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Court of AppealDismissedCivil Appeal No. 96 of 1997· [1998] KECA 170 (KLR)

Anjeline Akinyi Otieno v Malaba Malakisi Farmers Co-op. Union Ltd [1998] KECA 170 (KLR)

Court of Appeal
11 June 1998
JGJ. E. GicheruPhilip Kiptoo TunoiP. K. TunoiASA. B. Shah
1,035 words in judgment
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The bottom line

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Kenya's Court of Appeal ruled that loans made to a co-operative society without statutory approval are illegal and cannot be recovered, however harsh the interest rate.

What this practically means

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Executive summary

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This was an appeal to the Court of Appeal against a judgment of the High Court at Bungoma (Ong'udi, J.) dismissing the appellant's claim to recover Shs.800,000.00 allegedly advanced to the respondent, a co-operative society, as loans under two written agreements dated 20th and 25th January 1994, together with accrued interest of Shs.9,911,111.00. The High Court had dismissed the suit on the ground that the agreements violated the mandatory provisions of the Co-operative Societies Act (Cap 490) and Rules 44 and 45 made thereunder, which regulate the conditions under which a registered society may borrow from non-members, including the Commissioner's written approval. The Court of Appeal, in a single judgment of the court delivered by Gicheru, Tunoi and Shah, JJ.A., upheld the decision of the superior court. It held that the agreements blatantly flouted the statutory limitation on borrowing powers and the conditions for receiving loans from non-members; that a contract entered into in breach of Rules 44 and 45 is illegal and recovery of the loan must inevitably fail; and that the appellant, dealing with a co-operative society, could not plead ignorance of the Act. The court further observed, obiter, that the agreed interest rate of about 284% per annum was manifestly harsh, unconscionable, oppressive and exorbitant, and that no reasonable court could countenance it. The appeal was dismissed with costs to the respondent.

Key legal issues

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01

Illegality of loan agreements contravening the Co-operative Societies Act and Rules 44 and 45

Holding

The loan agreements between the appellant and the co-operative society blatantly flouted the statutory limitation on borrowing powers and the conditions for receiving loans from non-members, and were therefore illegal and unenforceable.

Reasoning

Rule 44 requires a society's maximum liability in loans or deposits from non-members to be fixed at a general meeting, and Rule 45 sets conditions including the Commissioner's satisfaction as to need, reasonableness of terms, security, and written approval. None of these formalities was observed. The Act forbids performance of such agreements without strict observance of these formalities, so the contract is illegal and recovery of the loan must fail.

p. 2
02

Whether ignorance of the statute can excuse the lender

Holding

The appellant, dealing with a co-operative society, ought to have known the statutory conditions under which a society may borrow; ignorance of the law is no defence.

Reasoning

The court held that the respondent's day-to-day activities are governed by the Act and rules made thereunder, and any person lending to such a society is taken to know the statutory constraints on its borrowing powers. The appellant therefore could not escape the illegality by claiming she did not know of the Act.

p. 2
03

Enforceability of the exorbitant interest rate

Holding

The agreed interest, amounting to about 284% per annum, was manifestly harsh, unconscionable, oppressive and exorbitant, and no reasonable court could enforce it.

Reasoning

Even setting aside statutory illegality, the appellant's claim was largely for interest of Shs.9,911,111.00 accrued over 82 weeks on a principal of Shs.800,000.00, less Shs.631,667.80 already paid. The court characterized the effective rate of about 284% per annum as farcical and ridiculous beyond all reason and refused to countenance it.

p. 2

Legal principles established

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  • A contract entered into by a co-operative society in breach of the mandatory conditions in Rules 44 and 45 of the Co-operative Societies Rules governing borrowing from non-members is illegal, and recovery of money advanced under it must fail.
  • A party dealing with a co-operative society cannot plead ignorance of the statutory conditions governing the society's borrowing powers.
  • A court will not countenance or enforce a rate of interest that is manifestly harsh, unconscionable, oppressive and exorbitant.

Court orders

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  1. 1.The appellant's appeal is dismissed
  2. 2.Costs of the appeal awarded to the respondent

Authorities

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Legislation

  • Co-operative Societies ActCap 490
  • Co-operative Societies RulesRule 44
  • Co-operative Societies RulesRule 45
  • Co-operative Societies Actsection 41

Cases cited (2)

  • Kiriri Cotton Co. Ltd. v. Rachoddas Kashanji Dewani
    (1958) EA 239
  • Hanad Bin Awati Baali & Another v. Hannad Bin Said Batwasaff
    17 KLR 30
On appeal from
High Court of Kenya at Bungoma
H.C.C.C. No. 140 of 1995
Jurisdiction invoked
First appeal to the Court of Appeal from the High Court (statutory appellate jurisdiction; no specific provision cited in the judgment)

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (5)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Anjeline Akinyi Otieno v Malaba Malakisi Farmers Co-op. Union Ltd [1998] KECA 170 (KLR)", Case Analysis (1998). Civil Appeal No. 96 of 1997. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1998/170/eng@1998-06-11

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.