Samuel Ngige Kiarie v Njowamu Construction Company Limited & another [2019] KECA 602 (KLR)
The bottom line
#Kenya's Court of Appeal ruled a buyer who doesn't pay the full purchase price loses the deal, even if late-payment penalties were accepted.
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 lack of payment of the full purchase price by 30th August 2007 terminated the contract and the effect of clause 3 thereof
- 2.Whether the appellant was entitled to vacant possession
- 3.Whether the respondents were entitled to an order of specific performance
- 4.Whether the appellant was entitled to damages
Key legal issues
#Effect of the penalty clause on termination of the sale agreement
Clause 3 was a penalty clause, not a saving clause; continued payment of penalties did not keep the agreement alive after default in payment of the purchase price.
The court construed clause 3 literally and in the context of clauses 5 and 9, which contemplated termination on default and refund less 10%. The parties' intention was that failure to pay the purchase price would lead to termination. Penalties are not part of the purchase price, so their payment cannot indefinitely preserve the agreement.
Whether time became of the essence despite no express stipulation
The six-month delay after the completion date was unreasonable, and the appellant's two notices made time of the essence, legally terminating the agreement.
Relying on Halbury's Laws of England and Njamuya v Nyaga as cited in Gekara v Nyachae, the court held that where time is not originally of the essence, notice by the non-defaulting party fixing a reasonable time for completion makes time of the essence. The 21-day and 30-day notices here satisfied that requirement.
Entitlement to specific performance
The respondents were not entitled to specific performance because they had not performed their obligations nor shown readiness and willingness to pay the purchase price.
The court endorsed Sisto Wambugu v Kamau Njuguna: a party seeking specific performance must have performed or been at all times ready and willing to perform. The respondents had failed to pay the balance even under court-ordered deposit timelines, showing they were not willing and able.
Constructive trust over the suit land
The learned judge erred in finding a constructive trust arose in favour of the respondents; Macharia Mwangi Maina v Davidson Mwangi Kagiri was distinguishable on its facts.
The judge had relied on the Macharia Mwangi Maina decision to found a constructive trust, but the Court found the facts there totally different, attracting different legal consequences, especially since the contract had been lawfully terminated.
Legal principles established
#- A penalty clause cannot be treated as a saving clause; non-payment of the full purchase price renders the agreement voidable and terminable at the instance of the innocent party.
- Where a contract does not make time of the essence, a party not in default may make time of the essence by notice fixing a reasonable time for completion; unreasonable delay plus such notice renders the contract terminable.
Court orders
#- 1.Appeal allowed
- 2.Judgment of the High Court (Environment and Land Court) set aside in its entirety
- 3.Caveat registered against the suit land lifted
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- Environment and Land Court of Kenya at Nairobi
- ELC No. 382 of 2008
- Jurisdiction invoked
- First appellate jurisdiction over appeals from the Environment and Land Court
Relief refused
#Respondents' claim to specific performance
Respondents had not performed their part of the bargain nor shown readiness and willingness to perform
Costs
The appellant shall have costs of this appeal and of the court below.
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.
It is our considered view that a penalty clause cannot be considered as a saving clause since the non-payment of the full purchase price as stipulated in a contract automatically renders the agreement immediately voidable and accordingly terminable at the instance of the innocent party.
It is safe to state that the said agreement was legally terminated after the lapse of the 21 days’ notice and therefore the appellant was entitled to vacant possession.
Ultimately this appeal succeeds. We set aside the judgment of the High Court in entirety. The caveat registered against the land is also hereby lifted. The appellant shall have costs of this appeal and of the court below.
Issues in the judgment
#The same 2012 authority is spelled inconsistently within the judgment as 'DAVIS MOSE GEKARA V HEZRON NYACHAE' (in respondent's submissions) and 'DAVID MOSES GEKARA V HEZRON NYACHAE' (in the court's own discussion), likely referring to one case.
The judgment records the learned judge as finding 'clause 2 served as a saving clause' although the clause under discussion is clause 3 (the penalty clause), an apparent internal slip in clause numbering.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Samuel Ngige Kiarie v Njowamu Construction Company Limited & another [2019] KECA 602 (KLR)", Case Analysis (2019). Civil Appeal No. 61 of 2016. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2019/602/eng@2019-06-21
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.