Skip to content
AI-generated case briefs sourced from Kenya Law · Not legal advice
Caselaw
AI-generated case brief
Case Brief · caselaw.co.ke
Court of AppealPartially AllowedCivil Appeal No. 274 of 2003· [2014] KECA 775 (KLR)

Kenya National Capital Corporation Ltd v Albert Mario Cordeiro & another [2014] KECA 775 (KLR)

Court of Appeal of Kenya
27 February 2014
AVAlnashir VisramDavid Kenani MaragaD. K. MaragaHOH. M. Okwengu
7,526 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~30 min to read original · ~4 min brief

The bottom line

#

Kenya's Court of Appeal ruled that a bank that lent money to a developer could not be forced to honour the developer's house-sale contracts with buyers.

What this practically means

#

Executive summary

#
The Court of Appeal at Nairobi (Visram, Maraga and Okwengu, JJ.A) allowed this first appeal against the judgment of Ang'awa, J of 16th October 2000 in HCCC No. 2430 of 1996, which had ordered specific performance in favour of Albert Mario Cordeiro, the purchaser of four housing units on land charged to the appellant lender. The court framed four issues: existence of a contract, entitlement to specific performance, consequences of receivership, and proprietary estoppel. Visram JA, writing the leading judgment, held that the sale contract existed only between the 1st and 2nd respondents; the appellant's knowledge of it did not make it a party, and on the privity of contract principle the 1st respondent had no cause of action or locus standi against the appellant. Specific performance therefore could not issue. As a debenture holder the appellant ranked in priority over the 1st respondent, an unsecured creditor, and no proprietary estoppel arose since the appellant made no representation on which the 1st respondent relied. Okwengu JA concurred, adding that irregular exercise of the statutory power of sale under section 74 of the Registered Land Act was a matter only the chargor could complain of and could not ground specific performance for a stranger to the mortgage. Maraga JA dissented, holding that by unlawfully appointing receivers and selling without the required further notice and by private treaty without court sanction, the appellant stepped into the 2nd respondent's shoes and assumed its obligations, so the appeal should have been dismissed; nonetheless the final order of the court was that the appeal be allowed in terms of Visram JA's orders. The High Court judgment and decree were set aside and the 1st respondent's suit dismissed with costs to the appellant, who also received the costs of the appeal.

Key legal issues

#
01

Existence of a contract between the appellant and the 1st respondent

Holding

No contract existed between the appellant and the 1st respondent; the contract was solely between the 1st and 2nd respondents, and the appellant's mere knowledge of it did not make it a party.

Reasoning

The offer to purchase was made by the 1st respondent to and accepted by the 2nd respondent, creating a contract only between them. No evidence showed any contract with the appellant or that the 2nd respondent acted as the appellant's agent. The appellant's awareness of the contract did not make it a party, so privity precluded enforcement against the appellant.

p. 3
02

Entitlement to specific performance against the appellant

Holding

Specific performance could not issue against the appellant as there was no concluded contract between it and the 1st respondent; the High Court judge erred in ordering it.

Reasoning

Because specific performance compels performance of contractual obligations, it presupposes a concluded contract between the disputants. The Benson Ngugi Muiruri case was distinguishable because a valid contract existed there. The trial court's order therefore had no contractual foundation.

p. 4
03

Consequences of the receivership and the priority of the secured creditor

Holding

The appellant as debenture holder ranked in priority over the 1st respondent, an unsecured creditor, and the court could not uphold specific performance against it.

Reasoning

Upon appointment of a receiver the floating charge crystallizes and the company's powers over the property pass to the receiver. The appointment does not invalidate prior contracts, but they remain enforceable only against the company subject to the debenture holder's interests. The 1st respondent could not enforce his contract with the 2nd respondent against the appellant.

p. 5
04

Proprietary estoppel against the appellant

Holding

No proprietary estoppel arose because the appellant made no representation or conduct creating a belief in the 1st respondent, who acted in reliance on a contract with the 2nd respondent only.

Reasoning

Applying the Taylors Fashions test, none of the elements was satisfied: the appellant did nothing by conduct or representation to encourage the 1st respondent's belief. The Chase International case was distinguishable because there the owner's director directly made the promise on which the claimant relied.

p. 6
05

Irregular exercise of the chargee's statutory powers of sale (Maraga JA, dissenting; Okwengu JA concurring on the majority side)

Holding

Maraga JA (dissent) found that the appellant's combined act of appointing receivers and selling without the further notice under section 74 and by private treaty without court sanction under section 79 was unlawful, causing the appellant to step into the 2nd respondent's shoes and assume its obligations. Okwengu JA held that only the chargor could complain of such irregularity and it could not found specific performance in favour of a stranger to the mortgage.

Reasoning

Maraga JA reasoned that the receivers sold on the appellant's clear instructions and so became its agents, not agents of the company; the chargee thereby usurped the company's operations. Okwengu JA reasoned that the enforcement of statutory powers of sale was a matter between the parties to the security documents, and irregularity at best invited an injunction, not a permanent transfer of rights to a non-party.

p. 9

Legal principles established

#
  • A contract binds only the parties to it and cannot be enforced by or against a stranger to it, even where the contract was made for that person's benefit (privity of contract).
  • Specific performance is a discretionary equitable remedy that requires a concluded contract between the parties sought to be bound.
  • A debenture holder who appoints a receiver is under no duty to refrain from exercising its rights merely because doing so may cause loss to the company or its unsecured creditors, and ranks in priority over unsecured creditors.
  • Appointment of a receiver does not affect the validity of contracts previously entered into by the company, which remain enforceable against the company subject to the debenture holder's interests.
  • Proprietary estoppel requires (i) a belief by one party that it had or would have a right over the property, (ii) creation or encouragement of that belief by the owner, and (iii) reliance on the belief.
  • Under section 74 of the Registered Land Act (now repealed), a chargee who has appointed a receiver may not exercise the power of sale unless the chargor fails to comply with a further three-month notice.

Court orders

#
  1. 1.Appeal allowed
  2. 2.Judgment and decree of the High Court dated 16th October, 2000 set aside
  3. 3.1st respondent's suit in the High Court dismissed with costs to the appellant
  4. 4.Appellant awarded the costs of this appeal

Authorities

#

Legislation

  • Registered Land Act (Cap 300, Laws of Kenya) (now repealed)Section 74
  • Registered Land Act (Cap 300, Laws of Kenya) (now repealed)Section 74(2)(a)
  • Registered Land Act (Cap 300, Laws of Kenya) (now repealed)Section 77
  • Registered Land Act (Cap 300, Laws of Kenya) (now repealed)Section 79
  • Registered Land Act (Cap 300, Laws of Kenya) (now repealed)Sections 72(2) and (3), 74, 75, 76 and 77

Cases cited (14)

  • Agriculture Finance Corporation vs. Lengetia Ltd
    (1985) KLR 770
  • Kenindia Assurance Co. Ltd vs. Otiende
    (KLR) 38
  • Masha vs. Tol Ltd
    (2003) 2 EA 593
  • Benson Ngugi Muiruri vs. Kenya National Capital Corporation Ltd
  • JK Industries vs. Kenya Commercial Bank Ltd & Another
    Nairobi Civil Appeal No. 130 of 1987
  • SAA Technical (Property) Limited vs. Air Kenya Aviation Limited
    (2006) 2 EA 317
  • Chase International Investment Corporation and Another vs. Laxman Keshra and others
    (1976-1980) 1 KLR 891
  • Taylors Fashions Ltd vs. Liverpool Victoria Trustees Co. Ltd
    (1982) QB 133, 151H-152A
  • Selle & Another v. Associated Motor Boat Co. Ltd & Others
    [1968] EA 123 at 126
  • Mwanasokoni v. Kenya Bus Services Ltd
    [1985] KLR 931
  • Munga Concrete Works Limited v. Industrial Development Bank Limited
    Civil Appeal No. 18 of 1998
  • State (Pros) v. Board of Assessors
    57 N.J.L. 53, 29 Att. 442 (Sup. Ct. 1894)
  • Parsons v. Sovereign Bank of Canada
    [1913] AC 160
  • Foster v Nixon's Navigation Co. Ltd
    (1906) 23 TLR 138
On appeal from
High Court of Kenya at Nairobi
H.C.C.C. No. 2430 of 1996
Jurisdiction invoked
First appeal to the Court of Appeal under the Court of Appeal's appellate jurisdiction over High Court civil decisions (the judgment does not cite a specific constitutional provision)

Key timeline

#

Practical implications

#

Frequently asked questions

#

Later judgments citing this (25)

#

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

Cite this brief

#

Cite this brief

Caselaw, "Kenya National Capital Corporation Ltd v Albert Mario Cordeiro & another [2014] KECA 775 (KLR)", Case Analysis (2014). Civil Appeal No. 274 of 2003. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2014/775/eng@2014-02-27

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