ALICE GICUKU NYAGA VS STANLEY NJERU MBGO AND PROGRESSIVE CREDIT LIMITED

(Appeal arising from the decision of Hon. J.W. Gichimu SPM in Magistrate’s Court at Runyenjes SPMCC No. 105 of 2022 delivered on 09^th November, 2023)

1. The appeal herein has been filed vide memorandum of appeal dated 27^th November 2023 through which the appellant seeks orders that:
   1. The appeal be allowed and the court be pleased to set aside the judgment of 09^th November 2023 and the decree thereof;
   2. The 2^nd respondent be compelled to unconditionally discharge parcel number Kaagari/Kanja/3152 and surrender its original title deed to the appellant;
   3. Costs of the appeal be provided for; and
   4. Any other order as the court may deem fit and just.
2. This appeal is premised on the grounds that the learned trial magistrate erred in law and fact:
   1. By failing to recognize and/or appreciate the fact that the charge made on 06^th February 2019 had a prescribed maximum debt cover of Kshs.300,000/= hence arrived at a wrong decision;
   2. In failing to appreciate that the notice to sell dated 20^th September 2022 sent to the appellant was illegal, null and void as the amount claimed therein by the 2^nd respondent exceeded the maximum debt covered under the charge made on 06^th February 2023;
   3. In failing to appreciate that the loan facility application form dated 02^nd January 2020 was illegal and unenforceable for want of compliance of its mandatory completion notes;
   4. In failing to find that the loan facility application form dated 06^th January 2020 was doctored/ altered by the 2^nd respondent to disadvantage the appellant and the 1^st defendant as the said document does not comply with its mandatory completion notes;
   5. In finding that the 2^nd respondent had the right to exercise its statutory power of sale to recover monies disbursed through the altered and illegal loan facility application form dated 02^nd January 2020;
   6. In failing to find that the loan facility form dated 11^th December 2020 was informal charge under section 79(6) of the Land Act and the monies secured therein by the 1^st respondent could only be recovered through obtaining a court order;
   7. In finding that the 2^nd respondent had the right to exercise its statutory power of sale to recover the full monies claimed, monies which exceeded the maximum debt cover under the registered charge made on 06^th February 2019;
   8. In finding that the appellant had not proved her case to the required standard notwithstanding the glaring anomalies present in the 2^nd defendant’s documentary evidence which bolstered the appellant’s case; and
   9. In failing to find that the charge made on 06^th February 2019 was void as its very nature of being a continuing security curtails the appellant’s rights protected under section 85(2) of the Land Act.
3. The appellant filed a plaint seeking judgment against the respondents jointly and severally for:
   1. A declaration that the charge obtained over land parcel number Kaagari/Kanja/3152 by the 2^nd respondent is illegal, fraudulent, null and void;
   2. An order for permanent injunction restraining the 2^nd respondent and their agents, employees, servants or anyone claiming through them from attaching, selling, alienating or in any way dealing with the appellant’s husband’s land parcel number Kaagari/Kanja/3152;
   3. The 2^nd respondent be ordered to discharge and release the title deed for land parcel number Kaagari/Kanja/3152 to the appellant;
   4. Costs of the suit; and
   5. any other relief the court may deem fit.
4. It was the appellant’s case that her husband, the deceased herein, was the registered owner of land parcel number Kaagari/Kanja/3152, which he used to guarantee a loan for the 1^st respondent advanced by the 2^nd respondent. That the 1^st respondent paid the loan in full and the deceased died before the charge could be discharged. That 5 months after the death of the deceased, the 1^st respondent fraudulently proceeded to charge the property for another loan of KShs.299,429/= from the 2^nd respondent without the appellant’s knowledge or consent. It followed that the 1^st respondent defaulted to service the loan and it accrued interest standing at Kshs.384,229/= by 20^th September 2022. She stated that the 2^nd respondent issued a notice of intention to sell the land and it is the only property left by her deceased husband.
5. The 1^st respondent filed a statement of defense stating that he completed payment of the loan of Kshs.299,459/= in August 2020 and he later secured an emergency loan of Kshs.100,000/= from the 2^nd respondent in December 2020 and the money was deposited into his Mpesa account. He denied having secured another loan with the deceased’s land and having failed to repay the same. The 2^nd respondent filed a statement of defense denying the allegations made in the plaint. It argued that the chargor was responsible for ensuring that the loan secured using his property was fully paid.
6. During the hearing, PW1 was the appellant who stated that the 2^nd respondent granted a loan to the 1^st respondent in 2019. That she signed loan agreement consent forms for the loan security. That the deceased was the one in communication with the 1^st respondent but he died in June 2020 and the 1^st respondent told her that he had informed the bank of the death of the deceased but the loan balance stood at kshs.130,000/=. That she did not go to the 2^nd respondent until she received the notice of sale. She stated that she did not know when the 1^st respondent applied for the 2^nd and 3^rd loans but she signed the initial charge document.
7. DW1 was the 1^st respondent who stated that he was given 3 loans by the 2^nd respondent and last one of Kshs.100,000/= was not secured but the 2^nd loan of Kshs.300,000/= was secured by the deceased’s title deed. That the 1^st loan was secured by his household goods. He denied having taken a loan of Kshs.322,246/= in January 2020 and he stated that he did not understand the contents of the loan agreement form and that the signature on the form was not his. He stated that the loan was not disbursed to him. That he paid the first loan and did not top it up and whatever he had borrowed, he repaid in full. That he did not write a letter but his wife went to the 2^nd respondent and was told to await the process of releasing the title deed.
8. DW2 was Joyce Mukami Mbogo, DW1’s wife who stated that the deceased guaranteed her husband’s loan of Kshs.300,000/= in 2019 and offered his title deed as security. That she saw a letter from the 2^nd respondent claiming the sum of Kshs.299,000/= but DW1 told her that he owed Kshs.100,000/= being an unsecured loan.
9. DW3 was Geoffrey Maina, a regional manager of the 2^nd respondent. He stated that the 1^st respondent took 3 loans being Kshs.300,000/= through a letter dated 25^th January 2019, Kshs.322,246/= through a letter dated 02^nd January 2020 and Kshs.299,000/= through a letter dated 11^th December 2020. That all the loans were disbursed to him and secured using the deceased’s property and a continuing charge was created to that effect. He denied that they took advantage of the deceased’s death to advance more loan facilities to the 1^st respondent.
10. The court considered the evidence adduced and dismissed the appellant’s case stating that she did not prove her case to the required standard. The appeal herein was canvassed by way of written submissions.
11. The appellant submitted that the perfected charge over parcel number Kaagari/Kanja/3152 dated 06^th February 2019 stated that the maximum loan amount was an aggregate sum of Kshs.300,000/=, thus the 2^nd respondent cannot purport to recover more than the said amount from the intended sale. That going by the 2^nd respondent’s evidence, the 1^st respondent owed Kshs.921,675/= and the amount is allegedly secured by the said charge. She relied on the case of Rajnikantkhetshi Shah v. Habib Bank A.G. Zurich (2016) eKLR. It was her argument that the guarantor/chargor should only be responsible for the charge amount and not for the 1^st respondent’s cumulative debt.
12. She cited the doctrine of estoppel and relied on the cases of Engineers Limited & Another v. National bank of Kenya (2020) eKLR and Serah Njeri Mwobi v. John Kimani Njoroge (2013) eKLR, arguing that the 2^nd respondent should be estopped from claiming an amount that is more than the maximum amount provided in the charge. That the 1^st respondent’s subsequent loans were not secured by the deceased’s property and he admitted this in his statement of defense hence he should be held accountable. She alluded to the equitable maxim of ‘Equity will not allow a statute to be used as a cloak for fraud’.
13. She urged that the 2^nd respondent should be accountable for all the money it has purportedly disbursed as loans without knowledge of the chargor and that it should be ordered to release the original title deed to the appellant. She argued that the 2 subsequent loans arose from informal charges under section 79(6) of the Land Act and the monies should be recovered directly from the 1^st respondent. That the Duplum principle dictates that the chargee can only recover up to twice the principal amount and not more than that. She urged the court to allow the appeal.
14. The 2^nd respondent submitted that the 2 subsequent loans were top-ups meant to clear the outstanding loans thus creating a continuing charge in clause 5.1 of the charge document. That the charge was obtained by consent of the appellant and the amounts can be recovered from selling the property.  It relied on the cases of Kundan Singh Construction Company International Limited v. Bank of Africa Kenya Limited (2015) eKLR and National bank of Kenya Ltd v. Pipeplastic Samkolit (K) Ltd & Another (2001) eKLR.  It further relied on clauses 5.1, 9 and 13 of the charge and sections 90 and 96 of the Land Act.
15. It argued that the court should not grant an injunction as the parameters in the case of Giella v. Cassman Brown & Co. Ltd (1973) EA 358 have not been met. Further reliance was placed on the cases of Mrao Ltd v. First American Bank of Kenya Limited and 2 others (2003) KLR 125 and Elijah Kipng’eno Arap Bii v. Kenya Commercial Bank (2001) eKLR. It relied on sections 1A, 1B and 3A of the Civil Procedure Act and the cases of Kunya Power & Lighting Company Limited v. Benzene Holdings Limited t/a Wyco Paints (2016) eKLR, Equity Bank Limited v. West Link MBO Limited (2013) eKLR and George Munge v. Sanjeev Pancho Sharma & 3 Others (2012) eKLR.
16. The issue for determination is whether the appeal has merit.
17. In determining the said issue, this court, being a first appellate court, is required to revisit the evidence adduced at the trial and re-evaluate it (see the case of Selle & Another vs. Associated Motor Boat Co. Ltd & Others [1968] EA 123).
18. Through a letter dated 25^th January 2019, the 2^nd respondent offered a loan facility of Kshs.300,000/= to the 1^st respondent. Paragraph 6 of the letter provides that the loan would be secured by title deed no. Kagaari/Kanja/3152 which is registered to the deceased and the 1^st respondent’s household chattels. To that effect, the 2^nd respondent created a third-party charge with the deceased as the chargor, the 1^st respondent and the deceased as the borrowers and the 2^nd respondent as the charge. The prescribed maximum debt amount in the charge was the sum of Kshs.300,000/=, placing the obligation for performance of the loan upon the borrower/chargor. The charge instrument was registered on 07^th February 2019, and it was executed by all the parties and the chargor’s spouse who signed a consent to charge as required under the Land Act. Through a document titled ‘loan cash disbursement’ dated 13^th February 2019, the 1^st respondent acknowledged receipt of the borrowed amount, less some bank processing charges thus he received Kshs.276,448/=. The deceased, who was the chargor, died on 24^th June 2020.
19. Through another letter dated 02^nd January 2020, the 2^nd Respondent offered another loan facility of Kshs.322,246/= to the 1^st respondent. Paragraph 2 of the letter states that the purpose of the loan was to be used by the borrower to add stock and offset the balance. At paragraph 6 of the letter it stated ‘the proposed facility will be secured by a pre-existing legal charge created in favour of the lender over land identified by title deed number Kagaari/Kanja/3152 and household chattels’. Through another document titled ‘loan cash disbursement’ dated 07^th January 2020, the 1^st respondent acknowledged receipt of the borrowed amount, less some bank processing charges an outstanding amount of Kshs.57,500/= from the previous loan thus he received Kshs.244,111/=.
20. On 09^th December 2020, the 1^st respondent applied for a business loan of Kshs.100,000/= from the 2^nd respondent and noted that the same would be secured by an unnamed title document. There is also, another business loan form executed on 14^th November 2020 by the 1^st respondent, in which he indicated that the security was parcel number Kagaari/Kanja/3152.
21. Through another letter dated 11^th December 2020, the 2^nd respondent offered another loan facility of Kshs.299,429/= to the 1^st respondent. Paragraph 6 of the said letter indicated that the loan facility was to be secured by parcel number Kagaari/Kanja/3152 and household chattels. Through yet another document titled ‘loan cash disbursement’ dated 11^th December 2020, the 1^st respondent acknowledged receipt of the borrowed amount, less bank processing charges an outstanding amount of Kshs.177,236/= from the previous loan thus he received Kshs.100,000/=. According to the loan statement for this facility, the 1^st respondent defaulted and the amounts stood at Kshs.499,476.65/= as at 05^th December 2022.
22. Through a letter dated 04^th February 2022, the 2^nd respondent issued a letter to the 1^st respondent giving statutory notice of its intention to sell the land parcel number Kagaari/Kanja/3152 to recover the defaulted amount. Another notice of intention was sent dated 20^th September 2022. From the foregoing, there is no doubt that before and after the death of the deceased, the 1^st respondent received loan facility disbursements from the 2^nd respondent naming the deceased’s property as security. The important question is; were all the loan facilities advanced to the 1^st respondent secured through the charge created for the first facility?
23. There is only one property used as security at the point of creation of the charge. A Charge is defined in Section 59 and 2 of the Land Registration Act No. 3 of 2012. Under Section 3 a charge means:

i. An interest in land or a lease securing money or money’s worth or the fulfilment of a condition.

ii. A sub charge.

iii. Instrument creating a mortgage or other charge.

1. This definition envisions the possibility of creation of additional charges on the same property. For clarity, this does not mean that when the legal charge was established, all other facilities will be secured by that same charge over the same property. The 2^nd respondent claimed that clause 5 of the charge instrument created a continuing charge in the sense that all the other loans advanced to the 1^st respondent, with or without creation of other security documentation, were inferred to be secured by the same property through the charge executed at first. This presumption is not correct.
2. A continuous charge simply means that the charge instrument does not come into effect until such time as the loan falls into default. In other words, the charge instrument is just a document to remind the borrower of the consequences of defaulting on the facility and if the borrower defaults, the clauses in the charge come to life for purposes of recovery of the loan by the chargee. In the case of First Capital Limited v Zani (Civil Appeal 222 of 2021) [2024] KEHC 3002 (KLR), the court stated thus regarding a legal charge:

“Being security, therefore the same must be fit for purpose at all times. That is why it is also known as a Continuing Security. The charge does not come into play until there is default or demand.”

1. That being said, it is important to note that for every letter of offer for a loan facility that the 1^st respondent received from the 2^nd respondent, there should have been a further charge instrument over the deceased’s property created to secure the amount borrowed. In the case of the first offer letter dated 25^th January 2019, the legal charge registered on 07^th February 2019 was created. That charge instrument acted as security for the borrowed amount of Kshs.300,000/= only until the same was fully paid or defaulted.
2. Through another offer letter dated 02^nd January 2020, the 2^nd Respondent offered another loan facility of Kshs.322,246/=, part of which was used to offset the balance of the first loan facility thus it was fully settled. Here is on record a ‘loan cash disbursement’ document dated 07^th January 2020, through which the 1^st respondent acknowledged receipt of the amount he borrowed as the second loan, less bank processing charges an outstanding amount of Kshs.57,500/= from first loan amount. From my understanding, that initial loan of Kshs.300,000/= secured through the legal charge was fully paid and the title document ought to have been unencumbered whether or not the chargor was alive. The legal charge had completed its purpose and so had the title document used as security.
3. In his testimony, the 1^st respondent feigned knowledge of some of the subsequent loans and claimed that he settled the first loan in full. The 2^nd respondent’s witness misapprehended the legal effect of the charge created and the extent to which it should go. In fact, I think that the 1^st respondent took advantage of the fact that the deceased, who was the chargor, died, and he went on to take out more loan facilities with his property as security. He himself stated that he did not go to the financier to enquire about the title document but his wife said she went. The appellant also stated that she did not enquire about the title from the financier until she received a notice of intention to sell the property.
4. Having demystified this issue, it is my considered view that the title deed for land parcel number Kaagari/Kanja/3152 used as security for the loan amount of Kshs.300,000/= which has since been fully paid, should be discharged by the 2^nd respondent and released to the estate of the deceased. Additionally, in as much as the 2^nd respondent has a right to exercise its statutory power of sale, in this case, it is evident that the 2^nd, 3^rd and 4^th loans offered and disbursed to the 1^st respondent were not secured through a legal charge enforceable.
5. In the end, the appeal succeeds and it is hereby allowed with orders as follows:
   • 1. The 2^nd respondent is hereby ordered to unconditionally discharge parcel number Kaagari/Kanja/3152 and surrender its original title deed to the appellant; and
     2. The appellant is hereby awarded costs of this appeal.
6. It is so ordered.

Delivered, dated and signed at Embu this 9^th day of October, 2024.