REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA AT NAIROBI
MILIMANI CIVIL APPELLATE DIVISION
CIVIL APPEAL NO. e1482 OF 2023
(CORAM: ANDAYI W. F., J.)
WILFRED JARED MALOBA.................…………………………..APPELLANT
VERSUS
NORTHWAVE CREDIT LIMITED.……………………………. RESPONDENT
(Being an appeal from the judgment and decree of the Hon. Wamae E.M. Miundi Resident Magistrate delivered on 8 th December 2023 at the Small Claims Court Milimani in SCCC No. E6018 of 2023)
JUDGMENT
1. The appeal herein was filed through a memorandum dated 22 nd December 2023. It challenges the judgment of the learned Adjudicator delivered on 8 th December 2023 and the ensuing decree of the same date.
2. The dispute between the parties does not seem to be complicated. It is captured in the claim filed by the appellant dated 20 th July 2023, the response thereto by the respondent dated 11 th September 2023 and their respective witness statements filed alongside the pleadings.
3. It is not disputed that the respondent advanced to the appellant a loan of KShs 956,000/= made up of KShs 860,000/= as the sum advanced and KShs 96,600/= as the processing fees making a total of KShs 956,000/= as the principal sum. This sum appears in clause 7 of the loan agreement between the parties. The clause provides that:
“The Borrower commits to repay the borrowed amount of KShs 956,600/= together with total interest payable in monthly installments of KShs 61,837 (SIXTY-ONE THOUSAND EIGHT HUNDRED AND THIRTY-SEVEN) per month until payment is made in full.
The loan will be charged at the following interest formula REDUCING BALANCE as per the letter of offer.”
4. There is a letter of offer dated 7 th November 2022. It contains many more terms of the contract between the parties. Among the relevant clauses are as follows:
Clause 7. Security
(v). The vehicle to be provided as security to be comprehensively insured with an Insurance Company acceptable to the Lender with our interest duly noted with the Insurer before disbursement in the policies as first loss payee.
Clause 9. Other charges
(xii) In case of an accident and the insurance company has declared the vehicle write-off, the Borrower shall continue with the normal monthly loan repayment until the Lender receives payment from the insurance. This is to avoid any accrual of penalties.
Clause 10. Other Charges
B. Default
The following events will constitute default and cause any amount outstanding under the proposed facility to become immediately due and payable and any commitments hereunder cancelled & amp; demand repayment of the entire outstanding loan with interest and any penalties whereupon;
(xi)In the event of any default, all facilities outstanding will become due and payable immediately. In the event of late payment, a late payment charge of 10% will be charged on the installment and subsequently 5% every 7 (seven) days on the amount in arrears is settled in full.
5. According to the respondent the loan was disbursed on or about 8 th November 2022. Further that it was a term of the loan facility that a late payment charge of 10% would be charged on the installment and subsequently 5% on the amount in arrears.
6. The loan was secured by the appellant’s motor vehicle registration number KCT 870E Toyota Vanguard.
7. The appellant made the monthly installments of KShs 61,837/= for December 2022 while for January 2023, he made payment of only KShs 31,000/=, leaving a balance of KShs 30,837/=, meaning that, as per the contract terms, for that balance, a late payment charge of 10% was payable plus a further charge of 5% on the amount in arrears.
8. The motor vehicle used as security was involved in an accident on 5 th January 2023 and it was written-off by the insurer. The appellant did not pay the subsequent installments for February and March 2023. But on 17 th March 2023, the appellant’s insurer paid to the respondent KShs 1,640,000/= as compensation for the vehicle and in settlement of the loan facility.
9. A dispute arose between the appellant and the respondent at that point.
10. According to the appellant through his witness statement dated 20 th July 2023, he requested the respondent to deduct the principal sum of KShs 956,600/= and the installment of KShs 30,837/= which was outstanding for the month of January 2023 and remit to him the balance of KShs 653,163/= but the respondents have declined to do so.
11. The respondents on their part, through the witness statement dated 11 th September 2023 of Peter Nyaki Njagi, a director of the respondent, maintained that after the remittance of the KShs 1,640,000/= by the appellant’s insurer, the appellant was in arrears of KShs 559,524 and he had declined to repay the same.
12. In view of that dispute which the parties could not resolve the appellant filed the claim at the Small Claims Court (SCC).
13. The case proceeded by way of documents filed, witness statements and submissions filed by parties as provided for under section 30 of the (Small Claims Court Act (Cap. 10A) Laws of Kenya (SCCA).
14. Upon considering the evidence, the learned Adjudicator was of the view that the appellant was not entitled to a refund of any amount from the respondent from the insurance compensation. She found that the claim by the appellant had not been established and the same was dismissed.
15. Arising out of that decision, the appellant filed the present appeal through a memorandum of appeal dated 22 nd December 2023 which contains some 9 grounds of appeal as follows:
a. the learned trial magistrate erred in law and in fact in dismissing the claimant’s suit with costs to the respondent without any basis in law or fact.
b. the learned trial magistrate erred in law and in fact in holding that the claimant was not entitled to refund of KShs 653,163/= without any basis against the overwhelming evidence on record.
c. the learned trial magistrate erred in law and in fact by failing to appreciate that the loan was charged at a reducing balance interest rate of 5% per month for a period of 36 months from 8 th November 2022.
d. the learned trial magistrate erred in law and in fact in failing to take into consideration that the sum of KShs 860,000/= was disbursed on 8 th November 2022 and therefore the total sum payable as at 15 th March 2023 was not KShs 2,199,524/=.
e. the learned trial magistrate erred in law and fact by failing to note that the sum of KShs 1,640,000/= paid by the insurance and withheld by the respondent was paid on 15 th March 2023 which was 3 months after the appellant took out the loan facility and the period of payment was not taken into account by the respondent.
f. the learned magistrate erred in law and fact in failing to take into account that the contract provided for rebate which is a waiver on unearned interest charged upon early repayment.
g. the learned magistrate erred in law and fact in failing to appreciate that the contract between the parties did not provide for withholding of funds paid by the insurance and such withholding by the respondent was illegal, oppressive and/or extremely unfair. (this is not correct because clause 11.2 of the loan agreement provided that, “the Borrower shall endorse NCL as the principal beneficiary of any dues arising from an insurance claim relating to the collateral offered.”
h. the learned magistrate erred in law and fact by not taking into account the appellant’s submissions thereby arriving at an erroneous finding.
i. the learned magistrate failed to apply herself judicially and to adequately evaluate the appellant’s evidence and the appellant’s exhibits on record thereby arriving at an erroneous finding.
16. The appellant therefore prays that the appeal be allowed, the judgment of the SCC be set aside and the same be determined afresh and that costs of the appeal and the trial court be awarded to the appellant.
17. The appeal was canvassed by way of written submissions filed by learned counsel for the appellant. The respondent did not respond to the appeal despite being duly served. Although this court indicated 10 th September 2025 that submissions by both parties were on record, a careful perusal of the documents in the appellate court file has revealed that in fact, there was a mix up of a set of submissions for the appellant and respondent placed in this file but for a different case HC Commercial & Tax Division Misc. Civil Application No. E710 of 2024, Scania Credit Solutions (Proprietary) Limited v. Crown Bus Services Ltd.
18. The submissions by the appellant are considered in the evaluation of the appeal that follows.
19. I have considered the grounds of appeal raised in the memorandum of appeal, the record of appeal and the submissions by learned counsel for the appellant.
20. I note that the grounds of appeal bear the standard phrase of “…the learned magistrate erred in law and in fact…” To begin with, claims before the SCC are not heard by a magistrate but by an Adjudicator as per section 5(a) of the SCCA (Cap. 10A) Laws of Kenya, the fact that an Adjudicator is a magistrate notwithstanding. Therefore, the jurisdiction to preside over a SCC is conferred by statute upon an Adjudicator and not a magistrate.
21. Secondly, appeals from the SCC to this court are only on points of law as provided for under section 38 of the SCC Act and not on issues of fact as put forth by the appellant herein. Therefore, use of the standard byline of “… erred on matters of law and fact…” in the grounds of appeal was improper.
22. On this issue the Court of Appeal in the case of Independent Electoral and Boundaries Commission & another v Stephen Mutinda Mule & 3 others [2014] eKLR stated that:
“Those points in an appeal of the kind before us, being from an election court’s decision, are further circumscribed by Section 85A of the Elections Act which limits appeals to the Court of Appeal to matters of law only. It is therefore quite strange and improper that each of the seventeen grounds, without exception, commences with a standard expression “the judge erred in fact and law” or “the learned Judge erred in law and in fact.” Clearly the drafters of the memorandum did not have the legal provision in active contemplation. Had they done so, they would have found that by invoking factual errors, they were inviting jurisdictional objections to their entire appeal.”
23. This court can therefore only proceed on points of law, if any, brought out in the memorandum of appeal. This court is guided by the Court of Appeal in decision in M’Riungu v. Republic [1983] KLR 455, on how to proceed to determine an appeal on points of law only, thus:
“where a right of appeal is confined to question of law, an appellate court has loyalty to accept the findings of fact of the lower court(s) and resist the temptation to treat findings of fact as holdings of fact and law and it should not interfere with the decision of the trial court or the first appellate court unless it is apparent that on evidence, no reasonable tribunal could have reached that conclusion, which would be the same as holding that the decision is bad in law”.
24. The appellate court may however interfere with the findings of the trial court where it is demonstrated that there was no evidence at all upon which such findings were based or that the evidence relied upon was of such a nature that no reasonable tribunal, properly addressing its mind on it, could have made such findings as has been held in numerous decisions. (see for instance Bashir Haji Abdullahi v Adan Mohammed Nooru & 3 others [2014] eKLR .
25. Both parties agree that the loan was repayable in 36 monthly installments. The contention is on the provisions of Clause 9 of the loan agreement which provided for prepayment as follows:
9. Prepayment
8.1.(sic) The Borrower may prepay the whole or any part of the loan. Upon prepayment, interest charged by the lender is inclusive of the stipulated period.
8.2. A rebate is a waiver on unearned interest charges offered to the Borrower at the discretion of the Lender upon early settlement of the loan facility before the lapse of the loan period. NCL’s Terms and conditions shall apply.
26. It was the appellant’s argument before the SCC that first what is termed as “stipulated period” under this clause is not defined and second he could not pay interest for the whole of the 36 months when the principal amount had been settled.
27. The argument that “stipulated period” is not defined holds no water because the repayment period in Clause 4 of the letter of offer was indicated as 36 months. That then should be the stipulated period of the loan.
28. Clause 9 of the loan agreement set out above was clearly an unconscionable contract term. The doctrine of unconscionability in contract law has consistently been upheld by the Kenyan Courts to protect parties against contracts that are so unfair and oppressive as to offend the sense of justice. In Dhiman v Shah [2025] KECA 1264 (KLR) , the Court of Appeal stated that the doctrine allows a court to refuse to uphold a contract, or specific terms of it, if they were imposed in a way that took undue advantage of one party’s vulnerability, ignorance, or lack of bargaining power.
29. The standard term of early repayment of loan is that where the borrower exercises the option to repay the outstanding loan balance in full earlier than as per the loan agreement he will be required to pay an early repayment penalty, which for instance could be a percentage of the interest on the outstanding amount. However, that is not equivalent to paying the entire interest for the whole loan outstanding because, otherwise it means that the borrower gets no consideration for early repayment yet the motivation for early repayment is to save on interest by reducing the total interest the borrower owes and thereby make savings on the loan.
30. Unfortunately for the appellant, he did not plead unconscionable terms of contract in his claim and therefore the court could not consider it and come to his aid.
31. Then again, his mode of calculating the balance due, by simply considering the principal sum and then the balance of installment he had not remitted for February was not correct. In the first place, the amount from the insurer came in March after the due date for repayment of the loan had past. That in itself meant the outstanding installments were January, KShs 30,837/=, February KShs 61,837/= and March KShs 61,837/= making a total of KShs 154,511/=. Each of these sums attracted the applicable late payment charges and a penalty for the amount in arrears which would be added to the then outstanding principal sum.
32. As found by the learned Adjudicator, the terms of the contract were not disputed and it is not in the business of courts to interfere with parties’ contracts where the same are freely negotiated and signed in line with the principle espoused in the case of National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & another [2001] KECA 362 (KLR) . This court equally finds no basis to interfere with the same. Clause 9 of the loan agreement provided that upon prepayment, interest charged by the lender was inclusive of the stipulated period. The repayment period in Clause 4 of the letter of offer was indicated as 36 months.
33. The appellant’s assertion that from the contents of Clause 5.5 of the loan agreement there was no provision that allowed the respondent to utilize the monies paid by an insurance company in relation to the security towards settlement of the loan is mistaken. The contract was comprised in the loan agreement and the letter of offer. As pointed out above, Clause 7(v) of the letter of offer provided that the Lender’s interest would be duly noted on the insurance cover of the vehicle as a first charge. Further, under Clause 9(xii) provided that in the event of a total loss and write-off of the vehicle (as the case herein) the Lender would receive payment from the insurer. It being remembered that at that time, there would be no security for the loan, the security having been destroyed in the accident.
34. Essentially, therefore when the respondent received the insurance sum of KShs 1,640,000/=, the security for the loan was “restored.” It was not an early repayment as such as contended by the appellant. It was more of realization of the security, more so given that, first the appellant was in arrears of payment and second there was no security since the car had been destroyed in the accident. The respondent was entitled to withhold that money to offset the loan balance seeing that there was no longer a security in place. The appellant made a suggestion to the respondent that another motor vehicle (which of course should have been of an equivalent value to the previous security and not necessarily (KShs 1,640,000/=) be purchased from that money as he continued to service the loan as earlier agreed. The challenge here was that in fact, he was already in default for the months of January, February and March by the time the KShs 1,640,000/= was remitted to the respondent by the insurer. This was in breach of the default clause as well as Clause 9(xii) which required that in case of an accident and the insurance company declared the vehicle write-off, he shall continue with the normal monthly loan repayment until the respondent received payment from the insurance. Thus, to avoid any accrual of penalties he should have been continuing to dutifully service the loan but he did not do that.
35. The respondent therefore applied the amount to offset part of the outstanding loan. It was indeed an accelerated payment (but remember the respondent had no security for the loan). It would have been different if the appellant had offered to clear the outstanding loan while the security was in place.
36. In the meantime, since the appellant had defaulted in repayment of the installments, the respondent had made a demand to him through a letter dated 9 th February 2023. Clause 10B of the loan agreement had therefore set in. By that letter the respondent notified the appellant that as at that date the outstanding arrears balance inclusive of charges was KShs 117,005/=. He was required to make full payment of the same within 14 days failure to which the respondent would inter alia recall the whole loan balance.
37. The amount of the whole loan balance was however not indicated and I have not seen any other demand letter or correspondence indicating what it was. However, the statement of account shows that as at 9 th February 2023, an entry of Dispatch demand note was made and against it a balance of KShs 2,157,613/=. However, this was not the amount being demanded. What was being demanded was the outstanding arrears/balance inclusive of charges as indicated above.
38. The appellant did not dispute that the statement of account represented what was due from him to the respondent at that time. His assertion is that the sum of KShs 1,640,000/= having been paid to the respondent on 17 th March 2023 and bearing in mind that the loan interest rate was on a reducing balance it means that the principle sum borrowed of KShs 956,600/=had been settled and the respondent was only entitled to interest for the period between December 2022 and 17 th March 2023. That may be the appellant’s wish but not the commercial approach to the contract by the respondent. In this case the respondent sought, by way of the prepayment clause in the loan agreement, compensation for the premature termination of the contract and loss of the benefits that would have been received by the respondent as a lender if the contract had been fully performed.
39. I therefore find that on the evidence tendered, any reasonable Small Claims Court properly applying its mind to the facts and the law would arrive at the same findings as did the learned Adjudicator in finding that the appellant was not entitled to a refund of any money from the respondent. The learned Adjuicator therefore did not err on any point of law and so this court has no reason to interfere with her findings and conclusions on the evidence tendered.
40. Consequently, I find that the appeal has no merit and I dismiss the same with costs to the respondent assessed at KShs 20,000/=.
41. Orders accordingly.
42. Delivered, dated and signed on the Virtual Platform, Teams this 8 th day of September 2026 and uploaded on the CTS for access by parties.
ANDAYI W. F.
JUDGE
In the presence of:
Karanja Ms for the Appellant.
N/A for the Respondent.
Ummu: Court Assistant.
ANDAYI W.F.
JUDGE
milimani HCCA No. E1482/202310/CONTRACT-loan
IN THE HIGH COURT OF KENYA AT NAIROBI
MILIMANI CIVIL APPELLATE DIVISION
CIVIL APPEAL NO. e1482 OF 2023
(CORAM: ANDAYI W. F., J.)
WILFRED JARED MALOBA.................…………………………..APPELLANT
VERSUS
NORTHWAVE CREDIT LIMITED.……………………………. RESPONDENT
(Being an appeal from the judgment and decree of the Hon. Wamae E.M. Miundi Resident Magistrate delivered on 8 th December 2023 at the Small Claims Court Milimani in SCCC No. E6018 of 2023)
JUDGMENT
1. The appeal herein was filed through a memorandum dated 22 nd December 2023. It challenges the judgment of the learned Adjudicator delivered on 8 th December 2023 and the ensuing decree of the same date.
2. The dispute between the parties does not seem to be complicated. It is captured in the claim filed by the appellant dated 20 th July 2023, the response thereto by the respondent dated 11 th September 2023 and their respective witness statements filed alongside the pleadings.
3. It is not disputed that the respondent advanced to the appellant a loan of KShs 956,000/= made up of KShs 860,000/= as the sum advanced and KShs 96,600/= as the processing fees making a total of KShs 956,000/= as the principal sum. This sum appears in clause 7 of the loan agreement between the parties. The clause provides that:
“The Borrower commits to repay the borrowed amount of KShs 956,600/= together with total interest payable in monthly installments of KShs 61,837 (SIXTY-ONE THOUSAND EIGHT HUNDRED AND THIRTY-SEVEN) per month until payment is made in full.
The loan will be charged at the following interest formula REDUCING BALANCE as per the letter of offer.”
4. There is a letter of offer dated 7 th November 2022. It contains many more terms of the contract between the parties. Among the relevant clauses are as follows:
Clause 7. Security
(v). The vehicle to be provided as security to be comprehensively insured with an Insurance Company acceptable to the Lender with our interest duly noted with the Insurer before disbursement in the policies as first loss payee.
Clause 9. Other charges
(xii) In case of an accident and the insurance company has declared the vehicle write-off, the Borrower shall continue with the normal monthly loan repayment until the Lender receives payment from the insurance. This is to avoid any accrual of penalties.
Clause 10. Other Charges
B. Default
The following events will constitute default and cause any amount outstanding under the proposed facility to become immediately due and payable and any commitments hereunder cancelled & amp; demand repayment of the entire outstanding loan with interest and any penalties whereupon;
(xi)In the event of any default, all facilities outstanding will become due and payable immediately. In the event of late payment, a late payment charge of 10% will be charged on the installment and subsequently 5% every 7 (seven) days on the amount in arrears is settled in full.
5. According to the respondent the loan was disbursed on or about 8 th November 2022. Further that it was a term of the loan facility that a late payment charge of 10% would be charged on the installment and subsequently 5% on the amount in arrears.
6. The loan was secured by the appellant’s motor vehicle registration number KCT 870E Toyota Vanguard.
7. The appellant made the monthly installments of KShs 61,837/= for December 2022 while for January 2023, he made payment of only KShs 31,000/=, leaving a balance of KShs 30,837/=, meaning that, as per the contract terms, for that balance, a late payment charge of 10% was payable plus a further charge of 5% on the amount in arrears.
8. The motor vehicle used as security was involved in an accident on 5 th January 2023 and it was written-off by the insurer. The appellant did not pay the subsequent installments for February and March 2023. But on 17 th March 2023, the appellant’s insurer paid to the respondent KShs 1,640,000/= as compensation for the vehicle and in settlement of the loan facility.
9. A dispute arose between the appellant and the respondent at that point.
10. According to the appellant through his witness statement dated 20 th July 2023, he requested the respondent to deduct the principal sum of KShs 956,600/= and the installment of KShs 30,837/= which was outstanding for the month of January 2023 and remit to him the balance of KShs 653,163/= but the respondents have declined to do so.
11. The respondents on their part, through the witness statement dated 11 th September 2023 of Peter Nyaki Njagi, a director of the respondent, maintained that after the remittance of the KShs 1,640,000/= by the appellant’s insurer, the appellant was in arrears of KShs 559,524 and he had declined to repay the same.
12. In view of that dispute which the parties could not resolve the appellant filed the claim at the Small Claims Court (SCC).
13. The case proceeded by way of documents filed, witness statements and submissions filed by parties as provided for under section 30 of the (Small Claims Court Act (Cap. 10A) Laws of Kenya (SCCA).
14. Upon considering the evidence, the learned Adjudicator was of the view that the appellant was not entitled to a refund of any amount from the respondent from the insurance compensation. She found that the claim by the appellant had not been established and the same was dismissed.
15. Arising out of that decision, the appellant filed the present appeal through a memorandum of appeal dated 22 nd December 2023 which contains some 9 grounds of appeal as follows:
a. the learned trial magistrate erred in law and in fact in dismissing the claimant’s suit with costs to the respondent without any basis in law or fact.
b. the learned trial magistrate erred in law and in fact in holding that the claimant was not entitled to refund of KShs 653,163/= without any basis against the overwhelming evidence on record.
c. the learned trial magistrate erred in law and in fact by failing to appreciate that the loan was charged at a reducing balance interest rate of 5% per month for a period of 36 months from 8 th November 2022.
d. the learned trial magistrate erred in law and in fact in failing to take into consideration that the sum of KShs 860,000/= was disbursed on 8 th November 2022 and therefore the total sum payable as at 15 th March 2023 was not KShs 2,199,524/=.
e. the learned trial magistrate erred in law and fact by failing to note that the sum of KShs 1,640,000/= paid by the insurance and withheld by the respondent was paid on 15 th March 2023 which was 3 months after the appellant took out the loan facility and the period of payment was not taken into account by the respondent.
f. the learned magistrate erred in law and fact in failing to take into account that the contract provided for rebate which is a waiver on unearned interest charged upon early repayment.
g. the learned magistrate erred in law and fact in failing to appreciate that the contract between the parties did not provide for withholding of funds paid by the insurance and such withholding by the respondent was illegal, oppressive and/or extremely unfair. (this is not correct because clause 11.2 of the loan agreement provided that, “the Borrower shall endorse NCL as the principal beneficiary of any dues arising from an insurance claim relating to the collateral offered.”
h. the learned magistrate erred in law and fact by not taking into account the appellant’s submissions thereby arriving at an erroneous finding.
i. the learned magistrate failed to apply herself judicially and to adequately evaluate the appellant’s evidence and the appellant’s exhibits on record thereby arriving at an erroneous finding.
16. The appellant therefore prays that the appeal be allowed, the judgment of the SCC be set aside and the same be determined afresh and that costs of the appeal and the trial court be awarded to the appellant.
17. The appeal was canvassed by way of written submissions filed by learned counsel for the appellant. The respondent did not respond to the appeal despite being duly served. Although this court indicated 10 th September 2025 that submissions by both parties were on record, a careful perusal of the documents in the appellate court file has revealed that in fact, there was a mix up of a set of submissions for the appellant and respondent placed in this file but for a different case HC Commercial & Tax Division Misc. Civil Application No. E710 of 2024, Scania Credit Solutions (Proprietary) Limited v. Crown Bus Services Ltd.
18. The submissions by the appellant are considered in the evaluation of the appeal that follows.
19. I have considered the grounds of appeal raised in the memorandum of appeal, the record of appeal and the submissions by learned counsel for the appellant.
20. I note that the grounds of appeal bear the standard phrase of “…the learned magistrate erred in law and in fact…” To begin with, claims before the SCC are not heard by a magistrate but by an Adjudicator as per section 5(a) of the SCCA (Cap. 10A) Laws of Kenya, the fact that an Adjudicator is a magistrate notwithstanding. Therefore, the jurisdiction to preside over a SCC is conferred by statute upon an Adjudicator and not a magistrate.
21. Secondly, appeals from the SCC to this court are only on points of law as provided for under section 38 of the SCC Act and not on issues of fact as put forth by the appellant herein. Therefore, use of the standard byline of “… erred on matters of law and fact…” in the grounds of appeal was improper.
22. On this issue the Court of Appeal in the case of Independent Electoral and Boundaries Commission & another v Stephen Mutinda Mule & 3 others [2014] eKLR stated that:
“Those points in an appeal of the kind before us, being from an election court’s decision, are further circumscribed by Section 85A of the Elections Act which limits appeals to the Court of Appeal to matters of law only. It is therefore quite strange and improper that each of the seventeen grounds, without exception, commences with a standard expression “the judge erred in fact and law” or “the learned Judge erred in law and in fact.” Clearly the drafters of the memorandum did not have the legal provision in active contemplation. Had they done so, they would have found that by invoking factual errors, they were inviting jurisdictional objections to their entire appeal.”
23. This court can therefore only proceed on points of law, if any, brought out in the memorandum of appeal. This court is guided by the Court of Appeal in decision in M’Riungu v. Republic [1983] KLR 455, on how to proceed to determine an appeal on points of law only, thus:
“where a right of appeal is confined to question of law, an appellate court has loyalty to accept the findings of fact of the lower court(s) and resist the temptation to treat findings of fact as holdings of fact and law and it should not interfere with the decision of the trial court or the first appellate court unless it is apparent that on evidence, no reasonable tribunal could have reached that conclusion, which would be the same as holding that the decision is bad in law”.
24. The appellate court may however interfere with the findings of the trial court where it is demonstrated that there was no evidence at all upon which such findings were based or that the evidence relied upon was of such a nature that no reasonable tribunal, properly addressing its mind on it, could have made such findings as has been held in numerous decisions. (see for instance Bashir Haji Abdullahi v Adan Mohammed Nooru & 3 others [2014] eKLR .
25. Both parties agree that the loan was repayable in 36 monthly installments. The contention is on the provisions of Clause 9 of the loan agreement which provided for prepayment as follows:
9. Prepayment
8.1.(sic) The Borrower may prepay the whole or any part of the loan. Upon prepayment, interest charged by the lender is inclusive of the stipulated period.
8.2. A rebate is a waiver on unearned interest charges offered to the Borrower at the discretion of the Lender upon early settlement of the loan facility before the lapse of the loan period. NCL’s Terms and conditions shall apply.
26. It was the appellant’s argument before the SCC that first what is termed as “stipulated period” under this clause is not defined and second he could not pay interest for the whole of the 36 months when the principal amount had been settled.
27. The argument that “stipulated period” is not defined holds no water because the repayment period in Clause 4 of the letter of offer was indicated as 36 months. That then should be the stipulated period of the loan.
28. Clause 9 of the loan agreement set out above was clearly an unconscionable contract term. The doctrine of unconscionability in contract law has consistently been upheld by the Kenyan Courts to protect parties against contracts that are so unfair and oppressive as to offend the sense of justice. In Dhiman v Shah [2025] KECA 1264 (KLR) , the Court of Appeal stated that the doctrine allows a court to refuse to uphold a contract, or specific terms of it, if they were imposed in a way that took undue advantage of one party’s vulnerability, ignorance, or lack of bargaining power.
29. The standard term of early repayment of loan is that where the borrower exercises the option to repay the outstanding loan balance in full earlier than as per the loan agreement he will be required to pay an early repayment penalty, which for instance could be a percentage of the interest on the outstanding amount. However, that is not equivalent to paying the entire interest for the whole loan outstanding because, otherwise it means that the borrower gets no consideration for early repayment yet the motivation for early repayment is to save on interest by reducing the total interest the borrower owes and thereby make savings on the loan.
30. Unfortunately for the appellant, he did not plead unconscionable terms of contract in his claim and therefore the court could not consider it and come to his aid.
31. Then again, his mode of calculating the balance due, by simply considering the principal sum and then the balance of installment he had not remitted for February was not correct. In the first place, the amount from the insurer came in March after the due date for repayment of the loan had past. That in itself meant the outstanding installments were January, KShs 30,837/=, February KShs 61,837/= and March KShs 61,837/= making a total of KShs 154,511/=. Each of these sums attracted the applicable late payment charges and a penalty for the amount in arrears which would be added to the then outstanding principal sum.
32. As found by the learned Adjudicator, the terms of the contract were not disputed and it is not in the business of courts to interfere with parties’ contracts where the same are freely negotiated and signed in line with the principle espoused in the case of National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & another [2001] KECA 362 (KLR) . This court equally finds no basis to interfere with the same. Clause 9 of the loan agreement provided that upon prepayment, interest charged by the lender was inclusive of the stipulated period. The repayment period in Clause 4 of the letter of offer was indicated as 36 months.
33. The appellant’s assertion that from the contents of Clause 5.5 of the loan agreement there was no provision that allowed the respondent to utilize the monies paid by an insurance company in relation to the security towards settlement of the loan is mistaken. The contract was comprised in the loan agreement and the letter of offer. As pointed out above, Clause 7(v) of the letter of offer provided that the Lender’s interest would be duly noted on the insurance cover of the vehicle as a first charge. Further, under Clause 9(xii) provided that in the event of a total loss and write-off of the vehicle (as the case herein) the Lender would receive payment from the insurer. It being remembered that at that time, there would be no security for the loan, the security having been destroyed in the accident.
34. Essentially, therefore when the respondent received the insurance sum of KShs 1,640,000/=, the security for the loan was “restored.” It was not an early repayment as such as contended by the appellant. It was more of realization of the security, more so given that, first the appellant was in arrears of payment and second there was no security since the car had been destroyed in the accident. The respondent was entitled to withhold that money to offset the loan balance seeing that there was no longer a security in place. The appellant made a suggestion to the respondent that another motor vehicle (which of course should have been of an equivalent value to the previous security and not necessarily (KShs 1,640,000/=) be purchased from that money as he continued to service the loan as earlier agreed. The challenge here was that in fact, he was already in default for the months of January, February and March by the time the KShs 1,640,000/= was remitted to the respondent by the insurer. This was in breach of the default clause as well as Clause 9(xii) which required that in case of an accident and the insurance company declared the vehicle write-off, he shall continue with the normal monthly loan repayment until the respondent received payment from the insurance. Thus, to avoid any accrual of penalties he should have been continuing to dutifully service the loan but he did not do that.
35. The respondent therefore applied the amount to offset part of the outstanding loan. It was indeed an accelerated payment (but remember the respondent had no security for the loan). It would have been different if the appellant had offered to clear the outstanding loan while the security was in place.
36. In the meantime, since the appellant had defaulted in repayment of the installments, the respondent had made a demand to him through a letter dated 9 th February 2023. Clause 10B of the loan agreement had therefore set in. By that letter the respondent notified the appellant that as at that date the outstanding arrears balance inclusive of charges was KShs 117,005/=. He was required to make full payment of the same within 14 days failure to which the respondent would inter alia recall the whole loan balance.
37. The amount of the whole loan balance was however not indicated and I have not seen any other demand letter or correspondence indicating what it was. However, the statement of account shows that as at 9 th February 2023, an entry of Dispatch demand note was made and against it a balance of KShs 2,157,613/=. However, this was not the amount being demanded. What was being demanded was the outstanding arrears/balance inclusive of charges as indicated above.
38. The appellant did not dispute that the statement of account represented what was due from him to the respondent at that time. His assertion is that the sum of KShs 1,640,000/= having been paid to the respondent on 17 th March 2023 and bearing in mind that the loan interest rate was on a reducing balance it means that the principle sum borrowed of KShs 956,600/=had been settled and the respondent was only entitled to interest for the period between December 2022 and 17 th March 2023. That may be the appellant’s wish but not the commercial approach to the contract by the respondent. In this case the respondent sought, by way of the prepayment clause in the loan agreement, compensation for the premature termination of the contract and loss of the benefits that would have been received by the respondent as a lender if the contract had been fully performed.
39. I therefore find that on the evidence tendered, any reasonable Small Claims Court properly applying its mind to the facts and the law would arrive at the same findings as did the learned Adjudicator in finding that the appellant was not entitled to a refund of any money from the respondent. The learned Adjuicator therefore did not err on any point of law and so this court has no reason to interfere with her findings and conclusions on the evidence tendered.
40. Consequently, I find that the appeal has no merit and I dismiss the same with costs to the respondent assessed at KShs 20,000/=.
41. Orders accordingly.
42. Delivered, dated and signed on the Virtual Platform, Teams this 8 th day of September 2026 and uploaded on the CTS for access by parties.
ANDAYI W. F.
JUDGE
In the presence of:
Karanja Ms for the Appellant.
N/A for the Respondent.
Ummu: Court Assistant.
ANDAYI W.F.
JUDGE
milimani HCCA No. E1482/202310/CONTRACT-loan