(Obiter as per Ogola, J.)
"Really where is justice? Banks cannot just hide behind the contracts they make, regardless of how unjust they are, to literally destroy their customers. Without their customers the banks cannot operate. A time has come for banks in Kenya to look into the eyes of their customers and answer the question: Are banks Kenyans? Or have they just entered Kenya for business? Banks in Kenya reign large.
I am reminded of a predator who after killing the prey is not satisfied to leave the carcass to the vultures, but becomes both the predator and the vulture, killing the prey and gleaning the meat from the carcass to ensure the prey is really dead. I am also reminded of a robber killing his victim and not only attending his funeral, but insisting on carrying the casket to the grave to confirm that his victim is dead and buried."
Captain J N Wafubwa vs Housing Finance Co. of Kenya
High Court at Nairobi - Milimani Commercial Courts
E.K O Ogolla. J
April 26, 2012
Ownership of a home in Kenya is a dream for many Kenyans. That is why many banks have gone into mortgage financing in a quest to fulfill the dream of many citizens of owning a home by taking a mortgage. Usually, the mortgage instrument is a standard contract across the board that gives the Bank the right to sell the mortgaged property in case the borrower is unable to repay the loan as stipulated in the Contract.
In exercising its right of statutory power of sale, the bank may sometimes err and cause serious frustrations to the borrower of the loan similar to what happened in the present case. Captain Wafubwa took a mortgage from the defendant, Housing Finance (HFCK) in 1989 and ran into arrears which gave HFCK the right to sell his mortgaged property to recover the loan.
The Plaintiff in this case, Captain Wafubwa took a mortgage with Housing Finance Company of Kenya in 1989. He fell into arrears with the repayments. The bank in exercise of its statutory power of sale held a public auction in 1996 and sold off the property for Ksh 4.5M to United Millers Ltd who were supposed to pay 25% of the price at the fall of the hammer.
United Millers paid the 25% but did not follow through the transaction and therefore the house was not transferred to them. They therefore forfeited the deposit of about Kshs. 1,125,000. The bank in its testimony testified that the said deposit of the money went to its profit and loss account and therefore the borrower still owed the bank money.
In 2009, the Bank sold the suit property through a private treaty to a third party for Kshs 4.5M an amount, which it was worth 13 years back. At that point in time, HFCK claimed they were owed Ksh. 11M by Captain Wafubwa. With this amount, the Bank credited Captain Wafubwa's account and still asked him to repay more than Kshs. 6.8M remaining as part of the debt.
Before the bank did the private treaty, the Captain had sought to redeem his house to no avail and had taken his battle to the Court of Appeal. In the Court of Appeal, it was agreed by a majority decision that the right of redemption by Captain Wafubwa had been extinguished at the fall of the hammer but with one Judge of Appeal dissenting.
The dissenting Judge argued that the right to redeem the house had not been extinguished at the fall of the hammer since the sale was never finalized and as such, the owner still had a chance to redeem his house. However, since a decision by the majority of the Judges had been reached, the owner had no recourse but to seek alternative civil remedy, which resulted in this suit. The Captain went to court claiming wrongful eviction and also claiming the deposit paid in 1996 of Kshs. 1,125,000 and the balance of Kshs. 20,000.
The mortgage had been entered into under the Indian Transfer of Property Act 1882 (now repealed) which at section 69 (c) provides for the mechanism of how proceeds of a sale or attempted sale are to be applied when a bank exercises its statutory power of sale. The section provides;
"The money which is received by a mortgagee, arising from a sale by him under the mortgagee's statutory power of sale after discharge of prior encumbrances to which the sale is not made subject, if any, or after payment into court of a sum to meet any prior encumbrances, shall be held by him in trust to be applied by him, first, in payment of all costs, charges, and expenses properly incurred by him as incident to the sale or any attempted sale, or otherwise, and secondly in discharge of the mortgage - money, interest, and costs, and other money, if any, due under the mortgage, and the residue of the money so received shall be paid to the person entitled to the mortgaged property, or authorized to give receipts for the proceeds of the sale thereof."
The court opined that the auction sale which took place on November 8, 1996 was a "sale" or an "attempted sale" and therefore the deposit received from it could only be spent as provided under the Act and the balance thereof after deducting the costs and charges had to be used to reduce the mortgage debt and interest, with the residue, if any, given to Captain Wafubwa.
From the foregoing the court found that Captain Wafubwa was entitled to the said credit balance of Kshs.20, 662.80 immediately th
deposit of 25% was made pursuant to the attempted sale on 8th November 1996. This being so, his property ought not to have been sold by private treaty in February 2009 as at that time the Captain did not owe HFCK any money on account of the aforesaid mortgage transaction. Captain Wafubwa was therefore entitled to his property.
However since the property was sold to a purchaser for value without notice of the preceding events, and since title had passed to the said purchaser upon the transfer registered on April 21, 2009, Captain Wafubwa was only entitled to the value of his property as at the time of the transfer to the Purchaser together with the expected appreciation in value since, the court said.
Judgment was hence entered for Captain Wafubwa for (a) Kshs.20,662.80/= with interests at 27.5% p.a. with effect from November 12, 1996 till payment in full, (b) Kshs.4, 500,000/= with interest at 27.5% p.a. with effect from February 9, 2009 till payment in full being the value of the suit premises from date of sale and (c) Cost of the Suit with interests thereon at court rates.