Background
1. The plaintiff (hereinafter the bank) filed an originating summons (OS) dated 8/2/2021 pursuant to Order 37 rule 4 of the Civil Procedure Rules 2010 and section 79(7) of the Land Act 2012. The summons was filed for the determination of the following issues:
i. Whether the Plaintiff advanced a loan of Kshs. 2,500,000/= to the Defendant vide the Letter of Offer dated 17th May, 2016?
ii. Whether the Defendant deposited with the Plaintiff a Letter of Allotment dated 14th May, 2016 in his name for Plot No. 1238 Dandora Area 1 and a Letter of Allotment dated 10th September, 2003 in his name for Workshop Pitch No. 11 - Dandora (Beirut) Jua—Kali Sheds?
iii. Whether the Plaintiff and the Defendant executed a Memorandum of Deposit of Title dated 20th May, 2016?
iv. Whether an informal charge was created by the Defendant by depositing the Letters of Allotment to Plot No. 1238 Dandora Area 1 and Workshop Pitch No. 11-Dandora (Beirut) Jua—Kali Sheds to secure the loan facility of Kshs.2,500,000/= advanced to the Defendant and through the execution of the Memorandum of Deposit of Title dated 20th May, 2016?
v. Whether the loan advanced to the Defendant has fallen into arrears and is outstanding for Kshs. 4,070,683.03/= as at 23rd January, 2021?
vi. Whether the Plaintiff’s statutory power of sale over Plot No. 1238 Dandora Area 1 and Workshop Pitch No. 11 — Dandora (Beirut) Jua-Kali Sheds has arisen?
vii. Whether the Plaintiff is entitled to leave to exercise its statutory power of sale over Plot No. 1238 Dandora Area 1 and Workshop Pitch No. 11 — Dandora (Beirut) Jua-Kali Sheds to recover the outstanding loan arrears in the sum of Kshs. 4,070,683.03/= as at 23rd January, 2021?
viii. What should be the Order as to costs?
2. The OS is supported by the affidavit of SHEILA MAINA, the plaintiff’s Head of Legal Department, sworn on 8/2/2021. The plaintiff contends that by a letter of offer dated 17/5/2016, the Bank advanced a loan facility of Kshs.2,500,000 to the defendant which was secured, inter alia, by a memorandum of deposit of title dated 20/5/2016 over Plot No. 1238 Dandora Area 1 and Workshop Pitch No. 11 - Dandora (Beirut) Jua-Kali Sheds (hereinafter the suit properties).
3. After the disbursement of the loan, the defendant made irregular payments towards servicing the loan in breach of the terms of the letter of offer which led to his account falling into arrears and as at 21/1/2021, the defendant was indebted to the plaintiff in the sum of Kshs.4,070,683.03= which amount continued to attract interest and penalties.
4. The defendant avers that the Bank holds an informal charge over the suit properties pursuant to the deposit of the titles of the properties by the defendant. The Bank is desirous of recovering the sum of Kshs.4,070,683/- by exercising its statutory power of sale over the suit properties hence the proceedings.
5. The Bank contends that the holder of an informal charge must obtain the leave of the court before selling charged property and as such prays for leave to exercise its statutory power of sale over the suit properties as the defendant has failed to repay the outstanding amounts.
6. The Bank’s witness, FRERICK NYABUTI, a Legal Officer with the Bank, swore a witness statement on 4/3/2024. His testimony largely echoed the contents of the OS and the affidavit filed in its support.
7. He testified further that the defendant was in default of payment of the loan even before the coronavirus pandemic befell the country in 2020. The witness further testified that the defendant had not approached the Bank to restructure the loan facility if he was facing challenges in payment of the instalments.
8. In opposition to the OS, the defendant filed a replying affidavit sworn on 9/6/2021 by himself. He contends that the delays in servicing the loan was due to various factors such as the COVID 19 pandemic. He contends that the amount claimed as arrears of Kshs.4,070,683/- is grossly exaggerated and the interest rate charged by the Bank is illegal.
9. The defendant’s case is that he does not owe the plaintiff the sum of Kshs.4,070,683/-. He prays to have the plaintiff’s claim dismissed with costs for being mischievous and lacking merit. The defendant did not call any witnesses during the trial nor did he make an appearance during the hearing despite being aware of it.
Analysis and determination
10. I have carefully considered the pleadings and evidence by both parties as well as the Bank’s written submissions dated 30/9/2021. I note that the defendant did not file any submissions.
11. As to whether the defendant’s loan account was in arrears. It is not in dispute that the Bank advanced a loan amount of Kshs.2,500,000 to the defendant vide a letter of offer dated 17/5/2016 which is annexed as ‘SM-01’ of the plaintiff’s documents. The credit facility was secured by memorandums of deposit of titles over the suit properties.
12. The defendant contends that he had faithfully serviced the loan although he acknowledges having experienced delays in servicing it. He claims that the amount being claimed by the Bank is exaggerated and that the interest rates charged are illegal. He denied owing the plaintiff the sum of Kshs.4,070,683.02.
13. The defendant attached copies of deposit slips in his replying affidavit to support his averment that he had been servicing the loans. These are marked as LM1 in his replying affidavit. While the deposit slips are proof of payment towards the loan, they are not conclusive proof of regular repayment of the loan neither do they confirm final settlement of the amounts due.
14. Notably, some of the deposit slips are dated April 2016 which is before the loan was advanced to the defendant in May 2016. The defendant has also failed to substantiate the allegation that the plaintiff charged illegal interest rates. I find therefore that the defendant’s loan account was in arrears.
15. The second issue for determination is whether an informal charge was created over the properties and whether the court should grant leave to the plaintiff to exercise its statutory power of sale.
16. Section 79(6) of the Land Act states:
“An informal charge may be created where:
(a) a chargee accepts a written and witnessed undertaking from a chargor, the clear intention of which is to charge the chargor’s land or interest in land, with the repayment of money or money’s worth, obtained from the chargee;
(b) the chargor deposits any of the following-
(i) a certificate of title to the land;
(ii) a document of lease of land;
(iii) any other document which it is agreed evidences ownership of land or a right to interest in land.”
17. It is evident in this case that the defendant signed the letter of offer from the Bank in which it was agreed that the Bank would grant him a facility of Kshs.2,500,00 which would be secured by inter alia memorandums of deposit of title of the suit properties.
18. In addition to the letter of offer, the parties executed the memorandum of deposit of title dated 20/5/2017, annexed on pages 5-7 of the plaintiff’s bundle of documents, pursuant to which the defendant deposited the letters of allotment to the suit properties. By dint of clause 4(a) of the said memorandum of deposit the parties agreed that:
“Upon the occurrence of an event of default as defined in the loan agreement we authorise and allow the Lender immediately and without notice or my concurrence to take possession of the property collect rent and other income from the property and/ or sell and transfer the same either in whole or in lots by public auction or private treaty with power to buy in at any auction without being answerable to me for any losses or expenses occasioned thereby.”
19. The courts have held time and again that it is not for the courts to rewrite a contract between the parties. The intention of the parties herein was clear as to the Banks recourse in case of default by the defendant.
20. In the case of Tassia Coffee Estate Limited & another V Milele Ventures Limited, [2014] eKLR the court held:
“Going by these provisions of the law, it would appear that the Defendant/Respondent having deposited his title deed for the suit property with the Plaintiffs/Applicants, it created an informal charge in favour of the Plaintiffs/Applicants over the suit property as security for the payment of the balance of the purchase price for those other parcels of land. The Plaintiffs/Applicants therefore became chargees of an informal charge over the suit property and enjoy a lien by deposit of documents.”
21. Considering the legal provisions and judicial precedent cited above, I take the view that an informal charge was created over the suit properties as stipulated under section 79(6) of the Land Act.
22. Section 79(7) and (9) of the Land Act further states:
“(7) A chargee holding an informal charge may only take possession of or sell the land which is the subject of an informal charge, on obtaining an order of the court to that effect.
(8) ...
(9) A chargor shall not possess or sell land whose title documents have been deposited by a chargee under an informal charge without an order of the court;”
23. Having established that the defendant is in default of loan payments as required in the letter of offer and that an informal charge was created in favour of the plaintiff to secure the loan advanced. I find therefore that it would be in the interest of justice to grant the plaintiff leave to sell suit properties in order to recover the loan amounts plus interest that have accrued to date.
Disposition
24. Accordingly, I allow the prayers as sought in the OS as follows:
i. A declaration is hereby issued that an informal charge was created by the defendant by depositing the Letter of Allotment dated 14th May, 2016 for Plot No. 1238 Dandora Area 1 and the Letter of Allotment dated 10th September, 2003 for Workshop Pitch No. 11 - Dandora (Beirut) Jua-Kali Sheds with the Plaintiff to secure a loan facility of Kshs. 2,500,000/= advanced to the Defendant.
ii. A declaration is hereby issued that an informal charge was created by the defendant upon the execution of the Memorandum of Deposit of Title dated 20th May, 2016 over Plot No. 1238 Dandora Area 1 and Workshop Pitch No. 11 - Dandora (Beirut) Jua-Kali ' Sheds to secure a loan facility of Kshs. 2,500,000/= advanced to the Defendant.
iii. A declaration is hereby issued that the plaintiff is entitled to leave to exercise its statutory power of sale over Plot No. 1238 Dandora Area 1 and Workshop Pitch No. 11 - Dandora (Beirut) Jua-Kali Sheds to recover the outstanding loan arrears in the sum of Kshs. 4, 070,683.03/= as at 21st January, 2021.
iv. That leave is hereby granted to the plaintiff to exercise its statutory power of sale over Plot No. 1238 Dandora Area 1 and Workshop Pitch No. 11 - Dandora (Beirut) Jua-Kali Sheds to recover the outstanding loan arrears in the sum of Kshs. 4,070,683.03/= as at 21st January, 2021.
v. Costs of the are awarded to the plaintiff.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 5TH DAY OF JULY 2024.
F. MUGAMBI
JUDGE