INSIGHTS

Contrasting the Doctrine of Innocent Purchaser without notice & the Caveat Emptor Principle

The Doctrine of Innocent Purchaser without notice is an equitable principle intended to protect buyers of property who are unaware of a third party’s claim to it.

Introduction

Background

The Doctrine of “Innocent Purchaser Without Notice” is an equitable doctrine intended to protect property buyers that are oblivious to a third party’s claim to the ownership to the property. It effectively allows ownership to pass to the buyer even where the seller is not the real owner. This principle, however, stands in stark contrast to the “Nemo Dat Quod Non Habet” rule which bars a person who is not a valid owner from conferring ownership to something which they themselves do not own.

An exploration of different court cases herein will highlight how Kenyan courts have contrasted both principles in conferring ownership of property.

The Principle of Innocent Purchaser without notice

Courts have held the position that the three requirements, due diligence, and valuable consideration, have to be fulfilled in order to be protected under the principle. This was highlighted in Samuel Kamere -Vs- Lands Registrar, Kajiado Civil Appeal No. 28 of 2005 [2015] eKLR wherein the court stated:

“…in order to be considered a bona fide purchaser for value, they must prove; that they acquired a VALID and LEGAL title, secondly, they carried out the necessary due diligence to determine the lawful owner from whom they acquired a legitimate title and thirdly that they paid valuable consideration for the purchase of the suit property…”

A. Valid Title

Initially, the popular position by Kenyan Courts to what constitutes a valid title was stated in Martha Wangui Thurura & another -Vs- Henry Gitahi Thurura & 3 others [2021] eKLR which cited the widely approved Ugandan case of Katende -Vs-. Haridar & Company Limited (2008) 2 E.A.173, that outlined

“…(a valid title is obtained by ) a bona fide purchaser 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 that: he holds a certificate of title;he purchased the property in good faith;he had no knowledge of the fraud;he purchased for valuable consideration;the vendors had apparent valid title;he purchased without notice of any fraud;he was not party to any fraud.”

Despite this, courts have held that validity also involves the availability of the title to be acquired even where the manner of acquisition was procedural. In the case of Dina Management Limited -Vs- The County Government of Mombasa & Others, the court, the court held that by virtue that the land was preserved for public utility and thus incapable of being alienated, there was no way a person could purport to be given valid title when the land is not eligible for allotment.

B. Due diligence

The Principle of Caveat Emptor places upon a buyer, the burden and responsibility to ensure that the land they wish to purchase is free from any encumbrances. In Ngere Tea Factory Company Ltd -Vs- Alice Wambui Ndome[2018] eKLR the court noted that patent defects are undesirable characteristics of a property which are easily discovered through simple inspection and with some effort from the purchaser. This was reiterated in Kariuki Kinuthia -Vs- Job K. Chirchir & 3 others [2013] eKLR where the court further stated, if the purchaser “omits to ascertain whether the land is such as he desires to acquire, he cannot complain afterwards on discovering defects of which he would have been aware if he had taken ordinary steps to ascertain its physical condition.”

This principle also places the onus on the buyer to ensure that the intended property is not only in the state represented by the vendor, but also capable of being lawfully alienated. This was actualized in  Dina Management Limited -Vs- County Government of Mombasa where the court’s commentary indicated that a simple site visit of the land would have sufficiently informed any potential buyers that the land was probably public and riparian land. The court also stated that conducting a simple search on the land and observing the cadastral map would have confirmed that the land was public land and not eligible for sale. The purchaser could not therefore claim to be bonafide purchasers if they failed to undertake due diligence.

C. Valuable Consideration

This generally refers to the monetary benefit received by the seller from the buyer in exchange for their land, otherwise known as the purchase price. Valuable consideration should consider factors such as the prevailing market value of the land, its strategic position and potential earning capability.

Further, where the valuable consideration given is not commensurate with the expected amount, the court may be drawn to infer fraud. In Mbuthia -Vs- Jimba Credit Finance Corporation & Another, Civil Appeal No. 111 of 1986, for instance, the court stated, “a sale will be set aside if there is fraud or if the price is so low as to be in itself evidence of fraud.”

In Dina Management Limited -Vs- County Government of Mombasa however, although the purchase price on offer was commensurate to prevailing market prices, one can not give valuable consideration for the purchase of a property that itself is not available for purchase. The same argument was put forward by the Defendants in Sidhi Investments Limited who asserted that despite claiming to have paid a fair price for the land, the transaction was not valid because the land was not the property of the purported owner at the time of its sale.

The principle of Nemo Dat Quod Non Habet

In simple parlance, it means that one cannot give away that which they do not have. The principle is enshrined is ununicated under Section 26 of the Sale of Goods Act which effectively states that, unless a person is acting as an agent of the true owner, or with the express authority of the owner, a person cannot sell property that does not belong to them and confer valid ownership unto a buyer.

The collision of the principles

On the one hand, the “Nemo Dat” principle prevents a person from conferring good title over property that they do not own, on the other, the Doctrine of “Innocent Purchaser” makes it possible to confer ownership unto a purchaser who did their necessary due diligence regardless of whether the seller was the true owner.

Courts remain divided and continue to apply contrasting decisions ion different cases depending on the circumstances of each case.

Key Insights at a Glance

For anyone to claim to be an innocent purchaser without notice, they must demonstrate that they undertook due diligence using all reasonable means within their disposal.
Courts will not confer ownership over unalieable land (i.e public land, restricted land (airport, forests) roads and access roads, riparian land) even if one paid fair market price for it
Courts will apply either of the principles depending on the facts of each case

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