was not established in that case and is not established by Sunrise in this case. 6. The Bank also relies on the decision in **Cordeiro & another v Shamji** **[2015] KEHC 6977 (KLR)** to submit that a statutory notice does not need to be flawless but needs only to adequately inform the chargor of the nature and extent of default and the consequences of non-compliance and it is not illegal for a notice to provide that default in one or more instalments renders the entire debt due and payable, such that repayment of the entire sum is itself the means of rectifying the default. 1. All in all, the Bank submits that the Statutory Notice dated 1st February 2013 afforded Sunrise adequate notice and information as required by **section 90(2),** particularly bearing in mind that the events in question occurred in 2013, shortly after the ***Land Act*** came into force and while practice under the new statute was still developing. The Bank urges the Court to find that this limb of the Plaintiff's challenge to the exercise of the statutory power of sale is unsatisfactory and should fail. 2. **Section 90(1) and (2)** of the ***Land Act*** provides as follows: - ***90. Remedies of a chargee*** *(1) If a chargor is in default of any obligation, fails to pay interest or any other periodic payment or any part thereof due under any charge or in the performance or observation of any covenant, express or implied, in any charge, and continues to be in default for one month, the chargee may serve on the chargor a notice, in writing, to pay the money owing or to perform and observe the agreement as the case may be.* *(2) The notice required by subsection (1) shall adequately inform the recipient of the following matters—* *(a) the nature and extent of the default by the chargor;* *(b) if the default consists of the non-payment of any money due under the charge, the amount that must be paid to rectify the default and the time, being not less than three months, by the end of which the payment in default must have been completed;* *(c) if the default consists of the failure to perform or observe any covenant, express or implied, in the charge, the thing the chargor must do or desist from doing so as to rectify the default and the time, being not less than two months, by the end of which the default must have been rectified;* *(d) the consequence that if the default is not rectified within the time specified in the notice, the chargee will proceed to exercise any of the remedies referred to in this section in accordance with the procedures provided for in this sub-part; and* *(e) the right of the chargor in respect of certain remedies to apply to the court for relief against those remedies.* 1. The impugned Notice of 1st February 2013(DExhibit 5) is reproduced below for ease of reference and context: *1st February, 2013* *Our Ref: LD/9904/2013(G4)* *The Directors - Sunrise Homes Ltd.* *P.O. Box 70559-00400* *NAIROBI.* *Dear Sir,* *BY REGISTERED POST* ***RE: OUTSTANDING DEBT - KSHS. 87,391,154=50 DR. STATUTORY NOTICE OF INTENTION TO SELL BY PUBLIC AUCTION - L.R. NO. KWALE/DIANI BEACH/146 MSAMBWENI DISTRICT*** *We refer to the above Charge which you issued to the Bank as security for the mortgage facility granted to you, particulars whereof are within your knowledge.* *As has been previously communicated to you, default has occurred and the sum of Kshs. 87,391,154=50 Dr. remains outstanding, being the principal sum together with interest and costs thereon.* *We now demand from you the immediate payment of Kshs. 87,391,154=50 Dr. being the principal sum together with interest and costs thereon. The amount continues to accrue interest and other Bank charges.* *Further, we hereby give NOTICE that if you fail to pay the above amount after expiry of three (3) months from the date of service of this notice (which is deemed to be seven (7) days from the date of posting) upon you, the Bank will proceed to exercise the powers granted under the Charge and by statute, namely to either sell the charged land, appoint a Receiver of the charged land, enter into possession or sue you for the monies due.* *Under the provisions of the Land Act, 2012, you are at liberty to apply for relief in the manner and upon the reasons set out in the Act.* *THIS NOTICE is issued to you pursuant to Section 90(1) of the Land Act, 2012.* *Yours faithfully,* ***Signed\**** *J. W. GITONGA (MRS.)* *MANAGER - LEGAL SERVICES* *cc. Manager - Remedial* *cc. G.M. Credit* 1. Having reviewed the Notice in full and comparing it against the mandatory requirements of **section 90(1) and (2)** of the ***Land Act*** above and the authorities cited by the parties, I find that the Notice is clearly adequate, valid and not fatally defective as argued by Sunrise. **Section 90(2)(a)** requires a notice to inform the chargor of what the default is. The Notice states *"default has occurred... particulars whereof are within your knowledge”* and I find this to be adequate because the notice explicitly confirms that a default exists and the phrase *"particulars whereof are within your knowledge"* is sufficient because the Sunrise was fully aware of its own loan repayment history and its failure to service the facility since being issued with the first statutory notice under the repealed ***Registered Land Act*** on 11th August 2010. I do not think the Bank was required to give a lengthy narrative of the default history and it was sufficient in the circumstances only to state that a default had occurred and was continuing and the Notice does exactly that. 2. **Section 90(2)(b)** then requires that the notice must state the exact amount to be paid and give at least 3 months to rectify. The Notice states, *"….the sum of Kshs.87,391,154.50/- Dr. being the principal sum together with interest and costs thereon"* and *"…if you fail to pay the above amount after expiry of three (3) months from the date of service of this notice….”* I find that the Notice provides a specific and clear figure of Kshs.87,391,154.50/- as the amount required to rectify the default and the Bank does not need to provide a line-by-line breakdown of principal and interest and I would expect that the Bank's internal accounting records would contain that detail. The law only requires the amount to be stated, the Notice then expressly gives 3 months from the date of service to pay and this complies exactly with the statutory minimum period. 3. As this court has always stated, where a loan is repayable on demand, the entire outstanding sum becomes due upon default and therefore, demanding the full outstanding balance as the amount to rectify the default is entirely lawful. The Bank does not need to break down the sum into component parts for the notice to be valid as long as the outstanding amount has been stated. 4. **Section 90(2)(c)** requires that if the default is non-monetary, the notice must specify the action required. The default in this case is purely monetary and only applies where the default involves a breach of a covenant but since the default is a straightforward failure to pay, this provision does not need to be engaged. **Section 90(2)(d)** then requires the notice to state what will happen if the chargor does not pay and the Notice provides that *"if you fail to pay the above amount after expiry of three (3) months... the Bank will proceed to exercise the powers granted under the Charge and by statute, namely to either sell the charged land, appoint a Receiver... enter into possession or sue you for the monies due."* I find that the notice clearly and unambiguously sets out the specific consequences of non-payment with a comprehensive list of the statutory remedies available to the Bank and it complies fully with the requirement to inform the chargor of the consequences of failing to rectify the default. 5. **Section 90(2)(e)** requires the notice to inform the chargor of its right to go to court to seek relief and I note that the Notice states: *"Under the Provisions of the Land Act 2012, you are at liberty to apply for the relief in the manner and upon the reasons set out in the Act."* This is adequate as the notice expressly informs Sunrise of its statutory right to apply to court for relief and while it does not quote the exact section or provide a detailed explanation of the procedure, it clearly directs Sunrise to the ***Land Act*** itself. I find this to be sufficient to put a reasonable chargor on notice that it has the right to seek judicial intervention to stop or challenge the sale. 6. I am therefore in agreement with the court’s position in ***Cordeiro(supra)*** that a notice does not need to be flawless but only needs to adequately inform and I find that the Notice overall does exactly that. It is also my finding that Sunrise’s argument that the notice was defective because it was not served on all directors is flawed because **section 90(1)** above only required service on the chargor, which is in this case undeniably, Sunrise and not its individual directors. **Sale at a gross undervalue under section 97(2) of the Land Act** 1. Sunrise submits that **section 97(2)** of the ***Land Act*** imposes a mandatory, non-delegable duty on a chargee exercising the power of sale to take all reasonable steps to obtain the best price reasonably obtainable at the time of sale, a duty that remains with the chargee even where a professional valuer is engaged. That Sunrise’s valuation (PExhibit 1) placed the current open market value of the suit property at Kshs.180,000,000.00/-, with a Forced Sale Value of Kshs.126,000,000.00/- and an Insurance Value of Kshs.190,000,000.00/-. Sunrise submits that this valuation properly accounted for the 2.5278-acre property and its substantial developments including 15 fully furnished cottages, a luxury villa, a swimming pool, restaurant and bar facilities, office blocks, servant quarters, landscaped gardens, a private borehole, and complete electrical infrastructure, which converted the suit property into a high-yield holiday resort 300 metres from Diani Beach, targeting the international tourism market. 2. Sunrise notes that this valuation was supported by photographic documentation, which it says mirrors the standard approved by the Court of Appeal in **Criticos v National Bank of Kenya Limited (as the successor in Business to Kenya National Capital Corporation Limited “KENYAC”) & another [2022] KECA 541 (KLR),** where an elaborate, photographically-supported valuation was preferred, on the footing that expert evidence can only be challenged by another expert. By contrast, Sunrise submits that the Bank’s valuation, which placed the forced sale value at only Kshs.60,000,000.00/-, was a gross undervaluation based on two wholly unsuitable comparables of **Kwale/Diani Beach/100**, a 0.1878-hectare residential plot with seven flats and is not a commercial or resort property) and **Kwale/Diani Complex/655 & 1147**, a one-acre property with five villas still under construction and not operational. 3. Sunrise contends that these comparables were materially different in scale, location, development status and highest and best use from its fully operational 2.5-acre tourism resort and that their use artificially depressed the suit property's assessed value and rendered the report unfit to set a reserve price. Sunrise further highlights that the Bank's valuer, under cross-examination, conceded he was not a security expert, had not consulted government reports, statistics, tourism data, or travel advisories, and had no empirical basis for the alleged regional insecurity and terrorism risk he cited to justify the lower valuation, assumptions Sunrise submits were speculative and used improperly to discount the value. 4. As further evidence of undervaluation, Sunrise points out that within six months of the auction the purchaser was able to charge the same property for Kshs.100,000,000.00/- which Sunrise contends is strong, objective confirmation that the auction price was well below market value and that the Bank failed to obtain the best price reasonably obtainable, in breach of **section 97(2).** Sunrise submits that even a forced sale valuation does not cure these substantive defects, because the statutory duty is not merely to obtain a valuation but to take reasonable steps to ensure the price achieved genuinely reflects the property's true worth. Sunrise also relies on the case of **Palmy Company Limited v Consolidated Bank of Kenya Limited [2014] KEHC 4811 (KLR)** and **Koileken ole Kipolonka Orumoi v Mellech Engineering & Construction Limited & 2 others [2015] KEHC 6116 (KLR.** 5. **)** where it was held that the purpose of **section 97(2)** is to obtain the best price reasonably obtainable and to prevent an unscrupulous chargee from selling at a peppercorn or non-comparable price and that breach entitles the chargor to have the sale declared void under **section 97(3).** 6. Sunrise concludes on this issue that the Bank’s reliance on a flawed valuation, use of patently incomparable properties, and reliance on speculative and unverified assumptions amounts to a grave breach of the statutory duty of care under **section 97(2).** In response, the Bank accepts that **section 97** of the ***Land Act*** imposes a duty of care on a chargee to take reasonable steps to obtain the best price reasonably obtainable at the time of sale, including obtaining a forced sale valuation, but submits that it discharged this duty and that Sunrise’s undervaluation claim is a red herring. 7. The Bank submits that the burden rests on Sunrise to present cogent evidence discrediting the Bank's valuation and establishing undervaluation in breach of **section 97(2)** and that Sunrise has failed to discharge this burden. It faults Sunrise’s valuation of having been undertaken in August 2010, well outside the 12-month window before the proposed sale required by **Rule 11(b)** of the ***Auctioneers Rules*** for a forced sale valuation and so does not reflect the circumstances prevailing closer to the actual 2014 sale date. That it relies substantially on what the report itself calls a valuation based on the income approach and a comparative analysis of the neighborhood's market with the European market mindset because they are the ultimate consumers of such, an approach the Bank characterizes as flawed, misguided and unsubstantiated and which the Bank says inflated and skewed the valuation. 8. The Bank submits that the valuation's income assumption of a monthly revenue of Kshs.3,825,000.00/-, or Kshs.2,677,500.00/- at a 70% occupancy assumption was contradicted by PW1 who testified that actual company revenues were under Kshs.1,000,000.00/- per month and PW2 admitted he never reviewed or was never shown the company's books of accounts and he accepted that where actual income is lower than the assumption used, the resulting valuation is proportionally too high and DW4 confirmed that income levels were in fact suppressed relative to the assumption used. 1. Sunrise’s reliance on the fact that the eventual purchaser later charged the property for Kshs.100,000,000.00/- is not, in the Bank's submission, cogent evidence of undervaluation, since Sunrise has not put before the Court any material explaining the basis of that subsequent charge and valuation. The Bank submits its own valuation is accurate, balanced and grounded in relevant realities, for reasons that it was carried out within the 12 months preceding the sale, as required by the ***Auctioneers Rules***, its stated methodology is sound and does not rest on outlandish assumptions, it is broadly consistent with the trajectory of the suit property's own valuation history with an Open Market Value of Kshs.77,000,000.00/- and Forced Sale Value of Kshs.62,000,000.00/- at the point of disbursement in 2009 against Kshs.69,000,000.00/- and Kshs.48,300,000.00/- in 2013 and DW2, when challenged on the negative variance, explained in a follow-up opinion dated 16th July 2013 that the dip reflected increased insecurity in the Diani area negatively affecting the tourism-dependent local market, a conclusion the Bank says a professional valuer is entitled to reach as part of assessing market forces and influences, notwithstanding that the valuer is not himself a security expert. 2. The Bank therefore urges the Court to find that Sunrise has not presented cogent or material evidence to discredit the Bank's valuation and that the Bank has upheld its mandatory obligation under **section 97** of the ***Land Act***. 3. I have gone through the pleadings, evidence and submissions of the parties on this issue. As submitted by the parties, the duty of the Bank is to act in good faith and obtain the best price reasonably obtainable under **section 97** of the ***Land Act*** in exercising its statutory power of sale and the Bank was obligated to sell the charged property as per the forced sale value and not the market value (see **Shah & another v I & M Bank Limited [2024] KEHC 16303 (KLR)**]. 4. **Section 97(1)** of the ***Land Act*** provides as follows:- ***Duty of chargee exercising power of sale*** 1. ***A chargee who exercises a power to sell the charged land, including the exercise of the power to sell in pursuance of an order of a court, owes a duty of care to the chargor, any guarantor of the whole or any part of the sums advanced to the chargor, any chargee under a subsequent charge or under******a lien to obtain the best price reasonably obtainable at the time of sale.*** 2. **Rule 11(b)(x)** of the ***Auctioneers Rules***also provides as follows: “*The reserve price for each separate piece of land based on a professional valuation carried out* ***not more than 12 months prior to the proposed sale.”***It was not in dispute that the Bank’s valuation was conducted on 25th June 2013, just 7 months before the sale. This was well within the 12-month requirement for a current valuation under the ***Rules***, the suit property was sold for Kshs.60,000,000.00/-, which was above 75% of the market value of Kshs.69,000,000.00/- and way above the forced sale value which was Kshs.48,300,000.00/-. In contrast, Sunrise’s valuation was conducted in 2010, some four years before the sale which was clearly outdated and outside the ***Rules*** and could not reflect the market conditions closer to the 2014 sale. Sunrise was unable to validly and substantially challenge this report by DW2 which I find to be professional and timely and is clear evidence that the Bank had fulfilled its legal duty **Propriety of the public auction** 1. Sunrise challenges the validity of the 24th January 2014 auction on the ground that it was conducted in flagrant breach of the advertised Conditions of Sale which required payment of a refundable bid bond of Kshs.1,000,000.00/- prior to the auction to obtain a bidding number, payment of 25% of the purchase price at the fall of the hammer and payment of the balance of the purchase price within 90 days. Sunrise notes that DW3 conceded under cross-examination that non-compliance with any of these mandatory conditions would render the auction irregular and it submits that the evidence on record reveals serious breaches of each of these conditions. Sunrise avers that these facts taken together that is, the absence of proof of a bid bond, the late payment of the deposit and the delayed settlement of the balance, undermine the authenticity and legality of the auction process and contravene the expressly stipulated auction terms, rendering the process fundamentally defective. 2. In response, the Bank acknowledges that the purchaser at the public auction required financing to settle the balance of the purchase price and that this exceeded the 90-day period stipulated in the terms of sale. The question the Bank poses is whether that fact, standing alone, is sufficient to invalidate the Bank's exercise of the statutory power of sale and it submits in the negative. The Bank relies on the case of **Joyce Wairimu Karanja v James Mburu Ngure & 3 Others [2018] KEHC 7877 (KLR)** where Prof. Ngugi J., as he then was, stated that once a property has been knocked down and sold at a public auction, the chargor's equity of redemption is extinguished and that once a statutory power of sale has been legally activated, any irregularity in the conduct of the sale is remediable only by an award of damages to the mortgagor and only if the irregularity actually injures him. 3. Applying this, the Bank submits that Sunrise’s equity of redemption was extinguished upon the fall of the hammer and that the Plaintiff has not proved any injury flowing from the purchaser's delayed payment of the balance. The Bank points out that Sunrise has not made any further payments toward the outstanding debt since the sale, despite knowing that the sale proceeds fell short of the amount owed. On this basis, the Bank submits that, absent proof of injury, Sunrise cannot recover damages on this ground and that this limb of its case must also fail. 1. I am in agreement with the Bank’s submission that **section 99** of the ***Land Act*** now statutorily encompasses the right of the chargor prejudiced by unauthorized, improper or irregular exercise of the power of sale to have a remedy in damages and in my view, such is where Sunrise’s remedy lies in this case. The said provision provides as follows:- ***99. Protection of purchaser*** *(1) This section applies to—* *(a) a person who purchases charged land from the chargee or receiver, except where the chargee is the purchaser; or* *(b) a person claiming the charged land through the person who purchases charged land from the chargee or receiver, including a person claiming through the chargee if the chargee and the person so claiming obtained the charged land in good faith and for value.* *(2) A person to whom this section applies—* *(a) is not answerable for the loss, misapplication or non-application of the purchase money paid for the charged land;* *(b) is not obliged to see to the application of the purchase price;* *(c) is not obliged to inquire whether there has been a default by the chargor or whether any notice required to be given in connection with the exercise of the power of sale has been duly given or whether the sale is otherwise necessary, proper or regular.* *(3) A person to whom this section applies is protected even if at any time before the completion of the sale, the person has actual notice that there has not been a default by the chargor, or that a notice has been duly served or that the sale is in some way, unnecessary, improper or irregular, except in the case of fraud, misrepresentation or other dishonest conduct on the part of the chargee, of which that person has actual or constructive notice.* *(4) A person prejudiced by an unauthorised, improper or irregular exercise of the power of sale shall have a remedy in damages against the person exercising that power.* 1. The aforementioned section is clear that a purchaser of property sold in the exercise of a chargee’s statutory power of sale is protected even in cases where the person had actual notice that the charge had not properly realized that statutory power of sale in terms of procedure. Indeed, once a property has been knocked down and sold in a public auction by a chargee in exercise of its statutory power of sale, the equity of redemption of the charger is extinguished. The only remedy for the chargor who is dissatisfied with the conduct of the sale is to file suit for general or special damages (see **Jacob Ochieng' Muganda v Housing Finance Company of Kenya Limited [2002] KECA 109 (KLR)** and **Bomet Beer Distributors Ltd, Wilson Maritim Lasoi v Kenya Commercial Bank Ltd & 4 others [2005] KEHC 2932 (KLR**)]. In **David Isoe Ayubu v I&M Bank Limited & another; Kipsosion Rerimoi Kipkorir (Interested Party) [2020] KEHC 633 (KLR)**, Mwita J.,(as he was then) also held that failure to pay the bid price as per the terms of the sale does not invalidate a sale or revert property to the chargor and failure to pay the balance of the purchase price within time could not also revert the suit property to the chargor. Sunrise cannot reclaim the suit property or have the sale declared null and void simply because it disagrees with the outcome. Further, its argument that the auction was invalid because the 25% deposit was late and the balance was not paid within 90 days is insufficient to void the sale as the purchaser's delay does not give Sunrise a right to have the sale set aside or to recover the suit property. 2. There was also no evidence that the procedural irregularities pointed out by Sunrise prejudiced it to a point that it suffered loss or injury worth compensable by way of damages. From the evidence, Sunrise was already in default as it had stopped servicing the loan and had received multiple statutory notices and PW 1 admitted this fact stating that the company defaulted within a year of taking the loan. The sale proceeds of Kshs.60,000,000.00/- were applied to reduce the debt and Sunrise has not made any payments toward the debt since the sale. PW1 also admitted that all notices were received, the Company did not pay as per the notices and a significant debt remained after the sale. Sunrise could not demonstrate that it had the ability to redeem the property as it had already defaulted and was struggling financially or that it suffered a loss because of the auction irregularities, as opposed to its own failure to repay the loan. 1. Since the Bank issued proper statutory notices, obtained a professional valuation within 12 months of the sale, conducted the auction after Sunrise’s injunction application was dismissed, sold the suit property for a price that exceeded 75% of the market value and applied the proceeds to reduce the debt, these findings undermine any claim for damages because they show that the Bank acted reasonably, lawfully, and in good faith. For these reasons, Sunrise has not made out a case for damages and the auction and sale of the suit property stands. **Martin’s liability to pay the outstanding loan as per the Guarantee** 1. The heart of Martin’s case is that the Bank's claim against him is founded on the Personal Guarantee he executed as a shareholder and director of Sunrise and that it is undisputed that the Bank was notified, by letter dated 5th July 2013, that he had ceased to be a director and shareholder. Given this notice, he submits the Bank was obligated to furnish new personal guarantee forms for execution by the incoming shareholders/directors, which it did not do. 2. He submits that, by dint of **Article 159(2)(d) and (e**) of the ***Constitution***, the Court should be guided by the principle of substantive justice, which eschews enforcement of justice on the basis of technicalities, and that continuing to enforce a personal guarantee against someone who, to the Bank's knowledge, was no longer a director or shareholder, offends that principle. 3. He relies on definitions of "substantive justice" as an outcome that is fundamentally fair and equitable even where strict adherence to procedure might suggest a different result and submits that **Article 27** of the ***Constitution*** on the right to equality and equal benefit of the law is engaged, because once he ceased to be a director and shareholder he could derive no further benefit from the Bank's loan to Sunrise and the Bank subsequently dealt with Sunrise without any reference to him making it unconscionable to hold him liable in these circumstances. 1. Martin invokes the Court of Appeal's decision in **Kanwal Sarjit Singh Dhiman v Kenshavji Jivraj Shah (2025) KECA 1264 (KLR)** for the doctrine of unconscionability in contract law and submits that while courts should not rewrite bad bargains for parties who belatedly regret them, courts also should not force unconscionable contracts. Applying this, he submits that enforcing the guarantee against him now would endorse the Bank's alleged scheme to turn the guarantee into an instrument of injustice, given that the Bank was on notice he had ceased to be a director/shareholder and had, in fact, stopped dealing with him altogether. 2. He further submits that the Bank would be unjustly enriched by a decree obtained against a party who could not benefit from the underlying transaction after ceasing to be a director and shareholder, that **Article 40** of the ***Constitution*** extends to protecting him from a court action not founded in law or equity and that, under **Article 47**, if the Bank genuinely believed he remained liable, it was obliged to keep him notified of matters relating to loan repayment and the intended sale, which it did not do, and so cannot now turn around and hold him liable for the outstanding balance following the auction. 3. Finally, Martin submits that the Bank's counterclaim does not plead any basis upon which it seeks to enforce the Personal Guarantee against him after he ceased to be a director and shareholder, and that this omission violates **Order 2 Rule 3** of the ***Civil Procedure Rules*** as read with **Article 50** of the ***Constitution***. 4. On its part, the Bank submits that Martin’s argument is at best strained and he relies on specific clauses within the Joint and Several Guarantees including Clause 1(a)(iii) which provides that, in the event of discontinuance by any means of the Guarantees, all payments and liabilities on account of the Borrower up to the point of discontinuance become payable; Clause 1(d) which provides that the Guarantee and Indemnity remain in full force and effect notwithstanding any change in the constitution of the customer and; Clause 5 which provides that a party may revoke the Guarantee and Indemnity only by written notice to the Bank, taking effect only 90 days after the Bank's written acknowledgment of receipt of that notice and that such revocation does not affect liability and obligations that accrued before the notice of revocation was issued. 5. The Bank submits that it is acknowledged by both Charles and Martin that the guarantees were willingly and consciously executed, that all pages of the guarantees are duly executed, and that this was confirmed in testimony before the Court. The contract between the guarantors and the Bank is therefore duly binding and that the Court cannot rewrite that contract as between the parties, citing **National Bank of Kenya Ltd v. Pipeplastic Samkolit (K) Ltd & another [2001] KECA 362 (KLR)**. That given that the amounts due and owing to the Bank, arising from the Sunrise’s default, have not been fully settled and are not genuinely disputed, the Bank urges the Court to award the orders sought in the counterclaim so as to enable it to recover the amounts it lent. The Bank adds the broader submission that, as an institution lending public depositors' funds rather than its own capital, it is appropriate for the Court to enable it to recover amounts lent to customers and/or borrowers. 6. By its very definition in the **11th Ed.** of the **Black’s Law Dictionary,** a guarantee means to assume a suretyship obligation; to agree to answer for a debt or default; to promise that a contract or legal act will be duly carried out; or to give security for. The nature of a guarantee was described by the Court of Appeal in **Muthara & another v Barclays Bank of Kenya Ltd & another [2017] KECA 685 (KLR)** as follows:- *23****.* A *guarantee by definition is a pledge by a person (guarantor), other than a party upon whom the contractual or other legal obligation is imposed, to the effect that if the party so bound (principal) fails to perform the act in question, the guarantor, will either perform or make good any loss or claim arising from the non-performance. The pledge is ordinarily made to a creditor. The essence is that the guarantor agrees not to discharge the liability in any event, but to do so only if the principal debtor fails to honour his duty. Geraldine Andrews & Richard Millet succinctly described the nature of a guarantee in “The Law of Guarantees” (supra) at page 156 as herein under:- “A contract of guarantee is an accessory contract, by which the surety undertakes to ensure that the principal performs the principal obligations. It has been described as a contract to indemnify the Creditor upon the happening of a contingency namely the default of the principal to perform the principal obligation. 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.” Emphasis added****.* 1. From the above, a guarantee makes clear that it is a contractual promise by the guarantor to answer for the debt of another and it is not dependent on the guarantor remaining a director or shareholder of the principal debtor. It is a personal obligation undertaken by the individual who signs it, it is not tied to the office of director or to shareholding and it is tied to the debt of the principal debtor, in this case, Sunrise. 2. In his testimony, Martin admitted that he signed the guarantee and he understood its terms. When Martin signed the personal guarantee, he was making a personal promise to the Bank that if Sunrise defaulted, he would pay and that promise does not automatically disappear when he resigns as a director or sells his shares. He admitted that even though he communicated to the Bank about his cessation as a director and shareholder of Sunrise, the Bank responded through its letter dated 6th September 2013(Dexhibit 23) that Martin remains bound by the terms of the guarantee until the debt is repaid or the guarantees cancelled or replaced. Martin admitted that he did not have any evidence of his guarantee ever being substituted. He also admitted that as per the terms of the guarantee, the same remains in full force “*…notwithstanding any changes in the constitution of [Sunrise]...”* and that his obligation arose at the moment Sunrise defaulted on the loan and that default occurred while he was still a director and shareholder, and it continued thereafter. 3. Since Sunrise defaulted on the loan facility as early as 2010, Martin's guarantee was triggered at that point of default and even if Martin resigned as a director in 2013, his secondary obligation had already arisen and continued to exist. The guarantee is accessory to the debt and the debt remained outstanding and he could only be released from the guarantee if the principal debt was fully paid or the Bank expressly releases the guarantor or the creditor varies the terms of the principal contract to the guarantor's prejudice without consent. Martin was not released by the Bank; the debt was not paid in full and no acceptable substitute guarantee was provided. Therefore, it follows that Martin remains bound under the terms of the guarantee to repay the debt owed by Sunrise. 4. It is also my finding that the unconscionability argument raised by Martin is narrow and does not apply where a party freely and voluntarily entered into a contract with full knowledge of its terms. Martin voluntarily signed the guarantee and knew or ought to have known that a guarantee is not automatically discharged upon resignation from a company. The Court of Appeal in ***Kanwal Sarjit Singh(supra)***makes clear that courts should not rewrite bad bargains for parties who belatedly regret them. The test for unconscionability requires both procedural and substantive unconscionability but neither was established here. It is therefore my overall finding on this issue that Martin is liable to pay the loan outstanding as at 24th February 2015 under the terms of the Guarantee. **Merit of the Bank’s counterclaim** 1. My findings above dispose of this issue in the affirmative. Sunrise took a loan of Kshs.60,000,000.00/- from the Bank, secured by a legal charge over the suit property. Sunrise defaulted on the loan as early as 2010 and failed to rectify the default despite receiving multiple statutory notices. The suit property was lawfully sold at a public auction on 24th January 2014 for Kshs.60,000,000.00/-, the sale proceeds were applied to reduce the debt, but a significant shortfall remained which the Bank avers is Kshs.87,397,404.52/-, less sale proceeds of Kshs.60,000,000.00/- leaving a residual balance of Kshs.41,352,143.17/- as at 24th February 2015 and the Bank produced a statement of account to demonstrate this balance (DExhibit 25). Under **section 176** of the ***Evidence Act,*** this statement is presumed correct and since Sunrise did not challenge them with any contrary evidence, they remain the true account of its indebtedness. There is also no evidence that Sunrise has made any further payments toward the debt and thus, it remains the principal debtor and is liable for the outstanding balance of Kshs.41,352,143.17/- plus interest at the contractual rate of 22% per annum until payment in full. 2. Charles and Martin executed guarantees on 2nd June 2009. The guarantees were personal promises to pay all sums due and owing by Sunrise to the Bank. Sunrise defaulted, triggering their liabilities as guarantors and the guarantee clauses are explicit that they remain in full force and effect despite any change in the company's constitution, revocation requires written notice to the Bank and does not affect liabilities that accrued before revocation. None of them served a valid notice of revocation and the Bank never released them from the guarantees. 3. Martin resigned as a director and shareholder in March 2013 and sold his shares to ***United Way Kenya Limited*,** however, he defaults had already occurred before his resignation and the guarantee continued despite changes in the company's constitution. Therefore, Martin and Charles, as joint and several guarantors, are also liable for the outstanding balance of Kshs. 41,352,143.17/- plus interest at 22% per annum until payment in full. **Reliefs sought by Sunrise** 1. My findings above dispose of the Sunrise’s suit in the negative and I find that they are not entitled to the reliefs sought in its suit. **Conclusion and Disposition** 1. In the upshot, I now make the following dispositive orders:- 2. **Sunrise’s suit is dismissed.** 3. **The Bank’s counterclaim is allowed.** 4. **Judgment be and is hereby entered in favour of the Bank against Sunrise, Charles and Martin jointly and severally for the sum of Kshs.41,352,143.17/- plus interest at 22% per annum until payment in full from the date of judgment.** 5. **The Bank is awarded costs of the suit and counterclaim to be paid Sunrise, Charles and Martin.** **DATED SIGNED and DELIVERED virtually at NAIROBI this 17TH DAY OF JULY 2026** **............................................................................** **J.W.W. MONGARE** **JUDGE** **IN THE PRESENCE OF** 1. Mr. Wanjohi for the Plaintiff. 2. Mr. Mwango for the 1st and 2nd Defendant. 3. Ms. Musungu holding brief for Kibe Mungai for the 3rd Defendant. 4. Amos- Court Assistant