1. This appeal filed through an amended memorandum of appeal dated 12/7/2022 seeks the setting aside of the judgment of the magistrate’s court dated 5/5/2022 in which the appellant’s suit against the respondent by way of a plaint dated 24/10/2018 was dismissed with costs. The appellant had in his plaint sought the following substantive orders from the trial court:
a. damages for wrongful deductions of the appellant’s salary upon clearing his loan with the respondent.
b. refund of the total amount of the deductions that had been made since April 2018 to the time of filing suit.
c. damages for denial of borrowing loans from other financial institutions due to listing with Credit Reference Bureau (CRB).
2. Alongside the plaint the appellant filed witness statements and various documents to support his case.
3. The respondent filed a statement of defence dated 29/11/2018 and denied the allegations by the appellant. It also filed a witness statement and documents, some of which are common to those of the appellant, to support its case.
4. The case was heard on 8/11/2021. The appellant testified as PW 1 and called one witness PW 2, Sabina Wanjiru Aragu a Human Resource Officer at the appellant’s employer Jaramogi Oginga Odinga University of Science and Technology. The defendant called one witness DW 1, Gregory Vada, Credit Manager Kenya Commercial Bank (KCB) Nakuru branch. All the witnesses relied on their respective filed witness statements and produced relevant documents in support of their respective testimonies.
5. It is common knowledge that the appellant (borrower) was a customer of the respondent (bank) where he operated a loan account No. AA16226YT92R-1058688979 110……17 at the bank’s Nakuru Kenyatta avenue branch. On 12/4/2007 the appellant applied for and the bank granted him a personal loan of KShs 500,000/= as per his witness statement even though in his testimony in court he said it was KShs 400,000/=. The loan was to be repaid within 60 months at the rate of KShs 13,125/= per month at an interest rate of 16% p.a. Repayment was to be made through check-off system by remittances from the appellant’s employer, the Teachers Service Commission (TSC). The repayment of the loan was to commence in May, 2007.
6. In his evidence the appellant (PW1) adopting his witness statement dated 10/9/2018 testified that despite requesting for the loan statements from the respondent none have been furnished to him.
7. According to the appellant, the loan was serviced as agreed with his initial employer TSC making remittances to the bank and it was to be completed, according to the appellant, in 2012. He produced one pay slip for the month of August 2011 as proof. This pay slip showed a deduction of the loan from KCB, the respondent. However, in his testimony in court he said that he stopped working for TSC in March 2011. The bank did not contest the authenticity of the August 2011 pay slip.
8. He later changed employment to Jaramogi Oginga Odinga University of Science and Technology (the university)(at one point called Bondo University College) and notified the bank to liaise with the university to give effect to the deductions from his salary and make remittances for the loan to the bank through check-off system to clear the outstanding balance. The appellant said in evidence that the respondent did not acknowledge the outstanding amount as per the deductions and remittances by TSC. However, according to the appellant, the check-off remittances from the university proceeded uninterrupted because his new employer took them up immediately and went on until July, 2019. However, according to the bank, no repayment of the loan was made from TSC from the date of drawdown until May, 2013 when check-off payments started being made from the appellant’s new employer Jaramogi Oginga Odinga University of Science and Technology. The appellant said in his witness statement that the outstanding amount as at March 2013 was KShs 787,500/= and the deductions from the university started in April 2013. It was repaid at the rate of KShs 13,125/= per month up to July 2019. This was also confirmed by DW 1 in his testimony. That would make total payment of KShs 853,125/= in 65 months.
9. In his evidence DW 1 said that the total amount recoverable from the appellant was KShs 787,500/=. It was supposed to be paid from May 2007 to April 2012 by way of check-off from the appellant’s employer TSC. However, if the employer failed to pay, then the appellant was liable to pay himself. He said that no remittances were made from TSC. He said that the bank started receiving payments for the loan in 2013. In cross-examination, he said that even if the appellant’s pay slip showed that deductions were made from his salary, the same were not remitted to the bank.
10. The learned trial magistrate upon considering the pleadings, evidence of parties and submissions of learned counsels dismissed the case for the appellant finding that the appellant had not proved his case on a balance of probabilities.
11. Dissatisfied with that decision, the appellant filed the present appeal based on some 16 grounds after the amendment. In summary the grounds are that the learned trial magistrate failed to give due regard to the evidence tendered and especially that of the appellant and thus arrived at an erroneous decision both in law and in fact. Each of the grounds is addressed in a wholesome manner herein but not in a manner particular to each ground because many of them are overlapping.
12. The appeal was disposed of by way of written submissions filed by learned counsels for both parties.
13. I have considered the parties pleadings, evidence and submissions.
14. Learned counsel for the appellant summarized their grounds of appeal in the submissions into two headings, which are:
i. Whether the money recovered from appellant exceeded the amount payable in settlement of the loan facility, and if so what are the available remedies?
ii. Whether the respondent wrongfully listed the appellant with the Credit Reference Bureau and if so what are the available remedies?
15. Learned counsel submits that the trial court failed to make a determination on the first issue.
16. Learned counsel for the respondent submits that the appellant failed to provide evidence to support his contention that the loan was being repaid by his previous employer TSC while he worked there. He listed the following issues for determination:
i. Whether the learned magistrate erred in law and in fact in finding that the appellant had repaid his loan in full?
ii. Whether the learned magistrate erred in law and in fact in finding that the negative listing of the appellant at the Credit Reference Bureau was not unlawful?
iii. Whether the learned magistrate erred in law and in fact in finding that the appellant was not entitled to the prayer sought?
17. This being a first appeal, the duty of the court is to re-evaluate, re-analyze and re-consider the evidence and draw its own conclusions, bearing in mind that it did not see witnesses testifying and therefore give due allowance for that. This is the position as held in Selle & another vs. Associated Motor Boat Co. Ltd & others [1968] E.A at page 126 on a first appeal from the High Court to the Court of Appeal that:
“An appeal to this Court from a trial by the High Court is by way of retrial and the principles upon which this Court acts in such an appeal are well settled. Briefly put they are that this Court must reconsider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in this respect. In particular, this court is not bound necessarily to follow the trial judge’s findings of fact if it appears either that he has clearly failed on some point to take account of particular circumstances or probabilities materially to estimate the evidence or if the impression based on the demeanor of a witness is inconsistent with the evidence in the case generally (Abdul Hameed Saif v Ali Mohamed Sholan (1955), 22 E.A.C.A. 270)”.
18. The issues for determination in this appeal as summarized from those presented by the parties are:
i. Whether the loan advanced to the appellant by the respondent has been fully paid and if so, whether there is an overpayment of the said loan by the appellant to the bank.
ii. Whether the respondent wrongfully caused the appellant to be listed by the Credit Reference Bureau as a loan defaulter and if so if the appellant suffered damage and is entitled to damages for injury to reputation.
19. Looking at this case as in many others similar to it, if each party was candid with the other to produce all the relevant documents, place them on the table, the facts would be easily extracted and when the contract between them is considered and the law applied, the case would be straightforward and easily disposed of. What causes this matter to come this far is the lack of candidness on both sides by failing to produce all the documents required.
20. I say so because there is evidence from both sides that the appellant borrowed a personal loan of KShs 500,000/= from the bank. It was a loan with an interest rate of 16% p.a. and a penalty rate of 3% over and above the loan rate for a determinate period of 60 months at a monthly repayment rate of KShs 13,125/= payable through check-off system by the appellant’s employer to the bank. The repayment period running from May, 2007 would have been expected to end in April, 2012. There was no other mode of repayment and the appellant does not allege that he made any other payments other than through check-off system from his employer(s).
21. But here we are over ten years later, without a final solution yet. The reason is quite simple, the parties have failed to produce the documents that would readily solve the dispute at once. So, the court has to work with the limited material available to decide the case one way or the other. The appellant failed to produce all pay slips from his initial employer the TSC which would help to show that deductions were made from his salary and presumably therefore the remittances made to the bank. Yet he insists that the deductions were done by TSC and remittances made to the bank as required.
22. The bank on its part has failed to produce the relevant account statements for the loan for, interestingly and coincidentally the period when the appellant was working with TSC. Its witness says that even if the appellant’s pay slip shows that deductions were made on his salary there were no remittances made to the bank and that remittances only begun after the appellant took up new employment with the university. But there is no statement of account which would back up this assertion. What the witness said remained hearsay.
23. This court requested for the documents from the parties through their learned counsels, by way of taking additional evidence as provided for under the law under Order 42 Rule 27(1)(b). Initially learned counsels indicated that they would make them available only to come later and say that their respective clients could not trace those documents.
24. The documents which one would expect would readily resolve the dispute would be:
i. pay slips from the appellant for the period May 2007 when the deductions were to commence to the time he left employment with the TSC. Instead he produced only one pay slip for the month of August 2011. Yet his evidence is that he left his employment with TSC in March 2011.
ii. Pay slips from his subsequent employer JOOUST from March 2013 to July 2019 when the appellant says the last deductions were made as shown on his pay slip for that month. Only a few pay slips were produced herein.
iii. a statement of account from the bank for the same period of time showing the payments that were made and any period when payments were not made (if at all), the amount that accrued in arrears including the principal sum and interest thereon.
25. As it were each of the parties selectively produced documents that it found favourable to its case rather than those that would resolve the dispute at once.
26. The appellant produced the following documents not in the order in his lists of documents but in the order that is useful for a proper analysis herein:
i. loan agreement dated 13/4/2007. The loan amount is KShs 500,000/=.
ii. a single pay slip from TSC for the month of August, 2011 showing that he was being deducted a loan at the rate of KShs 13,125/= similar to the monthly rate the bank herein was to recover from him as per the loan agreement in (i) above.
iii. Letter dated 5/10/2011 from the appellant to the bank on his change of employment from TSC to the university, his new employer and asking the bank asking to liaise with the university to give effect to the check-off payments for the loan.
iv. Letter dated 6/10/2011 from the bank to the appellant acknowledging the above letter.
v. four copies of pay slips from the university starting from March 2013 to August 2018. They are for the months of March 2013, May, 2013, July 2018 and August 2018.
vi. Letter from the bank dated 16/3/2013 to the university indicating that the outstanding loan was KShs 787,500/= and also that the bank had stopped receiving repayments from the appellant’s previous employer TSC when he resigned from there.
vii. Letter dated 5/6/2018 by the appellant to the bank indicating that he had completed repayment of his loan in March 2018 and he wanted a statement of account for loan repayment, clearance letter and refund of overpayments.
viii. Letter dated 27/6/2018 from the bank to the appellant acknowledging his above letter.
ix. CRB report from Metropol indicating that KCB made the report there.
x. Demand letters from the appellant’s advocates to the bank.
21. On 16/3/2013 the bank wrote to the appellant’s employer then known as Bondo University advising it of the outstanding loan and asking it to give effect to deductions and remit the same to the appellant’s loan account with the bank until the loan was repaid in full or otherwise advised by the bank in writing. It is apparent that this letter was giving effect to the appellant’s request to the bank through the letter dated 5/10/2011. Even though the bank had immediately replied to that letter on 6/10/2011, it is clear that they had not taken steps to have the check-off deductions given effect until 16/3/2013. Indeed, the appellant produced his pay slip for March 2013 and there was no deduction made thereon for repayment of the loan to KCB. The pay slip for May 2013 however shows the deduction of KShs 13,125/= for KCB loan. The balance of the loan is shown as KShs 761,250/=. In the letter dated 16/3/2013 to the appellant’s new employer, the university, the bank had clearly indicated that the outstanding balance was KShs 787,500/= and the repayment would be at the rate of KShs 13,125/= for 60 months.
22. The learned trial magistrate considering this issue found that the KShs 787,500/= outstanding as at 16/3/2013 represented the initial total loan the appellant was expected to repay from May 2007 and therefore it meant that he had not repaid anything. He also found that this amount attracted interest. With respect to the learned trial magistrate, this reasoning was erroneous for the reasons that follow.
23. The appellant said in evidence that his last remittance from TSC to the bank was vide pay slip for the month of August 2011 which he produced in court as exhibit. This pay slip shows that as at this date he was being deducted the sum of KShs 13,125/= and the KCB loan balance was KShs 633,901/=. It is the appellant’s evidence that until this time he had been duly servicing his loan through the TSC check-off system and there was no default at all. However, that cannot be correct because if the remittances were being made regularly, the total repayment would be 52 months translating to KShs 682,500/= and therefore a balance of KShs 105,000/=. The fact that it stood at KShs 633,901/= as per his own evidence shows that he was in default at some point. Therefore, the amount of KShs 633,901/= in the pay slip represents the outstanding amount not what had been paid as argued by learned counsel for the appellant.
24. The bank did not produce a statement of account for the period April 2007 to March 2013 to show the status of the loan as at August 2011. The appellant also gave evidence that no demand letter was sent to him and indeed the bank has not produced any demand letter to the appellant to show that the loan was in arrears and if any penalties had been loaded on the account. Indeed, the loan agreement provided for a penalty of 3%. But the fact of the loan being repaid would only be known to the bank. Even the appellant would not know that his employer TSC was not remitting what was indicated on his pay slip as deduction for KCB loan. Section 112 of the Evidence Act on proof of special knowledge in civil proceedings provides that:
“In civil proceedings, when any fact is especially within the knowledge of any party to those proceedings, the burden of proving or disproving that fact is upon him.”
25. In the case of Kenya Akiba Micro Financing Limited vs. Ezekiel Chebii & 14 others [2012] eKLR the court after considering the above provision of the law stated as follows:
“Where a party has custody or is in control of evidence which that party fails or refuses to tender or produce, the court is entitled to make adverse inference that if such evidence was produced, it would be adverse to such a party. In the case of Kimotho –vs- KCB (2003) 1 EA 108 the court held that adverse inference should be drawn upon a party who fails to call evidence in his possession.”
26. Whether or not the money was in fact remitted to the bank was especially within the knowledge of the bank and therefore the burden to prove that it was not was upon it. By failing to produce the bank statement for the stated period, it failed to prove that assertion. The appellant only relied on the pay slip provided by his employer to know that the loan was being serviced. He produced one in evidence showing that deductions were being made. The same was not disputed by the bank as not being authentic. Without a statement from the bank he would not know whether remittances were being made by his employer or not. From the agreement, the bank knew that the remittances would come from the employer, TSC at the time. So, the bank’s contention that even if the deductions were shown on the pay slip there were no remittances to the bank cannot hold. It could not have sat pretty comfortable for over four years without raising any issue with the appellant that his loan account was in arrears.
27. I therefore draw the inference that the bank’s failure to produce the statement of account would have confirmed that in fact the appellant was servicing his loan as per the agreement from May 2007 until August 2011 when he changed his employer. In that case, I find that up until August 2011 the appellant duly serviced his loan albeit not continuously as per the terms of the loan agreement. The outstanding amount as at August 2011 was KShs 633,901/=.
28. There was a hiatus in the repayments between September 2011 to April 2013, a period of 19 months. This is in spite of the fact that the appellant had almost immediately informed the bank of his change in employment through his letter of 5/11/2011. It is true that it was the appellant’s responsibility to ensure that the loan was serviced, either through check-off or otherwise. However, seeing that as soon as the bank wrote to the university to give effect to the deductions, the remittances were given effect, I find it to have been the case that until the bank took that step, the deductions would not have been made. Consequently, it was the bank that delayed and therefore neglected to take steps to ensure that it informed the appellant’s new employer to make the deductions from his salary and remit it to the bank.
29. When a loan is not being serviced or that is, when the account holder is in default for a long time, the law calls it a non-performing loan (section 44A of the Banking Act). It is apparent that at some point, that is, between September 2011 to April 2013, a period of 19 months, no repayments were made to the bank. So, the appellant’s account was non-performing. An account becomes non-performing when it becomes inactive for a considerable period of time. Under Section 44A(2)(b) of the Banking Act (Cap. 488) Laws of Kenya the maximum amount that a bank may recover from a debtor with respect to a non-performing loan is:
(a) the principal owing when the loan becomes non-performing;
(b) interest, in accordance with the contract between the debtor and the institution, not exceeding the principal owing when the loan becomes non-performing; and
(c) expenses incurred in the recovery of any amounts owed by the debtor.
30. It is highly probable and I wish to deduce from the evidence that the loan balance as at September 2011 when remittances from TSC stopped to April, 2013 when they resumed from the university, the principal, interest and penalties thereon had caused the loan to rise exponentially, up to the sum of KShs 751,254.62 shown as the balance brought forward in the statement of account supplied which commences transactions on 1/1/2013. This I believe was on application of the in duplum rule captured under section 44A of the Banking Act above. That is probably why the bank never loaded further penalties for non-servicing of the loan. That, according to me is why when the loan resumed to be performing, it started at KShs 787,500/=. This was the only amount due and owing by the appellant to the bank. Therefore, the argument by the bank that there were some other penalties for the default which are not contained in the sum of KShs 787,500/= has no basis at all because they are not substantiated.
31. The next issue is therefore whether or not the appellant cleared this amount and if so, when?
32. There is evidence that the university acted on the bank’s letter of 16/3/2013 and initiated in April, 2013 and subsequently dutifully made the monthly deductions and remittances to the bank. Going by the pay slip for May 2013 produced at the trial by the appellant and which was not disputed by the bank, it will mean that the deductions began in April 2013 so that by May 2013 two months installments totaling KShs 26,250/= had been made and that is what took the balance to KShs 761,250/= as indicated in the pay slip for May 2013 as the balance outstanding for the bank.
33. As indicated above, during the period August 2007 to March 2013 and even after this date, the bank never wrote to the appellant telling him of any other outstanding amount other than KShs 787,500/=. Equally, the statement of account provided by the bank is consistent with this figure. Therefore, in case there was any penalty, which I have found there was not, the bank is estopped from claiming the same from the appellant. It made a representation to him through his employer that his indebtedness to the bank as at March 2013 was KShs 787,500/= and outlined how that money was to be repaid. The appellant through his employer dutifully made the repayments. The bank never notified the appellant, as there is no evidence to that effect, other than the word of DW 1 that there were other penalties accrued which were not covered in the KShs 787,500/=. There is no indication that there was any default in the repayments of this sum. The appellant had a legitimate expectation that after consistently repaying the loan by check-off through his employer for 60 months as advised in the letter of 16/3/2013, the loan will be cleared. This was going to be in March 2018. There is no indication that during the 60 months period, the appellant defaulted in repayment or requested for further accommodation for any further or other credit on the same account and terms with the bank.
34. The loan statement of account for the appellant produced runs from 1/1/2013 where the opening balance was KShs 751,254.62. It continued attracting interest every month until April, 2013 where it stood at KShs 769,542.47. It is common knowledge that no remittances were made by the appellant’s employer until April, 2013 when the remittances from the new employer began at the same old rate of KShs 13,125/=. But an item indicated as a Loan Top-up/Adjustment of KShs 183,049.30 appears in the statement of account on 20/5/2013 which made the total outstanding loan to rise to KShs 952,591.77. This top-up loan was then applied to offset part of the outstanding loan described in the statement of account as “Principal Capitalized arrears repayment” for the months of March 2012 to March 2013 when the repayments were regularized through check-off from the appellant’s employer as from April, 2013.
35. In the absence of a contrary explanation from the bank, I can only find that this transaction took care of the penalties that had accrued on the loan from March 2012 to March 2013. This amount having been loaded onto the appellant’s account, the contention by the bank that when they wrote to the university that the outstanding amount was 787,500/= had not factored in penalties cannot hold sway. More so, because the bank has not produced any other statement to support this assertion. In any case, why did it not include it in the amount in the letter to the university?
36. I have looked at the loan statement and it indicates that as at 25/3/2013 the loan balance stood at KShs 782,667.42, very close to the loan balance of KShs 787,500/= which the bank indicated to the appellant’s employer that was outstanding. The amount of KShs 778,369.77 mentioned by DW 1 in his evidence came after the first check-off payment from the university had been made. So, which was this top-up loan that was applied to offset the outstanding loan? This top-up loan which would then take the loan to its initial sum of KShs 787,500/= and for the appellant to begin the repayments afresh. I find no better explanation than this.
37. On 5/10/2011, the appellant wrote to the bank informing it of his change of employment from TSC to Bondo University College and asked it to liaise with his employer to give effect to the check-off system for the repayment of his loan. He also requested for account statements from the bank from May 2007 to the date of the letter for him to confirm remittance of the loan repayments from TSC and the outstanding loan. He said the bank wrote to him on immediately on 6/10/2011 acknowledging his said letter of 5/10/2011. However, it never supplied him with the account statements as requested. Indeed, the same were not produced herein as exhibits.
38. It is the appellant’s contention that any deductions by his employer and remittances made to the bank after March 2018 were overpayments and he is entitled to a refund of the same. He also said that in spite of having repaid the bank its money by March 2018, the bank went ahead and reported him to the Credit Reference Bureau afterwards and he was blacklisted and denied credit by other lending institutions.
39. The bank on its part said that the appellant never paid any money to service the loan from 2007 to May 2013. That the bank never received funds from TSC even if the same was deducted. However, as found above, there is no statement of account by the bank to support the assertion that the deductions were not being remitted to the bank. There is also no demand written to the appellant to regularize his loan account. The letter the appellant wrote to the bank asking it to liaise with the university to give effect to the deductions sought the statement of account for among others, the appellant to ascertain the remittances by TSC that far. There was no response to that letter in the line of what DW 1 said in his evidence and therefore his evidence is hearsay and unreliable.
40. DW 1 said that the old loan matured in April 2014 with a balance of KShs 756,256.77. However, this sum appears for the date of 18th August, 2014 and not April under account No. MG0829067576. The next entry in the statement of account is again 18/8/2014 with a balance of KShs 768,991.72 under account No. MG1423000135. There is no explanation of the discrepancy in the two balances. Most fundamentally, DW 1 said that this action was done without information to the appellant. That was a fundamental mistake on the part of the bank. All the same the significant issue is that the appellant continued to make the payments through remittances by his employer, the university. This statement of account ends on 12/8/2016 with a balance of KShs 677,701.92 outstanding. The next bit of the statement starts on 3/11/2017 and ends with 30/11/2018 with a balance of KShs 514,750.22. The statement is not quite legible so one has to strain the eye in order to decipher the content in that statement. There is no statement of account for the period 13/8/2016 to 2/11/2017.
41. DW 1 said that the deductions were stopped in July 2019 with an outstanding loan of KShs 442,949.52 and this was written off in April, 2021 by CBK. PW 2 said that the deductions were stopped after the university received a letter to stop from advocate for the appellant. There is no indication that the bank demanded that the appellant continues servicing his alleged outstanding loan. That to me is an indication that the bank had acknowledged that they had continued to receive the remittances long after they were to be stopped in March 2018.
42. In the absence of account statements for the period May 2007 to May, 2013 it is difficult to not to believe the appellant’s evidence, supported by the single pay slip from TSC for August 2011 that the loan was being regularly serviced and he had made payments of up to KShs 633,901/= to the bank before he moved employment to the university.
43. It is therefore my finding that the loan the appellant was advanced by the bank in April, 2007 was serviced to completion in March 2018. Any other sums deducted from the appellant’s salary and remitted to the bank were in excess of what he was required to pay and he is entitled to a refund of the same. He did not indicate how much it was but I believe that the same can be calculated between the bank and the appellant and a refund made. It is so directed that the same be done within 30 days from the date of this judgment.
44. The respondent did not contest the fact that it listed the appellant with the CRB. DW 1 said that the bank was entitled to do so since the appellant was in default. From the foregoing analysis of the evidence, it is apparent that the listing was wrong as the appellant had fully serviced his loan and in fact, deductions were still being made from his salary. I therefore find that he suffered damage for disrepute to credit and reputation. He is therefore entitled to general damages for disrepute to credit and reputation. Although he alleges that the said listing caused him a loan from Family Bank, I have seen on his pay slip deductions for loan from Family Bank meaning that the listing was lifted and did not take long. I have considered the various decisions cited by learned counsel for the appellant and going by the case of Namalwa Christine Masinde v. National Bank of Kenya Ltd [2016] eKLR I assess general damages for the appellant at KShs 1,500,000/=.
45. Consequently, I find that the appeal has merit and I allow the same. The judgment of the learned trial magistrate is hereby set aside and substituted with entering judgment for the appellant against the respondent in terms that:
a. The appellant is entitled to a refund of the monies remitted to the bank by the university between the period April 2018 to July 2019.
b. The appellant is awarded general damages KShs 1,500,000/= for disrepute to credit.
c. The appellant gets the costs in the lower court and in this court and interest.
46. Orders accordingly.
Judgment delivered, dated and signed on the Virtual Platform, Teams this 2nd day of December 2024
ANDAYI W. FRANCIS
JUDGE
In the presence of:
N/A for Appellant.
Ooko for the Respondent.
Etropia Court Assistant.
30 days Right of Appeal granted.
a. damages for wrongful deductions of the appellant’s salary upon clearing his loan with the respondent.
b. refund of the total amount of the deductions that had been made since April 2018 to the time of filing suit.
c. damages for denial of borrowing loans from other financial institutions due to listing with Credit Reference Bureau (CRB).
2. Alongside the plaint the appellant filed witness statements and various documents to support his case.
3. The respondent filed a statement of defence dated 29/11/2018 and denied the allegations by the appellant. It also filed a witness statement and documents, some of which are common to those of the appellant, to support its case.
4. The case was heard on 8/11/2021. The appellant testified as PW 1 and called one witness PW 2, Sabina Wanjiru Aragu a Human Resource Officer at the appellant’s employer Jaramogi Oginga Odinga University of Science and Technology. The defendant called one witness DW 1, Gregory Vada, Credit Manager Kenya Commercial Bank (KCB) Nakuru branch. All the witnesses relied on their respective filed witness statements and produced relevant documents in support of their respective testimonies.
5. It is common knowledge that the appellant (borrower) was a customer of the respondent (bank) where he operated a loan account No. AA16226YT92R-1058688979 110……17 at the bank’s Nakuru Kenyatta avenue branch. On 12/4/2007 the appellant applied for and the bank granted him a personal loan of KShs 500,000/= as per his witness statement even though in his testimony in court he said it was KShs 400,000/=. The loan was to be repaid within 60 months at the rate of KShs 13,125/= per month at an interest rate of 16% p.a. Repayment was to be made through check-off system by remittances from the appellant’s employer, the Teachers Service Commission (TSC). The repayment of the loan was to commence in May, 2007.
6. In his evidence the appellant (PW1) adopting his witness statement dated 10/9/2018 testified that despite requesting for the loan statements from the respondent none have been furnished to him.
7. According to the appellant, the loan was serviced as agreed with his initial employer TSC making remittances to the bank and it was to be completed, according to the appellant, in 2012. He produced one pay slip for the month of August 2011 as proof. This pay slip showed a deduction of the loan from KCB, the respondent. However, in his testimony in court he said that he stopped working for TSC in March 2011. The bank did not contest the authenticity of the August 2011 pay slip.
8. He later changed employment to Jaramogi Oginga Odinga University of Science and Technology (the university)(at one point called Bondo University College) and notified the bank to liaise with the university to give effect to the deductions from his salary and make remittances for the loan to the bank through check-off system to clear the outstanding balance. The appellant said in evidence that the respondent did not acknowledge the outstanding amount as per the deductions and remittances by TSC. However, according to the appellant, the check-off remittances from the university proceeded uninterrupted because his new employer took them up immediately and went on until July, 2019. However, according to the bank, no repayment of the loan was made from TSC from the date of drawdown until May, 2013 when check-off payments started being made from the appellant’s new employer Jaramogi Oginga Odinga University of Science and Technology. The appellant said in his witness statement that the outstanding amount as at March 2013 was KShs 787,500/= and the deductions from the university started in April 2013. It was repaid at the rate of KShs 13,125/= per month up to July 2019. This was also confirmed by DW 1 in his testimony. That would make total payment of KShs 853,125/= in 65 months.
9. In his evidence DW 1 said that the total amount recoverable from the appellant was KShs 787,500/=. It was supposed to be paid from May 2007 to April 2012 by way of check-off from the appellant’s employer TSC. However, if the employer failed to pay, then the appellant was liable to pay himself. He said that no remittances were made from TSC. He said that the bank started receiving payments for the loan in 2013. In cross-examination, he said that even if the appellant’s pay slip showed that deductions were made from his salary, the same were not remitted to the bank.
10. The learned trial magistrate upon considering the pleadings, evidence of parties and submissions of learned counsels dismissed the case for the appellant finding that the appellant had not proved his case on a balance of probabilities.
11. Dissatisfied with that decision, the appellant filed the present appeal based on some 16 grounds after the amendment. In summary the grounds are that the learned trial magistrate failed to give due regard to the evidence tendered and especially that of the appellant and thus arrived at an erroneous decision both in law and in fact. Each of the grounds is addressed in a wholesome manner herein but not in a manner particular to each ground because many of them are overlapping.
12. The appeal was disposed of by way of written submissions filed by learned counsels for both parties.
13. I have considered the parties pleadings, evidence and submissions.
14. Learned counsel for the appellant summarized their grounds of appeal in the submissions into two headings, which are:
i. Whether the money recovered from appellant exceeded the amount payable in settlement of the loan facility, and if so what are the available remedies?
ii. Whether the respondent wrongfully listed the appellant with the Credit Reference Bureau and if so what are the available remedies?
15. Learned counsel submits that the trial court failed to make a determination on the first issue.
16. Learned counsel for the respondent submits that the appellant failed to provide evidence to support his contention that the loan was being repaid by his previous employer TSC while he worked there. He listed the following issues for determination:
i. Whether the learned magistrate erred in law and in fact in finding that the appellant had repaid his loan in full?
ii. Whether the learned magistrate erred in law and in fact in finding that the negative listing of the appellant at the Credit Reference Bureau was not unlawful?
iii. Whether the learned magistrate erred in law and in fact in finding that the appellant was not entitled to the prayer sought?
17. This being a first appeal, the duty of the court is to re-evaluate, re-analyze and re-consider the evidence and draw its own conclusions, bearing in mind that it did not see witnesses testifying and therefore give due allowance for that. This is the position as held in Selle & another vs. Associated Motor Boat Co. Ltd & others [1968] E.A at page 126 on a first appeal from the High Court to the Court of Appeal that:
“An appeal to this Court from a trial by the High Court is by way of retrial and the principles upon which this Court acts in such an appeal are well settled. Briefly put they are that this Court must reconsider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in this respect. In particular, this court is not bound necessarily to follow the trial judge’s findings of fact if it appears either that he has clearly failed on some point to take account of particular circumstances or probabilities materially to estimate the evidence or if the impression based on the demeanor of a witness is inconsistent with the evidence in the case generally (Abdul Hameed Saif v Ali Mohamed Sholan (1955), 22 E.A.C.A. 270)”.
18. The issues for determination in this appeal as summarized from those presented by the parties are:
i. Whether the loan advanced to the appellant by the respondent has been fully paid and if so, whether there is an overpayment of the said loan by the appellant to the bank.
ii. Whether the respondent wrongfully caused the appellant to be listed by the Credit Reference Bureau as a loan defaulter and if so if the appellant suffered damage and is entitled to damages for injury to reputation.
19. Looking at this case as in many others similar to it, if each party was candid with the other to produce all the relevant documents, place them on the table, the facts would be easily extracted and when the contract between them is considered and the law applied, the case would be straightforward and easily disposed of. What causes this matter to come this far is the lack of candidness on both sides by failing to produce all the documents required.
20. I say so because there is evidence from both sides that the appellant borrowed a personal loan of KShs 500,000/= from the bank. It was a loan with an interest rate of 16% p.a. and a penalty rate of 3% over and above the loan rate for a determinate period of 60 months at a monthly repayment rate of KShs 13,125/= payable through check-off system by the appellant’s employer to the bank. The repayment period running from May, 2007 would have been expected to end in April, 2012. There was no other mode of repayment and the appellant does not allege that he made any other payments other than through check-off system from his employer(s).
21. But here we are over ten years later, without a final solution yet. The reason is quite simple, the parties have failed to produce the documents that would readily solve the dispute at once. So, the court has to work with the limited material available to decide the case one way or the other. The appellant failed to produce all pay slips from his initial employer the TSC which would help to show that deductions were made from his salary and presumably therefore the remittances made to the bank. Yet he insists that the deductions were done by TSC and remittances made to the bank as required.
22. The bank on its part has failed to produce the relevant account statements for the loan for, interestingly and coincidentally the period when the appellant was working with TSC. Its witness says that even if the appellant’s pay slip shows that deductions were made on his salary there were no remittances made to the bank and that remittances only begun after the appellant took up new employment with the university. But there is no statement of account which would back up this assertion. What the witness said remained hearsay.
23. This court requested for the documents from the parties through their learned counsels, by way of taking additional evidence as provided for under the law under Order 42 Rule 27(1)(b). Initially learned counsels indicated that they would make them available only to come later and say that their respective clients could not trace those documents.
24. The documents which one would expect would readily resolve the dispute would be:
i. pay slips from the appellant for the period May 2007 when the deductions were to commence to the time he left employment with the TSC. Instead he produced only one pay slip for the month of August 2011. Yet his evidence is that he left his employment with TSC in March 2011.
ii. Pay slips from his subsequent employer JOOUST from March 2013 to July 2019 when the appellant says the last deductions were made as shown on his pay slip for that month. Only a few pay slips were produced herein.
iii. a statement of account from the bank for the same period of time showing the payments that were made and any period when payments were not made (if at all), the amount that accrued in arrears including the principal sum and interest thereon.
25. As it were each of the parties selectively produced documents that it found favourable to its case rather than those that would resolve the dispute at once.
26. The appellant produced the following documents not in the order in his lists of documents but in the order that is useful for a proper analysis herein:
i. loan agreement dated 13/4/2007. The loan amount is KShs 500,000/=.
ii. a single pay slip from TSC for the month of August, 2011 showing that he was being deducted a loan at the rate of KShs 13,125/= similar to the monthly rate the bank herein was to recover from him as per the loan agreement in (i) above.
iii. Letter dated 5/10/2011 from the appellant to the bank on his change of employment from TSC to the university, his new employer and asking the bank asking to liaise with the university to give effect to the check-off payments for the loan.
iv. Letter dated 6/10/2011 from the bank to the appellant acknowledging the above letter.
v. four copies of pay slips from the university starting from March 2013 to August 2018. They are for the months of March 2013, May, 2013, July 2018 and August 2018.
vi. Letter from the bank dated 16/3/2013 to the university indicating that the outstanding loan was KShs 787,500/= and also that the bank had stopped receiving repayments from the appellant’s previous employer TSC when he resigned from there.
vii. Letter dated 5/6/2018 by the appellant to the bank indicating that he had completed repayment of his loan in March 2018 and he wanted a statement of account for loan repayment, clearance letter and refund of overpayments.
viii. Letter dated 27/6/2018 from the bank to the appellant acknowledging his above letter.
ix. CRB report from Metropol indicating that KCB made the report there.
x. Demand letters from the appellant’s advocates to the bank.
21. On 16/3/2013 the bank wrote to the appellant’s employer then known as Bondo University advising it of the outstanding loan and asking it to give effect to deductions and remit the same to the appellant’s loan account with the bank until the loan was repaid in full or otherwise advised by the bank in writing. It is apparent that this letter was giving effect to the appellant’s request to the bank through the letter dated 5/10/2011. Even though the bank had immediately replied to that letter on 6/10/2011, it is clear that they had not taken steps to have the check-off deductions given effect until 16/3/2013. Indeed, the appellant produced his pay slip for March 2013 and there was no deduction made thereon for repayment of the loan to KCB. The pay slip for May 2013 however shows the deduction of KShs 13,125/= for KCB loan. The balance of the loan is shown as KShs 761,250/=. In the letter dated 16/3/2013 to the appellant’s new employer, the university, the bank had clearly indicated that the outstanding balance was KShs 787,500/= and the repayment would be at the rate of KShs 13,125/= for 60 months.
22. The learned trial magistrate considering this issue found that the KShs 787,500/= outstanding as at 16/3/2013 represented the initial total loan the appellant was expected to repay from May 2007 and therefore it meant that he had not repaid anything. He also found that this amount attracted interest. With respect to the learned trial magistrate, this reasoning was erroneous for the reasons that follow.
23. The appellant said in evidence that his last remittance from TSC to the bank was vide pay slip for the month of August 2011 which he produced in court as exhibit. This pay slip shows that as at this date he was being deducted the sum of KShs 13,125/= and the KCB loan balance was KShs 633,901/=. It is the appellant’s evidence that until this time he had been duly servicing his loan through the TSC check-off system and there was no default at all. However, that cannot be correct because if the remittances were being made regularly, the total repayment would be 52 months translating to KShs 682,500/= and therefore a balance of KShs 105,000/=. The fact that it stood at KShs 633,901/= as per his own evidence shows that he was in default at some point. Therefore, the amount of KShs 633,901/= in the pay slip represents the outstanding amount not what had been paid as argued by learned counsel for the appellant.
24. The bank did not produce a statement of account for the period April 2007 to March 2013 to show the status of the loan as at August 2011. The appellant also gave evidence that no demand letter was sent to him and indeed the bank has not produced any demand letter to the appellant to show that the loan was in arrears and if any penalties had been loaded on the account. Indeed, the loan agreement provided for a penalty of 3%. But the fact of the loan being repaid would only be known to the bank. Even the appellant would not know that his employer TSC was not remitting what was indicated on his pay slip as deduction for KCB loan. Section 112 of the Evidence Act on proof of special knowledge in civil proceedings provides that:
“In civil proceedings, when any fact is especially within the knowledge of any party to those proceedings, the burden of proving or disproving that fact is upon him.”
25. In the case of Kenya Akiba Micro Financing Limited vs. Ezekiel Chebii & 14 others [2012] eKLR the court after considering the above provision of the law stated as follows:
“Where a party has custody or is in control of evidence which that party fails or refuses to tender or produce, the court is entitled to make adverse inference that if such evidence was produced, it would be adverse to such a party. In the case of Kimotho –vs- KCB (2003) 1 EA 108 the court held that adverse inference should be drawn upon a party who fails to call evidence in his possession.”
26. Whether or not the money was in fact remitted to the bank was especially within the knowledge of the bank and therefore the burden to prove that it was not was upon it. By failing to produce the bank statement for the stated period, it failed to prove that assertion. The appellant only relied on the pay slip provided by his employer to know that the loan was being serviced. He produced one in evidence showing that deductions were being made. The same was not disputed by the bank as not being authentic. Without a statement from the bank he would not know whether remittances were being made by his employer or not. From the agreement, the bank knew that the remittances would come from the employer, TSC at the time. So, the bank’s contention that even if the deductions were shown on the pay slip there were no remittances to the bank cannot hold. It could not have sat pretty comfortable for over four years without raising any issue with the appellant that his loan account was in arrears.
27. I therefore draw the inference that the bank’s failure to produce the statement of account would have confirmed that in fact the appellant was servicing his loan as per the agreement from May 2007 until August 2011 when he changed his employer. In that case, I find that up until August 2011 the appellant duly serviced his loan albeit not continuously as per the terms of the loan agreement. The outstanding amount as at August 2011 was KShs 633,901/=.
28. There was a hiatus in the repayments between September 2011 to April 2013, a period of 19 months. This is in spite of the fact that the appellant had almost immediately informed the bank of his change in employment through his letter of 5/11/2011. It is true that it was the appellant’s responsibility to ensure that the loan was serviced, either through check-off or otherwise. However, seeing that as soon as the bank wrote to the university to give effect to the deductions, the remittances were given effect, I find it to have been the case that until the bank took that step, the deductions would not have been made. Consequently, it was the bank that delayed and therefore neglected to take steps to ensure that it informed the appellant’s new employer to make the deductions from his salary and remit it to the bank.
29. When a loan is not being serviced or that is, when the account holder is in default for a long time, the law calls it a non-performing loan (section 44A of the Banking Act). It is apparent that at some point, that is, between September 2011 to April 2013, a period of 19 months, no repayments were made to the bank. So, the appellant’s account was non-performing. An account becomes non-performing when it becomes inactive for a considerable period of time. Under Section 44A(2)(b) of the Banking Act (Cap. 488) Laws of Kenya the maximum amount that a bank may recover from a debtor with respect to a non-performing loan is:
(a) the principal owing when the loan becomes non-performing;
(b) interest, in accordance with the contract between the debtor and the institution, not exceeding the principal owing when the loan becomes non-performing; and
(c) expenses incurred in the recovery of any amounts owed by the debtor.
30. It is highly probable and I wish to deduce from the evidence that the loan balance as at September 2011 when remittances from TSC stopped to April, 2013 when they resumed from the university, the principal, interest and penalties thereon had caused the loan to rise exponentially, up to the sum of KShs 751,254.62 shown as the balance brought forward in the statement of account supplied which commences transactions on 1/1/2013. This I believe was on application of the in duplum rule captured under section 44A of the Banking Act above. That is probably why the bank never loaded further penalties for non-servicing of the loan. That, according to me is why when the loan resumed to be performing, it started at KShs 787,500/=. This was the only amount due and owing by the appellant to the bank. Therefore, the argument by the bank that there were some other penalties for the default which are not contained in the sum of KShs 787,500/= has no basis at all because they are not substantiated.
31. The next issue is therefore whether or not the appellant cleared this amount and if so, when?
32. There is evidence that the university acted on the bank’s letter of 16/3/2013 and initiated in April, 2013 and subsequently dutifully made the monthly deductions and remittances to the bank. Going by the pay slip for May 2013 produced at the trial by the appellant and which was not disputed by the bank, it will mean that the deductions began in April 2013 so that by May 2013 two months installments totaling KShs 26,250/= had been made and that is what took the balance to KShs 761,250/= as indicated in the pay slip for May 2013 as the balance outstanding for the bank.
33. As indicated above, during the period August 2007 to March 2013 and even after this date, the bank never wrote to the appellant telling him of any other outstanding amount other than KShs 787,500/=. Equally, the statement of account provided by the bank is consistent with this figure. Therefore, in case there was any penalty, which I have found there was not, the bank is estopped from claiming the same from the appellant. It made a representation to him through his employer that his indebtedness to the bank as at March 2013 was KShs 787,500/= and outlined how that money was to be repaid. The appellant through his employer dutifully made the repayments. The bank never notified the appellant, as there is no evidence to that effect, other than the word of DW 1 that there were other penalties accrued which were not covered in the KShs 787,500/=. There is no indication that there was any default in the repayments of this sum. The appellant had a legitimate expectation that after consistently repaying the loan by check-off through his employer for 60 months as advised in the letter of 16/3/2013, the loan will be cleared. This was going to be in March 2018. There is no indication that during the 60 months period, the appellant defaulted in repayment or requested for further accommodation for any further or other credit on the same account and terms with the bank.
34. The loan statement of account for the appellant produced runs from 1/1/2013 where the opening balance was KShs 751,254.62. It continued attracting interest every month until April, 2013 where it stood at KShs 769,542.47. It is common knowledge that no remittances were made by the appellant’s employer until April, 2013 when the remittances from the new employer began at the same old rate of KShs 13,125/=. But an item indicated as a Loan Top-up/Adjustment of KShs 183,049.30 appears in the statement of account on 20/5/2013 which made the total outstanding loan to rise to KShs 952,591.77. This top-up loan was then applied to offset part of the outstanding loan described in the statement of account as “Principal Capitalized arrears repayment” for the months of March 2012 to March 2013 when the repayments were regularized through check-off from the appellant’s employer as from April, 2013.
35. In the absence of a contrary explanation from the bank, I can only find that this transaction took care of the penalties that had accrued on the loan from March 2012 to March 2013. This amount having been loaded onto the appellant’s account, the contention by the bank that when they wrote to the university that the outstanding amount was 787,500/= had not factored in penalties cannot hold sway. More so, because the bank has not produced any other statement to support this assertion. In any case, why did it not include it in the amount in the letter to the university?
36. I have looked at the loan statement and it indicates that as at 25/3/2013 the loan balance stood at KShs 782,667.42, very close to the loan balance of KShs 787,500/= which the bank indicated to the appellant’s employer that was outstanding. The amount of KShs 778,369.77 mentioned by DW 1 in his evidence came after the first check-off payment from the university had been made. So, which was this top-up loan that was applied to offset the outstanding loan? This top-up loan which would then take the loan to its initial sum of KShs 787,500/= and for the appellant to begin the repayments afresh. I find no better explanation than this.
37. On 5/10/2011, the appellant wrote to the bank informing it of his change of employment from TSC to Bondo University College and asked it to liaise with his employer to give effect to the check-off system for the repayment of his loan. He also requested for account statements from the bank from May 2007 to the date of the letter for him to confirm remittance of the loan repayments from TSC and the outstanding loan. He said the bank wrote to him on immediately on 6/10/2011 acknowledging his said letter of 5/10/2011. However, it never supplied him with the account statements as requested. Indeed, the same were not produced herein as exhibits.
38. It is the appellant’s contention that any deductions by his employer and remittances made to the bank after March 2018 were overpayments and he is entitled to a refund of the same. He also said that in spite of having repaid the bank its money by March 2018, the bank went ahead and reported him to the Credit Reference Bureau afterwards and he was blacklisted and denied credit by other lending institutions.
39. The bank on its part said that the appellant never paid any money to service the loan from 2007 to May 2013. That the bank never received funds from TSC even if the same was deducted. However, as found above, there is no statement of account by the bank to support the assertion that the deductions were not being remitted to the bank. There is also no demand written to the appellant to regularize his loan account. The letter the appellant wrote to the bank asking it to liaise with the university to give effect to the deductions sought the statement of account for among others, the appellant to ascertain the remittances by TSC that far. There was no response to that letter in the line of what DW 1 said in his evidence and therefore his evidence is hearsay and unreliable.
40. DW 1 said that the old loan matured in April 2014 with a balance of KShs 756,256.77. However, this sum appears for the date of 18th August, 2014 and not April under account No. MG0829067576. The next entry in the statement of account is again 18/8/2014 with a balance of KShs 768,991.72 under account No. MG1423000135. There is no explanation of the discrepancy in the two balances. Most fundamentally, DW 1 said that this action was done without information to the appellant. That was a fundamental mistake on the part of the bank. All the same the significant issue is that the appellant continued to make the payments through remittances by his employer, the university. This statement of account ends on 12/8/2016 with a balance of KShs 677,701.92 outstanding. The next bit of the statement starts on 3/11/2017 and ends with 30/11/2018 with a balance of KShs 514,750.22. The statement is not quite legible so one has to strain the eye in order to decipher the content in that statement. There is no statement of account for the period 13/8/2016 to 2/11/2017.
41. DW 1 said that the deductions were stopped in July 2019 with an outstanding loan of KShs 442,949.52 and this was written off in April, 2021 by CBK. PW 2 said that the deductions were stopped after the university received a letter to stop from advocate for the appellant. There is no indication that the bank demanded that the appellant continues servicing his alleged outstanding loan. That to me is an indication that the bank had acknowledged that they had continued to receive the remittances long after they were to be stopped in March 2018.
42. In the absence of account statements for the period May 2007 to May, 2013 it is difficult to not to believe the appellant’s evidence, supported by the single pay slip from TSC for August 2011 that the loan was being regularly serviced and he had made payments of up to KShs 633,901/= to the bank before he moved employment to the university.
43. It is therefore my finding that the loan the appellant was advanced by the bank in April, 2007 was serviced to completion in March 2018. Any other sums deducted from the appellant’s salary and remitted to the bank were in excess of what he was required to pay and he is entitled to a refund of the same. He did not indicate how much it was but I believe that the same can be calculated between the bank and the appellant and a refund made. It is so directed that the same be done within 30 days from the date of this judgment.
44. The respondent did not contest the fact that it listed the appellant with the CRB. DW 1 said that the bank was entitled to do so since the appellant was in default. From the foregoing analysis of the evidence, it is apparent that the listing was wrong as the appellant had fully serviced his loan and in fact, deductions were still being made from his salary. I therefore find that he suffered damage for disrepute to credit and reputation. He is therefore entitled to general damages for disrepute to credit and reputation. Although he alleges that the said listing caused him a loan from Family Bank, I have seen on his pay slip deductions for loan from Family Bank meaning that the listing was lifted and did not take long. I have considered the various decisions cited by learned counsel for the appellant and going by the case of Namalwa Christine Masinde v. National Bank of Kenya Ltd [2016] eKLR I assess general damages for the appellant at KShs 1,500,000/=.
45. Consequently, I find that the appeal has merit and I allow the same. The judgment of the learned trial magistrate is hereby set aside and substituted with entering judgment for the appellant against the respondent in terms that:
a. The appellant is entitled to a refund of the monies remitted to the bank by the university between the period April 2018 to July 2019.
b. The appellant is awarded general damages KShs 1,500,000/= for disrepute to credit.
c. The appellant gets the costs in the lower court and in this court and interest.
46. Orders accordingly.
Judgment delivered, dated and signed on the Virtual Platform, Teams this 2nd day of December 2024
ANDAYI W. FRANCIS
JUDGE
In the presence of:
N/A for Appellant.
Ooko for the Respondent.
Etropia Court Assistant.
30 days Right of Appeal granted.