Consolidated Bank of Kenya Ltd & another v Chebon (Civil Appeal E120 of 2021) [2026] KECA 1197 (KLR)
The bottom line
#Kenya's Court of Appeal ruled that a guarantor stays liable when a bank restructures a loan if the guarantee contract allowed such changes.
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 restructuring of the loan facility (splitting and conversion of overdraft to term loan) amounted to a variation discharging the guarantor
- 2.Whether the requisite statutory notices under the Land Act were served on the borrower and guarantors
- 3.Whether the 1st appellant could exercise its statutory power of sale
Key legal issues
#Whether restructuring/splitting of the loan discharged the guarantee
No — the charge and deed of guarantee expressly contemplated consolidation, splitting, variation and granting of indulgence, so the restructuring did not discharge the guarantor.
The Court examined clause 10.3 of the Charge permitting the bank to consolidate, split, determine or vary credit, clause 10.51 granting authority to use the charge as security for further facilities, and clause 4 of the Deed of Guarantee allowing the lender to grant time or indulgence without the guarantor's consent, with clause 4.6 preserving liability. Since the variations were contractually contemplated, the guarantor could not be discharged. The trial court's contrary finding rewrote the contract, an error of law. Reliance was placed on Paramount Bank v First National Bank where conversion of an overdraft into a term loan contemplated in the guarantee was held unsustainable as a ground of challenge.
Whether the trial court erred in discharging the guarantor and nullifying the statutory power of sale
Yes — the discharge finding and the declaration that the statutory power of sale was a nullity were erroneous and were set aside in their entirety.
Having found the variation was contemplated in the contract, the Court held the trial court's conclusion that the guarantee was discharged and that the statutory power of sale had not crystallized was erroneous. The Court also reviewed the record and confirmed that all statutory notices were served on the principal borrower and guarantors, and that a valuation of the property was done. The appeal was therefore allowed, the High Court judgment set aside, the suit dismissed, and the bank given liberty to exercise its statutory power of sale.
Service of statutory notices under the Land Act
All requisite statutory notices were served on the principal borrower and guarantors, and a valuation of the property was done.
The Court reviewed the record, including the testimony of DW1 Bernard Javan Oliko that the statutory notice was served on the address used in the charge and guarantee, and confirmed service on the borrower and guarantors. This reversed the trial judge's finding that there was no indication the section 96 notice was issued or served, restoring the bank's ability to exercise its statutory power of sale.
Legal principles established
#- A court cannot rewrite a contract between parties; they are bound by its terms absent pleaded and proved coercion, fraud or undue influence
- Where a guarantee contract expressly contemplates variation, splitting or granting of indulgence to the debtor, the guarantor cannot claim discharge on account of such restructuring
Court orders
#- 1.The judgment delivered on 29th June 2020 is set aside in its entirety
- 2.The suit in the trial court is dismissed with costs to the appellant
- 3.The appellant is at liberty to exercise its statutory power of sale
- 4.The costs of the appeal shall be borne by the respondent
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court at Eldoret (transferred from Environment and Land Court)
- Civil Case No. 62 of 2018 (originally ELC No. 251 of 2024/2015, Eldoret)
- Jurisdiction invoked
- First appellate jurisdiction of the Court of Appeal (appeal as of right against High Court judgment; specific provision not stated in extract)
Relief refused
#Respondent's prayer that the appeal be dismissed
The appeal was found meritorious; the trial court's discharge of the guarantor and nullification of the statutory power of sale were erroneous
Costs
The suit in the trial court is dismissed with costs to the appellant; the costs of the appeal shall be borne by 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.
The upshot of our analysis is that the present appeal is meritorious. We hereby set aside the findings of the learned judge in their entirety
The judgment delivered on 29th June 2020 is hereby set aside in its entirety.
The suit in the trial court is dismissed with costs to the appellant.
The appellant is at liberty to exercise its statutory power of sale.
A Court of law cannot re-write a contract between the parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved.
Looking at the terms of the charge and the guarantee, it is apparent that the variation referred to was indeed contemplated in the guarantee contract.
On the question whether the requisite statutory notices had been served, we have reviewed the record and confirm that all the notices were served on the principal borrower and guarantors.
Issues in the judgment
#Internal inconsistency in the date of the High Court judgment: the judgment is described as 'dated 28th June 2020' but the appeal sought to set aside 'the judgement of the High Court dated 29th June 2020', and the final orders also refer to 29th June 2020
Internal inconsistency in the ELC suit number, stated as 'Civil Suit ELC No. 251 of 2024, Eldoret' in 2015 proceedings, which appears to be an error for a 2015 or earlier number
Inconsistent figures: the loan is variously stated as Kshs. 76,023,660/- (respondent) and Kshs. 76,032,660/- (DW1); the respondent's prorated liability is stated as Kshs. 5,650,488 in the appellants' case but Kshs. 5,650,468 in the trial court's holding
Hearing date of 21st April 2026 with submissions dated 31st March 2026 and 20th April 2026 appears internally inconsistent with a judgment dated 26th June 2026 only if read against the 2020 filing dates; memorandum of appeal dated 24th June 2021 versus hearing in 2026 reflects a long interval, not a contradiction
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Consolidated Bank of Kenya Ltd & another v Chebon (Civil Appeal E120 of 2021) [2026] KECA 1197 (KLR)", Case Analysis (2026). Civil Appeal — Eldoret (number not stated in extract). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1197/eng@2026-06-26
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.