Esther Cherop Chebelyo & another v Oriental Commercial Bank Ltd & 3 others [2021] KEELC 1724 (KLR)
The bottom line
#A Kenyan court cancelled a family land auction because the bank couldn't prove it served proper statutory notices before selling.
What this practically means
#Executive summary
#Key legal issues
#Whether spousal consent was required for the charge registered in 2010/2011
No spousal consent was required because the applicable law was the repealed Registered Land Act; the Land Act 2012 and Land Registration Act 2012 provisions requiring spousal consent have no retrospective application.
The charge was registered on 20/12/2010 and the further charge on 3/6/2011, both before the Matrimonial Property Act, Land Act and Land Registration Act 2012 came into force. Section 107(1) of the Land Registration Act preserves the law governing rights accrued before commencement. The court adopted the reasoning in Barclays Bank of Kenya v AG and Stella Mokeira Matara that charges taken before the 2012 legislation cannot be invalidated for want of spousal consent. Although the land was a matrimonial home, consent was not legally requisite.
Whether the statutory notices and notification of sale were properly served
The chargee failed to prove service of the statutory notice on the chargor and borrower, and the auctioneer failed to prove service of a fresh notification of sale; the 45-day notice period could not have elapsed between termination of the earlier suit on 10/3/2015 and the sale on 10/4/2015.
Only the notice dated 24/9/2013 was produced, with no proof of posting or service, and service cannot be presumed. The auctioneer relied on a notice issued more than a year before fresh instructions, which the court held was no longer valid. Under Section 74 RLA, Section 96(2) Land Act and Rule 15 of the Auctioneers Rules, the chargee bears the burden of proving service. The defects vitiated the realization of the security.
Whether fraud was established against the defendants
Fraud and collusion involving the 1st, 3rd and 4th defendants was established on a balance of probabilities, given the absence of statutory notices, absence of a reserve price, and unexplained circumstances of the sale.
Taken holistically: no statutory notices were proved, no notification of sale was issued by the auctioneer, no reserve price was set for the suit property although reserve prices were set for other properties in the same auction, the purchaser obtained finance remotely in Nairobi on the auction day, and no proof of payment of the balance of the purchase price was provided. The court drew an adverse presumption from the defendants' failure to avail evidence of the alleged drastic valuation changes. Fraud disentitled the purchaser from Section 99 protection.
Whether the 3rd defendant was a bona fide purchaser for value without notice
The 3rd defendant was not a bona fide purchaser for value without notice because the chargee had no valid title to pass, the statutory power of sale had not accrued, and fraud was proved.
A bona fide purchaser must hold a valid title, purchase in good faith, and be without notice of or party to fraud. Although the 3rd defendant obtained a certificate of title, the vendor chargee's statutory power of sale had not validly accrued and the plaintiffs proved irregularities and fraud. The auctioneer's mistaken belief that a year-old notice remained valid was not corrected by the chargee's advocates. The purchaser therefore fell outside the protection of Section 99 of the Land Act.
Whether variation of interest by the chargee was valid
The charge clauses permitted the bank to vary interest at its sole discretion without prior notification, and the court cannot rewrite the contract between the parties.
Clause 2 of the charge dated 20/12/2010 and the further charge dated 3/6/2011 expressly allowed the bank to vary interest on secured accounts at its sole discretion without prior notice to the chargor. The authorities cited by the plaintiffs (Ichatha v Housing Finance; Spares & Services v TransNational Bank) support the position that courts will not rewrite parties' contracts. The claim that notice of variation was required therefore lacked merit.
Legal principles established
#- Once a chargor alleges non-receipt of the statutory notice, the burden lies on the chargee to prove that the notice was in fact served.
- Charges created before the commencement of the Land Registration Act 2012 are governed by the repealed Registered Land Act, under which spousal consent to charging was not required.
- A fresh notification of sale must issue upon receipt of a fresh letter of instructions to sell; a stale 45-day notice issued over a year earlier cannot be relied upon.
- Section 99 of the Land Act protection does not avail a purchaser who is party to fraud in the exercise of the statutory power of sale.
Court orders
#- 1.The plaintiffs' claim in the amended plaint dated 14/8/2018 and the 2nd plaintiff's claim in the counterclaim dated 2/10/2017 are allowed
- 2.The 3rd defendant's claim in the plaint dated 19/10/2016 is dismissed
- 3.A declaration that the 1st defendant and 3rd defendant in collusion with the 4th defendant acted illegally, unlawfully and fraudulently in disposing of the suit land since no accrued statutory power of sale had accrued
- 4.A declaration that the transfer to the 3rd defendant is void and of no effect; the transfer is cancelled and the title shall revert to the name of the 2nd plaintiff
- 5.The defendants shall bear the costs of the suit and the counterclaim
- Jurisdiction invoked
- Original jurisdiction of the Environment and Land Court under Article 162(2) of the Constitution (not expressly cited in the judgment)
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Esther Cherop Chebelyo & another v Oriental Commercial Bank Ltd & 3 others [2021] KEELC 1724 (KLR)", Case Analysis (2021). ELC 70 of 2016 (Consolidated with ELC 151 of 2016). Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2021/1724/eng@2021-09-30
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.