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Court of AppealPartially AllowedCivil Appeal No. 6 of 2002· [2008] KECA 68 (KLR)

Samuel Kamau Macharia v Daima Bank Limited [2008] KECA 68 (KLR)

Court of Appeal of Kenya
31 October 2008
SBS.E.O. BosireEOE.O. O'KubasuJAJ. Aluoch
2,035 words in judgment
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The bottom line

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Kenya's Court of Appeal confirmed that banks can enforce agreed interest rates, but cannot impose penalty interest that was never in the loan documents or disclosed to the borrower.

What this practically means

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Executive summary

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The appellant, the unsuccessful defendant before Onyango Otieno, J, appealed against a High Court judgment awarding Daima Bank Limited Kshs.23,491,007.65 with interest at 4% per month on a loan of Kshs.7,000,000 advanced in January 1996 and secured by a charge over land parcel Galu/Kinondo/50. As a first appeal, the matter was treated as a rehearing and narrowed to a single issue: the interest rates charged by the bank. The appellant contended that the 4% monthly rate was unagreed, unauthorised and unconscionable, arguing his facility was a term loan attracting 34% per annum. The Court of Appeal held that parties are bound by the terms of their contract and that a court cannot re-write a contract, following National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd and Fina Bank Ltd v Spare & Industries Ltd. The appellant's letter of offer providing for interest at 34% per annum floating, and the charge providing for interest at 36% per annum or such rate as the chargee decided, bound him, and equity does not ordinarily relieve a party from a bad bargain. However, the court found no contractual basis for the 4% per month penalty interest charged from 9th October 1998, as it was not in the charge instrument nor brought to the appellant's attention beforehand. The appeal was allowed in part only to the extent that the 4% monthly penalty interest was set aside; the rest of the respondent's claim was upheld. The court made no orders as to the costs of the appeal.

Key legal issues

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01

Enforceability of interest rates not contained in the charge instrument

Holding

The 4% per month penalty interest was set aside because it was neither in the charge instrument nor communicated to the appellant in advance.

Reasoning

Although the charge provided for interest at 36% per annum or such rate as the chargee decided, the court found no contractual basis for the 4% per month penalty interest imposed from 9th October 1998. It was not contained in the charge instrument nor brought to the appellant's attention beforehand, so it could not stand. The rest of the claim under the agreed terms was upheld.

p. 4
02

Court's inability to re-write a contract

Holding

Parties are bound by the terms of their bargain; the court cannot rescue a party from a bad bargain absent coercion, fraud or undue influence.

Reasoning

Relying on National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd and Fina Bank Ltd v Spare & Industries Ltd, the court held that the appellant, having voluntarily signed the letter of offer and charge, could not escape the agreed rates. The court cannot re-write a contract, and equity does not ordinarily relieve a party from a bad bargain.

p. 4

Legal principles established

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  • A court of law cannot re-write a contract between parties; they are bound by its terms unless coercion, fraud or undue influence are pleaded and proved.
  • Ordinarily equity will not relieve a party from a bad bargain.
  • A lender cannot charge a penalty rate of interest that is not contained in the charge instrument or previously brought to the borrower's attention.

Court orders

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  1. 1.The appeal allowed in part to the extent that the rate of 4% per month penalty interest is set aside
  2. 2.The appeal dismissed in respect of the rest of the respondent's claim
  3. 3.No orders as to the costs of the appeal
On appeal from
High Court of Kenya at Nairobi
H.C.C.C No. 628 of 1998
Jurisdiction invoked
First appeal to the Court of Appeal under the Kenyan appellate framework; the judgment states: "This being a first appeal, it is in form of a rehearing"

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (1)

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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, "Samuel Kamau Macharia v Daima Bank Limited [2008] KECA 68 (KLR)", Case Analysis (2008). Civil Appeal No. 6 of 2002. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2008/68/eng@2008-10-31

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