CO-OPERATIVE BANK OF KENYA LTD v WASHINGTON OTIENO OGINDO [2012] KECA 179 (KLR)
The bottom line
#Kenya's Court of Appeal ruled that a bank extending a borrower's repayment time without telling the guarantor completely freed the guarantor from paying the debt.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the learned Judge of the High Court erred in deciding the appeal on an issue (discharge of the guarantor by variation/extension of time) that had not been pleaded in the plaint
- 2.Whether clause 7(iv) of the charge entitled the bank to extend time for the principal debtor without the respondent guarantor's consent, so that the guarantor was not discharged
Key legal issues
#Whether the High Court erred in determining the unpleaded issue of discharge of the guarantor
The appeal on the pleading grounds failed because the issue of extension of time and discharge had been raised in evidence and submissions before the Magistrate, formed a ground of appeal in the High Court, and no objection was taken at either stage.
Although the plaint did not expressly plead discharge by variation, paragraphs 3-5 pleaded the guarantee period and the alleged settlement of the loan; the respondent gave unchallenged evidence on the extension without consent; the memorandum of appeal in the High Court attacked the Magistrate's interpretation of the authorities on discharge; and no objection to departure from pleadings was raised below. Article 159(d) and sections 3A and 3B of the Appellate Jurisdiction Act reinforced the court's refusal to uphold the technical objection.
Whether clause 7(iv) of the charge permitted the bank to extend time for the principal debtor without the guarantor's consent
No. The extension of the repayment period from one year to two years was a radical variation of the contract directly affecting the guarantor's rights, made without his knowledge or consent, and it discharged him from the guarantee.
The guaranteed loan was Shs.150,000 with interest, but by the time the guarantor received default notice the loan had risen to over Shs.440,303.80 and the principal debtor had died. On the Halsbury principle, a binding agreement between creditor and principal debtor to give time discharges the surety if made without consent, whether or not he is prejudiced. The guarantor's understanding that indulgences could only be granted during the twelve-month validity of the charge was not unreasonable.
Legal principles established
#- Cases must be decided on the issues on the record; a court has no power to make an order outside the pleadings unless by consent.
- A binding agreement between creditor and principal debtor to give time, made without the surety's consent, discharges the surety whether or not he is prejudiced by it.
- An unpleaded issue that was agitated at trial without objection and pursued on appeal without objection is properly before the appellate court; parties cannot raise objections to departure from pleadings for the first time on second appeal.
Court orders
#- 1.Appeal dismissed
- 2.Costs of the appeal awarded to the respondent
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Kisumu
- H.C.C. Appeal No. 20 of 2004
- Jurisdiction invoked
- Second appeal to the Court of Appeal under its appellate jurisdiction; Article 159(d) of the Constitution and sections 3A and 3B of the Appellate Jurisdiction Act (Cap 9) invoked
Relief refused
#The appellant's plea that the respondent be held liable under the guarantee notwithstanding the extension of time to the principal debtor
The extension was a radical variation of the contract made without the guarantor's consent, discharging him; the court found no reason to interfere with the High Court judgment
Costs
The appeal was dismissed with costs to the respondent: "Accordingly, the appeal fails and we order that it be and is hereby dismissed with costs thereof to the respondent."
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
In all the circumstances of the appeal, we do not think there is anything which would warrant our interfering with the judgment of the High Court. Accordingly, the appeal fails and we order that it be and is hereby dismissed with costs thereof to the respondent.
Cases must be decided on the issues on the record. The court has no power to make an order, unless it is by consent, which is outside the pleadings.
when such a radical variation of the terms of the contract are being contemplated the guarantor ought to consent to them whether he is or is not prejudiced by them
the appellant and the principal debtor were, by their agreement of 1997 extending time, radically varying the agreement which directly affected the rights of the respondent
Issues in the judgment
#The judgment contains a garbled/duplicated passage when introducing the Halsbury's Laws quotation, including an apparently stray word 'Judge' and repeated phrase.
Internal inconsistency in the pleading dates: paragraph 3 of the plaint is quoted as pleading the guarantee period as between December, 1998 and January, 1996 (and later 'January, 1996 and December, 1998'), while the agreed period was February, 1996 to February, 1997; the plaint also describes the land title as charged 'as seventy (sic)'.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "CO-OPERATIVE BANK OF KENYA LTD v WASHINGTON OTIENO OGINDO [2012] KECA 179 (KLR)", Case Analysis (2012). Civil Appeal No. 22 of 2005. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2012/179/eng@2012-03-22
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.