Odiyo & another v Housing Finance Co. Ltd & 3 others [2022] KEHC 18138 (KLR)

Odiyo & another v Housing Finance Co. Ltd & 3 others (Civil Suit 302 of 2012) [2022] KEHC 18138 (KLR) (9 June 2022) (Judgment)

Neutral citation: [2022] KEHC 18138 (KLR)

Republic of Kenya

In the High Court at Nakuru

Civil Suit 302 of 2012

RB Ngetich, J

June 9, 2022

Between

Francis Odongo Odiyo

1st Plaintiff

Norah Dacha Odongo

2nd Plaintiff

and

Housing Finance Co. Ltd

1st Defendant

Garam Investments

2nd Defendant

Nakuru District Land Registrar

3rd Defendant

Peter Kamuru Kibera

4th Defendant

Judgment

Background 1. The Plaintiffs herein instituted the case against the defendants through plaint dated 7th August 2012 and amended on 24th august 2012, seeking the following orders: -a.A declaration that the sale of LR Nakuru Municipality /Block 15/ 417 Kanyi (Kabachia) Nakuru by the 2nd Defendant is illegal and unconscionable and therefore null and voidb.An order compelling the Registrar of lands to place a restriction on the title known as LR No Nakuru Municipality/block 15/417 Kanyi (Kabachia) Nakuru prohibiting any dealings relating to the said title pending the hearing and the determination of this application.c.An order of injunction against the 4th Defendant restraining the defendant from taking over, altering, demolishing or in any way interfering with the suit property pending the hearing and the determination of this application.d.An order restraining the defendant from taking over, altering, demolishing or in any way interfering with the suit property pending the hearing and the determination of this suit.e.An order compelling the registrar of lands to cancel the title known as LR No Nakuru Municipality/block 15/417 Kanyi (Kabachia) Nakuru registered in the name of Peter Kamuru Kibera.f.The costs of the application to be borne by the Defendants/ Respondents.g.A permanent injunction restraining the Defendant from taking over, altering, demolishing or in any way interfering with the suit property.h.A cancellation of the title registered in the name of the 4th Defendant.i.In the alternative, damages for illegal and undervalued sale.j.Accounts.k.Costs of the suit.

2. The plaintiffs’’ case is that they are the registered owners of the parcel of land known as No Nakuru Municipality/block 15/417 Kanyi (Kabachia) Nakuru and in 1997, the 1st plaintiff sought financial facility from the 1st defendant amounting to Kshs 4,000,000/= for the purposes of constructing a three storey building on the suit land and amount disbursed was Kshs 3,700,000/= which was done in three (3) installments. The title of the property was used as security to secure the said loan.

3. The plaintiffs contend that they were not able to complete the construction and as a consequence the loan fell in loan arrears and they consulted with the 1st defendant to review the loan with no success, and as at 28th January 2011 he was in arrears of Kshs 7,350,840/=.

4. The Plaintiffs contends that save for the notices issued on 20th August 2004 and 22nd February 2007 which the Plaintiffs made payment the 1st defendant failed to comply with the legal requirements of the statutory sale before the sale of the suit property and the sale was through public action conducted by the 2nd defendant; and the property was undervalued and sold without a notice to the plaintiffs.

5. The 1st defendant filed defence dated 10th October 2012 and stated that statutory notices were issued to the plaintiff in the year 2004 and 2007 and in the year 2007, the plaintiff requested the 1st respondent for indulgence and postpone the sale and it was a term of the agreement that the plaintiff deposits a sum of Kshs 5,030,088/= as full and final payment and in default, the 1st defendant was to realize the property without issuing a further notice. The payment was to be made on or before 12th August 2011. It is the contention of the 1st defendant that the plaintiff failed to honor the agreement and as a consequence, the 1st defendant instructed the 2nd defendant to sell the property by public auction and the property was sold to the highest bidder.

6. The 1st defendant further contend that the sale of the property was before the enactment of Land Act 2011 and the issues of spousal consent were not in place and the 2nd Plaintiff was neither a charge nor a borrower, thus the 1st respondent have no obligation to consult her when issuing the statutory power of sale and or demand notices.

7. The 1st defendant further averred that the plaintiff has filed similar applications in Nakuru HCC No 226 of 2008, and Nakuru HCC No 290 of 2008, seeking the same orders being sought in the plaint and upon the dismissal of the applications, the plaintiff abandoned the applications and the current suit is frivolous and vexatious.

8. The 4th defendant in his statement of defense stated that he participated in a public auction which took place on 15th September 2011 where he was the highest bidder and he acquired the property legally at the fall of the hammer and contend that the suit is res judicata.

The Plaintiff's Evidence 9. The plaintiffs availed two witnesses in support of their case. PW1 adopted his witness statement, the bundle of documents dated 7th August 2012. He testified that he is the owner of Plot No Nakuru Municipality/block 15/417 Kanyi (Kabachia) Nakuru. He stated in the year 1997 he sought some financial facility of 3. 7 million from the 1st respondent to develop the property dispatched in 3 instalments but fell into arrears and as of January 2011 he was in arrears of Kshs 7,350,840 and was not able to repay the amount due. He attributed being in arrears as a result of high interest charged on the loan.

10. He said the property was sold without him or the 2nd plaintiff being notified of the sale and said he made payments towards the loan even before the 1st defendant sold the property.

11. On cross-examination by Ms. Muthee for the 1st defendant, he confirmed that he was served with a statutory notice dated 20th August 2004 and another dated 22nd February 2007. He also stated he was granted injunctions in HCCC No 290 of 2011 and HCCC. No 226 of 2008 and in the two applications, he was contesting the issue of interest.

12. PW2 Joseph Mungatia testified that he conducted a valuation of the parcel known as No Nakuru Municipality/block 15/417 Kanyi (Kabachia) Nakuru in the year 2011 and the valuation of the land was Kshs 1,500,000/= while that of the developments is Kshs 11,800,000/=. He produced the report dated 11th October 2011 and a report of second valuation dated 6th August 2012 in which the land was valued at Kshs 2,500,000/= while the structure was valued at Kshs 23,800,000/= and urged this court to rely on the 2nd report.

1st Defendants’ Evidence 13. DW1 adopted the valuation report dated 17th December 2010. Where he had valued the property at Kshs 10,300,000/=.

14. DW2 who is the debt recovery manager with the 1st defendant adopted her witness statement dated 21st March 2011, the bundle of documents dated 10th October 2021. She stated that the sale of the property was due to the default on loan repayment by the 1st plaintiff despite numerous notices to regularize his account. She said the plaintiff was to sell the property through a public auction but he failed regularize his account and the property was sold at Kshs 6,300,000/=which was above the forced sale value.

15. On cross- examination, she said the plaintiff still owes the 1st defendant Kshs 1,000,000/= as he was in arrears of Kshs 7,300,000/= and there was no further repayment done by the plaintiff before the sale.

4th Defendant’s Evidence 16. The 4th defendant adopted his witness statement, together with the list of documents both dated 25th April 2019. He testified that he is the registered owner of the property known as No Nakuru Municipality/block 15/417 Kanyi (Kabachia) Nakuru after purchasing the property through a public auction. He said he has completed the development and he took possession of the premises when the injunctions were vacated.

Plaintiff’s Submissions 17. Counsel for the plaintiff filed submissions dated 22nd February 2022 and restated that the property No Nakuru Municipality/block 15/417 Kanyi (Kabachia) Nakuru was undervalued at the time of sale. Counsel submitted the valuation of the property ought to have been carried out immediately before the sale and submitted that in exercising the power of sale, the chargee bears a responsibility to obtain the best possible price that reflects the value of the property and cited the case of Grace Wangui Njoru & another v Equity Bank Limited & another (2018) eKLR where the court reasoned as follows: -“I note that both the Land Cat and the repealed Registered Land Act expect a Chargee to get the best price and act in good faith with the best interests of the charger before selling a charged property. The question we need to ponder is whether the best interest of the charger was catered for in this auction. In the current scenario, I find that third was not the case.”

18. Counsel submitted that the property was undervalued as there is a discrepancy of Kshs 8,700,000/= between the valuation report by the plaintiffs and that of the 1st defendant; that the 1st defendant breached the duty by the chargee to the chargor.

19. Counsel further submitted that the sale was unprocedural for lack of a forced sale report before conducting the public auction and the plaintiffs has recourse to recover damages upon successfully proving the 1st defendant undervalued the property.

20. In conclusion, counsel urged this court to grant damages for the illegal sale of No Nakuru Municipality/block 15/417 Kanyi (Kabachia) Nakuru, in an attempt to remedy the injustices committed by the Defendants.

The 3rd Defendants Submissions 21. Counsel for the 3rd defendant filed submitted on two folds. One list the 3rd defendant has the power to register a restriction on land as provided for under Section 76 of the Land Registration Act 2012 which provides that a caution can be placed to prevent fraud, to curb improper dealings on land or for any sufficient cause.

22. Counsel submitted that the 4th defendant is the registered owner of the parcel known as No Nakuru Municipality/block 15/417 Kanyi (Kabachia) Nakuru and cited Section 26 of the Land Registration Act 2012, which provide as follows: -“The certificate of title issued by the registrar upon registration, or to a purchaser of land upon a transfer or transmission by the proprietor shall be taken by all court as prima facie evidence that the person named as proprietor of the land is the absolute and indefeasible owner, subject to the encumbrances easements, restrictions and conditions contained or endorsed in the certificate, and the title of that proprietor shall be subject to challenge except-i.On the ground of fraud or misrepresentation to which the person is proved to be a party orii.Where the certificate of title has been acquired illegally, un procedural or through a corrupt scheme.”

23. Counsel further submitted that the title in the name of the 4th defendant was not procured in a fraudulent manner; the same was acquired through a public auction and therefore the title in the name of the 4th defendant is not impeachable; and further the plaintiffs have failed to prove the 3rd defendant fraudulently and illegally transferred the title to the 4th defendant.

4th Defendant’s Submissions 24. Counsel for the 4th defendant submitted that the 4th defendant is the legal owner of the suit property known as No Nakuru Municipality/block 15/417 Kanyi (Kabachia) Nakuru following a successful auction where he purchased the suit property at Kshs 6,300,000/= and was issued with a certificate of the lease on or about 19th July 2012; that the ownership was lawfully and procedurally acquired.

25. Counsel further submitted that the valuation was conducted on the 10th of December 2010, while the sale was conducted on 15th September 2011, a period of 10 months since the valuations fall within the twelve months.

26. And further submitted that the plaintiffs’ valuation report conducted a year after the sale does not depict the true value of the property and submitted that the valuation ought to be carried ought before the sale and not after the sale.

27. Further, at the time the plaintiff conducted a valuation in the year 2012, the 4th defendant had embarked on renovations and alterations of the property which increased the value of the property.

28. Counsel further submitted that if the court finds the property was undervalued, the court was urged to find the plaintiff's equity of redemption lapsed at the fall of the harmer on 15th September 2011 and the only recourse available to the plaintiff lies within the confines of the 1st defendant to claim the monies for undervaluation and this court to be guided by Section 77 (3) of the Repealed Registered Land Act and find the Plaintiff is entitled to damages against the 1st defendant.

Analysis and Determination 29. I have perused and considered the pleadings, the evidence adduced, submissions filed and the authorities cited by parties. It is not disputed that the 1st defendant advanced a loan facility of Kshs 4,000,000/= with Kshs 3,700,000 being disbursed to the 1st plaintiff who is the spouse of the 2nd plaintiff. It is not also disputed that the 1st plaintiff defaulted in repaying the loan and the property known as No Nakuru Municipality/block 15/417 Kanyi (Kabachia) which was security for the loan was sold to the 4th defendant. I consider the following as issues for determination: -a.Whether the 1st plaintiffs were issued statutory notices as requiredb.Whether property was legally sold to the 4th defendantc.Whether property was undervaluedd.Whether plaintiffs are entitled to remedies sought

(I) Whether the 1st plaintiffs were issued statutory notices as required 30. The plaintiff admitted having been in arrears of Kshs 7,300,000/= and confirmed that statutory notices were issued one in 2004 and the other in 2007. He however stated that the property was sold in the year 2011 without any notice by the 1st defendant.

31. Record however show that the plaintiff and the 1st defendant entered into a further agreement where the 1st defendant agreed to indulge the plaintiff and it was a term of the agreement that the plaintiff deposit the sum of Kshs 5,030,088/= on or before 12th August 2011, it was also a further term of the contract that the failure to honor the agreement the 1st defendant would proceed with the sale without issuing any other notice to the plaintiff.

32. On failure to issue notices to the 2nd plaintiff who is the wife of the 1st plaintiff, the 1st defendant argued that the sale of the property was before the enactment of Land Act 2011 and the issues of spousal consent were not in place and the 2nd plaintiff was neither a chargee nor a borrower, thus the 1st respondent have no obligation to consult her when issuing the statutory power of sale and or demand notices.

33. I do agree with the 1st defendant in respect to reason for not notifying the 2nd plaintiff. Further 1st plaintiff freely charged the property and did not in any way involve the 2nd plaintiff and the 2nd plaintiff was not therefore a party to the agreement and before legal provision for spousal consent or notice, the 1st defendant was not at fault in not notifying the 2nd defendant of the sale.

(ii) Whether property was undervalued 34. The plaintiff faulted the 1st defendant for undervaluing the property and selling the same below the market value by public auction despite the plaintiff making some payments.

35. The 4th defendant argued that at the time of the second valuation, he had developed the property and its value was therefore expected to be higher than at the time of sale. Valuation was conducted on 10th of December 2010, while the sale was conducted on 15th September 2011.

(iii) Whether property was legally sold to the 4th defendant 36. According to the 1st defendant the failure of the plaintiff to honor the above agreement is what necessitated the sale by public auction. The 1st respondent stated following the said agreement, the plaintiff deposited a sum of Kshs 50,000/= contrary to the terms of the contract. The plaintiff on the other hand contends he deposited Kshs 400,000/= he however has not adduced any evidence to prove payment.

37. There is no doubt that the plaintiff failed to honor the reviewed contract neither did he seek any indulgence from the 1st respondent. The plaintiff enjoyed a bank facility of which he continues to be in default prompting the 1st defendant to issue demand notices for payment as well as statutory notices as required under the law.

38. In case of Andrew Muriuki Wanjohi v Equity Building Society Ltd (2006) eKLR the court held as follows;“Whenever the Applicant offered the suit property as security, he was conscious of the fact that if the borrower did not meet his obligations, the suit property could be sold off. Therefore, in the event that it later became necessary for the suit property to be sold off, by the chargee, the chargor could not be heard to complain that his loss was incapable of being compensated in damages. He had the property evaluated in monetary terms. He had then told the chargee that he knew the property to be capable of providing the chargee with the peace of mind, of knowing that the money given as a loan would become recoverable even if the borrower did not pay it.”

39. The 1st defendant’s right to exercise its power of sale accrued following default in payment of the loan and notices were duly issued as admitted by the plaintiff. No reason has been advanced to warrant interference by the court. The public auction of the property has not been faulted and the 4th defendant therefore acquired the property through a lawful means having been the highest bidder in the public auction. There is therefore no basis of cancelling the title issued by the 3rd defendant.

40. Final orders1. Plaintiffs’ suit is hereby dismissed.2. Costs to the defendants.

JUDGMENT DELIVERED, DATED AND SIGNED VIRTUALLY AT KIAMBU THIS 9TH DAY OF JUNE, 2022……………………RACHEL NGETICHJUDGEIn the presence of:Lepikas - Court AssistantMs. Karanja for the 4th defendantNo appearance for the other parties