(Being an appeal against the judgement and decree of Honourable S. G. Gitonga (Mrs) delivered on 24 February 2023 at the Small Claims Court at Nairobi in SCCCOMM/E6152/2022)
JUDGMENT
Background and proceedings
1. The claimant’s (herein the respondent) case was that the Appellant allegedly lost his job in 2017 and, consequently, approached her to borrow for him a loan of Kshs.500,000 payable in 48 months, for a business venture. She claimed to have borrowed the said amount from Gala Co-Operative Savings and Credit Society Limited, and had the cheque drawn in the appellant’s name. That, the appellant serviced the loan up until sometime in 2020, when the respondent was expelled in the said business venture, where she worked as an administrator.
2. The appellant in his defence argued that the respondent requested him to have a cheque drawn in his name as she was procuring a loan from her SACCO, and they cohabiting as husband and wife, gladly accepted.
3. That, allegedly, little did he know that the Respondent would turn against her once they separated and were no longer living together. That, contrary to the respondent’s allegations, the appellant’s position is that he never serviced loan as its beneficiary, and only remit the sums he received from the respondent, thereby paying on her behalf.
4. Upon hearing the parties’ cases and considering the evidence thereto, the trial court delivered a judgment dated 24th February, 2023 in favour of the appellant. Its reasoning was as follows;
“In the foregoing, this court finds that there was indeed an implied binding agreement between the parties, that the claimant took out a loan of kshs.500,000/= from Galla Sacco Cooperative which she gave the respondent acknowledged receipt of the money in his bank account, and proceeded to repay the money in monthly installments to Galla Sacco society. There is no evidence submitted by the respondent that he repaid the claimant a lumpsum of kshs.350,000/= as alleged and the balance of kshs.150,000/=.
To this end, I find that the claimant has succeeded in proving her claim against the respondent to the required standards of a balance of probabilities.”
5. Being aggrieved by the Judgment the appellant instituted the instant appeal on the following grounds;
That the learned adjudicator erred in fact and law in finding that the Respondent had taken a loan of Kshs. 500,000.00 on behalf of the Appellant.
I. That the learned adjudicator erred in fact and law in ignoring the fact and evidence that the Appellant and the Respondent had co-habited as husband and wife and that the Appellant only allowed the said loan amount to be deposited into his bank account at the request of the Respondent, who was his wife then.
II. That the learned adjudicator erred in fact and law by finding that the Appellant owed the Respondent Kshs. 313,200.00, even after it also found that the Appellant had repaid back some part of the amount to the Sacco.
III. The learned adjudicator erred in fact and law by ignoring the uncontroverted evidence indicating that the Appellant had actually repaid back Kshs. 449,904.00 and that the balance ought to have been Kshs. 50,096.00, despite finding that the Appellant had repaid some part of the loan before the Respondent filed the matter in court.
IV. The learned adjudicator erred in fact and law by ignoring the Appellant’s evidence showing that the he could not have required a loan at the time the Respondent allegedly borrowed a loan on his behalf.
V. The learned adjudicator erred in fact and law by ignoring the Appellant’s evidence showing that the loan was actually taken by the Respondent for his personal use and that the Respondent only accepted the cheque to be deposited into his bank account as the then husband to the Respondent.
VI. That the learned adjudicator erred in fact and law in ignoring the cogent evidence proving that the Appellant actually repaid part of the loan on behalf of the Respondent, who was the one who benefited from the same.
VII. That the learned adjudicator erred in fact and law in failing to find that the Respondent was abusing the court to settle personal scores after their separation.
VIII. That the learned adjudicator erred in fact and law in failing to find that the Respondent herein did not have the standing to sue the Appellant, given the fact that the said cheque of Kshs. 500,000.00 was deposited by the Sacco directly into the Appellant’s account.
IX. That the learned adjudicator erred in fact and law in failing to find that there was no contract between the Appellant and the Respondent with respect to a loan and interests thereon.
X. That the learned adjudicator erred in fact and law in giving weight to a letter purportedly from the treasurer of the Sacco without appreciating the Appellant’s contention that the same was a forgery and inaccurate with respect to the facts of the matter.
XI. The learned adjudicator erred in fact and law in awarding costs to the Respondent.
6. This appeal was canvassed by way of written submissions; by the appellant dated 21st March, 2024, the Respondent dated 28th March, 2024, which rival arguments, I have carefully analyzed and considered, the authorities cited and the position of law. I hereby determine as hereunder.
Analysis and Determination
7. From the appeal, the main issue as espoused by the appellant in his submissions, arising for determination is hinged on;
• Whether the learned magistrate erred in law and fact by finding that the Respondent had taken a loan of kshs.500,000/= on behalf of the appellant?
8. As this is the first appeal, this court is called upon to analyse and re-assess the evidence on record and reach its own conclusions bearing in mind that it neither saw nor heard the witnesses testify (see Selle v Associated Motor Boat Co. [1968] EA 123).
9. In Kiruga v Kiruga & Another [1988] KLR 348, the Court of Appeal observed that;
An appeal court cannot properly substitute its own factual finding for that of a trial court unless there is no evidence to support the finding or unless the judge can be said to be plainly wrong. An appellate court has jurisdiction to review the evidence in order to determine whether the conclusion reached upon that evidence should stand but this is a jurisdiction which should be exercised with caution.
10. From the onset the appellant argues that no contractual obligations between the Appellant and the Respondent could be discerned, not even by implication. That, they were simply cohabiting as husband and wife, and if anything, the appellant was simply a conduit, for the respondent for the receipt of the money, which he duly withdrew and forwarded to the respondent.
11. In its classical adaptation, the doctrine of privity of contract hypothesizes that a contract cannot confer rights or impose obligations on any person other than the parties to the contract. Accordingly, a contract cannot be enforced either by or against a third party, except in certain cases only. In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, 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.”
12. In Savings & Loan (K) Limited v Kanyenje Karangaita Gakombe & another [2015] eKLR, the Court of Appeal relying on its previous decisions in the cases of Kenya National Capital Corporation Ltd v Albert Mario Cordeiro & another, CA NO 274 of 2003 and William Muthee Muthami v Bank of Baroda, CA NO 91 of 2004, reiterated that;
“...a contract affects only the parties to it and that it cannot be enforced by or against a non-party.”
13. Further, in the Agricultural Finance Corporation v Lengetia Ltd [1985] KLR 765 quoting with approval from Halsbury’s Laws of England, 3rd Edition, Volume 8, paragraph 110, Hancox, JA, reiterated that:
“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.”
14. This notwithstanding, over time, some exceptions to the doctrine of privity of contract have been recognized and accepted. Among these exceptions is where a contract between two parties is accompanied by a collateral contract between one of them and a third party relating to the same subject matter.
15. An exception to the Privity Rule suffices where the contracting parties clearly intended to benefit a third party from their agreement and the third party would be able to rely on and or enforce the agreement if it is not carried out properly. An example is in insurance (third party risks) where an injured person can sue to enforce compensation in their favour where a contract of insurance was between an insured other than the person suing and an insurance company.
16. In the instant case, such exception is not manifest or rather, is wanting of proof. As earlier stated, the respondent’s claim is organically pursuant to an alleged loan she purportedly took out in her SACCO, in favour of the appellant. That, the same was disbursed into the appellant’s account, where sometime the appellant would repay the monthly instalments.
17. It is however noteworthy, that the rival parties were at some moment time “sweethearts”. It was not disputed that the parties were romantically involved and indeed cohabited as husband and wife up until the love turned soar.
18. The appellant argued that he had no objection to the loan disbursement being made in his name, but on behalf and benefit of the respondent; on account of their relationship. Further, he would repay the monthly instalments, once he receipted monies from the respondent, again, on her behalf and benefit.
19. It is not lost to me that the trial court herein is the Small Claims Court, where the procedure for the court is also exclusive. In section 17 of the Small Claims Court Act, the law requires that the court exercises its own procedure, having regard to principles of natural justice. The effect of the foregoing is even the application of the Evidence Act is severely restricted by section 32 of the Act. Meaning the interrogation of facts in evidence is somewhat exempted from the strict rules of evidence.
20. Having considered the evidence before the trial court, there was no nexus evidenced whether the alleged loan facility was obtained for the appellant by the respondent for a business venture. Similarly, the fact that the appellant made intermittent installments, whether on behalf of the respondent or otherwise, does not establish or amount to a contractual obligation, noting that the two rival parties were cohabiting as husband and wife. No collateral contract was produced to establish the purposes of the loan facility and the beneficial owner. The sole evidence, remains the loan facility application form, drawn in favour of the respondent, thus all terms, benefits and obligations fall squarely on the respondent, unless proven otherwise. Which proof is insufficient at best herein, to establish liability and obligation on the appellant.
21. I needlessly reiterate that “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.” See Savings & Loan (K) Limited vs. Kanyenje Karangaita Gakombe & Another (2015) eKLR.
22. In this instant, being that there exists no privity of contract, no obligations could flow from it, as against the appellant.
Conclusion
23. I find that the appeal is meritorious to the end that the trial court’s judgment is hereby set aside in its entirety, and thereby the claimant’s suit is dismissed with costs.
24. Costs of the appeal assessed at Khs.20,000 all-inclusive and are awarded to the appellant.
Dated, Signed and Delivered at NAIROBI Virtually this ……31ST………Day of JULY, 2024.
……………………
WENDY MICHENI
JUDGE
JUDGMENT
Background and proceedings
1. The claimant’s (herein the respondent) case was that the Appellant allegedly lost his job in 2017 and, consequently, approached her to borrow for him a loan of Kshs.500,000 payable in 48 months, for a business venture. She claimed to have borrowed the said amount from Gala Co-Operative Savings and Credit Society Limited, and had the cheque drawn in the appellant’s name. That, the appellant serviced the loan up until sometime in 2020, when the respondent was expelled in the said business venture, where she worked as an administrator.
2. The appellant in his defence argued that the respondent requested him to have a cheque drawn in his name as she was procuring a loan from her SACCO, and they cohabiting as husband and wife, gladly accepted.
3. That, allegedly, little did he know that the Respondent would turn against her once they separated and were no longer living together. That, contrary to the respondent’s allegations, the appellant’s position is that he never serviced loan as its beneficiary, and only remit the sums he received from the respondent, thereby paying on her behalf.
4. Upon hearing the parties’ cases and considering the evidence thereto, the trial court delivered a judgment dated 24th February, 2023 in favour of the appellant. Its reasoning was as follows;
“In the foregoing, this court finds that there was indeed an implied binding agreement between the parties, that the claimant took out a loan of kshs.500,000/= from Galla Sacco Cooperative which she gave the respondent acknowledged receipt of the money in his bank account, and proceeded to repay the money in monthly installments to Galla Sacco society. There is no evidence submitted by the respondent that he repaid the claimant a lumpsum of kshs.350,000/= as alleged and the balance of kshs.150,000/=.
To this end, I find that the claimant has succeeded in proving her claim against the respondent to the required standards of a balance of probabilities.”
5. Being aggrieved by the Judgment the appellant instituted the instant appeal on the following grounds;
That the learned adjudicator erred in fact and law in finding that the Respondent had taken a loan of Kshs. 500,000.00 on behalf of the Appellant.
I. That the learned adjudicator erred in fact and law in ignoring the fact and evidence that the Appellant and the Respondent had co-habited as husband and wife and that the Appellant only allowed the said loan amount to be deposited into his bank account at the request of the Respondent, who was his wife then.
II. That the learned adjudicator erred in fact and law by finding that the Appellant owed the Respondent Kshs. 313,200.00, even after it also found that the Appellant had repaid back some part of the amount to the Sacco.
III. The learned adjudicator erred in fact and law by ignoring the uncontroverted evidence indicating that the Appellant had actually repaid back Kshs. 449,904.00 and that the balance ought to have been Kshs. 50,096.00, despite finding that the Appellant had repaid some part of the loan before the Respondent filed the matter in court.
IV. The learned adjudicator erred in fact and law by ignoring the Appellant’s evidence showing that the he could not have required a loan at the time the Respondent allegedly borrowed a loan on his behalf.
V. The learned adjudicator erred in fact and law by ignoring the Appellant’s evidence showing that the loan was actually taken by the Respondent for his personal use and that the Respondent only accepted the cheque to be deposited into his bank account as the then husband to the Respondent.
VI. That the learned adjudicator erred in fact and law in ignoring the cogent evidence proving that the Appellant actually repaid part of the loan on behalf of the Respondent, who was the one who benefited from the same.
VII. That the learned adjudicator erred in fact and law in failing to find that the Respondent was abusing the court to settle personal scores after their separation.
VIII. That the learned adjudicator erred in fact and law in failing to find that the Respondent herein did not have the standing to sue the Appellant, given the fact that the said cheque of Kshs. 500,000.00 was deposited by the Sacco directly into the Appellant’s account.
IX. That the learned adjudicator erred in fact and law in failing to find that there was no contract between the Appellant and the Respondent with respect to a loan and interests thereon.
X. That the learned adjudicator erred in fact and law in giving weight to a letter purportedly from the treasurer of the Sacco without appreciating the Appellant’s contention that the same was a forgery and inaccurate with respect to the facts of the matter.
XI. The learned adjudicator erred in fact and law in awarding costs to the Respondent.
6. This appeal was canvassed by way of written submissions; by the appellant dated 21st March, 2024, the Respondent dated 28th March, 2024, which rival arguments, I have carefully analyzed and considered, the authorities cited and the position of law. I hereby determine as hereunder.
Analysis and Determination
7. From the appeal, the main issue as espoused by the appellant in his submissions, arising for determination is hinged on;
• Whether the learned magistrate erred in law and fact by finding that the Respondent had taken a loan of kshs.500,000/= on behalf of the appellant?
8. As this is the first appeal, this court is called upon to analyse and re-assess the evidence on record and reach its own conclusions bearing in mind that it neither saw nor heard the witnesses testify (see Selle v Associated Motor Boat Co. [1968] EA 123).
9. In Kiruga v Kiruga & Another [1988] KLR 348, the Court of Appeal observed that;
An appeal court cannot properly substitute its own factual finding for that of a trial court unless there is no evidence to support the finding or unless the judge can be said to be plainly wrong. An appellate court has jurisdiction to review the evidence in order to determine whether the conclusion reached upon that evidence should stand but this is a jurisdiction which should be exercised with caution.
10. From the onset the appellant argues that no contractual obligations between the Appellant and the Respondent could be discerned, not even by implication. That, they were simply cohabiting as husband and wife, and if anything, the appellant was simply a conduit, for the respondent for the receipt of the money, which he duly withdrew and forwarded to the respondent.
11. In its classical adaptation, the doctrine of privity of contract hypothesizes that a contract cannot confer rights or impose obligations on any person other than the parties to the contract. Accordingly, a contract cannot be enforced either by or against a third party, except in certain cases only. In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, 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.”
12. In Savings & Loan (K) Limited v Kanyenje Karangaita Gakombe & another [2015] eKLR, the Court of Appeal relying on its previous decisions in the cases of Kenya National Capital Corporation Ltd v Albert Mario Cordeiro & another, CA NO 274 of 2003 and William Muthee Muthami v Bank of Baroda, CA NO 91 of 2004, reiterated that;
“...a contract affects only the parties to it and that it cannot be enforced by or against a non-party.”
13. Further, in the Agricultural Finance Corporation v Lengetia Ltd [1985] KLR 765 quoting with approval from Halsbury’s Laws of England, 3rd Edition, Volume 8, paragraph 110, Hancox, JA, reiterated that:
“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.”
14. This notwithstanding, over time, some exceptions to the doctrine of privity of contract have been recognized and accepted. Among these exceptions is where a contract between two parties is accompanied by a collateral contract between one of them and a third party relating to the same subject matter.
15. An exception to the Privity Rule suffices where the contracting parties clearly intended to benefit a third party from their agreement and the third party would be able to rely on and or enforce the agreement if it is not carried out properly. An example is in insurance (third party risks) where an injured person can sue to enforce compensation in their favour where a contract of insurance was between an insured other than the person suing and an insurance company.
16. In the instant case, such exception is not manifest or rather, is wanting of proof. As earlier stated, the respondent’s claim is organically pursuant to an alleged loan she purportedly took out in her SACCO, in favour of the appellant. That, the same was disbursed into the appellant’s account, where sometime the appellant would repay the monthly instalments.
17. It is however noteworthy, that the rival parties were at some moment time “sweethearts”. It was not disputed that the parties were romantically involved and indeed cohabited as husband and wife up until the love turned soar.
18. The appellant argued that he had no objection to the loan disbursement being made in his name, but on behalf and benefit of the respondent; on account of their relationship. Further, he would repay the monthly instalments, once he receipted monies from the respondent, again, on her behalf and benefit.
19. It is not lost to me that the trial court herein is the Small Claims Court, where the procedure for the court is also exclusive. In section 17 of the Small Claims Court Act, the law requires that the court exercises its own procedure, having regard to principles of natural justice. The effect of the foregoing is even the application of the Evidence Act is severely restricted by section 32 of the Act. Meaning the interrogation of facts in evidence is somewhat exempted from the strict rules of evidence.
20. Having considered the evidence before the trial court, there was no nexus evidenced whether the alleged loan facility was obtained for the appellant by the respondent for a business venture. Similarly, the fact that the appellant made intermittent installments, whether on behalf of the respondent or otherwise, does not establish or amount to a contractual obligation, noting that the two rival parties were cohabiting as husband and wife. No collateral contract was produced to establish the purposes of the loan facility and the beneficial owner. The sole evidence, remains the loan facility application form, drawn in favour of the respondent, thus all terms, benefits and obligations fall squarely on the respondent, unless proven otherwise. Which proof is insufficient at best herein, to establish liability and obligation on the appellant.
21. I needlessly reiterate that “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.” See Savings & Loan (K) Limited vs. Kanyenje Karangaita Gakombe & Another (2015) eKLR.
22. In this instant, being that there exists no privity of contract, no obligations could flow from it, as against the appellant.
Conclusion
23. I find that the appeal is meritorious to the end that the trial court’s judgment is hereby set aside in its entirety, and thereby the claimant’s suit is dismissed with costs.
24. Costs of the appeal assessed at Khs.20,000 all-inclusive and are awarded to the appellant.
Dated, Signed and Delivered at NAIROBI Virtually this ……31ST………Day of JULY, 2024.
……………………
WENDY MICHENI
JUDGE