Peter H. Gakere & another v National Bank of Kenya Ltd [1995] KECA 152 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed that a loan taken before your company exists is your personal debt, and incorporation does not wipe it out.
What this practically means
#Executive summary
#Key legal issues
#Identity of the borrower: individuals or the company
The loan was advanced to Mr & Mrs Gakere personally, as the offer and acceptance predated the company's incorporation on 19th July 1978.
The letter of offer of 30th May 1978 and acceptance of 12th June 1978 both predated incorporation. The paying-in slips relied on by the appellants only evidenced company accounts with the bank and did not alter the original contract, which was for a loan to the Gakeres.
Relevance of Salomon v Salomon / lifting the corporate veil
Salomon's principle of independent corporate existence had no relevance because the debt arose before the company existed; the Gakeres were attempting to palm off the debt onto a defunct company.
Salomon confirms only a company's separate legal personality. Here the company was not the contracting party; its later existence could not attract the debt. The conversion of a firm into a company does not absolve partners of existing liabilities.
Implied trust over LR No 209/7383/342
The learned judge erred in holding that Mr Gakere held the property on trust for himself and the bank; a trust cannot be implied or deemed absent absolute necessity.
Relying on the Privy Council's decision in Ayoub, which endorsed Newbold JA's dissent and Cook v Fountain, the court held trusts are never implied by law or presumed by the court except in absolute necessity. However, nothing turned on this as the debt had been substantially paid.
Legal principles established
#- A loan offered to and accepted by an individual before incorporation of a company binds the individual, not the company, and subsequent incorporation of a company does not absolve the firm or its partners from pre-existing liabilities.
- Conversion of a firm into a limited liability company does not per se absolve the firm from its liabilities, which remain on the partners even after dissolution of the firm.
- A trust cannot simply be implied or deemed to be created; the law never implies and the court never presumes a trust except in case of absolute necessity.
- An appellate court will not reverse findings of fact based on the trial judge's assessment of demeanour absent grounds to do so.
Court orders
#- 1.Appeal allowed to the extent of disallowing and setting aside orders made in terms of prayer (iii)(b) of the amended plaint
- 2.Appeal otherwise dismissed
- 3.Respondent awarded 4/5ths of its costs of the appeal
- On appeal from
- High Court of Kenya
- Jurisdiction invoked
- First appellate jurisdiction over an appeal from the High Court
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Peter H. Gakere & another v National Bank of Kenya Ltd [1995] KECA 152 (KLR)", Case Analysis (1995). Civil Appeal (Nairobi). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1995/152/eng@1995-07-21
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.