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When a friendly loan turns into messy dispute

Friends don’t let friends get bogged down by bills while they can lend a hand. Friends help friends.

But in some instances, the assisted friend does not always return the favour, and what sometimes follows is a messy court dispute over a “friendly” loan.

That is why Kenyan courts have witnessed cases such as Francis Atwoli versus Cyrus Jirongo (Sh100 million loaned), Moses Wetang’ula versus Danson Mungatana (Sh12 million issued), John Onyango Odullah and Amos Onyango Okello versus Silvance Osele (Sh500,000 lent), among others.

Besides the public figures, many more Kenyans have been embroiled in court cases where one friend’s good turn did not inspire another.

JAILED

For instance in May 2014, a deputy county commissioner was jailed for a month for refusing to pay back Sh100,000 that he had obtained from a businessman four three years earlier.

Mr Patrick Chege was transported by police from Uriri in Migori County, where he was serving as a deputy county commissioner, to Kitui then thrown to the gallows by Mwingi Resident Magistrate Margaret Murage due to the money owed to Mr Bernard Oyugi.

“The accused should be kept behind bars until January 15 when he will be brought back so that the court can be told if he has refunded the money,” the magistrate said.

Later in April 2015, Mr Justice David Majanja sitting at the High Court in Homa Bay was confronted with a case where a man had taken a Sh130,000 loan from a friend and temporarily leased him his car in exchange.  But the recipient of the money later said the other man was illegally holding his car.

AGREEMENT

According to their agreement, Mr Cleophas Ongaro was to get back his car once he repaid the money to Mr Evans Nyakwana.

The transaction happened on December 8, 2010 and they agreed that Ongaro would return the money before January 5, 2011.

But Mr Ongaro later refused to pay up and it led to Mr Nyakwana suing at a magistrate’s court in Rongo.

In court, Mr Ongaro challenged the enforceability of their agreement, saying he was coerced into signing the transaction document.

He won the case at the magistrate’s court but the lender appealed. That is how the file came before Justice Majanja.

The judge overturned the earlier judgement and ordered that Mr Ongaro repays Mr Nyakwana pronto.

DEFAULTERS

“Mr Ongaro cannot plead that he was induced to sign the document or forced to sign a blank piece of paper,” said the judge.

Inducement into signing an agreement is not the only reason defaulters have provided in court.

In one dispute, the loaned friend said his lender was flouting the Banking Act by demanding that he pays interest on money he had received, despite the fact that he had committed to doing so in a written agreement about a Sh650,000 loan.

That argument was dismissed by Mr Justice George Dulu at the High Court in Garissa in July 2015, who said the lender, Mr Solomon Muvinga, had not collected deposits from the public and hence had not taken up the role of a bank.

LEND MONEY

“In my view, the law does not prohibit a person from using his own resources to lend money to a friend on agreed terms,” the judge stated.

Then there was a dispute where the loaned friend defended herself by saying the money was payment for services rendered.

Ms Susan Munyi had received Sh1 million from Appel Shiani in October 1996.

At that time, Mr Shiani would later tell the court, Ms Munyi urgently wanted money to pay fees for her daughter studying in England.

But Ms Munyi reneged on the agreement and it led to a case that was heard at the Commissioner of Assize (temporary, mobile judge) then later at the Court of Appeal.

GOOD DEFENCE

In court, Ms Munyi gave various reasons why she received the money, which a three-judge bench of appellate judges found to be contradictory in their ruling of July 2013.

“Mere denials do not constitute a good defence,” said Justices Kihara Kariuki, William Ouko and Patrick Kiage.

The court cases are just a step in the process of recovering a friendly loan. According to lawyer Kimandu Gichohi, the first step is doing a demand letter to the debtor.

“If they don’t honour the demand, then the loaner sues. If the lawsuit succeeds and the debtor is ordered to pay up, the lender can enlist debt collectors to attach his property. Alternatively, the debtor can be committed to civil jail,” said Mr Gichohi.

CORDIAL TRANSACTIONS

Those who think that there is no law governing the often cordial transactions that are done without much regard to legal strictures better think again.

Mr Gichohi said the Law of Contract Act that has been in effect since 1961 — with modifications through the years — comes in handy in case anyone wants to take another to court.

Even if there is no written agreement, he says, the proof of money transfer can sometimes be enough evidence in court.

READ: Mungatana ordered to pay Wetang’ula’s Sh12m loan

“You can give a loan maybe by money transfer or M-Pesa. Then, you prove by way of tendering the agreement or bank documents.

An M-Pesa statement can also  be used as proof,” he said.

INTEREST

And if you think debts from friends should not accrue interest, again you are mistaken.

Depending on the circumstances under which it was issued, it can be subject to interest.

Calculations expert Mungai Kihanya, in a September 2016 article, wrote that the interest rate is 12 per cent per annum.

“In the absence of any valid reason for ordering a higher or lower rate of interest, the rate of interest should now be 12 per cent,” says the notice.

Nairobi-based debt collector Gilbert Cheruiyot, the chief executive of Gilchery Skip-Trace Limited, told the Nation that depending on the steps one takes to recover the debt, chasing after the money lent may lead to one spending an even bigger amount.

CREDITORS

“But in most cases, most of the creditors will load the collection charges onto the debtor,” he said.

Can a debt collection process between two friends end with the friendship intact? Mr Cheruiyot said it is possible.

“It actually depends on the approach,” he said. “We ensure no love is lost. At the end of the day, these parties can still come to the table and even the debtor can still borrow after the debt is paid.”

Mr Cheruiyot emphasised on the need to have a written agreement whenever money changes hands.

READ: Duo sue MP for allegedly defaulting on ‘friendly loan’

“In case you want to pursue this person, it is always good to write down an agreement between the two parties and clearly spell the terms,” he said.

PROMINENT PERSONALITIES

Back to the cases involving prominent personalities, Mr Atwoli, the secretary-general of Cotu, is embroiled in a court case with presidential aspirant Cyrus Jirongo over payment of a friendly loan of Sh100 million plus Sh10 million interest.

 In court papers, Mr Jirongo admits receiving the loan in August 2016 from Mr Atwoli, which was payable in 50 days.

The former Lugari MP says the agreement provided that the money would be recovered from a Sh250 million debt that Nairobi County owes his company.

But Mr Atwoli, in papers filed early last week, said he was shocked to learn that Mr Jirongo borrowed on behalf of his company and not as an individual.

BORROWED MONEY

In the case involving Mr Wetang’ula, a loan issued in 2010 was the bone of contention.

Mr Wetang’ula told the court that he gave Mr Mungatana the money with the promise that the latter would repay in 14 instalments.

Cheques that Mr Mungatana later issued for the repayment bounced, prompting Mr Wetang’ula to sue him.

In April 2015, high court judge David Onyancha dismissed Mr Mungatana’s defence and ordered him to pay up.

The matter involving Mr Osele, the Kabondo-Kasipul MP had borrowed money to facilitate a trip to Italy in October 2014.

He had not repaid by May 2015, prompting the lawsuit. But he later settled the debt.

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