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ELCPartially AllowedMeru ELC Case (not stated in judgment; Suit instituted 1.9.2016)· [2020] KEELC 120 (KLR)

Karwithia Sella Isaac & another v Family Debtors Choice Agencies Ltd & another [2020] KEELC 120 (KLR)

Environment and Land Court
18 November 2020
LMLucy N. Mbugua
3,756 words in judgment
View original judgmentRead on Kenya Law Watch case
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·~15 min to read original · ~4 min brief

The bottom line

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A Meru court cancelled land titles a lender obtained through fraudulent, undocumented transfers, returning two properties to the borrowers who had repaid their loans.

What this practically means

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Executive summary

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The plaintiffs sued the 1st defendant (formerly Family Debtors Choice Agencies Ltd, later Small Holders Enterprises Empowerment (K) Limited) seeking cancellation of title deeds to three parcels transferred into the 1st defendant's name. Each plaintiff had taken a small loan (Kshs. 100,000 and 30,000) from the 1st defendant in 2009/2010, offering their titles as security. They repaid but their titles were never released; instead the 1st defendant transferred the parcels to itself and later charged two of them to the 2nd defendant to secure a Kshs. 13 million loan. The 2nd defendant filed no pleadings or evidence, later withdrawing its consolidation application and closing its case without calling evidence. The court framed two issues: whether the transfers were fraudulent and whether the plaintiffs warranted the orders sought. Applying sections 26, 37 and 80 of the Land Registration Act, the court found the transfer forms undated, uncertified and in one case blank; no Land Control Board consent was proved; no date of default was ever communicated; the 1st defendant collected Kshs. 174,000 from the 1st plaintiff after already transferring her land; and the properties were never valued. These constituted fraud and procedural abuse, stripping the 1st defendant's titles of indefeasibility. The court allowed the plaintiffs' claim in respect of Nyaki/Kithoka/2616 and Kibirichia/Kibirichia/2909, ordering cancellation of the titles and reversion to the plaintiffs, but excluded Nyambene/Mbeu/111/622 for want of evidence. It declined to entertain accounts and interest as a commercial dispute outside its jurisdiction, discharged inhibitions, and awarded the plaintiffs costs with interest from the date of judgment. Judgment delivered at Meru on 18th November 2020 by Lucy N. Mbugua, ELC Judge, electronically pursuant to COVID-19 practice directions.

Key legal issues

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01

Whether the transfer of the suit parcels to the 1st defendant was fraudulent

Holding

The transfers were fraudulent: the transfer forms were undated, uncertified and incomplete, no Land Control Board consent was proved, no default date was communicated, and the 1st defendant continued receiving payments after transfer

Reasoning

The transfer forms bore no dates and lacked certification; the 2nd plaintiff's form was blank. No plausible explanation existed for the 1st defendant holding unduly executed forms. No Land Control Board consent or application was availed. The point of default was never indicated, and the 1st defendant received Kshs. 174,000 from the 1st plaintiff after already transferring her land to itself, conduct the court found illegal, un-procedural and fraudulent.

p. 4
02

Whether the titles acquired by the 1st defendant can be challenged under section 26 of the Land Registration Act

Holding

Yes - the titles were acquired through fraud and procedural abuse and are liable to cancellation, with rectification of the register under section 80

Reasoning

Although section 26 confers prima facie and indefeasible title, that protection is lost where the title is acquired through fraud, misrepresentation, illegality or procedural abuse. Having found fraud, misrepresentation and concealment by the 1st defendant, the court held this a proper case for the titles to revert to the plaintiffs. The court declined to entertain accounts and interest as a commercial matter outside ELC jurisdiction.

p. 4
03

Whether the failure to value the properties before transfer vitiated the transaction

Holding

The failure to value the suit properties was further evidence of the 1st defendant's unscrupulous conduct

Reasoning

Citing Kings Group of Schools Limited v Kenya Women Microfinance Bank Limited, the court noted valuation under section 97(2) of the Land Act protects the chargor's right to property and ensures a reasonable price. Dw1 admitted the properties were never valued, and the court found this undermined the legitimacy of the balance computation and the transfer process generally.

p. 4

Legal principles established

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  • A title can only be challenged under section 26 of the Land Registration Act on grounds of fraud, misrepresentation, or where acquired illegally, unprocedurally or through a corrupt scheme.
  • Courts may interfere with or refuse to enforce contracts which are unconscionable, unfair or oppressive due to procedural abuse during formation.
  • Where a registration was obtained by fraud or mistake, the court may order rectification of the register under section 80 of the Land Registration Act.

Court orders

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  1. 1.A declaration that the title deeds to NYAKI/KITHOKA/2616 and KIBIRICHIA/KIBIRICHIA/2909 registered in the name of the 1st Defendant be cancelled immediately and revert to the 1st and 2nd plaintiffs respectively
  2. 2.The Deputy Registrar of the court authorized to sign all requisite documents to give effect to the judgment
  3. 3.Any orders of inhibition issued during the subsistence of the suit discharged
  4. 4.The 1st defendant condemned to pay costs of the suit to the plaintiffs with interest at court's rate from the date of delivery of judgment

Authorities

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Legislation

  • Land Registration ActSections 26, 37, 80
  • Law of Contract ActSection 3
  • Land ActSection 97(2)
  • Constitution of KenyaArticle 162(2)(b)
  • Environment and Land Court ActSection 13
  • Microfinance Actnot specified
  • Civil Procedure RulesOrder 21 rule 1

Cases cited (12)

  • Elijah Makeri Nyangwara vs Stephen Mwangi Njuguna & Anor
    Eldoret Case No. 609B of 2012
  • Arthi Highway Development ltd vs West End Butchery Limited & 6 Others
    (2015) eKLR
  • Kiboro Wagoro Makumi vs Francis Nduati Macharia & Anor
    (2018) eKLR
  • Alice Chemutai Too v Nickson KipKirui Korir & 2 Others
    [2015] eKLR
  • Rufale vs Umon Manufacturing Co. (Ramsboltom)
    (1918) L.R.1Kb 592
  • William Muthee Muthami vs Bank of Baroda
    (2014) eKLR
  • Kinyanjui Kamau vs George Kamau
    (2015) eKLR
  • Vijay Morjaria vs Nansingh Darbar & Anor
    [2000] eKLR
  • Margaret Njeri Muiruri -V- Bank of Baroda (Kenya) Limited
    (2014) eKLR
  • National Bank of Kenya Ltd vs Pipeplastic Sankolit (K) Ltd
    Civil Appeal No. 95 of 1999
  • Kings Group of Schools Limited & another v Kenya Women Microfinance Bank Limited
    [2018] eKLR
  • Danson Muriuki Kihara v Johnson Kabungo
    [2017] eKLR
Jurisdiction invoked
Article 162(2)(b) of the Constitution and Section 13 of the Environment and Land Court Act

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, "Karwithia Sella Isaac & another v Family Debtors Choice Agencies Ltd & another [2020] KEELC 120 (KLR)", Case Analysis (2020). Meru ELC Case (not stated in judgment; Suit instituted 1.9.2016). Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2020/120/eng@2020-11-18

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