JAMES OMBERE OCKOTCH v EAST AFRICAN BUILDING SOCIETY & 2 others [1997] KECA 399 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed that a bank can auction mortgaged property without three months' notice when interest is over two months in arrears, and the buyer's title stands.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether a statutory notice under section 69A of the Transfer of Property Act 1882 was a prerequisite to the auction sale
- 2.Whether the building society owed the mortgagor a duty of care and whether the sale price amounted to a fraudulent undervalue
- 3.Whether an estoppel arose from the building society's agreement in principle to release part of the suit property from the security
- 4.Whether the auctioneer's acceptance of the third highest bid vitiated the auction sale
- 5.Whether there was collusion between the auctioneer and the purchaser sufficient to vitiate the sale
- 6.What remedy, if any, was open to the appellant given the purchaser's statutory protection
Key legal issues
#Statutory notice prerequisite to exercise of the mortgagee's power of sale
No statutory notice was required because interest was in arrears for more than two months under section 69A(1)(b); the appellant therefore had no prima facie case.
The suit property was registered under the Registration of Titles Act, so the Transfer of Property Act 1882 of India as applicable in Kenya governed. Section 69A(1)(b) dispenses with the three-month notice where interest is in arrears and unpaid for two months after becoming due. The appellant conceded arrears of principal and interest exceeding two months at the time of the auction, so the power of sale had validly arisen.
Duty of care of the mortgagee and alleged undervalue
The mortgagee must take reasonable care to obtain the best price reasonably obtainable but is not a trustee of the mortgagor; the property fetched Shs. 2,700,000 against a forced-sale valuation of Shs. 1,650,000, so no fraudulent undervalue was established.
Section 43 of the Building Societies Act reproduces the English rule that a mortgagee must sell in good faith and at a reasonable price. The appellant produced no 1989 valuation and merely asserted a value of Shs. 7,000,000, which was insufficient to establish a fraudulent undervalue, particularly where the sale price exceeded the valuer's forced-sale figure.
Alleged estoppel from the agreement to release part of the property
No estoppel arose because there was no evidence of any representation by the building society capable of creating one, and no documentation of the sub-division ever came into existence.
Although the building society agreed in principle to release a sub-divided portion from the security, no documentation was executed and the status quo under the original charge continued. The appellant's later sub-division plans never matured into new title documents, so the charge remained intact and the society was free to exercise its power of sale.
Validity of the auction and alleged collusion
The auctioneer was entitled to accept the highest approved bid; the first two bidders could not raise the 25% deposit, and there was no ample acceptable evidence of collusion to vitiate the sale.
The conditions of sale gave the auctioneer the right to refuse any bid. The purchaser paid Shs. 675,000 (25%) on the auction day through an undertaking by his advocates. Collusion requires ample acceptable evidence; the purchaser's attendance at the auctioneer's office to finalise the memorandum was normal practice and did not evidence collusion.
Protection of the purchaser and the appropriate remedy
The purchaser's title was unimpeachable under section 69B(2) of the Transfer of Property Act; the appellant's remedy, if any, was in damages, which he had not claimed.
Section 69B(2) protects a purchaser from impeachment on grounds of want of case, notice or irregular exercise of the power, leaving an aggrieved person to damages. The right to redeem was extinguished on the binding contract of sale of 26th October 1989, so an injunction annulling the sale could not properly have been granted.
Legal principles established
#- Under section 69A(1)(b) of the Transfer of Property Act 1882 as applicable in Kenya, no three-month statutory notice is required before a mortgagee exercises its statutory power of sale where interest is in arrears and unpaid for more than two months.
- A mortgagee owes a duty of care to the mortgagor but is not the mortgagor's trustee; its duty is to obtain the best price reasonably obtainable at a forced sale.
- Under section 69B(2) of the Transfer of Property Act, the title of a purchaser at a statutory power of sale cannot be impeached for want of notice, absence of an authorising case, or irregular exercise of the power; the remedy of an aggrieved mortgagor is in damages.
- The mortgagor's right to redeem is extinguished upon the coming into existence of a binding contract for sale of the mortgaged property.
- A superior court should confine itself to the application before it and rule only on that application.
Court orders
#- 1.Appeal dismissed
- 2.Costs payable by the appellant to all the respondents
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi
- Civil Case No. 5049 of 1989
- Jurisdiction invoked
- First appeal to the Court of Appeal against the dismissal order of the High Court (statutory appellate jurisdiction; no specific constitutional provision stated in the judgment)
Relief refused
#Injunction restraining the sale and transfer of L.R. No. 12144/9
The appellant had no prima facie case: no statutory notice was required where interest was in arrears for more than two months, the sale was not vitiated, and the purchaser's title was statutorily protected; any remedy lay in damages, which the appellant did not claim
Costs
Appeal dismissed with costs payable by the appellant to all the respondents.
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.
I can be seen straight away that under section 69 A (1) (b) there is no need for the giving of the three month statutory notice when interest for more than two months is due and unpaid
However the mortgagee is not the mortgagor's trustee. The Mortgagee's duty is to obtain the best price available at an auction sale which obviously is a forced sale.
it is trite that in order to vitiate a sale on ground of collusion there must be ample acceptable evidence
but any person damnfied by an unauthorized, or improper, or irregular exercise of power shall have his remedy in damages under the person exercising the power
The upshot of all this is that this appeal is dismissed with costs payable by the appellant to all the respondents. It is so ordered.
Issues in the judgment
#The judgment states the property fetched Shs. 2,700,000 but then refers to the first two bids as Shs. 2,900,000 and Shs. 2,800,000, which are higher figures described as having failed; the arithmetic sequence of bids is internally unclear.
The judgment inconsistently describes the extinguished right as both the mortgagor's and the mortgagee's right of redemption.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "JAMES OMBERE OCKOTCH v EAST AFRICAN BUILDING SOCIETY & 2 others [1997] KECA 399 (KLR)", Case Analysis (1997). Civil Appeal 202 of 1996. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1997/399/eng@1997-07-04
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.