https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/10409

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT NAIROBI** **MILIMANI LAW COURTS** **THE CIVIL APPELLATE DIVISION** *(****Coram: A.C Mrim, J.)*** **SMALL CLAIMS CIVIL APPEAL NO. E016 OF 2025** ***-between-*** **THE MONARCH HOTEL LIMITED ......................................... APPELLANT** ***-versus-*** 1. **LAKE GAS LIMITED** 2. **THE MONARCH BOUTIQUE HOTEL LIMITED………...RESPONDENTS** ***[Being an appeal against the Judgment and Decree of Hon. B. Akinyi in Small Claims Court Commercial Case No. E8606 of 2024 delivered on 28th February 2025]*** **JUDGMENT** **Background:** 1. *Lake Gas Limited*, the 1st Respondent herein, instituted *Nairobi [Milimani] Small Claims Court Commercial Case No. E8606 of 2024* [hereinafter referred to as ***‘the suit’***] against *The Monarch Hotel Limited* and *The Monarch Boutique Hotel Limited*, the Appellant and the 2nd Respondent herein respectively and two individual directors, seeking the recovery of Kshs. 122,249.62/-. The claim was predicated on liquefied petroleum gas sold and delivered on diverse dates between 20th November 2023 and 11th January 2024. 2. On 28th February 2025, the trial Court delivered its judgment, dismissing the suit against the individual directors. However, it entered judgment in favour of the 1st Respondent against the Appellant and the 2nd Respondent, jointly and severally, for the sum of Kshs. 122,249.62 plus costs. 3. That decision prompted the filing of the instant appeal which was heard by way of written submissions. **The Appeal:** 1. Aggrieved by the trial Court’s decision, the Appellant lodged a Memorandum of Appeal dated 11th March 2025 and preferred the following grounds: - 1. *THAT the Trial Court erred in law and in fact by entering a judgment against the Appellant and 2nd Respondent jointly and severally for KSHS. 122,249.62/= plus costs of the suit which judgment against the Appellant was not supported by any document.* 2. *THAT the Trial Court erred in law and in fact by not recognizing the management agreement between the Appellant and the 2nd Respondent which allowed the 2nd Respondent to take over the management and control of all the Appellant’s operations with effect from 7th November 2023.* 3. *THAT the Trial Court erred in law and in fact by holding that the Appellant received goods from the 1st Respondent when the evidence provided clearly indicated only the 2nd Respondent was in receipt of the goods.* 4. *THAT the Trial Court erred in law and in fact by failing to appreciate that the 2nd Respondent had made clear admission acknowledging that the 2nd Respondent had received goods supplied and that the goods were not supplied to the Appellant. The 2nd Respondent made this clear admission in the witness statement dated 11th October 2024.* 5. *THAT the Trial Court erred in law and in fact by failing to appreciate the fact that the 2nd Respondent acknowledged that it was obligated to settle all the debts and liabilities owing to the Appellant.* 6. *THAT the Trial Court erred in law and in fact by failing to recognize the clause in the Management Agreement that any remaining debtors and creditors of the Appellant were to go to the account of the 2nd Respondent with effect from 7th November 2023.* 7. *THAT the Trial Court erred in law and in fact by holding that Credit Application Forms and Consignment of stocks agreement amount to valid contract between the 1st Respondent and the Appellant.* 8. *THAT the Trial Court erred in law and in fact by holding that there was a valid contract between the 1st Respondent and the Appellant without production of any valid written agreement or any evidence to an agreement.* 9. *THAT the Trial Court erred in law and in fact by holding that the Appellant is liable for payment to the 1st Respondent despite the court’s recognition that the 2nd Respondent was the manager of the Appellant and that the 2nd Respondent acknowledged receipt of the goods supplied by the 1st Respondent.* *The Submissions:* 1. The Appellant filed written submissions dated 13th June 2025. It was its case that the question whether a trial Court properly considered and evaluated evidence to arrive at a correct determination constitutes a point of law. To that end, it drew support from the decisions in *Peter Gichuki King’ara -vs- IEBC & 2 others* and *Aesthetics Limited -vs- Times and Seasons Chemicals* Civil Appeal No. E027 of 2023 (2025) eKLR. 2. On the substance of the appeal, the Appellant argued that the Management Agreement dated 7th November 2023 established an independent manager/operator relationship, rather than an agency relationship, vesting full operational control in the 2nd Respondent. To buttress this point, the Appellant relied on the precedent in *Commissioner of Domestic Services -vs- Dutch Flower Groups Kenya* Income Tax Appeal E101 of 2020 KEHC 23 (KLR) regarding the degree of control requisite for creating an agency. 3. The Appellant contended that exceptions to the doctrine of privity of contract applied. Drawing from the decision in *Savings & Loan (K) Limited -vs- Kanyenje Karangaita Gakombe & another* 2015 eKLR and *Ali Abdi Mohammed v Kenya Shell Company Ltd* (2017) eKLR, it asserted that an implied contractual relationship emerged between the 1st and 2nd Respondents through the latter’s conduct of receiving the supplied gas and acknowledging the debt. **The 1st Respondent’s case:** 1. *Monarch Hotel Limited* responded to the appeal through written submissions dated 30th June 2025. It asserted that a valid, binding contract existed between itself and the Appellant by virtue of the executed Credit Application and Consignment Forms, which fulfilled the legal tenets of offer, acceptance and consideration. Calling to its aid the decision in *Isaac Mugweru Kiraba t/a Isamu Refri-Electricals -vs- Net Plan East Africa Limited*, the 1st Respondent submitted that having discharged its obligation to deliver the goods pursuant to the contract, the burden lay on the Appellant to remit the purchase price. 2. The 1st Respondent further argued that it was entirely a stranger to the Management Agreement executed between the Appellant and the 2nd Respondent, and therefore, under the doctrine of privity of contract as elucidated in *Mark Otanga Otiende -vs- Dennis Oduor Aduol* (2021) eKLR, it could not be bound by its terms or forced to transfer liabilities. In reference to the longstanding guidance laid in *Mbogo & Another -vs- Shah* (1968) EA on discretion, it urged the Court to respect the trial Court’s discretionary findings. 3. The 1st Respondent urged this Court to dismiss the appeal with costs. **The 2nd Respondent’s case:** 1. In its submissions dated 10th July 2025, the 2nd Respondent opposed the trial Court’s finding of joint and several liability. It submitted that the Management Agreement vested it with the mandate to manage the hotel on behalf of the Appellant, rendering it a disclosed agent. In reference to the decision in *City Council of Nairobi -vs- Wilfred Kamau Githua Associates & Another* (2016) eKLR the 2nd Respondent argued that a disclosed agent cannot be sued for the principal’s obligations. 2. The 2nd Respondent further submitted that the supply contract for the liquefied petroleum gas was exclusively between the 1st Respondent and the Appellant. Citing the authority in *Autoports Freight Terminals Limited -vs- General* KEHC 22163 (KLR), *Redington Kenya Limited -vs- Thomas N. Nabende (*2021) eKLR, and the Court of Appeal decision in *Savings & Loan (K) Limited -vs- Kanyenje Karangaita Gakombe & Another* (2015) eKLR, the 2nd Respondent emphasized that a contract only binds the parties thereto and cannot impose obligations on a third party. 3. Equally, the 2nd Respondent urged this Court to dismiss the appeal with costs. **Analysis and Determination:** 1. Upon reviewing the pleadings, the record of appeal, and the rival submissions, the following issues crystalize for determination: - 1. *Whether the appeal raises matters of law within the statutory strictures of Section 38(1) of the Small Claims Court Act.* 2. *Whether the trial Court erred in law by holding the Appellant and the 2nd Respondent jointly and severally liable for the 1st Respondent’s claim.* 2. A consideration of the above issues now follows. **[a] Whether the appeal raises matters of law within the statutory strictures of Section 38(1) of the Small Claims Court Act:** 1. The jurisdiction of the High Court to entertain appeals from the Small Claims Court is strictly circumscribed by Section 38(1) of the Small Claims Court Act in the following terms; ***38. Appeals*** *(1) A person aggrieved by the decision or an order of the Court may appeal against that decision or order to the High Court on matters of law.* 1. In ***M’bagine -vs- Nyaga***(Civil Appeal 172 of 2019) [2026] KECA 335 (KLR) the Court of Appeal outlined its role as a second appellate court and in the process discussed matters of law as follows; *For second appeals, this Court has repeatedly stated the limiting principle in Kenya Breweries Ltd v Godfrey Odoyo [2010] eKLR and Stanley Maore v Geoffrey Mwenda [2004] eKLR: that interference with concurrent factual findings is not warranted unless the conclusions are plainly wrong in law on the recognized exceptions.* *The same approach is reflected in Karingo v Republic [1982] KLR 213 and M’Riungu v Republic [1983] KLR 455, where the Court emphasised that a second appeal must be confined to points of law, and that a complaint about facts only becomes a point of law if the findings are unsupported by evidence or disclose a misdirection in principle.* 1. In ***Gatirau Peter Munya -vs- Dickson Mwenda Kithinji & 2 Others*** *[*2014] eKLR the Supreme Court restated that an issue may be one of law where there is a misapplication of legal principle or a conclusion not supported by the evidential record. In the case of ***J N & 5 Others -vs- Board of Management, St. G School Nairobi & Another*** *[*2017] eKLR, the Court discussed points of law in the following fashion. *In law, a question of law, also known as a point of law, is a question that must be answered by applying relevant legal principles to interpretation of the law. Such a question is distinct from a question of fact, which must be answered by reference to facts and evidence as well as inferences arising from those facts. Such a question is distinct from a question of law, which must be answered by applying relevant legal principles. The answer to a question of fact (a finding of fact) usually depends on particular circumstances or factual situations.* 1. In *Peter Gichuki King’ara v IEBC & 2 others Nyeri Civil Appeal No. 31 of 2013* matters of law were discussed in the following fashion; *The question whether the trial court properly considered and evaluated the evidence and arrived at a correct determination that is supported by law of evidence with the caveat that the appeal court did not see the witness demeanor is an issue of law.* 1. Coming back to the issue at hand, as aptly established by the Supreme Court in ***Gatirau Peter Munya -vs- Dickson Mwenda Kithinji & 2 Others***case [supra] and mirrored by the Court of Appeal in *Peter Gichuki King’ara -vs- IEBC & 2 others* case [supra], the determination of whether a trial Court properly evaluated the evidentiary record to arrive at a legal conclusion is inherently a question of law. Accordingly, the Appellant’s challenge concerning the legal effect of the Management Agreement, the imputation of an implied contract, and the application of the doctrine of privity, squarely fall within the purview of matters of law. The appeal is therefore properly before this Court. **[b] Whether the trial Court erred in law by holding the Appellant and the 2nd Respondent jointly and severally liable for the 1st Respondent’s claim:** 1. The 1st Respondent’s substantive claim for Kshs. 122,249.62 was rooted in an Account Opening Form, a Credit Application Form, and an Agreement Form for Consignment Stocks, which were all executed on 25th August 2021. From a perusal of the foregoing documents there was express contractual nexus, setting a credit limit of Kshs. 100,000 for the supply of liquefied petroleum gas to the Appellant. The documents bear the Appellant’s official stamps and the signatures of its authorized personnel, unequivocally fulfilling the legal tenets of offer, acceptance, and consideration required for a valid, binding contract. 2. The Appellant sought to entirely absolve itself of liability by wielding a Management Agreement executed between itself and the 2nd Respondent on 7th November 2023. In its defence, the Appellant leaned heavily on the “rates and land rent” clause within paragraph (k) of the said Management Agreement which stipulates that the Appellant was to bring all debtors and creditors up to date as of the commencement date, after which *“all debtors and creditors shall be for the account of the manager/operator*”. 3. Flowing from the above, the 1st Respondent was entirely a stranger to the foregoing bilateral Management Agreement. The principle of the doctrine of privity of contract requires that an agreement cannot confer rights or unilaterally impose obligations on any person other than the signatory parties. In ***Karuri Civil Engineering (K) Limited -vs- Equity Bank Limited*** *[2019] KECA 866 (KLR)* the Court of Appeal, in reference to various decision discussed the subject thus; *26. We are minded that the general rule on privity of contract is well captured in Dunlop Pneumatic Tyre Co Ltd vs. Selfridge & Co Ltd [1915] AC 847, where Lord Haldane, LC rendered the principle thus:* *“My Lords, in the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it.”* *27. Adopting the same line of reasoning Hancox, JA, in Agricultural Finance vs. Lengetia Ltd [1985] KLR 765 stated:* *“As a general rule, a contract affects only the parties to it, it cannot be enforced by or against a person who is not a party, even if the contract is made for his benefit and purports to give him the right to sue or to make him liable upon it. The fact that a person who is a stranger to the consideration of a contract stands in such near relationship to the party from whom the consideration proceeds that he may be considered a party to the consideration does not entitle him to sue upon the contract.”* 1. Essentially, therefore, the Appellant lacked the legal capacity to unilaterally transfer its accrued and ongoing contractual liabilities to the 2nd Respondent without the express consent and participation of the 1st Respondent. Consequently, the Appellant remained strictly bound by the terms of the 25th August 2021. 2. Turning to the culpability of the 2nd Respondent, it attempted to exculpate itself by asserting the status of a mere disclosed agent. It relied on the common law principle that a disclosed agent cannot be sued for the principal’s obligations. The 2nd Respondent further contended that the supply contract only binds the parties thereto limiting liability exclusively to the 1st Respondent and the Appellant. 3. The evidence, however, dismantles the 2nd Respondent’s defence. The 2nd Respondent actively received the gas cylinders, firmly affixing its official *“Received”* stamp, clearly reading *“The Monarch Boutique Hotel*”, on the 1st Respondent’s Delivery Notes and corresponding Invoices dated 27th November 2023, 2nd December 2023, 9th December 2023, 18th December 2023, 21st December 2023, 11th January 2024, and 22nd January 2024. 4. By actively receiving the goods, stamping the invoices, and engaging in direct promises to remit payment, the 2nd Respondent birthed an implied contract through conduct. It aligns with the rationale in ***Ali Abdi Mohamed -vs- Kenya Shell Company Limited*** [2017] eKLR which dictates that an implied promise is inferred in law to give a transaction the effect the parties intended. In the said case the Court of Appeal observed; *20. On implied contracts, the Court of Appeal in Ali Abdi Mohamed vs. Kenya Shell & Company Limited (2017) eKLR referred to the following persuasive decisions:* *…. In Lamb v Evans [1893]1 Ch 218, Bowen LJ stated: “…The common law, it is true, treats the matter from the point of view of an implied contract, and assumes that there is a promise to do that which is part of the bargain, or which can be fairly implied as part of the good faith which is necessary to make the bargain effectual. What is an implied contract or an implied promise in law? It is that promise which the law implies and authorizes you to infer in order to give the transaction that effect which the parties must have intended it to have, and without which it would be futile.* *Bingham LJ in The Aramis [1989] 1 Lloyd’s Rep 213 made some general observations about the circumstances in which a contract might be implied. At p 224 col 1, he said:* *“As the question whether or not any such contract is to be implied is one of fact, its answer must depend upon the circumstances of each particular case - and the different sets of facts which arise for consideration in these cases are legion. However, I also agree that no such contract should be implied on the facts of any given cases unless it is necessary to do so; necessary that is to say, in order to give business reality to a transaction and to create enforceable obligations between parties who are dealing with the one another in circumstances in which one would expect that business reality and those enforceable obligations to exist.* 1. In addition to the foregoing, under the *General Indemnity clause* of the *Management Agreement*, the 2nd Respondent expressly covenanted to indemnify the Appellant against all actions, claims, liabilities, costs, and expenses arising during its operational tenure. 2. In conclusion, therefore, the Appellant’s liability is irrefutably grounded in the unbroken chain of the express, written credit and consignment agreements it executed. As for the 2nd Respondent, liability is firmly cemented by its active receipt of the goods, its direct promises to remit payment, and its contractual assumption of operational debts under the Management Agreement. As a result, this Court finds that imposition of joint and several liability by the trial Court is supported by the documentary evidence and sound legal doctrine. **Disposition:** 1. Based on the foregoing analysis, the Appellant has failed to demonstrate any error of law warranting the interference of this Court with the trial Court’s judgment. 2. In the end, the following final orders hereby issue: - **[a] The Appeal is hereby dismissed in its entirety.** **[b] The Judgment of the Small Claims Court delivered on 28th February 2025 is upheld.** **[c] The Appellant and the 2nd Respondent shall jointly and severally bear the costs of this appeal.** **Orders accordingly.** **DELIVERED**, **DATED** and **SIGNED** at **NAIROBI** this **15th** day of **July, 2026.** **A. C. MRIMA** **JUDGE** **Judgment virtually delivered in the presence of:** **Miss Kibii,** LearnedCounsel for the Appellant. **Miss Were,** Learned Counsel for the 1st Respondent. **Mr. Mugambi,** Learned Counsel for the 2nd Respondent. **Amina** –Court Assistant.