1. This is an appeal from the judgment of the lower court in the SCCCOMM/E1607/2023 in which the Adjudicator allowed the Respondents’ claim against the Appellant.
2. The background of the case is that the Appellant applied for and was issued with a loan by the Respondent for the sum of Kshs. 350,000/-. The loan was issued pursuant to a loan agreement dated 9/1/2020. The Appellant defaulted on loan repayment, which led the Respondent to initiate a claim in the Small Claims Court seeking compensation of Kshs. 201,072 as the loan balance plus accrued interest.
3. On 11th August 2023, the lower court, after considering the claim, delivered its judgment in favour of the Respondent herein, ordering the Appellant to pay the sum of Kshs.230,148 plus costs of the claim and interest from the date of filing the suit until payment in full.
4. Aggrieved by the decision of the trial court, the Appellant lodged this appeal vide its amended memorandum of appeal dated 20/4/2024, raising the following grounds:
i. The learned trial Adjudicator erred in law by failing to apply the strict rule of contract law that oral or extraneous claims cannot contradict what is written.
ii. The learned trial Adjudicator erred in law by making a Judgement based on terms that did not and were never meant to exist in the contract between the Appellant and the Respondents.
iii. The learned trial Adjudicator erred in law by unilaterally creating and imputing into the aforesaid contract terms that were not in it.
iv. The learned trial Adjudicator erred in law by ignoring the fundamental principle of natural justice of dispensation of burden of proof.
v. The learned trial Adjudicator erred by failing to judiciously apply legal principles that promote access to justice and abhor outcomes that are repugnant to justice, good public order, and policy.
vi. The learned trial Adjudicator erred in law by failing to uphold that parties are bound by their pleadings and proceeded to base the impugned judgment on issues and/or allegations that were newly introduced through submissions but were never pleaded.
vii. The learned trial Adjudicator erred in law by introducing extraneous computations that were never pleaded or prayed for in determining the decretal sum.
viii. The learned trial Adjudicator erred in law by omitting to expound on the relevance of cited precedence and/or misinterpreting the application of the cited cases to this suit.
ix. The learned trial Adjudicator erred in law in basing the impugned judgment on statutory provisions that are not applicable to the case herein.
x. The learned trial Adjudicator erred in law in applying interest to the cost of the claim from the date of filing until payment in full.
xi. The learned trial Adjudicator erred in law by ignoring issues that were not controverted; misinterpreting the matters that were admitted to, and thereby, erroneously based the impugned judgment on issues that were never admitted to.
5. The Appeal was canvassed by way of written submissions. The Appellant’s submissions is dated 4th October 2024, whilst that of the Respondent is dated 18th November 2024.
Appellant’s submissions
6. The Appellant submitted that the trial court erred in finding that the loan was to be paid by a certain date and that there was interest applicable. According to the Appellant, the loan agreement between the parties fixed no due date, that there was no interest charged, and no directive on how the loan should be paid.
7. The Appellant maintained that the trial Court’s judgment, which held the loan as due and charged interest, was unsupported by the loan agreement. The Appellant cited the Court of Appeal decision in the case of National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & another [2001] eKLR in support of the argument that it is not in the place of the Courts to re-write a contract between parties unless a vitiating factor exists.
8. The Appellant further submitted that it would be a recipe for public policy disaster for the trial Court to pull the trigger of time and support the Claimants’ demands for immediate payment of the loan just because the Respondent admitted to still owing a balance. That it was further a miscarriage of justice to charge interest which was never in the agreement, or particularized or prayed for in the Statement of Claim.
9. The Appellant also took issue with what she considered suo motto calculations done by the trial Adjudicator in the impugned judgment. According to the Appellant, there were mathematical errors in the calculation, leading to the court’s erroneous finding that a sum of Kshs. 230,000/- was still owed by the Appellant to the Respondent. According to the Appellant, the only amount that was still owing under the loan agreement was a sum of Kshs. 200,000/-; being the Kshs. 350,000/- advanced, less Kshs. 150,000/- which had already been paid by the Appellant.
10. It was also the Appellant’s case that the trial court erred in introducing the 12% interest, which was not in the agreement and was not pleaded by the Respondents in the statement of claim. Citing the Supreme Court of Malawi, the Court of Appeal in Dakianga Distributors (K) Ltd v Kenya Seed Company Limited [2015] KECA 870 (KLR), the Appellant asserted that courts are bound by the pleadings of the parties.
11. Finally, the Appellant submitted that the trial court was wrong in its pronouncement on the value of the shares that secured the loan. According to the Appellant, while her shares at the time she took the loan were valued at Kshs. 115,947/-, the same had grown over time to Kshs. 119,842/-.
12. In the premises, the Appellant prayed for an order to have the judgment delivered by the lower court on 11/8/2023 set aside and substituted with an order dismissing the Respondent's claim dated 3/3/2023 and for the costs in the subordinate court to be awarded to the Appellant.
Respondent’s submissions
13. The Respondent supported the trial court’s judgment and submitted that contrary to the Appellant’s allegations, the loan advanced to the Appellant as per the loan application form was a sum of Kshs. 350,000/-, which amount was to be repaid in 24 monthly installments of Kshs. 14,600/- each. It was, therefore, the Respondent’s position that according to the agreement, the loan ought to have been fully repaid by January 2022.
14. It was further the Respondent’s position that the Appellant having paid a sum of Kshs. 150,000/- only of the principal loan advanced by the time the lower court was instituted, a sum of Kshs. 150, 000/- of the principal loan advanced was still outstanding. On interest, the Respondent asserted that the loan attracted interest at the rate of 12% and that a sum of Kshs. 284,000/-, inclusive of interest was still outstanding.
15. The Respondent further submitted that the Appellant’s shares, which then stood at Kshs. 115, 947/- was used to offset the Appellant’s indebtedness to the Respondents, leaving a net balance of Kshs. 168,053, which amount continued to accrue interest over the period. That, the unpaid loan balance also attracted a default interest at a daily rate of 0.094%.
16. The Respondent therefore maintained that the learned trial Adjudicator was right in his findings, and urged this court to uphold the judgment.
Analysis and determination:
17. The court has carefully considered the record of appeal dated 20/4/2024 and the submissions filed by the parties.
18. This being an appeal from the small claims court, I am alive to the fact that the duty of this court, as the appellate court exercising jurisdiction over the Small Claims Court squarely falls under Section 38 of the Small Claims Court Act. This section limits the jurisdiction of the High Court on appeals from the Small Claims Court to matters of law only.
19. What constitutes, points of law, has been settled in the case of Peter Gichuki King'ara Vs Iebc & 2 Others, Nyeri Civil Appeal No. 31 Of 2013, (Court of Appeal) (Visram, Koome & Odek, JJA) Of 13.02.2014, where the court of appeal stated as follows: -
“It is trite law that the exercise of judicial discretion is a point of law and that the trial court in denying a prayer of scrutiny is exercising judicial discretion. The Court concluded that it would not be feasible for the Court of Appeal to order for a recount and scrutiny as this would involve matters of fact that were within the jurisdiction of the trial court. The court further held that the question of whether the trial judge properly considered and evaluated the evidence and arrived at a correct determination that is supported by law and evidence – with the caveat that the appeal court did not see the witness demeanor – is an issue of law.”
20. Having gone through the grounds of appeal as set down in the Appellant’s amended memorandum of appeal, I note that the Appellant raises issues of both law and fact. Guided by the above decision of what constitutes issues of law, this court will limit itself and only decide on issues of law, that is, whether the Respondent/Claimant proved its case on a balance of probabilities.
21. The Appellant asserted that the Respondents failed to discharge their burden of proof in establishing the loan’s enforceability. The general principle, as stated in Humphrey Bulimu Agamu v Kenya Civil Aviation Authority (Civ. App. No. E009 of 2023), is that in civil claims, the burden of proof rests with the claimant, and the standard is on a balance of probabilities.
22. In this case, the Respondents presented the loan application form signed by the Appellant, which specifies the loan amount, repayment schedule, and applicable interest. Conversely, the Appellant did not present any evidence to counter these terms. In the absence of any documentary evidence refuting the terms of the agreement, the trial court correctly found that the Respondents had discharged their burden of proof. This Court upholds that finding.
23. From the record of appeal, it is not in dispute that the Appellant borrowed a sum of Kshs. 350,000/- from the Respondents. It is also not in dispute that out of the principal amount borrowed, the Appellant had actually repaid a sum of Kshs. 150,000, leaving a principal balance of Kshs, 200,000/-.
24. The Appellant contended that the trial court misapplied the principles of contract law by incorporating extraneous factors in determining the obligations under the loan agreement. Specifically, the Appellant argued that the loan agreement did not provide a specific repayment period or interest rate, and thus the imposition of repayment terms was unjustified.
25. Upon review of the loan application form as produced on pages 49-50 of the record of appeal, this Court notes that contrary to the Appellant’s assertions, the loan amount of Kshs. 350,000 was to be repaid in installments of Kshs. 14,600 each. Consequently, the claim by the Appellant that the loan did not have a due date therefore lacks any legal basis. A contrary interpretation would imply that repayment could be deferred indefinitely, which is commercially untenable.
26. Regarding the interest rate chargeable, I note that the loan application form did not provide any specific rate. This Court is however alive to the fact that under Section 27 of the Civil Procedure Act, the trial court had the discretion to award interest on the principal sum outstanding. Section 26 of the Act provides as follows; -
“26. Interests
(1) Where and in so far as a decree is for the payment of money, the court may, in the decree, order interest at such rate as the court deems reasonable to be paid on the principal sum adjudged from the date of the suit to the date of the decree in addition to any interest adjudged on such principal sum for any period before the institution of the suit, with further interest at such rate as the court deems reasonable on the aggregate sum so adjudged from the date of the decree to the date of payment or to such earlier date as the court thinks fit.
(2) Where such a decree is silent with respect to the payment of further interest on such aggregate sum as aforesaid from the date of the decree to the date of payment or other earlier date, the court shall be deemed to have ordered interest at 6 percent per annum
27. The Court of Appeal in Kipchumba v BOG Tambach Teachers Training College (Civil Appeal 100 of 2019) [2023] KECA 802 (KLR) (30 June 2023) (Judgment) stated as follows regarding the power of the trial court to award interest; -
“First, the trial court has wide discretion to award and fix the rate of interest provided that the discretion must be used judiciously. As a result of this discretion, an appellate court is enjoined to treat the decision by a trial court with utmost respect and should refrain from interference with it unless it is satisfied that the trial court proceeded upon some erroneous principle or was plainly and obviously wrong.”
28. Guided by the above decision and noting that the trial court applied the rate of 12% in the instant case, I do not find any basis to depart from the trial court’s finding since I am of the view that the trial court’s discretion was judiciously exercised, and in line with the interests of justice.
29. Accordingly, this Court finds that the appeal is without merit and the same is hereby dismissed with costs to the Respondent.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT
THIS 13TH DAY OF MARCH 2025
ADO MOSES
JUDGE
In the presence of:
Moses – Court Assistant
………………for the Appellant
…………………for the Respondent