Kingdom Bank Limited v Mbuthia [2022] KEHC 15160 (KLR)

Kingdom Bank Limited v Mbuthia (Miscellaneous Application E003 of 2022) [2022] KEHC 15160 (KLR) (20 July 2022) (Judgment)

Neutral citation: [2022] KEHC 15160 (KLR)

Republic of Kenya

In the High Court at Kajiado

Miscellaneous Application E003 of 2022

SN Mutuku, J

July 20, 2022

IN THE MATTER OF: THE MATTER OF ORDER 37 RULES 4 OF THE CIVIL PROCEDURE RULES AND IN THE MATTER OF: SALE BY SIMPLE DEPOSIT OF TITLE NUMBER KAJIADO/KITENGELA/47347

Between

Kingdom Bank Limited

Applicant

and

Ephraim Kaingi Mbuthia

Respondent

Judgment

The Application 1. The applicant filed originating summons (OS) dated January 31, 2022, brought under section 1, 1A & 1B of the Civil procedure Act, order 37 rules 1(b) and (f) and 4 and section 79 of the Land Act, the doctrine of lis pendens and all other enabling provisions of the law seeking orders that:i.Upon service of the originating summons, the doctrine oflis pendensto operate as an automatic stay preventing any dealings by the respondent in respect to title number Kajiado/Kitengela 47347. ii.The applicant be granted leave to sell all that property known as title number Kajiado/Kitengela 47347 registered in the name of Ephiraim Kaingi Mbuthia pursuant to section 79(7) and (9) of the Land Act.

iii.The costs of this application be provided. 2. The grounds in support of the OS are found on the face of it and in the supporting affidavit dated January 31, 2022 and sworn by Jackson Kimathi. He has deposed that on diverse dates between July 14, 2015 and August 12, 2015 the applicant granted banking facilities to the respondent pursuant to various letters of offer. The facility was for Kshs 560,000, payable within 36 months in instalments of 24,888. 89. The bank was to review the facility periodically during the subsistence of the facility.

3. It is deposed, further, that facility was reviewed vide a supplemental letter of offer dated August 12, 2015 where they advanced Kshs 490,000, payable in 36 months instalments of Kshs 21,777. 78. The said facility had a time limit which the principal sum plus interest for late payment shall be 17%per annum plus default interest at 10%.

4. It is deposed that the respondent has now breached the terms of the said agreement by defaulting; that the respondent is in arrears to the tune of Kshs 411,350 as at January, 2022; that the respondent was served with 2 demand letters but he has not responded to them; that the said loan facility was secured through an informal charge over Kajiado/Kitengela 47347; that the applicant seeks leave to attach and dispose of by way of statutory power of sale the said property.

5. The application is not opposed. The respondent was served with the application (OS), but he has not filed any documents in opposition to the OS. There is on record an affidavit of service dated February 28, 2022 showing that service was effected through whatsapp message.

6. The matter came up for hearing on June 23, 2022. There was no appearance by the respondent despite him having been served with the hearing notice, as evidenced by the affidavit of service dated May 10, 2022.

7. The applicant made oral arguments seeking that prayer 2 of their originating summons be granted. They reiterated the contents of their affidavit that they advanced a loan facility to the respondent for Kshs 560,000 to be paid in 36 months instalments; that the same was reviewed for an amount of 490,000 to be paid within the same instalment terms and that an informal charge was created over the respondent’s property Kajiado/Kitengela 47347.

8. The applicant further submitted that the respondent has defaulted in settling the loan and that under section 79(7) and (9) of the Land Act they seek leave to sell the said property whose title they continue to hold by simple deposit.

Determination 9. I have considered the application, affidavits and the arguments presented orally in court. This matter is unopposed. The respondent failed to respond despite service of the OS.

10. Section 2 of the Land Act defines an informal charge in the following terms:“Charge” means an interest in land securing the payment of money or money’s worth or the fulfilment of any condition, and includes a subcharge and the instrument creating a charge, including –a.an informal charge, which is a written and witnessed undertaking, the clear intention of which is to charge the chargor’s land with the repayment of money or money’s worth obtained from the chargee…."

11. Section 79(6) of the Land Act recognizes an informal charge. It provides that:"79(6)An informal charge may be created where –a.a chargee accepts a written and witnessed undertaking from a chargor, the clear intention of which is to charge the chargor’s land or interest in land, with the repayment of money or money’s worth, obtained from the chargee;b.the chargor deposits any of the following-(i)a certificate of title to the land;(ii)a document of lease of land;(iii)any other document which it is agreed evidences ownership of land or a right to interest in land.(7)A chargee holding an informal charge may only take possession of or sell the land which is the subject of an informal charge, on obtaining an order of the court to that effect.(8)An arrangement contemplated in subsection (6) (a) may be referred to as an "informal charge" and a deposit of documents contemplated in subsection (6) (b) shall be known and referred to as a "lien by deposit of documents."(9)A chargee shall not possess or sell land whose title document have been deposited with the chargor under an informal charge without an order of the court. “

12. I have read Tassia Coffee Estate Limited and another v Milele Ventures Limited (2014) eKLR in which the court stated that by depositing the title deed with the plaintiff, the defendant created an informal charge in favour of the plaintiff over the suit property as security for payment of the balance of purchase of purchase price and other parcels of land. The plaintiffs became chargees of an informal charge over the suit property and enjoyed a lien by deposit of the documents.

13. Similar position was taken by the court in Lincoln Kivuti Njeru v Insurance Company of East Africa [2017] eKLR, the court held that informal charges must be by way of instruments and evidenced in writing and that the defendant must enter into further charges or agreements in the event that they want security provided for other monies found to be owed.

14. Going by the provisions of the law and the authorities herein, it is clear from the terms of the agreement that the parties herein created an informal charge over the loan facility. I have read the letter of offer dated July 14, 2015 and the supplemental letter of offer dated August 12, 2015 which was duly executed by the defendant. According to the terms of the agreement, terms of payment were Kshs 560,000 payable within 36 months’ instalments of Kshs 24,888. 89. The facility was reviewed vide a supplementary letter of offer dated August 12, 2015, where an amount of Kshs 490,000 was advanced to the respondent payable within 36 months’ instalments of Kshs 21,777. 78.

15. The applicant in the same respect was provided with an informal legal charge over the property known Kajiado/Kitengela 47347 as security for the debt. The remedies due to the applicant upon default of payment of the said monies were also outlined in the letter of offer. It is not in dispute that the respondent defaulted repayment of the sum secured which culminated in the applicant seeking to exercise its statutory power of sale.

16. From the provisions of the law and the authorities, informal charges are known and recognized by the law. They are therefore enforceable. In this case, there is evidence that the parties herein entered into an agreement whereby the applicant lent the respondent a loan facility under the terms specified in the agreement on the strength of an informal charge. The respondent deposited the title of the property known as Kajiado/Kitengela 47347, what is referred to under the Land Act as “lien by deposit of documents.”

17. I have seen two demand letters sent to the respondent by the applicant dated November 3, 2020 and January 6, 2022. There was no response from the respondent and he did not defend this suit. Section 79 (9) of the Land Act is clear in its provisions as follows:"(9)A chargee shall not possess or sell land whose title document have been deposited with the chargor under an informal charge without an order of the court. “

18. I have considered this matter. I am persuaded that the applicant has, on a balance of probabilities, satisfied this court that the orders sought in the originating summons date 31st day of January 2022 ought to issue. Consequently, I allow the originating summons and grant the orders sought in terms of prayer 1, 2 and 3. For avoidance I order that:1. Upon service of the originating summons, the doctrine of lis pendens to operate as an automatic stay preventing any dealings by the respondent in respect to title number Kajiado/Kitengela 47347. 2.The applicant be granted leave to sell all that property known as title number Kajiado/Kitengela 47347 registered in the name of Ephraim Kaingi Mbuthia pursuant to section 79(7) and (9) of the Land Act.3. The costs of this application be provided.

19. Orders shall issue accordingly.

DATED, SIGNED AND DELIVERED THIS 20THDAY OF JULY 2022. S. N. MUTUKUJUDGE