Kanji v Agriquip Agencies (EA) Ltd [1984] KECA 17 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed you cannot dodge paying a promissory note with a weak counterclaim, but courts cannot grant relief nobody asked for.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the respondent was the holder of the promissory note given its endorsement to the Standard Bank for collection
- 2.Whether the affidavit in support of the application for summary judgment offended against order XVIII rules 3(1) and 6 of the Civil Procedure Rules
- 3.Whether the compressor was returned by the appellant or resold by the appellant to the respondent
- 4.Whether the defence and set-off disclosed real triable issues or valid defences to an action on the note
- 5.Whether the respondent was entitled to credit against the note for the return of one compressor after the note was accepted
- 6.Whether the interest awarded and the accelerated order for execution before taxation were correctly made
Key legal issues
#Nature of a promissory note and the holder's right to sue on it
The note constituted the contract itself; the respondent remained the holder because the bank only collected and had re-endorsed the note back when dishonoured.
Bills and cheques are orders to pay whereas promissory notes are promises to pay. The object of a note is to prevent disputes about the amount due and to put the holder in a position to enforce payment when it falls due. The bank's first endorsement was for collection only, and on dishonour it was returned by second endorsement, so the respondent was holder both at maturity and when filing suit.
Whether a set-off or counterclaim gives a defendant leave to defend an action on a note
Payment on a note should not be held up for a set-off or counterclaim unless there are exceptional circumstances or a very real issue to be tried; none existed here.
The older authorities required a defendant on a note or bill to pay first and litigate any cross-claim separately, treating the instrument as cash. Brown Shipley allowed holding up payment only in exceptional circumstances, and Saga of Bond Street required 'a very real issue'. Here the set-off depended on an alleged resale which the affidavits did not establish, so the summary judgment application was correctly granted.
Whether the compressor was returned or resold to the respondent
The compressor was returned, not resold; the respondent correctly gave credit for it against the note.
The appellant's letter of May 8, 1980 proposed returning the compressors without asking for the note back, and the invoice of September 30, 1980 at nearly double the original price was unsupported and unsigned. The respondent's resale to Put Serajevo at Kshs 300,000 was unrelated to the transaction between the parties, so no credit for that sale was due.
Interest on costs and accelerated execution
Interest on costs should have been 6% from the date of taxation as claimed, and the accelerated execution order, being unopposed and unasked for, must be set aside.
The respondent had claimed interest on costs at 6% per annum from the date of taxation, so awarding 12% from the date of judgment exceeded the claim. The accelerated order for execution before taxation was never sought in the application, and the appellant had no opportunity to oppose it; it should not have been made.
Legal principles established
#- Promissory notes are promises to pay whose object is to prevent disputes as to the amount due by enabling the holder to enforce payment when it becomes due.
- A counterclaim ought not be allowed without strong grounds in an action on a bill, cheque or promissory note.
- A court may, only in exceptional circumstances, hold up payment due on a bill or note where a set-off or counterclaim is raised.
- Summary judgment will not be granted where real triable issues are raised; the defence raised none.
Court orders
#- 1.Appeal dismissed with costs except in respect of interest on costs and the order for accelerated execution
- 2.Interest on costs amended from 12% to 6% per annum and to run from the date of taxation and not the date of judgment
- 3.The order giving the respondent leave to execute the decree before taxation of the bill of costs set aside
- 4.Summary judgment for the respondent for Kshs 235,470.30 otherwise affirmed
The bench
#One judgment of the whole court — no separate or dissenting opinions.
Wrote the judgment
Delivered the main judgment of the court. He reviewed the law on promissory notes, bills of exchange and cheques, held that the appellant had no real defence or triable issue to the claim on the note, but varied the interest on costs to 6% from the date of taxation and set aside the order for accelerated execution of the decree before taxation of the bill of costs.
These orders for interest and execution before taxation apart, the learned judge, in my view, reached the right conclusion and the appeal should be dismissed with costs.p. 8
Wrote the judgment
Wrote a separate concurring judgment analysing the pleadings and affidavits. He agreed the defence and set-off were a sham, that no triable issues were raised, and that Muli J properly exercised his discretion in giving summary judgment, and agreed with Kneller JA on the interest on costs and the setting aside of the accelerated execution order.
The attempt was futile and a failure and I would agree with the learned judge that the defendant’s defence and set-off are a sham and the defendant did not succeed showing by affidavit, or orally or otherwise that he should have leave to defend the suit.p. 10
- On appeal from
- High Court
- Jurisdiction invoked
- First appeal to the Court of Appeal against the ruling of Muli J granting summary judgment (order XXXV of the Civil Procedure Rules)
Relief refused
#Unconditional leave to defend the suit
The defences and set-off were not real triable issues; the defence and set-off were sham
Set-off for Kshs 444,459.80 (resale of compressor and service charges)
There was no resale; the compressor was returned, and the claim for services was not rebutted by the appellant's mere confirmation of his defence
Costs
Appeal dismissed with costs; the appellant to pay the respondent's costs of the appeal. The costs of the suit below were awarded to the respondent by the High Court (interest on those costs varied to 6% from the date of taxation).
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
Bills and cheques are orders to pay; promissory notes are promises to pay so the suit was for a liquidated claim on a promissory note and the contract was constituted by the note itself and the object of a note is to prevent disputes as to amounts due and to put the holder of the note in a position to enforce it when it becomes due.
If the respondent sued on the note, then the defences raised by the appellant were not real triable issues or valid defences to such an action, so the appellant was not entitled to have leave to defend.
and the same court said a counterclaim ought not be allowed without strong grounds in an action on a bill, cheque or promissory note which was not disputed.
The order for accelerated execution of the decree was not asked for and the appellant had no opportunity to oppose it and, with respect, it should not have been made. It must be set aside.
These orders for interest and execution before taxation apart, the learned judge, in my view, reached the right conclusion and the appeal should be dismissed with costs. Chesoni Ag JA agrees so those are the orders of the court.
The attempt was futile and a failure and I would agree with the learned judge that the defendant’s defence and set-off are a sham and the defendant did not succeed showing by affidavit, or orally or otherwise that he should have leave to defend the suit.
Issues in the judgment
#Internal inconsistency in the claim amount: the headnote and Kneller JA describe the respondent's claim as Kshs 235,470.30 comprising the price of one compressor, while Chesoni Ag JA states the plaint claimed 'Kshs 208,489.50 being the price of one compressor' and elsewhere the compressor price is given as Kshs 208,989.50.
Inconsistent dates for Kanji's letter proposing return of the compressors: the main judgment refers to a letter of May 5, 1980 while the narrative and the lower court findings refer to a letter of May 8, 1980.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Kanji v Agriquip Agencies (EA) Ltd [1984] KECA 17 (KLR)", Case Analysis (1984). Civil Appeal No 55 of 1982. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1984/17/eng@1984-02-20
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.