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Court of AppealPartially AllowedCivil Appeal No. 233 of 2003

George Muriaini Muhoro t/a A.M. Muhoro Advocate v George Ndungu Kamiti [2011] KECA 315 (KLR)

Court of Appeal of Kenya
25 March 2011
Philip Kiptoo TunoiP. K. TunoiEGE. M. GithinjiDAD. K. S. Aganyanya
1,240 words in judgment
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The bottom line

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Kenya's Court of Appeal ruled you cannot sue a stakeholder holding a deposit to get it back — the fight must be with the party you contracted with.

What this practically means

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Executive summary

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The respondent purchaser contracted on 3rd March 2000 to buy 5 acres of L.R. Makuyu/Kimorori/1597 from Ngimu Farm Limited for Kshs.900,000, paying 10% (Kshs.90,000) to the appellant, the vendor's advocate, as stakeholder under the agreement. The sale failed allegedly because the vendor did not obtain Land Control Board consent and did not release title documents. The respondent sued the appellant alone in an originating summons seeking refund of the deposit with interest from 18th February 2000. Mbaluto, J. granted the orders sought on 19th December 2002, and the appellant appealed on six grounds, principal among them that he was not a party to the agreement. Both counsel before the Court of Appeal agreed the appellant was not a party to the agreement and was only the vendor's advocate. Allowing the appeal, the Court held that a stakeholder holds money claimed by rival claimants in which he himself claims no interest, and owes a duty to deliver the money once the right to possession or ownership is established by judgment or agreement between the competing parties. The deposit was not forfeitable to the vendor since the default was the vendor's, but entitlement lay between purchaser and vendor, not against the stakeholder. The Court set aside the superior court's order, directed that any amount recovered be refunded to the appellant except that the Kshs.90,000 remain held by him pending resolution of the dispute between the respondent and the vendor, and awarded the appellant costs of the appeal and the suit.

Questions the Court framed

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The issues the Court set itself to decide, in its own words.

  1. 1.Whether an advocate holding a deposit as stakeholder, who was not a party to the sale agreement, could be sued by the purchaser for refund of the deposit
  2. 2.Whether the High Court judge erred in ordering the stakeholder to refund Kshs.90,000 with interest and costs

Key legal issues

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01

Liability of a stakeholder who is not a party to the sale agreement

Holding

The appeal was allowed because the respondent had no cause of action against the appellant, who was a mere stakeholder and not privy to the contract between vendor and purchaser.

Reasoning

The appellant, the vendor's advocate, held Kshs.90,000 as stakeholder by agreement of both parties. Both counsel accepted he was not a party to the agreement. Special condition 2 provided forfeiture only on default by the purchaser; the alleged default here was the vendor's failure to obtain Land Control Board consent and release title documents. The deposit should have been resolved between purchaser and vendor, and the stakeholder's duty was to deliver the money once rights were established between the competing claimants, not to answer a direct claim by one of them.

p. 3
02

Effect of the vendor's default on the deposit under the agreement's special conditions

Holding

Since the default was the vendor's (failure to obtain Land Control Board consent and release title), the deposit was not forfeitable and was refundable to the purchaser, but the resolution of entitlement lay between purchaser and vendor.

Reasoning

Special condition 2 provided for forfeiture of the down-payment to the vendor only in the event of default by the respondent; nothing was said about default by the vendor. The alleged default was the vendor's failure to obtain Land Control Board consent for agricultural land and to release title documents. The court found that the dispute between purchaser and vendor had not been determined, so the deposit should remain held pending that resolution.

p. 2

Legal principles established

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  • A stakeholder who is not a party to the underlying contract cannot be sued by one of the rival claimants for refund of the stake; his duty is to deliver the money to the person whose right is established by judgment or agreement between the competing parties.
  • Where the vendor defaults, a deposit held by a stakeholder is not forfeitable under a default clause directed at the purchaser's default but is refundable to the purchaser under the agreement's refund condition.

Court orders

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  1. 1.Appeal allowed and the superior court's order set aside
  2. 2.The decretal amount recovered by the respondent to be refunded to the appellant
  3. 3.The sum of Kshs.90,000 to be held by the appellant pending resolution of the dispute between the respondent and Ngimu Farm Limited, the vendor
  4. 4.The appellant to have the costs of this appeal and of the suit in the superior court

The bench

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One judgment of the whole court — no separate or dissenting opinions.

Philip Kiptoo Tunoi
majority

Wrote the judgment

EG
majority

Wrote the judgment

DA
majority

Wrote the judgment

On appeal from
High Court of Kenya at Nairobi, Milimani
H.C.C.C. No. 1957
Jurisdiction invoked
First appeal to the Court of Appeal from the High Court (Constitution and Court of Appeal appellate jurisdiction)

Relief refused

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Retention of the refund order with interest against the appellant as stakeholder

The appellant was not a party to the sale agreement and had no cause of action against him

p. 3

Costs

The appellant shall have the costs of this appeal and of the suit in the superior court.

Quotable passages

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Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.

A stakeholder is a person with whom money is deposited pending the decision of a bet or a wager or one who holds money or property which is claimed by rival claimants but in which he himself claims no interest.
p. 2Definition of a stakeholder
However, a stakeholder has a duty to deliver the money or property to the owner or owners once the right to legal possession or ownership has been established by judgment or by an agreement between competing parties.
p. 2Duty of a stakeholder
In the circumstances of this appeal, it is our view that the respondent had no cause of action against the appellant and the learned Judge fell into an error in awarding the respondent the amount sought in the originating summons with costs and interest.
p. 3No cause of action against stakeholder not party to contract
We allow this appeal and set aside the superior court's order. He was not privy to the contract between the vendor and purchaser.
p. 3Disposition setting aside the judgment below
We order the amount so recovered to be refunded to the appellant except that the amount of Kshs.90,000/= shall be held by the appellant pending the resolution of the dispute between the respondent and Ngimu Farm Limited, the vendor.
p. 3Final orders - restitution and retention of deposit as stakeholder

Issues in the judgment

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minor

The judgment inconsistently refers to the suit land as L.R. Makuyu/Kimorori/1597 in the originating summons and L.R. Makuyu/Kimorori/Block 1/1597 in ground one of appeal

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (3)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "George Muriaini Muhoro t/a A.M. Muhoro Advocate v George Ndungu Kamiti [2011] KECA 315 (KLR)", Case Analysis (2011). Civil Appeal No. 233 of 2003. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2011/315/eng@2011-03-25

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