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Court of AppealDismissedCivil Appeal 260 of 2001· [2007] KECA 474 (KLR)

TIMOTHY U. K. M’MELLA v SAVINGS & LOAN (K) LIMITED [2007] KECA 474 (KLR)

Court of Appeal of Kenya
2 February 2007
Philip Kiptoo TunoiP. K. TunoiEGE. M. GithinjiJOJ. W. Onyango Otieno
8,057 words in judgment
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The bottom line

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Kenya's Court of Appeal ruled that an unregistered mortgage was invalid, but the borrower still owed the loan because his signed contract stood independently of the charge.

What this practically means

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Executive summary

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The Court of Appeal (Tunoi, Githinji and Onyango Otieno, JJA) dismissed this first appeal against the High Court's (Mbaluto J) judgment awarding Savings & Loan (K) Limited Ksh.4,062,316 plus interest against the appellant, a former civil servant who had obtained a mortgage advance under the Lang'ata Civil Servants' Housing Project. The court agreed with the appellant that the charge executed on 28th October 1982 over L.R. No. Nairobi/Block 72/1288 - land which did not then exist or belong to him - was invalid until registered on 8th October 1991, applying the Torrens principle that only registration renders land liable as security. However, it held that the invalidity released the appellant only from obligations under the charge, not from the contract. The application form, further particulars form, letter of offer, acceptance note and subsequent correspondence (including the appellant's own letter of 10th October 1993 and his advocates' letters) established a proper, freely entered contract of loan. The defence of limitation failed because it was not pleaded as required by Order VI rule 4(1)(a) of the Civil Procedure Rules and no evidence was led on when the cause of action accrued; the appellant was also partly responsible for the delay. On interest, the court deprecated the regime of unrestricted bank interest that had inflated the debt, but held that parties are bound by their lawful contracts and the court could not rewrite them. The decision of the High Court was affirmed and the appeal dismissed with costs to the respondent.

Key legal issues

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01

Validity of an unregistered charge under the Torrens system

Holding

The charge was invalid before registration on 8th October 1991 and could not form the basis of the transaction during that period, but the invalidity released the appellant only from obligations under the charge, not under the contract.

Reasoning

The court agreed with counsel that the charge, executed over land that did not then exist in the appellant's name, was not valid until registered. Relying on the Torrens principle that only registration passes an estate or renders land liable as security, the appellant was released from duties under the charge during the period of invalidity. However, the application form, further particulars form, letter of offer and acceptance note created a proper, enforceable contract of loan independently of the charge.

p. 7
02

Liability on the simple contract notwithstanding charge invalidity

Holding

The appellant was bound by the contract created by the loan documents and his correspondence, and remained liable for the balance owing after the auction.

Reasoning

The appellant signed the application form, further particulars form and acceptance note without denying the signatures, and his own letters and those of his advocates admitted ownership and occupation of the property and sought time to repay. The court found the plea that loan discussions happened only with the Civil Servants' Union impossible to believe. The charge's invalidity did not release him from the contract; interest was payable per the offer letter and Memorandum as to Advances.

p. 7
03

Whether the unpleaded limitation defence could stand

Holding

The defence of limitation failed because it was not pleaded as required by Order VI rule 4(1)(a) and no evidence was led to establish when the cause of action began to run.

Reasoning

The court endorsed the trial judge's reliance on Order VI rule 4(1)(a) and Nairobi City Council v Thabiti Enterprises: issues must be raised through pleadings. Although a point of law may be taken at any stage, limitation not pleaded cannot be alluded to in evidence, making it impossible for the court to decide it on an informed basis. The appellant's own requests for extension of time also complicated ascertainment of accrual, and he was partly to blame for the delay.

p. 10
04

Interest charged before and after registration

Holding

Both pre- and post-registration interest were payable under the contractual agreements, and the court declined to interfere despite deprecating the system of unrestricted interest.

Reasoning

Pre-registration interest was governed by the letter of offer and Memorandum as to Advances, which the appellant accepted; post-registration interest was governed by those plus the charge. The court criticised the delay in realising the balance and the accumulation of interest, but held that intervening would amount to writing a new contract, which is impermissible. Recovery proceedings were brought within two years of the sale.

p. 11

Legal principles established

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  • An unregistered instrument does not create a valid security over registered land, though it may still operate in equity and as a contract between the parties
  • A party who relies on limitation must specifically plead it; an unpleaded limitation defence cannot be raised by submissions or on appeal
  • On a first appeal, the appellate court re-evaluates the facts and reaches its own conclusion, while allowing for the trial court's advantage of seeing and hearing the witnesses
  • Courts will not rewrite a lawful contract freely entered into, even where the resulting interest burden appears unfair
  • A matter not specifically pleaded may still be considered where it was canvassed at trial and made an issue by both parties

Court orders

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  1. 1.The appeal is dismissed with costs to the respondent

Authorities

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Legislation

  • Registered Land ActCap 300, Laws of Kenya (including section 38(2))
  • Limitation of Actions Actsection 19
  • Civil Procedure RulesOrder VI rule 4(1)(a)
  • Torrens Title in Australia Volume I (Francis) - NSW provisionssection 41(1)

Cases cited (6)

  • Russel/Russed Company Ltd. vs. Commercial Bank of Africa Ltd. and another
    CA No. 31 of 1985 (unreported)
  • Souza Figuiredo vs. Mooring Hotel
    (1960) EA 926
  • Cross vs. Great Insurance Company Ltd of India
    (1966) EA 94
  • Nairobi City Council vs. Thabiti Enterprises Ltd.
    (1995-98) 2 EA 231
  • Sande v. Kenya Co-operative Creameries Ltd.
    (1992) LLR 314 (CAK)
  • Kenya Commercial Finance Company Ltd. vs. Ngeny and another
    (2002) I KLR 106
On appeal from
High Court of Kenya at Milimani Commercial Courts
H.C.C.C No. 394 of 1998
Jurisdiction invoked
First and last appeal from the High Court to the Court of Appeal under the applicable appellate provisions (Appellate Jurisdiction Act/Civil Procedure; the judgment identifies itself as 'a first and last appeal from the decision of the superior court')

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (1)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "TIMOTHY U. K. M’MELLA v SAVINGS & LOAN (K) LIMITED [2007] KECA 474 (KLR)", Case Analysis (2007). Civil Appeal 260 of 2001. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2007/474/eng@2007-02-02

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.