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ELCDismissedELC. MISC SUIT NO. 30 OF 2016 (O.S.)· [2018] KEELC 3091 (KLR)

David Kimemia Rufus & another v African Banking Corporation Ltd & another [2018] KEELC 3091 (KLR)

Environment and Land Court
14 May 2018
KBK. BOR
2,207 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~9 min to read original · ~4 min brief

The bottom line

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The Environment and Land Court ruled that a bank that wasn't part of a property sale agreement can still demand full repayment before releasing a land title.

What this practically means

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Executive summary

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The Applicants, husband and wife, agreed on 23/9/2011 to sell L.R. No. 209/8029 (I.R. No. 26399) to the Interested Party for Kshs. 15,800,000. Clause 2.12 of the agreement authorised the purchaser to pay up to Kshs. 5.2 million to the Central Bank of Kenya to liquidate the Applicants' secured loan, entitling him to completion documents including the original title and discharge of charge. The Respondent bank paid Kshs. 4,163,075 to the Central Bank of Kenya on 20/11/2012 - funds drawn from the account of Aluia Omar Ahmed, the Interested Party's wife, who held overdraft and asset finance facilities of Kshs. 33 million with the Respondent secured, inter alia, by a legal charge over the Suit Property. When differences arose between the Respondent and the Interested Party, the sale agreement was rescinded and the Applicants sought release of the title documents from the Respondent, which demanded a full refund of Kshs. 4,163,075. The Applicants filed an Originating Summons seeking release of the documents, arguing the money paid belonged to the Interested Party and that they were entitled to retain Kshs. 1,580,000 under the forfeiture clause. The court framed three issues: whether the sale agreement bound all parties, whether a charge was created, and whether the Respondent was entitled to full repayment. Holding that the Respondent was not a party to the sale agreement and that the executed letter of offer created a charge complying with Section 79 of the Land Act, the court found the Respondent entitled to a full refund and dismissed the Originating Summons with costs to the Respondent.

Key legal issues

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01

Whether the Respondent is bound by the sale agreement between the Applicants and the Interested Party

Holding

The Respondent is not a party to the sale agreement and cannot be bound by its terms, including the forfeiture clause entitling the Applicants to retain Kshs. 1,580,000

Reasoning

The sale agreement was concluded solely between the Applicants (vendors) and the Interested Party (purchaser). The Respondent financed the balance of the purchase price but was not privy to the contract. Applying the privity principle, the Applicants could not invoke the agreement's forfeiture provisions against the Respondent or withhold part of the refund it claimed for money it paid to the Central Bank of Kenya.

p. 3
02

Whether an informal or formal charge was created in favour of the Respondent

Holding

The court found that the letter of offer executed by the Interested Party and Aluia Omar Ahmed created a formal charge complying with Section 79 of the Land Act, entitling the Respondent to security over the Suit Property

Reasoning

The Respondent produced a letter of offer dated 9/10/2012 granting Aluia Omar Ahmed overdraft and asset finance facilities of Kshs. 33 million. Annexure 2 listed a legal charge over L.R. No. 209/8029 for Kshs. 25 million, a deed of assignment of rental income and a personal guarantee. Both the Interested Party and Aluia signed the memorandum of acceptance, satisfying the writing requirement for a charge under Section 79 of the Land Act.

p. 3
03

Whether the Respondent should be paid the full sum of Kshs. 4,163,075

Holding

Yes - the Respondent was entitled to a full refund of the sum it paid to the Central Bank of Kenya before releasing the title and discharge of charge

Reasoning

The Respondent's Legal Officer testified that the payment was not purchase price but was made to secure release of the title and discharge of charge. The Applicants admitted the payment came from Aluia Omar Ahmed's account with the Respondent. Since the Respondent advanced the funds under its facilities and the Applicants would be unjustly enriched if allowed to retain part of the sum, full refund was ordered as a condition of release of the documents.

p. 2

Legal principles established

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  • A contract affects only the parties to it and cannot be enforced against a person who is not a party to it
  • A chargee who pays money to discharge a chargor's indebtedness to secure release of title documents is entitled to a full refund of that sum before releasing the documents

Court orders

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  1. 1.The Originating Summons is dismissed
  2. 2.Costs of the suit awarded to the Respondent

Authorities

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Legislation

  • Land ActSection 79
  • Land ActSection 2
  • Registration Titles Actnull

Cases cited (3)

  • Gatobu M'buutu Karatho v. Christopher Muriithi Kubai
    [2013] eKLR
  • Lincoln Kivuti Njeru v. Insurance Company of East Africa
    [2017] eKLR
  • Tassia Coffee Estate Limited and Another v. Milele Ventures Limited
    [2014] eKLR
Jurisdiction invoked
Environment and Land Court jurisdiction under the Land Act and Registration Titles Act (Originating Summons pursuant to those Acts)

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "David Kimemia Rufus & another v African Banking Corporation Ltd & another [2018] KEELC 3091 (KLR)", Case Analysis (2018). ELC. MISC SUIT NO. 30 OF 2016 (O.S.). Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2018/3091/eng@2018-05-14

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