Njuguna v Okodo (Commercial Case E15733 of 2024) [2025] SCC 51 (KLR)

On the part of the Respondent, he filed a Response to the Claim dated 21 st October 2022 (sic) admitting that the Claimant advanced to him a loan of Kshs. 30,000/= on 21st November 2023 that was to be repaid at an interest rate of 15% per annum. The Respondent added that he had already paid Kshs. 14,000/= to the Claimant in partial settlement of the loan advanced to him, and that he was proposing to settle the outstanding loan balance through monthly instalments of Kshs. 30,000/= each. Claimant’s Case The Claimant adopted her witness statement herein as her evidence in chief. She reiterated the contents of her Statement of Claim that the loan of Kshs. 30,000/= advanced to the Respondent was to attract an interest of 15% per month until payment in full. She also produced the loan agreement dated 21 st November 2023 (Cexh.2) between the parties herein as an exhibit. She further stated that the Respondent had already paid her Kshs. 30,000/= in partial settlement of the amount owing of Kshs. 70,500/=. Respondent’s Case The Respondent adopted his witness statement herein as his evidence in chief. His testimony was that the loan advanced to him was to attract an interest of 1.5% per month. ANALYSIS & DETERMINATION This court has duly considered the parties' pleadings, documents, oral evidence, and submissions, as well as the authorities placed before this court. It is common ground that on 21st November 2023 the parties herein executed a money lending agreement where the Claimant advanced to the Kitale SCC CC. No. E105 of 2024 Page 2 of 8 Judgment

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Respondent Kshs. 30,000/= to be repaid within two months from 21 st November 2023. The Claimant’s and the Respondent’s point of departure was the interest rate agreed upon them on the loan advanced to the Respondent. The foregoing shows that the only issues for determination are:a) What was the interest rate agreed upon between the parties herein b) What is the amount due to the Claimant at the time of filing this claim What is the interest agreed upon between the parties herein A keen reading of Cexh.2 leaves no doubt in the mind of the parties herein executed a money agreement on 21 st November 2023 that provided for an interest rate of 1.5% and a late fee interest of 15%. This court notes that the said money lending agreement was not elegantly drawn since the agreement does not expressly state whether the interest rate of 1.5% and the late fee interest of 15% was to be charged monthly or not. However, a wholesome reading of that agreement and the fact that the loan advanced to the Respondent was to be repaid in two months through monthly instalments inclines this court to find that the agreed interest rate of 1.5% and the late fee interest rate of 15% were to be levied per month. The above shows that the parties herein voluntarily agreed on all the terms of their loan agreement. It is trite law that parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved. The court will not seek re-write the contract for the parties: (see National Bank of Kenya Ltd v Pipe Plastic Samkolit (K) Ltd & Another [2002] EA 503 and Centurion Engineers & Builders Limited v Kenya Bureau Standards (Civil Appeal E398 of 2021) [2023] KECA 1289 (KLR)). Kitale SCC CC. No. E105 of 2024 Page 3 of 8 Judgment of

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Having found that the Claimant and the Respondent voluntarily executed the loan agreement herein, it follows that parties herein must be bound by the terms of the agreement before this court. In the circumstances, this court finds and holds that the loan of Kshs. 30,000/= advanced to the Respondent on 21 st November 2023 was to attract a monthly interest of 1.5% and a monthly late fee interest of 15%. What is the amount due to the Claimant at the time of filing this claim The loan of Kshs. 30,000/= advanced to the Respondent on 21 st November 2023 was to be fully repaid on or before 22 nd January 2024. As at 30th September 2024 when this claim was filed, the Respondent had not repaid the loan. That means that at the time of filing this claim, the loan advanced to the Respondent was in arrears for ten (10) months. When the interest rates agreed between the parties herein are applied on the principal sum over a period of ten (10) months, it would seem on the face of it that the Claimant is entitled to the claim of Kshs. 70,500/= against the Respondent. Should this court blindly enforce the loan agreement between the parties herein? Does it make economic sense for one to pay interest of over Kshs. 40,000/= on a loan of Kshs. 30,000/=? The questions above were answered in by Shah JA in Fina Bank Limited vs Spares & Industries Limited (Civil Appeal No 51 of 2000) (unreported) when he expressed himself as follows:“It is clear beyond peradventure that save for those special cases where equity might be prepared to relieve a party from a Kitale SCC CC. No. E105 of 2024 Page 4 of 8 Judgment

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bad bargain, it is ordinarily no part of equity’s function to allow a party to escape from a bad bargain”. In Ajay Indravadan Shah Vs. Guilders International Bank Ltd Civil Appeal No. 135/2001 [2002] 1 EA 269, the Court of Appeal held that the provisions of Section 26 (1) of the Civil Procedure Act (on interest at court rate on any money owed) are applicable only where the parties to a dispute have no, by their agreement, fixed the rate of interest payable. If the parties by their agreement have fixed the rate of interest, then the Court has no discretion in the matter and must enforce the agreed rate unless it is shown in the usual way that either that agreed rate is illegal or unconscionable or fraudulent. The authorities above show that there are instances in this jurisdiction where a court can invoke the principles of equity to relieve a party from a bad bargain or an unconscionable interest rate. An interest of Kshs. 40,000/= for a loan of Kshs. 30,000/= is no doubt unconscionable as the interest of Kshs. 40,000/= is more than the principal sum of Kshs. 30,000/=. That kind of interest is excessive, oppressive and unenforceable in law. This is a proper case where this court must hesitate to enforce the contract before it even though the said contract was voluntarily entered into by the parties herein. In view of the foregoing, what is the interest rate applicable on the Kshs. 30,000/= lent to the Respondent by the Claimant? The Claimant submitted that since the in duplum rule did not apply to the loan agreement between the parties herein, the Respondent must pay the interest of Kshs. 40,000/=. Kitale SCC CC. No. E105 of 2024 Page 5 of 8 Judgment

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This court is well aware of other authorities including those cited by the Claimant’s counsel to the effect that the in duplum rule only applies to banks as set out in the Banking Act. However, those authorities must be considered in line with the history leading to the introduction of the in duplum rule in Kenya as persuasively and eloquently argued by Mabeya J in Mugure & 2 others v Higher Education Loans Board (Petition E002 of 2021) [2022] KEHC 11951 (KLR)). This court subscribes to the school of thought advanced by Mabeya J that the in duplum rule applies to all money lenders as a matter of public interest and equity. The rule was to tame predatory lenders. Public interest is a national value and a principle of administration of justice as set out under Article 10 and Article 158 of the Constitution. Therefore, the in duplum rule must be applied in this case in the public interest and equity. It is against this backdrop that this court respectfully disagrees with the Claimant’s counsel submission that the in duplum rule is not applicable in this case. Guided by the Mugure case (supra) , and the reasons above, it follows that the Claimant herein can only claim the outstanding principal of Kshs. 30,000/= plus accrued interest not exceeding Kshs. 30,000/= making the total allowable claim to be Kshs. 60,000/=. Kitale SCC CC. No. E105 of 2024 Page 6 of 8 Judgment

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The Claimant acknowledged receipt of Kshs. 30,000/= from the Respondent in settlement of the loan advanced to the Respondent. This means that the amount owing to the Claimant as at today is Kshs. 30,000/=. DETERMINATION The upshot of the foregoing is that: a) Judgment is entered against the Respondent for the sum of Kshs. 30,000/= b) The sum of Kshs. 30,000/= in (a) above shall earn interest at court rate from the date of filing this claim until payment in full c) The costs due to the Claimant are assessed per section 33 of the Act at Kshs. 10,000/= Certificate of costs and decree to issue forthwith. Judgment accordingly. Judgment read, signed, and delivered in open court at Bungoma this 26th day of August 2025 …………………. T.O. OMONO ADJUDICATOR In the presence of: C/A: Albert Claimant Kitale SCC CC. No. E105 of 2024 Page 7 of 8 Judgment

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