JOSHUA MBITHI MUTUA MWALYO AND Seven Fourteen Limited VS Benson Mugweru Nguri JOSHUA MBITHI MUTUA MWALYO AND Seven Fourteen Limited VS Benson Mugweru Nguri

INTRODUCTION
The appeal arises from the judgment of the learned Hon. Wendy Micheni C.M (as she then was) in Nairobi CM’s Court Civil Suit No. 2820 of 2019. The respondent in the matter had filed a suit seeking to recover Ksh 16,369,840 and upon hearing the suit the court dismissed the respondents claim against the 2^nd appellant and partly allowed the claim against the 1^st appellant in terms of Ksh 8,732,000 being the sum owed and interest thereon.
The appellants aggrieved by that decision preferred the instant appeal raising the following grounds;-
THAT the Learned Magistrate erred in law and in fact in shifting the burden of proof to the 1st Appellants, which was prejudicial.
THAT the Learned Magistrate misdirected herself in law and fact by upholding the validity of the impugned agreements.
THAT the Learned Magistrate erred in law and fact by holding that the disbursement of monies was proved by the Respondent without any evidence.
THAT the Learned Magistrate Court fatally misapprehended the law and facts by holding that the 1st Appellant failed to reimburse monies, thus in breach of contract, without evidence.
THAT the Magistrate Court erred in fact by holding that both parties acknowledged that they were long-term friends despite evidence to the contrary.
THAT the Magistrate Court erred in law and fact by finding that the Respondent is entitled to KES 8,732,000/= without cogent evidence.
THAT the Magistrate Court ignored the Appellants' robust evidence and submissions.
THAT the Learned Trial Magistrate erred in law in misconstruing the cited authorities before her.
THAT the Learned Trial Magistrate erred in law by failing to award the 2nd Appellant costs despite dismissing the claim against it.
The issues that emerge from the grounds raised in the appeal are;-
i) Whether there were binding contracts between the 1st Appellant and the Respondent;
ii) Whether there was proof the money was disbursed;
iii) Whether the contract was breached by the 1st Appellant,
iv) Whether failure to award costs to the 2nd Appellant was judicious;
v) Whether the trial court rightfully disallowed the claim in the contract dated the 14th May 2016;
vi) Whether Mpesa monies claim was duly disallowed by the trial court; Appellant's Appeal
vii) Whether there were binding contracts between the 1st Appellant and the Respondent;
APPELLANTS' CASE
The appellants contend that Courts' decisions should always be swayed by concrete evidence; this is a longstanding code.
According to the appellants the consolidated appeals before this court oscillate around the validity of contracts purportedly entered into by the parties.
The issue that is central to the just determination of this appeal is whether parties to the contracts met their respective obligations under the contracts.
The appellant contends that whereas on one part the trial court held the validity of the contracts was intact and the disbursement of funds proved, no evidence was adduced to substantiate the same.
Further, the appellant submitted that the Respondent injudiciously moans the Magistrate's concrete decision to deny a claim of monies advanced through Mpesa and on behalf of non-parties to the suit.
The brief facts of the matter according to the appellant are that;-The Respondent (Plaintiff in trial suit), sued the Appellants herein seeking Kenya Shillings Sixteen Million Three-Hundred and Sixty-Nine Thousand Eight and Hundred and Forty (KES 16,369, 840/=) costs, and interest.
Having heard the matter, the trial court dismissed the Respondent's claim against the 2nd Appellant with no costs and partly allowed the claim against the 1st Appellant in terms of Kenya Shillings Eight Million Seven Hundred and Thirty-Two Thousand (KES 8,732,000/=) being outstanding loan owed, interests from the time of filing suit, and costs.
Being aggrieved by the said judgment, Joshua Mbithi and Seven Fourteen (hereinafter referred to as the 'Appellants' for purposes of this suit) promptly lodged a Memorandum of Appeal dated the 28th of July 2023 and Record of Appeal (hereinafter referred to as "Record"), on 31st of October 2023, setting out the grounds of appeal.
Benson Mugweru Nguri (hereinafter referred to as the 'Respondent' for purposes of this suit) later on foisted a Memorandum of Appeal dated the 28th of July 2023, on the 29th of July 2023 and filed a Record of Appeal.
The trial court upon hearing the matter came to the conclusion that there were valid contracts between the 1st Appellant and the Respondent.
According to the appellant this pronouncement, was seemingly on account of:
a) The evidential burden was on the 1st Appellant to prove that the
signature was not his, but failed to;
b) Want of attestation could not vitiate the contracts; and
c) The 1st Appellant and Respondent were long term friends.
15. The appellant went on to submit that there were Six loan agreements adduced by the Respondent to be contracts he entered into with the Appellants: Loan Agreement dated 14th of May 2016; Loan Agreement dated 17th of May 2017; Loan Agreement dated 19th of July 2017; Loan Agreement dated 4th of August 2017; Loan Agreement dated 7th of August 2017; and Loan Agreement dated 16th of August 2017 (eee pages 39-50 of the Record of Appeal).
16. The appellants further submitted that, all the contracts adduced appeared to be similar in outlook.
17. All contracts bear the 1st Appellant as the borrower and the Respondent as the lender. Save for the contract dated the 14th of May 2016, which was secured by a myriad of cheques, the rest have no security. All contracts have not been witnessed. All the contracts do not specify the mode of disbursement of the alleged loan amount.
18. The appellants further contend that the said loan agreement, dated 14th of May 2016, was impeached, thus the amount depicted on it was not awarded by the trial court.
19. According to the appellants the said agreements do not bear on the 2nd Appellant at any point, so there is no need to allude to it given that the suit against it was dismissed.
20. In paragraph 15 of the Defendant's Statement of Defence dated the 24th of June 2019, and paragraph 5 of the Witness Statement of Joshua Mbithi dated the 8th of June 2021, the Appellants dismiss the agreements alluded to by the Respondent as fabricated and doctored. This was also firmly bolstered by the Appellants' Witness (hereinafter referred to as 'DW1') in his examination in chief, where he denied the signatures and handwriting depicted in the said agreements. Whereas the said witness said the signature and writing appear
somehow to be his, he maintained that he did not sign or write on the said agreements.
21. The appellants position in regard to the agreements is that the agreements were not signed by Joshua Mbithi even though he acknowledges that the signatures appearing thereon appear to be his.
22. The appellants further submitted that The Respondent's counsel took issue with the Appellant testimony and denial of the signature and handwriting on the agreements. Counsel for the respondent endeavored to poke holes in DW1's testimony by questioning why he had not reported forgery and fraud and why he had not procured the services of a handwriting expert to prove his allegations. DW1 in response, testified that the matter is in court and saw no need of pursuing the forgery and fraud. In any event, he had from the outset denied the agreements as not his and questioned their authenticity.
23. The appellant submitted, that in an adversarial system of litigation cases are tried and determined on the basis of the pleadings made and the issues of fact or law framed by the parties or Court, on the basis of those pleadings pursuant to the provisions of Order XIV of the Civil Procedure Rules. The burden of proof was on the Respondent (Plaintiff in trial) and the degree thereof is on a balance of probabilities (see Wareham t/a A.F. Wareham & 2 Others Kenya Post Office Savings Bank [2004] 2 KLR 91).
24. The Respondent in his pleadings and testimony testified that the agreements are authentic and the 1st Appellant executed the same.
25. On the other hand, the 1st Appellant in both the pleadings and testimony unconditionally disputed the authenticity of the said agreements and went on to describe their contents as forgeries and doctored.
26.The appellants position is that the Respondent dragged the Appellants to court; therefore, it follows that it is his burden to prove his case, and not the Appellants. The Appellants had questioned the authenticity of the agreements all along, it is obvious that the Respondent was the one to prove their authenticity.
27. The Appellants placed reliance on John Mbugua Boro & 3 others v Ann Wairimu Ndung'u (as the Chairlady of Urutagwo Mwiruti Women Group) Nairobi Elc Case No 60 of 2015 where the court observed:
'As it is the Plaintiffs contention that the signatures and therefore the certificates of ownership in their possession are authentic, they had the onus to prove the authenticity of the same. The Plaintiff did not adduce any independent evidence in this regard such as an expert report from a handwriting expert to aid the court in coming to a determination that the documents were authentic. As stated by the Court of Appeal in Jennifer Nyambura Kamau Humphrey Mbaka Nandi (2013) eKLR;
"...Section 109 stipulates that the burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence. If an expert witness was necessary, the evidential burden of proof was on the Appellant to call the expert witness. The Appellant did not discharge the burden and
as Section 108 of the Evidence Act provides, the burden lies on that person who would fail if no evidence at all were given on either side."
In light of the foregoing, the Plaintiffs cannot attempt to shift the burden of proof of the validity of the signatures on the certificates of ownership on the Defendant.
Further, other than the certificate of ownership which is disputed, the Plaintiffs did not adduce any independent evidence to establish the root of the certificates of ownership. Indeed, the Plaintiffs did not produce the receipts for the purchase which they claimed to be in possession of nor the sale agreements'
28. In the appellants view Respondent never made any significant attempt to prove that the agreements were authentic, other than hastily and gleefully shifting the burden to the Appellants; which position was unfortunately adopted by the trial court against a plethora of authorities to the contrary.
29. In addition, the appellants contend that no witness was brought to court to support the Respondent's claim that he saw the 1st Appellant sign the agreements. Having failed to do so, and closely adhering to the said John Mbugua Boro & 3 others v Ann Wairimu Ndung'u (as the Chairlady of Urutagwo Mwiruti Women Group) Nairobi (supra), there was no legally binding agreement between the Respondent and 1st Appellant.
30. On whether there was proof the money was disbursed, the appellants submitted that even if there was an oral or written loan agreement between the 1st Appellant and Respondent, it is only legally binding when parties perform their respective contractual obligations.
31. According to the appellants the trial court held that there was sufficient proof that money was disbursed in hard cash. In doing so, it arrived at the said decision on account of:
a) The Respondent's contention that a clause in the agreements provided that:
I certify that all particulars given by me are true and complete, I confirm that I have the terms and conditions governing grant of the friendly loan and agree to be bound by them. Under my hand I acknowledge a loan of... ........'
b) The testimony by the Respondent that the money was advanced in liquid
cash.
32. According to the appellant the Respondent alleged to have disbursed money in hard cash and some via Mpesa. Since Mpesa monies were found by trial court not disbursed as loans, the appellant holds the view that the court should only focus on the monies awarded as paid in cash
33. The appellant contended that the Respondent claimed that on the 26th of August 2016, he was approached by the 1st Appellant to finance KES 231,096,488/= tender but during the Re- Examination of Benson Mugweru (hereinafter referred to as 'PW1) he maintained that he continued issuing loans to the 1st Appellant because of campaigning.
34. The appellants submitted that the basis of any suit for contract performance or non-performance is as per the requirements in subsection 3 of the Law of Contract. Act (Cap 23 of the Laws of Kenya). The Respondent was therefore expected to prove, to the trial court, on a balance of probabilities, the following essential elements of a loan agreement with the Appellants:
(a) An offer.
(b) An acceptance.
(c) Any consideration.
(d) Any intention to create legal relations.
35. The Court of Appeal in William Muthee Muthami vs. Bank of Baroda (2014) eKLR observed that: -
...In the law of contract, the aggrieved party to an agreement must, in addition, prove that there was offer, acceptance and consideration. It is only when those three elements are available that an innocent party can bring a claim against the party in breach.'
36. Further, the appellants submitted that the essential components of a contract, as was observed by Harris JA in Garvey v Richards (2011) JMCA 16 ought to ordinarily reflect the following principles:
"It is a well-settled rule that an agreement is not binding as a contract unless it shows an intention by the parties to create a legal relationship. Generally, three basic rules underpin the formation of a contract, namely, an agreement, an intention to enter into contractual relationships and consideration. For a contract to be valid and enforceable an essential term governing the relationship of the parties must be incorporated therein. The subject matter must be certain. There must be positive evidence that a contractual obligation, born out of an oral or written agreement is in existence."
37. The appellants robustly disputed the disbursement of the monies by the Respondent. Monies to be disbursed were now a consideration in the contractual sense.
38. The appellants argued that where the party seeking to recover the money does not prove the disbursement of the money on a balance of probabilities then such a party risks total failure of his cause. According to the appellant the respondent was unable to meet that standard of proof thus the appeal must succeed.
39. The appellants further submitted that according to the Plaint filed, the grand total of monies disbursed to the Appellants was KES 19,069,840 and since the Respondent claimed KES 3,600,000/= was paid, the amount owing should have been KES 15,469,840/=.
40. However, from the prayers section of the Amended Plaint, the Respondent claimed KES 16,250,840/= from the Appellant. Interestingly, the Respondent, in its Demand Letter dated the 12th of November 2018 demanded only KES 15, 224,324/=. During the re-examination of PW1, he claimed that the Amended Plaint amount was the precise figure.
41. The appellants contend that it is unfortunate and inexplicable why that the trial court did not address or take into account those grave and flagrant discrepancies that cast a shade on the credibility and candidness of the Respondent's testimony.
42. Further, the appellants argued that save for the terms of the contract that the Respondent relied upon to prove disbursement, the trial court did not take into account that Respondent did not adduce anything else to prove advancing the purported loan amount. Even the clause the Respondent relied upon did not state in what form the money was disbursed, that is, in cash, bank transfer, et cetera.
43. In fact, the form or manner in which the money was purportedly advanced to the 1st Appellant was, at first only alleged to be in swift transfer in the original Plaint dated 18th April 2019, and later, belatedly amended to cash in the Amended Plaint dated 1st of July 2021, to fit to the respondent’s narrative, when they could not find evidence to substantiate the claim.
44. The trial court, ought to have considered that the Appellants having disputed receiving monies from the Respondent, it was incumbent upon the Respondent to take a further step to prove that he disbursed the monies other than only relying on the contractual term.
45. The appellants urged the court to consider that MPESA monies, which were meager, were transferred to the alleged PW1 mobile phone number by a means that can be easily traced, but humongous sums running into millions were disbursed in cash. The appellants posed the question; Why would someone risk carrying such amounts in cash when he or she could just transfer them to the debtor's account? It was further submitted that in this age of strict money laundering laws, no one can be withdrawing such amounts of cash to lend to someone.
46. The appellants thus argued that the Respondent did not give any specific information on the loan advanced, and it was not backed by any primary source material or information to show disbursement of the claimed sums to the Appellants.
47. The Appellants cited the case of Peter Ngure Ng'ang'a v Pioneer Building Society (In Liquidation) Civil Case No 574 of 2009 where it was observed:
The evidence adduced by the Plaintiff shows the sum secured by the Charge was not disbursed; and given the statutory as well as the contractual obligation of the Defendant to disburse the loan secured by the Charge herein, evidential burden is raised on the Chargee to show it disbursed the said sums. Evidential burden should not be confused with legal burden of proof or a shift of the legal burden. It is raised on the party who would fail if no further evidence is adduced. In this case, the Chargor has shown he did not receive the sum secured by the Charge or in other words, there was no disbursement of the loan by the Defendant. I expected some paper trail from the Bank which shows they performed their part of the bargain. A certified statement of account on the loan account of the Plaintiff maintained by the Defendant showing the specific entries on all monies advanced to and repayments made by the Plaintiff would have been most ideal evidence; that would have greatly assisted the Court. Nothing of that kind was presented even by DW1 who claimed to be the accountant of the Defendant.'
48. Further, reliance was placed on Surya Holdings Limited & 4 others v ICICI Bank Limited & another Nairobi Hccc No.68 Of 2015 court pronounced itself thus:
'The non-disbursement of the entire loan in contravention of the loan agreement is a ground of issuing an injunction especially where it amounts to failure to perform your part of the bargain, thus, breach of the contract. A bank which negates on its obligation to disburse funds under a loan agreement is in default of the contract and will not be allowed to derive advantage from its own default. This is the case here. In such case, the borrower may argue that there is no default in so far as non-disbursed funds are concerned.'
49. Further in Erick Barasa Makokha & 2 others v Neema Ya Mungu Investment Co Ltd [2021] eKLR the court observed:
"14. Burden of proof lies upon the plaintiffs, to establish the indebtedness of the defendant to them, for it is trite that he who alleges has the burden to prove that which he alleges, and it would appear here that the plaintiffs have failed to discharge that burden. The position as to the incidence of burden of proof, in civil cases, is stated in sections 107 and 109 of the Evidence Act, Cap, 80 Laws of Kenya, as follows:
"107. Burden of proof
(1) Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts
exist.
(2) When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person."
109. Proof of particular fact
The burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person."
15. The third issue is whether the defendant repaid the two loan facilities extended to it by the plaintiffs. Whereas there is no evidence of disbursement of any moneys under the two contracts to the defendant by the plaintiffs, at least from the bank statements that the plaintiffs have placed on record, the same bank statements show that the defendant did make numerous deposits into the accounts of the plaintiffs for the period. running from May 2018 to early 2020. The said deposits total Kshs. 38,973,300.00. It is not clear what these deposits were for, given that the plaintiffs have not demonstrated, from the same statements that they advanced any moneys to the defendant, as alleged in their plaint, and clearly the same cannot be said to be in relation to the two contracts in respect of which they did not disburse any moneys. I suppose that they relate to previous contracts, as it is common ground that there were previous contracts between the parties, which were not in dispute.
16. I will now turn to the fourth issue, whether the defendant is indebted to the plaintiffs. In determining this issue, it is proper to identify the amount that was disbursed by the plaintiffs to the defendant. An amount disbursed must be clearly determined before any action is taken to redeem it. See Zainabu Ayub Mohamed & another vs. Rafiki Microfinance Ltd [2019] eKLR (SM Githinji J). The plaintiffs herein have failed to prove that the amount claimed in the plaint was ever disbursed to the defendant. The plaintiffs have produced a total of eight agreements between themselves and the defendant. The bank statements on record indicate that although the plaintiffs did not disburse any moneys to the defendant after they entered into the impugned contracts, the defendant
continued throughout the period to pay large sums of money to them Obviously, that cannot have been on the basis of the impugned contracts, for they had not honoured them, but previous contracts in respect of which there are no disputes. It is hard to say the payments made by the defendant to the plaintiffs related to which of the eight loans. The plaintiffs have done is literally throw a bundle of bank statements before the court, and left the court to make sense of the contents of the bank statements, without any assistance or input from them. It only fair and proper to conclude that the defendant is not indebted to the plaintiffs, going by the evidence adduced by the plaintiffs."
50. The appellant submitted that the Respondent also claimed and trial court adopted the same that the clause on the agreements purporting acknowledgment, the cheques alluded to on account of the agreement dated the 14th of May 2016, and the personal details of 1st Appellant captured on the disputed agreements are sufficient to prove disbursement of the loan.
51. The Appellants hold the view that Personal details being included in an agreement have never been a proof of disbursement of a loan. In an era in which personal information of an individual can be obtained easily, especially about a public figure (Member of Parliament) like the 1st Appellant. Secondly, only one agreement captures a cheque as security, where only five (5) were actually produced (instead of the eight (8) mentioned), but only Four (4) of the five (5) are mentioned in the agreement, thus one is irrelevant. Moreover, security by way of cheques is not a proof of disbursement on the part of the Plaintiff, a litany of precedents prove that courts have always asked registered lenders as financial institutions to meet their evidential burden by proving actual disbursement even after perfecting securities when disbursement of a loan is challenged (See Peter Ngure Ng'ang'a v. Pioneer Building Society (In Liquidation) Civil Case No 574 OF 2009). The appellants maintain that the Plaintiff(respondent) terribly failed in discharging the evidential burden to prove disbursement of any amount.
52.The appellants went on and submitted that the amount sought by the Respondent was said to be inclusive of interest. The Respondent did also not specify during the hearing the actual amount of the loan advanced to the 1st Appellant (minus interest). As a result, it was not clear as to how the trial court determined the same.
53. The Appellants submitted, that the trial court misdirected itself by holding that there was proof of disbursement. This decision was arrived at without proffering any precedent or statutory provision that informed its decision thus the appellants invited this court to consider reversing the decision of the the learned honorable Magistrate.
54. As to whether the contract was breached by the 1st Appellant, the appellants have contended that the Respondents did not meet their legal obligations under the agreements.
55. The appellants argued that having established that there was no contract between the parties to this suit, and no monies were disbursed, truly, there cannot have been any breach on part of the Appellants or in the alternative the breach was occasioned by the Respondent who did not remit monies as per his purported agreements, if any.
56. On costs the appellants submitted that the Respondent’s suit against the 2nd
Appellant was dismissed with no order as costs against the law. In support of that argument the appellants relied on Section 27 of the Civil Procedure Act which provides:
(1) Subject to such conditions and limitations as may be prescribed, and to the provisions of any law for the time being in force, the costs of and incidental to all suits shall be in the discretion of the court or judge, and the court or judge shall have full power to determine by whom and out of what property and to what extent such costs are to be paid, and to give all necessary directions for the purposes aforesaid; and the fact that the court or judge has no jurisdiction to try the suit shall be no bar to the exercise of those powers:
Provided that the costs of any action, cause or other matter or issue shall, follow the event unless the court or judge shall for good reason otherwise order.
57. To augment the point counsel cited the case of Mbogo v Shah (1968) EA 93 at page 94 quoted by the Court of Appeal in Dande & 4 others v British-American Asset Managers Limited & 11 others (Civil Appeal 277 of 2017) [2022] KECA 469 (KLR) (18 March 2022):
"I think it is well settled that this Court will not interfere with the exercise of its discretion by an inferior court unless it is satisfied that its decision is clearly wrong, because it has misdirected itself or because it has acted on matters on which it should not have acted or because it has failed to take into consideration matters which it should have taken into consideration and in doing so arrived at a wrong conclusion."
58. According to the appellants, no reasons were proffered for failing to award the 2nd Appellant costs. This is in spite of the honourable magistrate holding that the suit could not succeed against the 2nd Appellant as he was not privity of contract.
59. The appellants therefore argue that it has long been established that a successful party should ordinarily be awarded costs of an action or proceeding unless there is a good reason to deprive him of such costs. (See Hussein Janmohamed & Sons V Twentsche Overseas Trading Co. Ltd [1967] EA 287).
60. The appellants further argued that even though they were alive to the principle, that once a trial court has made an award of costs in exercise of its discretion, an appellate court should not lightly interfere with such an award. The appellate court should only interfere where the trial court has misdirected itself and acted upon wrong principles or where it is manifest from the case as a whole that the discretion was not exercised judicially.
61. The appellants hold the view that the discretion was not exercised judicially thus this court should be inclined to intervene and award the 2^nd appellant costs.
APPELLANTS ANSWER TO THE RESPONDENTS APPEAL
62. Whether the trial court correctly disallowed the claim in the contract dated the 14th May 2016; the appellant argues that the Respondent contends that that the learned trial magistrate was manifestly injudicious in disallowing his claim as captured in the agreement dated the 14th of May 2016. And that the respondent posits the contention that the eight (8) cheques purportedly provided were sufficient evidence for the claim to be a success and cites Section 43(1)(3) of the Bills of Exchange.
63. However, according to the appellants the trial court, in its judgement, pronounced itself that the said contract, dated the 14th of May 2016, was distinct from the rest, having been secured by a plethora of cheques. Moreover, it was observed that some pages of the subject contract were missing and the lender was not captured. Further, the court stated that the said cheques were drawn in favour of artificial persons who were not parties to the suit and had the capacity to sue and be sued in their own names and not the respondent on their behalf.
64. It is worth mentioning that the trial court noted that the Appellants faulted the purported contracts entered into on the grounds that the Respondent was engaging in loan sharking, allegations of forgeries of signature, and want of attestation. According to the appellant the trial court arrived at the finding that the contentions made by the Appellants herein could not invalidate the contracts, thus remaining valid. Notwithstanding, in determining the enforceability of the contracts, the court singled out the one dated 14th May 2016 as unenforceable against the Appellants.
65.The appellants went on to argue that it is a long-standing legal principle that a company is, by law, a separate legal entity from its members. The judicial precedents cited since the decision in Salmon and Salmon and Co. Ltd (1897) A.C. 22HL, courts have upheld the doctrine of the corporate veil and limited liability of a company.
66. The appellants further cited Victor Mabachi & Another v Nurturn Bates Ltd, Civil Appeal No. 247 of 2005 [2013] eKLR, the Court pronounced itself thus:
"a company as a body corporate, is a persona jurisdica, with separate independent identity in law, distinct from its shareholders, directors and agents unless there are factors warranting a lifting of the veil."
67. Further, in Sultan Hasham Lalji & 2 Others v. Ahmed Hasham Lalji & 4 Others Civil Appeal No. 3 of 2003, the court while relying on the primordial case of Foss v Harbottle (1843) 67 ER 189 for the proposition that in any action
attribute in which a wrong is alleged to have been done to a company, claimant is the company itself, held that:
"As a general rule and subject only to specific well-established exceptions, due to its separate legal personality, the law does not permit shareholders to bring an action on behalf of the company in which they hold shares. If the duty to be enforced, is one owed to the company, then the primary remedy for its enforcement is an action by the company itself against those in default.
"...Normally, therefore, the company itself is the proper plaintiff, and the only proper plaintiff, in an action arising out of a dispute within the company...
"
...This justification remains true today in several jurisdictions, including Kenya, where due reverence is paid to the "proper plaintiff" principle and other aspects of the rule in Foss V. Harbottle."
68. At the trial court, the Appellant herein maintained that it is unquestionable that Enlight Communication Limited and Clarks Exhibition Limited are not parties- a fact PW1 confirmed with no hesitation during cross-examination. It is also absolutely true that the Respondent did not lodge the suit on behalf of Enlight Communication Limited or Clarks Exhibition Limited, but in his own personal capacity.
69. The appellants went further to claim that the said Elight Communication Limited and Clarks Exhibition Limited did not tender any document before the honourable trial court that indeed they have made resolutions to appoint Issa & Company Advocates as its counsel in this suit, nor have they granted the respondent the power to sue on their behalf. Following that the appellants contended that the trial magistrate was correct in her findings since the said Enlight Communication Limited and Clarks Exhibition Limited are not parties to the suit, and the Respondent willfully failed to obtain authority from the said companies to represent their interests in this suit.
70. The appellants went on to submit that the foregoing notwithstanding, the evidence adduced by the Respondent that touched on Enlight Communication Limited and Clarks Exhibition Limited did not corroborate his cause either. The RTGS slip of KES 3,600,000/= paid to Enlight Communication Limited was confirmed by the Respondent during cross -examination not to be attributed to loan payment as per the Reference section and the Cheques issued to Enlight Communication Limited and Clarks Exhibition Limited adduced as evidence do not even correspond in date or amount stated in the agreement.
71. On the second part, the Respondent argues that a dishonored cheque is an admission of liability according to Section 43 of the Bills of Exchange Act (Cap 27) which gives the payee an immediate recourse against the drawer.
63. In Nairobi Comm Case No. E028 Of 2020 Palm Oil Transportes Limited V
Kenfreight E.A. Limited Majanja J observed:
I am in agreement with the decision of the Court of Appeal for Eastern Africa when dealing with section 30 of the Bills of Exchange Act (Tanzania) which is in pari materia with our section 30(2) of the Bills of Exchange Act in the case of Hassanah Issa & Co v Jeraj Produce Store [1967] EA 55 when it held that: [I]n this case in as much as the suit was upon a cheque and in as much as the cheque was admittedly given, the onus was then on the defendant to show some good reason why the plaintiff was not entitled to have judgment upon the cheque admittedly given for the figure set out in that cheque. This position stems from Section 30 of the Bill of Exchange Act (Ch 215); which provides that the holder of a bill is prima facie deemed to be a holder in due course; but if an action on the bill is admitted or proved that the issue is affected with duress or illegality, then the burden of proof is shifted unless certain events, which are irrelevant for this purpose, take place. The position is therefore that where there is a suit on a cheque and the cheque was admittedly been given the onus is on the defendant to show circumstances which disentitle the plaintiff to a judgment to which otherwise he would be entitled. [Emphasis mine] 17. From the aforesaid decision, it is clear that although issuing of a dishonoured cheque amounts to an admission, the defendant is entitled to show facts that would disentitle the plaintiff to judgment. I find and hold that the Defendant has been able to demonstrate why the Plaintiff is not entitled to a judgment based on the cheque Nos 345779, 345780, 345781, 345782, 345786 and 345787.'
72.On the strength of the above-quoted decision the Appellants argued that they had demonstrated that the Respondent is not entitled to the amount in a cheque as no monies were proved to have been disbursed; some cheques were in favour of non-parties to this suit; and even the cheques adduced did not correspond to the repayment date stated in the agreement or the amount due. According to the appellants it would appear that the Respondent’s incongruent cheques were procured from anywhere and haphazardly inserted in the Agreement as security to substantiate his case, as the agreement and the cheques are not in tandem in date, payment date, or even amount and that in any event, this was not a case of enforcing a debt on account of the cheque but of agreements that were entered into.
73. Accordingly, the appellants agreed with the learned Magistrate holding that the amount depicted on the contract dated the 14th May 2016, could not crystallise as the lender was unknown and cheques were issued in favour of non-parties to this suit who are juridical persons.
74. In regard to the monies allegedly transacted via MPesa the trial Magistrate held that the Respondent herein was not entitled to the monies sent through Mpesa as the purpose and intent were unknown and there was no expectation of refund. The appellants have urged this court not to interfere with that finding.
75. The appellants maintained "That the MPESA transactions are not attributed to any loan agreement before the honourable court." As per the evidence led by the respondent.
76. In addition, the Respondent admitted in his submissions that the Mpesa funds were donations. Donations are grants that are not to be repaid.
77. The appellants cited the case of Patrick Peter Kithini v. Kamau Kimanzi; Civil Appeal Number 57'A' of 2019 where the court dealing with a similar matter held:
"The sequence is unclear but what made matters difficult is the allegations made by the Respondent in his defence that the money deposited in his Mpesa account was not a friendly loan but meant for some unexplained errands or payments to 3rd parties. The effect of those allegations by the fact of the Appellant's case really left his case resting merely on his word against that of the Respondent. The trial Magistrate in my view cannot be faulted in arriving at that conclusion. The Respondent had no obligation to prove his allegations because I find that the burden for the reasons aforestated never shifted to him so as to require him disprove what the Appellant had established.
In the end and for the aforestated reasons this court finds no merit in this appeal. The same is dismissed with costs."
78. Further in Patrick Peter Kithini v Justus Mwongela; Civil Appeal Number 50 Of 2019 it was observed:
"The trial court in my view evaluated the evidence tendered before her well and concluded that in the absence of any agreement, in writing the Appellant's case fell short of requisite proof. I have re-evaluated the evidence and I find that on the whole the Appellant's case rested on his word against that of the Respondent notwithstanding the MPESA transaction. An MPESA transaction or any other transaction for that matter without further evidence clarifying the basis of the transaction is insufficient to prove a fact on a balance of probability particularly where a recipient gives adequate or satisfactory explanation as to why the money was deposited in his account. In this instance I find that the explanation given by the Respondent that the money deposited was in repayment of debt, really changed the equation and left the Appellant's case hanging on his word against that of the Respondent. In such an instance the only conclusion that can be drawn is the fact that a case has not been proved to the required standard in law.
The long and short of this is that his court finds no merit in this appeal. The same is disallowed but I shall not make any order as to costs. Each party to pay own costs."
79. Also, in Kitui Civil Appeal No. 51 Of 2016; KN Vs JMT the court held that:
"A loan would ordinarily be money lent by an individual to another where there is a promise to repay on a specific date. There ought to be a specified period of time when the money should be repaid.
A casual perusal of the M-pesa statement does not suggest that the sum that was being sent to the Appellant was a loan. It does not specify if the sum of money was to be repaid. There is no indication of any obligation on the part of the recipient to repay the sum of money that was being received.
It is therefore difficult for the Respondent to enforce the obligation that should have arisen as a contract. The arrangement that existed between the Respondent and Appellant does not amount to that of a lender and borrower. It is probable that the sum of money was founded on an immoral consideration as stated by the Appellant which cannot be enforceable in law."
80. Accordingly, the MPESA sent funds to the 1st Defendant as campaign money, cannot be refunded given that they were not remitted as loans and there was no expectation to repay.
81. In conclusion the appellants argued that the trial court erred on multiple fronts in arriving at the decision to allow partly the Respondent claim against overwhelming evidence to the contrary. The Respondent failed to discharge his evidential burden in trial court as highlighted above, and thus, his claims should have been dismissed all together with costs. In addition, the infractions by the trial court were manifest even in failing to award costs to the 2nd Appellant's claim against it being dismissed.
82.The Appellants urged this court to allow their appeal in its entirety and dismiss the Respondent's appeal with costs
RESPONDENT'S CASE
83. According to the respondent the appeal stems from a case where the Respondent was compelled to file a suit to recover friendly loans advanced to the 1st Appellant in the total sum of Kshs. 16,369,840.00. All the monies advanced to the 1st Appellant were by written loan agreements.'
84. In an attempt to settle the loans advanced, the 1st Appellant issued five cheques to the Respondent which were all dishonored due to lack of sufficient funds.2 On 2nd June 2017, the 1st Appellant settled part of the outstanding loan through an RTGS Swift Bank transfer in the sum of Kshs. 3,600,000.00 to the Respondent's company, Enlight Communication Ltd3, leaving an outstanding balance of Kshs.16, 250, 840.00
85. The trial court found that the friendly loan agreements were voluntarily signed by the 1st Appellant and were therefore valid and binding. Further, that all claims were sufficiently proven by the Respondent save for the claim in the loan agreement of 14th May 2016 which was secured by the cheques drawn in favour of the Respondent's companies. Hon. Wendy Micheni therefore only awarded the Respondent the sum of Kshs. 8,732,000.00 instead of the full outstanding sums advanced.
86. Aggrieved by the Judgment of the trial court, both the Appellants and the Respondent filed appeals against the said judgment on the grounds set out in their respective memorandum of appeals dated 28th July 2023.
Issues for determination
87. The Respondent submitted that the following broad issues arise for determination by this Honourable Court:
i) Whether there were valid and binding loan agreements between the 1st
Appellant and the Respondent?
ii) Whether the Respondent is entitled to sum of Kshs. 6,737,840.00 which
was disallowed by the Trial Court?
iii) Whether the 2nd Appellant is entitled to costs?
iv) Validity of the Loan Agreements
88. According to the respondent the 1st Appellant and Respondent were known to each other and this was the basis of the friendly loan agreements for the money advanced by the Respondent to the 1st Appellant.
89. During examination-in-chief, the Respondent confirmed that he and the 1" Appellant had known each other for over ten (10) years during which the 1st Appellant would get tenders and the Respondent would fund them. During cross-examination of the 1st Appellant, he also confirmed that he and the Respondent were friends for many years.
90. The Respondent produced in evidence written loan agreements executed by himself and the 1st Appellant which were the basis of the Respondent transferring money to the 1st Appellant through cash and M-Pesa.
91. During cross-examination of the 1st Appellant, he confirmed that the identity card number and mobile phone number as indicated in the loan agreements were his.
92. The 1st Appellant alleges that there was no cogent evidence of money disbursed pursuant to the loan agreements therefore he could not have breached the loan agreements, if any however, the respondent contends that Pursuant to the execution of the loan agreements by the parties, the Respondent disbursed the sum of Kshs. 15,276,000.00 in cash and the sum of Kshs.1,093,840.00 through money transfers as indicated in the Respondent's certified M-Pesa statements indicting money transferred to the 1st Appellant on different dates.
93. Further, the respondent submitted that the 1^st Appellant's bank statements also proved that indeed, monies were transferred to the 1st Appellant and to the 2nd Appellant's account'' pursuant to the loan agreements.
94. Upon receipt of the disbursed money, the 1st Appellant duly executed the said agreements which contained a term that provided as follows;
"Under my hand, I acknowledge a loan of.....”
95. The respondent relied on The Black's Law dictionary12 which defines a debt as follows;
"Debt.1. liability on a claim; a specific amount of money due by agreement or
otherwise..."
96. The Respondent submits that by executing the agreements, the 1st Appellant acknowledged disbursement of the loans to him in each of the respective loan agreements.'
97. The Respondent submitted that the Loan Agreements dated 14th May 2016, 17th May 2017, 19th July 2017, 4th August 2017, 7th August 2017 and 16th August 2017 were all in writing and duly executed by both the 1st Appellant and the Respondent in confirmation and acknowledgement of the terms therein. The Agreements were therefore valid and binding on the parties and that the court ought to have given effect to all the agreements.
Burden of Proof
98. The 1st Appellant contends that the loan agreements between him and the Respondent were not authentic and therefore not legally binding between them on the basis his signatures and handwriting on the said agreements were forged and doctored. The 1^st Appellant therefore faults the trial Magistrate for shifting the burden of proving authenticity of the loan agreements to him. The Respondent's case is that by virtue of loan agreements executed between him and the 1st Appellant, the Respondent disbursed loans to the 1st Appellant which to date the 1st Appellant has failed to fully settle. In support of his case, the Respondent duly produced the loan agreements executed by both the 1st Appellant and Respondent and consequently discharged his burden of proving that the loan agreements existed on the basis of which, the loans were disbursed by the Respondent to the 1st Appellant.
99. In contesting the validity of the said Loan Agreements and in denying executing the loan agreements, the burden of proof shifted to the 1st Appellant to establish the fraud and invalidity of the agreements as alleged. This evidential burden on the 1^st appellant was not discharged according to the respondent.
100. The respondent relied on the provisions of Section 107 (1) of the Evidence Act, Cap 80 Laws of Kenya which provides as follows on burden of proof;
"Whoever desires any court to give judgment as to any legal right or liability
dependant on the existence of facts which he asserts must prove that those
facts exist."
101. Sections 109 and 112 of the Evidence Act further provide;
"109. The burden of proof as to any particular fact lies on the person who
wishes the court to believe in its existence, unless it is provided by any law that the proof of the fact shall lie on any particular person.
112. in civil proceedings, when any fact is especially within the knowledge of any party to those proceedings, the burden of proving or disproving the fact is upon him.'
102. According to the respondent it was incumbent upon the 1^st appellant to prove that his signature was forged since he sought to have the court believe so.
103. In his statement of Defence, the 1st Appellant merely denied that he was privy to any loan agreements with the Respondent and stated that the said agreements and his complaint were fabricated and doctored. The 1^st appellant however admitted in evidence that he never reported the matter of forgery to the police for investigation.
104. The Respondent further submitted that the 1st Appellant only made general denials and allegations of fraud in relation to the loan agreement, but he had failed to prove the said allegations thus his appeal based on those grounds must fail.
105. The Respondent relied on the case of National Bank of Kenya Ltd vs. Pipeplastic Samkolit (K) Ltd & another18 (2001) eKLR where the Court of Appeal emphasized that;
"A Court of law cannot re-write a contract between the parties. The parties
are bound by the terms of their contract, unless coercion, fraud or undue
influence are pleaded and proved."
106. The Respondent submits that the 1st Appellant simply alleged fraud and forgery but did not discharge the evidentiary and legal burden to prove the allegations.
107. The Respondent relied on the case of Rose Wanjiku Muriithi vs. George Maina Ndimwa (2014) eKLr where the
Court of Appeal held as follows;
"Proof of fraud involves questions of fact. Simply raising the issue of fraud
in a statement of defence and counterclaim is not proof of fraud."
108. The Respondent contended that he sufficiently discharged his legal burden of proof together with the evidential burden of proof that there existed loan agreements between him and the 1st Appellant which were in writing and executed by both parties. The objection to the validity of the loan agreements by the Appellant was not well founded and the trial Magistrate correctly dismissed the 1st Appellant's defence.
109. According to the respondent the learned honorable magistrate rightfully found that there was no cogent evidence to question the validity of the loan agreements between the 1st Appellant and the Respondent and therefore that all the loan agreements and terms therein were valid and binding on the parties.
110. Therefore, the respondent urged that grounds 1-6 of the Appellants' Memorandum of Appeal have no basis and should be dismissed.
111. As to whether the Respondent is entitled to the sum of Kshs. 6, 737, 840.00 which was disallowed by the Trial Magistrate and validity of the loan agreement dated 14th May 2016 the respondent submitted that on 14th May 2016, at the request of the 1st Appellant, the Respondent advanced a friendly loan of Kshs. 5,644,000.00 to the 1st Appellant.
112. It was a term of the agreement that payment for the loan was due on 7th June 2016. The Respondent in his testimony informed the court that the 1st Appellant executed the loan agreement upon confirmation that the personal details therein were his and also acknowledged that the loan was disbursed to him as provided by the term in the loan agreement which provided;
"I certify that all the particulars given by me are true and complete. I confirm that I have read the terms and conditions governing grant of the friendly loan
and agree to be bound by them. Under my hand I acknowledge a loan of Kshs. 5,644,000.00 (Five Million, Six Hundred & Forty-Four Thousand)"
113. The 1" Appellant however disputed the existence of the loan agreement dated 14th May 2016 and also denied that the Respondent disbursed the sum of Kshs. 5,644,000.00 to him. The learned Hon Magistrate evaluated the evidence by both parties and found that the 1st Appellant had not adduced any cogent evidence to support his allegations.
114.Consequently, in its judgment the Court found that all the contracts including the one dated 14th May 2016 were valid. According to the respondent the learned Hon Magistrate However, later contradicted herself in holding that the sum of Kshs. 5,644,000.00 could not be awarded in the judgment on
the basis that it was secured by cheques which were drawn in favour of Clarks
Exhibition Ltd and Enlight Communications Ltd.
115. Further the court held that, in the circumstances, it was not evident who the lender was as the said companies were not parties to the suit and there was no evidence that the Respondent had the companies' authority to sue on
their behalf.
116. The respondent argued that the decision of the learned Hon. Magistrate was arrived at in error thus this court should intervene and reverse the same to the extent that it disallowed the claim of Ksh 5,644,000.
117. The Respondent further submitted that the loan agreement dated 14th May 2016 was between the 1st Appellant and the Respondent with binding obligations. The 1st Appellant and the Respondent were the primary parties to the agreement and therefore there was no need to involve the Respondent's companies in a suit for recovery of the friendly loan advanced. The 1st Appellant had only written the cheques for repayment of the loan advanced by the Respondent in favour of the two companies but they were not parties or privy to the loan agreement. Once the cheques were dishonoured, the Respondent could sue on the original loan agreement for breach of the covenant to repay.
118. The Respondent relied on Court of Appeal decision in the case of Aineah Liluyani Njirah v Aga Khan Health Services (2013) eKLRs, where the Court stated that:
"Privity of contract is a long-established part of the law of contract. In the
earlier part of the last century, it was identified by Viscount Haldane LC as one of the fundamental principles of the English Contract Law. See Dunlop
Pneumonic Tyre v. Selfridge and Co, Ltd. The essence of the privity rule is that
only the people who actually negotiated a contract (who are privy to it) are
entitled to enforce its terms. Even if a third party is mentioned in the contract,
he cannot enforce any of its terms nor have any burdens from that contract
enforced against him".
119. The respondent argued that similar to the part payment of the loan made by the 1st Appellant through RTGS to Enlight Communications Ltd,26 the dishonoured cheques were drawn in favour of Clarks Exhibition Ltd and Enlight Communications Ltd pursuant to the loan advanced by the Respondent. The Respondent did not require any authority or resolution to sue as he was not suing on behalf of the Companies but enforcing the breach of the loan agreements in his own capacity as the lender.
120. Further, contrary to the 1st Appellant’s case, the cheques issued which are particularized in the loan agreement of 14th May 2016, are an admission of debt according to the respondent.
121. The respondent went on to state that, at the hearing the 1st Appellant acknowledged that the cheques were issued but alleged that they were
dishonoured as the Respondent did not disburse the money. The Respondent submits that the 1st Appellant's arguments are false and misleading. First if there was no disbursement, the 1st Appellant did not write to the Respondent to demand for the return of the post-dated cheques for the alleged failure to disburse. Further, he did not ask the Respondent not to bank or present the cheques for payments. On the contrary, the bank statement reveals that there were insufficient funds in the account.
122. The 1st Appellant provided security for the due performance of his obligations by issuing Cheque Nos. 001159, 001160, 001161, 001162, 001164, 001165, 001166 and 001167 to guarantee the friendly loans disbursed to him. However, upon presentation of the cheques, they were all dishonoured due to lack of sufficient funds in the 1st Appellant accounts. This is confirmed by the certified bank statements produced by the 1st Appellant for the 2nd Appellant's Account No. 1620000301 at Gulf African Bank, which indicate the post-dated cheques which were dishonoured and returned for insufficient funds.
123. At the trial, the Appellant did not dispute drawing the cheques and has not done so to date. The Respondent relied on the decision in Emco Billets Limited vs. Nalin Nail Works Limited & 2 Others {2011}eKLR
where the Judge held as follows in regard to issuance of post-dated cheques to settle outstanding obligations:
"...I therefore find there was consideration for the two cheques. I agree with counsel for the plaintiff that by the 2nd and 3rd defendants issuing post-dated
cheques, that was tantamount to guarantying the payment by the 1st
defendant."
124. Section 47 of the Bills of Exchange Act provides as follows with regard to dishonoured cheques;
(1) (a) "A bill is dishonoured by non-payment: (a) when it is duly presented
for payment and payment is refused or cannot be obtained.
(2) "Subject to the provisions of this Act, when a bill is dishonoured by non-
payment, an immediate right of recourse against the drawer and endorsers
accrues to the holder."
125. It is this right that the respondent sought to enforce since according to him the payment was being done in honor of the agreement dated the 14^th May 2016 between him and the 1^st appellant.
126.The Respondent relied on the case of ASL Credit Limited vs. Joyce Wangui Wachira T/A Paddy Distributors Limited & Another (2020) eKLR where the Honourable Justice Majanja found as follows with regard to dishonoured cheques;
"16. The Plaintiff has also produced a bundle dishonoured cheques whose
reason for return was either 'insufficient funds' or 'payment stopped by the drawer'. Our courts have held that dishonoured cheques amount to admission
of debt. In Equatorial Commercial Bank v Wilfred Nyasimi Oroko Ml Hccc No. 224 of 2011 [2015] eKLR the court held that,
"A dishonoured cheque which was issued to the Applicant on a debt
which is subject of the suit is also an admission of claim in the sense
of the face of the above evidence, the court concludes that these
cheques were issued by the Respondent to the predecessor of the
Applicant and so they constitute an admission of the debt to the extent
of the amount of the cheques."
19. In conclusion, I find and hold that the admission of the debt based
on the correspondence supported by the dishonoured cheques is clear,
plain and obvious. There is no need to have a trial on matters which are
admitted and not in dispute. "
127.. The 1st Appellant produced his bank statements which confirmed the post-dated cheques were dishonoured. The details in the bank statements tally with the cheques offered as securities in the loan agreements between the 1st Appellant and the Respondent. The respondent thus maintains that even though the cheques were issued in the name of the company they were offered as security for the loan advanced to the 1^st appellant by the respondent.
128. The Respondent relied on the case of Fredrick Owino t/a Cool & Smartech Agencies vs. Board of Management Kamuriai Sec. School (2021)eKLR where the judge in addressing the issue whether the appellant was entitled to the payment of the sum of money sought for having been issued with dishonoured cheques after supplying goods stated as follows;
........ the respondent issued the cheques in satisfaction of the debt.
It did not prove that the cheques were a forgery or that there are
circumstances that disentitle the respondent to payment upon presentation. In
the circumstances, I find that the appellant is entitled to judgement based on
the dishonoured cheques.....
129.According to the respondent all the dishonoured cheques were issued in favour of repayment of the amount owing of Kshs. 5,644,000.00 as per the 14th May 2016 loan agreement. The 1st Appellant duly signed against the security documents which contained a clause that provided as follows;
"................................yes I wish to leave the above item as security for the friendly loan, L further confirm that the security is mine and no one else has a claim over it. I confirm that I have read the terms and conditions and I agree to be hond by it "
130. The Respondent submits that cheques drawn in favour of his companies by the 1^st Appellant company were an outright acknowledgment of the money owing and therefore the Respondent is entitled to the money lent to the 1 Appellant.
131. The respondent went further to submit that during the hearing at the trial court, the Respondent produced CR-12 of Clarks Exhibition Limited together with and Enlight Communication Itd indicating that he is a director and shareholder in the two companies. The 1st Appellant also produced the CR-12 of the 2nd Appellant confirming that he was a director and shareholder, The production of CR-12 by both the 1" Appellant and Respondent clearly shows the nexus and the basis for the dishonoured cheques being drawn in favour of the two companies in repayment of the loan advanced to the 1" Appellant.
132. The Respondent therefore submitted that the trial court should have interpreted the contract in its entirety between the 1" Appellant and the Respondent on the terms set out in the loan agreement and awarded the Respondent the sum of Kshs. 5,644,000.00 that was secured by the dishonoured cheques.
133. Further, the Respondent submitted that Hon. Wendy Micheni CM ( as she then was) erred in holding that he was not entitled to the amount claimed from the loan agreement dated 14th May 2016 for want of resolutions giving authority to sue for the amount owing as the two companies were not parties to the agreement. The sum of Kshs. 5,644,000.00 is therefore due and owing to the Respondent,
134 by dint of the arguments advanced by the respondent in respect of the loan advanced through the agreement entered into on 14^th May 2016, the Respondent urged this court to allow his appeal and reverse the learned Hon Magistrate disallowing that limb of the claim,
Loan disbursed through M-Pesa
135. With regard to the money disbursed on M-Pesa pursuant to the loan agreements, the respondent submitted that the trial court found that there was no express purpose of the monies transferred through M-Pesa. The repondents position is that the Magistrate contradicted herself by finding that the loan agreements were valid yet found that the purpose of the money advanced through M-Pesa was not proven. The M-Pesa statement were tendered in evidence to confirm disbursement to the 1st Appellant. The reason for the disbursement was set out in the loan agreement. The Respondent's evidence to this effect discharges the burden of proof on his part.
136. The submitted further that the High Court in an almost identical claim held as follows in reversing the decision of the Small Claims Court in Joseph Mwakhugu Mwakinyango vs. George Mkuru Mwalimo (Civil Appeal E004 of 2024{2024} KEHC 9538 (KLR)(17^th July 2024).
".... Thirdly, the agreement itself was worded in such a way that it was the
acknowledgment of the receipt of the money loaned by the borrower, the
respondent herein, and there was no reference in the agreement to agreed payment through the bank or MPESA. So, in my view the trial Magistrate
should not have imputed his own terms to the contract, which were not
envisaged or agreed upon by the contracting parties to the loan agreement.
That action by the Magistrate amounted to a breach and violation of the same
legal principle of freedom of contract."
137. In the present case, there were loan agreements and documented proof of attempts to pay the said loans. In support of the sum disbursed through M-Pesa to the 1st Appellant pursuant to the loan agreements, the Respondent produced certified M-Pesa account statements indicating that monies were deposited and/or transferred after the agreements were entered into.
138. The Respondent relied on the decision in Kanji Jadva Valji vs. Trinity Prime Investment Ltd & 2 others (2014) eKLR where the Court found as follows;
"By custom and practice therefore, friendly advancements (loans) need not be
reduced into writing. By the conduct of the parties, an implied contract is
discerned. That is the scenario presented by the instant case. All through,
the Plaintiff trusted the 2nd Defendant. It is the 2nd Defendant who directed
him where to pay the money into- the 1st Defendant's bank account. The 2nd
Defendant posed as an honest person who had deep personal problems of an
ailing father. Out of ignorance, the Plaintiff accepted to retain the Title to the
land (which anyway, was valueless). With that confidence, he deposited the
funds into the 1st Defendant's account.
It is for this reason, I think, that the 1st Defendant is obligated to restitute all
the monies paid into its account, which can only be construed was loaned on
friendly basis, and in the alternative, the 1st Defendant could not controvert
the Plaintiff's evidence on how it landed into its bank account."
138. The respondent urges this court to adopt similar reasoning in determining this matter. The respondent has urged this court to note that the 1st Appellant has not denied the disbursement of the money on M-Pesa. Further, the 1st Appellant has failed to provide any evidence in support of his allegation that the money disbursed to him on M-Pesa by the Respondent was not a loan to be repaid. During the hearing, the 1st Appellant acknowledged receipt of the money advanced on M-Pesa and admitted that the same had not been repaid.
139. The Respondent therefore submitted that the trial Magistrate erred in not awarding him the sum of Kshs. 1, 093, 840.00 being part of the outstanding loan advanced to the 1st Respondent through M-Pesa thus his appeal on this claim must succeed.
140 The Respondent concluded by arguing that he had sufficiently demonstrated that the six loan agreements including that of 14th May 2016, were valid and legally binding therefore he is entitled to the monies advanced through cash and M-Pesa and therefore he was entitled to the entire sum claimed.
141. On whether 2nd Appellant is entitled to costs, the Appellants aver that the trial court erred in failing to award the 2nd Appellant costs despite dismissing the claim against it. The Respondent submitted that costs to a party in a suit cannot be claimed as a matter of right as the same is awarded at the discretion of the court. The respondent placed reliance on Section 27 of the Civil Procedure Act provides that;
...costs of and incidental to all suits shall be in the discretion of the court or
judge, and the court or judge shall have full power to determine by whom and
out of what property and to what extent such costs are to be paid..."
142. The Respondent relied on the case of Joseph Kiprono Too vs. Unilever Tea Kenya Limited (2021) eKLR where the court pronounced itself on the issue of costs as follows;
"...the order as to costs as provided for under Section 27 of the Act
remains at the discretion of the court. Since the award of costs is not
cast in stone and courts have ultimate discretion..."
143.Further, on interfering with the said discretion, the court in the case of Mbogo vs. Shah [196841 held as follows;
"It is trite law that the Appellate court should not interfere with the exercise
of discretion of a judge unless it is satisfied that he misdirected himself in
some matter and as a result arrived at a wrong decision or unless it is manifest
from the case as a whole that the judge was clearly wrong in the exercise of
his discretion and that as a result there has been injustice."
40 [2021] eKLR
144. According to the respondent the Appellants did not demonstrate how the trial Magistrate misdirected herself in arriving at her finding to dismiss the claim without costs as this was in exercise of the Court's discretion.
145. The Respondent further submitted that Hon. Wendy Micheni had unfettered discretion as to whether to award costs or not and that the law does not require the trial magistrate to give reasons for the award of costs or failure to do so.
146. In the respondents view the Court properly exercised its discretion and there is no reason or justification to interfere with the same.
147. In conclusion, the Respondent submitted that the Honourable Court should dismiss the Appellants' entire appeal for lack of merit and as there are no grounds for reversing the decision of the trial court for entering judgment against the 1st Appellant.
148. The Respondent has however demonstrated that the learned Magistrate erred in disallowing part of his claim in making contradictory findings in her judgment. The Respondent is entitled to the balance of the Claim in the sum of Kshs. 6,737,840.00 as submitted hereinabove.
149. The Respondent therefore prays that part of the judgment delivered on 30th June 2023 disallowing part of his Claim be set aside and substituted with an order entering judgment in his favour against the Appellants for an additional sum of Kshs. 6,737,840.00 together with interest from the date of filing suit as well as costs of the suit. It is so prayed.
ANALYSIS AND DETERMINATION
150. The two appeals were consolidated and argued together at the instance of the parties. The court must begin by thanking both counsel for their industry in the preparation of their respective arguments in the appeal.
151.Having said that, this court is reminded of its cardinal duty as a first appellate court in the words of the Court of Appeal in the Selle and Another Vs. Associated Motor Boat Co. Ltd [1968] EA 123 thus:-
"An appeal to this Court from a trial by the High Court is by way of retrial and the principles upon which this Court acts in such an appeal are well settled. Briefly put they are that this Court must reconsider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in this respect. In particular this Court is not bound necessarily to follow the trial judge's findings of fact if it appears either that he has clearly failed on some point to take account of particular circumstances or probabilities materially to estimate the evidence or if the impression based on the demeanor of a witness is inconsistent with the evidence in the case generally (Abdul Hameed Saif vs. Ali Mohamed Sholan (1955), 22 E. A. C. A. 270)".
152. The case by the 1^st appellant from an analysis of the evidence and submissions filed is that he denies that he entered into the loan contract agreements that were presented by the respondent in the lower court. According to him he did not sign the contracts as alleged thus all the agreements tendered by the respondent are forgeries.
153. The law of evidence is that he who alleges must prove. The 1^st appellant having alleged that the agreements produced in evidence were forgeries assumed the legal and evidential burden to prove that indeed they were forgeries. Section 109 of the evidence act provides “The burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence, unless it is proved by any law that the proof of that particular fact shall lie on any particular person.’’
154. The 1^st appellant invited the court to find that the agreements were not enforceable on account of forgery thus it was incumbent upon him to prove that the signatures on the agreements were not his. That he could only prove by way of calling the evidence of a forensic document examiner. He did not do so therefore in accordance with the express provisions of Section 109 of the Evidence Act he would fail in that claim and he actually did fail.
155. An attempt has been made by the 1^st appellant to argue that the duty of proving that the documents were genuine lay on the respondent. The argument falls on the basis that the respondent presented the documents and testified that they were genuine. It was the 1^st appellant who introduced the issue of forgery of the agreements thus the burden of proving that they were forgeries was upon him. He admitted that he had not reported any case of forgery to any lawful authority for investigation and did not during the hearing in the lower court seek to have the documents forensically examined to back up his claim despite service of copies of the agreements upon him. The court was therefore left to weigh his word against the evidence of the respondent and properly disbelieved him in this court’s view.
156. The respondent was able to proof on a balance of probabilities that the agreements were entered into between him and the 1^st appellant and that funds were disbursed to the 1^st appellant. The evidence of the respondent at page 5 to 7 of the proceedings in the lower court leaves no doubt that the 1^st appellant and the respondent were persons known to each other for a long period of time spanning to about 10 years. The agreements and the dishonored cheques produced by the respondent as well as the Mpesa statements clearly established that the two had loan agreements between the and that the respondent had indeed honored his part of the agreements by advancing the money to the 1^st appellant.
157. The 1^st appellant has taken issue with the fact that money was allegedly being advanced in cash. Firstly, the 1^st appellant should be reminded that Kenya is largely a cash economy and there no crime in dealing with cash irrespective of the amounts and the only restrictions on amounts of cash one cane withdraw applies to banks and the duty to report suspicious transactions under the Proceeds of Crime and Anti-Money Laundering Act applies to reporting institutions and the respondent in this case is not one such institution.
158. In any case the 1^st appellant even on the matter of the dishonored cheques did not deny issuing them to the respondent in the Respondent’s companies names.
159.The Evidence Act provides under Section 108 that;-
The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side. The evidence of the agreements , the Mpesa transactions and the dishonored cheques in this courts view were sufficient evidence to establish on a balance of probabilities that the 1^st appellant was indebted to the respondent and that the sum claimed by the respondent in his pleadings was due and owing/
160. The 1^st appellant as well as the respondent produced the CR 12 for Enlight Communications Ltd and Clarks Exhibition Ltd which document showed that the respondent was the director and shareholder of the company.
The use of the company’s name in this matter by the 1^st appellant in drawing the cheques was in this courts view premised on an understanding between the two parties that the cheques once honored would have settled the amounts advanced to the 1^st appellant vide the loan agreements. The 1^st appellant did not deny that he had actually made a RTGS payments to the respondent as well. This court unlike the trial court did not have the advantage of watching the demeanor of the witnesses as they testified.
161. The learned Honorable magistrate made a finding that the agreements were genuine thus in this court view it was not open to the trial court to turn around and disbelieve a portion of the respondent’s evidence regarding the agreement dated the 14^th May 2016. If the authenticity of that agreement had fallen into question, then perhaps the could would have had good reason to isolate that agreement and declare it unenforceable.
162. The court notes that the 1^st appellant in his evidence did not dispute issuing the cheques and did not offer any evidence to show that he issued the cheques on account of any debt due and owing to the company.
The 1^st appellant strikes this court as a very deceitful man who all along pretended to be a friend of the respondent and benefited from funds advanced to him by the respondent knowing too well that he had no intention to repay the loans. He clearly, in this courts view, betrayed the trust between him and the respondent and is now seeking to hide behind the technicality that the company in whose name he issued the cheques was not named as a party.
163. To my understanding nothing in law bars a company from receiving any funds for and on behalf of any of it shareholders or directors as that would purely be an internal matter between the director and the company.
The insistence on the company’s role in this matter in a bid to defeat the claim is in this courts view made in complete ignorance by the 1^st appellant of the Tarquand’s Rule as laid out in Royal British Bank Vs Tarquand (1856) 6 E$ B 327 in which the court held that people transacting with companies are entitled to assume that internal company rules are complied with, even if they are not. This rule is otherwise known as the internal management rule. It was not the business of the 1^st appellant to tell the respondent the means through which his money would be paid. That was purely matter for the respondent to decide including asking him to pay the money to a charity if he so wished after all it was his money.
164. It is the finding of this court that the non -joinder of the company in the suit could not defeat the suit because privity of contract in relation to the contracts giving rise to the suit was between the 1^st appellant and the respondent.
165. The trial court seemingly fell into error by proceeding on the presumption that the money being recovered was sought to be recovered for and on behalf of the company. The case of the respondent from the pleadings, evidence and submissions was that the respondent sought to recover money owed to him which would have been repaid through the company account or through any other means that he chose. The company as a separate legal entity did not, from the evidence tendered by the parties, enter into any loan agreement with the 1^st appellant thus it had absolutely no cause of action top pursue in its own name against the 1^st appellant.
166. The company was simply being used as a vehicle for receipt of monies owed to its director and as such it did not acquire any contractual rights between it and the 1^st appellant capable of enforcement.
167. This court find that the respondent discharged both the Legal and Evidential burden to establish his claim. In the case of ASL Credit Limited vs. Joyce Wangui Wachira T/A Paddy Distributors Limited & Another (2020) eKLR where the Honourable Justice Majanja found as follows with regard to dishonoured cheques;
"16. The Plaintiff has also produced a bundle dishonoured cheques whose
reason for return was either 'insufficient funds' or 'payment stopped by the drawer'. Our courts have held that dishonoured cheques amount to admission
of debt. In Equatorial Commercial Bank v Wilfred Nyasimi Oroko Ml Hccc No. 224 of 2011 [2015] eKLR the court held that,
"A dishonoured cheque which was issued to the Applicant on a debt
which is subject of the suit is also an admission of claim in the sense
of the face of the above evidence, the court concludes that these
cheques were issued by the Respondent to the predecessor of the
Applicant and so they constitute an admission of the debt to the extent
of the amount of the cheques."
19. In conclusion, I find and hold that the admission of the debt based
on the correspondence supported by the dishonoured cheques is clear,
plain and obvious. There is no need to have a trial on matters which are
admitted and not in dispute. "
168. According to the respondent all the dishonoured cheques were issued in favour of repayment of the amount owing of Kshs. 5,644,000.00 as per the 14th May 2016 loan agreement. The 1st Appellant duly signed against the security documents which contained a clause that provided as follows;
"................................yes I wish to leave the above item as security for the friendly loan, L further confirm that the security is mine and no one else has a claim over it. I confirm that I have read the terms and conditions and I agree to be hond by "
The document therefore left no doubt that the 1^st appellant received the amount in issue and committed to pay through the dishonored cheques. The same amounted to an admission of the debt and like the courts before I find and hold that the amount in issue was recoverable by the respondent in his own name since the use of the name of the Company was purely for purposes of receipt of money for and on his behalf.
169.In regard to the amounts paid to the 1^st appellant through Mpesa, I find that the same was received by the 1^st appellant and he did not offer any evidence of repayment of the same to the respondent. The 1^st appellant and the respondent were not in this courts view engaged in charity at least as per the evidence of the respondent. The 1stb appellant having received the money was under duty to refund. In Joseph Mwakhugu Mwakinyango vs. George Mkuru Mwalimo (Civil Appeal E004 of 2024{2024} KEHC 9538 (KLR)(17^th July 2024) the court held;-
".... Thirdly, the agreement itself was worded in such a way that it was the
acknowledgment of the receipt of the money loaned by the borrower, the
respondent herein, and there was no reference in the agreement to agreed payment through the bank or MPESA. So, in my view the trial Magistrate
should not have imputed his own terms to the contract, which were not
envisaged or agreed upon by the contracting parties to the loan agreement.
That action by the Magistrate amounted to a breach and violation of the same
legal principle of freedom of contract."
170. In the present case, there were loan agreements and documented proof of attempts to pay the said loans. In support of the sum disbursed through M-Pesa to the 1st Appellant pursuant to the loan agreements, the Respondent produced certified M-Pesa account statements indicating that monies were deposited and/or transferred after the agreements were entered into.
It was therefore not open to the court to try and rewrite the clear agreemernts entered into by the parties.
171.In Kanji Jadva Valji vs. Trinity Prime Investment Ltd & 2 others (2014) eKLR where the Court found as follows;
"By custom and practice therefore, friendly advancements (loans) need not be
reduced into writing. By the conduct of the parties, an implied contract is
discerned. That is the scenario presented by the instant case. All through,
the Plaintiff trusted the 2nd Defendant. It is the 2nd Defendant who directed
him where to pay the money into- the 1st Defendant's bank account. The 2nd
Defendant posed as an honest person who had deep personal problems of an
ailing father. Out of ignorance, the Plaintiff accepted to retain the Title to the
land (which anyway, was valueless). With that confidence, he deposited the
funds into the 1st Defendant's account.
It is for this reason, I think, that the 1st Defendant is obligated to restitute all
the monies paid into its account, which can only be construed was loaned on
friendly basis, and in the alternative, the 1st Defendant could not controvert
the Plaintiff's evidence on how it landed into its bank account."
172. The respondent urged this court to adopt similar reasoning in determining this matter and I quite agree with him especially so considering the conduct of the 1^st appellant in his attempt to avoid liability by whatever means possible. The respondent has urged this court to note that the 1st Appellant has not denied the disbursement of the money on M-Pesa. Further, the 1st Appellant has failed to provide any evidence in support of his allegation that the money disbursed to him on M-Pesa by the Respondent was not a loan to be repaid. During the hearing, the 1st Appellant acknowledged receipt of the money advanced on M-Pesa and admitted that the same had not been repaid. As a consequence, he ought to repay the amount.
173. This court therefore finds that the trial Magistrate erred in not awarding the respondent the sum of Kshs. 1, 093, 840.00 being part of the outstanding loan advanced to the 1st Respondent through M-Pesa thus his appeal on this limb of the claim succeeds.
174.On whether 2nd Appellant is entitled to costs, the Appellants contend that the trial court erred in failing to award the 2nd Appellant costs despite dismissing the suit against him. This court finds that the award of costs is a matter of exercise of judicial discretion and where a party fails to demonstrate that the trial court improperly exercised that discretion this court would not be inclined to interfere. See Mbogo vs. Shah [1968] held as follows;
"It is trite law that the Appellate court should not interfere with the exercise
of discretion of a judge unless it is satisfied that he misdirected himself in
some matter and as a result arrived at a wrong decision or unless it is manifest
from the case as a whole that the judge was clearly wrong in the exercise of
his discretion and that as a result there has been injustice."
175. In the end this court finds that the appellants appeal has no merit and is hereby dismissed in its entirety.
176.As for the Respondent’s appeal this court finds that the respondent has demonstrated that the learned Magistrate erred in disallowing part of his claim in making contradictory findings in her judgment. The Respondent is entitled to the balance of the Claim in the sum of Kshs. 6,737,840.00 together with interest from the date of filing suit as well as costs of the suit.
177. It is so ordered.

JOSHUA MBITHI MUTUA MWALYO AND Seven Fourteen Limited VS Benson Mugweru Nguri

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