Thomas Nganda Njuguna (Appealing as the legal representative of Mathew Njuguna Nganda) v Kenya Commercial Bank Limited & another

November 2004 in H.C. Civil Suit No. 116 of 2001. Mathew Page 2 of 21

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Njuguna Nganda, on whose behalf this appeal is prosecuted by his legal representative, challenged the sale of the suit property by Kenya Commercial Bank Limited, the 1st respondent, to the Catholic Diocese of Nakuru, through its Registered Trustees, the 2nd respondent. 3. The learned Judge found that the requisite statutory notice had been issued; that a public auction had taken place; that the appellant's valuation was exaggerated; that the price of Kshs.7,000,000 obtained at the auction was fair and within the forced-sale value of the property; and that fraud had not been proved. The suit was consequently dismissed with costs. 4. Aggrieved, the appellant preferred this appeal upon eleven grounds. Read together, they challenge the statutory notice and its service; compliance with the law governing realization of the security; the conduct of the auction; the adequacy of the purchase price; and the learned Judge's rejection of the allegations of fraud. B. Duty of this court on a first appeal 5. This being a first appeal, our duty is to reconsider and reevaluate the evidence placed before the trial court and to Page 3 of 21

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draw Page 4 of 21

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our own conclusions, bearing in mind that we neither saw nor heard the witnesses testify. We will not lightly interfere with findings of fact dependent upon credibility unless it is demonstrated that the trial Judge acted on no evidence, misapprehended the evidence, or proceeded upon a wrong principle. C. Background and evidence before the high court 6. The material history is largely undisputed. Mathew Njuguna Nganda was the registered proprietor of the suit property, measuring approximately 306.5 acres. In or about 1990 he borrowed Kshs.750,000 from the 1st respondent and offered the property as security. His own pleading was that he repaid approximately Kshs.300,000 of the principal amount but thereafter encountered difficulties in repayment following a dispute concerning access to the farm. 7. It is therefore not in controversy that the borrowing occurred, that the property constituted the security, and that the debt subsequently fell into arrears. 8. The appellant's case before the High Court was that the property was worth approximately Kshs.27,600,000 at the material time, Page 5 of 21

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but that on 15th June 2000 the 1st respondent purported to sell it by public auction to the 2nd respondent for Kshs.7,000,000. 9. The amended plaint particularised the alleged fraud as including: purporting to sell by public auction when the transaction was allegedly a private treaty; selling the property at an unreasonably low price; transferring it without the necessary Land Control Board consent and lawful procedure; failing to invite the appellant to the auction or permit him to introduce prospective purchasers; and failing to provide a reasonable reserve price. 10. When Mathew Nganda testified, he admitted the borrowing and indebtedness. He stated that he had always known that he owed the Bank money and that he had paid only approximately Kshs.300,000 out of the Kshs.750,000 advanced to him. He attributed his inability to repay the balance to the loss of road access to the property. 11. He also acknowledged that the property had previously been advertised for sale. The realization of the security was therefore not an event of which he was wholly unaware. Page 6 of 21

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12. Wanjiku Nganga, a registered valuer called by the appellant, produced a valuation dated 9th February 2001 assessing the property at Kshs.27,600,000. She nevertheless acknowledged the absence of road access, and that part of the property was not arable. 13. For the Bank, Geoffrey W. Mureithi, its officer in charge of advances, testified that the loan had been secured in 1990; that the borrower had defaulted; and that the Bank had attempted to realize the security on several occasions. 14. Of particular importance, Mureithi testified that a statutory notice dated 8th December 1992 was issued to the mortgagor and sent by registered post to P.O. Box 93, Gilgil. A copy of the notice was produced as Defence Exhibit 1. The High Court recorded that the appellant did not deny that the postal address appearing on the notice was his. 15. The Bank's evidence further showed that earlier attempts at sale had failed because the bids received were inadequate. Before the eventual auction, the Bank instructed Ngotho Wathome Valuers to value the property. Moses Nyakwaye, a registered valuer, inspected it and assessed its open-market Page 7 of 21

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value at Kshs.8,000,000, forced-sale value at Kshs.5,500,000, and recommended a reserve price of Kshs.5,000,000. 16. Nyakwaye explained the factors influencing that valuation. The property had no proper road access; electricity had not been supplied to the farm; agricultural activity was limited; and a substantial portion comprised steep terrain. He nevertheless acknowledged its agricultural potential. 17. The eventual auction was advertised in the People newspaper on 9th June 2000 for 15th June 2000. 18. Ernest Kamau Murimi testified for the 2nd respondent. He stated that the Diocese saw that advertisement and was interested in acquiring land for its resettlement programme. Before the auction he visited the property. He also saw handbills advertising the sale in Gilgil and Nakuru. 19. Murimi personally attended the auction. He testified that the auction commenced at about 11.00 a.m.; that there were other persons present; and that he bid Kshs.7,000,000 on behalf of the Diocese. As the highest bidder, the 2nd respondent's bid was accepted. thereafter executed between Page 8 of 21 An agreement was

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the purchaser and the auctioneer; 25 per cent of the purchase price was paid immediately and the balance subsequently paid. 20. Murimi further testified that the requisite Land Control Board consent was obtained and produced in evidence, as were the transfer and title showing registration in favour of the 2nd respondent. He denied any previous dealings or collusion between the Diocese and the Bank. 21. The High Court also had the benefit of independent valuation evidence. Samuel Mwangi, a registered valuer appointed through the court process, inspected the property and divided it according to its productive characteristics. He found approximately 250 acres arable, with other portions being marshy, steep or rocky. The learned Judge recorded his open- market valuation at Kshs.10,050,000. Mwangi considered the Kshs.7,000,000 obtained at auction to be a fair price in a forced-sale setting. D. The parties' submissions 22. The appellant submitted that the requisite statutory notice had not been proved to have been served. Particular reliance was placed on the absence of a postal registration slip or Page 9 of 21

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certificate Page 10 of 21

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of posting. The appellant also challenged compliance with rule 15 of the Auctioneers Rules, 1997, contending that the 45-day redemption notice had not been served and that the newspaper advertisement preceded the auction by only six days. It was further contended that the property was sold at a gross undervalue. 23. The respondents resisted the appeal. The 2nd respondent relied, among other matters, on the appellant's admission that he knew of earlier advertisements, the evidence concerning the 1992 statutory notice, the public advertisement and auction, and the valuation evidence. It urged us to uphold the High Court's finding that the sale was lawful and that fraud had not been proved. E. the applicable statutory regime 24. Before considering those complaints, it is necessary to identify the correct statutory regime. The earlier approach to the appeal treated the security as though the exercise of the power of sale were governed by section 74 of the repealed Registered Land Act. Upon reconsideration of the record, we do not think that premise is correct. Page 11 of 21

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25. The property is described in the primary documents as L.R. No. 6221/1, Grant I.R. No. 7248. The appellant himself pleaded that he was its registered proprietor under that Grant. The memorandum of appeal also invoked the Transfer of Property Act (ITPA) as one of the enactments governing the validity of the mortgagee's exercise of the power of sale. The 1st respondent, for its part, relied before the High Court upon section 69B of that Act. 26. At the material time, the statutory power of sale attaching to a mortgage of this character fell to be considered under the Transfer of Property Act, 1882 of India, as applied to Kenya, particularly sections 69, 69A and 69B. 27. Section 69 dealt with the arising of the statutory power. In Trust Bank Limited vs. George Ongaya Okoth [2000] KECA 7 (KLR), this Court explained that the mortgagee's statutory power arises when the mortgage money has become due in the circumstances contemplated by the mortgage instrument. 28. The arising of the power must, however, be distinguished from its exercise. Section 69A prescribed the circumstances Page 12 of 21

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in which an accrued statutory power could be exercised. So far as Page 13 of 21

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material, section 69A(1)(a) required service upon the mortgagor of notice requiring payment of the mortgage money, followed by default for three months after such service. 29. The protective purpose of that notice was emphasized in Trust Bank Limited vs. George Ongaya Okoth (supra). The notice guards the mortgagor's right of redemption by giving a proper opportunity to remedy the default before sale. 30. In Euro Bank Limited (In Liquidation) vs. Twictor Investments Limited & 2 Others [2020] KECA 516 (KLR), this Court revisited section 69A. The Court stressed that service of the statutory notice remained necessary but also held that where a valid notice had been served and default continued beyond the statutory period, a mortgagee was not required to issue a fresh statutory notice merely because realization was postponed and the sale of the property was advertised later. 31. Those provisions, rather than section 74 of the repealed Registered Land Act, provide the proper legal framework for the present dispute. Page 10 of 21

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F. Whether exercisable the statutory Page 10 of 21 power had become

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32. It was common ground that the appellant was in prolonged default. His own evidence was that he had borrowed Kshs.750,000, repaid approximately Kshs.300,000 and thereafter encountered difficulty servicing the facility. By the date of the impugned auction, the default had persisted for several years. 33. The first attempt to realize the security occurred years before the eventual sale. Further attempts followed but failed to attract an acceptable purchaser. The property was ultimately sold in June 2000. 34. As regards notice, Mureithi's evidence was that the Bank issued the notice dated 8th December 1992 and dispatched it by registered post to P.O. Box 93, Gilgil. The appellant did not establish that the address was not his. 35. We are conscious that the Bank did not produce a postal certificate or registered post receipt. That omission formed the foundation of the appellant's reliance on authorities concerning proof of service under the repealed Registered Land Act. 36. In our view, however, the omission is not to be considered in isolation from the evidence actually accepted by the trial Page 11 of 21

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court. Page 11 of 21

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Mureithi gave direct evidence that the notice was sent by registered post. A copy of the notice was produced. The address on it was not disputed. The learned Judge, having heard the witnesses, expressly accepted that evidence and found that the requisite three-month statutory notice had been given. 37. We have independently reconsidered that finding. The appellant's evidence did not demonstrate that the notice was addressed to a wrong address or that the Bank's witness was unworthy of belief. The evidence of the notice also formed part of a continuous history of default and attempted realization extending over several years, of which the mortgagor was aware. 38. We therefore find no sufficient basis for reversing the learned Judge's factual conclusion that the statutory notice was issued and served. 39. Once that notice had been served, the appellant did not remedy the default within three months. On the contrary, the default continued for years. The conditions for exercise of the statutory power under section 69A were therefore satisfied. Page 12 of 21

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40. Nor did the lapse of time between the 1992 notice and the eventual auction in 2000, without more, require the Bank to Page 13 of 21

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recommence the statutory process. The debt had not been discharged and the realization process had not been abandoned following cure of the default. Earlier attempts at sale had simply failed to produce an acceptable purchaser. 41. The reasoning in Euro Bank Limited (In Liquidation) vs. Twictor Investments Limited & 2 Others (supra) is instructive. Where a valid statutory notice has been served and default remains uncured, the mere postponement of realization does not, of itself, create an entitlement to a fresh statutory notice. 42. We consequently agree with the trial Judge that the Bank was entitled, subject to compliance with the applicable auction process, to proceed towards realization of the security. G. The auction process 43. The appellant separately challenged compliance with the Auctioneers Rules, contending that a fresh 45-day redemption notice ought to have been served and that the newspaper advertisement preceded the auction by only six days. Page 14 of 21

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44. Those complaints must be distinguished from the statutory notice under section 69A. The statutory notice and the Page 15 of 21

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procedural steps governing the auction serve different purposes. 45. The evidence shows that the property had been exposed for sale on previous occasions without attracting adequate bids and that the appellant was aware of those earlier attempts. The June 2000 sale was publicly advertised, and there was evidence of handbills in Gilgil and Nakuru. 46. More importantly, the appellant did not establish that the procedural complaints relied upon rendered the sale a secret transaction or caused the property to be sacrificed at an undervalue. The evidence concerning the actual auction points in the opposite direction. 47. Murimi testified that after seeing the advertisement of 9th June 2000 he inspected the property and subsequently attended the auction. There were other bidders. He bid Kshs.7,000,000 on behalf of the Diocese and emerged as the highest bidder. 48. An agreement between the auctioneer and the purchaser was produced in evidence. So too were the Land Control Board consent, transfer documentation and title reflecting the subsequent registration. Page 16 of 21

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49. The appellant, by contrast, admitted that he had not attended the auction and had not sent a representative. His assertion that no auction occurred was therefore not based upon personal observation. 50. The learned Judge was entitled to prefer the affirmative evidence of a witness who actually attended and participated in the auction. We consequently uphold the finding that a genuine public auction occurred on 15th June 2000. H. Valuation and the price realized 51. The allegation of gross undervalue fares no better. 52. The appellant relied upon Wanjiku Nganga's valuation of Kshs.27,600,000. That valuation was undertaken in February 2001, approximately eight months after the auction. Nganga accepted that the property lacked proper access. The High Court also observed that her report did not identify the comparable transactions upon which the figure of Kshs.27.6 million was founded. 53. Against that opinion stood materially lower valuations. Nyakwaye's valuation immediately preceding the auction assessed the open-market value at Kshs.8,000,000, forcedPage 17 of 21

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sale Page 18 of 21

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value at Kshs.5,500,000 and recommended a reserve price of Kshs.5,000,000. 54. The independent valuer, Samuel Mwangi, separately examined the physical characteristics of the property and assessed its value by reference to the productive quality of different portions. The learned Judge recorded his openmarket valuation at Kshs.10,050,000. He considered the Kshs.7,000,000 auction price fair in a forced-sale setting. 55. The trial Judge was therefore faced not with an uncontested valuation of Kshs.27.6 million, but with materially conflicting expert evidence. 56. We find no error in his preference for the valuations which took account of the property's lack of access, its steep, rocky and marshy portions, the prevailing market and the forcedsale context. 57. The fact that earlier attempts to sell the property had failed to attract adequate bids provides further practical context in assessing what the property could realistically fetch at a forced sale by public auction. Page 19 of 21

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58. The price of Kshs.7,000,000 was above the Bank valuer's reserve price and forced-sale valuation and was substantially consistent with the independent valuation evidence. The allegation that the consideration itself evidenced fraud was therefore not proved. I. Fraud 59. The appellant pleaded fraud against both respondents. Those allegations required strict proof. It is settled that fraud must be specifically pleaded and distinctly proved; it is not enough to leave it to be inferred from the facts. See Vijay Morjaria vs. Nansingh Madhusingh Darbar & Another [2000] EKLR. 60. The evidential record establishes that the property was valued before sale; the auction was advertised; the 2nd respondent learnt of the property through that advertisement; its representative inspected the property; a public auction attended by other persons occurred; the 2nd respondent emerged as the highest bidder; the prescribed deposit was paid; the balance of the purchase price was subsequently paid; Land Control Board consent obtained; and the transfer was thereafter registered. Page 110 of 21 was

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61. Murimi denied any prior dealings or collusion between the Diocese and the Bank. No cogent evidence displaced that testimony. 62. The allegation that the auction was merely a disguise for a private treaty was therefore not established. Nor was the allegation that the respondents conspired to sell the property at a gross undervalue. 63. We agree with the learned Judge that fraud was not proved to the requisite standard. J. Section 69b and the position of the purchaser 64. There is an additional statutory consideration bearing directly upon the relief sought against the 2nd respondent. 65. Section 69B of the Transfer of Property Act protected a purchaser following exercise of a mortgagee's statutory power of sale. Its purpose was to prevent the purchaser's title from being impeached merely by requiring the purchaser retrospectively to investigate whether every circumstance authorizing the mortgagee to exercise its power had occurred or whether the power had been regularly exercised. Page 111 of 21

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66. Where a person was damnified by an unauthorized, improper or irregular exercise of the power, the statutory scheme contemplated a remedy in damages against the person exercising the power rather than automatic avoidance of the purchaser's title. 67. That protection assumes particular significance here. The 2nd respondent responded to a public advertisement, attended the auction and successfully bid for the property. No fraud or collusion on its part was established. 68. In those circumstances, there was no evidential or legal foundation for cancelling the 2nd respondent's title. K. Conclusion and orders 69. We have considered all eleven grounds of appeal, although we have grouped them according to the substantive questions they raise. 70. The complaints concerning statutory notice fail because the transaction was governed by sections 69 and 69A of the Transfer of Property Act rather than section 74 of the repealed Registered Land Act, and because the evidence, considered as a Page 112 of 21

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whole, supports the learned Judge's finding that the statutory notice was served and the default remained uncured. 71. The complaints concerning the auction do not establish that the transaction was a fictitious private sale. There was affirmative evidence that the auction was advertised and actually took place. 72. The complaints concerning valuation likewise fail. The auction price of Kshs.7,000,000 was supported by the forced-sale valuation evidence and was not shown to have resulted from fraud or collusion. 73. Finally, the appellant did not establish a basis for impeaching the 2nd respondent's title in light of section 69B and the absence of proved fraud against the purchaser. 74. Having reconsidered the entire matter, we are satisfied that the ultimate conclusion reached by the learned Judge was correct, although we reach that conclusion upon the proper statutory foundation. 75. The mortgage debt had become due and remained unpaid for many years. The evidence supported the learned Judge's finding concerning the statutory notice. Earlier attempts at Page 20 of 21

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realization Page 20 of 21

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had failed for want of acceptable bids. The property was eventually advertised and sold at a public auction. The price of Kshs.7,000,000 was within the range demonstrated by the forced-sale valuation evidence. Fraud and collusion were not proved. 76. In the result, we find no merit in the appeal. It is accordingly dismissed with costs to the respondents. 77. The judgment and decree of the High Court of Kenya at Nakuru (L. Kimaru, J. as he then was) delivered on 10th November 2004 in H.C. Civil Suit No. 116 of 2001 are hereby upheld. Dated and delivered at Nakuru this 2nd day of October, 2026. J. MATIVO .................................. JUDGE OF APPEAL MURUNGI B. KAIRARIA .................................. JUDGE OF APPEAL AHMED ISSACK ............................. .... JUDGE OF APPEAL Page 21 of 21

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I certify that this is a true copy of the original. Signed. DEPUTY REGISTRAR Page 21 of 21

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