A micro-lender, MyCredit Limited has been ordered to pay a Homa Bay county-based businessman Sh860,000 for the rushed sale of a lorry that had been charged as security of a loan defaulted by the trader.
The Micro and Small Enterprises Tribunal said the creditor unfairly rushed to repossess and sell Lawrence Jagiro Otieno’s lorry at below market price without giving him sufficient notice and hearing.
“The hurried repossession, unnotified sale, transfer, and registration of the subject motor vehicle by the 1st and 2nd Defendants to an innocent third party was not justified given the circumstances of this case and the status of the Plaintiff at the time. The motor vehicle was not sold at the market value and the defendants were duty-bound. The Tribunal considers the forced market value of Sh860,000 as the least the defendants would have accepted in the circumstances,” the tribunal said in ruling.
The case began when Mr Otieno, a potato farmer in Karachuonyo, Homa Bay County, applied for a Sh200,000 loan from MyCredit Limited on April 26, 2023. The loan, secured by his truck, was to be repaid in six monthly instalments of Sh43,334 each.
Mr Otieno received Sh169,400 after deductions and later encountered financial difficulties and fell sick. This resulted in him making only a partial payment of Sh100,000 on September 14, 2023. He subsequently sought to restructure the loan, citing health issues, but MyCredit declined his request.
Mr Otieno’s truck was repossessed by David Moruri, an auctioneer, acting on behalf of MyCredit, despite earlier assurances that the visit was only for inspection of the vehicle’s tracker. This repossession occurred in October 2023 while Mr Otieno was away from his home, undergoing medical treatment. He contended that the repossession was hurried and unprocedural and ultimately resulted in the illegal sale of the vehicle at Sh500,000, well below its market value.
In their defence, MyCredit and Mr Moruri maintained that the repossession and sale were lawful, arguing that Mr Otieno breached the loan agreement by failing to make timely repayments. They cited contractual provisions allowing the immediate realisation of collateral upon default.
The defendants contended that the vehicle was sold fairly, given its deteriorated condition. They emphasised that Mr Otieno failed to exercise his right of redemption within the provided grace period.
The tribunal determined that while Mr Otieno breached the loan agreement, the repossession and subsequent sale were unjustifiably rushed. The Tribunal criticised the lender’s failure to notify Mr Otieno of their intent to sell the vehicle, as required under the Movable Property Security Rights Act.
The tribunal further said that MyCredit’s decision to repossess the motor vehicle, which served as Mr Otieno’s primary source of income, without providing the required notice demonstrates a lack of sensitivity to his circumstances. This, they said, was troubling, seeing that Mr Otieno had made an effort by paying Sh100,000 in September, just a month before the rushed repossession.
The Tribunal awarded Mr Otieno Sh860,000, representing the truck’s forced sale value, less the outstanding loan balance of Sh147,000, plus interest from the date of repossession. In addition, the Tribunal ordered compensation of Sh60,000 per month to Otieno for loss of income, running from October 18, 2023, when the vehicle was repossessed until full payment was made.
The ruling underscores the importance of lenders adhering to statutory procedures when enforcing loan agreements. The Tribunal emphasised that even in cases of borrower default, lenders must act fairly and avoid punitive measures that violate public policy.
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