Commercial & Tax Division v Benard Machea Ngicuru & 2 others

guarantee for USD 37,500. He also offered his property, L. R. No. Tharaka/Ciakariga ‘A’/1542 in Tharaka Nithi County as security. 3. The 1st respondent claimed that he discovered that he was not privy to important information about the company’s accounts. He therefore issued a letter dated 23.5.2022 to the 2nd respondent communicating his intention to cease acting as a guarantor. However, this letter was disregarded. 4. The 1st respondent indicated that the appellant bank served the 2nd respondent with the statutory demand notice dated 8.3.2021 which was sent to him by the 2nd respondent. 5. The 1st respondent also indicated that the appellant bank sent a redemption notice dated 19.12.2022 giving him 45 days to pay the outstanding loan amount. 6. The 1st respondent stated that the 2nd respondent gave the appellant bank a repayment plan a fortnight before the scheduled auction. That the payment plan was accepted and monies paid. 7. The respondent’s claim was that despite the payment, the appellant bank proceeded with the 2

page 2 of 24

auction sale of his property on 17.3.2023. He contended that the sale was conducted in bad faith and that the bank did not comply with the threshold required for a statutory sale under the Land Act. 8. The appellant denied the 1st respondent’s entire claim. It stated that on 26.9.2018, the 1 st and 2nd respondent both executed a first legal charge securing USD 37,500/- and the same was registered in its favour. It stated that it was not privy to the letter of withdrawal allegedly issued by the 1st respondent to the 2nd respondent. 9. The appellant also stated that the 2nd respondent applied for USD 500,000 working capital for the company. That it issued the company with a letter of offer dated 3.9.2019 for a total loan facility of USD 200,000 which was signed by both the 1st and 2nd respondents. That the facility was also secured by a personal indemnity and guarantee by the 1st respondent and the legal charge of USD 37,500 over the 1st respondent’s property. 10. The appellant asserted that the 1st respondent was bound by the charge and the letters of offer that he signed. That he was aware that if they 3

page 3 of 24

defaulted in repaying the facility, the property could be sold through a public auction. 11. The appellant stated that it issued a 90-day statutory demand notice dated 5.3.2021 for USD 22,290.84 addressed to the company and copied to the plaintiff and the 1st defendant. That the 2nd defendant did not remedy the default and it was compelled to issue a 40-day notice to sell dated 18.10.2022 under section 96 of the Land Act to the 1st respondent copied to the company and the 2nd respondent for being in arrears of USD 52,749.57. That the 1st and 2nd respondents still did not comply, therefore it proceeded to exercise its statutory power of sale culminating in a public auction held on 17.3.2023. 12. After hearing the parties, the trial court through the impugned judgment issued a declaration that the appellant’s action of instructing the 3 rd respondent to carry out the auction of the 1 st respondent’s property was in breach of the charge. It awarded the 1st respondent Kshs. 15,000,000/- as damages. It also awarded the 1 st respondent the cost of the suit and interest in 4

page 4 of 24

both damages and costs from the judgment date until payment in full. 13. Aggrieved, the appellant instituted this appeal through a memorandum of appeal dated 12.3.2025, on the following grounds: (1)THAT the Learned Trial Magistrate erred in law and in fact by failing to find that the statutory notices together with the respective forms titled "Postal Corporation of Kenya list of Registered Postal packets, Registered and Ordinary Parcels" which listed the 1st Respondent's address for delivery of the notices, were prima facie proof that the 1st Respondent was served with the statutory notices, given that no evidence presented to the contrary. (2)THAT the Learned Trial Magistrate erred in law and in fact by failing to appreciate that postage certificates are not issued in cases of bulk mail and erroneously concluding that, in the absence of a postage certificate, there was no proof that the Appellant had posted the statutory notices to the 1 st Respondent, (3)THAT the Learned erred in law Trial and in Magistrate fact by misconstruing the terms of the Charge instrument dated 26 September 2018 between the Appellant and the 1st and 5

page 5 of 24

2nd Respondents, provided for which service of expressly notices by registered post, a method that does not necessitate the production of a certificate of postage as proof of dispatch. (4)THAT the Learned Trial Magistrate erred in law and in fact by failing to consider during the Plaintiff's testimony cross-examination admitted that he statutory notices where received issued he the by the Appellant. (5)THAT the learned Magistrate erred in law and in fact by imposing an excessive and high standard of proof upon the Appellant to prove service of the statutory notices, which was beyond the standard of a balance of probabilities required by law. (6)THAT the learned Magistrate erred in law and in fact by failing to find that the 1st Respondent did not discharge the evidential burden that shifted to him to rebut the evidence of service of statutory notices presented by the Appellant through the production of the relevant statutory notices and list of registered postal packets, which listed the 1st Respondent's post box address as the recipient of the notices, thereby arriving 6 at an erroneous

page 6 of 24

finding that the exercise of the Appellant's statutory power of sale was improper and auction was invalid. (7)THAT the Learned Trial Magistrate erred in law and in fact by considering the issue whether amounts secured by the charge executed by the Plaintiff were increased procedurally, a fact that was not pleaded, and disregarding the principle that parties are bound by their pleadings, thereby prejudicing the Appellant and occasioning great disadvantage and an unfair hearing to the Appellant. (8)THAT the Learned Trial Magistrate erred in law and in fact by disregarding the agreement between the Appellant and the 1st Respondent under the Letter of Offer dated 13 June 2018 and 3 September 2019 and the Charge dated 26 September 2018 in which the 1st Respondent agreed to register a charge over his property to secure two facilities advanced by the Appellant to the borrower. (9)THAT the Learned erred in law and Trial by Magistrate failing to appreciate the principle of continuing security and erroneously characterizing the additional through Letter facility of Offer advanced dated 3 September 2019 which was secured by 7

page 7 of 24

the 1st Respondent's property as a variation of charge. (10)THAT the Learned Trial Magistrate erred in law and fact by finding that the Appellant Respondent's infringed rights by the 1st failing to comply with section 84(2) and (5) of the Land Act on variation of charge, despite the issue neither being raised nor pleaded by the parties. (11)THAT the Learned Trial Magistrate erred in law and fact in failing to appreciate the principle of continuing security and Respondent holding was that the discharged 1st from liability once the initial arrears for the loan facility granted under Letter of Offer dated 13 June 2018 that was secured by the Charge as a continuing security was cleared. (12)THAT the Learned Trial Magistrate erred in law and fact in failing to appreciate the legal principle that general damages are not awarded in claims for breach of contract as pleaded by the 1st Respondent. (13)THAT the Learned Trial Magistrate erred in law and fact in awarding reliefs that were neither pleaded nor claimed for by awarding the 1st Respondent damages in the sum of Kshs. 15,000,000.00/=-. 8

page 8 of 24

(14)THAT the learned Magistrate erred in law and fact by failing to consider all the material facts placed before Court and thereby failed to take into account relevant matters that she ought to have considered and as a result arrived at a completely erroneous. Directions of the Court 14. The appeal was admitted to hearing and directions issued to the parties to put in their written submissions. 15. The appellant filed primary and supplementary written submissions dated 25.9.2025 and 13.2.2026, respectively. The 1st respondent filed written submissions dated 5.11.2025. Appellant’s submissions 16. The appellant submitted that its right to exercise its statutory power of sale had accrued due to the company’s default of its obligations under facilities 1 and 2. It also submitted that since the 1st respondent had guaranteed the debt, he was legally bound to meet the obligations under the guarantee. 17. The appellant further contended that it exercised its statutory power of sale in full compliance with 9

page 9 of 24

the law and in good faith, with no evidence of improper conduct or bad faith in the execution process. 18. On tacking and consolidation of debts, the appellant relied on Equip Agencies Limited v I & M Bank Limited (Civil Appeal 2 of 2017) [2017] KECA 313 (KLR) (27 September 2017) and Muthoni Viewline Party) v Capital Auctioneers (Commercial Sacco Limited Case Limited; (Interested E001 of 2024) [2024] KEHC 1062 (KLR) (6 February 2024) (Ruling) 19. The appellant relied on Magnate Ventures Limited v Alliance Media (K) Limited & Others [2015] eKLR on the object of pleadings; Stanley Kang’ethe Kinyanjui v Tony Ketter & 5 Others Electoral [2015] and eKLR and Boundaries Independent Commission & another v Mule & 3 others [2014] KECA on the principle that parties are bound by their pleadings; City Chemist (Nbi) & Anor v Oriental Commercial Bank Civil Application No. Nai 302 of 2008 on the essence of complying with established rules; Christopher 10

page 10 of 24

Orina Kenyariri t/a Kenyariri & Associates Advocates v Salama Beach Hotel Limited & 3 Others [2017] eKLR, Karin Anne Challis v The Hon. Attorney-General And 6 Others [2020] KEHC 692 (KLR) and Galaxy Paints Co. Ltd v Falcon Guards LTD [2000] 2 EA 385 that a court will not determine its decision on issues not pleaded. 20. To support the legality of the auction, the appellant relied on John P. O. Mutere & Another v Kenya Commercial Bank (HCCC No. 3125 of 1995) quoted with approval in Housing Finance Company of Kenya v Ngege Kitson Mondo [2006] eKLR and Andrew M. Wanjohi v Equity Building Society & Another [2006] eKLR. 21. The appellant relied on Obel Omuom v Kenya Commercial Bank Ltd to the effect that the burden of proof lies on the charge to establish service but the production of postage suffices to discharge the burden; Raila Amolo Odinga & Another v IEBC & 2 Others [2017] eKLR that evidential burden keeps shifting; Lemmy Kaburi Mbogori v Kenya Commercial Bank Limited 11

page 11 of 24

[2014] KEHC 3583 that the production of a Postal Corporation of Kenya List of Registered Postal Packets, Registered Ordinary Parcels is sufficient to shift the burden to the chargor. 22. The appellant relied on China Overseas Engineering Limited v Isaaq Kichwen Kijo [2019] KEHC 4810 (KLR) and Kenya Tourism Development Corporation v Sundowner Lodge Limited [2018] KECA 312 (KLR) to support the general rule that general damages are not awarded for breach of contract. 1st Respondent’s submissions 23. The 1st respondent relied on Ali & 2 others v Diamond Trust Bank (K) Limited & another (Civil Case 3 of 2018) [2022] KEHC 14202 (KLR) on the importance of service of mandatory notices upon guarantors. 24. The 1st respondent also relied on Harbert Ponyochi Kunyobo v National Housing Corporation & another [2019] eKLR, Solomon Omwega Omache & another v Zachary O Ayieko & 2 others [2016] KEELC 827 (KLR) and Musa Angira v ICDC Kisii HCCC ELC No. 217 of 2014 (unreported) on the mandatory 12

page 12 of 24

and statutory nature of notices under sections 90 and 96(3) of the Land Act. 25. The 1st respondent further relied on Nyagilo Ochieng & Another v Fanuel Ochieng & 2 Others Civil Appeal No. 148 of 1996 [19951998] 2 EA 260 where the court held that producing file copies of a statutory notice does not discharge the burden of proving actual postage. Analysis and Determination Duty of court 26. The court’s duty in a first appeal is to reevaluate the evidence and draw its own conclusions, bearing in mind that it did not see or hear the witnesses. Selle & Another v Associated Motor Boat Co. Limited & Others [1968] EA 123 27. From the 14 grounds of appeal, the issues for determination are: (1)Whether the additional facilities and consolidation of accounts constituted a variation of the charge (Grounds 7-11) 13

page 13 of 24

(2)Whether the statutory notices issued by the appellant were valid and properly served (Grounds 1-6) (3)Whether the trial court erred by awarding general damages for breach of contract. (Grounds 12-13) 28. The appellant challenged the trial court's findings on variation of charge at grounds 7-11 of the memorandum of appeal. 29. The appellant's primary contention here is that the trial court failed to appreciate the principle of continuing security which is distinct from a variation of charge. 30. From the impugned judgment, the issue framed by trial court in this regard was whether the amounts secured by the charge executed were increased procedurally. 31. The trial court found that the appellant infringed the guarantor’s rights for failure to comply with sections 84 (2) and (5) of the Land Act by not specifically (by memorandum) increasing the amount secured by the charge. It reasoned that the there was to be no variation of the charge unless the variation was made in writing and 14

page 14 of 24

executed by the parties in accordance with the Land Act. It also reasoned that contractual provisions cannot oust the statutory provisions. Variation, tacking and consolidation 32. Variation of the charge entails a variation of the terms of the charge for instance by varying the amount secured by the charge. Section 84 of the Land Act governs the variation of the interest rate payable under a charge. 33. On the other hand, under the principle of continuing security, the charge is not limited to a single loan, it also secures future or further advances, including fluctuating balances. There is no need to create a new charge for each additional facility and additional advances are automatically secured. This is called tacking. It is governed by section 82 of the Land Act. 34. The chargor remains liable until full repayment and formal discharge of charge. 35. Tacking is distinct from consolidation of charges provided for under section 83 of the Land Act. Under consolidation of charges, the bank or chargee may combine charges where a chargor 15

page 15 of 24

has more than one charge with it. Section 83 provides that the chargor may discharge any of the charges without having to redeem all charges unless there is an express provision to the contrary clearly set out in the charge. A chargee who has made a provision for consolidation shall record the right in the register against all consolidated charges. 36. Clause 14 of the Charge provided that section 83 of the Land Act (restricting the right of consolidation) would not apply to the Charge. Consolidation of accounts 37. The consolidation of accounts is also distinct from tacking and consolidation of charges. It entails the combining of different loan facilities under different accounts. 38. Clause 31 of the charge provided that the Bank may at any time without notice or demand, and notwithstanding any settlement of account or other matter, whatsoever, combine or consolidate all or any then existing accounts in the name of the Chargor and/or the Borrower alone or jointly with others wherever situate. A similar provision 16

page 16 of 24

was reflected at Clause 16 of the Letter of Offer for Facility 2. 39. In the circumstances of this case, there were additional facilities granted by way of a letter of offer dated 3.9.2019. It was signed by the 1 st respondent who accepted the terms that the additional facility would be secured by his personal indemnity and guarantee and the charge over his property for USD 37,500. 40. The circumstances were that the same charge would secure additional facilities. These additional facilities were issued through different accounts indicated in the notice to sell dated 18.10.2022. 41. Clause 9 (c) of the Letter of Offer for Facility 1 provided that the bank shall have the right to combine accounts and consolidate all securities to constitute security for all accounts and consolidate all securities to constitute security for all accounts of the company so held. 42. Under Clause 5.1 of the Charge the 1st respondent agreed to charge the property as a continuing security for the payment to the bank of the debt owed under clause 4 or so much thereof as shall from time to time be due and owing to the 17

page 17 of 24

Bank and discharge in full of all money obligations. 43. Under clause 6 of the Letter of Offer for Facility 2 dated 3.9.2019 it was provided that the indemnity, guarantee and charge issued by the 1st respondent would continue to secure Facility 2 until the facilities are cleared. 44. The trial court appreciated the above and found that the appellant was entitled to combine accounts, and securities, to constitute securities for all accounts held. 45. Consolidation of accounts by the appellant did not amount to a variation of the charge within the meaning of section 84 of the Land Act. 46. Moreover, having read the plaint, I am inclined to agree with the appellant that the issue of variation of the charge was not pleaded by the 1 st respondent. 47. Therefore, in my considered view, the trial court erred by considering the question of whether the amounts secured by the charge were increased procedurally. Grounds 7-11 all prevail. Validity of the statutory notices 18

page 18 of 24

48. The appellant challenged the trial court's findings on the statutory notices on various fronts. These are captured at grounds 1-6 of the memorandum of appeal. 49. I have considered the plaint and the 1st respondent's witness statement. I note that the 1st respondent admitted that he received the statutory notices issued by the appellant. 50. As noted by the court in the Nyangilo case [supra], unless the receipt of statutory notice is admitted, posting thereof must be proved. 51. Since the 1st respondent admitted receipt of the statutory notices, the posting was not an issue for determination by the trial court. Grounds 1, 2, 3, 5 and 6 are therefore rendered moot. 52. Therefore, I find that the trial court erred in failing to consider the 1st respondent's admission that he received the statutory notices. Ground 4 succeeds. 53. The respondent contended that following the issuance of the 90-day statutory demand, there were repayments made by the borrower and that the appellant’s statutory right of sale did not crystalize. 19

page 19 of 24

54. The 1st respondent contended that the appellant’s notice to sell and the auctioneer’s notice were not properly anchored on the 90-day statutory demand notice as they were premised on different accounts. 55. The 1st respondent contended that the appellant ought to have issued another 90-day statutory demand notice prior to issuing the subsequent notice to sell. 56. The 90-day demand notice dated 5.3.2021 was in respect of a demand for payment of arrears of USD 22,290.84 on account number 1770580282166. 57. The 40-day notice to sell dated 18.10.2022 was in respect of total arrears of USD 52,749.57 on account numbers 1770582242878 and 1770582312705. 58. The 1st respondent admitted that debt was outstanding as there were additional facilities granted to the borrower through different accounts. As per earlier findings, the consolidation of accounts or debts was provided for under the charge and terms of the Letter of Offer for Facility 2. 20

page 20 of 24

59. Ordinarily, the bank would not have to re-issue 90-day statutory notice of sale where the borrower made partial payments after the demand was issued but the debt was still outstanding. 60. However, in the circumstances, it is my view, the appellant ought to have issued a fresh 90-day statutory notice in respect of the consolidated debt that formed the basis of the sale of the charged property showing the two different accounts featured in the 40-day demand notice. The 40-day notice to sell and the auctioneer’s notice were not properly anchored on the earlier notice of 5.3.2021. 61. Hence, I uphold the trial court’s finding that the exercise of the statutory power of sale was not in compliance with the law. 62. But I must correct a misconceived notion that, where a sale is invalidated for reason other than full repayment of the loan, the bank cannot exercise its power of sale. The bank retains its right and remedy to exercise statutory power of sale upon due adherence with the requirements 21

page 21 of 24

under the charge, the land laws and Auctioneers Act. Whether the trial court erred by awarding general damages for breach of contract. (Grounds 12-13) 63. The 1st respondent sought general damages for breach of contract. The trial court awarded him general damages of Kshs. 15,000,000 for the unlawful exercise of statutory power of sale which culminated to the sale of his land. 64. As a general rule, general damages are not awarded for breach of contract. Dharamshi v Karsan [1974] EA 41 65. However, ‘where there has been some loss arising from such breach, then damages may be awarded so as to put the claimant in a good position as if there had been no such loss, when the conduct of the respondent is shown to be oppressive, high handed, outrageous, insolent or vindictive’ may lead the Court to award general damages. Caltex Oil Total (Kenya) Limited Formally (Kenya) Limited Limited [2015] KECA 822 (KLR) 22 v Janevams

page 22 of 24

66. The court awards special damages for breach of contract as are meant to compensate the claimant for the loss suffered due to the other party’s breach. The damages are quantifiable, not at large. 67. The 1st respondent did not seek special damages. The nature of the breach of contract by the appellant was procedural due to the failure to issue the 90-day statutory notice of sale. There was no question of validity of the loan facilities nor that the debts were disputed. 68. The 1st respondent was the borrower’s guarantor, and he provided a personal indemnity and guarantee and his property as security for the facilities. 69. The plaintiff did not establish the exceptions highlighted above. Thus, I find that the trial court erred by awarding Kshs. 15,000,000 in general damages for breach of contract. Disposition 70. In conclusion, I find merit in the appeal on the issue of variation of charge and the principle of continuing security. 23

page 23 of 24

71. The finding that the charge was improperly varied is set aside, but the conclusion that the sale was unlawful is upheld on the ground of noncompliance with the statutory notice requirements. 72. The award of Kshs. 15,000,000 in general damages for breach of contract is set aside. 73. The upshot is that the appeal is partially successful. 74. For this reason, each party to bear its costs. Dated, signed and delivered at Nairobi through Microsoft Teams online application this 30th day of April, 2026 ------------F. Gikonyo M Judge In the presence of: Mwangi for Appellant Kyulu for 1st Respondent CA – Ivan/Aggrey 24

page 24 of 24