Wakilii

Arvind v Kato & Anor (Civil Suit No. 394 of 2011)

High Court · [2015] UGCOMMC 18 · 2015 Application Partly Allowed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit for recovery of money lent under a friendly loan agreement
Decision
Plaintiff succeeded on costs only; claim for interest dismissed

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The court held that the plaintiff who made a friendly loan of UGX 400,000,000 was not entitled to interest at 10% per month as agreed, because he produced no evidence of being a licensed money lender or having borrowed the funds commercially. The interest rate was found unconscionable and unsupported by law. However, the plaintiff was awarded costs of the suit as he was forced to bring the matter to court and incurred expenses over four years despite having lent money to a friend in good faith.

Outcome

Plaintiff succeeded on costs only; claim for interest dismissed

Facts

On 24 February 2011, Arvind Patel advanced UGX 400,000,000 to James Kato as a friendly loan. The first defendant issued a cheque from Humanitarian Care Uganda Ltd, a company he owned, to guarantee repayment. The parties executed a written agreement requiring repayment by 31 May 2011, failing which interest at 10% per month would be payable. The defendants failed to repay on the due date. The plaintiff sued for recovery of the principal, interest, and costs. The defendants admitted receiving the principal sum, and partial judgment was entered. The trial proceeded on the issues of interest and costs only. The plaintiff testified but called no other witnesses. The defendants adduced no evidence at trial and filed no submissions.

Issues

  1. Whether the plaintiff is entitled to interest on the principal sum lent to the defendants.
  2. Whether the plaintiff is entitled to costs of the suit.

Orders

  • Claim for interest at 10% per month refused.
  • Costs of the suit awarded to the plaintiff.

Rules and key headnotes

Contract Law — Loans — Friendly Loans — Interest Entitlement
Where money is advanced as a friendly loan without evidence that the lender is a licensed money lender or borrowed the funds commercially, the lender is not entitled to charge interest, even where the parties agreed to an interest rate in writing.
Contract Law — Interest Rates — Unconscionable Terms — Penalty Clauses
An agreed interest rate of 10% per month on a loan is unconscionable, outside the parameters of usual commercial bank lending rates, and so punitive as to discourage normal economic activity. Such a rate cannot be enforced by a court absent proof that the lender is a licensed money lender or borrowed the funds commercially at comparable rates.
Banking & Finance — Money Lending — Licensing Requirements — Interest Claims
A person who lends money and seeks to recover interest must adduce evidence of holding a money lender's licence or of having procured the funds through a commercial loan, in order to establish the legal and economic basis for charging interest.
Civil Procedure — Costs — Discretionary Award — Partial Success
Costs normally follow the event and a successful party should not be deprived of costs except for good cause. Where a plaintiff is forced to bring a matter to court to recover money lent to a friend and incurs expense and delay over several years, the court may award costs in the exercise of its discretion even where the plaintiff fails on other heads of claim.

Legislation cited (1)

Cases cited (2)

  • J.K. Patel v Spear Motors Ltd (SCCA No. of 1991)
  • Pica Printery and Stationary Ltd v Pallisa District Local Government (H.C. Civil Suit No. 456 of 2006)

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

Arvind v Kato & Anor (Civil Suit No. 394 of 2011) [2015] UGCommC 18 (21 January 2015)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.