The plaintiff filed this suit against the defendants claiming recovery of USD 236,986.44 and Kshs 37,639.70 plus interest at the 7.3 per cent per annum on the USD sum and 14 per cent per annum on the Kshs sum and costs of the suit. The cause of action was said to be failure by the defendants to settle a construction loan facility advanced to the 1 st defendant in October 2010 and September 2011. These facilities were secured by charge over the 1 st property number LR 214/792 (hereinafter referred to as ‘the property’) and corporate guarantee given by the 2 nd defendant on 3-11-2011.
The defendants admitted that the loans were advanced but argued that the same were taken over by Equity Bank and the securities discharged after the plaintiff acknowledged receipt and settlement of the liabilities in full. The defendants also pleaded the doctrine of estoppel arguing that the plaintiff’s conduct for five years from the date of discharge to the date it started demanding payment should operate as an estoppel against the plaintiff.
Plaintiff’s case
The plaintiff called one witness by the name Carol Chepkoech who introduced herself as a legal counsel working with the plaintiff. Through her statement dated 28-12-2020, she told the court that NIC Bank Limited was amalgamated with the Commercial Bank of Africa on 30-09-2018 and became the plaintiff herein. Before the amalgamation, the defendants had a bank-customer relationship with the NIC Bank Limited.
The plaintiff on the 1 st defendant’s application advanced the 1 st defendant a construction loan of USD 275,000.00 on terms and conditions contained in a letter of offer dated 12-10-2010 which was subsequently enhanced to USD 325,000.00 on terms and conditions contained in a letter of offer dated 20-09-2011. This loan was secured by mortgage dated 14-01-2011 over the property registered in the 1 st defendant’s name who was a shareholder and director of the 2 nd defendant. The loan was also secured by a corporate guarantee dated 3-11-2011 issued by the 2 nd defendant.
She added that the plaintiff on the 2 nd defendant’s application advanced the 2 nd defendant a term loan, an overdraft facility and credit card facility on the terms and conditions contained in various letters of offer dated 20-09-2011, 9-10-2012, 1-03-2013, 10-06-2013 and 20-01-2014. These facilities which they referred to as Aberdair facilities were secured by mortgage over the property, assets debenture over the 2 nd defendant’s assets, a director’s guarantee and a separate corporate guarantee.
The witness added that the 2 nd defendant with the knowledge of the 1 st defendant caused Equity Bank to take over the aberdair facilities and upon receiving the necessary undertakings dated 14-12-20172 and 17-12-2015 discharged all the securities including the mortgage and the debentures.
The witness added that despite the above discharge and take over, the 1 st defendant remained under a contractual and common law duty to repay the construction mortgage loan which had not been taken over in accordance with the terms of the letters of offer dated 12-10-2010 and 21-09-2011. She stated further that the 2 nd defendant remained under contractual obligation to make good any default by the 1 st defendant in accordance with the corporate guarantee dated 3-11-2011 which was never discharged.
The witness stated further that the 1 st defendant neglected to repay the construction loan which stood at USD 236,986.44 and Kshs 37,639.70 as at 5-12-2019. She produced a total of 11 exhibits consisting of the letters of offer, the charge, discharge of charge, guarantees, certificate of change of name of the plaintiff, board resolutions, undertakings from Equity Bank and its advocates, demand letters and the loan statement of account.
In cross-examination, Carol stated that she had not filed any documents giving her authority to give evidence on behalf of the plaintiff. She reiterated that the construction facility was secured by the charge over the 1 st defendant’s land and a guarantee which were executed by both parties. She admitted that there was a discharge of charge which was in relation to mortgage dated 14-02-2011 and further charge which was registered to secure USD 50,000.00. She admitted that the discharge was duly executed and registered.
She also confirmed that there was a receipt and discharge in the defendant’s supplementary list of documents which was confirming receipt of USD 589,000 and releasing the 2 nd defendant from various debentures issued in favour of the plaintiff. The witness also confirmed that there was a corporate guarantee by the 2 nd defendant in favour of NIC to secure advances to the 1 st defendant. She stated that the demand letter to the defendants was issued on 2-01-2020 four years after the discharge of charge and that she was not aware of any listing of the defendants in any credit reference bureau.
In re-examination, she stated that the undertaking by Equity Bank did not relate in any way to the construction loan and that the discharge of charge talked of facilities advanced to the company which was the 2 nd defendant. She maintained that one could not read the discharge of charge in isolation and any delay did not constitute waiver.
The defendant’s case
The 1 st defendant testified on behalf of himself and the 2 nd defendant where he introduced himself as the Chief Executive Officer and a director of the 2 nd defendant. He testified by first adopting his witness statement dated 16-08-2023 and producing the defendants’ bundle of documents dated 30-10-2023 and supplementary bundle dated 4-07-2024 which combined consisted of eight exhibits.
According to the adopted statement, the 1 st defendant was advanced a term loan of USD 275,000 by the plaintiff vide letter dated 12-10-2010 which was to finance construction and renovation of the property. In consideration of the offer, he executed a charge dated 14 th January 2011 over the property.
By a further letter of offer dated 20-09-2011, the plaintiff granted him a top up of USD 50,000 on undertaking that the legal charge would be up-stamped to USD 325,000 and the parties executed a further charge dated 3-11-2011. He added that by letters dated 20-09-2011, 9-10-2012, 1-03-2013, 10-06-2013 and 20-01-2014, the plaintiff advanced facilities to the 2 nd defendant which were to be secured by among others a second further charge over the property. He stated that at all times, the facilities to himself and the 2 nd defendant were secured by the charge over the property.
The 1 st defendant stated further that on 14-12-2015, following an offer to grant the 2 nd defendant banking facilities, he instructed Equity Bank to take over all the facilities secured by the charge over the property following which the plaintiff executed a discharge of charge over the property. The plaintiff also executed and issued a receipt and discharge to the 2 nd defendant. He insisted that the takeover by Equity Bank was for all the facilities and the plaintiff duly acknowledged that it had received all the principal monies and interest secured by the mortgages from the defendants and proceeded to discharge the securities. It was the plaintiff who advised Equity Bank what to pay and the issue was put to rest and there was no basis in common law or contract to claim new monies.
He added that the decision by the plaintiff to keep the account open for as long as they wished in order to continue earning interest defeated all prudence and reasonableness and the plaintiff acted in breach of its fiduciary duties by fraudulently, negligently, and in bad faith managing the account. He relied on doctrine of promissory estoppel, estoppel by acquiescence and waiver as the plaintiff had taken inordinately long time to purport that it was still owed. He denied that the defendants were served with demand letters.
In cross-examination, the 1 st defendant stated that he and the 2 nd defendants had taken distinct facilities and added that he was not contesting any of the documents filed by the plaintiff. He conceded that the letter from Equity Bank talked of takeover of debenture facilities and that his facilities were secured by guarantee and mortgage. He added that the discharge of charge itemized particulars that were being taken over as overdraft, term loan and outstanding guarantee. He also made reference to an undertaking by Equity Bank’s advocates dated 17-12-2015 whose subject was not similar to what is in the undertaking by Equity Bank dated 15-12-2015. The said letter showed the facilities that were being released and that letter by the Equity Bank’s advocates did not make reference to a construction mortgage facility.
He added that he was not able to guaranteed that the discharge of charge dated 20 th January 2016 in the defendants’ supplementary list of documents was the same discharge referenced in letter from Equity Bank dated 14-12-2015. He stated further that although paragraph 10 of the plaint was correct, nothing remained unpaid and the discharge of charge referred to the loan to himself. He insisted that the facilities taken over were paid off but he had nothing to show that the mortgage facility was part of what was taken over by Equity Bank. He stated that he had nothing before the court to show that the account was mismanaged and conceded that the interest was contractual.
In re-examination, the 1 st defendant maintained that his instructions to Equity Bank was to take over facilities secured by the property and that the letter of offer dated 12-10-2010 for USD 275,000 was secured by the property which included the construction loan. He added that the takeover by Equity Bank was for all the facilities secured by both the property and the debenture.
Making reference to clause 1 of the discharge of charge, he added that the first mortgage was for USD 275,000, the 2 nd mortgage related to facility of USD 50,000 while the third facility was for USD 205,000. He maintained that clause 4 of the same discharge of charge showed that all the monies having been paid, the chargee released the mortgage. He stated further that his understanding was that Equity Bank had paid all the facilities given by the plaintiff and that he continued servicing the loan at Equity Bank.
Analysis and determination
I have read the submissions of the parties dated 30-01-2025 by the plaintiff and 3-04-2025 by the defendants. I have also read the supplementary submissions by the plaintiff dated 23-04-2025. I note from the submissions, the pleadings and the testimonies and evidence of the parties that the main contention is whether or not the discharge of charge dated 20 th January 2016 was in respect of all the facilities. The plaintiff maintains that the discharge was in respect of facilities advanced to the 2 nd defendant which it refers to aberdair facilities only while the defendants insists that it covered all the facilities advanced to both defendants.
There is no dispute that there were three charges in respect of the property. The first one dated 14 th January 2011 was registered to secure USD 275,000.00, the second one dated 3 rd November 2011 secured a sum of USD 50,000.00 and the second further charge dated 3 rd November 2011 secured USD 205,000.00. All these charges were referenced in the discharge of charge dated 20 th January 2016 which for clarity, I reproduce the relevant part as follows;
WHEREAS: -
By a mortgage (hereinafter called “the mortgage”) dated the fourteenth day of January two thousand and eleven made between the Chargor of the one part and the bank of the other part registered at the Government Lands Registry at Nairobi aforesaid in volume N79 Folio 241/2 File 24664 the property described in the schedule hereto (hereinafter called “the mortgaged property”) was mortgaged to the bank to secure the sum of United States dollars two hundred and seventy five thousands (US$ 275,000) or the equivalent thereof in whatever currency denominated advanced to the company together with interest thereon and all other costs charges and expenses.
By a further mortgage (hereinafter called “the further mortgage” ) dated the third day of November two thousand and elven made between the Chargor of the one part and the bank of the other part registered at the Government Lands Registry at Nairobi aforesaid in volume N79 Folio 241/3 File 24664 the property described in the schedule hereto (hereinafter called “the mortgaged property” ) was mortgaged to the bank to secure the sum of United States dollars fifty thousands (US$ 50,000) or the equivalent thereof in whatever currency denominated advanced to the company together with interest thereon and all other costs charges and expenses.
By a second further mortgage (hereinafter called “the second further mortgage” and together with the mortgage and the further mortgage called “ the mortgages”) dated the third day of November two thousand and eleven made between the Chargor of the one part and the bank of the other part registered at the Government Lands Registry at Nairobi aforesaid in volume N79 Folio 241/4 File 24664 the property described in the schedule hereto (hereinafter called “the mortgaged property”) was mortgaged to the bank to secure the sum of United States dollars two hundred and five thousands (US$ 205,000) or the equivalent thereof in whatever currency denominated advanced to the company together with interest thereon and all other costs charges and expenses.
All the moneys due to the bank under the mortgages having been paid the Chargor has asked the bank to discharge the mortgages.’
The discharge of charge no doubt makes reference to the property and acknowledges that the monies relating to the facilities mentioned hereto have been paid in full. The facilities advanced to the 1 st defendant are pleaded to have been USD 275,000 which was secured by the first mortgage and USD 50,000.00 which was secured by the second mortgage and this is the basis of the plaintiff’s suit. Vide the second further mortgage, the property was also charged to secure USD 205,000.00 which was advanced to the 2 nd defendant which facility is also referred to in the discharge of charge.
The plaintiff suggests in its submissions that the discharge of charge was obtained by mistake or error and cites the authority of Crystal Wealth Management System Ltd v JC Food Services Ltd (1029 ABGB59) where the court held that erroneous discharge, particularly one not intended to release the underlying obligation, does not extinguish a valid and subsisting debt.
While this court appreciates that a discharge of charge signed by mistake does not discharge the chargor of their contractual obligation to pay, I have not seen any suggestion in the testimony of the plaintiff’s witness that the discharge of charge was executed by mistake. The plaintiff’s case did not turn around an error in discharging the property but the same was leveraged on the fact that the property was not discharged in respect of the loans granted to the 1 st defendant but those advanced to the 2 nd defendant. If it were based on an error, the plaintiff should have led evidence to show that by disclosing where the error was and by who.
The plaintiff has submitted that the debt is not cleared by the fact that the security has been discharged. I do agree that, that is the position in law. In such cases, the court must establish and consider the context, environment, reasons and circumstances under which the security was discharged, mistake or error being one of them. Looking at the discharge of charge, it acknowledges payments of the loans. The same applies to the receipt and discharge produced as the defendants’ exhibit 8 but this one applies to the loans granted to the 2 nd defendant which are not subject of this suit.
The parties are not agreeable on the terms of the discharge of charge and in order to ascertain whether there was a meeting of minds when the same was drawn, this court shall resort to the events and discussions which gave rise to the drawing and execution of the said discharge of charge. I hold the view that a discharge of charge cannot be a stand-alone contract as it is a product of a primary contract and can only be the end document in performance of the contract between the chargor and the chargee.
The plaintiff produced a letter from Equity Bank dated 14 th December 2015 which constitutes an undertaking. This letter stated that Equity Bank was intending to make available banking facilities to the 2 nd defendant which were to be secured by a legal charge over the property. The subject of that letters reads;
‘TAKE OVER OF FACILITIES SECURED BY AN ALL ASSETS FIXED AND FLOATING DEBENTURE FOR USD 205,000/= AND SUPPLEMENTAL LEGAL CHARGE OVER LR NO 214/792; ABERDAIR AVIATION LIMITED (‘BORROWER’) BY EQUITY BANK (KENYA) LIMITED (“EBKL”).
Going through the body of the letter, I have observed that the subject matter involved discharge of the property and loans secured by the said property and the floating debenture over the 2 nd defendant’s assets. The letter gives the terms of the undertaking including payment by RTGS of the outstanding liabilities on the borrower’s loan account together with interest that continued to accrue. The identification of the borrower in the reference part of the letter is the 2 nd defendant. There is no reference to the 1 st defendant. The letter goes on to mention the specific facilities to be covered by the undertaking as overdraft of USD 200,496.70, term loan of USD 94,980.86 and outstanding guarantees of Kshs 2,000,000.00. This undertaking was accompanied by another professional undertaking dated 17-12-2015 from Walker Kontos Advocates who were advocates for Equity Bank which repeated the same facilities as mentioned by Equity Bank.
The undertaking from Equity Bank was clear that the purpose of the discharge of charge it was calling for was to enable it grant banking facilities to the 2 nd defendant. I take judicial notice that discharging the property from loans granted to one of the defendants only would not have freed the property for use by the Equity Bank which was taking over the facilities.
It is notable from the above two undertakings which I believe were the basis of the discharge of charge that the liabilities Equity Bank was taking over were those related to the facilities granted to the 2 nd defendant. There is no disclosure of the discussion between the defendants and Equity Bank to enable this court establish which facilities were being discussed but it is clear that those undertakings did not mention the construction loans granted to the 1 st defendant. The defendants claimed that they continued paying the facilities taken over by Equity Bank but did not adduce evidence to that effect. Had the defendants produced statement of their accounts with Equity Bank, this court would have easily ascertained the extent of the financial obligations taken over by the said bank.
It is my position that a borrower does not get relieved of the debts by virtual of a discharge of charge only and there must be an unequivocal demonstration that the debt was paid in full or otherwise settled. There could be circumstances which may lead to a discharge of charge other than full settlement of the debt and where the chargee is able to establish that the discharge of charge was not meant to extinguish the chargor’s liabilities, the court should look beyond the wordings of the discharge of charge. In the case before me, I hold that the discharge of charge dated 20 th January 2016 did not cover the loans granted to the 1 st defendant.
The defendants have claimed that the plaintiff should be estopped from demanding the loan because it made them believe that the debt was settled and it took long time in demanding payment. The defendants have extensively submitted that the doctrine should apply in their favour in this matter. This argument is based on the fact that the discharge of charge stated so but not on any correspondence or discussion held between the parties. In my considered opinion, the defendants have not placed before me any material that could be interpreted as a promise or communication to them that the debts owed by the 1 st defendant to the plaintiff had been settled.
I have looked at the statement of account for the loan and it is clear to me that the 1 st defendant continued repaying the loan for almost a year after the takeover of the other facilities by Equity Bank unless the credits shown therein came from other sources. The last credit in the statement was on 5-10-2016. If indeed the defendants believed or were made to believe that the debt had been settled, they would have not continued repaying the loan and the 1 st defendant would have made steps to close the current account which is also shown to have been receiving credit transfers and reversals up to May 2017.
Additionally, failure by the bank to demand payment of the debt for the period does not mean that the debt was extinguished. Honourable Justice G.L. Nzioka took the same position in Obadiah Gitonga Micheu v Co-operative Bank of (K) Ltd (2018) KEHC 10196 (KLR) where she held that;
‘The fact that the Defendant did not inform the Plaintiff of this amount, negligently or otherwise, does not mean that the money is not repayable.’
The defendants have submitted that the bank accounts statements were not admissible in evidence because they did not satisfy the requirements of verification under Sections 176 and 177 of the Evidence Act. The plaintiff counters this by submitting that the statements were ordinary records which were in the custody of the bank and were produced by an officer of the bank who testified to their contents. The statements were produced without any objection from the defendants and this court believes that taking that issue during submissions is an afterthought. In any event, the plaintiff’s witness was its officer and produced the statements under oath which satisfies Section 177(2) of the Evidence Act. I find this argument lacking in basis and I dismiss it.
The totality of the above analysis is that, the discharge of charge dated 20 th January 2016 did not extinguish the debts owed to the plaintiff by the 1 st defendant. The 2 nd defendant having given guarantee to the payment of the debt is bound to settle any pending sum as a lendor has a right to sue a guarantor either separately or together with the borrower. That is the position in law as it was held in Monda Matundura v National Bank of Kenya Ltd (2018) KEELC 4532 (KLR) among others thus;
‘On the issue of liability of the applicant as guarantor of the principal debtor, my view is that the bank has a separate and distinct right of action against the guarantor. The bank may therefore choose to pursue recovery of the debt either against the principal debtor independently and/or as long as there has been default by the principal debtor the bank may opt to seek recovery of the debt from the guarantor.’
The loan account shows a balance of USD 197,426.19 and the plaintiff has not explained how it arrived at the pleaded figure of USD 236,986.44. There is no basis for award of the said sum and in my view the plaintiff has proved USD 197,426.19. The interest of 7.3 per cent per annum is contractual and I see no reason to deny the same.
In respect of the Kshs 37,639.70 appearing as debit in the current account, I take position that the 1 st defendant having not told this court that it closed the account or instructed the plaintiff to close the same, the plaintiff is entitled to recover the debits. The amount shown in the debits were as a result of management of the account which was operated by the 1 st defendant and I hold that the plaintiff is entitled to the same with interest at court rates. The plaintiff has not connected the current account to the loans guaranteed by the 2 nd defendant neither has it laid any connection between the 2 nd defendant and the debits in the account and as such there is no basis to order recovery from the 2 nd defendant.
In conclusion, I enter judgement for the plaintiff against the defendants as follows;
USD 197,426.19 as against the defendants jointly and severally.
Kshs 37,639.70 as against the 1 st defendant only.
The sum in (a) above shall attract interest at 7.3 per cent per annum from 5-12-2019 until payment in full.
The sum in (b) above shall attract interest at court rates from the date of filing this suit until payment in full.
The costs of the suit against both defendants
Dated, signed and delivered at Nairobi this 11 th day of July 2025.
B.M. MUSYOKI
JUDGE OF THE HIGH COURT.
Judgment delivered in presence of Mr. Kabaiku for the plaintiff and Mr. Miano for the defendants.
The defendants admitted that the loans were advanced but argued that the same were taken over by Equity Bank and the securities discharged after the plaintiff acknowledged receipt and settlement of the liabilities in full. The defendants also pleaded the doctrine of estoppel arguing that the plaintiff’s conduct for five years from the date of discharge to the date it started demanding payment should operate as an estoppel against the plaintiff.
Plaintiff’s case
The plaintiff called one witness by the name Carol Chepkoech who introduced herself as a legal counsel working with the plaintiff. Through her statement dated 28-12-2020, she told the court that NIC Bank Limited was amalgamated with the Commercial Bank of Africa on 30-09-2018 and became the plaintiff herein. Before the amalgamation, the defendants had a bank-customer relationship with the NIC Bank Limited.
The plaintiff on the 1 st defendant’s application advanced the 1 st defendant a construction loan of USD 275,000.00 on terms and conditions contained in a letter of offer dated 12-10-2010 which was subsequently enhanced to USD 325,000.00 on terms and conditions contained in a letter of offer dated 20-09-2011. This loan was secured by mortgage dated 14-01-2011 over the property registered in the 1 st defendant’s name who was a shareholder and director of the 2 nd defendant. The loan was also secured by a corporate guarantee dated 3-11-2011 issued by the 2 nd defendant.
She added that the plaintiff on the 2 nd defendant’s application advanced the 2 nd defendant a term loan, an overdraft facility and credit card facility on the terms and conditions contained in various letters of offer dated 20-09-2011, 9-10-2012, 1-03-2013, 10-06-2013 and 20-01-2014. These facilities which they referred to as Aberdair facilities were secured by mortgage over the property, assets debenture over the 2 nd defendant’s assets, a director’s guarantee and a separate corporate guarantee.
The witness added that the 2 nd defendant with the knowledge of the 1 st defendant caused Equity Bank to take over the aberdair facilities and upon receiving the necessary undertakings dated 14-12-20172 and 17-12-2015 discharged all the securities including the mortgage and the debentures.
The witness added that despite the above discharge and take over, the 1 st defendant remained under a contractual and common law duty to repay the construction mortgage loan which had not been taken over in accordance with the terms of the letters of offer dated 12-10-2010 and 21-09-2011. She stated further that the 2 nd defendant remained under contractual obligation to make good any default by the 1 st defendant in accordance with the corporate guarantee dated 3-11-2011 which was never discharged.
The witness stated further that the 1 st defendant neglected to repay the construction loan which stood at USD 236,986.44 and Kshs 37,639.70 as at 5-12-2019. She produced a total of 11 exhibits consisting of the letters of offer, the charge, discharge of charge, guarantees, certificate of change of name of the plaintiff, board resolutions, undertakings from Equity Bank and its advocates, demand letters and the loan statement of account.
In cross-examination, Carol stated that she had not filed any documents giving her authority to give evidence on behalf of the plaintiff. She reiterated that the construction facility was secured by the charge over the 1 st defendant’s land and a guarantee which were executed by both parties. She admitted that there was a discharge of charge which was in relation to mortgage dated 14-02-2011 and further charge which was registered to secure USD 50,000.00. She admitted that the discharge was duly executed and registered.
She also confirmed that there was a receipt and discharge in the defendant’s supplementary list of documents which was confirming receipt of USD 589,000 and releasing the 2 nd defendant from various debentures issued in favour of the plaintiff. The witness also confirmed that there was a corporate guarantee by the 2 nd defendant in favour of NIC to secure advances to the 1 st defendant. She stated that the demand letter to the defendants was issued on 2-01-2020 four years after the discharge of charge and that she was not aware of any listing of the defendants in any credit reference bureau.
In re-examination, she stated that the undertaking by Equity Bank did not relate in any way to the construction loan and that the discharge of charge talked of facilities advanced to the company which was the 2 nd defendant. She maintained that one could not read the discharge of charge in isolation and any delay did not constitute waiver.
The defendant’s case
The 1 st defendant testified on behalf of himself and the 2 nd defendant where he introduced himself as the Chief Executive Officer and a director of the 2 nd defendant. He testified by first adopting his witness statement dated 16-08-2023 and producing the defendants’ bundle of documents dated 30-10-2023 and supplementary bundle dated 4-07-2024 which combined consisted of eight exhibits.
According to the adopted statement, the 1 st defendant was advanced a term loan of USD 275,000 by the plaintiff vide letter dated 12-10-2010 which was to finance construction and renovation of the property. In consideration of the offer, he executed a charge dated 14 th January 2011 over the property.
By a further letter of offer dated 20-09-2011, the plaintiff granted him a top up of USD 50,000 on undertaking that the legal charge would be up-stamped to USD 325,000 and the parties executed a further charge dated 3-11-2011. He added that by letters dated 20-09-2011, 9-10-2012, 1-03-2013, 10-06-2013 and 20-01-2014, the plaintiff advanced facilities to the 2 nd defendant which were to be secured by among others a second further charge over the property. He stated that at all times, the facilities to himself and the 2 nd defendant were secured by the charge over the property.
The 1 st defendant stated further that on 14-12-2015, following an offer to grant the 2 nd defendant banking facilities, he instructed Equity Bank to take over all the facilities secured by the charge over the property following which the plaintiff executed a discharge of charge over the property. The plaintiff also executed and issued a receipt and discharge to the 2 nd defendant. He insisted that the takeover by Equity Bank was for all the facilities and the plaintiff duly acknowledged that it had received all the principal monies and interest secured by the mortgages from the defendants and proceeded to discharge the securities. It was the plaintiff who advised Equity Bank what to pay and the issue was put to rest and there was no basis in common law or contract to claim new monies.
He added that the decision by the plaintiff to keep the account open for as long as they wished in order to continue earning interest defeated all prudence and reasonableness and the plaintiff acted in breach of its fiduciary duties by fraudulently, negligently, and in bad faith managing the account. He relied on doctrine of promissory estoppel, estoppel by acquiescence and waiver as the plaintiff had taken inordinately long time to purport that it was still owed. He denied that the defendants were served with demand letters.
In cross-examination, the 1 st defendant stated that he and the 2 nd defendants had taken distinct facilities and added that he was not contesting any of the documents filed by the plaintiff. He conceded that the letter from Equity Bank talked of takeover of debenture facilities and that his facilities were secured by guarantee and mortgage. He added that the discharge of charge itemized particulars that were being taken over as overdraft, term loan and outstanding guarantee. He also made reference to an undertaking by Equity Bank’s advocates dated 17-12-2015 whose subject was not similar to what is in the undertaking by Equity Bank dated 15-12-2015. The said letter showed the facilities that were being released and that letter by the Equity Bank’s advocates did not make reference to a construction mortgage facility.
He added that he was not able to guaranteed that the discharge of charge dated 20 th January 2016 in the defendants’ supplementary list of documents was the same discharge referenced in letter from Equity Bank dated 14-12-2015. He stated further that although paragraph 10 of the plaint was correct, nothing remained unpaid and the discharge of charge referred to the loan to himself. He insisted that the facilities taken over were paid off but he had nothing to show that the mortgage facility was part of what was taken over by Equity Bank. He stated that he had nothing before the court to show that the account was mismanaged and conceded that the interest was contractual.
In re-examination, the 1 st defendant maintained that his instructions to Equity Bank was to take over facilities secured by the property and that the letter of offer dated 12-10-2010 for USD 275,000 was secured by the property which included the construction loan. He added that the takeover by Equity Bank was for all the facilities secured by both the property and the debenture.
Making reference to clause 1 of the discharge of charge, he added that the first mortgage was for USD 275,000, the 2 nd mortgage related to facility of USD 50,000 while the third facility was for USD 205,000. He maintained that clause 4 of the same discharge of charge showed that all the monies having been paid, the chargee released the mortgage. He stated further that his understanding was that Equity Bank had paid all the facilities given by the plaintiff and that he continued servicing the loan at Equity Bank.
Analysis and determination
I have read the submissions of the parties dated 30-01-2025 by the plaintiff and 3-04-2025 by the defendants. I have also read the supplementary submissions by the plaintiff dated 23-04-2025. I note from the submissions, the pleadings and the testimonies and evidence of the parties that the main contention is whether or not the discharge of charge dated 20 th January 2016 was in respect of all the facilities. The plaintiff maintains that the discharge was in respect of facilities advanced to the 2 nd defendant which it refers to aberdair facilities only while the defendants insists that it covered all the facilities advanced to both defendants.
There is no dispute that there were three charges in respect of the property. The first one dated 14 th January 2011 was registered to secure USD 275,000.00, the second one dated 3 rd November 2011 secured a sum of USD 50,000.00 and the second further charge dated 3 rd November 2011 secured USD 205,000.00. All these charges were referenced in the discharge of charge dated 20 th January 2016 which for clarity, I reproduce the relevant part as follows;
WHEREAS: -
By a mortgage (hereinafter called “the mortgage”) dated the fourteenth day of January two thousand and eleven made between the Chargor of the one part and the bank of the other part registered at the Government Lands Registry at Nairobi aforesaid in volume N79 Folio 241/2 File 24664 the property described in the schedule hereto (hereinafter called “the mortgaged property”) was mortgaged to the bank to secure the sum of United States dollars two hundred and seventy five thousands (US$ 275,000) or the equivalent thereof in whatever currency denominated advanced to the company together with interest thereon and all other costs charges and expenses.
By a further mortgage (hereinafter called “the further mortgage” ) dated the third day of November two thousand and elven made between the Chargor of the one part and the bank of the other part registered at the Government Lands Registry at Nairobi aforesaid in volume N79 Folio 241/3 File 24664 the property described in the schedule hereto (hereinafter called “the mortgaged property” ) was mortgaged to the bank to secure the sum of United States dollars fifty thousands (US$ 50,000) or the equivalent thereof in whatever currency denominated advanced to the company together with interest thereon and all other costs charges and expenses.
By a second further mortgage (hereinafter called “the second further mortgage” and together with the mortgage and the further mortgage called “ the mortgages”) dated the third day of November two thousand and eleven made between the Chargor of the one part and the bank of the other part registered at the Government Lands Registry at Nairobi aforesaid in volume N79 Folio 241/4 File 24664 the property described in the schedule hereto (hereinafter called “the mortgaged property”) was mortgaged to the bank to secure the sum of United States dollars two hundred and five thousands (US$ 205,000) or the equivalent thereof in whatever currency denominated advanced to the company together with interest thereon and all other costs charges and expenses.
All the moneys due to the bank under the mortgages having been paid the Chargor has asked the bank to discharge the mortgages.’
The discharge of charge no doubt makes reference to the property and acknowledges that the monies relating to the facilities mentioned hereto have been paid in full. The facilities advanced to the 1 st defendant are pleaded to have been USD 275,000 which was secured by the first mortgage and USD 50,000.00 which was secured by the second mortgage and this is the basis of the plaintiff’s suit. Vide the second further mortgage, the property was also charged to secure USD 205,000.00 which was advanced to the 2 nd defendant which facility is also referred to in the discharge of charge.
The plaintiff suggests in its submissions that the discharge of charge was obtained by mistake or error and cites the authority of Crystal Wealth Management System Ltd v JC Food Services Ltd (1029 ABGB59) where the court held that erroneous discharge, particularly one not intended to release the underlying obligation, does not extinguish a valid and subsisting debt.
While this court appreciates that a discharge of charge signed by mistake does not discharge the chargor of their contractual obligation to pay, I have not seen any suggestion in the testimony of the plaintiff’s witness that the discharge of charge was executed by mistake. The plaintiff’s case did not turn around an error in discharging the property but the same was leveraged on the fact that the property was not discharged in respect of the loans granted to the 1 st defendant but those advanced to the 2 nd defendant. If it were based on an error, the plaintiff should have led evidence to show that by disclosing where the error was and by who.
The plaintiff has submitted that the debt is not cleared by the fact that the security has been discharged. I do agree that, that is the position in law. In such cases, the court must establish and consider the context, environment, reasons and circumstances under which the security was discharged, mistake or error being one of them. Looking at the discharge of charge, it acknowledges payments of the loans. The same applies to the receipt and discharge produced as the defendants’ exhibit 8 but this one applies to the loans granted to the 2 nd defendant which are not subject of this suit.
The parties are not agreeable on the terms of the discharge of charge and in order to ascertain whether there was a meeting of minds when the same was drawn, this court shall resort to the events and discussions which gave rise to the drawing and execution of the said discharge of charge. I hold the view that a discharge of charge cannot be a stand-alone contract as it is a product of a primary contract and can only be the end document in performance of the contract between the chargor and the chargee.
The plaintiff produced a letter from Equity Bank dated 14 th December 2015 which constitutes an undertaking. This letter stated that Equity Bank was intending to make available banking facilities to the 2 nd defendant which were to be secured by a legal charge over the property. The subject of that letters reads;
‘TAKE OVER OF FACILITIES SECURED BY AN ALL ASSETS FIXED AND FLOATING DEBENTURE FOR USD 205,000/= AND SUPPLEMENTAL LEGAL CHARGE OVER LR NO 214/792; ABERDAIR AVIATION LIMITED (‘BORROWER’) BY EQUITY BANK (KENYA) LIMITED (“EBKL”).
Going through the body of the letter, I have observed that the subject matter involved discharge of the property and loans secured by the said property and the floating debenture over the 2 nd defendant’s assets. The letter gives the terms of the undertaking including payment by RTGS of the outstanding liabilities on the borrower’s loan account together with interest that continued to accrue. The identification of the borrower in the reference part of the letter is the 2 nd defendant. There is no reference to the 1 st defendant. The letter goes on to mention the specific facilities to be covered by the undertaking as overdraft of USD 200,496.70, term loan of USD 94,980.86 and outstanding guarantees of Kshs 2,000,000.00. This undertaking was accompanied by another professional undertaking dated 17-12-2015 from Walker Kontos Advocates who were advocates for Equity Bank which repeated the same facilities as mentioned by Equity Bank.
The undertaking from Equity Bank was clear that the purpose of the discharge of charge it was calling for was to enable it grant banking facilities to the 2 nd defendant. I take judicial notice that discharging the property from loans granted to one of the defendants only would not have freed the property for use by the Equity Bank which was taking over the facilities.
It is notable from the above two undertakings which I believe were the basis of the discharge of charge that the liabilities Equity Bank was taking over were those related to the facilities granted to the 2 nd defendant. There is no disclosure of the discussion between the defendants and Equity Bank to enable this court establish which facilities were being discussed but it is clear that those undertakings did not mention the construction loans granted to the 1 st defendant. The defendants claimed that they continued paying the facilities taken over by Equity Bank but did not adduce evidence to that effect. Had the defendants produced statement of their accounts with Equity Bank, this court would have easily ascertained the extent of the financial obligations taken over by the said bank.
It is my position that a borrower does not get relieved of the debts by virtual of a discharge of charge only and there must be an unequivocal demonstration that the debt was paid in full or otherwise settled. There could be circumstances which may lead to a discharge of charge other than full settlement of the debt and where the chargee is able to establish that the discharge of charge was not meant to extinguish the chargor’s liabilities, the court should look beyond the wordings of the discharge of charge. In the case before me, I hold that the discharge of charge dated 20 th January 2016 did not cover the loans granted to the 1 st defendant.
The defendants have claimed that the plaintiff should be estopped from demanding the loan because it made them believe that the debt was settled and it took long time in demanding payment. The defendants have extensively submitted that the doctrine should apply in their favour in this matter. This argument is based on the fact that the discharge of charge stated so but not on any correspondence or discussion held between the parties. In my considered opinion, the defendants have not placed before me any material that could be interpreted as a promise or communication to them that the debts owed by the 1 st defendant to the plaintiff had been settled.
I have looked at the statement of account for the loan and it is clear to me that the 1 st defendant continued repaying the loan for almost a year after the takeover of the other facilities by Equity Bank unless the credits shown therein came from other sources. The last credit in the statement was on 5-10-2016. If indeed the defendants believed or were made to believe that the debt had been settled, they would have not continued repaying the loan and the 1 st defendant would have made steps to close the current account which is also shown to have been receiving credit transfers and reversals up to May 2017.
Additionally, failure by the bank to demand payment of the debt for the period does not mean that the debt was extinguished. Honourable Justice G.L. Nzioka took the same position in Obadiah Gitonga Micheu v Co-operative Bank of (K) Ltd (2018) KEHC 10196 (KLR) where she held that;
‘The fact that the Defendant did not inform the Plaintiff of this amount, negligently or otherwise, does not mean that the money is not repayable.’
The defendants have submitted that the bank accounts statements were not admissible in evidence because they did not satisfy the requirements of verification under Sections 176 and 177 of the Evidence Act. The plaintiff counters this by submitting that the statements were ordinary records which were in the custody of the bank and were produced by an officer of the bank who testified to their contents. The statements were produced without any objection from the defendants and this court believes that taking that issue during submissions is an afterthought. In any event, the plaintiff’s witness was its officer and produced the statements under oath which satisfies Section 177(2) of the Evidence Act. I find this argument lacking in basis and I dismiss it.
The totality of the above analysis is that, the discharge of charge dated 20 th January 2016 did not extinguish the debts owed to the plaintiff by the 1 st defendant. The 2 nd defendant having given guarantee to the payment of the debt is bound to settle any pending sum as a lendor has a right to sue a guarantor either separately or together with the borrower. That is the position in law as it was held in Monda Matundura v National Bank of Kenya Ltd (2018) KEELC 4532 (KLR) among others thus;
‘On the issue of liability of the applicant as guarantor of the principal debtor, my view is that the bank has a separate and distinct right of action against the guarantor. The bank may therefore choose to pursue recovery of the debt either against the principal debtor independently and/or as long as there has been default by the principal debtor the bank may opt to seek recovery of the debt from the guarantor.’
The loan account shows a balance of USD 197,426.19 and the plaintiff has not explained how it arrived at the pleaded figure of USD 236,986.44. There is no basis for award of the said sum and in my view the plaintiff has proved USD 197,426.19. The interest of 7.3 per cent per annum is contractual and I see no reason to deny the same.
In respect of the Kshs 37,639.70 appearing as debit in the current account, I take position that the 1 st defendant having not told this court that it closed the account or instructed the plaintiff to close the same, the plaintiff is entitled to recover the debits. The amount shown in the debits were as a result of management of the account which was operated by the 1 st defendant and I hold that the plaintiff is entitled to the same with interest at court rates. The plaintiff has not connected the current account to the loans guaranteed by the 2 nd defendant neither has it laid any connection between the 2 nd defendant and the debits in the account and as such there is no basis to order recovery from the 2 nd defendant.
In conclusion, I enter judgement for the plaintiff against the defendants as follows;
USD 197,426.19 as against the defendants jointly and severally.
Kshs 37,639.70 as against the 1 st defendant only.
The sum in (a) above shall attract interest at 7.3 per cent per annum from 5-12-2019 until payment in full.
The sum in (b) above shall attract interest at court rates from the date of filing this suit until payment in full.
The costs of the suit against both defendants
Dated, signed and delivered at Nairobi this 11 th day of July 2025.
B.M. MUSYOKI
JUDGE OF THE HIGH COURT.
Judgment delivered in presence of Mr. Kabaiku for the plaintiff and Mr. Miano for the defendants.