Kolile v Equity Bank (K) Ltd & another (Land Case 615 of 2013) [2022] KEELC 3785 (KLR)
The bottom line
#A Kenyan court stopped a bank from selling a guarantor's land because it demanded the wrong amount, but the guarantor still owes the properly calculated sum.
What this practically means
#Executive summary
#Key legal issues
#Whether part payment by the principal debtor in excess of the guaranteed sum discharges the guarantor
No; the guarantor remains liable so long as any sum is outstanding from the principal debtor
The court construed the letter of guarantee and indemnity independently of the loan agreement. The guarantee secures the chargee against losses arising on default, capped at the guaranteed sum plus prorated interest and charges. Whether the borrower has paid an amount equal to or exceeding the guarantee is immaterial; the test is whether debt remains outstanding.
Whether the chargee could demand the entire outstanding loan from the guarantor
No; the chargee must prorate the extra liabilities against the guaranteed sum and demand only the computed sum
Since a limit was placed on the guaranteed sum, a corresponding limit must apply to interest, fees, commissions, charges and expenses, prorated on the outstanding sum against the guaranteed sum by expert computations. Demands for the entire lumped indebtedness, including obligations outside the transaction, were held wrong and unlawful by the bank's own credit manager's admission.
Validity of the notices and processes used to realise the security
The prior notices and processes were defective and null and void because they demanded the entire outstanding sum instead of the prorated sum
The default began in June 2008 but the first notice went to the guarantor only in February 2009 claiming sums that appeared inflated; DW1 admitted unrelated obligations were lumped together unlawfully. The court found the approach lacked bona fides and the notices required correction before any exercise of the statutory power of sale.
Legal principles established
#- A letter of guarantee and indemnity is a contract separate from the loan agreement between the chargee and the principal debtor, and must be construed independently
- Repayment by the principal debtor of a sum equivalent to or in excess of the guaranteed sum does not extinguish the guarantor's liability; what matters is whether any sum remains outstanding from the principal debtor
- Where the guaranteed sum is limited, the chargee must prorate interest, fees, charges and expenses against the guaranteed sum and may only demand that computed sum from the guarantor, not the borrower's entire indebtedness
- A chargee need not exhaust remedies against the borrower or the borrower's securities before pursuing the chargor/guarantor
Court orders
#- 1.All previous notices issued by the 1st defendant to facilitate the exercise of its statutory power of sale declared illegal, null and void and quashed
- 2.The 1st defendant to compute within 3 months the appropriate amount due from the plaintiff under the letter of guarantee dated 19/9/2006, prorating interest, fees, commissions, charges, costs and expenses against the guaranteed sum based on total indebtedness at the date of the first notice
- 3.The 1st defendant shall not exercise or attempt to exercise its statutory power of sale in the first 3 months after judgment, and thereafter not unless the proper amount has been computed and demanded as ordered
- 4.The plaintiff to pay the new sum so calculated and formally demanded, upon which his title LR Nakuru Municipality Block 21/66 shall be discharged
- 5.Costs of the litigation to be borne by the 1st and 2nd defendants
- Jurisdiction invoked
- Original jurisdiction of the Environment and Land Court over a charge over land (suit transferred from the High Court; land parcel LR Nakuru Municipality Block 21/66)
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Kolile v Equity Bank (K) Ltd & another (Land Case 615 of 2013) [2022] KEELC 3785 (KLR)", Case Analysis (2022). null (original High Court suit transferred to this court; number not stated in judgment). Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2022/3785/eng@2022-06-29
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.