INTERNAL MEMO
TO: MR. NGUGI
FROM: BEVERLYN MOKAYA
SUBJECT: LEGAL OPINION
DATE: 14/09/2021
BRIEF INTRODUCTION
The brief facts are as follows;
The legal opinion relates to the purchase of APARTMENT NO. D14 IN CREST PARK
(situate on L..R 209/21770 NAIROBI) by a purchaser from a vendor who is the
beneficial owner of the property at a consideration of Kshs. 13,700,000. The agreement
provides that the deposit amount to be paid is Kshs. 1,300,000. The purchaser already
paid Kshs. 1,000,000 which was held on stakeholder basis. The remainder of Kshs.
300,000 was to be financed by a bank. While in the process of due diligence, before the
bank could grant the purchaser the loan facility of Kshs. 300,000 to finance the purchase
of the subject property, the bank discovered that, the subject property is one of the
properties that were listed in the Ndung’u report. At the heart of the recommendations
in the Ndung’u report was that all the titles to the properties listed thereon should be
revoked. The vendor insists that the said property was wrongly listed under the report.
ISSUES
The issues that arise in this matter are as follows-
a. Whether the vendor has good title
b. Whether the purchaser would benefit from the doctrine of bona fide purchaser
without notice
c. Whether the vendor is in breach of the contract.
d. Whether the purchaser is entitled to remedies under the contract.
ANALYSIS.
a. Whether the vendor has good title
On 30th June, 2003 via Gazette notice number 4559, the President in exercise of the
powers conferred to him by section 3 of the Commission of Inquiry Act appointed a
commission, the Ndungu Commission to inquire into the allocation of public land,
preparre a list of all land unlawfully acquired and to make relevant recommendations.
Upon submitting the report, at the heart of the recommendations was that all titles
which were issued in respect to illegally acquired land be cancelled and that it would be
restored to its original purpose.
The subject property of this agreement, APARTMENT NO. D14 IN CREST PARK
(situate on L.R 209/21770 NAIROBI) was listed under the said Ndung’u report as one
of the properties that were unlawfully acquired. This therefore means that the said land
is to be restored back to its original purpose. The vendor in this suit claims that the
property has been wrongly listed thereon. The mere assertion that the property has
been wrongly listed is not good enough to prove that it’s a good title. In similar
situations parties have petitioned the High court to seek for orders that the
recommendations in the Ndung’u report be deemed null and void in so far as their
property is concerned. The vendor in this case has not filed any such petition in court.
Hence, this means that the issue of the title to this property remains uncertain and the
vendor cannot purport to still have good title.
In addition to that, the presence of a certificate of title does not automatically confer an
indefeasible title on the holder of the title. Section 26 of the Land Registration Act
provides that the certificate of title issued by the Registrar upon registration, or to a
purchaser of land upon a transfer or transmission by the proprietor shall be taken by all
courts as prima facie evidence that the person named as proprietor of the land is the
absolute and indefeasible owner, it also provides that such title can be impeached on
the grounds of having been acquired fraudulently, through misrepresentation or
illegally or unprocedurally.
Hence the title in question in this agreement, once acquired by the Vendor from the
legal owner, can be challenged on grounds that the land was acquired unprocedurally
as it has been listed as one of the properties under the Ndung’u report. Under this issue,
I submit that the vendor does not have a good title.
b. Whether the purchaser would benefit from the doctrine of bona fide purchaser
without notice
On the definition of a bonafide purchaser, Counsel cited the case of Lawrence Mukiri v.
Attorney General & 4 Others [2013] eKLR where the court stated what amounts to
"bonafide purchaser for value, thus:
... a bona fide purchaser for value is a person who honestly intends to purchase the
property offered for sale and does not intend to acquire it wrongly. For a purchaser to
successfully rely on the bona fide doctrine, he must prove the following:
a. He holds a certificate of Title.
b. He purchased the Property in good faith;
c. He had no knowledge of the fraud;
d. The vendors had apparent valid title;
e. He purchased without notice of any fraud;
f. He was not party to any fraud.
In this case, if the purchaser went ahead and bought the said property having
knowledge of it being listed under the Ndung’u report and in the event that the title is
challenged in a court of law, he would not be considered a bona fide purchaser without
notice. Even in instances where parties have been considered bona fide purchasers,
section 26 of the Land Registration Act has barred them from retaining the purchased
property.
Section 26 of the Land Registration Act provides that the certificate of title issued by
the Registrar upon registration, or to a purchaser of land upon a transfer or
transmission by the proprietor shall be taken by all courts as prima facie evidence that
the person named as proprietor of the land is the absolute and indefeasible owner, it
also provides that such title can be impeached on the grounds of having been acquired
fraudulently, through misrepresentation or illegally or unprocedurally.
As Justice Munyao put it in the case of Alice Chemutai Too – Vs – Nickson Kipkurui
Korir & 2 Others [2015] eKLR
“ … it needs to be appreciated that for Section 26 (1) (b) to be operative, it is not
necessary that the title holder be a party to the vitiating factors noted therein which are
that the title was obtained illegally, unprocedurally or through a corrupt scheme. The
heavy import of Section 26 (1) (b) is to remove protection from an innocent purchaser or
innocent title holder. It means that the title of an innocent person is impeachable so long
as that title was obtained illegally, unprocedurally or through a corrupt scheme. The
title holder need not have contributed to these vitiating factors. The purpose of Section
26 (1) (b) in my view is to protect the real title holders from being deprived of their titles
by subsequent transactions. The assertion of the defendants that they were innocent
purchasers who were not aware of the fraudulent transaction does not hold water in
this case as the purpose of section 26 is to protect the real title holders from the
unscrupulous persons.”
This means that if the purchaser in this agreement went on and purchased this
property, he will not be protected under this doctrine.
c. Whether the vendor is in breach of the contract.
Clause 29 of the agreement between the vendor and the purchaser provides for
warranties. Under part (b) of the warranties, the vendor warrants to the purchaser that
the apartment is capable of alienation as envisaged by this agreement and is presently
properly and beneficially held by the vendor and there is no ground or circumstance
upon which the beneficial ownership of the apartment to the vendor can be revoked,
cancelled or otherwise challenged.
The vendor also warrants under part (e) that the land on which the building housing
the apartments are built is not on a riparian zone, buffer zone, road reserve or public
land and its ownership is not subject of any challenge from the Government of Kenya or
the relevant local authority or any third party whatsoever. It is clear that from this
clause, the vendor misrepresented the fact that this land is not subject to any challenge
from the Government of Kenya and yet it has been listed under the properties under the
Ndung’u report.
From the above, it is clear that the vendor is in breach of the contract.
Also, it could also be stated that the vendor misrepresented the facts surrounding the
sale of this property; either negligently or fraudulently. This is because, the Vendor had
no intentions of disclosing that this property has been listed in the Ndung’u report. This
means that, in the event that the bank had not discovered the discrepancy, the
transaction would have proceeded as though the land had no discrepancies.
Misrepresentation vitiates he contract and entitles he aggrieved party to rescind the
agreement.
It was stated in the case of Amos Karobia Gichuki v Bernard Kamau Wagakoru [2020]
eKLR that;
“According to Halsbury’s Laws of England, a misrepresentation is a positive statement
of fact, which is made or adopted by a party to a contract and is untrue. It may be made
fraudulently, carelessly or innocently. Where one person ('the representor') makes a
misrepresentation to another ('the representee') which has the object and result of
inducing the representee to enter into a contract or binding transaction with him, the
representee may generally elect to regard the contract as rescinded.
The innocent party may invoke the aid of the court, which may confirm by declaration
his entitlement to regard the contract as rescinded, and grant him such other relief as
may flow directly from the fact of rescission, for example, the return of money paid or
chattels delivered by him pursuant to the terms of the contract. “
d. Whether the purchaser is entitled to remedies under the contract.
In the case of Hadley Vs Baxendale (154) 9. Exch 214 Anderson P at page 354 stated as
follows:
“Where two parties have made a contract which one of them has broken the damages
which the other ought to receive should be such as may fairly and reasonably be
considered either as arising naturally i.e according to the usual course of things, from
such breach itself, or such as may reasonably be supposed to have been in
contemplation of both parties at the time they made a contract as the probable result of
a breach of it.”
In this specific matter, Under clause 29 of The agreement between the parties, the
vendor undertook to the purchaser that if at any time the vendor is in breach of the
Warranties, the sale transaction shall at the purchaser’s sole discretion stand
automatically terminated and parties shall be returned to the status quo ante as if the
agreement was never entered into and in this regard the Vendor shall refund all monies
paid if any, pursuant to this agreement together with interest within 14 days of
demand.
Further, under clause 4, the parties agreed that the sale in question is subject to the LSK
Conditions of Sale, 2015 edition, in so far as they are not inconsistent with the
conditions in the agreement save that the interest rate applicable shall be 18% per
annum.
Condition 6.4.5 of the LSK Conditions of Sale states that, ‘ Where, before Completion,
the Purchaser discovers any material matter which should have been disclosed under
sub-condition 6.3.1 hereof and has not, been so disclosed or excepted by the Conditions,
the Purchaser may by notice in writing to the Vendor rescind the Agreement
whereupon the provisions of Condition 6.4.3 will apply. The vendor herein did not
disclose that the property had been listed under the Ndung’u report Condition 6.4.3
states that, “On rescission the Vendor shall repay to the Purchaser the Deposit and any
payment of Purchase Price and Accrued Interest and the Purchaser shall return to the
Vendor all documents belonging to the Vendor upon which neither Party shall have a
claim against the other for costs, compensation or otherwise.”
In addition, it was held in Amos Karobia Gichuki v Bernard Kamau Wagakoru [2020]
eKLR that, “I am satisfied that the decision arrived at by the learned magistrate is well
grounded in law and, for reasons proffered, the respondent was entitled to rescind the
contract; owing to the appellant’s deliberate misrepresentation, the contract between
them was void ab initio and therefore the respondent was entitled to a refund of the
consideration paid in discharge of his obligations under the contract. “
Hence the purchaser in this agreement is entitled to;
a. Rescind the agreement at his own discretion.
b. A refund of the deposit of Kshs. 1,000,000.
c. Interest at the rate of 18% per annum, subject to the terms in the Agreement.
