Zuricap Limited v Alice Wanjiru Theuri [2020] KEHC 391 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL & ADMIRALTY DIVISION

MISCELLANEOUS CIVIL SUIT NO. E495 OF 2019

ZURICAP LIMITED.......................................CHARGEE/APPLICANT

V E R S U S

ALICE WANJIRU THEURI......................CHARGOR/RESPONDENT

RULING

(1) Before this Court is the Originating Summons dated 4th October 2019 by which ZURICAP LIMITED (the Chargee/Applicant) seeks for orders that:-

“1. The property known as Title Number GATARAKWA

/GATARAKWA BLOCK II/1371 charged by the Chargor/Respondent to the Chargee/Applicant under an informal charge dated 6th May, 2017 be sold to recover Kshs. 9,073,861/- together with further interests currently due and owing from the Borrower to the Chargee/Applicant as at 20th September, 2019;

2. An order for vacant possession do issue over property

known as Title Number GATARAKWA/GATARAKWA BLOCK II/1371 to enable the Chargee/Applicant to sell the suit property.

3. The Chargor/Respondent do pay to the Chargee/

Applicant the costs of this suit.”

(2) The Summons which was premised upon Order 37 Rule 4 of the Civil Procedure Rules, Sections 1A, 1B, 3A, 63(c) and (e) of the Civil Procedure Act and Section 79(9) of the Land Act 2012 was supported by the Affidavit of even date sworn by NATHAN ROTICH a Director of the Chargee Company.

(3) The Respondent despite having been duly served with the Originating Summons failed to file any reply thereto and on such the same remained unopposed.  The Summons was canvassed by way of written submissions. The Applicant filed its written submissions dated 3rd October 2020, whilst the Respondent did not file any submissions in the matter.

BACKGROUND

(4) On or about 20th February 2017 the Applicant, the Respondent, and ELLISAM HOLDINGS LIMITED (the Borrower) entered into a tripartite client Agreement by which the Applicant agreed to avail supply chain finance facilities to the Borrower against invoices to pre-selected suppliers or buyers for purposes of financing the Borrower’s purchase of products. The Respondent guaranteed the performance of the Borrower’s payment obligations and in pursuance thereof, on 6th May 2017the Applicant and the Respondent executed a Security Agreement by which the Respondent as chargor granted to the Applicant (as charge) security interest in the property known as Title Number Gatarakwa/Gatarakwa Block II/1371 (hereinafter ‘the Collateral’) as security against the indebtedness of the Borrower to the Applicant.  The Chargor (Respondent) in compliance with Clause 2. 8 of the Security Agreement deposited the original Title to the collateral with the Applicant.

(5) The Borrower defaulted on the terms of the Agreement and on 3rd September 2019 the Applicant served the Borrower with a demand notice for the outstanding amount of Kshs. 9,073,861 due and owing as at 20th September 2019.  The Applicant further issued the Respondent with a notice of default of the Principal Debtor and demanded for the payment of this outstanding amount.  The Borrower and the Respondent persisted in failing to pay the amount demanded which led to the filing of the present Summons.  As stated earlier the Respondent filed no reply at all to the Summons.

ANALYSIS AND DETERMINATION

(6) The legality of an informal charge is recognised by Section 79(6) of the Land Act.  In the case of JAMII BORA BANK LIMITED –VS- WAPAK DEVELOPERS [2018]eKLR the Court held as follows:-

“Section 79(6) recognizes an informal charge which may be created where 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 monies worth obtained from the charge. Section 2 of the land Act envisages the definition of an Informal Charge. The legality of such agreements is clearly spelt out in section 79 of the land Act which provides as under:

“Informal charges.

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. “

Section 2 of the Land Act of the Land Act further defines a charge as follows:

“Charge” means an interest in land securing the payment of money or money’s worth or the fulfillment 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….”

As regards creation of an Informal Charge I wish to place reliance on 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.”

(7) There can be no dispute regarding the existence of the Client Agreement dated 20th February 2017.  A copy of the said Agreement appears as Annexture “NR-2” to the Supporting Affidavit dated 4th October 2019.  This Agreement was duly executed by Ellisam Holdings Ltd as the client, Alice Wanjiru Theuri (the Respondent herein) as the Guarantor and Zuricap Limited (the Applicant herein) as the Financier.  At Schedule II of the Agreement is the Security Agreement dated 6th May 2017 duly executed by the same parties.  In line with Clause 2. 8 of this Security Agreement the Respondent handed over the original document of ownership of the collateral land to the Applicant.  Annexture ‘NR-3’ is a copy of the Title Deed for Gatarakwa/Gatarakwa Block II/1371 indicating Alice Wanjiru Theuri (the Respondent) as the registered proprietor.  In this way I find that an informal charge was created.

(8) The Applicant claims that the facility fell into arrears and that despite notice/demands issued to the Respondent the default persisted.  Annexture ‘NR-6’ is a copy of the Statement of Account indicating the total amount due whilst by a letter dated 3rd September 2019 the Applicant through their Advocates made a demand for the sum of Kshs. 9,073,861/- due and owing to the Applicant.  It is trite law that an Agreement voluntarily executed will bind the parties.  Clause 3 of the Security Agreement provides that in the event of default Clause 8 of the Client Agreement will apply.  The Respondent or guarantor is liable to pay the debt owed by the Borrower. On the basis of the above I am satisfied that the Applicant is entitled to sell the collateral property inorder to recover the amount due to it.

(9) The Applicant has also prayed to be granted vacant possession of the collateral property to enable it sell the same in order to recover the monies due to it.  In the JAMII BORA BANK case (supra), the Court further held as follows:-

“Under Section 79(9) above, a Chargee holding an informal charge may only take possession or sell the land which is the subject of the informal charge on obtaining an order of t he Court.  The Plaintiff herein is seeking consent of the court to proceed to exercise the remedies envisaged under Section 90 of the Land Act, No. 6 of 2012.

The charger deposited title documents with the Chargee which will be held by the Chargee as a lien for security.  That in case there is a default in the repayment of the loan amounts, the Chargor may move to Section 90 of the Land Act with the consent of the Court.  It is trite that a contract that the parties have agreed to perform, the Court will not interfere unless that contract is tainted with illegalities, fraud, is against public policy, misrepresentation etcetera.  In that respect, the parties are expected by the Court to be able to perform their part of the bargain.

Its indeed trite law for this Court to uphold the sanctity of lawful commercial transactions to give effect to the intentions of the parties.  I consider the effect of a contract of a mortgagor and mortgagee to be of such a nature that it is protected under the nuances of constructive trust.  The mortgagors interest in the land is acquired upon the contract formation by signing of legal or informal charge enforceable as equitable mortgage.  In the instant case the defendant action of conveyance and deposit of titles to the suit land retained the legal title while the Plaintiff obtained equitable beneficial title to the properties.

The question at stake can be succinctly answered by the dictum in the case of Ibrahim Seikei T/A Masco Enterprises V Delphis Bank (2004)eKLR where the Court held “we must protect the intention of the parties so that every party adheres to his contractual duty to the other.  The appellant was advanced the money on the strength of the security he provided to the bank and had an obligation to repay the monies under the terms agreed.  Banks do not give monies as gratuity or love for human kind.  I cannot issue an injunction against a party wanting to exercise its statutory power of sale merely because the amount due is in dispute.”  With the leave of the Court the plaintiff has the backing of the law to proceed accordingly to enforce the mortgage contract.”

(10) Accordingly, I find and hold that the Applicant is entitled to realize the security offered to guarantee payment of the debt due to it.  I find that the present Summons is merited and I do grant prayers (2) (3) and (4) of the Originating Summons dated 4th October 2019.  It is so ordered.

Dated in Nairobi this 11th day of December, 2020.

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

MAUREEN A. ODERO

JUDGE