Mwaniki Wa Ndegwa v National Bank of Kenya Ltd & another [2016] KECA 388 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed that a bank charge or guarantee is valid even without a fixed interest rate, as long as it explains how the rate will be set.
What this practically means
#Executive summary
#Key legal issues
#Validity of security documents lacking a specified interest rate
The Charge, Further Charge and Guarantee were valid despite not specifying an exact interest rate, because they provided the manner of its determination at ruling rates, and the appellant had voluntarily signed them and serviced the loan without complaint.
Clause 1(a) of the Charge empowered the bank to decide the rate from time to time, and clause 2(i) of the Guarantee provided for interest at ruling rates for bank advances. The court applied its earlier decisions in Shah v Guilders International Bank and Fina Bank v Ronak Ltd, holding that a charge reserving a variable rate in the bank's discretion is not impeachable merely because the exact rate was not specified. The appellant, a former banker, could not resile from documents he voluntarily signed.
Attestation and execution of the security documents
The appellant failed to establish that the security documents were improperly executed; the attestation issue was an afterthought never raised during negotiations, and no law requires attestation by an independent advocate.
Maina Wachira, an advocate, attested the signatures, and section 58(1) of the Registration of Titles Act permits an advocate to attest. The court endorsed the reasoning in Noorbegum Fazal v Diamond Trust Bank and Lalchand Fulchand Shah v Investments & Mortgages Bank: a chargor cannot escape an ex facie valid charge by mere assertion of improper attestation, the fact being peculiarly within the chargor's knowledge and thus on him to prove.
Apportionment of liability as between guarantor/mortgagor and principal debtor
The appellant, having executed the Charge and Further Charge as mortgagor and a guarantee as guarantor, was liable for the entire debt including interest and could not be discharged by payment of the guaranteed sum alone.
By executing the Charge the appellant covenanted to pay all amounts payable by the principal borrower. The guarantee's Kshs. 5,000,000 cap covered principal only; clause 2 provided for interest on that amount. The court adopted the statement in Ebony Development Company Ltd v Standard Chartered Bank Ltd and Halsbury's Laws that a guarantor is immediately liable to the full extent of his obligation on the principal debtor's default, without notice or prior recourse against the principal.
Surplus auction proceeds and escrow funds
The claim for the surplus of Kshs. 25,438,437/- was remitted to the High Court as a new issue not canvassed below, and no orders were made on the escrow funds pending Civil Application No. 141 of 2009.
The sale yielded Kshs. 47,000,000/- against an outstanding loan of Kshs. 21,561,563/-. Because the issue arose after the memorandum of appeal was filed, it formed no part of the grounds of appeal and was never litigated in the High Court; fairness required that the 1st respondent have an opportunity to respond in the High Court. Similarly, the escrow account funds are the subject of a pending application in which all parties can be heard.
Legal principles established
#- A charge or guarantee that does not specify an exact rate of interest is not invalidated where it provides the manner in which the rate is to be determined; a party who voluntarily signs such security is bound by the rate so determined.
- There is no legal requirement that a Chargor's signature be attested by an independent legal counsel; an ex facie valid and properly attested charge cannot be impeached by a mere assertion of improper attestation, which the Chargor must prove.
- A guarantor who is also a mortgagor is liable to the creditor for the total amount due under the security including interest, and cannot be discharged by payment of only the guaranteed principal sum.
Court orders
#- 1.The appeal is dismissed with costs to the first respondent
- 2.No orders made in regard to the funds in the escrow account, that issue to be dealt with in Civil Application No. 141 of 2009
- On appeal from
- High Court of Kenya at Milimani Commercial Courts, Nairobi
- H.C. Civil Case No. 86 of 2000
- Jurisdiction invoked
- First appeal to the Court of Appeal under the Court of Appeal Rules (appeal as of right from the High Court); rule 5(2)(b) of the Court Rules invoked for interlocutory relief
Key timeline
#Practical implications
#Frequently asked questions
#Later judgments citing this (3)
#Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.
- Waweru Mwaura v Mary Wanjiru Njenga [2016] KECA 574 (KLR)[2016] KECA 574 (KLR)19 May 2016followed
- Stahito Commuter Service Company Limited v George Githinji Kanyi & 3 others [2015] KECA 216 (KLR)[2015] KECA 216 (KLR)20 Nov 2015applied
- Del Monte Kenya Limited v Patrick Njuguna Kariuki [2013] KECA 2 (KLR)[2013] KECA 2 (KLR)27 Sept 2013applied
Cite this brief
#Cite this brief
Caselaw, "Mwaniki Wa Ndegwa v National Bank of Kenya Ltd & another [2016] KECA 388 (KLR)", Case Analysis (2016). Civil Appeal No. 124 of 2008. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2016/388/eng@2016-07-22
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.