Remu Microfinance Bank Ltd v Jacob Kinyua Mugo [2017] KEHC 3515 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT EMBU

CIVIL APPEAL NO. 42 OF 2016

(An appeal from the Judgment of the Senior Resident Magistrate, Embu in CMCC No. 299 of 2015 dated 19/07/2016)

REMU MICROFINANCE BANK LTD…...APPELLANT

V E R S U S

JACOB KINYUA MUGO........................RESPONDENT

R U L I N G

1. The appellant lodged this appeal against the judgment of Embu Senior Resident Magistrate in CMCC No. 299 of  2015 in which the court entered judgment in favour of the plaintiff. A permanent injunction was issued against  the appellant restraining it, its servants, employees,  agents and anybody, whatsoever acting on their instructions from repossessing motor vehicle registration  number KBX 963 D.

2. An order directing the 1st defendant Riungu M. Michael and the appellant to transfer vehicle  registration number KBX 963 D to the respondent was also issued with  an alternative of the Executive Officer signing the necessary documents on behalf of the said Riungu M.  Michael and the appellant.

3. The memorandum of appeal attacks the judgment of the learned magistrate as being bad in law, unjust and unfair. Specifically it is contended that the appellant who was the 3rd defendant in the lower court case was forced  to file his submissions first before the plaintiff did so and was   never served with the plaintiff's submissions resulting in the appellants case not being ventilated as it should have been.

4. Secondly, the appellant contends that the learned  magistrate  ignored the provisions of the Sale of Goods  Act the Traffic Act and the Transfer of Chattels Act in his    judgment.

5. Thirdly, that the magistrate failed to analyze the evidence and to interpret the documents relied on by the parties.

6. The appeal was argued by way of written submissions. The appellant's advocates were Messrs Maitai Rimita & Co. Advocates while the respondent was represented by  Mogusu & Co. Advocates.

7. The evidence of the respondent was that on 6/04/2014,  he entered into a mutual agreement with the 1st defendant who together with his wife the 2nd defendant were motor dealers.  He bought vehicle registration No.  KBX 963 d Toyota Succeed at Kshs.750,000/= and it was agreed that the balance was to be paid in instalments. By 19/11/2014 the respondent had fully paid for the vehicle.  The 1st defendant had given possession of the vehicle to the respondent on 7/04/2014. The respondent  followed up the transfer of the vehicle with the 1st  defendant who failed to fulfill his obligation.

8. The respondent was later to learn that the 1st defendant had transferred the vehicle to himself and later used it  as a collateral for a credit facility with the appellant.  The attempt to repossess the vehicle by the appellant  necessitated the filing of the suit.

9. The 1st and 2nd defendant through the firm of Beth Ndorongo & Co. entered appearance on 1/12/2015 and withdrew the advocate on 16/02/2016.  There is a request for interlocutory judgment against the 1st and 2nd defendant by the plaintiff's counsel filed  on 16/02/2015. For a reason known to the plaintiff, the request was not followed up since there is no interlocutory judgment on record.  However, the final   judgment is against the three defendants jointly and severally.

10. It is also important to note that this appeal is against the respondent and has not joined the 1st and 2nd defendant as parties.

11. The appellant's evidence was that the 1st defendant T/A Eagle Business Venture together with his wife the 2nddefendant applied for a loan which was payable in 30  equal monthly installments of Kshs.49,119. 91.  It was secured with three motor vehicles which were perfected  as per the company policy and registered in the joint names of the appellant and the 1st defendant. The funds were then disbursed to the Eagle Business Venture account.

12. The 1st repayment was defaulted and thereafter some    partial repayments amounting to Kshs.289,000/= was made by the time this case was filed.  The appellant   authorized repossession of vehicle registration No. KBX   963 D which was frustrated by a court order in this case  issued on 3/11/2015.  The 1st and 2nd defendants are in arrears of Kshs.1,144,551/= which continues to attract   interest.

13. The appellant alleges that the purported purchase of the vehicle by the plaintiff is a fraud calculated to deny the appellant its right of payment and recovery of the loan.

14. The issues arising from this appeal are as follows:-

(a) Whether the directions of the learned magistrate for the appellant to file his submissions before those of the plaintiff and the failure to be served  caused prejudice to him in the presentation of his  case.

(b) Whether the agreement for sale of the motor vehicle between the respondent and the 1st defendant amounted to a valid contract.

(c) Whether the action of the 1st defendant to sell the  vehicle amounted to a fraud against the appellant.

(d) Whether the magistrate properly analyzed and evaluated the evidence of the parties.

(e) Who meets the costs of the suit.

15. The appellant argued that the magistrate orally directed the appellant (3rd defendant) to file his submissions first which was wrong since the plaintiff ought to begin. Order 18 Rule 1 and 2 are the relevant provisions.

1. The plaintiff shall have the right to begin unless the court otherwise orders.

2. Unless the court otherwise orders—

(1) On the day fixed for the hearing of the suit, or on any other day to which the hearing is adjourned, the party having the right to begin shall state his case and produce his evidence in support of the issues which he is bound to  prove.

(2) The other party shall then state his case and  produce his evidence, and may then address the court generally on the case. The party beginningmay then reply.

(3) After the party beginning has produced his evidence then, if the other party has not produced and announces that he does not propose to produce evidence, the party beginning shall have the right to address the    court generally on the case; the other party   shall then have the right to address the court in reply, but if in the course of his address he cites a case or cases the party beginning shall have the right to address the court at the conclusion of the address of the other party  for the purpose of observing on the case or  cases cited.

(4) The court may in its discretion limit the time  allowed for addresses by the parties or their      advocates.

16. The plaintiff is the one who begins to present his case(Order 18 Rule 1).  In Rule 2, the words “the other party” refers to the defendant while “the party beginning” refers to the plaintiff.  It was therefore in order for the appellant (3rd defendant) to file his submissions first.  I  find that no prejudice was caused by this order.

17. However, it was wrong for the plaintiff to omit to serve  the appellant with his submissions. The appellant had   the right to be served and to file a reply if he found it  necessary.  However, since the appellant had already filed his submissions I do not think    that there was much   prejudice caused to him since both parties had been heard and each of them was well aware of the arguments by the opposing side.

18. The respondent said the vehicle in question was sold to  him on 6/04/2014 by the 1st defendant in a “mutual”  agreement.  It was not clear whether the mutual agreement was oral or in writing because it was not produced in evidence.  The vehicle was then delivered    on 7/04/2014 through  a delivery note.  He said he paid  a deposit of Shs.450,000/= and the balance was to be    paid in installments “as per agreement”.  This payment was not very clear since there was no agreement tendered in evidence.

19. The only agreement produced in evidence was dated 19/11/2014.  The respondent did not explain why the  parties did not find it important to have a written agreement at the time the contract was entered into.Yet, the same parties found it necessary to have the agreement put in writing on the “completion” date.  I  refer to it as the date of completion because it is the date that the last amount of Shs.25,000/= was paid    which was indicated as registration fees on the receipt.

20. It is therefore not clear when the installments to complete the balance of Kshs.30,000/= was paid. There was also no evidence of the agreed mode of payment. For a party who had approached the court to prove that he bought the vehicle and fully paid for it, this was very important information that ought to have been included. This raises questions as to the logic behind it.

21. The   respondent produced some documents to support his case which the magistrate did not scrutinize the first one is the loan clearance letter from the 1st defendant  which was undated and bearing the stamp of the 1st defendant's business name.  The stamp has a date of 4th December 2014.

22. The document states that the respondent had cleared his loan of Shs.360,000/= and was now eligible to his  logbook for vehicle registration number KBX 963 D.  It was not clear which loan the parties were referring to. But assuming that it was the balance of the purchase  price of Shs.300,000/=, it raises questions as to why the  letter was necessary two weeks after the purported agreement of 19/11/2014.  It was not explained what purpose it was meant to serve.

23. As for the receipt from Family Bank for the deposit of Shs.450,000/=, it bears the customers signature. However, the signature of the teller who served the depositor is missing from the slip which is quite unusual in bank transactions.

24. The delivery note bears Order number 002 which is missing from the other documents purportedly issued by the respondent for he same transaction.  For a person in serious motor vehicle business, the order number is crucial for identification of the vehicle bought and for the transaction. It ought to appear in all the documents from the dealer relating to that particular  transaction including the agreement.

25. The agreement dated 19/11/2014 shows that the 1st  defendant was selling vehicle registration No. KBX 963 D to the respondent at Shs.750,000/= and that a deposit of Shs.450,000/= was made on execution of the    agreement. This agreement is wanting in that it does not indicate the balance of the purchase price and howit was to be cleared which is crucial to an agreement for    payment in installments. It was witnessed by two people who were not called as witnesses.

26. There being no other other document to show that there was a contract between  the 1st defendant and the respondent, the agreement dated 19/11/2014 forms the contract between the parties. It is therefore important to interrogate whether the agreement was valid and whether the 1st defendant had the capacity to pass title  to the respondent.

27. After purportedly delivering the vehicle in question to the respondent on 7/04/2014 as per the delivery note, the 1st defendant transferred the vehicle to himself on  15/06/2014.  The previous owner was Shami Trading Co. Ltd who allegedly signed the transfer forms in favour of the 1st defendant. It is important to note that the 1st  defendant refused to take part in the proceedings. Otherwise he would have explained why he had to take  that unexpected move having sold the vehicle to the respondent two months back.

28. Upon getting the log book in his name, the 1st defendant  approached the appellant for a loan which went through  the normal process. He gave the vehicle as security and it was then registered in the joint names of himself and the appellant on 24/07/2014.  The copy of logbook was  produced by the appellant in evidence.

29. The 1st defendant had signed the letter of offer on 13/06/2014 accepting the loan and by this time he had already handed over the securities to the appellant.  The   issue which arises is whether the 1st defendant after giving his car as security for a loan could validly sell it to  the respondent on 19/11/2014 when the agreement was  made.  The vehicle was already in the joint names of  the financier and the 1st defendant.

30. In case of a subsequent transfer after the joint registration, the consent and signature of the financier to transfer the vehicle to a 3rd party was mandatory. The 1st defendant was duty bound to substitute the security with another one in the event that he decided to sell it  since he had not cleared the loan.

31. The financier entered into an agreement  to lend the 1st  defendant money in good faith and took due diligence to ensure the securities presented to him were valid.  The allegation that the appellant did not inspect the securities was a statement from the bar since the 1st defendant did not testify.

32. The learned magistrate faulted the appellant in that it did not conduct due diligence before advancing the loa facility.  This was a misdirection on the part of the magistrate in that the logbook was in the name of the 1st defendant.The respondent who was the purported  buyer of the vehicle entered into an agreement about four months after the vehicle had been offered as a collateral and about three months after it was registered in the joint names of the appellant and he 1st defendant.

33. I reach a conclusion that 1st defendant had no legal capacity to pass title of the vehicle to the respondent at   the time the agreement was made on 19/11/2014. The   learned magistrate failed to evaluate the evidence  and scrutinize the documents produced by the parties.  Had he done so, he would have noted the glaring discrepancies in the respondents documents and noted  that they were designed for the purpose of this case with the result of assisting the 1st defendant  to escape his legal responsibility.

34. The non participation of the 1st and 2nd defendant in this case and the failure by the respondent to follow up his request for interlocutory judgment against them is a   confirmation of conspiracy to defraud the appellant of his legal right to recover the loan.  The contract  between the 1st defendant and the appellant remains valid and cannot be defeated by the trick of the 1st defendant.

35. On the other hand, I find the agreement dated 19/11/2014 null and void for the 1st defendant lacked the capacity to enter into it as the seller of the vehicle which was no longer solely owned by him.  The purported mutual agreement of 6/0/2014 and the purported delivery of the vehicle on 7/04/2014 was all made up to frustrate the contract of the appellant and the 1st defendant.

36. I hereby allow the appeal by setting aside the judgment of the lower court delivered on 19/07/2016.  I substitute   it with a judgment dismissing the plaintiff's case in its entirety against the defendants.

37. The respondent will meet the costs of this appeal and of  the court below.

38. It is hereby so ordered.

DELIVERED, DATED AND SIGNED AT EMBU THIS 18TH DAY OF SEPTEMBER, 2017.

F. MUCHEMI

JUDGE

In the presence of:-

Ms. Ndorongo for Rimita for appellant