https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/9789

Faulu Micro Finance Bank Ltd v Njoroge (Civil Appeal E096 of 2024) [2026] KEHC 9789 (KLR) (3 July 2026) (Judgment) Neutral citation: [2026] KEHC 9789 (KLR) Republic of Kenya In the High Court at Murang'a Civil Appeal E096 of 2024 S Mbungi, J July 3, 2026 Between Faulu Micro Finance Bank Limited Appellant and Sospeter Kimani Njoroge Respondent (Being an Appeal from the Judgment of the small claims court of Kenya at Muranga by Hon. D.C Coy dated the 1st August, 2024 in Muranga SCCOMM) Judgment Introduction 1.This is an appeal from the judgment of the Honorable D.C. Soy, Magistrate of the Small Claims Court at Murang'a, delivered on 1st August 2024, in SCCOMM E057 of 2024, wherein the Learned Magistrate dismissed the Appellant's suit with costs of Kshs. 39,500/-. 2.The Appellant has appealed against the entire judgment and decree of the trial court, seeking the following orders:a.That the judgment of the Honorable D.C. Soy dated 1st August 2024 be set aside;b.That this Court substitute its own judgment with damages assessed in favour of the Appellant;c.That costs of the appeal and suit before the Small Claims Court be awarded to the Appellant. 3.The Respondent, through his advocates Mutundu Wallace, has filed written submissions opposing the appeal and urging this Court to dismiss the same with costs. 4.I have carefully considered the Appellant's written submissions filed by Waruhiu K'owade & Ng'ang'a Advocates, the Respondent's written submissions, the Record of Appeal, and the authorities cited by both parties. I have also had the benefit of reviewing the trial court's proceedings and judgment. Background Facts 5.The genesis of this dispute is a loan agreement entered into between the parties on 7th November 2019, whereby the Appellant advanced to the Respondent a loan facility of Kshs.1,240,000/-, to be repaid in 54 monthly installments of Kshs. 37,200/- each. The loan was disbursed on or about 20th June 2020. 6.Sometime in 2023, the Respondent defaulted in the repayment of the monthly installments. The Appellant, invoking its rights under clause 5 of the loan agreement, filed a suit before the Small Claims Court on 27th May 2024, seeking judgment for the outstanding loan balance, interest, and costs. 7.The Respondent's case before the trial court was that he had fallen into arrears due to financial constraints; that he had approached the Appellant's branch for restructuring of the loan; that the branch manager had informed him that the bank would reconsider his payments; and that the Appellant prematurely filed suit before any restructuring agreement could materialize. 8.The trial court, in its judgment dated 1st August 2024, dismissed the Appellant's suit with costs of Kshs. 39,500/-, holding that the Appellant had failed to prove that the entire loan amount had become due and payable; that the default clause was ambiguous; and that the Appellant had not given the Respondent written notice before filing suit. Grounds of Appeal 9.The Appellant has raised four grounds of appeal, which I have consolidated into the following issues for determination:(a)Whether the Respondent is indebted to the Appellant and to what extent;(b)Whether the trial magistrate erred in law and in fact in arriving at the determination that she did;(c)Whether the trial magistrate erred in law and in fact in failing to consider the Appellant's pleadings, evidence, and submissions;(d)Who is to bear the costs of the primary suit and the present appeal. Analysis and Determination Issue (a): Whether the Respondent is indebted to the Appellant and to what extent 10.It is not in dispute that the parties entered into a loan agreement on 7th November 2019. It is also not in dispute that the Respondent defaulted in the repayment of the monthly installments. The Respondent himself admitted in his witness statement and during the hearing that he had obtained a loan facility from the Appellant and that he had fallen into arrears. 11.The critical issue is whether, upon default, the entire loan amount became due and payable. This turns on the interpretation of the loan agreement, specifically clauses 5 and 6 thereof. 12.-The Appellant has drawn this Court's attention to clause 5 of the Letter of Offer dated 7th November 2019, which provides as follows:“Upon the happening of any of the events in this clause 6, the borrower agrees and declares that the loan amount shall immediately become due and payable and Faulu shall be entitled at its option to sue for the repayment of the amount outstanding at the happening of the event." 13.And clause 6 provides:“The Borrower agrees to indemnify and keep Faulu indemnified, on demand, and every advocate, agent or other person appointed by Faulu in respect of all liabilities and expenses incurred directly or indirectly by any of them in execution or purported execution of any of the powers authorities or discretions vested in any of them hereunder and against all actions, proceedings, costs, claims and demands in respect of any matter or thing done or omitted in any way relating to this agreement." 14.It is evident from a plain reading of clause 5 that upon the happening of any of the events of default specified in clause 6, the borrower agrees and declares that the loan amount (not merely the defaulted installment) shall immediately become due and payable. This is a contractual term to which the Respondent expressly agreed. 15.The Appellant has also placed before this Court a statement of account for the period 20th June 2020 to 6th March 2024, which shows that as at the date of filing suit, the Respondent was indebted to the Appellant in the sum of Kshs. 757,965.78/-. This evidence was not controverted by the Respondent. 16.The Respondent's argument that the loan was not yet mature misses the point. The maturity date is irrelevant where the parties have contractually agreed that upon default, the entire loan amount shall become immediately due and payable. This is a standard acceleration clause found in commercial loan agreements, and its purpose is to protect the lender from the risk of continued non-payment. 17.As was held by the Court of Appeal in Pius Kimaiyo Langat Vs Co-op Bank of Kenya Limited [2017] KECA 152 (KLR), citing with approval Lord Clarke in RTS Flexible Systems Ltd vs Molkerei Alois Müller GmbH [2010] 1 WLR 753:“The general principles are not in doubt. Whether there was a binding contract between the parties and if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations." 18.The Respondent's claim that he was not aware of the default clause is untenable. The Respondent is a businessman who voluntarily entered into a commercial loan agreement. He had ample time to read and understand the terms before signing. Ignorance of contractual terms is not a defense, particularly where the party had the opportunity to review the agreement. As was stated in Zipporah Wangari Ngunjiri v Kenya Commercial Bank Ltd Nairobi (Milimani) High Court civil case number 2217 of 2000:“A party who does not want to repay the loan balance she owes the respondent (bank) which loan is being rightly demanded is employing delaying tactics knowing very well she does not have a prima facie case, payment of damages will be sufficient and cannot be indulged." 19.Furthermore, the Respondent admitted in his own witness statement (at pages 47 and 48 of the Record of Appeal) that he had been informed by the bank's branch manager of the bank's policy regarding default. He also admitted that he had approached the bank for restructuring and that he had been making payments until October 2023. This admission demonstrates that the Respondent was well aware of his contractual obligations and the consequences of default. 20.The Respondent's reliance on the alleged 90-day notice period is misplaced. The Appellant's witness testified as to the bank's internal policy, but the contractual term itself does not require any such notice. The Respondent has not produced any document or evidence showing that the loan agreement contained a 90-day notice period. As the Appellant correctly submits, the Respondent cannot introduce new terms to the contract that were not agreed upon by the parties. 21.The trial court's finding that the default clause was ambiguous is, with respect, erroneous. The clause is clear and unambiguous: upon default, the borrower agrees and declares that the loan amount shall become due and payable. There is no ambiguity in the words "loan amount" as distinguished from "defaulted amount." The trial court's interpretation amounted to rewriting the contract, which a court of law is not permitted to do. 22.In National Bank of Kenya Ltd V Pipe Plastic Samkolit (K) and another (2002) EA 503, the Court of Appeal stated:“A court of law cannot rewrite a contract between the parties. The parties are bound by the terms of their contract unless coercion, fraud or undue influence are pleaded and proven." 23.Similarly, in Fina Bank Ltd v Spares and Industries Ltd (2000) 1 EA 52, Shah JA stated:“It is clear beyond peradventure that save for those special cases where equity might be prepared to relieve a party from a bad bargain, it is ordinarily no part of equity function to allow a party to escape from a bad bargain." 24.The Respondent has not pleaded or proved coercion, fraud, or undue influence. He cannot therefore be allowed to escape from a contractual bargain that he voluntarily entered into. The trial court's finding that the clause was ambiguous and that the Appellant could not claim the full amount was, in my view, a serious misdirection. 25.-The Respondent also argued that the Appellant ought to have given him written notice before filing suit. However, the loan agreement does not stipulate any such precondition. The Appellant's obligation was to prove that the Respondent was in default and that the entire loan amount had become due and payable in accordance with the contractual terms. This the Appellant did. 26.-I am satisfied that the Appellant has proved its case on a balance of probabilities. The Respondent is indebted to the Appellant in the sum of Kshs. 757,965.78/- as at the date of judgment, together with interest thereon at the contractual rate of 25.67% per annum from 7th March 2024 until payment in full, and costs of the suit. Issue (b): Whether the trial magistrate erred in law and in fact 27.The trial magistrate erred in law and in fact in several respects: 28.-First, she failed to properly consider the documentary evidence before her, including the loan agreement and the statement of account, which clearly established the Respondent's indebtedness. 29.-Second, she misdirected herself by finding ambiguity in a clause that is clear and unambiguous on its face. A court's duty is to interpret the contract as it stands, not to rewrite it to favour one party.a.Third, she addressed issues that were never pleaded or raised by the parties, such as the alleged unconscionability of the interest rate and the alleged ambiguity of the default clause. As the Appellant submits, a court should only consider issues that have been properly pleaded and canvassed before it. 30.-Fourth, she failed to consider the Respondent's own admissions in his witness statement and testimony, which confirmed his default and his awareness of the contractual terms. 31.-Fifth, she misapplied the burden of proof. Under Section 107 of the Evidence Act, the burden of proof lies on the party who asserts the existence of a fact. The Appellant asserted that the Respondent was in default and that the entire loan amount had become due. The Appellant produced the loan agreement and the statement of account in support of its claim. The burden then shifted to the Respondent to disprove the Appellant's case. The Respondent failed to do so. 32.-For these reasons, I find that the trial magistrate erred in law and in fact in dismissing the Appellant's suit. Issue (c): Interest 33.The Appellant claimed interest at the rate of 25.67% per annum. The trial court declined to award interest on the ground that the rate was unconscionable. 34.I disagree with the trial court's approach. The interest rate was a term agreed upon by the parties in a commercial transaction. Unless the rate is shown to be illegal or contrary to public policy, the court should not interfere with the parties' bargain. The Respondent did not plead or prove that the interest rate was illegal or unconscionable. The trial court's intervention on this issue was therefore unjustified. 35.Furthermore, Section 44A of the Banking Act, CAP 488, Laws of Kenya, provides that a bank is entitled to recover interest on a non-performing loan, provided that the interest does not exceed the principal amount (the in duplum rule). The Appellant has not claimed interest in excess of the principal, and there is no basis for the court to deny the Appellant its contractual right to interest. Issue (d): Costs 36.The general rule is that costs follow the event. Section 27(1) of the Civil Procedure Act, CAP 21, Laws of Kenya, provides that the costs of any action shall follow the event unless the court shall for good reason otherwise direct. The Appellant contends that the learned Magistrate erred in law in awarding costs of the suit to the Respondent. The trial magistrate did not error in awarding the costs to the respondent as costs follow event and since the respondent won the case in the trial court, he was entitled to the costs. 37.The Appellant has succeeded in this appeal. It is entitled to the costs of the appeal and the costs of the suit in the lower court. The award of costs of Kshs. 39,500/- in favour of the Respondent by the trial court is hereby set aside. Conclusion 38.For the foregoing reasons, I allow the appeal and set aside the judgment of the Small Claims Court at Murang'a delivered on 1st August 2024. I substitute therefor the following orders:a.Judgment be and is hereby entered for the Appellant against the Respondent in the sum of Kshs. 757,965.78/- (Kenya Shillings Seven Hundred Fifty-Seven Thousand Nine Hundred and Sixty-Five and Seventy-Eight Cents);b.Interest on the said sum at the rate of 25.67% per annum from 7th March 2024 until payment in full;c.Costs of the suit in the lower court assessed at Kshs. 39,500/- be and are hereby set aside;d.The Respondent shall pay the costs of the suit in the lower court and the costs of this appeal to the Appellant. 39.The decree of the lower court is hereby set aside and a new decree shall issue in terms of this judgment. 40.Right of Appeal 30 days DATED, SIGNED AND DELIVERED AT KAKAMEGA ONLINE THIS 3RD DAY OF JULY, 2026.S.N MBUNGIJUDGEIn the presence of:-CA: Angog’a/VelmaMr. Maritim holding brief for Ms Mutham for the Appellant present online.Mr. Choge for the Respondent present online.