Co-operative Bank of Kenya Limited v Nyagah [2022] KEHC 10138 (KLR) | Loan Contracts | Esheria

Co-operative Bank of Kenya Limited v Nyagah [2022] KEHC 10138 (KLR)

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Co-operative Bank of Kenya Limited v Nyagah (Civil Appeal 176 of 2019) [2022] KEHC 10138 (KLR) (Civ) (1 July 2022) (Judgment)

Neutral citation: [2022] KEHC 10138 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Civil

Civil Appeal 176 of 2019

JK Sergon, J

July 1, 2022

Between

Co-operative Bank of Kenya Limited

Appellant

and

Dishon Gitari Nyagah

Respondent

(Being an appeal from the judgment of the Chief Magistrate’s Court at Nairobi delivered on the 13th March 2019 by the Hon.P Muholi (Mr.) (SRM))

Judgment

1. At the onset, the appellant herein lodged a suit against the respondent vide the plaint dated April 20, 2011 and prayed for the sum of Kshs.816,508. 15/= together with costs of the suit and interest on the same.

2. In its plaint the appellant pleaded that by an application dated July 27, 2007 the respondent applied for a personal loan of Kshs.590,000/= from the appellant for development purposes of which the appellant accepted and the respondent accepted the terms and conditions under which the said loan was offered.

3. The appellant pleaded that the personal loan would be secured by the respondent’s salary and was to be repaid over a period of 60 months in monthly installments of Kshs.14,763/= plus interest rate to be charged was agreed at the rate of 16% p.a.

4. It was further pleaded in the plaint that the personal loan offered to the defendant under certain express and/or implied terms and conditions which were that:i.The monthly repayments would commence within one month after the loan or any partial disbursements,ii.The repayments would be made by standing order,iii.The loan amount was to be covered by an insurance policy covering death and permanent disability,iv.The respondent’s employer to remit his total salary to his account held with the appellant,v.Inform the appellant incase his circumstances change like address or job,vi.Failure of payment of principal or interest would be considered as default and the appellant reserved the right to make immediate demand of the outstanding balances.vii.In the event of such a demand the appellant also reserved the right to charge a penalty interest rate.

5. It was further pleaded that in breach of the said terms and conditions, the defendant failed to make the payments of the amounts due in respect of the said loan on the dates as at May 7, 2010 was indebted to the appellant in the sum of Kshs.816,508. 15/= which sum the appellant now claims from the respondent together with interest thereon at the rate of 16% p.a until payment in full.

6. The respondent entered appearance on being served with summons and filed his statement of defence on July 20, 2015 to deny the appellant’s claim.

7. The respondent in its statement of defence stated that the loan alleged was never disbursed to him and that he has never received any loan from the appellant at any one time.

8. At the hearing of the suit, appellant relied on the testimony of one (1) witness while the respondent testified in support of its case. After the full hearing judgment was delivered in favour of the respondent.

9. The appellant has now sought to challenge the aforementionedJudgment on appeal and has put forward eight (8) grounds of appeal as seen in the memorandum of appeal dated March 25, 2019:a.That the learned trial magistrate erred in law and in fact in dismissing the appellant’s suit and in awarding costs to the respondent.b.That the learned trial magistrate erred in law and in fact in failing to award judgment in favour of the appellant for the sum of Kshs.816,508. 15/= plus interest thereon at the contractual rates as sought in the plaint whereas evidence to prove the claim had been presented before the trial court.c.That the learned trial magistrate erred in law and in fact in failing to evaluate the evidence presented before him by the appellant and in finding that there was no contract between the appellant and the respondent.d.That the learned trial magistrate erred in law and in fact in erroneously evaluating loan application form separately from the bank account statements which was all the evidence presented before the court by the appellant and in finding that there was no proof as to the loan amount applied for the respondent and disbursed by the respondent.e.That the learned trial magistrate erred in law and in fact in analyzing the signatures of the respondent on the loan application form and the letter of admission and coming to the conclusion that the signatures differ whereas no handwriting expert testified on the veracity of the same.f.That the learned trial magistrate erred in law and in fact in favour of the respondent whereas the allegations of fraud were neither specifically pleaded nor proved.g.That the learned trial magistrate erred in law and in fact in awarding costs of the suit against the appellant in favour of the respondent.h.That the learned trial magistrate erred in law and in fact in failing to appreciate the serious triable issues raised in the appellant’s claim and during the hearing of the suit and in awarding the respondent the sums sought in the counter claim.

10. Directions were given that the appeal be canvassed by way of written submissions. At the time of writing this judgment the respondents had not filed their submissions.

11. The appellant vide its submissions dated April 8, 2022, gave brief facts of this matter and identified five issues of determination to be as follows:a.Whether there was a legally enforceable contract between the appellant and the respondent?b.Whether the respondent applied for and received a loan facility from the appellant?c.Whether the trial court was right in holding that the signatures differed whereas no handwriting expert had testified?d.Whether the trial court was right in making a determination on the issue of fraud which had not been pleaded?e.Whether the appellant had proved its claim on a balance of probabilities?

12. On the first issue, the appellant relied on the case of Mamta Peesh Mahajan (Suing on behalf of the estate of the late Peeush Premlal Mahajan v Yashwant Kumari Mahajan (Sued personally and as Executrix of the estate and beneficiary of the estate of the late Krishan Lal Mahajan [2017] eKLR the court cited with approval the words words of Steyn LJ in G. Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyds Rep 25 .Lord Steyn said:“…It is important to consider briefly the approach to be adopted to the issue of contract formation ... It seems to me that four matters are of importance. The first is that… law generally adopts an objective theory of contract formation. That means that in practice our law generally ignores the subjective expectations and the unexpressed reservations of the parties. Instead the governing criterion is the reasonable expectations of honest men. … that means that the yardstick is the reasonable expectations of sensible businessmen. Secondly it is true that the coincidence of offer and acceptance will in the vast majority of cases represent the mechanism of contract formation. It is so in the case of a contract alleged to have been made by an exchange of correspondence. But it is not necessarily so in the case of a contract alleged to have come into existence during and as a result of performance. See Brogden –v- Metropolitan Railway [1877] 2 AC 666; New Zealand Shipping Co Ltd v A M Satterthwaite & Co. Ltd. [1974] 1 Lloyd’s Rep. 534 at p.539 col.1 [1975] AC 154 at p. 167 D-E; Gibson v. Manchester City Council [1979] 1 WLR 294. The third matter is the impact of the fact that the transaction is executed rather than executory. It is a consideration of the first importance on a number of levels. See British Bank for Foreign Trade Ltd. v. Novinex [1949] 1 KB 628 at p. 630. The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as inessential. In this case fully executed transactions are under consideration. Clearly, similar considerations may sometimes be relevant in partly executed transactions. Fourthly, if a contract only comes into existence during and as a result of performance of the transaction it will frequently be possible to hold that the contract impliedly and retrospectively covers pre-contractual performance. See Trollope & Colls Ltd. v. Atomic Power Constructions Ltd. [1963] 1 WLR 333. ”

13. The appellant further relied on the case of the Supreme Court of the United Kingdom later stated as follows in the case of RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] UKSC14,[45] :“The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement.”

14. The appellant submitted that the respondent applied for the loan by filing in the loan application form which was produced in court, also provided personal details as well as those of his spouse and further signed the accompanying Loan request agreement which was endorsed by his then employer Nairobi Women’s Hospital.

15. The appellants contends that the bank statement indicated the funds were deposited into account No.01xxxxxxxxxxx held in the respondent’s name and the deposited amount included the advanced loan of Kshs.590,000/= as well as a deductible insurance fee of Kshs.11,990/= both summed up to Kshs.601,990/=.

16. The appellant further contends that the loan funds having been released to the respondent as shown in the bank statement, it is only logical that the parties had by implication entered into a contract which retrospectively covered any pre-contractual performance.

17. On the second issue, the appellant pointed out on how its witness produced evidence in support of the appellant’s claim and part of the evidence tendered was the loan application form whose contents were all admitted by the respondent to be true.

18. It is the appellant’s submission that the respondent’s assertion that he had left employment at Nairobi Women’s Hospital before the loan was disbursed were neither corroborated ,substainted nor was there any proof such as a letter of resignation tendered as evidence.

19. The appellant further submits that the fact the respondent thereafter opted to resign is a clear indication that from the very onset he had devised a scheme to obtain a loan with no intention to repay the same in an attempt to flee the appellant and he also did not tender any evidence to rebut the appellant’s claim.

20. On this the appellant relied on the case Danson Muriuki Kihara v Johnson Kabungo [2017] eKLR where the court observed as follows:“The agreement, exhibit P1 shows that the loan advanced was Ksh.100,000/=. The defendant who was disputing the amount did not attach any documents to prove that the loan was Ksh.50,000/= and more so that the same was repaid. The defendant did not prove on a balance of probabilities that the loan advanced was Ksh.50,000/= and that he rapid. He who alleges must prove as he bears the burden of proof. This is provided under Section 107 of the Evidence Act which provides:“Whoever desires any court to give judgment as to any legal right or liability depend on the existence of facts which he asserts must prove that those facts exist. When a person is required to prove the existence of any fact it is said that the burden of proof lies on that person.”The Defendant with production of the agreement exhibit P1 has proved on a balance of probabilities that the loan advanced was Ksh.100,000/=and the defendant failed to repay. I am of the view that the Plaintiff has proved that he is entitled to the refund of Ksh.100,000/= which he advanced to the defendant.”

21. On the third issue, the appellant relied on the case of James Muniu Mucheru v National Bank of Kenya Limited [2019] eKLR the court held that:“On the first issue of whether the trial court applied the correct standard of proof, the trial magistrate expressed himself thus; “Going by (sic) this being a civil matter where balance of probability is the standard required for proof, less than in criminal cases, the defendant needed to get a handwriting expert to establish that indeed the signature thereon does not belong to him. That notwithstanding, the defendant does not come across as being sincere about the claim herein for the very basic reason that if he knew about the so-called fraud in the year 2006, what did he do about it?”

22. The appellant pointed out that no handwriting expert testified and that its only during the trial the respondent raised the issue of his signature being forged and that he never bothered to have authenticity of the disputed signatures verified despite this being a crucial part of his evidence.

23. On the fourth issue, the appellant submitted that the respondent herein never pleaded the defence of fraud in its defence nor were any particulars of fraud set forth therein. On this appellant relied on the case of Rosemary B Koinange (suing as legal representative of the late Dr.Wilfred Koinange and also in her own personal capacity) & 5 others v Isabella Wanjiku Karanja & 2 others [2017] eKLR the Court of Appeal held that:“The law on unpleaded issues and parties being bound by their pleadings, as relates to this question, is amplified by a long line of authorities as correctly illustrated by the appellants. But there is an equally long line of authorities unequivocally asserting the power of a court to determine issues which the parties have not raised in their pleadings. They may allow the court to do so by consent, as stated, for example, in Chalicha FCS Ltd vs. Odhiambo & 9 Others [1987] KLR 182, that:“Cases must be decided on the issues on the record. The court has no power to make an order, unless by consent, which is outside the pleadings. In this instance, the issues raised by the Judge and the order thereon, was a nullity.”

24. The appellant submits the trial court had no power to make a finding on the issue of fraud as the same was never pleaded and no consent was ever recorded by the parties to have the issue determined and therefore urges the court to re-evaluate the documentary evidence.

25. As a first appellate court, this court has the duty to subject the whole of the evidence to a fresh and exhaustive scrutiny and make conclusions about it bearing in mind that it did not have the opportunity of seeing or hearing the witnesses. This principle was stated in the case of Selle & another v Associated Motor Boat Co. Ltd & others [1968] E.A 123 in the following words:“an appeal from the High Court is by way of re-trial and the court of appeal is not bound to follow the trial judge’s findings of fact if it appears either that he failed to take account of particular circumstances or probabilities or if the impression of the demeanor of a witness is inconsistent with the evidence generally.”

26. Having considered the grounds of appeal, the appellant’s submissions and entire record, it is my considered view that the following are the issues for determination to bea.Whether there existed a legally enforceable contract between the appellant and the respondentb.whether the respondent applied for and received the loan from the appellant as claimedc.whether there was fraud as claimed by the respondent which had not been pleaded

27. The Black’s Law Dictionary defines a contract as follows:An agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law.

28. The appellant at the trial court submitted that he had a customer, bank relationship with the respondent and that it was in form of a loan facility that was extended to the respondent. The appellant pleaded that the respondent by an application dated July 27, 2007 applied for a personal loan of Kshs.590,000/= from the appellant for development purposes.

29. On the other hand the respondent had stated that he does not operate any account with the appellant and denies owing the appellant any money and that he has never received any loan from them.

30. It is clear from the record that the respondent applied for a loan by filing the loan application form and approved his personal details and those of his spouse.

31. Further to that from the records, which indicate that funds were deposited into his account and that the deposited amount included the advanced loan of Kshs.590,000/= as well as a deductible insurance fee of Kshs.11,990/= both summing up to Kshs.601,990/=.

32. The appellant stated that the argument by the respondent that the person signing the loan application from on behalf of the appellant did not indicate his or her name cannot invalidate the agreement and that it is evident that the funds were disbursed to the respondent’s account.

33. In Abdulkadir Shariff Abdirahim & Another v Awo Sharriff Mohammed t/a A. S. Mohammed Investments[2014] eKLR the Court of Appeal held that: -There is no general rule of law that all agreements must be in writing. The numerous advantages of a written agreement notwithstanding, all that the law requires is that certain specific agreements must be in writing or witnessed by some written note or memorandum. Section 3(1) of the Law of Contract Act is one such provision.

34. I have considered the evidence and the exhibits on record. It is clear that there was a contract between the appellant and the respondent in that there was a loan application form which had personal information of the respondent together with the spouse and this is information that can only be given by a party who is interested in the services of loan as he had also signed a accompanying loan request agreement which was endorsed by his then employer Nairobi Women’s Hospital.

35. It is also clear from the record also that money was deposited into account No.01xxxxxxxxxxx which is held in the respondent’s name and also the fact that the loans funds having been released to the respondent as shown in the bank statement and therefore goes to show that the parties had by implication entered a contract. A valid implied contract hence existed.

36. The “intention of the parties” like the spirit of the Constitution or Statute, must be found within the words of the Constitution or Statute. Chitty on Contracts, paragraph 13004 says –“In many cases, however, one or the other of the parties will seek to imply a term from the wording of a particular contract and the facts and circumstances surrounding it. The court will be prepared to imply a term if there arises from the language of the contract itself, and the circumstances under which it is entered into, an inference that the parties must have intended the stipulation in question. An implication of this nature, may be made in two situations –First where it is necessary to give business efficacy to the contract, and secondly, where the term implied represents the obvious, but unexpressed, intention of the parties. These two criteria often overlap and in many cases, have been applied cumulatively, although it is submitted that they are, in fact, alternative grounds. Both however depend on the presumed intention of the parties.”

37. On the second issue, from the records the respondent remained at a loss to explain how detailed information could have been falsified that being the particulars given in the form which included the respondent’s full names, Identity card number, postal address and telephone contacts ,his workplace ,gross salary and his position at the Nairobi Women’s Hospital, his wife’s name ,her identity card number and postal address and telephone contacts.

38. From the record also the bank statements tendered in court as evidence confirmed the fact that the claimed amount was indeed deposited into the respondent’s account.

39. On this argument I also rely on the caseJames Muniu Mucheru v National Bank of Kenya Limited [2019] eKLR which had a striking similarity with the case herein the Court of Appeal held as follows:“There was sufficient evidence that the appellant enjoyed the credit card facilities by utilizing the same. From the statements of account, there were some payments that were made to that account on three different occasions. It is highly unlikely that a stranger would have made payments on an account that did not belong to him. Even so, if that were to be the case, the appellant ought to have raised this issue with the bank as soon as he was aware that there were transactions being made via his account.We therefore do not agree with the appellant’s contention that the respondent ought to have produced documents to show who had made those payments. Further, in our view, the alleged issue of shifting the burden of proof to the appellant to prove his signature on the application is not material in this instance. While the authenticity of the signature was seriously questioned, we find the evidence regarding the activities on the bank account satisfactory.”

40. It is also clear that the at the time of loan disbursement the respondent was an employee of the Nairobi Women’s Hospital when his employer vouched for him to enable him get the loan.

41. It therefore evident that the respondent applied for and actually received the loan in question and that he never tendered any evidence in rebutting the appellant’s claim

42. On the third issue, on the whether there was fraud as claimed by the respondent which had not been pleaded, it is clear from the record that no handwriting expert testified and that it was only during the trial that the respondent raised the allegation of the forged signature, the allegation was not contained in the statement of defence.

43. It is also clear that the respondent never bothered to have authenticity of the disputed signatures verified despite this being a crucial part of the evidence.

44. In the case of DEN v PNN CA (Application) No 226 of 2012, that the enduring principle is that all cases must be determined on the basis of issues on record which flow directly from pleadings or issues framed by the parties for the court’s determination and that the court should not make findings on unpleaded matters or grant a relief that is not sought by the parties in their pleadings.

45. In light of the following the trial court had no power to make a finding on the issue of fraud as the same was never pleaded and no consent was ever recorded by the parties to have the issue determined.

46. In the end, I hereby allow the appeal and set aside the judgment and decree of the Chief magistrate delivered on March 13, 2019. The effect of this, is that judgment be entered in favour of the appellant as against the respondent for the sum of Kshs.816,508/= plus interest thereon at the rate of 16% p.a as sought in the plaint.

47. The appellant is awarded costs of the primary suit and this appeal.

DATED, SIGNED AND DELIVERED ONLINE VIA MICROSOFT TEAMS AT NAIROBI THIS 1ST DAY OF JULY, 2022. J. K. SERGONJUDGEIn the presence of:.......................... for the Appellant.......................... for the Respondent