A CHEQUE;
According
to S.72 of the bills of exchange act; a cheque is a bill of exchange drawn on a
banker, payable on demand
Terms
Bills
of exchange
With
the bill of exchange there is no bank involved- it can either be addressed to
any person or a bank but a cheque must be addressed to the bank
A
cheque is the customers mandate to his banker to pay. S.72 (1) defines a cheque
as a bill of exchange drawn on a banker payable on demand
A
bill of exchange. Under S.2 (1) a bill of exchange is an unconditional order in
writing addressed by one person to another, signed by the person giving it,
requiring the person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money
to the order or to a specified person or to bearer
According
to S.2- S.72(1) of the bills of exchange read together a cheque can be defined as an unconditional order in writing drawn by
one person upon another who is a banker to pay on demand a sum certain in money
to the order of a specified person or to bearer
Pay
Dan or the bearer. Here bearer means whoever presents a cheque to you if it is
not Dan
A
cheque must be paid on demand. The
modern cheque leaf does not include the word demand. This omission is remedied
by S.9 of the act. Which stipulates that a bill is payable on demand which is
expressed to be payable on demand, or at site, or on presentation or in which
time of payment is not expressed.
By
this definition, there are three parties to a cheque;
1. The
person who draws the cheque. Known as the drawer
2. The
banker on whom the cheque is drawn; called the drawee bank or paying bank. A
paying bank is one which pays the money and the person who is supposed to
receive payments is the payee.
If
the drawer is the one to be paid then the drawer and the payee are the same
person. Here it is the same person who writes the cheque and is the one who
wants to be paid.
The
order must be an unconditional; in Bavans
junior v London and south west bank; an instrument which was in the form of a
cheque but followed with the words provided the receipt form at the foot hereof
is duly signed. The court held that the receipt requirement was a condition which made the instrument not
a cheque
A
cheque must be addressed by one person to another being a bank as drawee. The
financial institution’s act Section 3. provides that a bank means any company
licensed to carry on financial institutional business and includes all branches
and offices of that company in Uganda
A
bank draft is a cheque written by a branch on the headquarters or another
branch.
It
follows that the draft drawn by one person on another or on the head office are
not cheques or bills because they are not addressed by one person to another
But
S.4(2) of the bills of exchange provides in part that where in a bill, a drawer
and drawee are the same person the holder may treat the instrument as a bill of
exchange or as a promissory note (it is
a promise to pay) it is governed by S.82 of the bills of exchange act.
S.49(2)©(1)
provides that notice of dishonor is
dispensed with as regards the drawer where the drawer and drawee are the same
person notice of dishonor (once a
cheque has been presented and dishonor notice of dishonor must be given to the
drawer if not he will be free from liability as a general rule)
S.1 of the act defines a holder to mean the payee or endorsee of a bill or a note who is in
possession of it or the bearer
The endorser
is a person who orders the money to be paid while the endorsee is a person to
whom the money is to be paid. Normally the first endorser is the payee.
Note;
S.23 a forged signature is a total nullity
CERTAINTY OF THE PAYEE.
According
to S.6 (1) of the bills of exchange act, the payee must be described with
certainty. Any words which generally identify a person are regarded as
certainty.
FICTITIOUS OR NON EXISTING PERSON
s.6
(3) provides that where the payee is a fictitious or non-existing person the
bill may be treated as payable to bearer. The house of Lords considered this
provision in bank of England V vagliano brothers and held by majority of 5-2
that the effect of the section is that the bill may be treated as payable to
the bearer where the person named or as payee, or to who’s order the bill is
made payable on the face of it is a real person but has not and was never
intended by the drawer to have any right upon it or arising out of it and this
is so though a bill so called is not in reality a bill but in fact a document
manufactured by the person who forges the name of the drawer, forges the
signature of the named payee and presents the document for payment. Both the
named drawer and the named payee being entirely ignorant of the circumstances.
Fictitious means feigned or pretended
The
application of the subsection, (6) does not depend on the condition that the
acceptor should be aware that the payee was a fictitious or non-existing
person. The Earl of Selborne one of the judges in the case supra, that in cases
which fall under S.6(3) knowledge on the part of the acceptor that the payee is fictitious or non-existing person is
necessary because such implication cannot be gathered from the subsection.
According to bomma manufacturing limited
against Canadian bank of commerce. If the payee on the cheque was a matter
of pure invention and not a real person then such a payee was non
existence
the
rational of the rule was stated by the court to be that the fictitious payee
rule set out in S.6(3) that a fictitious person was to be treated as payable to
bearer was an exception to the normal rule of Nemo Dat quod Non Habet and
through the loss on the drawer. Bank of England V Vagliano brothers[1].
A series of documents were manufactured and were made payable as the acceptor’s
bank and the amounts were paid by the bank over the counter but vagliano was
not aware of these documents drawn on him. The forger (a clerk in vagliano’s
employment) fraudulently forged the signatures of the payee. Vagliano sued the
bank to recover the money. Court held that the loss had to fall on vagliano
because the money was paid to whoever presented the cheque because money was
paid to the bearer.
In
cluntton v. attenborough & son[2] An
employer was fraudulently induced by the clerk to draw cheques in favor of a
non-existing payee who’s endorsement was paid by the clerk in favor of a bona fide transferee (is someone who is
a holder for value- a holder in due course) the bills have been transferred to
him but he has given you consideration.) For value; the third party (the
transferee who acted in good faith obtained payment of the cheques. Glaton
after discovering the fraud sued him for money they had received. The House of
Lords held that the equivalent of S.6 (3) applied and the money could not be
recovered.
In
vinden v. Hughes a clerk fraudulently induced his employers to draw a number of
cheques in the names of customers of his employers. He obtained the firms
signature, forged the endorsements and negotiated the cheques to an innocent
third party who obtained payment from the firm’s bankers. When the third party
was sued for the money the court held that at the time the cheques were drawn
the employer believed that they were being drawn in the ordinary course of business
for the purpose of the money being paid to the named payees. Accordingly the
payees could not be regarded as fictitious or non-existing person.
In
north and south wales bank v. Macbeth, a
fraudulent person, white, induced Macbeth to draw a cheque in favour of Kerr,
an existing person who was intended to have the benefit of the cheque. The
house of lords accordingly held that the equivalent of S.6(3) did not apply
because the drawer of the cheque intended that the payee or his transferee should
receive the money. The payee was not fictitious. The house explained the case
of bank of England v. vagliano brother,
and clutton v. Attenborough by saying that the former authority was not a case in which the drawer intended
the payee to receicve the proceeds or the bill. And in the latter authority the
payee was a non-existent person whom no one either could or did mean to be the
recipient of the proceeds of the cheque..
It
appears therefore that . where a cheque
is payable to a fictitious or non existing person it becomes as against a bona
fide holder, negotiable without
endorsement, and is to be treated as if in terms made will fall on him or her.
And a payee may be fictitious without being non-existent provided he or she has
no interest to receive it. Treating such an instrument as being payable to
bearer means. That any endorsement forged on it may be disregard the instrument
would be caught by S.23 which provides in part that where a signature on a bill
is forged or placed thereon without the authority of the person whose signature
it purports to be, the forged or unauthorized signature is wholly inoperative.
The
decision in bank of England v. vagliano brathers, is not very relevant to
cheques because of S.23 which provides
that if the drawer’s signature is forged the paying bank will be liable unless
the customers is estopped from denying the genuiness of the signature. And the
bank is futher protected by S.59 (if
the bank payees on the cheque in good faith and in ordinary course of business
it is not incumbate on a bank to see whether the bill was actually forged) of
the Act. It should also be noted that if the cheques in North and south wales
bank v. Macbeth had been crossed the bank would have been protected by S.81 of the Act which sates that where a banker in good faith and without
negligence receives payment for a customer who has no title or defective title thereto, the banker shall not incur any
liability to the true owner of the cheque by reason only of having received
such payment. Accoriding o the learned authors of patet’s law of banking, the
following principles can be extracted from the cases discussed above. The
primary factor is the state of mind and intention of the drawer of the bill or
cheque; if hi
“Missed”
The
case of north and south Insurance
Corporation against national provincial bank and the case of Cole v. Milsom.
The
cases of north & south insurance corporation v national provincial bank and
Cole v milsom distinguished. Law J said that the case of North and south
insurance corporation v. national provincial bank decided that a document made
out of “cash or order” was not a cheque because it was not a bills of exchange
as defined In the bills of exchange act and that the words “or order” being
inconsistent with the intention of the drawers should be disregarded.
But
as Smart says; instruments in this form are not to be regarded as payment to
bearer although in some purposes the practical effect is the same as if they
were[3]
The
most important different between a document drawn cash or bearer and one drawn
cash or order is that the former is covered by the bills of exchange act and is
fully negotiable whereas the latter is not.
According
to chambering v. young and tower[4]a
cheque drawn “pay… order” and endorsed (signed) by the drawer. It is a good
cheque because it is interpreted to mean “pay to my order” but a cheque drawn
“pay or order” is not a bill of exchange because there is no payee
A
cheque drawn; “pay self or order” is a good bill of exchange authorized by S.4
(1) of the act. Which states that a bill may be drawn payable to or to the
order of the drawer or it may be payable to the order of the drawee.
ANTEDATING AND POSTDATING
It
was generally thought that a postdated cheque would not have qualified as a cheque
because S.72 defines a cheque inter alia as being payable on demand. The
argument was that in the absence of s.12
(2) which provides that a bill is not invalid by reason only that is it
postdated or antedated. A postdated cheque would not even be a cheque as it is
not payable on demand
However
in Hodgson & Lee pty Ltd v. Mardonius Pty Ltd[5] after analysis of certain provisions
corresponding Sections 2,9 and 10 of the bills of exchange act the court came
to the conclusion that a postdated cheque is not payable at a fix or
determinable future time and must therefore be payable on demand. It appears
therefore that postdated cheques are within the meaning of S.72 and S.12 (2)
was not necessary to make them cheques.
The
provision that a bill is not invalid by reason only that it is post-dated has
been interpreted to include a proposition that a cheque shall not be invalid by
reason only of its being postdated. Therefore a postdated cheque can be
negotiated between the date of its issue and the maturity date (the date it
bares) and for a reasonable time thereafter. Hogson’s case.
However;
a postdated cheque should always be handled with care as they can be both
troublesome and dangerous to the bank. First under S.74, the death of a
customer which comes to the knowledge of the bank determines/ends the
customer’s mandate and consequently all outstanding cheques cannot be honored
by the bank
If
a bank pays on such a mandate, then it will be liable and accountable to the
personal representatives of the deceased and the holder of a postdated cheque
will have to prove as an unsecured creditor on the estate
Secondly;
S.74 gives the customer the right to determine the bank’s duty and authority by
countermand (withdrawing the authority of the bank to honor the cheque) of
payment i.e. to withdraw his mandate before the cheque has been honored. This
means that the person paying the cheque cannot get authority from the bank. This
happened in the case of Thaker Singh (electrician)
and sons v. quarbanlite Ltd[6] The
respond sold and delivered certain goods to the appellant and received there
postdated cheques payable at monthly intervals to cover the whole purchase
price of the goods. Before the respondent had received any money however, the
appellant countermanded the first cheque. The court of appeal of Kenya held
that; when a negotiable instrument was taken in view of money payment, there
was a presumption that the parties intended it to be a conditional discharge
only and that their original rights are to be restored if the cheques were to
be dishonored or if the drawer acted in the manner inconsistent with giving of
cheque such as by countermand of payment. Since cheques were given in
satisfaction of one date, the appellant’s action in countermanding payment
amounted to repudiation of the agreement
In
such a situation according to Esso
petroleum Uganda LTD v. Uganda
commercial bank one may sue for the price of goods sold a delivered for
which the cheques were issued
Thirdly;
the bankruptcy of a customer may create problems to a bank because of the doctrine of relation back. Under this doctrine bankruptcy is deemed to
have started on the commission of the first available act of bankruptcy. In the
meantime if posted cheques have been paid it can cause trouble.
Fourthly;
if the bank mistakenly honors a postdated cheque and dishonors other cheques
drawn on it by the customer it will be liable to the customer for wrongful
dishonor.
This
is the reason why bankers generally and especially when they have never
dishonored the customer’s cheque will not dishonor the cheque until they have
ascertained whether or not a postdated cheque has been paid by mistake
NOTICE OF DISOHONOR
S.47
provides that if a cheque is dishonored, notice of dishonor unless excused
under s.49 (2) © must be given to the drawer
If
a notice of dishonor is not given, the drawer will be discharged from liability
both on the cheque and on the consideration for which it was given
The
position can be gathered from the case of Emile habib bateekha v. Rosen Akan Eddin[7]
where the court of appeal of Sudan said
that the holder of a dishonored bill
note or cheque may sue an immediate party liable there on the
consideration as well as on the instrument. And where a negotiable instrument
has not been protested for nonpayment (notice of dishonor not given) and thus
cannot be sued upon) the drawee can use the instrument as evidence in an action
on the consideration and if there has been presentment and notice of dishonor,
the instrument will be prima facie evidence though otherwise it may not be
sufficient.
The
notice of dishonor must be given by the person entitled to call for payment and
must convey to the recipient that the cheque has been dishonored and he will be
held responsible... If the cheque is not honored one can sue either on the
instrument or on the consideration
PAYMENT BY A CHEQUE
Simply
stated the law is that when there is payment by a cheque the presumption is
that the parties intended it to be a conditional discharge only and that the
original rights are to be restored if the cheque were to be dishonored or if
the drawer acted in the manner inconsistent with giving of the cheque such as
by countermanding payment Singh’s in case thaker
Singh (electrician) & sons v Quarbanlite ltd.
The
rule was sanctily stated by the court of appeal of the Sudan in Mirghani
Shebeika v. Mohammed Ahamed.[8] The
general rule is that payment by cheque or other negotiable instrument is
conditional payment and the debtor is not discharged unless and until the
cheque is honored... but there is nothing which presents a cheque being taken
in absolute discharge of the debt. Trusting solely to the remedies on the
cheque.
A
good example is provided by the facts of this case; a judgment debtor issued
cheques to the judgment creditor, he waited for six months before presenting
the cheques for payment and they dishonored as stale cheques. Relying on S.44
of Sudan’s bills of exchange ordinance similar to S.44 of the Uganda bills of
exchange act, the court held that if the creditor takes the bill of a note as
conditional payment and is guilty of laches in respect of it as where a creditor
takes a cheque and takes an unreasonable time in presenting it whereby his
debtor’s position is altered, the cheque is then treated as absolute payment
and as between the debtor and creditor the debt is discharged
OTHER DOCUMENTS TO ENABLE A PERSON
OBTAIN PAYMENT.
These
documents include promissory notes, treasury bills, dividend and interest
warrants
Treasury
bills. These are things issued by the central bank to evidence indebtedness of
the government to the holder thereof.
Dividends and interest warrants.
These are given by private companies to a person to get money.
S.82(1)
states that a promissory note is an unconditional note in writing made by one
person to another signed by the maker engaging to pay on demand or at a fixed
or determinable future time a sum certain in money. Or to the order of a
specified person to bearer...
Read
page 56-57 of the hand out on promissory notes;
A
joint and several note and the other is a joint several note. Because it is
signed by more than one person that is why it becomes a joint note.
Lonmard
banking v. gradandas. 1960 ea
In
this case the document was worded at one hundred and twenty days (120) after
date “I pay” to ghusalal revji and son LTD Kampala the sum of 5000 for value
received. It was argued that because the usal words I promise to pay. These
documents were not promissory notes.
The
court held; that no particular form of words is essential to the valididty of a
note provided the requirements of a section are fulfilled. The rules of grammer
must give way to rules of goods sense. And where a reasonable interpretation of
the whole instrument requires that gramer should be departed from it must be,
and constantly is departed from. In the even it was held that the words “I pay” could fairly be costrued coroquiary
“I promise to pay” and it was a valid not. But the words I promise to pay be
not including the word “pay” was vital and it could not be considered a valid
promissory note
Shily
V. Tanganyika plastics
The
court held in this case that the aditon of the referance in document after the
words revieved on the note was unusal but both objectionable so long as it was
not intended to impose a condition
A
promissory note should be distinguished from an “IOU” an IOU is an account stated and is not a
negotiable instrument unless it also contains an unconditional promise to pay
GENERAL
CONSIDERATION OF CHEQUES
Validity and negotiability. By virtue of S.2(2) a purported cheque which
does not comply with s.2(1) would appear to be invalid. But if it is incohent
i.e incomplete, the instrument may take effect as if validly drawn.
And
not all instruments which comply with s.2 are fully negotiable. A valid bill or
cheque imposes liability to pay the sum on appropriate parties. But a bill or
cheque which appears to give rise to such a liability will not do so unless it
has been delivered.
S.15
also permits certain signatories to a bill or cheque absorbing the holder of it
from the duties he might otherwise incur. S.15 also creates a possibility of a
signatory to a bill or cheque even though it is valid and negotiable and has
been delivered to negative his or her liability
INCHOATE
INSTRUMENTS OR INCOMPLETE INSTRUENTS.
These
are covered by S.19. an inchoate bill or cheque is one incomplete in form that
is lacking some material particular such a cheque with not amount stated or the
payee’s name omitted.
A
bill without a date when it is drawn is not inchoate/incomplete. Since under
S,2(4) a date is not essential for validity.
Under
S.19(2) any person in possession of an inchoate bill has prima facie authority
i.e. the authority is presumed unless it can be proved otherwise to complete
the bill in any way he wishes in order to bind other parties an inchoate bill
must be completed within a reasonable
time and strictly in accordance with the authority given. If a fraudulent
person completes the cheque for a grater amount, he cannot claim it. But if he
negotiates it to a holder in due course, that person will be able to hold the
drawer liable for the inflated amount. Vital to this section are the opening
words “Where a simple signature on a blank stamped paper is delivered” this
means the section applies if only delivery of a signed paper has been made.
Therefore the drawer who can prove that he did not deliver the inchoate bill
can escape liability even if the bill has been completed and has come into the
hands of a holder in due course
|NEGOTIABILITY-
WHAT BILLS ARE NEGOTIABLE.
THIS
is covered by S.7 prima facie all validly drawn bills or cheques are negotiable
instruments capable of negotiation. i.e. capable of being transferred by
delivery or delivery and endorsement with the transferee free of defect of
title of prior holders and free from equities (the bill passes to the payee)
Note;
D
delivery
means. A transfer of a bearer bill. Or delivery with endorsement it is an order
bill.
However
where a bill or cheque bares words which expressly or impliedly prohibits it
transfer it cannot be transferred and hence it is not negotiable although it
remains a valid bill. Bills or cheques which prohibits transfer are draw as
follows;
Pay
Dan kidega only- by implication it is not negotiable
b.
pay john opio “not transferrable” meaning its only the named person who can get
payment.
Or
pay john okot with the words not transferrable appearing anywhere on the face
of the bill
Neither
S.7 nor elsewhere in the act does it provide for the words not negotiable; in
hibenian bank v. gysin and hason; the court of appeal treated the words as
rendering the bill non transferrable and
since a bill which can not be transferred can not be negotiated (non negotiable)
Delivery.
Delivery
is covered by S.20. the effect of this section is to provided that liability on
a bill or a cheque arises not simply because a person has signed a document
which is in the form of a bill or a cheque. Liability arises only when a bill
or a cheque has been issued or delivered. i.e. there is a signature pals
delivery to the holder. The opening words “every contract on a bill” means the
liability that one incurs by becoming a party to the bill in the capacity of
drawer, endorser or accepter in cases of other bills rather than cheques. Hence
without delivery the liability that a person would otherwise incur, is not
established. A bill or a cheque payable to a specified person can only be
issued by delivery to that person. A
bill or a cheque payable to bearer is issued by delivery to any one. Where no
delivery at all has been made a person in possession of the bill can enforce it
against no one. E.g. a completed bearer bill is stolen from my desk and given
by the thief to X who transfers it to Y, neither X nor Y has any claim against
me as the drawer because of absence of delivery of the bill. here.
There
is one exception to this in S. is negotiated to a holder in due course, a
complete and valid delivery is conclusively presumed in his favor. If the thief
negotiated the stolen bill to X a holder in due course x could enforce payment
and could not avail me as drawer to pre-non delivery since valid delivery could
be presumed in favor of a holder in due course. However complete presumption In
favor of a holder in due course applies only in cases of complete bills not
inchoate bills. Sub section 3 states that where a complete bill is not in the
hands of a holder in due course a valid delivery is presumed only until the
contrary is proved. The onus of proof is on the party seeking to evade
liability.
Delivery
can be actual or constructive. i.e can be actual physical transfer or it can be
some act that shows an immediate intention to deliver. E.g. if the drawer of a
bill informs a payee that he has drawn the bill and he is holding it on his
behalf there is constructive delivery
Read;
essay chapter but change; 6-p174
footnote 13 it should be Cap68 s76(2) and footnote 15 cap 68 s.76(4), and
footnote 14 cap s.76(3)
HOLDER
A
holder of a cheque has certain powers and rights. Under S.37(a) he may sue on
the bill in his or her own name. in the case of auto Garage LTD v. & Ors v.
motokov
the
respondent brought an action against the appellant to recover the amount of
bills of exchanger accepted by the first appellant which had been dishonored.
One of the appellant’s defense argueent was that the respondent was not
entitled to bring the action as he was not the holder in due course of the
bills. The court of appeal for eastern Africa, held that an action on the bill
of exchange may only be brought by the holder of the bill and if the plaintiff
is not the holder it is not enough that he or she is in possession of the bill
Under
S.33(4) where a bill has been endorsed in blank any holder may convert the blank endorsement into a special
endorsement by writing above the endorser’s signature a direction to pay the
cheque to or to the order of himself or herself or some other person
Under S.76(2) where a cheque is uncrossed the holder may crossed
generally or specially. A “special crossing” is when you add the name of the
bank. “a general crossing” this can be paid to any bank
Under
S.76(3) if the cheque is crossed generally the holder may cross it specially.
Uder
S.76(4) where the cheque is crossed specially or generally the holder may add
the words not negotiable
Under
S.68(1) if it is stipulated that where the bill is lost before it is overdue
the person who was the holder may apply to the drawer to give him another bill
of the same character (tenor) “overdue”
means three days after the next day. If
the cheque is lost the drawer may demand indemnity. However if the drawer so
requires he or she must give security to the drawer to indemnify the drawer
against all persons whatever in case the cheque allegedly lost shall be found
again
S.68(2)
provides that if the drawer is quested for the duplicate of a cheque and he or
she refuses, he or she may be compelled to do so.
With
certain exceptions the holder of a cheque may negotiate it to another person. A
holder some times has powers to negotiate a cheque even though he or she has no
title or a defective title and has Lord Denning says in Arab bank v. Ross
The
Arab bank ltd claimed that they were holders
in due course, they failed to make good that claim. Because the endorsement was
not regular on the face of it but nevertheless it was open to them to claim as “holder”
The
difference between the rights of a holder in due course and those of a holder
is that a holder in due course may get a better title than the person from whom
he took whereas a holder gets no better title
A
HOLDER FOR VALUE
A
holder for value is a holder who has himself given value for the instrument in addition a holder in possession of an instrument for which value has been given by some one
(the value used, the value need not be given by the party to the bill) is a
holder for value as regards the acceptor and all parties who became parties
prior to giving value under S.26(2) further under S.26(3) a holder in
possession who has a lien over the bill is a holder for value to the extent of
his lien. Value is defined in S.1 to
mean valuable consideration. Value may not be given by the party to the bill, it
can be given by the third party.
A
HOLDER IN DUE COURSE
S.28
provides that a holder who satisfies certain further conditions is a holder in
due course.
For
one to be a holder in due course
a. He
must be holder
b. A
holder for value
c. And
satisfy other condition in order to be a bolder in due course.
A
holder in due course obtains a perfect title to the bill free of defects. And may in some cases obtain
title to the bill even though his transferer had no title at all e.g. where the
transferer had stolen a bearer bill. Because such a bill does not need
endorsement.
A
holder for value who is not also a holder in due course does not seem to have
any better title than the transferer. E.g. A draws a bill accepted by B in
Favor of C, C transfers the Bill for value to D. as a result of duress or
misrepresentation by D, and D transfers it for value to E. if E has notice of
the defect in D’s title he is simply a holder for value, whereas if he has not
not notice and complies with S.28, he is a holder in due course and is
unaffected by the defect in D’s title. Indeed if E is a holder in due course
then if he transfers the bill to F, F has the right of a holder in due course
even if he has not given value and knows the defect in D’s title, provided that
he was not a party to any fraud or iligality on the part of D.
The
definition of a holder in due course is given in s.28(1) as a holder who has
given value or has lien for a bill which he took;
a. Complete
and regular on the face of it.
If
the bill is not complete, then no one who takes it can be a holder in due
course. Thus a person who takes an inchoate instrument can not be a holder in
due course. If a bill is not regular on the face of it then again no one can be
a holder in due course. E.g. a bill marked not negotiable or not transferable
is valid but is not regular so if a bill is not negotiable it can not be
transferred and therefore non=negotiable..
Similarly
any discrepancy in front of the bill will render the bill irregular in other wards face mean back and
front
In
Arab bank v. ross
An
instrument which was paid to Fahti Faisal
And
which had been endorsed Fahti &Faisal babbrisky. It was held irregular in
that part of the payees name was omitted in the endorsement
b. The
bill must be taken before it was over due.
If
a bill is a time bill i.e. due and payable on the specified future debt, then
three days after that date or the next business day if that day is a non
business day it is over due and any one then taking the bill cannot be a holder
in due course though he may be a holder for value
Under
S.35(30 a bill payable on demand or a cheque which to be valid must be payable
on demand is deemed to be over due, when it appears on the face of it to have
been in circulation for an unreasonable length of time. What is unreasonable
length of time will be judged by the facts of each case
c. Without
notice that it had previously been dishonored if such was the fact.
It
may be observed that this provision seems unnecessary since if it had been
dishonored it would be over due. But this is to forget that a bill may be
dishonored for a reason other than non payment although this is the most common
ground of dishonor. Non acceptance by a drawee of the bill also constitutes
dishonor and such non acceptance before the bill is due for payment. When a
cheque is dishonored by the drawee bank it will bare on the face of the answer or reason for non payment such
as “refer to drawer” probably there is
no money on the drawers account. Or it can be technical dishonor i.e. “words
and figures differ” meaning words and
figures do not agree. There after any transferee of the cheque would have
patently have notice of previous dishonor
d. In
good faith and for value.
Under
S.89, a thing is deemed to be done in good faith where in fact it is done
honestly whether it is done negligently or not
Value
is defined in accordance with S.1 and 26 and it only means consideration. It
should be noted that a person must himself have provided value to be a holder
in due course.
These requirements
are further explained in s.29. this
section means that if no evidence is laid on the issue of good faith and or
value both will be assumed to be present. Hence the party wishing to challenge
the good faith or the provision value by the holder must produce some evidence
on the point. Subsection (2) goes
further and provide that every holder is presumed to be a holder in due course.
However the subsection that where it is admitted or proved that either the
acceptance or the issue or the negotiation of the bill is affected by fraud,
duress or illegality the holder is presumed not to be a holder in due course.
The value need not have been provided by the current holder
e. Without notice of any defect in title of the
person who negotiated it.
To
be a holder in due course, the holder must have the title negotiated to him
without any defect in the title of the transferer. This provision is intended
to cover not merely defects in title but also equities, notice may either be
particular or general
Particular
notice is notice of a particular fact avoiding the bill
General
notice or implied notice is knowledge of some illegality of fraud but lacking
precise details. Also willful or fraudulent refusal to investigate
circumstances surrounding the bill when they obviously invite investigation may be deemed general or implied notice
Deriving
title through a holder in due course (essays pp1850) read on your own.
)
read on your own.
Negotiation
On
to become a holder in due course must have a bill negotiated to him and
negotiation consist of transfer of negotiable instrument to a person who takes free from defects and from
equities however to take free of title and equities the holder msut be a holder
in due course. And S.28 states that a holder in due course is a person to whom
a bill is negotiated. Therefore the word negotiation in S.28(1)b means transfer
which constitutes the transferee, the holder and that holder satisfies all the
other conditions to be a holder in due
course.
Negotiation
which is covered by Sj.30 consist of delivery or endorsement and delivery to a holder.
It follows from these that a payee cannot be a holder in due course. Re johns
ltd v. walling and gillo. It was contended on behalf of the respondent that
they were holders in due course of the cheque for 500 pounds within the meaning
of S.29(1) bills of exchange act of England which is similar to S.28.
The
court said that the expression holder in due course does not include the
original payee of the cheque. It is true that under the definition clause in
section 1 of the act, the word payee of a bill unless the context other wise
requires- but it appears from S.28(1) that a holder in due course is a person
to whom a bill has been negotiated and from S.30 that a bill is negotiated by
being transferred from one person to another and if payable to order by
endorsement and delivery. In view of these definition it is difficult to see
how the original payee of a cheque can be a holder in due course within the
meaning of the meaning of the Act.
Defenses
to a cheque
s.20(1)
talks of every contract in a bill which means that the relationship of the
parties is contractual
a.
failure or absence of consideration; S.26 codifies the common law rules
relating to variable consideration. However it must be emphasized that in
contract the plaintiff must prove that he or she gave consideration as it was
said in the case of Lombad banking ltda v. gandy and Anor; consideration
sufficient to support a simple contract as provided by s.26(1)a need not move
directly from the promisee as long as some right, interest, profit, benefit
accrues to the promisor or some fore
barence detriment, loss or responsibility is given , suffered or under taken by
the promisee. Centrally to the general trule that in contract the plaintiff
must prove consideration, a party to a bill of exchange does not have to prove
consideration. This is because s.29 provides that every party who’s signature
appears on a bill is prima facie deemed to have become a party there to for
value. This is a rebuttable presumption of fact. The party resisting payment of
a bill has the o rebut by proving either that there was absence of failure of
consideration or that consideration was illegal………..Sirley v Tanganyika Tegry
plastics LTD case The fact that the cheque relied on by the appellant as
establishing his to a promissory note was drawn on the client’s account
rebutted the presumption in favor that he was holder for value. There was no
consideration. In sturring products v.
d… case 239. The plaintiff brought an action against the defendant to recover
the price of goods sold and delivered to the defendant or in the alternative
the amount of a cheque drawn by the defendant for the price. The goods were
left at the defendant’s shop and he issued a cheque for the price. The bank
returned the cheque to the plaintiff unpaid. The goods were taken back by the
defendant’s agent. The action on the cheque failed because there was total
failure of consideration. Inspectors plastics
Mould ltd v. Atico Ltd a cheque was given to purchase a jewel mold. The
plaintiff supplied a defective mold on which the defendant spent a considerable
amount of money, when the defendants sued under summary procedure on the bill,
the defendants argued that the bill was meant to cover a mold which had not
materialized and therefore there was no consideration. The court held that has
regards the claim on the cheque this had to fail because the evidence showed
that there was no total failure of consideration. African overseas trading co
v. glamani 1966. In this case the court held that the bill of exchange affected
with illegality was not legally enforceable. In all contracts a promise which
forms part of an illegal transaction is not legally enforceable as a court will
not allow itself to be an instrument of fraud. … Hasanali isa and Co v. Gerald
produce shop. Is an authority for the preposition that inadequacy of
consideration affords no defense to a demand on a bill or a promissory note as
it is not for the court to inquire into the adequacy of consideration but ot
consider whether or not there has been any consideration
total
failure of consideration, illegality of consideration is a total defense to a claim on a cheque
failure
to present the cheque in proper time
decided
by the late justice odel esso petroleum v. Uganda commercial bank. (pp202 of the
essays.) s.
facts
the
petroleum co was supplying products to a dealer and the dealer was using
cheques to pay for the goods supplied by the company but he connived with the
bank official who kept cheques and didn not present them. The company staterded
asking for the all the cheques were presented and were dishonored.
The
company argued that the cheques were not presented within a reasonable time by
the drawer. It was held that even if they were presented late, the drawee was
not found liable because even if they had been presented there was no money.
it
is provided that a bill payable on demand must be presented for payment within
a reasonable time after its issue in order to render the drawer liable. And
within a reasonable time after its endorsement in order to render the endoser
liable s.44(3)b. in determining what is a reasonable time, regard must be had
to the nature of the bill, the usage of trade, with regards to similar bill and
the facts of a particular case. If it is not so presented the endorser shall be discharged. However
where the cheque is not presented for payment within a reasonable time of tis
issue the drawer will not be discharged to the extent of any actual damage
which he or she suffers as a result of such a failure.
Failure
to give notice of dishonor.
The
bills of exchange act contains detailed rules relating to notice of dishonor.
When a cheque has been dishonored by non payment notice of dishonor must be
given to the drawer and each endorser and any drawer or endorser to whom such a
notice is not given is discharged. Notice may be given as soon as the cheque is
dishonored and must be given within a reasonable time there after under
S.48(1). In the absence of special circumstances notice is not deemed to have
been given within a reasonable time unless when the person giving and the
person to receive notice reside in the same place. Notice is given or sent off
in time to reach the latter on the same day after dishonor. Or where les
person giving notice and the person receiving notice, reside in
different places the notice is sent off on the same day after dishonor. If
there be a post, at convenient hour on that day, and if there is no such a post
on that day then on the next post thereafter. These rules are applied strictly by the courts. ….. in gorind ukeda patel v dhangi nanji, notice was not given for 7
days. The court of appeal of Kenya held that on the evidence it was clear that
no notice of dishonor had been given within a reasonable time and the appellant
had not given any evidence to show that he had acted with due diligence or that
there were any special circumstances justifying the delay. The court here was
referring to S.49(1) equivalent of Uganda. That delay in giving notice of
dishonor is execused where delay is cause d by circumstances beyond the control
of the parties giving it and not imputable to his or her default, his conduct
or negligence.
In
case 243
The
issue which arose in this case was whether notice of dishonor was necessary in
the case of cheques, the court of appeal for estern Africa said that by
equivalent of section 54 of bills of exchange act
Prima
facie therefore a cheque falls within the provisions of the bills of exchange
relating to notice of dishonor of bills of exchange. But in practice notice of
dishonor to the drawer is rarely legally necessary. As the absence of effect in
the drawer’s hands, the most universal
cause of dishonor execuses it as does countermand of payment.
This
case supors two propositions;
First
S.73 extends S.48 to cheques
Secondly;
that notice of dishonor is dispensed with where the payee and the drawer are
the only parties interested and where the cause of action is attributable to
the drawer
In
Nanji Khodabhjai v Sohan Singh (1957) EA
291
A
cheque was dishonored on the 25th of april 1955 and notice of
dishonor was given until the 29th 1955. Just for days, the court
held that the defendant was discharged because there were no special
circumstances to justify any delay and notice should have been given on the 26th
of april 1955 the day following dishonor
In
Raichura v. Uganda Chemists Ltd (1956)
It
was decided that if a cheque is given in support of an anticident date obligation
and by reason of failure to give notice of dishonor. The liability on the
cheque as such is discharged and the anti-cident date (past consideration)
obligation is similarly discharged in the sense that there can be no claim on
the original contract
Where
the cheque when dishonored is in the hands of an egent, he may himself give
notice to the parties liable on it or he may give notice to the principle
according to s.48(b). if he gives notice to the principle. The agent must do so
within the same time as if he were the holder. The principle upon receiving
notice has himself the same time for
giving notice as if the agent had been an independent holder.
When
a bank is holder a cheque of its customer as agent for collection and it is
dishonored, it should give immediate notice of dishonor to the customer. Thus
in Esso standard limited v ug commercial bank, when the cheques presented for
collection were dishonored for lack of funds, UCB immediately notified the
appellant of the dishonor.
Material
alteration
S.63
where a bill is materially altered without the assent of the parties liable on
the bill the bill is avoided except as against the party who has himself made,
authorized or assented to the alteration. But where the cheque has been
materially altered and the alteration is not apperent and the bill is in the
hands of a holder in due course, such a holder may avail himself of a cheque
has if it had not been altered and can enforce payment of it according to its
original character
The
test of materiality is whether the alteration affects the right or liabilities
of any of the parties to the cheque, whether it affects them prejudiciary or
not or even beneficiary, and the onus of proving non materiality of the
alteration when apperent is upon the person claiming under the cheque
Material
alteration
These
are provided for under S.63(2) which says in part; in particular the following
alteratons are material namely
a. Any
alteration of the date
b. The
sum payable
c. The
time of payment]
d. The
place of payment
e. And
where a bill has been accepted generally the addition of the place of payment
without the acceptor’s consent
The
opening words are in particular… which means that those are mere examples they
are not exhaustive.
KOCH
V. DICKS (1933) 1 Kb 307
It
was held that an alteration in drawing a bill which changed it from an inland
bill to a foreign bill was a material alteration. An inland bill is drawn and
payable within east Africa but any other bill a foreign bill.
And
yet alteration of the place of payment is not enumerated in the equivalent of
S.53(2). Again S.77 provides that a crossing authorized by the act is a material
part of the cheque and shall not be lawful for any person to oblaterate, add or
alter the crossing except as authorized by the act. If any of these things is
done, other ways than in accordance with the act that will amount to a material
alteration
Overman
v Rahentulla
A
bill was altered by a eracing the anme of the payee and inserting in lieu
thereof the name of alibi Joma Mohamee, when the defendant objected that the
bill had been materially altered without the consent of the parties liable on
the bill, and that it was avoided under S.63, it was held that the bill having
been materially altered without the consent of the acceptor, the bill had been
discharged as far as the acceptor who was the appellant in the case was
concerned
Forged
signatures
It
is provided that a person cannot be liable where his signature has been forged
or placed on the cheque without his authority. A person in possession of the
cheque in which the drawer’s signature or the endorser’s signature has been
forged, or placed thereon without authority has no title and therefore no right
to retain the cheque or discharge the cheque according to S.23. a bank who pays
out on a customer’s cheque which has been forged must credited the customer’s
account with the amount paid. If the forgeries are not due to the customer’s
negligence or if the customer is not estopped from setting up the forgeries
Other
than in the case of a holder in due course between immediate parties and as
regards a remote party, it may be shown that the delivery has been conditional
for special purpose only and not for the purpose of transferring property in
the cheque under S.20(2)b, non fulfillment of a condition is a defense for example A gives B a cheque on agreement
that A would pay B cash n Condition that after payment he would give him back
the money if that cheque is dealt with out side the condition prima facie set,
then that is a defense but if that cheque is given to a holder in due course,
he would have a paramount interst.
In
the case of baxendile v banet
Is
an authority for the preposition that if a person signs a blank cheque in the
space provided for the drawer’s signature but never delivers it for the purpose
of completion, he will not be liable to any body not to even a holder in due
course
Where
un-over due cheque cheque is negotiated, it can only be negotiated subject to
any defect in title affecting it at maturity and hence forward no person who
takes it can acquire or give a better title than that from which a person from
whom he took had
There
are other defenses such as lack of capacity, mental incapacity, duress, undue
influence etc. these defense are core extensive with defenses in the law of
contract.
Crossing
on cheques
Read
Esses chaper 7
simply
a written authority given by the customer to his bank to pay in accordance with
the instruction contained in the authority a specified sum of money.
A
crossing on a cheques forms part of the instructions given by the customer to
his banker and like all instruction in the mandate given by the customer must
be complied with by the drawee or paying bank. Hence a paying bank which
ignores a crossing rules will generally be in breach of its contract with the
customer. The result being that it may be unable to debit the customer’s
account even it has provided the funds to meet the cheque
A
crossing may also affect the rights of third parties in that it may modify the
negotiability or transferability of a cheque. A paying bank which ignores the
crossing on the cheque may thereby incur liability to the true owner of that
cheque. A holder in due course will be a true owner as will it seems a holder
The
holder of a barer cheque is the person who is in possession of it who has given
value and has not notice of any defects in title of his transferer.
And
the holder of an order cheque is the payee or the endorsee of it with the title
No
one can have a title If the signature of the drawer or the endorsement in his
favor or any endorsement which preceeds the one in his favor is forged or an
authorized. Therefore the true owner of an order cheque baring a forged or an
authorized signature is the payee or
endorsee immediately before the invalid endorsement. Before the drawer issue
the cheque to the payee he is the true owner S.75-77
GENERAL AND SPECIAL
CROSSING
Crossing
of cheques is provided for in s.75 of the bills of exchange Act. It provides for both general and special crossing of cheques
A
cheque my be crossed generally or specially by the drawer
The
holder may cross a cheque generally or specially.
Where
a cheque is crossed generally then the holder may cross it specially.
And
where the cheque is crossed generally or specially, the holder may add the
words not negotiable.
The
bank. Where a cheque is crossed
specially, the bank to who it is crossed can cross it specially to another bank
for collection.
Then
where an uncrossed cheque or a cheque crossed generally is sent to a bank for
collection, the bank may cross it specially himself
Note
crossing of a cheque can be done on a bankdraft.
Under
S.7 7 a crossing cheque is a material part of the cheque.
The
effect of crossing.
The
effect of crossing is covered by S.78, this section provides that a crossed
cheque must be paid into a bank account. It is crossed generally it can be paid
into any bank account. If it crossed specially it must be paid to the bank
named in the crossing..
A
special crossing should mention only one bank unless the other bank is for
collection i.e. if you cross it to two banks then non of then should honor it,
unless the other bank is a collective bank
The
crossing of cheques is supposed to give added protection to the customer. Because whoever gets the cheque must pay it
into the account and if he does not have one he must open one which is easier
to trace if there is a problem with the cheque.
Statutory
protection of a paying banker
S.58
provides that a bill is discharged by payment in due course or on behalf of the
drawee and it says that payment in due course means payment made at or after
mercurity of the bill to the holder there of in good faith and without notice
that his title is defective. This means for example that apart from S.23 if payment
is made to a person upon the forged endorsement that will not amount to
payment in due course because such a
perso does not have a defective title but in fact has not title at all. A
holder is the payee or endorse of cheque who is in possession of it or the
bairer. Therefore if a bairer cheque which is not crossed is stolen from the
payee and is presented and payed by the bank, that will discharge both the bank
and the drawer.
A
strict application of S.58 would make bankers to loose money.
Thus
s.59 came in to protect the paying bank.
The effect ot this section is that when a paying bank pays a cheque in good faith
and in the ordinary course of
business, the bank is deemed to have paid the bill in due course although such
endorsement has been forged or made without auhority. For example the section
will apply if the cheque is still a valid negotiable instrument. This means
that a cheque which has been materially altered within the meaning of S.539(1) is not covered by S.59.
The
requirement of good faith is a simple one, because S.59 provides that a thing
is deemed to be done in good faith where it is in fact done honestly whether it
is done negligently or not whether payment was made in the ordinary course of
business will be decided on the basis of custom of bankers. But it appears that
payment of a crossed cheque over the counter to a person other than the drawer
can not be regarded as payment in the ordinary course of business
Similarly
payment long after the advertised working hours will not qualify as payment in
ordinary course of business.. baines v. national provincial bank ltd (1927)
137.
Payment
of a large sum of money over the counter to a person of suspicious appearance
and demeanor may not be regarded as being in the ordinary couse of business
auchteron and co v. midland bank ltd
However
it should be noted that S.59 does not protect the bank when it pays on an
irregular endorsement. E.g. kidega signs kidega.
Under
S.78(2) when a drawee bank pays a crossed cheque contrary to the crossing, it
is liable to the true owner of the cheque for any loss he may sustain owing to
the cheque having been paid.
However
under the proviso to the Section, the bank will not be liable if it pays the
cheque in good faith and without negligence
s.59
is similar to S.79 except that S.59 applies to crossed cheque, while S.79
appears to cover all cheque whether crossed or not. S.79 providees that where a
bank on whom a crossed cheque is drawn In good faith and without negligence
pays it if crossed specially to the ban banker. The bank paying the cheque is
to be entitled to the same rights and be placed in the same position as if
payment of the cheque had been made to the true owner.
It
provides further, that if a crossed cheque which is properly paid in accordance
with the crossing has come into the hands of the payee, the drawer shall be
entitled to the same rights and be placed in the same position as if payment of
the cheque had been made to the true owner. The practical effect of this
provision is that if a crossed cheque is delivered to the payee and it is lost
or stolen, the loss must fall on the payee
Under
S.79, the crossed cheque is paid in accordance with its crossing in good faith
and without negligence, the paying banker cannot be liable to the true owner if
the payment was made to another person.
S.59
and 79 operate differently, under S.59 the paying bank is required to pay in
good faith, whereas under S.79 the paying bank is required to pay in due
course. The paying bank must pay in the ordinary course of business under S.59
but under S.79 the paying banker is required to pay in due course.
The
paying bank must pay in the ordinary course of business under S.59 but under
S.79 the paying banker is only required to pay without negligence.
S.59
requires that cheques must be endorsed and endorsement must appear to be
genuine but S.79 does not mention endorsement.
If
s.58 and 59 are complied with then there is payment in due course.
Under
S.78 and 79 the bank is deemed to have paid the true owner if the requirements
are satisfied.
The
authors of Pagets law of banking says that the true owner of a cheque must be
the party with an unassailable title (undiffitable) whether in possession of it
or not. For the reason that the cheque is a negotiable instrument.
Statutory
protection of a collecting banker
The
protection of a collecting bank is contained in section 81. It provides that
where a bank in good faith and without negligence receives payment for the customer of a cheque
crossed generally or specially to itself and the customer has no title or a
defective title there to, the bank shall not incur any liability to the true
owner of the cheque by reason only of having received such a payment. A banker
receives payment for the customer not withstanding that it credits its
customer’s account with the amount of the cheque before receiving payment.
When
a bank opens and operates an account or collects a cheque for the customer the
test of negligence on its part is whether the circumstances of the transaction
actual or proposed conduct of the account are so out of the ordinary course
that they ought to have aroused reasonable suspicion in its mind and cause it
to make inquiries or to take references to satisfy itself as the customer’s
identity and circumstances
The
drawer of a cheque received by another who intended to steal it and its
proceeds remains the true owner of the cheque and the proceeds even after the
theft so as to lawfully entitle him to bring an action for conversion
And
where a bank collects a cheque for a customer who has no title to the cheque,
the banker is liable in conversion for the customer’s lack of title once the
true owner proves his title and the act of taking by the customer
The
absence of negligence intention, or knowledge on the part of the banker are
immaterial defenses under S.81 of the act and lack of prudence on the part of
the true owner is immaterial whether the
issue arises at common law or by statute
Discharge
of a bill
A
bill is made and it is discharge.
The
best way to discharge a bill is payment in due course under S.58
When
you pay under a forged endorsement, the payment is discharged if payment
complies with the requirement of S.59, i.e. pay in good faith and the ordinary
course of business
Another
way of discharging a bill is when an acceptor of a own right this is according to S.60
By
waiver. The holder of a bill at or after it maturity absolutely and an
unconditionally renounces his right against the acceptor, the bill is
discharged…. This should be at or after maturity. S.61(1)
Liabilities
of any party to a bill may in the like maner be renounced by a holder before or
after its maturity but this does not affect the rights of a holder in due
course.
By
cancellation. S.62
Under
S.63, a bill can be discharged by any material alteration
In case of signature then both
parties to the joint account must sign
Read;
Devaynes v noble (layton’s case)
(1816)1 Mer 527
Deeley v Lloyds bank ltd (1912) AC 756
Whether the
Makau nairuba v crane bank
She had 57 million in total, but at
one
HELLEN OBURA J Held
That the plaiiff did not sign the
paying slips hence she since did not present to the counter or sign them by her
sell. She therefore did not widraw the money. The bank therefore has a duty to
explain how money was paid on the forged signature.
That banks are expected to exercise
a standard of care, caution and diligence when handling a cutstomer’s accounts.
BY MUKUBWA
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