KENYA COMMERCIAL BANK LTD vs MWANZAU MBALUKA & LAZARUS KITILI VETU [1998] KECA 238 (KLR)

REPUBLIC OF KENYA

IN THE COURT OF APPEAL AT NAIROBI (CORAM: SHAH, PALL & BOSIRE JJ.A) CIVIL APPEAL NO.274 OF 1997 BETWEEN

KENYA COMMERCIAL BANK LTD ..............................APPELLANT

AND

1. MWANZAU MBALUKA

2. LAZARUS KITILI VETU......................RESPONDENTS

(Appeal from the judgment of the High Court of Kenya at Machakos (the Honourable Mr Justice J.L.A. Osiemo) given on the 17th day of June, 1994 in H.C.C.C. No.105 of 1993 ***************

JUDGMENT OF THE COURT

This is an appeal from the decree of the superior court (Osiemo, J.) given on 17th June, 1994, at Machakos, in which the learned Judge dismissed a liquidated claim by the appellant, Kenya Commercial Bank Ltd, of Kshs.117,237. 70, and ordered that Kshs.15,000/= be refunded to, presumably both respondents herein, Mwanzau Mbaluka and Laxarus Kitili Vetu, who were the Ist and second defendants respectively. In this judgement we shall refer to them as the Ist and second respondent respectively. The facts giving rise to the litigation between the parties are short.

Sometime in September, 1988, the appellant at the request of the 2nd respondent agreed to grant him financial accommodation from time to time of such nature and in such manner as it would deem fit, provided that appropriate security and guarantee was furnished. At the request of the 2nd respondent the first respondent executed an instrument of charge on 16th September, 1988, by which he charged his parcel of land known as Makueni/Kyaluma/78 in favour of the appellant to secure repayment by the 2nd respondent to the appellant the aforesaid financial accommodation. Thereafter on 19th September, 1988, the Ist respondent executed a guarantee to cover the same but which was limited to Kshs.75,000/= and which liability would only arise in the event of default by the debtor to pay any part of the sums given, and upon the bank making a demand from him of the sums due and owing from the 2nd respondent, as the debtor, to it. Thereafter the appellant advanced Kshs.75,000/= to the 2nd respondent.

In the event the 2nd respondent defaulted in the repayment of the money advanced. As at 2nd October, 1992, kshs.170,212. 60 was due and owing from him to the appellant. Interest was chargeable on all outstanding sums at the rate of 22. 5% per annum. We have no evidence that demand was made of the money either from the debtor or the guarantor. One Frederick Maina Njuguna, who testified on behalf of the appellant in the superior court, stated that the bank instructed its lawyer to make a demand, but his evidence fell short of stating that the demand was made. Be that as it may the Ist respondent's aforesaid parcel of land was sold by public auction on 12th October, 1992, and realized a sum of Kshs.90,000/= part of which was used to reduce the 2nd respondent's indebtedness to the appellant. We say part of it because had the whole amount been so applied the 2nd respondent's indebtedness would have been reduced to less than Kshs.100,000/=. The resultant balance due from him, according to the evidence on record, was Kshs.104,078. 70. With accrued interest the figure came to Kshs.117,237. 70 as at the 29th June, 1993, when the appellant brought action in the superior court, to claim that sum.

The both respondents filed a joint defence in which they averred, inter alia, that the 2nd respondent made a total repayment of Kshs.70,000/= to the appellant, and if allowance was given to that figure together with the Kshs.90,000/= realized from the sale of the Ist respondent's parcel of land the whole debt would have been satisfied. Further that the said property was fraudulently sold at an under value because at the time of lending it had been valued at Kshs.130,000/=. They then proceeded to counterclaim the difference between that value and the price the property had been knocked down for. As expected the appellant denied the counterclaim in a reply to defence and defence to counterclaim.

Issues were agreed but considering the course the trial took we do not consider it essential to set out those issues.

When the case came for a hearing only counsel for the appellant attended and was ready with a witness to prosecute the appellant's case. Neither Mr Kauma Mussilli who was on record for both respondents nor the respondents themselves attended. The record shows that they had been duly served with a hearing notice. The trial Judge properly decided to proceed with the hearingex parte.

The appellant's witness aforesaid, gave evidence and demonstrated to the court how the liability of the 2nd respondent arose. He did not, however, adduce evidence to show how liability of the Ist respondent arose. As we stated earlier the Ist respondent's liability would only arise if there was default on the part of the second respondent and had there been a formal demand made to the first respondent to pay the sums due. The appellant adduced evidence, which the trial court accepted, that the 2nd respondent had defaulted. Having not gone further to adduce evidence that there had been a formal demand in terms of the guarantee we do not think sufficient evidence was adduced to establish the Ist respondent's liability. Mr P. Mulwa for the appellant having conceded this fact the appeal against him lacks any basis.

In his judgment Osemo, J. did not draw any distinction between the liability of the debtor and that of the guarantor.And although he framed an issue which in his view was central in the determination of the suit, he did not deal with that issue. Nor did he deal with any of the agreed issues we alluded to earlier. Instead he strayed and considered an issue which was neither agreed nor necessarily arose from the evidence; namely whether or not a statutory notice under section 74(1) of the Registered Land Act Cap 300 Laws of Kenya, had been issued and served. He came to the conclusion that it had not been so issued and served and that the failure by the appellant to do so disentitled it not only to sell the Ist respondent's land but also to bring action. He therefore held that the sale of the charged property violated the provisions of Section 74(2) of the aforesaid Act. He also held, improperly so in our view, that the appellant was only entitled to claim Kshs.75,000/=. In our view that would only be so respecting the claim against the Ist respondent whose liability as we said earlier was limited to Kshs.75,000. Be that as it may, the learned Judge then deducted the Kshs.75,000 from Kshs.90,000/= which had been realised from the sale of the charged property and held that the difference of Kshs.15,000/= was the respondents' money and proceeded to order that it be refunded to them. He then dismissed the appellants suit and thereby provoked this appeal.

With due respect to the learned Judge nowhere in the written statement of defence did the respondents challenge the appellant's statutory right of sale under section 74, above.Their complaint was basically that the sale of the charged property was irregularly done. As we stated earlier they counterclaimed the difference of what they considered to be the proper price and what was actually realized for the property. It would appear to us that the learned Judge misapprehended the respondents' counterclaim. Besides he had no right to deal with an issue which was not before him.

In Gandy v. Caspair[1956] EACA 139 it was held that to decide against a party on matters which do not come within the issues on which the parties want a decision on would clearly amount to an error apparent on the face of the record. And in Nkalubo .v. Kibirige [1973] EA 102 Spry V.P, while commenting on the general statement in the case of Odd Jobs .v. Mubia [1970] EA 476, that a trial court may frame issues on a point that is not covered by the pleadings but arises from the facts stated; said as follows:

"I accept that as a general statement but I do not think it can be invoked to allow the introduction of what amounts to a new cause of action."

The trial Judge by raising and determining the suit on an issue which was neither pleaded nor evidence adduced on thereby introduced a new cause of action against the appellant. He clearly went astray and his judgment cannot be left to stand on that account.

Mr Mussilli for both respondents stated from the bar that his clients have already been paid the Kshs.15,000/=. There is no specific prayer in the memorandum of appeal for its return. The appellant has, however, prayed that the judgment of the court below be set aside and it be awarded the costs of this appeal and of proceedings in the court below. It has not however, sought any judgment either in terms of the prayers in the plaint or otherwise. We however, think that by bringing this appeal it so intended. Its Counsel, Mr Mulwa, asked us to oblige the appellant and give judgment as appropriate. We have considered the matter and hold that the omission to make a specific prayer in that regard is not fatal to the appeal.

In the circumstances and for the reasons above we dismiss the appeal against the Ist respondent, Mwanzau Mbaluka, but allow the appeal against the 2nd respondent, Lazarus Kitili Vetu; set aside the judgment in his favour and substitute it with a judgment for the appellant against him for Kshs.117,237. 70 with interest thereon as prayed in the plaint.

The respondents having failed to attend court to prosecute their counterclaim it should have been dismissed under O>IXB rule 4 of the Civil Procedure Rules. For that reason and no prayer having been raised by the Ist respondent for the annulment of the sale of his land or for the refund of the price thereof we dismis the counterclaim. The 2nd respondent shall bear the appellant's costs of the appeal, the claim and counterclaim in the court below but we make no order as to costs against the lst respondent. We order that the 2nd respondent pay over to the Ist respondent the Kshs.15,000/= or any part thereof he may have received as it came from the sale of his property.

Dated and delivered at Nairobi this 5th day of June 1998

A.B. SHAH

...............

JUDGE OF APPEAL

G.S. PALL

................

JUDGE OF APPEAL

S.E.O. BOSIRE

.................

JUDGE OF APPEAL I certify that this is a true copy of the original

DEPUTY REGISTRAR