IN THE HIGH COURT OF TANZANIA

(MWANZA REGISTRY)
AT MWANZA

HC CIVIL APPEAL NO.88 OF 2016

(Arising from the decision of the Resident Magistrate Court of Musoma in Civil Case
No. 49 o f 2016 (Hon. J.S. Musaroche, RM) dated 2&h September, 2016)

AMANDUS ZIKY MASINDE..................................... APPELLANT

VERSUS

NYAMSERA MARUMBA.......................................RESPONDENT

Last order date: 15/02/2018

Final Submissions datei l 6/03/2018
Judgment date: 24/04/2018

JUDGMENT

MAKARAMBA. J.:

The appellant, AMANDUS ZIKY MASINDE is aggrieved by the

decision of the Resident Magistrate Court of Musoma in C ivil Case No.
49 o f 2016 (Hon. J.S. Musaroche, R.M) dated 28th S eptem ber2016,
which concerned breach of a loan agreement and award of general
damages for breach of contract.The Appellant filed the appeal in this
Court on 22ndday of November, 2016 on four grounds of appeal,
which I shall traverse in the course of this Judgment and hence I shall
not set them out at outset.
The appeal by consent was disposed of by way of written
submissions by Mr. John Edward, learned Counsel for the Appellant
and Mr. Rutahindurwa, learned Counsel for the Respondent.
Briefly, the dispute between the parties before the trial Court was
over a Loan Agreement (hereinafter the Agreement), the Appellant and

Page 1 of 23
the Respondent concluded on 10th of August, 2015. In that
Agreement, the Respondent loaned the Appellant the sum of Tshs.
5,000,000/= (hereinafter the Loan) and as security for the loan, the
Appellant pledged his property in Plot No. 40 Block "A" M.D.R. The
Agreement was admitted as Exhibit PEI. The Agreement contained a
Clause for payment of interest of 20% on the principal sum of the loan
monthly upon default as from the date of default.
In his submissions in support of the appeal, Mr. John Edward learned
Counsel for the Appellant elected to begin with the third ground of
appeal that, the trial Magistrate erred in law and fact in failure to
observe that, the said agreement was illegal.
The Appellant submitted that the Agreement contained a contractual
term at paragraph 5, which provides that:

"...Na
nitalipanagharamanyinginezozausumbufuambazonitakuwanimezisaba
bishakatikamkatabahuumimimkopajinanitalipaasilimia 20%
yapesakilamwezitokeaambaponimeshindwakulipadenihilo..."

Literarily translated Clause 5 of the Loan Agreement cited above was

to the effect that the borrower undertook to pay any other costs
incurred as a result of any inconvenience caused by the borrower and
interest of 20% on the principal sum of the loan monthly as from the
date of default.
The Appellant submitted that Clause 5 of the Agreement was bad in
law, since it contained a condition for loan repayment upon breach
which attracted an interest of 20%. The Appellant submitted further

Page 2 of 23
that, Clause 5 essentially made the Agreement to be a business
transaction. The Appellant further submitted that, since at the time of
concluding the Agreement the Respondent was neither holding a
business license nor was he a registered business entity capable of
conducting financial business in which to charge interest, the
Respondent therefore had no capacity to enter into such Agreement. In
buttressing his submissions on this point, the Appellant cited the
provisions of section 3(1) of the Business Licensing Act, Cap.208
R.E. 2002, which stipulates that:

"No person shall carry on Tanzania, whether he as a principal or an

agent, business uniess-
(a) Is the holder o f a valid business license issued to him in relation
to such business..."

It was the further submissions of the Appellant that since the

Respondent engaged in the business of lending money to other persons
at an interest, without a valid business license, not only this violated the
above provisions but it was also contrary to Regulation 5(4) of the
Banking and Financial Institutions (Licensing) Regulations,
2014 G.N. 297which provides thus:

"A person shall not engage in banking business or accept deposits

from the general public unless that person hads obtained a license
issued by the Bank."

Page 3 of 23
 The Appellant submitted further that, the Respondent by inserting in
the Loan Agreement a clause on payment of interest on the loan at the
rate of 20% on the principal sum upon breach of the contract was
therefore conducting a banking business, which was contrary to
Regulation 5(4) of the Banking and Financial Institutions
(Licensing) Regulations, 2014 G.N. 297, under which only banks
and related financial institutions are permitted to conduct banking and
related financial businesses. The Loan Agreement between the Appellant
and the Respondent was therefore illegal since the Respondent was not
seized of a valid business or banking business license and therefore the
Respondent had no capacity to enter into the Agreement. The
Agreement having been concluded between the Appellant and the
Respondent who was not competent to enter into such Agreement by
reason of not holding a valid business and banking business license, it
was clearly contrary to section 10 of the Law of Contract Act, Cap.
345 R.E. 2002untier an agreement becomes a contract if made by free
consent of parties competent to contract, and thus the Agreement in
question is null and void ab initio. The Appellant invited this Court to
revisit the decision in David Charles vsSeniMamumbu, Civil Appeal
No. 31 o f2005where it was held that:

"...As it has come to pass that, and since the loan was advanced
and was received in contravention o f the law, it cannot be
enforceable. By reason of the illegality, and since the loan
Agreement is unenforceable in law..."

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 The Appellant submitted further that, as per Clause 4 of the Loan
Agreement, the Appellant gave as security to secure the loan, a Plot
No. 40 Block "A" M.D.R.This was also against the law since only a
licensed person can issue loan with a condition of putting a property as
collateral. In buttressing this point, the Appellant cited the decision in
the case of U!f Nilson vs. Dr. Tito Mziray Andrew Land Case No.
66 of 2007 (unreported) where it was held that "....The law does not
allow the taking o f security by unlicensed money lenders..."
In reply to the submissions of the Appellant on the first ground of
appeal, the Respondent approached it on two limbs, the first one being
whether the said contract is legal and enforceable and the second one
being whether the contract between the parties is valid or invalid.
The Respondent zeroed his submissions on the validity of the
contract at the time it was concluded regarding its subject matter, which
was a loan to the tune of Tshs. 5,000,000/= which as per the
testimony of the Appellant/Defendant before the trial court, he agreed
that he borrowed that sum of money from the Respondent/Plaintiff. The
Respondent further submitted that, the minds of the parties met as to
the nature of the contract, which was an essential ingredient of the
contract as it was stated in the case of Tanzania Fish Processors
Limited vs Christopher Luhanyuia Civil Appeal No. 21 of 2010
(CAT)(Mwanza)(unreported.).
The Respondent further submitted that, according to the terms of the
contract, the principal sum of Tshs. 5,000.000/= was to be repaid
within a specified time of the contract in whole and without
accompanying interest. Since the principal amount had no interest it
does not qualify to be a "banking business.” Therefore if the loan had

Page 5 of 23
been repaid within the prescribed time as agreed by the parties, then
the question of "interest"in respect of the amount of money borrowed
could not arise.
It was the further submissions by the Respondent that Regulation
5(4) of the Banking and Financial Institutions (Licensing)
Regulations, 2014 G.N. 297t\ted by the Appellant in his submissions
is inapplicable to this case since the contract between the parties does
not qualify as a "banking business as defined under Regulation 3
thereof as being:

”... the business of receiving funds from the genera! public through
the acceptance of deposits payable upon demand or after a fixed
period or after notice, or any similar operation through the frequent
sale or placement of bonds, certificates, notes or other securities, and
to use such finds, in whole or in art, for loans or investments for the
account of and at the risk o f the person doing such business."

The Respondent concluded that, what is in the loan contract between

the parties was just a normal borrowing of money on the promise that
the same would be repaid back within a specified period and without
interest. The Respondent also took issue with 3(1) of the Business
Licensing Act, Cap.208 R.E. 2002,which the Appellant cited in his
submissions and argued that, it is inapplicable for it was wrong on the
part of the Appellant to assume that the Respondent was doing business
and therefore was required to have a business license and thus the
Respondent was not competent to enter into the contract, contrary to
section 10 of the Law of Contract Act, Cap.345 R.E. 2002.The

Page 6 of 23
Respondent revisited the provisions of section 11(1) of the same Act
on the three elements of capacity to contract which are age of majority,
being of sound mind and not suffering from legal disability or
disqualification. None of these elements the Respondent suffered at the
time of concluding the contract. The Respondent distinguished the case
of David ChariesvsSeniManumbu, Civii Appeal No. 31 of
200&rom the facts of this case by submitting that in the cited case, the
principal sum of Tshs.l,000,000/= attracted a monthly interest of
Tshs.300,000/=, which was very specific from the date of the signing
of the contract, different from the case at hand where the parties
agreed to repay the loan amount of Tshs.5,000,000/= within a
specified period and without interest, which was to accrue only upon
default to pay the amount borrowed within the agreed period so as to
cover the damages occasioned by the Appellant's failure to honourthe
agreement. The Appellant also took issue with the cited case of U lf
Ni/son vs. Dr. Tito Mziray Andrew Land Case No. 66 o f
2007arguing that it should not be relied upon to defeat the rights of the
Respondent from recovering his money that has been advanced as a
loan to the Appellant in good faith.
On the submissions of the parties in support and rival to the third
ground of appeal, I am at one with the submissions by the Respondent
that, the issue of "business licensd' and "banking business>'does not
arise in the particular circumstances of this case. As the Respondent
rightly submitted, the loan agreement between the parties (Exhibit
PE.T) was ajust normal contract for borrowing money on the promise to
repay back within a specified period and without interest. The borrower,
the Appellant herein, and the lender, the Respondent herein,agreed that

Page 7 of 23
the Lender shall advance the amount of the loan to the tune of Tshs.
5,000.000/= to the Appellant, and the parties agreed on repayment
within a specified period. Apparently the Appellant defaulted on the
payment. The parties had also agreed and the Appellant undertook to
pay interest in the event of default at the rate of 20% on the monthly
repayment schedule. The principal loan, as the Respondent rightly
submitted did not attract any interest. The issue of interest arose only
upon default in repayment. This being the case therefore, the loan
agreement falls squarely within the elements of a valid contract and the
capacity to enter into a contract as clearly stipulated in section 11(1) of
the Law of Contract Act, Cap 345 R.E. 2002, namely, age of
majority, being of sound mind and not legal disability or disqualification,
none of which the Respondent suffered at the time of concluding the
contract, and thus the Respondent had capacity to enter into the
agreement and the agreement was valid.
On the allegation by the Appellant that the Respondent by entering
into a loan agreement with the Appellant by disbursing loans secured by
property as collateral was thus engaging in a money lending business
without a business license, I am at one with the submissions by the
Respondent that in the instant case, the question of "banking
business>'does not arise. In terms of Regulation 3 of the Banking and
Financial Institutions (Licensing) Regulations, 2014 G.N. 297,
the Respondent cannot be said to have been in the business of buying
and/or selling money, namely by receiving deposit of funds from the
general public or sale or placement o f bonds, certificates, notes or other
securitiesand using such finds for loans or investments.

Page 8 of 23
 The Respondent,being a natural person, using his own money to
advance a simple loan of Tshs. 5,000,000/=to the Appellant upon
request and on the promise that the loan will be re-payed at a specified
period, and the Appellant having defaulted in repaying the loan as
promised, this is a clear case of breach of contract and cannot therefore
by any stretch of imagination be said to have qualified the Respondent
to do the business of issuing loans and thus to seek a business license.
Were this to be the case then, this country would witnessa
mushrooming of "banking and Financial institutionsf' all over the
place to the mockery of the very intention of having in place the
regulatory regime under the Banking and Financial Institutions
(Licensing) Regulations, 2014 G.N. 297.
On the issue of the Respondent accepting as security for the loan
advanced as a collateral in the nature of the property of the Appellant,
this alone and of itself does not make the Respondent an "unlicensed
money lender" within the meaning ascribed to the term in the cited
persuasive authority in UlfNilson vs. Dr. Tito Mziray Andrew Land
Case No. 66 of 2007. If anything then, the parties in this case by
agreeing on a loan and subject to collateral as security for it, they
brought themselves within the purview of the law of bailment in the
schedule to the Law of Contract Act, Cap.345 R.E. 2002.
It is for the above reasons the third ground of appeal that the trial
Magistrate erred in law and fact in failure to observe that, the said
agreement was illegal, fails. It is hereby dismissed.
The first ground of appeal is that, the learned trial Magistrate erred
in law and in fact for failure to properly analyze the evidence adduced.
The Appellant submitted at length on this ground. The Appellant argued

Page 9 of 23
 ♦

that the Appellant had paid the Respondent the amount of Tshs.
4,290,000/= of which Tshs.l,000,000/ = was paid in cash and
Tshs. 3,290,000/-was paid through the bank account of the
Respondent, but the trial Magistrate unreasonably excluded the amount
of Tshs. 1,000,000/ = on the pretext that this payment was not in
written form. The Appellant submitted further that, the trial Magistrate
therefore misdirected herself in finding that in order for the payment to
be recognized by the court it must be written since the parties
themselves were not in dispute as to that amount the Respondent
received in cash. The Appellant submitted further that, since the
agreement was silent on how payment was to be done, the Appellant
was right in paying by cash as per the evidence of DW1 and DW2 who
testified before the trial court that, the Appellant paid the amount of
Tshs. 1,000,000/= in cash to the Respondent on 08th September
2015 in the presence of DW2, which fact the Respondent himself did
not dispute, thus making the outstanding amount to be Tshs.
710,000/= only.
In reply to the submissions by the Appellant to the first ground of
appeal, the Respondent stated that, they dispute the amount of the
loan repaid and argued that in so far as the evidence adduced during
the trial is concerned, the Appellant was able to show the receipts for
payments up to the tune of Tshs. 2,290,000/= which amount is not in
dispute. As for the purported payment in cash of the amount of Tshs.
1,000,000/= by the Appellant on 08th September 2016, the
Respondent submitted that, the trial court guided by the evidence rightly
held that the Respondent was entitled to the sum of
Tshs.1,710,000/=.

Page 10 of 23
*

On the mode of payment of the loan, the Respondent submitted that

according to the loan agreement and particularly Clause 1 thereof, the
mode of payment by implication, since the loan was taken by cash
(fedhataslimu) there is no agreement stating to the contrary, and
therefore the Appellant was bound to make repayment of the loan by
cash not later than a specified time under the contract.
In so far as the first ground of appeal is concerned, the main
controversy is as to the outstanding amount of the loan. On the part of
the Appellant, he insists that he is only owed Tshs.710,000/=, while
the Respondent maintains very strongly that, the amount due on the
loan is Tshs.l,710,000/ =. This being the case therefore, the
contention is whether as per the evidence on record the Appellant paid
to the Respondent the amount of Tshs.l,000.000/ = in cash. This
controversy calls for this Court being a first instance appellate court to
re-assess and re-evaluate the evidence on record so as to satisfy itself
as to whether the Appellant paid the amount of Tshs.l,000.000/= to
the Respondent in the presence of DW2 on the 08th September 2016
and whether there was an agreed mode of repayment of the loan.
I have carefully looked at the evidence on record. With due respect to
the learned trial Magistrate and to the learned Counsel for the
Respondent, there is no express provision in the Loan Agreement that
the repayment of the loan was to be only in cash. The argument by the
learned Counsel for the Respondent that according to the loan
agreement and particularly Clause 1 thereof, the mode of payment by
implication, since the loan was taken by cash (fedhataslimu) then the
repayment also had to be in cash, does not accord to the evidence on
record. The evidence by the Appellant of payment of

Page 11 of 23
Tshs.1,000.000/= to the Respondent in the presence of DW2 on the
08th September 2016has not been countered by the Appellant. The
Appellant is therefore owed only Tshs.710,000/=as being the unpaid
amount due on the loan.
It is for the above reasons the first ground of appeal that, the learned
trial Magistrate erred in law and in fact for failure to properly analyze the
evidence adduced is held in the affirmative.
The second ground of appeal is that,tf?e trial Magistrate erred in
law and fact for awarding general damages without considering
proportionality o f loss and the general damages to be awarded.
The Appellant submitted that the amount of Tshs.5,000.000/ = the
trial Magistrate awarded the Respondent, was without considering as to
what loss or what the Respondent had suffered by the act of the
Appellant delaying to pay the amount of Tshs. 710,000/=, to which
the Respondent did not say anything about it. The Appellant maintains
that in the absence of any word from the Respondent as to the amount
of general damages he was seeking from Court and the reasons for
being entitled to such award, it was erroneous on the part of the trial
Magistrate and she acted on a wrong principle of law in awarding the
general damages. In support of his submissions, the Appellant cited the
decision of the Court of Appeal in the case of RaziaJaffervs Ahmed
Mohameda/iSej and Others Civil Appeal No. 63 of 2005
(unreported) at page 15 that;
"On the issue o f award of General Damages for the harassment
endured, it is entirely to be presumed to be the "direct, natural or
probable consequence."(emphasissuppIied by Appellant).

Page 12 of 23
 The Appellant submitted further that, in the proceedings of the trial
Court, there is nothing indicating the direct, natural or probable
consequencedamages the Respondent suffered as a result of the act of
the defaulting act of the Appellant. The Appellant insisted that much as
the award of general damages is in the discretion of the Court, however,
where such discretion is wrongly exercised, a higher court may
intervene, as it should be in this case.
In reply to the submissions of the Appellant on the second ground of
appeal, the Respondent submitted that, this ground is misplaced since
general damages are awardable at the discretion of the court and
further that, it is an established principle that an appellate court cannot
simply interfere with the award of general damages where the trial court
had rightly endeavoured to apply proper principles in the course of
awarding the same. In support of this contention the learned Counsel
for the Respondent cited the authoritative statement of principle by the
Court of Appeal in its decision in the case of The Cooper Motor
Corporation Ltd. vs. Moshi/Arusha Group Occupational Health
Services [1990] TLR 96 (CA). The Respondent submitted further that,
if anything the authority in the decision of the Court of Appeal in the
case of RaziaJaffervs Ahmed MohamedaliSej and Others Civil
Appeal No.63 o f2005 (unreported), much as it was specifically on the
issue of harassment which is not the case presently, but still it is of
great advantage to the Respondent since the terms and conditions of
the loan contract are enough circumstances which are direct, natural or
probable consequences which lead leading to the award of general
damages to the tune of Tshs.5,000.000/=.

Page 13 of 23
 *

It would seem that although the Appellant had also brought as the
fourth ground of appeal the issue that, the trial Magistrate erred in
law and in fact for awarding costs of the suit to the Respondent, the
Appellant did not make any submissions in support of this ground. This
particular ground is therefore taken as having been abandoned by the
Appellant and it is so marked.
In so far as the third ground of appeal is concerned, the issue is
whether the trial Magistrate properly exercised her discretion in
awarding the Respondent general damages to the tune of Tshs.
5,000,000/=, which amount the Appellant contends that it was
unreasonable and disproportionate to the claim of the Respondent.
The Appellant has enjoined this Court sitting on appeal, to interfere
with the assessment of damages by the trial Court which awarded the
Respondent general damages to the tune of Tshs. 5,000,00/=. I wish to
reiterate here that, as a matter of general principle as it was succinctly
stated by the Court of Appeal in its decision in the case of The Cooper
Motor Corporation Ltd. vs. Moshi/Arusha Group Occupational
Health Services [1990] TLR 96 (CA), which the Respondent cited in
his submissions, before an appellate court can properly intervene with
the assessment of damages by a judge, and here the trial Magistrate, it
must be satisfied of the following things, namely that;
i) Either that the judge or the trial magistrate, in assessing the
damages, applied wrong principle of law (as taking into account
some irrelevant factor or leaving out of account some relevant
one;

Page 14 of 23
 ii) Or short of this, that the amount awarded is so inordinately low
or so inordinately high that it must be a wholly erroneous
estimate of the damage.

I shall endeavor to apply the above principles to the assessment of

the general damages awarded by the trial Magistrate to the Respondent
so to satisfy myself whether this is a fit case in which this Court sitting
on appeal should intervene with the assessment of general damages by
the trial Magistrate. I am aware that in doing so, this Court would be
justified in substituting its own figure for that awarded by the trial
Magistrate and not simply because it would have awarded a different
figure if it had tried the case.
As to the first limb of the guiding principle, in assessing the damages,
did the trial Magistrate apply wrong principle of law? What factors did
the trial Magistrate take into account when assessing the general
damages? Did the trial Magistrate take into consideration some
irrelevant factor or did the trial magistrate leave out of account some
relevant factor?
In so far as "assessment" of general damages is concerned the trial
Magistrate stated in her Judgment (without page numbers) thus:
" Coming to the fourth issue as to what are the damages (sic!) the
parties are (sic!) suffered, in this case plaintiff claimed that by breach
of the contract he used, he failed time to make a follow ups on
the payment without successto run his business accordingly
as many time he spent making the follow up on the payment, I have
no doubts that the plaintiff suffered general damages” (the emphasis
is of this Court).

Page 15 of 23
 In the Judgment, the trial Magistrate does not explicitly state the
principle rule for measuring damages for breach of the Loan Agreement.
It is a general rule under common law that general damages are
awardable in cases of breach of contract and are assessed at the date of
breach, save where justice requires a departure from that date for which
it will be just and necessary to consider post-breach events known at
the date of assessing damages, to the extent that they are relevant to
and affect the claimant's loss.
There is still some controversy however, as to whether the award of
general damages is in the realm of tortious claim, as was the case in
RaziaJaffervs Ahmed MohamedatiSej and Others Civil Appeal
No.63 of 2005 (unreported) where it was stated that "Genera/
Damages ... are entirely to be presumed to be the "direct, natural or
probable consequencei', and not for breach of contract as
contemplated under the principle established by the leading case of
Hadley vs. Baxendale (1854) 9 Exch.341.ln that case the following
principles were enunciated with regard to measuring general damages
for breach of contract:

"Where two parties have made a contract which one o f them has
broken, the damages which the other party ought to receive in
respect of such breach of contract should be such as may fairly and
reasonably be considered as either arising naturally’ that is, according
to the usual course of things, from such breach of contract itself, or
such as may reasonably have been in the contemplation of both

Page 16 of 23
 parties at the time they made the contract as the probabe result of
the breach
The above Rule finds expression in our Law of Contract Act, Cap. 345
R.E. 2002as follows;
"73. -(1) When a contract has been broken; the party who suffers
by suchbreach is entitled to receive, from the party who has
broken the contract,compensation for any loss or damage
caused to him thereby, which naturally arose in the usual
course of things from such breach, or which the parties
knew, when they made the contract; to be likely to result
from the breach of it
(2) The compensation is not to be given for any remote and
indirect loss or damage sustained by reason of the breach,
(emphasis added).
On the strength of section 73(1) of the Law of Contract Act, a party
who suffers from breach of contract is entitled to receive compensation
for any loss which naturally arose in the usual course o f things from
such breach or which the parties knew, when they made the contract, to
be likely to result from the breach of it. And in terms of section 73(2) of
the Act, compensation is not to be given for any remote and indirect loss
or damage sustained by reason of the breach."
The issue is whether the amount of Tshs. 5,000,000/=awarded by
the trial Magistrate as compensation for breach of contract could be said
to have naturally arose in the usual course of things from such breach or
the parties knew, when they made the contract, to be likely to
resultfrom the breach o f it The compensation to be awarded has to
meet either of these two tests, that is, loss flowingdirectly and naturally

Page 17 of 23
from the failure by the Appellant to keep part of his promise in the Loan
Agreement to repay the loan within the prescribed period or parties
knew, when they made the contract, to be likely to result from the
breach of it.
I am of the firm view that by the nature of things, the Respondent
has suffered some loss as a result of the breach of the contract, which
loss could be said to flow directly and naturally from the failure by the
Appellant to keep part of his promise to repay the loan within the agreed
stipulated period. The issue is whether such amount was reasonable in
the circumstances of this case. The damage arising from the breach was
reasonably within the contemplation of the parties at the time when the
Loan Agreement was made.
The learned Counsels for the parties are at a consensus that
damages are awardable at the discretion of the court. In Black's Law
Dictionary, by Bryan A. Garner 9th Edition (2009), West Publishing Co.,
Thomas Reuters, United States of America, p.445, "damaged are
defined as, "money claimed by, or ordered to be paid to, a person as
compensation for loss or injury” The assessment of damages in contract
and tort in common law jurisdictions is underpinned by the fundamental
"compensatory principle/f, which provides that, the purpose of an
award of damages is to compensate the injured party for loss, rather
than to punish the wrongdoer. In the instant case, I am of the firm view
that the award of Tshs.5,000,000/-as general damages aimed more
at punishing the wrongdoer (the Defendant/Appellant who was in
breach of the Loan - Agreement) than to compensate the
Plaintiff/Respondent. The amount of Tshs. 5,000,000/ = the trial Court
awarded to the Respondent as general damages, in my considered view,

Page 18 of 23
is inordinately high and it was wholly based on an erroneous estimate of
the damage the Plaintiff/Respondent suffered as a result of the breach
of the Loan Agreement.
In measuring or assessing general damages in breach of contract,
there are relevant factors that are to be taken into account In the
instant case, the trial Magistrate after considering the time the
Respondent spent making a follow up on the loan repayment without
any success,which, time according to the trial Magistrate, the
Respondent would otherwise have used to run his business, concluded
that she had "...no doubts that the p la in tiff suffered general
damages."
In my considered view much as lost time in making a follow up by
the Respondent on the loan payment could be an important factor to
consider in assessing general damages awardable to the Respondent, it
was not the only relevant in the instant matter in assessing damages. It
is not evident in the record the amount of time in terms of working
hours the Respondent had spent while following up on the loan
payment, so as to explain as to how the trial Magistrate arrived at the
conclusion that the lost time by the Respondent in following up on the
loan payment and not attending to his business was quantifiable as
amounting to Tshs. 5,000,000/=. I am of the firm view that in the
absence of evidence by the Plaintiff/Respondent to prove any loss
naturally and directly flowing from the breach of the loan agreement and
failure by the Plaintiff to prove the actual amount of his loss, this was
clearly a case for award of nominal damages.
Before the trial Court, the Plaintiff/Respondent did not manage to
prove loss flowing directly and naturally from the breach of the Loan

Page 19 of 23
 4

Agreement or the actual amount of his loss. It is a matter of principle

that damages must reflect the loss, if any, the innocent party has
suffered. In such circumstances, the Plaintiff/Respondent was therefore
entitled only to nominal damages [see the decision in the case of The
Mediana [1900] A.C. 113.] Nominal damages can arise or be granted
where the Defendant's breach of contract has in fact caused no loss to
the Plaintiff, but it may also arise when the Plaintiff, although he has in
fact suffered loss, fails to prove any loss flowing from the breach of
contract or fails to prove the actual amount of his loss.
In the particular circumstances of this case, an award of Tshs.
1.000.000/= would have met the ends of justice.
Let me now albeit very briefly comment on Clause 5 of the Loan
Agreement in which the borrower (Appellant) undertook to pay any
other costs incurred as a result of any inconvenience caused by him and
interest of 20% on the principal sum of the loan monthly as from the
date of default.
Briefly, on 10th of August 2015, the Appellant and the Respondent
entered into a Loan Agreement (Exh. PEI) of Tshs. 5,000,000/=. The
contact term was to last until 09th of September 2015. That period
was however, extended for a further period of one month until 09th
October 2015. Theevidence on record is that, the Appellant has
managed to repay part of the loan albeit having defaulted for a period of
almost nine (9) months. It was also a term in Cause 5 in the Loan
Agreement that, in case of default, the Appellant was to pay monthly
interest rate of 20% on the principal sum of the loan, i.e.Tshs.
5.000.000/= from the date of default for each month in default until full
payment is made. This meant that in case of default, the Appellant was

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to pay a monthly amount of Tshs.l,000,000/= for each month of
default.
The Law of Contract Act, Cap. 345 R.E. 2002 provides for
compensationfor breach ofcontract wherepenalty is stipulated under
section 74 in the following terms;
"74.-(1) When a contract has been broken', if a sum is named in
the contract as the amount to be paid in case of such breach,
or if the contract contains anv other stipulation bv wav of
penalty, the party complaining of the breach is entitled\ whether or
not actual damage or loss is proved to have been caused
thereby: to receive from the party who has broken the contract
reasonable compensation not exceeding the amount so
named or, as the case may be, the penalty stipulated.
(2) A stipulation for increased interest from the date of default may
be astipulation by way of penalty, "(emphasis added).

In the instant case, Clause 5 in the Loan Agreement falls squarely

within the ambit of section 74(1) and (2) of the Law of Contract Act as
being a "penalty clause” This provision do away with the common law
rule that, to the extent that a clause is a penalty, it will be unenforceable,
but otherwise if the payment stipulated amounts to a genuine pre­
estimate of loss arising in the event of breach, it may be enforceable. In
my considered view, a penalty clause in a contract is intended to
compensate the person who suffers from a breach of contract
whereactual damage or loss arising from breach of contract is not
proved whereby reasonable compensation is to be awarded which does

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not exceed the amount named in the contract as the amount to be paid
in case of breach or the amount stated in the penalty.
In the instant case, the penalty clause in the Loan Agreement did not
provide for a specific sum of money to be payable in the event of breach
but stipulated for payment of a monthly interest rate of 20% on the
principal sum of the loan, which is Tshs. 5,000,000/= on default until
the loan amount was fully settled. In terms of section 74(1 and (2) of
the Law of Contract Act such penalty clause is enforceable.
It is for the above reasons the third ground of appealthe trial
Magistrate did not properly exercise her discretion in awarding the
Respondent general damages to the tune of Tshs. 5,000,000/=,
which amount the Appellant contends that was unreasonable and
disproportionate to the claim of the Respondentis hereby held in the
affirmative.
In the whole and for the above reasons, the appeal succeeds to the
extent as shown herein.
The Judgment of the Resident Magistrate Court of Musoma in Civil
Case No. 49 of 2016 (Hon. J.S. Musaroche, RM) dated 28th
September, 2016) is hereby upheld to the extent as indicated herein.
The order by the trial Court for the Appellant to pay
Tshs.l,710,000/= is hereby quashed and set aside.
The Appellant shall pay the Respondent only Tshs.710,000/= which
is the amount remaining as the unpaid amount due on the loan.
The order by the trial Court for the Appellant to pay Tshs.
5,000,000/= as general damages for breach of contract is hereby
quashed and set aside.

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\

The Appellant shall pay the Respondent nominal damages to the

tune of Tshs. 1,000,000/= only.
Thejudgment debt shall attract an interest at the court'sof 7%per
annum from the date of the judgment in the trial Court until full
payment.
The order by the trial Court for payment of monthly interest rate at
the rate of 20% on the principal sum of the loan for breach of contract
as from the date of breach until full settlement of the loan amount is
hereby confirmed and upheld.
I shall not make any order for costs. Each party shall bear its own
costs for this appeal.
It is so ordered.
SGD: R.V. MAKAR AM BA
JUDGE
24/04/2018

Date: 24/04/2018
Coram: Hon. Makaramba, J.
Appellant: Absent
Respondent: Mr. Alfred Daniel for the Respondent
B/C: S. Isangi

Mr. Alfred Daniel: My Lord, the matter is coming for Judgment. We

are ready to receive it.

Court: Judgment delivered.

R.V. MAKARAMBA
JUDGE
AT MWANZA
24/04/2018

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