1. Before the court for consideration is the Plaintiff’s Originating Summons (“the Summons”) filed under Order 37 Rule 4 of the Civil Procedure Rules and section 79 of the Land Act, No. 6 of 2012. The Plaintiff (“the Bank”) mainly seeks an order that, “The Plaintiff be granted leave to sell property known as Nairobi/Block 111/714 registered in the name of Patrick Oduor pursuant to Section 79 (7) and (9) of the Land Act.” The Originating Summons is supported by the grounds on the face of it and the supporting affidavit of Samuel Macharia Murimi, the Bank’s Legal Manager.
2. The Bank’s case is that it issued various Letters of Offer between the years 2014 and 2015 to the 1st Defendant. The facility was guaranteed by the 2nd Defendant through a simple deposit of the property known as Nairobi/Block 111/714 registered in the name of Patrick Oduor (“the suit property”). The Bank granted the 1st Defendant diverse credit facilities but she defaulted on payments even after restructure of the loan of 27th June 2015. The 2nd Defendant’s obligations under the Deed of Guarantee and Indemnity dated 17th December 2015 crystallized and both the 1st and 2nd Defendants became liable to pay the outstanding loan amount. In summary, the Bank claims that since the 2nd Defendant offered the suit property as security, it should be granted leave to sell it under the provisions of section 79(7) and (9) of the Land Act.
3. In her replying affidavit sworn on 2nd April 2019, the 1st Defendant admits applying for the loan from the Bank as LPO Financing following an award of a tender to supply foodstuff to Joy Vision for Youth and Children International, a Non-Governmental Organisation (“the NGO”). The loan was disbursed directly to the 1st Defendant’s suppliers whereupon she delivered the goods to the NGO. She avers that the NGO did not pay her but issued three cheques which were dishonoured. She reported the matter to the police for investigation.
4. The 1st Defendant depones that she made efforts to pay Kshs. 800,000.00 and requested for a loan restructure which was granted conditional to her providing security for the loan. The 1st Defendant avers that she took the Certificate of Lease for the suit property from the 2nd Defendant without his knowledge and forged his signature in the Deed of Guarantee in order to secure the loan. The 1st Defendant states that she has a plan to repay the money and she should be granted more time in order to save the matrimonial home. She urges the court to have the title to the suit property released back to the 2nd Defendant as he was not aware of the loan agreement.
5. The 2nd Defendant, in his replying affidavit filed on 3rd April 2019, confirmed that he owned the suit property having purchased it on 22nd April 2017. He further deponed that the suit property is his matrimonial home where he has lived with his wife, the 1st Defendant, for 21 years. He noticed that the original Certificate of Lease for the suit property was missing on 3rd March 2018 and after a futile search for it in their matrimonial home, he reported the loss of the same at Kayole Police Station under OB NO. 20/20/03/2018 and a police abstract was issued to that effect. He states that he intended to commence the replacement process of the Certificate of Lease but was informed that he had to wait for three months.
6. The 2nd Defendant states he learnt about loan transaction on 6th March 2019, when the Bank’s Advocates informed him of his obligation to offset the loan facility as a guarantor. When he was shown the Summons and particularly the Deed of Guarantee, he noticed that the signature which appeared on the Deed of Guarantee was not his. He also discovered that his wife, the 1st Defendant, had obtained the loan facility fraudulently by forging his signature and had, without his knowledge and consent, given the Certificate of Lease to serve as security for the loan facility. The 2nd Defendant denies executing the Deed of Guarantee. He therefore contends that the Bank ought to have ensured the loan documents were signed by the right persons. He urges the court to dismiss the Originating Summons.
7. The Summons was disposed of by way of written submissions in support of their respective arguments. The issue for determination, framed from the relief, is whether the court should grant leave to sell the suit property. In deciding this issue, the court must be satisfied that the suit property is a security capable of being sold.
8. The Bank submits that an informal charge was created through the 1st Defendant depositing the Certificate of Lease with it in order to obtain the LPO financing. It states that the deposit of title complies with section 79(6) of the Land Act. The Bank further submits that the Defendants bears the burden of proving that the charge is invalid under section 107 and 109 of the Evidence Act (Chapter 80 of the Laws of Kenya) and that the parole evidence cannot be admitted to add, vary or contradict a written instrument. It cites the decision in Housing Finance Company of Kenya Limited v Palm Homes Limited and 2 others [2002] 2 KLR to support this proposition.
9. The 1st Defendant submits that the Bank does not hold a valid charge whether formal or informal against the suit property since the 1st Defendant cannot pass a good title to the Bank without the consent of the 2nd Defendant.
10. The 2nd Defendant contends that since the suit property is matrimonial property, he ought to have given a spousal consent before it could be considered as a security. Further, that since his signature on the Deed of Guarantee was obtained fraudulently, the Charge was invalid. He denies any collusion with the 1st Defendant and states that he reported the missing Certificate of Lease at the police station and was about to commence the process of replacing the same and it was not possible for him to execute the deed, surrender the certificate and intend to replace it knowing that he has issued it as security to the Bank. He affirms that he was not aware of the transaction between the 1st Defendant and the Bank.
11. Whether or not there is an informal charge turns on the understanding of section 79(6) and (7) of the Land Act which provides that:
79(6) An informal charge way 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 repayment of money or money’s worth, obtained from the chargee plus interest as agree by the charger and chargee;
(b) the charge 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.
(7) A charge holding an informal charge may only take possession of or sell land which is subject of an informal charge, on obtaining an order of the court to that effect.
12. From the aforesaid provisions, an informal charge must satisfy two conditions. First, the chargor must provide a written and witnessed undertaking to be accepted by the chargee manifesting an intention to charge the property to secure repayment of the sum agreed as between the chargor and chargee. Second, the chargor must deposit the document of title to the land. I hold that section 79(6)(a) and (b) of the Land Act must be read conjunctively as the intention to charge the property must be accompanied by the physical act of depositing the title to the suit property. A contrary interpretation would mean that the title holder assumes liability as chargor merely by depositing a title with the charge which would be patently absurd.
13. The Bank relied on the case of Tassia Coffee Estate Limited and Another v Milele Ventures Limited NRB ELC No. 825 of 2013 [2014] eKLR to support its case. The court held as follows:
Going by these provisions of the law [section 78(6)(b) and 78], 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. To that extent therefore, I find that the Plaintiffs/Applicants have established that they have a prima facie case with high chances of success at the main trial.
14. In that case, there was no dispute that it is the defendant who deposited the titles to the property in order to secure the payment of the balance of the purchase price under certain sale agreements hence the intention to charge its property was not in dispute. In this case though, the dispute is whether the 2nd Defendant deposited the title to the suit property. His position is that he did not do so.
15. The Bank’s case is that the 2nd Defendant agreed to guarantee the debt by executing the Deed of Guarantee dated 17th December 2015 which provided the basis for the deposit of the title by the 1st Defendant. I reject this position. The Deed of Guarantee merely secures payment of debt due to the Bank by the 1st Defendant. It is not, “a written and witnessed undertaking from a chargor, the clear intention of which is to charge the chargor’s land or interest in the land, with repayment of money or money’s worth, obtained from the charge plus interest as agreed by the chargor and chargee.” Even assuming that the Deed of Guarantee was executed by the 2nd Defendant, it does not refer to the suit property or manisfest in any manner the 2nd Defendant’s intention to charge the suit property. Absent such a written undertaking by the chargor, the deposit of the title to the suit property, of itself, did not create an informal charge.
16. In the absence of such written and witnessed undertaking from the 2nd Defendant expressing his intention to charge the suit property, I find and hold that 2nd Defendant did not thereby create an informal charge. The court cannot therefore grant the order granting the Bank leave to sell the suit property. For the reasons that I have set out, it is not necessary to determine whether the 2nd Defendant had knowledge or otherwise of the dealings between the 1st Defendant and the Bank.
17. Turning to the issue of costs, I decline to award the 1st Defendant costs of the suit as she engaged in an admitted scheme to acquire a loan from the Bank without the consent and knowledge of the 2nd Defendant. There is however no reason to depart from the general rule that costs follow the event in respect of the 2nd Defendant.
18. In conclusion therefore I make the following orders:
(a) The Originating Summons dated 31st December 2018 is dismissed.
(b) The Plaintiff shall pay the 2nd Defendant’s costs assessed at Kshs. 40,000.00 only.
DATED and DELIVERED at NAIROBI this 27th day of JANUARY 2023.
D. S. MAJANJA
JUDGE