Extract from Commercial Law in Zambia: Cases and Materials by Mumba Malila

Chapter Five : Negotiable Instruments

Historical Background
Movable property is normally of two types, namely, that which is capable of being in actual physical
possession eg. a book, a pen, a K50,000 note etc., and that which is not capable of being reduced into
physical possession but would be in the form of a right or interest in something of value, for example,
abill of lading, shares in a company, a right under an insurance policy, a postal order etc., The former type
of property is known as choses in possession, while the latter is called choses in action.

Negotiable instruments are a small catergory of choses in action. They are widely used in international
sales as well as in domestic trade. An instrument in this context is simply a document of title.

From long ago, English common law recognised documents of title and to the rights of the owner of the
instrument or document. This recognition gave the owner a legal right to take the matter to court and
prove his title where it was disputed or recover his property on an action in his own name. Sadly, the
recognition of the right in a chose in action by English common law was not extended to a transfer of the
instrument. A document of title was therefore only valid as between the original parties to it. A transferee
of the document could not sue in his own name, but could only come to court using the name of the
transferor. This somewhat unsatisfactory state of the common law was mitigated by equity which
recognised the right of transferees subject to two conditions, namely that the transferee (or assignee). had
to show that notice had been given of the transfer, and secondly the transfer was subject to equities such
as the right of set- off which a debtor could raise against the assignee

In 1873 the Judicature Act was passed and its effect was to override the common law. It recognized the
transfer of choses in action. Common law then recognized this new development meaning that a
transferee of an instrument obtained a legal right to that chose and he no longer needed the assistance of
the original creditor to obtain or establish title to the property is dispute. Notice of any transfer of the
chose still has to be given to the person liable under the instrument transferring possession of the chose.

The transferee could however sue and enforce his rights in common law courts in his own name. Choses
in action however remain transferable subject to equities

The restrictions that affected choses in action made certain types of instruments undesirable and
unresponding to expanding scope of commercial needs. A custom (even before the 1873 Act), therefore,
arose among merchants in relation to certain documents whereby such documents could be transferred
from one person to another without complying with the requirement of notice and in such cases the
transferee or assignee who took the instrument in good faith and for value and without notice of any
defect of title obtained good legal title notwithstanding that his transferee had not title or had only a
defective one. These documents were called negotiable instruments.

What then is a negotiable instrument ?

A lawyer’s mind, and no less that of a student of legal theory is troubled wherever it is required that a
legal concept be tagged with a definition.Fortunately, however, when it comes to defining what a
negotiable instrument is, our minds may be at rest as there appear to be no divergency of opinion. Thus in
Crounch v Credit Foncier of England Justice Blackburn stated that : liar

“when an instrument is by the custom of the trade transferable, like cash, by delivery and is also capable
of being sued upon by the person holding it pro tempore, the n it is entitle to the name of a negotiable
instrument and the property in it passes to a bonafide transferee for value, although the transfer may not
have taken place in marker-overt.”

A negotiable instrument may thus be defined as a chose in action, the full and legal title to which is
transferable by mere delivery of the instrument with the result that complete ownership of the instrument
and all the property it represents passes free from equities to the transferee, providing the transferee takes
the instrument in good faith and for value.

There are various types of negotiable instruments. Examples include bills of exchange, promissory notes,
cheques and dividend warrants and bearer bonds. Bills of lading, though choses in action are not
negotiable instruments, neither are shares. The bill of exchange is the original and typical negotiable
instrument.

Practical uses of Negotiable Instruments

At first the use of negotiable instruments seems to have been confined to foreign bills between English
and foreign merchants. It was afterwards extended to domestic bills between traders, and finally to bills of
all persons, whether traders or not. For some time after they had come into general use, bills were always
alleged in legal proceedings to be drawn secundum usum et consuetudinem mercatorum.
Negotiable instruments are used in both international and domestic commerical transactions. In
international transactions the Bill of Exchange is normally used to facilitate payments though
arrangement with Banks and other financial institutions.

It is important to understand that the primary function of bills of exchange was and still is for the
procurement of credit, especially in sale of goods. For example , if Mavuto wishes to obtain goods
immediately but has no ready cash and is only able to pay thirty days from the date of receipt of the
goods, and Wavyaka, the seller of goods wishes to dispose of his goods quickly and receive immediate
payment, both concerns could be addressed through the use of a bill of exchange. Assuming Chibale has
some cash which he would be willing to let Wavyaka have, Wavyaka could then draw a bill of exchange
on Mavuto payable thirty days from date directing Mavuto to pay Chibale. Mavuto would then accept the
bill by sign the bill (indorse) commiting himself to pay. Meanwhile, Wavyaka will receive payment from
Chibale in exchange for the bill, often at a discounted rate.

Bills of exchange also functioned as a convenient way of settling debts. Supposing Likando owes
K10,000,000 to Hamujompa. Hamujompa in turn owes Kayombo a similar sum, through a bill of
exchange Hamujompa can order Kayombo to pay Likando K10,000,000 and if he does, both debts are
extinguished.

Promissory notes are of more modern origin than bills of exchange, and their validity as negotiable
instruments was doubtful until it was confirmed by a statute of Anne (1704). Cheques are the creation of
the modern system of banking.

There is no doubt whatsoever that negotiable instruments, other than cheques, are rarely ever used in
practice in ordinary commercial transactions between individuals in Zambia. It is not surprising,
therefore, that the subject attracts very little interest, even to the most experienced businessmen in
Zambia. The value however, of including this topic in the curriculum is that it enables the student to have
the relevant understanding of not only the concept of negotiability, but the broader legal basis on which
ordinary everyday transactions conducted by say, cheques, which as has been already alluded to are the
most common negotiable instruments, are premised.

Promissory notes are used in international trade only to a limited extent. Their main function is to serve
as security for instalments due under transactions involving medium or long-term credit.

Law Applicable to Negotiable Instruments

Before 1882 the English law governing negotiable instruments was to be found in at least seven statutes
dealing with isolated matters touching on the subject, and about 2600 cases scattered over some 300
volumes of reports. The Bills of Exchange Act 1882, codified for the United Kingdom the law relating to
bills of exchange, promissory. notes and cheques.

In Zambia,the statutory law governing negotiable instruments is the English Bills of Exchange Act 1882
and the Cheques Act. Like the Sale of Goods Act 1893, the Bills of Exchange Act 1882, is part of the
imported English law of general application. It is not exhaustive on the subject of negotiable instruments.
In terms of section 96 (2) of that Act, the rules of common law, including the law of merchant, continue
to apply to bills of exchange, cheques and promissory notes. In this section therefore, reference to the
term “Act” is to the Bills of Excahane Act of England of 1882.

The term bills of exchange includes cheques, but not all bills of exchange are cheques. A bill of exchange
is a form of negotiable instrument the history of which, though somewhat obscure, was recognised by
Lord Chief Justice Cockburn in his judgment in Goodwin v. Robarts . It is believed that the first bills of
exchange were probably invented by Florentine Jews. They were well known in England in the middle
ages, though there is no reported decision on a bill of exchange before the year 1603. The foundations of
modern English law were laid by Lord Mansfield with the aid of juries of London merchants. No better
tribunal of commerce could have been devised. Subsequent judicial decisions have developed and
systematized the principles thus laid down.

The brief historical background given above has brought out two salient distinguishing characteristics of
negotiable instruments. These set negotiable instruments apart from other engagements to pay money.
Firstly, the assignee of a negotiable instrument, to whom it is transferred by indorsement or delivery
according to its tenor, can sue on it in his own name; and, secondly, he holds it by an independent title. If
he takes it in good faith and for value, he takes it free from all equities, that is to say, all defects in title or
grounds of defence which may have attached to it in the hands of any previous party. These features were
conferred by the lex mecantoria, which was part of the common law, and is now confirmed by statutory
codification.

It is convenient to discuss the subject in the order followed in the Act, namely, first, to deal with the bill
of exchange, which as pointed out is the original negotiable instrument, and then to refer to the special
provisions which apply to promissory notes and cheques. Before doing so however, it is important to
point out that there are initially three parties to a bill. The person who makes the order is called the
drawer. The person to whom the order is addressed is called the drawee. If the drawee agrees to comply
with the instructions on the bill, he becomes an acceptor. The person to whom the order is payable is
called the payee. The payee may warrant that the bill be duly honoured by signing his name at the back
of the bill. Such a signature us known as an indorsement and the person so signing becomes the indorsor.
while the person to whom he is warranting the ill is called the indorsee. The payee of a bill who has its
physical possession and any other person who may subsequently obtain its physical possession either
under an indorsement or in the case of case of a bear bill by mere delivery is called the holder.

Definition of a Bill of Exchange.

The Bills of Exchange Act contains the definition of a bill of exchange in section 3. That section provides
that:

3.(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 orat a fixed or
determinable future time a sum certain in money to or to the order of a specified person, or to bearer.

(2) An instrument which does not comply with these conditions, or which orders any act to be done in
addition to the payment of
money, is not a bill of exchange.

(3) An order to pay out of a particular fund is not unconditional

within the meaning of this section; but an unqualified order to
pay, coupled with (a) an indication of a particular fund out of
which the drawee is to re-imburse himself or a particular account to be debited with the amount, or (b) a
statement of the
transaction which gives rise to the bill, is unconditional.

(4) A bill is not invalid by reason

(a)That it is not dated;

(b)That it does not specify the value given, or that any value has
been given therefor;
(c)That it does not specify the place where it is drawn or the place where it is payable.

The scope of the definition of a bill giiven above may be realized by comparing it with the definition
given by Sir John Comyns Digest in the early part of the 18th century: A bill of exchange is when a man
takes money in one country or city upon exchange, and draws a bill whereby he directs another person in
another country or city to pay so much to A, or order, for value received of B, and subscribes it. Comyns
definition illustrates the original theory of a bill of exchange. A bill in its origin was a device to avoid the
transmission of cash from place to place to settle trade debts. Now a bill of exchange is a substitute for
money. It is immaterial whether it is payable in the place where it is drawn or not. It is immaterial
whether it is stated to be given for value received or not, for the law itself raises a presifmption that it was
given for value. But though bills are a substitute for cash payment, and though they constitute the
commercial currency of the country, they must not be confounded with money. No man is bound to take a
bill in payment of debt unless he has agreed to do so. If he does take a bill, the instrument ordinarily
operates as conditional, and not as absolute payment. If the bill is dishonoured the debt revives.

The following is a specimen of an ordinary form of a bill of exchange:

K1,000,000 LUSAKA
1st January 2005.
Three months after date pay to the order of George Hagwamu the sum of one million Kwacha for value
received.
Lubona Banda

To : Meawhile Phiri
Plot 777 Kabulonga
Lusaka.

The definition of a bill as set out in section 3 brings out a number of important ingredients of a valid bill
of exchange. These will be considered in detail below.

An order
The instruction to pay must be an order, not a request. Words of politness will however not however
negate the instruction in the order. For istance, an order which state that “ Thirty days from date, please
pay AB the sum of XY” does not lose it quality as an order merely because ploite and simingly requesting
language is used. In Hamilton v Spottswoode an instruction which read, “Please let the bearer have
seven Pounds and place to my account and you will oblige” was held not to be an order and therefore the
document was held not to be a bill.

The order must be unconditional

For an order to satisfy the requirement of a bill of exchange, it mus be unconditional, ie unqualified. A
condition in this regard is an event which may or may not happen. The happening of the event does not
cure the defect. (See Section 11(2) of the Act)

Where an order directed that a drawee should pay out of A’s money as soon as it was received, it was
held that that the order was conditional and therefoe the document was not a bill of exchange.

An order that indicates a particulars account from which payment to be made is not an unconditional
order, nor is it so if there is mention of the reason for the payment.

State Trading Corporation v Tanganyika Fire Appliances (1970) 3 African Law

Reports 13 ( High Court of Tanzania)

The defendant made out promissory notes in favour of the plaintiff. The notes specified an account out of
which they were to be paid. The defendant failed to meet the notes. In defense, he asserted that, having
specified an out out of which they were to be paid, the obligation to pay was conditional, so that the notes
were note valid.

Held.The specification of an account out of which notes are to be paid does not make them less
conditional.

Pindi Dasghai v Ved Parkash Mandal (1948-49) Kenya Reports 9

The appellant drew a post dated cheque in favor of the respondent. It was however orally agreed that the
respondent should not present the bills for payment until the appellant’s account was credited by an
amount equivalent to the face value of the cheque, by a firm named messrs Taj and Walia. The said firm
went into liquidation and the appellant stopped payment. The cheque was thus dishonoured upon
presentment. The respondent brought this action. He averred that the oral agreement was inadmissible as
it would alter the terms of a written agreement thus rendering the cheque conditional.

Held.There was a well established exception to the parol evidence rule whereby an oral agreement
stipulating a condition precedent to a written contract’s coming into effect is admissible to show that the
condition precedent has not occurred, and thus show that there is in fact no agreement.

The cheque was thus not a conditional bill; void for offending the definition of a Bill as under s. 3.
Rather, it was merely inoperative until the appellant’s bank was credited. Since this did not occur, the
cheque could not be enforce when it fell due.
_____________________

Although a debt may be discharged by payment of a bill of exchange, it must be stressed that such
payment is in essence conditional on the bill itself being honoured. No man is bound to take a bill in
payment of debt unless he has agreed to do so. If he does take a bill, the instrument ordinarily operates as
conditional, and not as absolute payment. If the bill is dishonoured the debt revives.

Thaker Singh & Sons v Quarbanlite Ltd (1978) African Law Report 324 (Court of
Appeal of Kenya)

The appellant owed the respondent money. In settlement, he wrote out three cheques in the respondent’s
favour, each payable one month after the prior. Before the first cheque was paid, the appellant
countermanded payment. The respondent brought an action in respect of the initial debt.

Held. When, as in the present case, a negotiable instrument is taken in lieu of money payment, there is a
presumption that the parties intend it to be a conditional discharge only, andthat their original rights are to
be restored if the cheque were to be dishonoured, or if the drawer acted in manner inconsistent with the
giving of the cheque, such as by countermanding payment of it. Since the three cheques were given in
satisfaction of one debt, the appellant’s action in countermanding payment of the first cheque amounted to
a repudiation of the agreement under which the three cheques had been given….and the respondent was
therefore quite justified in repudiating the contract and making the present claim before the second and
third cheques became payable.

In writing

The definition in section 3 requires that the bill must be in writing which, according to section 2, includes
printing. Although the Act does not say what the writing should be on ,it is generally assumed that it
should be on paper. In practice, bills of exchange and cheques are normally drawn on printed forms. This
is in order to minimise the risk of fogery. As Gate points out, however, “difficulties can still arise
especially where the printed form is altered. There is no requirement that the bill be drawn on any
particular material and from time to time cases are reported in the news of cheques ( particularly in favour
of the Inland Revenue) being drawn on unusual materials, such as a cow or an item of underwear.” It is
also argued that the requirement of writing may pose an obstacle to the development of electronic
commerce. As the law now stands, parties are at liberty to conclude a contract instantaneously by sending
electronic messages between themselves on using computers, but if they desire to avail themselves of the
advantages of paying by bill of exchange, they must use a written instrument.. In England, the Secretary
of State is empowered by the Electronic Communications Act 2000, to remove this obstacle by
modifying the reqirement under section 3 that the bill must be in writing. There is no provision like this
anywhere under Zambian law.

Addressed by one person to another

The definition of a bill requires that a bill be addressed by one person to another. A bill addressed to no
one is therefore, not a valid bill within the meaning of the Act.. Section. 6 (1) provides that the drawee
must be named or otherwise indicated on the bill with reasonable certainty. The section reads as follows:

“(1) The drawee must be named or otherwise indicated in a bill with reasonable certainty.

(2) A bill may be addressed to two or more drawees whether they are partners or not, but an order
addressed to two drawees in the alternative or to two or more drawees in succession is not a bill of
exchange.”

It is possible to address a bill to two or more drawees but an order to two drawees in the alternative
or two or more drawees in secession not a valid bill within the meaning of the Act. It is possible to have
the drawer and the drawee as the same person, for section 5 provides that:.

5.(1) A bill may be drawn payable to, or to the order of, the
drawer; or it may be drawn payable to, or to the order of, the
drawee.

(2) Where in a bill drawer and drawee are the same person, or
where the drawee is a fictitious person or a person not having
capacity to contract, the holder may treat the instrument, at his
option, either as a bill of exchange or as a promissory note.

Section 7 requires that a bill not payable to bearer must name or indicate with reasonable certainly who
the payee is. What amounts to reasonable certainty will naturally be a matter of fact. A bill may also be
made payable to the holder of an office, for example, the Collector of Taxes, the Registrar of Companies,
the Commissioner of Lands, etc., The section also allows for a bill to be made payable to two or more
payees jointly or in the alternative.

Where, however, the payee is a fictitious or non-existing person the bill may, in accordance with section
7(3), be treated as payable to bearer, that is to say, payable to anyone who has it for the time being.

Although section 7 uses the terms “non-existing” and “fictitious” the Act does not define these words. In
their wisdom, however, the courts have drawn a distinction been a fictitious and non- existing payee and
that in deciding whether the payee is fictitious or non existing it is essential to determine the drawer’s
state of mind at the time he drew the bill. If the drawer can be said to have known the existence of the
payee when he signed and meant the payee to receive payment then the payee is existing. On the other
hand if the drawer did not know of the existence of the payee at the time of drawing the bill then the
payee is non- existing event if, in fact,there was a person going by the payee’s name. Nowhere did these
term become a subject of close scrutiny and interest than in the early cases decided within the two
decades following the enactment of the Bills of Exchange Act. In Clutton v Attenborough a clerk
induced his employer to draw cheques payable to one John Brett by falsely representing that a person of
that name was entitled to payment for certain work done for the employer. John Brett in fact, never
existed. The clerk then forged John Brett’s indorsement and negotiated the cheque with the defendant
who received payment from the employer’s bank(The issues in that case).

It was held that the payee, John Brett was a non- existing person, and as the employer had drawn a bill in
favour of a non- existent payee the cheque was payable to bearer.

It seems that the position is different if the drawer of the bill is induced by fraudulent mispresentation to
draw a cheque or a bill payable to a designated real person. Such a bill is not payable to a fictitious or
non-existing person and may, therefore, not be treated as payable to bearer. The reason for this is that
although the drawer may have been prompted by fraudulent motives to draw the bill (i.e his being misled
into believing that he owes money to the payee), the drawer has, nevertheless, the intention of creating an
instrument payable to that designated person.

In Vinden v Hughes, like in Clutton v Attenborough, a clerk fraudulently represented to his employer
that money was due to certain customers who were well known to the employer. In fact no money was
due. The employer signed the cheques payable to those customers and the clerk then forged the payee’s
indorsement and negotiated them to the defendants.

It was held that as the drawer had intended the payees to receive payment, the payees were not fictitious.
Consequently the defendants held order bills and the forged indorsement meant that they had no title
under section 24 of the Bills of Exchange Act. In the case of North and South Wales Bank v McBeth
White fraudulently induced Macbeth to draw a cheque in favour of Kerr, who was in fact in existence.
White then forged Kerr’s endorsement on the cheque and paid it into his own account at his bank which
received money from Mcbeth’s bank. Macbeth sued White’s bank for the recovery of the money. The
bank claimed it was protected by section 7 (3) of the Bills of Exchange Act, which provides that where
the payee is a fictitious or non-existing person, the bill may be treated as payable to bearer.

It was held that Macbeth intended that Kerr receives the proceeds of the cheque. Therefore the payee
(Kerr) was not “a fictions person” within the meaning of section 7 (3). Thus Macbeth could recover from
the bank.

In Bank of England v Vagliano Brothers a clerk employed by the respondent forged the drawer’s
signature to a number of bills and made them payable to a company called “C Petrid & Co” which, in
fact, was a real company doing business with the respondent. In ignorance of the forgeries, the
respondent accepted the bills payable by the appellant. The clerk then forged the indorsement of “C
Petrid & Company”as payee and presented the bills to the respondent who paid the clerk a total of
£71,500 on the bills. It was never the intention of the clerk that C Petrid & Co. should be paid. An
issued arose as to whether the respondent was entitled to pay the bearer of the bills ( the fraudulent clerk)
and to debit the amount paid from the appellant’s account.

In contention was section 7 (3) of Bills of Exchange Act, which provided that where the payee is a
fictitious or non existing person the bill may be treated as payable to bearer.

The respondent’s argument was that as the name of the payee was the name of real company, it was not
‘fictitious’ and that to be fictitious the name must be nothing but one of the imagination.

The House of Lords held that the respondent in the circumstances was entitled to pay the bearer and debit
the account of the appellant because on a proper construction of the term, fictitious is feigned or
counterfeit and not imaginary and so it does not matter whether the name is of a real person or not.
Furthermore, the appellant was mislead by the conduct of the respondent.

Signed by person giving it

A bill must be signed by the drawer. Until the bill is signed, the drawer cannot be liable on it. ( Section.
23 as read with section 91 (1). There is however no requirement that a person signs the bill personally.
The drawer of a bill may sign though an agent, as where a director of a company signs a cheque on
behalf of the company. Normally the words per pro are used to signify the representative capacity of the
person signing. Generally speaking, a person signing a bill assumes liability for its payment, but if a
person signs on behalf of a principal, or he has signes in a representative character, the principal and not
the agent is liable on the bill. This will only so, however, if the signature makes clear that the signatory
acts as an agent; descriptive words are insufficient, so that a person who signs a company cheque as ‘AB,
director’ would be personally liable on Section 26 of Bills of Exchange Act. provides that:

“(1) Where a person signs a bill as drawer, indorser, or

acceptor, and adds words to his signature, indicating that he signs for or on behalf of a principal,
or in a representative character,he is not personally liable thereon; but the mere addition to his
signature of words describing him as an agent, or as filling a representative character, does not
exempt him from personal liability.

(2) In determining whether a signature on a bill is that of the principal or that of the agent by
whose hand it is written, the construction most favourable to the validity of the instrument shall
be adopted.”

In Elliot v Bax – Ironside the directors of a company had accepted a bill on behalf of a company. The
drawer required the directors to indorse the bill personally, and they did so, signing the name of the
company as well as their own names. They were held personally liable on the endorsement on the basis
that the company was already liable on the bill by virtue of the acceptance.

The justification for this rule would seem to be that bills are negotiated and discounted on the basis of the
creditworthiness of the person against whom they may be enforced.

Generally a bill is enforceable against an apparent signatory unless the bill makes it clear that that person
signed only as an agent. This however does not extend to a forged signature. If the drawers’ signature is
forged, the drawer is not liable on the bill. Section 24 of the Bills of Exchange Act provides that a forged
signature is wholly in operative. Where a bill is forged, then the bill has no legal effect. It is possible for
the person whose signature is forged to plead non.est facutum. Ratification of an unauthorized signature
not amounting to a forgery is possible.
A forgery cannot however be ratified. However, in the old case of M’Kenzie v British Linen
Company Limited, a Scottish appeal before the Act, Lord Blackburn said a forgery could be ratified.
Forged Essential Indorsement

A bill payable to order should be indorsed before it can be negotiated to someone else. A bill which by
special indorsement is made payable to the order of an indorsee requires the endorsement of the indorsee
before it can be negotiated. If the indorsee’s endorsement is forged and subsequently the bill is negotiated
to other indorsees coupled with valuable consideration the forgery is generally considered to be no
signature. In terms of section 24 of the Act, 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 unauthorised signature is
wholly inoperative, and no right to retain the bill or to give a discharge therefor or to enforce payment
thereof against any party to the bill can be acquired through or under that signature,unless the party
against whom it is sought to retain or enforce payment of the bill is precluded from setting up the forgery
or want of authority. The proviso to the section is that unauthorised signature not amounting to a forgery,
may be ratified.

Forgery, of course, stands on a different footing from a mere defect of title. A forged signature, as a
general rule, is a nullity. In terms of section 24 of the Act, a person who claims through a forged signature
has no title himself, and cannot give a title to any one else. There are , ofcourse exceptions to this. First, a
banker who in the ordinary course of business pays a demand draft held under a forged indorsement is
protected In specific terms, section 60 of the Act provides that:

“When a bill payable to order on demand is drawn on a banker, and the banker on whom it is
drawn pays the bill in good faith and in the ordinary course of business, it is not incumbent on
the banker to show that the indorsement of the payee or any subsequent indorsement was made by
or under the authority of the person whose
indorsement it purports to be, and the banker is deemed to have paid the bill in due course,
although such indorsement has been forged or made without authority.”

Secondly, the import of section 20 of the Act is that if a bill be issued with material blanks in it, any
person in possession of it has prima facie authority to fill them up, and if the instrument when complete
gets into the hands of a holder in due course the presumption becomes absolute. As between the
immediate parties the transaction may amount to forgery, but the holder in due course is protected.

What the foregoing explanation means in effect is that generally, where there is a fogery, all purported
indorsees after the forgery have no right to it and the bill remains payable to the payee or indorsee who
last held it before the forgery. For example, for example,

Jane  Judy  Juliet→ Jackbeth  Jean → Jully.

   ↓
drawer payee indorsee thief

Jackbeth has no right to transfer the bill to Jean. Jean likewise has no right to transfer to Jully. All
endorsements after Jackbeths are inoperative ( and in terms of section 2 of the Act, Jackbeth is not a
holder of a bill)

“Forging A bearer bill”

A forged endorsement on a bearer bill does not affect the title of the holder ‘because such a bill is
transferable only by delivery and not endorsement coupled with delivery

The equitable doctrine of estopped requires that a person who discovers that his signature has been forged
should take speedy action to prevent a loss or mitigate any such loss. Estopped may extend to an acceptor
and an indorser (see section 54 and 55).

‘Signature’ is not defined in the Act. In a different context however, it has been held that a facsimile
signature applied with a rubber stamp is capable of being a ‘signature.’ Facsimile signatures are widely
used on cheques.

In England there is the Electronic Commerce Act 2000 underwhich the Secretary of State may modify
the requirements of signature so as to permit the used of a digital signature in connection with an
“electronic bill of exchange.” This Act is ofcourse inapplicable to Zambia.

Signature by procuration.

Not defined in the Act, but it is generally understood that this refers to representative signature eg. “for’
or for and on behalf of “ per pro”.

Under section 25 such signature operates as notice that the signor has but limited authority. The
transferee of a bill bearing a procuration signature is put on his inquiry as to the authority of the signatory.

Hassham Jira v Vora (1957) EALR 122 (Court of Appeal of Nairobi).

The appellant owned certain business concerns which were managed by his son Saltanali. In the course of
business, the said businesses became heavily indebted to the respondent. In settlement, Saltanali drew two
promisory notes in the respondent’s favour, which he signed ‘Per Pro’. When presented for payment, the
respondent refused to meet the notes, and this action was brought The respondent contended that Saltanali
had no authority to draw the notes, and that, by s. 25 of the Bills of Exchange Ordinance, the appellant, by
taking notes that were signed ‘per pro’ had express notice that Saltanali had limited authority and should

Held.On the authiority of Attwood v Mannings (1827) 7 B & C 271, the appellant’s contention was
correct in law. However, on the facts, Saltanali was clothed with the widest authority in relation to the
appellant’s business concerns, and he thus acted within the ambit of his authority. The words per pro can
only exonerate the principal where the agent oversteps his authority. As such, the respondent was bound
by Saltanali’s act and liable under the notes.

Magecha v Malda and Hussein Mahomed (1971) 3 African Law Reports (Commercial
Series) 241 (High Court of Malawi)

The plaintiff asked the second defendant to collect an amount of money from the first defendant on his
behalf. The plaintiff paid by cheque drawn in favour of the second defendant. The latter then endorsed the
cheque to the plaintiff by signing his own name only. The cheque, when presented for payment by the
plaintiff, was dishonoured. The plaintiff contended that the second defendant, though admittedly an agent,
was also liable under the cheque because he had endorsed without expressly stating that he did so as agent
for a named principle, and thus deprived himself of the protection awarded to agents by s. 26 of the
Malawian Bills of Exchange Ordinance.

Held.The rule that an agent who signs a bill as drawer endorser or acceptor is personally liable thereon,
unless he signs his principles name, or expressly states, in writing, his ministerial character, only applies
to third parties and not to the agent’s principle. Where an agent so signs as a matter of convenience to his
principle, and this is known to the principle, the agent cannot be liable to him.

Payable on demand or at a determinable future time

What is meant by “payable on demand” is explained in section 10 of the Act. That section states that a
bill is payable on demand or at sight or on presentation or if not time for payment is expressed. The effect
of the working payable on demand is to allow the holder to demand payment immediately.

In accordance with section 3, where the bill is not payable on demand it must be payable at a fixed or
determinable future time. Commercial bills are commonly payable at some future date. This is what
makes them attractive to use in commerce. The bill may expressly indicate the date on which it is
payable. Alternatively it may fix payment by reference to some event, provided that it is an event which
must happen rather that a contingent event.Where a bill is expressed payable subject to an event which
may or may not happen, then it is not a valid bill of exchange as it is not payable at a determinable future
time.

A bill may be expressed to be payable on demand, or at sight or at presentation. In each of these cases
the bill is payable on demand so that the drawee is required to pay as soon as the bill is presented (see
section 10).
Thus, a bill payable 60 days after date is valid and is payable 60days. A bill expressed to be payable 60
days after sight is payable 60days after presentation for acceptance, and is valid; such a bill must be
presented for acceptance to fix the date when it is payable. On the other hand, a bill expressed to be
payable 60 days after acceptance would not be valid as acceptance is a contingent event since the drawee
might dishonour the bill on presentation.

Two recent cases have shown a more flexible approach to the time of payment of a bill of exchange. In
Hong Kong & Shanghai Banking Corporation Ltd v G.D Trade Co. Ltd bills had been drawn using
a printed form which provided that they were payable “ at . . . sight”. The drawer had inserted the words “
90 days after acceptance” between the word “at” and “sight” but using a type face too large for the space,
with the result that the word “sight” was partially over typed. It was argued that the documents were not
bills within the statutory definition because they were payable 90days after acceptance and therefore that
payment depended on the contingent event. The Court of Appeal explained that the rule requiring
payment to be made on a determinable date is important because it is necessary for a number of reasons to
to determine the maturity date of a bill. A strict approach to the interpretation of bills is justified because
they may be negotiated and thus come into the hands of third parties. For the same reasons, their
interpretation must depend on the words on their face, not on surrounding circumstances ( which may be
unknown to a third party). On the other hand, the court was of the view that it was entitled to adopt a
commercially sensible approach to the interpretation of a bill which in it words was “a document in daily
use in hundreds of commercial transactions and, in the case of an instrument which has been drawn as a
bill with the plain intention that it should take effect as such, the case should lean in favour of a
construction which upholds its validity as a bill where that reasonably possible.”

In applying this principle, it the court concluded that the drawer had not intended to delete the word
‘sight’ so the bills were payable 90 days after acceptance of sight.

A similar approach was taken in Novaknit Helas SA v Kumar Brothers International Limited In that
case a series of bills drawn under a sale contract were stated to be payable either 60days from shipment or
“60days from presentation of documents.” Under the sale contract the bills were to be presented for
acceptance with shipping documents relating to the goods. On this basis the Court of Appeal held that
bills payable 60days from presentation of documents had the same effect as if they had been made
payable 60days form sight since the bills would be presented for acceptance at the same time as the
shipping documents. The court further concluded that since shipment in each case was bound to occur
before presentation of the documents and bill, those bills were not uncertain and were valid.

While it would appear that the test ought to be whether the bill is valid as drawn the court’s approach was
pragmatic and shows a desire not to permit technical points to be taken to avoid liability. The bills in
question had all been accepted.

A bill of exchange is payable on demand when it is expressed to be payable on demand, or at sight, or on

presentation or when notice for payment is expressed. In calculating the maturity of bills payable at a
future time, three days, called days of grace, must be added to the nominal due date of the bill. For
instance, if a bill payable one month after sight is accepted on the 1st of January, it is really payable on
the 4th of February, and not on the 1st of February as its tenor indicates.

A sum certain in money. . .

The amount to be paid must be certain. It is possible however for a bill to provide for payment by
instalments with interest at a stated rate, or in a foreign currency. An order to pay money and do so other
act is not a valid bill (See Sec 3(2)).
 To or to the order of a specified person or to bearer. . .

A bill may be made payable to a named payee (eg. Pay Kangwa Nsofu- a specified person). A bill may
also order payment to a specified person or order eg, “ pay Kangwa Nsofu or order”. In this case the bill
may be paid to Kangwa Nsofu or a person nominated by Kangwa Nsofu, so that the bill can be
transferred. Even if the word or order are omitted the bill may still be transferred. A bill is may be drawn
payable to the holder of the instrument or the drawn payable to the holder of the instrument or the drawer
or his order. (Section 5 (1), the drawer and payee same person) However it the bill is not transferable)
However if the bill is marked “pay x only

Alternatively a bill may be payable to “bearer” in that case the bill may be transferred by delivery and any
person to whom it is transferred may enforce it.

An instrument payable for instance “to cash” or to wages” is not a bill and falls outside the Act.

In Orbit Mining & Trading Co. v West Minister Bank a cheque form was made out to pay ‘cash or
order.’ The issue arose as to whether that was a cheque within the meaning of the Bills of Exch Act . The
court had to consider the import of a number of sections in the Bills of Exchange Act.. Section 73 of the
Act provides that a cheque is a bill of exchange drawn on a banker payable on demand. Section 3 (1)
provides that in a bill of exchange the sum must be payable to the order of a specified person or to the
bearer. Finally sectin 7(3) provided that where the payee is a fictitious or non- existing person. The bill
may be treated as payable to bearer. The court held that the document was not a cheque with the meaning
of the Act. The words “cash or order” do not refer to a specified person or the bearer. Further cash could
not be said to be a fictitious or non- existent person.

Khan Stores v Delawer (1959) EALR 714 (High Court of Tanganyika)

The appellant drew a cheque payable to ‘cash or bearer’. The word cash was written where the name of
the payee ought to have been, while the word bearer was printed on the cheque form. The appellant
averred that the document was not a cheque within the meaning of s. 3 of the Bill of Exchange Ordinance.
He relied on the authority of North and South Insurance Corpn. Vs provincial Bank (1936) 1 KB 323,
which decided that a document drawn to ‘cash or order’ was not a cheque because it was not a bill of
Exchange within the meaning of the 1882 Act.

Held. (a) The rule that the payee must either be named or reasonably identified only applied to bills that
are not payable to bearer, i.e., order bills.
“a person who uses cheque forms made out to blank ‘or bearer’ and who fills out the blank either with the
word ‘cash’ or a specified person, without deleting the word ‘bearer’ must be presumed to intend that the
words ‘or bearer’ should remain. Such a document is a bill of exchange, being payable to bearer and
complying with the other provisions of section 3”

Incomplete Bills / Inchoate Instruments

An inchoate instrument is one with material particular lacking e.g. a cheque with no amount stated or no
payee’s name indicated. A cheque on which a date is omitted is not inchoate since by section 3(4), a date
is not essential to validity of bill. A bill may still be valid even though as drawn, it omits one or more of
the statutory requirements.

Section 20 (1) provides that a simple signature on a blank piece of paper delivered by the signor in order
that it may be converted into a bill operates as prnia facie authority to fill it up as a complete bill for any
amount using the signature for that of the drawer, or the acceptor, or an indorser. Similarly a bill not
complete in any material particular may have the omission filled up by a person in possession of it in any
way he thinks fit. But that instrument should be filled by the person in possession within a reasonable
time and strictly in accordance with the authority given so that it may be enforceable against any person
who becomes a party prior to it’s completion. A mere holder cannot enforce it if it is not filled up within
reasonable time or is not strictly within authority given.

Section 20 (1) which entitles a person in possession of an incomplete bill to complete the missing item in
any way he thinks fit, is an intersting provision. It appears to have been clearly designed to protect third
parties. However, the provision sounds to caveats. Firstly, in terms of section 20(2) the original signor is
only liable on the bill as completed if it is completed it within a reasonable time and in accordance with
the authority actually given. This provision appears plainly sensible, but on proper scrutiny may be
understood to undermine the protection given to third parties, who take the bill with no idea that it has
been completed in breach of authority. However person who become parties to the bill after it’s
completion are fully liable on it and more over if the bill comes into the hands of a holder in due course, it
is conclusively presumed that the bill was completed within a reasonable time and in accordance with the
signor’s instructions. The holder in due course can, therefore, enforce the bill according to its apparent
tenor regardless of the authority actually given by the original signor.

Secondly, the liability of a person who signs a blank paper including a blank cheque under section 20
depends on the paper being “delivered” for completion as a bill. Therefore, if a signed paper is stolen,
the thief cannot rely on that section to enforce the bill against the signor. In the same vein, if the signor
deliveries the paper to the agent for some purpose other than completion as a bill section 20 can not be
involked.

A person is therefore, not liable on a bill or cheque merely because he is careless with his signature.
However, the principle of estopped may make the signor liable even where section 20 is not applicable.
In Lloyd Bank v Cooke X signed a cheque and delivered it to Y with instruction to complete it as a
cheque for £250 in favour of Z. As the original payee, Z could not qualify as a holder in due course, and
so could not rely on section 20 but as Z had changed its position in reliance on the cheque, it was held that
X was estopped from denying the validity of the cheque. In the later case of Wilson and Meeson v
Pickering, the court refused to extend the principlr in Cooke and held that such an estopped would only
arise where the signor intended to create a negotiable instrument. In this case X had signed a cheque and
crossed it “not negotiable.” It held, that no estopped could arise.

What is meant by “payable on demand” is explained in section 10 of the Act. That section states that a
bill is payable on demand or at sight or on presentation or if not time for payment is expressed. The effect
of the words ‘payable on demand’ is to allow the holder to demand payment immediately.

Capacity
Capacity is one of the three pre-requisites to liability on a bill of exchange, the other two being signature
and delivery. In terms of section 22 of the Act, capacity to incur liability as a party to a bill is co-
extensive with capacity to contract. Furthermore, where a bill is drawn or indorsed by an infant, minor, or
corporation having no capacity or power to incur liability on a bill, the drawing or indorsement entitles
the holder to receive payment of the bill, and to enforce it against any other party thereto.

Consideration for a Bill of Exchange

As a general rule consideration must be given for a bill of exchange. Consideration is the same
thing as value. By section 2 of the Act, ‘value’ means ‘valuable consideration’ and in section
27(1), valuble consideration is stated as constituted by; (a) any consideration to support a
simple contract, and (b) any antecedent debt or liability whether the bill a payable on demand or
at a future time. Unlike in simple contracts where the law presumes that there is no consideration
until the party alleging the existence of a contract proves that there is consideration,in the case of
contracts on bills or notes consideration is presumed till the contrary appears. Section 30 of the
Act provides that every party whose signature appears on a bill is prima facie deemed to have
become a party thereto for value and that
every holder of a bill is prima facie deemed to be a holder in due course; but if in an action on a
bill it is admitted or proved that the acceptance, issue, or subsequent negotiation of the bill is
affected with fraud, duress, or force and fear, or illegality, the burden of proof is shifted, unless
and until the holder proves that, subsequent to the alleged fraud or illegality, value has in good
faith been given for the bill.

Courts do not inquire into the adequacy of consideration.

Another difference in the application of the doctrine of consideration to simple contracts and to bills of
exchange is that in as far as a bill is concerned, consideration need not move from the promises.

Patel Brothers v HD Hasman (1952) EALR 170 ( Court of Appeal of East Africa).
The respondent’s son owed the appellant money. In order to accommodate the son, the respondent drew a
cheque in favour of the appellant. On account of this, the appellant did not commence legal proceedings
against the son. The cheque was subsequently dishonoured. The appellant brought an action to enforce the
cheque in the Tanganyika High court. The trial judge held that he could not enforce the cheque because
he had furnished no consideration for it.

Held. (a) In order that an antecedent debt be sufficient consideration of a bill of exchange within the
meaning of s. 27 of the Bills of Exchange Ordinance, it must be the debt of the party whom it is sought to
hold liable under the bill. (Oliver v Davis (1949) 2 All ER 353 followed).

(b) However, a promise to forbear, or actual forbearance at the request, express or implied, of the
defendant, is valuable consideration for a simple contract, and thus comes within the meaning of s. 27 (1)
(a) of the Ordinance. The appellant’s forbearance, at the implied request of the respondent, from
instituting legal proceedings, thus constituted consideration for the cheque.

Lombard Banking Ltd v J L Ghandi (1965) EALR 12 ( Supreme Court of Kenya).

The plaintiff brought an action for a liquidated sum, being money due under a dishonoured promissory
note. The defendant had requested a bank to cancel 49 promissory notes and to deliver them up to him.
The latter was only liable under one of these notes. In consideration, the defendant made out the
promissory note in question for the value of the 49 notes, which the bank endorsed in favour of the
plaintiff bank. The defendant’s defense was that no consideration had passed from the bank to the
defendant, since the latter had not been liable on 48 of the notes.

Held.There was consideration for the note. The cancellation of the notes, whether or not the defendant
was liable on them, amounted to a forbearance at the defendant’s request, and this constituted sufficient
consideration to support a simple contract as under s. 27 (1), and thus sufficient consideration for the note.
_______________________________

Consideration for a bill, as in general contract law, must be legal.

Nathanal Raghauji Lakhani v Vait & Another (1965) The African Law Report 479
(Court of Appeal of Uganda)

The appellant indorsed a cheque and two promissory notes in favour of the first defendant, in settlement
of gambling debts he had incurred against the two defendants in a game of dice. He sought a declaration
that the endorsements were obtained for an illegal consideration; an injunction preventing negotiation of
the instruments and an order for their delivery up.

Held.(a) By s. 1 of the Gaming Act of England, 1935, a bill given in pursuance of a gaming contract is
deemed to have been given for an illegal consideration, but is not necessarily void.

(b) By the rule of equity laid down in the English case of Jones v. Merionethshire : ‘A plaintiff is not
entitled in a court of equity on the ground of the illegality of his own conduct. In order to obtain relief, he
must prove, not only that the transaction is illegal, but something more, he must prove either pressure or
undue influence’ Per LINDLEY L J.

(c) Having failed to prove either undue influence or pressure, the plaintiff could not succeed on his own
illegality.

Negotiability of Bills and its Restriction.

A drawer of a bill may draw a bill that is not negotiable. He may do so by including in the bill words
prohibiting transfer. When a bill contains words prohibiting transfer, or indicating an intention that it
should not be transferable, it is valid as between the parties thereto, but is not transferable. Such a bill is
called a non-transferable bill. A bill may also be expressed to be payable to order or to a particular person
or to the order of a particular person. Such a bill is known as an order bill.Section 8 provides for bills that
may be negotiated as follows;

(1) When a bill contains words prohibiting transfer, or indicating an intention that it should not
be transferable, it is valid as between the parties thereto, but is not negotiable.

(2) A negotiable bill may be payable either to order or to bearer.

(3) A bill is payable to bearer which is expressed to be so payable, or on which the only or last
indorsement is an indorsement in blank.

(4) A bill is payable to order which is expressed to be so payable, or which is expressed to be

payable to a particular person, and does not contain words prohibiting transfer or indicating an
intention that it should not be transferable.
 (5) Where a bill, either originally or by indorsement, is expressed to be payable to the order of a
specified person, and not to him or his order, it is nevertheless payable to him or his order at his
option.

Each of the following would be an order bill.

(1) Pay order

(2) Pay Katebe

(3) Pay Katebe or order

On the other hand a bill expressed to be payable to bearer will be payable to the holder thereof. Such a bill
is negotiated, as already pointed out by mere delivery.

The Holder of A Bill

The generic term holder includes any person in possession of a bill who holds it either as payee, indorsee
or bearer. A bill which in its origin is payable to order becomes payable to bearer if it is indorsed in blank.
If the payee is a fictitious person the bill may be treated as payable to bearer. Section 2 of the Act defines
a"holder" as the payee or indorsee of a bill or note who is in possession of it, or the person in possession
of a bill or note which is payable to bearer. In the case of a bearer bill, therefore, the person in possession
it, is the holder.

The holder is the mercantile owner of the bill, but in order to establish his ownership he must show his
title to the bill. The bill must have been negotiated to him, that is to say, it must be transferred to him
according to the forms prescribed by the law. If the bill is payable to order, he must not only get
possession of the bill, but he must also obtain the indorsement of the previous holder. If the bill is payable
to bearer it is transferable by mere delivery. A bill is payable to bearer which is expressed to be so
payable, or on which the only or last indorsement is an indorsement in blank. If a man lawfully obtains
possession of a bill payable to order without the necessary indorsement, he may obtain some common law
rights in respect of it, but he is not the mercantile owner, and he is not technically the holder or bearer.

Daniel Meyer (Export) Ltd v Makali Cycle Mart (1956) EALR 26 (Court of Appeal of
East Africa)

The appellants drew a bill on the respondent, payable to or to the appellants’ order. They then endorsed
the bill in blank and delivered it to Barclays Bank (London) Ltd. The latter endorsed the cheque to
Standard Bank of South Africa ‘for collection’. The bill was redelivered to the appellant. The respondent
accepted the bill by later dishonoured it when presented for payment. The question arose as to whether the
appellant could enforce the bill.

Held. ( a) Only a holder, as defined under s. 2 of the Bill of Exchange Ordinance can enfoprce a bill, i.e. a
payee in possession, endorsee in possession of an order bill and any person in possession of a bearer bill.
The appellant was not a holder within the meaning of s. 2. because:
(i) ‘Payee in possession’ under that section means the payee in possession of a bill that bears no valid
endorsement. The bill in question had previously been endorsed so that the appellant, though the original
payee and in possession of the cheque, was not a ‘payee in possession’.
(ii) The endorsement to Standard Bank was both restrictive and special. It thus converted the bill into an
order bill. The appellant, when the bill was redelivered to him held an order bill and not a bearer bill. He
was thus not a holder within s.2.
i) Since the bill was an order bill, mere redeliver to the appellants could not constitute them holders. An
endorsement ibn their favour was necessary to complete the negotiation to them. As such, the appellants
were not endorsees in possession.
Under the present circumstances the appellants were in the position of equitable assignees; unable to sue
in their own name. two options were open to them; either to compel Standard Bank to endorse the bill in
their favour before bringing an action, or to join the same bank to the action as a co plaintiff.

Holder for Value

The position of the holder for value is not clearly defined in the Act but it is generally similar to that of a
mere holder. His action on the bill would be defeated if the bill was subject to fraud or duress, but while
in the case of a mere holder absence of consideration from the person who has been furnished with the
instrument provide a valid defense, it does not in the case of against a holder for value.

Section 27(2) and (3) provide in respect of a holder for value as follows;

“(2) Where value has at any time been given for a bill the holder is deemed to be a holder for value as
regards the acceptor and all parties to the bill who became parties prior to such time.

(3) Where the holder of a bill has a lien on it arising either from contract or by implication of law, he is
deemed to be a holder for value to the extent of the sum for which he has alien”

Holder in Due Course

In order for the holder of a bill to get t the full advantages of mercantile ownership he must be a holder in
due course. This means that he must satisfy three business conditions set out in section 29 of the Act.
Firstly, he must have given value, or claim through some holder who has given value. Secondly, he
should demonstrate that he took the bill, complete and regular on the face of it. A person in possession of
a document which has its essential parts yet to be completed is not a holder in due course.

The bill must be regular on the face of it. Where there are features negating negotiability of bill, the
person in possession of it is not a holder. Like wise, person in possession of a bill “not negotiable” is not a
holder in due course. A person in possession of a bill or cheque which is overdue for payment is not a
holder in due course. An overdue bill, or a bill which has been dishonoured, is still negotiable, but in a
restricted sense. The transferee cannot acquire a better title than that of the party from whom he took it.
Thirdly, he must take the bill honestly and without notice of any defect in the title of the transferor,as, for
instance, that the bill or acceptance had been obtained by fraud, or threats or for an illegal consideration.
To be a holder in due course, the holder must have taken the bill in good faith and for value and that at the
time the bill was negotiated to him he had no notice of any defect in title of the person who negotiated it.

A holder who satisfies these conditions obtains a defeasible title, and can enforce the bill against all
parties thereto. A holder in due course is in a favoured position. He is effectively in the same position as
a bona fide purchaser for value in the general law and sale of goods. The holder in due course is
recognized in law in order to promote the transferability of the bill of exchange.

By section 38(2) a holder in due course holds the bill free from any defects in the title of previous holders
and his rights cannot be defeated by personal defences such as partial or total failure of consideration,
which are normally available to parties interse but which do not arise from the instrument (See section
55).

At common law the older expression used to rerfer to the holder in due course was bona fide holder for
value without notice The statutory term has the advantage of being positive instead of negative. The
French equivalent tiers porteur de bonne foi is expressive.

A person in possession of a bill must not have had knowledge that it had been previously dishourned and
must be able to show that he acted honestly and that he had no knowledge of any defect in title of the
transfer and neither did he entertain any suspicion. In Jones v Waring & Gillow, the House of Lords
held that a holder in due course is one whom a bill is ‘negotiated’. This means that the original payee can
never be a holder in due course.

N S Rawal & Another v Rattan Singh (1956) EALR 453 ( Uganda)

The respondent was the drawer of a bearer bill which eventually ended up in the appellant’s possession as
endorsee for value. The bill in question had been dishonoured by the bank, with the words ‘refer to
drawer’ written on its face, before it came into the hands of the appellant. The appellant was cognizant of
both these facts when he took the bill. He brought an action to enforce the bill.

Held. (a) The appellant, as endorsee in possession, was a holder of the bill.

(b) Since he had notice of the dishonour, he was not a holder in due course. He thus took the cheque
subject to any defects at the time of the transfer to him. As holders for value, however, they could enforce
the bill against the respondent for its value,

Hassan Ali Issa & Co. v Jeras Produce Store.(1967) 555 (Court of Appeal of Dar-es-
Salaam)

The appellant had, at the respondent company’s request, carried out repairs on the latter’s motor cycle.
For two years, the respondents did not collect the cycle. When they finally decided to do so, the
respondent refused to relinquish possession until the respondent paid a sum of money, representing the
repair and storage charges. The respondent drew a chepue in the appellant’s favour and collected the
cycle. he later stopped payment on the cheque. In his defense, the respondent claimed that he had only
made out the cheque under duress because the appellant had refused to return his property otherwise, and,
in the alternative, that the appellant had overcharged him and had thus not furnished adequate
consideration for the cheque.

Held.(a) By s. 30 of the Bills of Exchange Ordinance, every holder of a bill is prima facie presumed to be
a holder in due course, but if it established in evidence that the issue of the bill is affected by, inter alia,
duress, force or illegality, the burden of proof shifts back to the holder.

(b) The appellant was entitled to exercise his possessory lien on the motor cycle until his service charges
were paid. There cannot possibly be duress when a person is exercising a legal right.

(c) ‘ Once there is, in fact, consideration and once, in fact, a cheque has been given basee upon some
consideration, then in a suit on that cheque, the court cannot go into the question as to whether or not the
consideration was sufficient. Let me make it clear that it can go into the question as to whether or not
there was consideration, but if, as in this case, there was admittedly consideration, then the fact that the
parties had agreed to a sum shows that the plaintiff is entitled to recover that sum, unless, as I say, there
are some special considerations such as fraud or duress’. Per Sir Charles Newbold, P. at 562.

Sirley v Tanganyika Tegry Plastics Ltd (1968) EALR 529 (Court of Appeal of Dar-es-
Salaam).

The appellant was an advocate and had been engaged in the formation of a company called Polypen Ltd
for a client. The respondent ordered goods through Polypen Ltd and gave the company a promissory note
as payment. The note was discounted with the appellant who wrote out a cheque in favour of the
company. The cash cheque was drawn upon the appellant’s clients’ account. The Company failed to
deliver the goods compelling the respondent to refuse to meet the note. The respondent, in defense,
contended that the company’s failure to deliver amounted to a total failure of consideration and therefore
that the note was unenforceable.

Held.(1) Total failure of consideration is a good defence to an action on a bill or note if set up against an
immediate party, but not against a holder in due course. By s. 29 of the Bills of Exchange Ordinance,
however, a holder in due course is one who, inter alia, takes the bill or note, as the case may be, for value.

(2) Every holder, according to s.30, is presumed to have given value.

(3) The fact that the cheque relied upon by the appellant to establish his title to the note was drawn on
clients’ accounts prima facie rebutted the presumption, in his favour, that he was holder for value. Since
the appellant failed to rebut the allegation that he had drawn clients’ money, he was not a holder for
value, and thus not a holder in due course. By necessary implication, any defenses that the respondent
could have set up against the makers of the note were also available as against the appellant, since he got
no better title. As such, total failure of consideration was a valid defense.

General Dutes of the Holder.

The holder of a bill has special rights and special duties in relation to the bill of which he is the holder.

A holder of any nature is entitled to claim payment of a bill from the drawer, the drawee, or indorse upon
presentment in accordance with section 41.

A holder has the right to bring an action in his own name, (Section 38(1)) but where a mere holder
institutes an action on the bill, the defendant is entitled to raise defences such as defect in title of prior
parties e.g. absence of consideration. He has the following duties;

1. The duty to present for acceptance

Presentment of a bill for acceptance is not applicable to cheques. While it is advisable for the holder of
an unaccepted bill to present it for acceptance without delay, for in the case of acceptance, he secures the
additional security of the acceptor, presentment for acceptance is not always necessary. The instances
when presentment of a bill will be necessary are set out in Section 39 of the Act. The section reads:

“ (1) Where a bill is payable after sight, presentment for acceptance is necessary in order to fix the
maturity of the instrument.
(2) Where a bill expressly stipulates that it shall be presented for acceptance, or where a bill is drawn
payable elsewhere than at the residence or place of business of the drawee, it must be presented for
acceptance before it can be presented for payment.

(3) In no other case is presentment for acceptance necessary in order to render liable any party to the
bill.

(4) Where the holder of a bill, drawn payable elsewhere than at the place of business or residence of the
drawee, has not time, with the exercise of reasonable diligence, to present the bill for acceptance before
presenting it for payment on the day that it falls due, the delay caused by presenting the bill for
acceptance before presenting it for payment is excused, and does not discharge the drawer and
indorsers.”

2. Presentment for payment.

The rules for presentment for payment are set out in section 45. A bill must be duly presented for
payment by the holder failure of which discharges the drawer and indorsers. A bill is duly presented for
payment which is presented in accordance with the following rules:

(1) Where the bill is not payable on demand, presentment must be made on the day it falls due.

(2) Where the bill is payable on demand, then presentment must be made within a reasonable time after
its issue in order to render the drawer liable, and within a reasonable time after its indorsement, in order to
render the indorser liable.

In determining what is a reasonable time, regard shall be had to the nature of the bill, the usage of trade
with regard to similar bills, and the facts of the particular case.

(3) Presentment must be made by the holder or by some person authorised to receive payment on his
behalf at a reasonable hour on a business day, at the proper place as defined in the Act, either to the
person designated by the bill as payer, or to some person authorised to pay or refuse payment on his
behalf. A proper place for purposes of presentment of the bill is a place of payment specified in the bill or
where no place of payment is specified, but the address of the drawee or acceptor is given in the bill, at
such address,or where neitherv of these is given, the drawee's or acceptor's place of business if known,
and if not, at his ordinary residence if known. In any other case the bill could be presented to the drawee
or acceptor wherever he can be found, or at his last known place of business or residence.

Where the drawee or acceptor of a bill is dead, and no place of payment is specified, presentment must be
made to a personal representative, if such there be, and with the exercise of reasonable diligence he can be
found.

In terms of section 46, delay in making presentment for payment is excused when the delay is caused by
circumstances beyond the control of the holder, and not imputable to his default, misconduct, or
negligence. When the cause of delay ceases to operate presentment must be made with reasonable
diligence.

Abdu Aziz v Pioneer Agencies Ltd (1957) EALR 479. (Court of Apppeal of Nairobi)
The High court of Nairobi awarded the respondent a sum in respect of two promissory notes of which the
appellant was the endorser. The respondent had presented the notes to the maker, for payment, but they
were dishonoured. He then present the notes to the appellant for payment, but omitted to inform him that
they had been dishonoured by the maker. On the question whether the appellant was discharged from
liability for want of due notice, the trial judge held that it was unnecessary in law to have given notice by
reason of the provisions of s. 50 (2) (d) (ii) of the Bill of Exchange Ordinance which dispenses with the
requirement for notice ‘where the endorser is the person to whom the bill is presented for payment’

Held.That the learned trial; judge’s finding was erroneous for being a misconstruction of the above
provision. The court held that due notice was not dispensed with because; ‘….the words presented for
payment are here used in a technical sense and refer, in the case of a promissory note, to the original
presentment of the note to the maker. The provision refers only to the situation where the maker and the
endorser are in fact, or properly represented by the same person, e.g., where the endorser has become the
maker’s executor. We were unable to agree with the learned trial judge’s reasoning, but we thought that
his decision was correct on other grounds’ Per BRIGGS Ag at 480.

3. Duty to give Notice of Dishonour

When a bill is dishourned by non-acceptance or by non payment the holder has an immediate right to seek
a remedy against the drawer and indorser. Under section 48, however, the holder has a duty to give notice
of dishonour to the drawer and each indorser. Any drawer or indorser to whom such notice is not given is
discharged

Where a bill is dishonoured by non-acceptance, and notice of dishonour is not given, the rights of a
holder in due course, subsequent to the omission, shall not be prejudiced by the omission.

However, where a bill is dishonoured by non-acceptance, and due notice of dishonour is given, it shall not
be necessary to give notice of a subsequent dishonour by non-payment unless the bill shall in the
meantime have been accepted.

African Overseas Trading Company v Bhagwanji Harjiwan (1960) EALR

417 (High Court of Tanganyika)
The plaintiff sued on a dishonoured promissory note. The defendant was the maker of the note. His
defence was that no notice of dishonour had been served on him.

Held.Notice of dishonour was not necessary to hold the maker of a note liable. According to s. 90 (1) of
the Bills of Exchange Ordinance, the maker of a note is to be regarded as the acceptor of a bill. section 52
(3) of the Ordinance provides that in order to hold the acceptor of a bill liable, it is not necessary to
protest the bill, or give notice of dishonour to him. A construction of these two sections realizes the result
that the requirement of notice of dishonour is dispensed with in as far as the maker of a note is concerned.

4. Duty to Note and Protest

Noting or protest of a bill is provided for in section 51 of the Act. The duty to note and protest arises
principally when a foreign bill is dishonoured. Holder takes the bill to a notary public who represents the
bill. The Act states that
(1) Where an inland bill has been dishonoured it may, if the holder think fit, be noted for non-acceptance
or non-payment, as the case may be; but it shall not be necessary to note or protest any such bill in order
to preserve the recourse against the drawer or indorser.

(2) Where a foreign bill, appearing on the face of it to be such, has been dishonoured by non-acceptance it
must be duly protested for non-acceptance, and where such a bill, which has not been previously
dishonoured by non-acceptance, is dishonoured by non-payment it must be duly protested for non-
payment. If it be not so protested the drawer and indorsers are discharged. Where a bill does not appear
on the face of it to be a foreign bill, protest thereof in case of dishonour is unnecessary.

(3) A bill which has been protested for non-acceptance may be subsequently protested for non-payment.

(4) Subject to the provisions of this Act, when a bill is noted or protested, [it may be noted on the day of
its dishonour, and must be noted not later than the next succeeding business day]. When a bill has been
duly noted, the protest may be subsequently extended as of the date of the noting.

(5) Where the acceptor of a bill becomes bankrupt or insolvent or suspends payment before it matures, the
holder may cause the bill to be protested for better security against the drawer and indorsers.

Application of the Rule as to Presentment, Dishonour and Noting and Protesting.

Section 89 of the Act makes provision as to the applicability of the rules as to presentment for acceptance,
acceptance and notin in regard to promissory notes. It provides that in applying those provisions the
maker of a note shall be deemed to correspond with the acceptor of a bill, and the first indorser of a note
shall be deemed to correspond with the drawer of an accepted bill payable to drawer's order.
Consequently, provision as to bill relating to presentment for payment, acceptance and protest, do not
apply to notes.

Liability of the Parties to a Bill of Exchange

The Drawer and Indorser

Section 55 (1) stipulates that by drawing a bill, the drawer undertakes that when the bill is duly presented
for acceptance, it shall be accepted and paid according to its tenor and that in the even of dishonour he
will pay compensation to the holder or any indorser the bill. The indorser has under section55(2) of the
Act similar obligations as the drawer. The drawer and indorsers of a bill are in the nature of sureties. They
engage that the bill shall be duly accepted and paid according to its tenor, and that if it is dishonoured by
non-acceptance or non-payment, as the case may be, they will compensate the holder provided that the
requisite proceedings on dishonour are duly taken. Any indorser who is compelled to pay the bill has the
like remedy as the holder against any antecedent party. Under section 56 of the Act, a person who is not
the holder of a bill, but who backs it with his signature, thereby incurs the liability of an indorser to a
holder in due course. An indorser may by express term either restrict or charge his ordinary liability as
stated above.

Acceptor

By the acceptance of a bill the drawee becomes the principal debtor on the instrument and the party
primarily liable to pay it. In accordance with section 54 of the Act,the acceptor of a bill by accepting it
engages that he will pay it according to the tenor of his acceptance, and is precluded from denying the
drawers right to draw or the genuineness of his signature. The acceptance may be either general or
qualified. As a qualified acceptance is so far a disregard of the drawers order, the holder is not obliged to
take it; and if he chooses to take it he must give notice to antecedent parties, acting at his own risk if they
dissent(see sections 19 and 44 of the Act).

Accommodation Party

Prima face every signature to a bill is presumed to have been given for valuable consideration. But
sometimes this is not the case. For friendship, or other reasons, a prson may lend his name and credit to
another in a bill transaction. Hence arise what are called accommodation bills.

An accommodation party is defined in section 28 of the Act as

a person who signs a bill as drawer, acceptor or indorser without receiving any value for the purpose of
lending his name to someone else. An accommodation party is liable to a holder for value.

Ordinarily the acceptor gives his acceptance to accommodate the drawer. But occasionally both drawer
and acceptor sign to accommodate the payee, or even a person who is not a party to the bill at all. The
criterion of an accommodation bill is the fact that the principal debtor according to the instrument has lent
his name and is in substance a surety for some one else. The holder for value of an accommodation bill
may enforce it exactly as if it was an ordinary bill, for that is the presumable intention of the parties. But
if the bill is dishonoured the law takes cognizance of the true relations of the parties, and many of the
rules relating to principal and surety come into play. Suppose a bill is accepted for the accommodation of
the drawer. It is the drawer’s duty to provide the acceptor with funds to meet the bill at maturity. If he
fails to do so, he cannot rely on the defence that the bill was not duly presented for payment or that he did
not receive due notice of dishonour. If the holder, with notice of the real state of the facts, agrees to give
time to the drawer to pay, he may thereby discharge the acceptor.

Cheques
Cheques are a narrow class of negotiable instruments. This means that all cheques are negotiable
instruments. Not all negotiable instruments, however, are cheques.
In section 3 a bill of exchange is defined as an unconditional order in writing. Section 73 of the Act
defines a cheque as a bill of exchange drawn on a banker payable on demand.

When sections 3 and 73 of the Act are read together, a cheque may be defined as an unconditional order
in writing addressed by one person to another who must be a banker, signed by the person giving it,
requiring the banker to pay an on demand a sum certain in money to or to the order of a specified person
or to bearer.

The person who draws a cheque is known as the drawer; the banker on whom the cheque is drawn is
called the drawee banker or the paying banker; and the person to whom the cheque is drawn payable is
known as the payee. As already discussed, the drawer may draw a cheque payable to himself; in that
event the drawer and the payee are the same person.

Although it is customary to draw a cheque on forms contained in a cheque book supplied by a bank, a
cheque may be drawn on any paper.

Section 73 provides that except as otherwise provided in the part of the Act relating to cheques (ss 78 –
81) the provisions of the Act applicable to bills of exchange payable on demand apply to cheques.

Although the rules governing cheques are the same as those governing other bills, there are a number of
critical differences. There are certain peculiar rules relating to the cheques which arise from the fact that
the relationship of banker and customer subsists between the drawer and drawee of a cheque. Some of
the notable differences are:

(1) The rules relating to acceptance of bills are not applicable to cheques

(2) The rules relating to negotiation are generally inapplicable to cheques as the majority of cheques are
not negotiable

(3) While the rules relating to crossings are akin to cheques they are not to other bills.

(4) Where an order cheque bearing a forged or unauthorized endorsement they paying banker is
discharged. Whereas in similar situations the acceptor of a bill would not be discharged.

(5) Section 45 provides that delay in presentiment of a bill of exchange for payment discharges the drawer
and indorsers. Section 74 on the other hand, states that a drawer of cheque is not automatically discharged
by delay in presentment. The drawer of a cheque is not absolutely discharged by the holder’s omission to
present it for payment within a reasonable time. He is only discharged to the extent of any actual damage
he may have suffered through the delay.

Dating a cheque

There is no legal requirement that a cheque should be dated. Indeed section 3 (4) (a) of the Bills of
Exchange Act 1882 provides that a bill is not invalid merely because the date is omitted. It may be
argued, however, that an undated cheque is not complete and regular on the face of it, with the result that
a holder could not be deemed to be a holder in due course.

In practice, in the Zambian context at least, the drawee banker sometimes refuses to pay a cheque which
is not dated and returns it with the answer “date required”. A simpler way of dealing with such a cheque
would be for the drawee banker to insert the date as this is authorized by the Act in section 20(1) which
provides that when a bill is wanting in any material particular, the person in possession of it has a prima-
facie authority to fill up the omission in any way he thinks fit.

By section 13(2) of the Act, a cheque is not invalid by reason only that it is antedated or post dated or that
it bears a date on a Sunday.

Certifying or marking cheques

A cheque is not intended to be and in practice never is accepted. In some countries in the commonwealth,
bankers do mark or certify cheques drawn on them by writing on the cheques the word “good” or
“approved”.

Some authorities suggest that such certification do not constitute acceptance and does not give the holder
the right to sue the certifying banker. Such certification would, however, have an effect where it is written
by a drawee bank on a post dated cheque. The banker may be estopped from pleading that the customer’s
account did not have a credit balance sufficient to meet the cheque at the date of certification. It seems
that a case for negligent misrepresentation could easily be made out against such a banker.

The term certified cheque is now often used to refer to a cheque drawn by the banker in favour of a payee
specified by the account holder. The banker will debit the account holder and issue the cheque itself so
that the account holder is not party to the cheque.
 Crossings on Cheques.
Recent years have seenan enormous increase in the use of cheques. Cheques have literally become the
normal machinery by which all but the smallest debts are discharged. A useful safeguard against loss or
theft of cheques is provided by crossing. The system of crossing also guards against fraud, and facilitates
the safe transmission of cheques through the post. By crossing a cheque the drawer will make it more
difficult for a fraudulent person to obtain value for it than it would be if the cheque was not crossed at all.
Crossed cheques are payable only through certain channels.

A cheque may be crossed either generally or specially. A general crossing consists of two parallel lines
across the face of the cheque with or without the words “& Co” and either with or without the words
“:not negotiable”
When a cheque is crossed generally it cannot be paid over the counter. It must be presented for payment
by a banker.

Where a cheque bears its face an addition of the name of a bank, either with or without the word not
negotiable that addition amounts to a crossing & the cheque is said to be crossed specially and to that
banker.

Where a cheque bears on its face an addition of the name of a bank, either with or without the words “not
negotiable”it is said be crossed specially and to that banker. It can only be presented through that
particular banker.

A cheque, whether crossed generally or specially, may further be crossed with the words not negotiable.
Such a cheque is still transferable, but its negotiability is somewhat restricted. It is in the same category
as an overdue bill. The person who takes it does not get, and cannot give a better title to it, than that
which the person from whom he took it had. These provisions are supplemented by provisions for the
protection of paying and collecting bankers who act in good faith and without negligence.

Banker / Customer Relationship

The issuance of bills of exchange in the form of cheques necessarily entails the existence of a relationship
between the banker and the customer. This relationship is established when the customer opens an
account with the banker. A remarkable feature of the creation of the contract between banker and
customer is that the terms of the contract are not usually embodied in a written agreement executed by the
parties.

The word ‘banker’ is defined in section 2 of the Bills of Exchange Act as one who carries on the business
of banking.

The precise nature of the relationship between banker and customer has in the past caused difficulties to
define. There are three possible relationships that have been ascribed to the banker and customer, namely
(i) that of principal and agent (ii) that of trustee and beneficiary (iii) that of debtor and creditor. The law
has fluctuated a little between the three conceptions, and although it finally adopted the last of them, the
development has been somewhat coloured by the first, if not also by the second of them.

It is easy to appreciate that to have held that the banker was trustee of the moneys deposited with him
would have spelt disaster to the business of banking as effectively as to have held that he was a bailee.
This is because a trustee is usually severely restricted in the use to which he may put trust funds, and may
be confined to investments in a limited class of securities. A banker could not have been a trustee and
retained complete freedom as to the use of the money in commerce.

An agent is in many ways in the position of a trustee. A banker could possibly have been treated as an
agent to use his principal money at his discretion, but the difficulties as to remuneration and the duty to
account under agency law would have been a serious obstacle to the development of a flexible banking
system. In Foley v Hill the view that a banker was an agent of the customer was spiritedly argued but
rightly rejected. This does not however mean that a banker does not from time to time act as his
customers agent, e.g. he collects for him bills of exchange and cheques of which he is holder and puts
business for his customers through the stock exchange and acts on his behalf in many other ways.The case
of Foley v Hill should not therefore be regarded as having established that a banker is never its
customer’s agent. Some of the banker’s duties e.g. to treat his customer affairs as strictly confidential, is
similar to the duty of good faith which the agent owes to his principal.

In Foley v Hill Cottenhan LC made a very pertinent remark regarding the relationship between banke
abd customer.

“ money, when paid into a bank, ceases altogether to be the money of the principal; it is then the
money of the banker, who is bound to return an equivalent by paying a similar sum to that
deposited with him when he is asked for it. The money paid into a banker’s is money known by the
principal to be placed there for the purpose of being under the control of the banker; it is then the
bankers money; he is known to deal with it as his own; he makes what profit can which profit he
retains to himself, paying back only the principal, according to the custom of bankers in some
place, or the principal and a small rate of interest, according to the custom of bankers in other
places. The money placed in the custody of a banker is, to all intents and purposes, the money of
the banker, to do with it as he pleases, he is guilty of no breach of trust in employing it; he is not
answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation;
he is not bound to keep it or deal with it as the property of his principal; but he is ofcourse
answerable for the amount, because he has contracted, having received that money, to repay to
the principal, when demanded, a sum equivalent to that paid into his hands. That has been the
subject of discussion in various cases, and that has been established to be the relative situation of
banker and customer. That being established to be the relative situation of banker and customer,
the banker is not an agent or factor, but he is a debtor”.

Possibly the earliest case in which the legal relationship between banker and customer was considered
was that of Carr v Carr. In that case a testator made a gift of personal property by willwherein he
assigned whatever debts might be due to him at the time of his death. One of the issues to be decided was
whether a cash balance due to him on his banker’s account passed by his bequest. Sir William Grant, MR,
held that it did, stating that this was not a depositum. A sealed bag of money could indeed be a depositum
but money paid in generally to a banker could not be so considered. His Lordship further observed that
money had no earmark and that when money is paid in a banker’s he always opens a debtor and creditor
account with the payer. The bankers employs the money himself and is liable merely to answer the drafts
of his customer to that amount.

In Devaynes v Noble, a case decided a few years after Carr v Carr, counsel argued before the same
judge that a banker is rather a bailee of his customers’ funds than his debtor. Sir William Grant ,MR
rejected that argument and held that money paid into a banker’s becomes immediately a part of his
general assets and he is merely a debtor for the amount.

Both these decisions were cited with approval in Sims v Bond where Denman CJ stated that “sums which
are paid to the credit of a customer with a banker, though usually called deposits, are in truth, loans by the
customer to the banker”.

As a general rule, the debtor’s obligation to pay his creditors involves the duty to seek him out and tender
payment. This rule is usually expressed by the maxim “the debtor must seek his creditor.” This rule,
however, does not apply to banker debtors. Assuming that the the rule that the debtor must seek his
creditor was to hold true, it would follow that the banker would be in a continuous state of default, and
that the customer would be entitled to issue a writ against him claiming the payment of the balance of his
account without first calling upon him to pay. Although this would not appear to be in practice a serious
risk, it actually happened in Joachimson v Swiss Bank Corp. In that case the plaintiff firm was a
partnership between two Germans and a naturalized English man, carrying on business in Manchester. On
1st August , 1914, one of the Germans died and so the partnership was in accordance with section 33 of
the Partnership Act 1898, dissolved. On the outbreak of war some three days days later, the other German
became an enemy alien. On 1st August a sum of £2,321 was outstanding to the credit of the partnership on
the current account with the defendant bank. No money was paid out of the account after that date. On 5th
June 1919 the naturalized partner started an action in the name of the firm, for the purpose of winding up
the affairs of the partnership, to recover from the bank the sum of £2,321. The cause of action was alleged
to have arisen on or before 1st August 1914. The firm had not made any demand on or before that date for
payment of the sum in question. The bank pleaded inter alia that there had thus accrued no cause of action
to the firm on 1st August 1914 and therfore, the cause of action was not maintainable. The issue was
whether or not demand was neccessay to create a cause of action against a banker.

The Court of Appeal held that a previous demabd was always necessary. Lord Atkin stated, inter alia,
that;

The question appears to me to be in every case, did the

parties in fact intend to make the demand a term of the
contract? If they did, effect will be given to their contact.
In the case of such a contract as this , it appears to me that
the parties have intended that the money handed to the banker
is only payable after demand. The nature of the contract
negatives the duty of the debtor to find out his creditor and
pay him his debt. If such a duty existed and performed, the
creditor might be ruined by reason of outstanding cheques
being dishonoured.

In Balmoral Supermarker Ltd. v Bank of NewZealand the plaintiff’s employee entered the
defendant’s bank intending to deposit some money. The cash was emptied out of a bag on the counter
between the employee and the teller. The teller took a small bundle of notes from the counter and
proceeded to count them. After these notes had been counted and put on one side, robbers entered the
bank and took the uncounted cash from the counter. The plaintiff brought an action against the bank
claiming the amount of the cash taken by the robbers and alleging that the possession of and property in
the cash on the counter had passed to the bank. The claim failed. The Supreme Court of NewZealand held
that until the money to been deposited had been checked and the bank had signified its acceptance
thereof, the money had not been deposited and the bank had not become the debtor of the customer in
respect of that money.
The relationship between banker and customer is therefore, not a fiduciary one but a simple contractual
relation of debtor and creditor under which the debtor has the additional responsibility of honouring the
customer’s cheques when there is sufficient credit balance in the customer’s account.

Since bankers perform different services for their customers the nature of their relationship between the
parties may vary from transaction to transaction. When a banker accepts money on trust he becomes
trustee. This relationship entails rights and duties owed by the parties towards each other.

Rendall-Day v Republic (1966-68) The Africa Law Report (Malawi) 155 (High Court.)
The appellant was the Chief Executive Officer of a certain Malawian statutory corporation. He
fraudulently made out various cheques drawn on the Corporation’s account in payment for repairs being
carried out on his home. He was charged and convicted of fraudulently converting, and therefore stealing,
the Corporation’s ‘cash’. He appealed on the ground, inter alia, that the charge was defective to his
prejudice because he had been convicted of fraudulently converting cash rather than a cheque.

Held.“Plainly, the appellant did not take and carry away the company’s cash because when the company
paid money into the bank, it became the bank’s cash, and when drawn out by the customer, was the
bank’s cash. The relationship between banker and customer is that of debtor and creditor, with the
addition that the bank promises to honour the customer’s cheques on demand’. (CRAM J at p 180).

Further, it is not tenable to contend that what was stolen was the Corporation’s bank balance. Foley v. Hill
(1848) 9 ER 1002, describes the customer’s rights as a chose in action; an incorporeal and therefore
intangible right, wholly incapable of being stolen. Only the cheque of such an account holder can be
stolen or converted.

The above notwithstanding, no prejudice was done to the appellant through the defective charge to
necessitate an acquittal.

Duties of a Banker

A banker owes a general duty to take reasonable care of its conduct of the customers business. More
specifically, the banker owes his

The Duty to Honour Cheques

The banker is under an obligation to honour cheques of his customer drawn on him in legal form provided
adequate credit balance is available or the cheque is within the limits of an agreed overdraft

Where a banker wrongfully refuses to honour a cheque the customer can claim for injury to his
commercial credit without the necessity of alleging and proving actual damage. In Rolin v Stewart, a
bank dishonoured three cheques in error. They were presented again the next day and they were
honoured. No actual loss was proved, nor was indeed any suffered. It was held that substantial damages
were awardable to the customer (£200).

In Gibbons v West Minister Bank on the other hand the plaintiff who was not a trader brought an action
against the defendant bank for breach of contract arising out of the wrongful dishonour of a cheque which
she had drawn in favour of her landlord. The cheque was dishonoured owing to a mistake. The plaintiff
had deposited some moneys which had been mistakenly credited to a wrong account.

The court accepted the banker’s contention that as the plaintiff was not a trader she was entitled to only
nominal damage because she had not pleaded any special or actual damage. The plaintiff was awarded
only £2.

The position of English law as regards damages payable to a customer when there is wrongful dishonour,
which position was explained in Rolin v Stewart and in Gibbsons v Westminister Bank Ltd, is similar
to the position obtaining in South Africa where Roman Dutch law applies.

In Trust Bank of Africa v Marques,the respondent sued the appellant for R1000 as damages for
wrongful dishonour of cheques draw in favour of several payees at a time when there were sufficient
funds available to meet them. The respondent alleged in the alternative that the appellant was negligent.
The respondent failed to prove that he was carrying on a business as a butcher and that the appellant knew
that he was so carrying on a business. The trial judge decided in favour of the respondent for the sum of
R500. On appeal, the appellants admitted that it dishonoured the cheques but argued that the respondent
had failed to show that he was entitled to damages. The appeal court agreed.

Nicholas J. stated the position as follows;

“A banker is of course under a duty to honour his customer’s cheques if there are available funds to
meet them, or if provision has been made for an overdraft and failure to do so may result in his incurring
a liability for damages. Such damages where the customer is a businessman or trade include damages for
injury to his credit. The right to claim such damages has been recognized in a number of cases… it is
clear from these decisions that it is not in every case that a customer, whose cheque has been
dishonoured is entitled to recover damages for injury to his credit. He is only so entitled where he is a
business man or trader. Such damages are therefore, special damages, that is to say damages which
arose under the special circumstances of the case.”

Patel v National & Grindlays Bank (1969) EALR 76 (High Court of Uganda)
The plaintiff, a shopkeeper, claimed damages from the defendant bank, which had wrongfully
dishonoured his cheque while his account was sufficiently in credit. The bank had erroneously credited
another customer’s account with the plaintiff’s deposits. The plaintiff averred that his commercial credit
had actually been injured. The court, after analyzing various English decisions laid down the basis and the
canons for assessing damages in these types of cases.

Held.(1) The bank undertakes to honour the customer’s cheques drawn in form, provided the customer’s
account is sufficiently in funds, either by adequate credit balance or an overdraft facility. If this obligation
is breached by dishonour of a cheque, the customer is entitled to nominal damages for breach of contract.
(Marzetti v. Williams (1830) 109 ER 842.

(2) Where the plaintiff is a trader, injury to commercial credit is presumed, entitling him to substantial
damages even without proof of actual injury. ‘The award of damages must not be excessive, but rather,
reasonable and temperate.’ Per Lord CAMPBELL; Rolin v. Steward (1854) 139 ER 245.

(3) In the case of a non trader, he is entitled only to nominal damage unless he can prove actual injury.
(Gibbons v. Westminister Bank) Ltd. (1939) 3 All ER 577.4) Punitive or Exemplary damage can never be
awarded in these cases. (Rookes v. Barnard (1964) 1 All ER 367.

Refer to Drawer

A petinent question that often arises is whether the answer “ refer to drawer’’ or ‘‘present again’’ which
boften inscribed on a dishonoured cheque, is defamatory where it can be shown that the dishonour was
wrongful. It was held in
Sim v Stretch that such the words are not defamatory.
Govind Ukeda Patel v Dhanji Nanji (1960) EALR 410 (Supreme Court of Kenya)
The appellant, who resided in Nairobi, was the endorsee in possession of a cheque drawn by the
respondent, who resided in Mombasa. When presented for payment, the cheque was dishonoured, and the
words ‘refer to drawer’ were written on its face. Notice of dishonour was only served on the respondent
five days after the fact. The appellant did not advance, in his pleadings, any circumstances entitling him to
dispense with notice of dishonour. He however argued that by virtue of s. 50 (2) (c ) (iv), notice of
dishonour was dispensed with as regards the respondent drawer, because the drawee bank was, as
between themselves and the drawer (respondent), under no obligation to pay, since the fact that the
cheque was dishonoured entailed that the rerspondent’s account was not in credit. He argued further that
the fact that it was on record that the cheque had been returned marked ‘refer to drawer’ amounted to
sufficiently pleaded facts upon which it was open to submit that notice of dishonour was unnecessary.

Held .(a) Whenever the plaintiff relies on the fact that notice of dishonour has been dispensed with, the
matter of excuse or dispensation is a material fact and must be averred in the statement of claim. (Burgh
vs. Legge (1839) 5 M & W 418, followed)

(b) The words refer to drawer may be used in a variety of circumstances. They may, and frequently do
mean that the drawer has no funds available and has made no arrangements to meet the cheque, and
therefore, that the drawee bank is under no obligation to pay. But that is not their only, and therefore
necessary meaning. For this reason, various English decisions have held these words not, on their face, to
be libelous. SCRUTTON, J, in Flach vs London and S W Bank (1915) 31 TLR 334 averred that the bank
is merely saying: “ ‘we are not paying, go back to the drawer and ask why’ or else ‘go back to the drawer
and ask him to pay’”. Therefore

(c) The words ‘refer to drawer’ alone could not amount to a plea of material facts, sufficient if
substantiated, to entitle the appellant to dispense with the requirement for notice of dishonour.

____________________

Termination of the Banker’s duty to honour cheques

By section 75 of the Act, the duty and authority of a banker to pay a cheque drawn on him by his
customer is determined by (a) countermand of payment and (b) Notice of the customer’s death.

(a) Countermand

In the case of countermand of payment, the notice must be brought to the actual attention of the teller or
ledger clerk and the mere fact that a letter countermanding payment has arrived at the bank’s address at
the time the cheque is honoured does not render the bank liable.

In Curtice v London City & Midlands Bank, on 31st October 1906, the Plaintiff drew a cheque on his
branch of the defendant bank in favour of one J. as the price for three horses. J. failed to deliver the horses
at the agreed time. At about 5:30 pm after business hours, the plaintiff telegraphed his bank to stop
payment. The telegraph was delivered to the defendant’s premises at 6:15pm and put in the letter box. J.
meanwhile, paid the cheque into his bank. On 1st November, the telegram was taken out of letter box
when it was cleared. In the meantime, the cheque was paid. On 2nd November, the defendant saw the
telegram together with a letter confirming the countermand. The plaintiff was informed that the cheque
had been paid. He then draw a cheque for the whole of his balance including the amount of the cheque he
had drawn in favour of J. The defendant dishonoured the cheque. The plaintiff sued for the amount as
money had and received. The court of appeal held that the bank was not liable because .

(b)Death of customer

Section 75(2) of Act provides that notice of a customer’s death terminates the banker’s duty and
authority to pay. If the bank pays a customers cheque after the customer’s death but before receiving
notice thereof, the bank may properly debit the cheque to the customer’s account. It is highly unlikely that
a banker would be held liable for ignoring an informal notice of its customer’s death not actually directed
at it.

The Duty of Secrecy

The relationship of banker and customer is of a confidential nature. As a general rule, a banker is under a
duty to keep his customers’ affairs secret. The leading case on the duty of secrecy is Tounier v National
Provincial Bank of England. The court in this case considered the question whether the banker’s duty of
secrecy was absolute or where it had qualification.

Tounier v National Provincial Bank of England

The plaintiff was a customer of the defendant bank. In due course, his account was overdrawn and he
signed a document agreeing to pay off the overdraft amount by weekly installments and of £ 1. The
plaintiff wrote on the document the name and address of a certain company whose employment he was
about to enter as a traveler on a three months contract.

When the agreement to repay was not observed, the Acting Manager of the branch telephoned the
company in order to find out the plaintiff’s private address and he spoke to two of the company’s
directors. The plaintiff alleged that in that in those conversations the Acting manager had disclosed that
the plaintiff’s account was overdrawn and that promises for repayment were not being honoured and
further that the Acting Manager had expressed the opinion that the plaintiff was betting heavily, the bank
having traced a cheque or cheques passing from the plaintiff to a bookmarker. As a result of those
conversations, the plaintiff further averred, the company refused to renew the plaintiff’s employment
when the three months had expired. The plaintiff brought an action against the bank for damages for
slander and for breach of an implied term of the contract between him and the bank that the bank would
not disclose to third persons the state of his account or any transaction relating to it.

The court of first instance entered judgment for the bank. On appeal

Held by the Court of Appeal that the obligation of secrecy went beyond the state of the account and
extended to all transactions that go through the account and to the securities if any.

BANKES L.J at p. 471-3 At the present day I think it may be asserted with confidence that the duty is a
legal one arising out of contract and that the duty is not absolute but qualified. It is not possible to frame
any exhaustive definition of the duty. The most that can be done is to classify the qualification, and to
indicate it limits… On principle I think that the qualifications can be classified under four heads; (a)
where disclosure is under compulsion by law; (b) where there is a duty to the public to disclose; (c) where
the interests of the bank require disclosure; (d) where the disclosure is made by the express or implied
consent of the customer.

Compulsion of Law.
There are various pieces of legislation under which as banker may be compelled to disclose account
details to government authorities such as the Zambia Revenue Authority, the Anti Corruptin Commission,
and the Drug Enforcement Commission, or where in the course of court proceedings the bank is subpoena
to produce its customer’s account details.

Public Interest

Disclosure of a customer’s account details would be justified if it is required in public interest. For
example, it would be in the public interest for a bank to disclose that its customer’s account is being used
to finance civil war or civil strife, or to undermine national security.

Bank’s Own Interest

In certain circumstances, it would be in the bank’s own interest to disclose its customer’s account details.
Where a bank wishes to protect its own interests, for instance, in enforcing a security for an overdraft,
disclosure of a customer’s account details to third parties would be inevitable, and this would be legally
permissible.

With Customer’s Consent

A bank that discloses its customer’s account details with the customer’s consent and authority, commits
no wrong and is consequently not liable to the customer for breach of the duty of secrecy. Situations
where a customer may consent to the bank disclosing his account details include instances when the
customer asks the bank to provide a reference concerning his conduct of his account.
__________________________

It seems that as the prcise nature of the relationship between banker and customer may differ from
transaction to transaction, a banker may in appropriate circumstances be liable to the customer for failure
to carry out instructions of the customer for matters that may on proper condideration appear to fall
outside the banker customer relationship.

Ernest Mubanga v Barclays Bank of Zambia Limited SCZ APPEAL NO.109/96 (

Supreme Court of Zambia)

This is an appeal a Judgement of the High Court dismissing the Plaintiff’s claims for damages for breach
by the Defendant of duty owed to the Plaintiff as the Plaintiff’s banker and agent in the execution of the
Plaintiff’s instructions; indemnification by the Defendant from the expenses incurred by the Plaintiff as a
result of the Defendant’s alleged failure to perform their duties as bankers and agent; and for damagers
for time wasted.

The salient facts are and were not in dispute. The Plaintiff was at the material time a customer of the
Defendant Bank. Sometime in the year 1987,t he Plaintiff wanted to do a Diploma Course in Electronic
Technology at Cleveland Institute of Electronics in the
United States of America as a correspondent student. In order to meet the requirements of paying school
fees in Dollars, the Plaintiff wrote two letters to the Defendant. The first dated 27 th March 1987 was an
application for foreign exchange. The second letter dated 4th May, 1987 was an instruction to the
Defendant to commence remittances of study fees by way of instalments to the Institute.
The Plaintiff testified that in May 1987 he received a Bank of Zambia approval for foreign exchange. He
then wrote the Defendant in the same month instructing them to remit, on his behalf, a sum of $70 per
month to run for a period of 12 months. He wrote this letter while in the bank. On the same day, he felt
an enrolment agreement form indicating course number 1A as the choice of programme and also left his
address. According to the Plaintiff, the Defendant did not remit the first instalment but remitted a total
sum of US$ 360 form the months of May to September 1987. The Plaintiff explained that when he notice
that there was no correspondence from the Institute, he approached the Defendant to inquire whether the
remittances had been sent. He was assured that the same had been done. In August 1987, he went back
to the Defendant as he had not received any correspondence from the Institute and asked them for the
acknowledgement of the money which the Defendant had claimed to have sent. According to the
Plaintiff, the Defendant did not give him any acknowledgement but promised him to write to the Institute.
In October, 1987, he went back to the Defendant. He was then told that the Defendant had received some
correspondence from the Institute acknowledging a sum of $280 and requesting to be advised of the
student number and
signature. According to the Plaintiff, the Defendant had copies the enrolment form number and sent it to
the Institute on his behalf but without notifying him. He contended in this evidence that this was wrong
because he did not have a student number. He explained that when a bank clerk pulled out the file and
showed him where they got the student umber; it was at this point that he notice that the Defendant did
not send the enrolment agreement form. The Plaintiff contended that the Defendant did not furnish
correct information the Institute in that they provided wrong details in relation to the Plaintiff’s course
number and as a result of this misinformation, according to the Plaintiff, the letters from the Institute were
being sent to a wrong address. It was also the evidence of the Plaintiff that as a result of the
misinformation, he missed the whole course and the Institute refused to reimburse him the money. The
Plaintiff complained that had the Defendant carried out his instructions without negligence he could not
have
missed out.

The learned trial High Court Commissioner reviewed the documentary as well as the oral evidence on
record. After considering the evidence the learned High Court Commissioner considered the duties of the
Defendant as a bank towards its customers. The Court found that from the latter dated 4 th May, 1987, it
was clear that the instructions by the Plaintiff to the Defendant was to commence remitting the
instalments of $70. The court further found that in that letter, there was nothing said suggesting the
Defendant was also instructed to send enrolment agreement form. The Court further found, from the
bundle of documents, that there was no documents that indicated that the Plaintiff gave instructions to the
Defendant to sent the enrolment agreement form to the Institute. The Court also found that the letter of
instruction did not indicate that the Plaintiff had
imposed an obligation on the Defendant to send the enrolment agreement form to the Institute. It was the
view of the trial Court that the situation would have been different if the Plaintiff had written to the
Defendant instruction them to sent the first instalment together with the enrolment agreement form and if
the Defendant had agreed to act on such instructions. The Court examined a document on record
purportedly sent by the
Defendant but expressed surprise that the Institute could have acted on a document not completed by the
Plaintiff. The trial court found no evidence of how the document in issue came into being and conclude
that, on the evidence on record, it could not be said that that document was sent by the Defendant. On the
claim of indemnification for the expenses incurred due to the change and transfer costs, the court found
that on the evidence the Plaintiff had completed the course and was therefore liable to for \pay for it. The
court, however, found that on the basis that the wrong form was not sent by the Defendant, the Defendant
could not be liable for any omission. The court concluded that
the Plaintiff was not entitled to be indemnified by the Defendant in the sum of $100 transfer fees as the
same was not caused by the Defendant. All the other claims failed, hence the appeal to the Supreme
Court.

SAKALA CJ,; We have very anxiously addressed our minds to the oral and documentary evidence on
record and to the judgment of the trial court. We have also considered the spirited arguments by both
learned counsel. The fact that the Plaintiff was the Defendant’s
customer was common cause. The salient facts as earlier indicated were not in dispute. The
determination of this case, as we see it, depended on the interpretation of the letter of instructions given to
the Defendant by the Plaintiff.

The case for the Plaintiff, as pleaded, was that sometime in May, 1987, he wrote the Defendant Bank
instructing it to remit US$70 per month for 12 months. According to the Plaintiff he left with the
Defendant a completed Enrolment Agreement Form for
transmission to the Institute with the first instalment. The enrolment form indicated that he was applying
for Course No. 1A. The Plaintiff further pleased that contrary to the
instructions the Defendant did not transmit the Enrolment Form.

The case for the Defendant as pleaded was that it receive written remittance instructions but without any
Enrolment Form and without any instructions to transmit any Enrolment Form.

The relevant document concerning the instructions given by the Plaintiff was couched as
follows:

“ Dear Sirs

I have the honour to authorize commencement of study fee to Cleveland Institute of Electronics by
installments.

The amount is seventy dollars per month for 12 months plus an additional forty-two dollars for the
thirteenth month. My account number is 04:260 and I would like the money to be on the 11 th of every
month commencing with the month of May which is
this month.

I would be very grateful if assistance rendered to me.

I am Sir your obedient servant.

ERNEST MUBANGA.”

The trial Court found that there was no suggestion in the letter that the Defendant was supposed to send
the enrolment agreement as well. We agree with the finding. This
finding is also supported by the Plaintiff’s own evidence in cross-examination when he said, “What was
supposed to be done was to send the enrolment agreement with the US$70 fee. I did not give the Bank
written instructions.” We are therefore satisfied that the written instructions did not include the sending
of the enrolment form.

In the circumstances, we totally agree with the submissions on behalf of the Defenant Bank that in the
circumstances of this case, the position of the Plaitniff that he gave verabal instructions to send the
enrolemnt form when he had the opportunity to give
written instructions, is untenable. Having found that no instructions, written or verbal were given to the
Defendant Bank by the Plaintiff to send the Enrolment Agreement Form to the Institute, this appeal based
on the arguments relating to breach of duty and indemnification cannot succeed.

The whole appeal fails. It is dismissed. The Court below having ordered that each party bears its own
costs on account of the nature of the claim and the correspondence which was exchanged, we too, make
the same order for the same reasons. This means that each party will bear its own costs.

Graphics Africa Ltd v Barclays Bank of Zambia Ltd and RDS Investments
Ltd and Penza (1995 - 1997) ZR 102 (SC)
The appellant was an agent for an external company for the sale of goods on commission on their behalf
and applied for approval to externalise the sum of £44 217,25 in respect of goods sold. The external
company purported to cancel the agency agreement and as a result of this the appellant was then
concerned that the amount of damages might exceed the amount of its principal's assets in the country and
accordingly gave instruction to the first respondent (the bank) to suspend payment of the money and to
hold it as security for any future damages which might be payable to him. By some means the second
respondent, acting through the third respondent, one of its directors, persuaded the first respondent to
ignore the appellant's request to suspend payment to Xerox. The first respondent contravened the
instruction and paid the money through what was known as the exchange pipeline. The appellant
instituted action in the High Court against all three respondents claiming that the first respondent had
contravened his instruction to suspend the payment and that the second and third respondents had
interfered with his own private account. There was a further claim for a wrongful debit in respect of the
difference in the exchange rate, which resulted in the appellant's account going into overdraft, but this
was rectified by the first respondent and no order needed to be made thereon . The High Court granted
damages only in the nominal amount of K10 000, holding that the money was in fact owing by the
appellant to the recipient. On appeal there were two matters before the Court: the appeal from the decision
of the High Court against the award of nominal damages only and the appeal on the merits of the
appellant's action against the principal for breach of the agency agreement. The Court had recourse to the
merits of the latter dispute and held that the total sum awarded after the appeal would be in excess of the
amount wrongly paid out by the respondent.

Held: (1) That the appellant, as a successful party, was entitled to set-off the amount of such damages
which he originally owed to the principal. The principal did not have assets in the country sufficient to
meet the claim for damages awarded in the second appeal and the judge in the court below was unaware
even that the appellant had any prospects of success in his action against the principal.

(2) Even if it was true, as suggested by the first respondent, that the money could only be released by H
it as a result of agreement between the parties and, in default of that, by the court, had the money not
already been paid out to the principal, it would have been appropriate for the trial judge to have made an
order for its refund to the appellant.

(3) That the first respondent was liable to indemnify the appellant in respect of any damages which the
appellant was unable to recover from its former principal to meet the award of damages in the I other
case limited to the amount of K44 217,25.

GARDNER Ag CJ,; . . . The learned trial judge found that in this particular case the witness was wrong
about the nature of the letter H of credit. She found, quite properly, that the letter of credit was drawn by
the payer, that is the appellant, and she found therefore that he was conditioned to give instructions to
suspend payment without the consent of the beneficiary. However, having found this, she also found that
the appellant admitted that the money was I owing to Xerox, so that, although the first respondent had
breached its duty to the appellant, there was nothing to show that the appellant had in fact lost, as a result
of the breach of contract case, the equivalent of the money which had been wrongly paid to Xerox. The
learned trial judge therefore awarded only nominal damages against the first respondent of K10 000,00. It
is against that order that the appellant now appeals.

On behalf of the appellant it was, argued that he still suffered loss of damages as a result of the breach of
contract by Xerox and he was entitled to set this off against the money wrongly paid out of his account by
the first respondent. On behalf of the respondents it was argued that the appellant had admitted that the
money was due to Xerox, that his claim against Xerox had not been finalised and that, therefore, the order
for nominal damages only was the correct one.

In considering whether or not the award of nominal damages was adequate, we take note of the fact that
two appeals were argued in consolidated form. That is to say, we heard argument in this appeal and we
then heard argument in appeal No 54 of 1994 in which the appellant is again the appellant and Xerox
Limited is the first respondent and RDS Investments Limited the second respondent. In the second case
the appellant had claimed damages for breach of the agency agreement between him and the first
respondent and, in the High Court, had succeeded in obtaining an award of a certain sum of damages. Not
being satisfied with that sum, he appealed against the award. Instead of issuing a consolidated judgment
on appeal we have written a separate judgment in respect of the other appeal which judgment will be
delivered immediately after this one. We are therefore in a position to say that the total sum awarded after
the appeal will be in excess of the amount wrongly paid out by Barclays Bank Limited, the first
respondent in the present appeal.

We are satisfied that, as a successful party, the appellant was and is entitled to set-off the amount of such
damages against the amount which he originally owed to Xerox. It has not shown that Xerox, the first
defendant in the second appeal, has assets in this country sufficient to meet the claim for damages
awarded in the second appeal, and we fully appreciate that at the time of the first trial the learned trial
judge was unaware even that the appellant had any prospects of success in his action against Xerox. The
learned trial judge found that because of the evidence of the first respondent's first witness that, under the
exchange control regulations, the money could not be taken out of the pipeline by anyone except the
beneficiary, the money had to remain in the pipeline, although the order not to pay it to Xerox had been
obeyed by the respondent. Having regard to the fact that the learned trial judge found that DW1 had not
given accurate evidence when he said that the letter of credit in this particular case was drawn by Xerox,
who was both the drawer and the beneficiary, we would have thought that there was some doubt as to
whether there existed such a strange regulation which provided that, although the appellant could stop
payment of the money to Xerox, he could not have access to his own money which was in the pipeline. . .
In the circumstances, had the money not already been paid out to Xerox, it would have been appropriate
for the learned trial judge to make an order for its refund to the appellant.

In the event there is no doubt that the appellant should be protected in case Xerox, the first respondent in
the second appeal, has insufficient money in Zambia to meet the award of damages in that case. For that
reason and, despite the fact that the learned trial judge in this case was not aware of what would be the
result of the appellant's claim, the proper order to have been made was a declaration that the first
respondent in this appeal was liable to indemnify the appellant in respect of any A damages which the
appellant is unable to recover from Xerox as a result of their having insufficient funds in this country to
meet the award of damages in appeal No 71 of 1994. Such indemnity should be limited to the kwacha
equivalent of »44 217,25, plus interest at the average short-term deposit rate since the date of B
wrongful payment to the date of this judgment.

For the reasons we have given the appeal is allowed. The order for payment of nominal damages of K10
000,00 is set aside, and in its place we make a declaration in favour of the appellant in the above terms
which shall stand as a judgment in favour of the appellant for any sum up to the aforesaid limit which
may be required to settle the damages in appeal No 71 of 1994.
_______________________________

The Duties of Customer

The customer owes duties to his banker in the conduct of his account. These duties include the following;

Duty to draw cheques carefully

A customer is bound to exercise reasonable care in drawing cheques drawn on his banker so as to prevent
the banker being mislead. The contract between banker and customer imposes on the customer a duty
towards his bankers to take reasonable and ordinary care and precaution in drawing cheques so as to
guard against alterations and forgeries . If as a natural and direct result of the neglect of the duty a
customer so carelessly draws a cheque as to facilitate a fraud by a forgery against the bank he is guilty of
breach of duty as between himself and the banker, and he will be responsible to the banker for any loss
sustained by the banker as a natural and direct consequence of this breach of duty.

London Joint Stock Bank v Macmillan & Arthur (1918) AC 777

A confidential clerk employed by a firm of general merchants named Macmillan & Arthur prepared a
cheque for ₤2 payable to bearer. No sum in words was then written on the cheque, but after it had been
signed by his employers, the clerk altered the figure to ₤120 and wrote the words “one hundred and
twenty pounds” in the space provided. The clerk presented the cheques and received payment and later
absconded.

Held by the House of the Lords that the loss was caused by breach of the duty of care which the customer
owed to his banker and the banker was, therefore, entitled to debit the customer’s account with the full
amount of the cheque.

Duty to disclose forgeries

It is a well established rule that if a customer discovers that cheques purporting to have been signed by
him have been forged, he must inform this bank at once.

Greenwood v Martins Bank Limited (1932) 1 KB 371

The plaintiff maintained an account with Martin’s Bank. His wife kept the cheque book and pass book
and she gave him cheque forms from the cheque book when he asked for them. Without his knowledge
the wife withdrew some money from the account having forged his signature. She confessed to him to
having done so in order to help her sister in certain legal proceedings and pleaded with him not to inform
the bank of the forgeries and he agreed not to do so. He later discovered that no legal proceedings had
infact been instituted by his wife’s sister and that his wife had deceived him. Infuriated by this
discovery,he told his wife that he would go at once to the bank and report the fogery. On his returned
home that evening without having gone to the bank his wife shot herself.

A few months later he brought an action against the bank for as declaration that he was entitled to be
credited by the bank with the amount of the forged cheques.

Held that the husband as a customer of the bank, had a duty to disclose forgeries and he was estoppled
from setting up the forgeries.

Bank of Zambia v Attorney General (1974) ZR 24

Appellant BOZ paid the sum of K12,806 on a cheque purporting to have been drawn by the Ministry of
Health but which was infact forged. The appellant argued that the respondent was negligent in its care of
it cheque forms and stamps and in failing to discover that money had been paid on a forged cheque and
for either of those reasons were estopped from denying the genuineness of the cheque. The appellant also
argued that there was no negligence on the part of the bank in paying on the forged cheque.

Held: (1) The basis of a bank’s liability where it has paid on a forged instrument is not negligence but
because money has been paid away without the authority of the customer.

(II )The absence of negligence on the part of a bank can at best only be relevant if a prima faci case of
estoppel or adoption has been made out against the customer and the latter seeks to rely on negligence by
the bank to meet such defence.

(III) It is necessary to distinguish between conduct of a customer which includes his bank to pay on a
forged instrument and conduct which prejudices the opportunity of the bank to recover the money so paid.
In each case the conduct must be shown to be the proximate cause of the particular loss in respect of
which estoppel is being set up.

(IV) Even gross carelessness by the customer in the care of its cheque form and stamps is too remote to
found a defence of estoppel on the basis of conduct inducing the bank to pay.

(V) There is no obligation on a customer to examine the paid cheques returned to him by his bank in order
to discover whether there have been any forgeries.

Tai Hing Cotton Mill Ltd v Liu Chong Hing BankLtd (1986) AC 80
The plaintiff company employed a clerk who, over a period of six years, fraudulently draw cheques by
forging the signature of the company’s Managing Director and obtained the sum of $HK5.5m. In 1978, a
new accountant began checking the company’s bank statements against its accounts and discovered the
fraud. The Company brought a claim against the bank to recover the sums paid out on the forged
signatures, and the bank argued that the customer had been negligent in failing to check the bank
statement and was therefore esttopled from denying that the bank statements were accurate.

Held by the Privy Council that the tortuous duty of care on a customer is limited to those duties already
identified in Greenwood and MacMillion & Arthur, moreover, in view of the contractual relationship
between a bank and its customers, a duty of care in tort could only be imposed where the court would
imply a term requiring care to be taken. There was no need to imply a term requiring the customer to
check bank statements in order to give business efficacy to the banker- customer contract which, was the
business of the bank. The remedy was for banks to insert express terms requiring the checking of
statements into their contracts with customers.

Standard Bank (Zambia) Ltd v Azeeb Butchery (1983) ZR 130 (Supreme Court of
Zambia)
The Defendant appealed against a judgement of the High Court awarding the sum of K3,080 to Plaintiff,
in respect of a forged cheque. The Defendant’s liability was based on the Defendant’s negligence in
failing to advertise the loss of a customer’s cheque book, as a result of which the Plaintiff was defrauded.
The Plaintiff contended that the Defendant had a duty to advertise the theft of its cheque books in order to
prevent any unauthorized person from using the cheques for the purpose of fraud.

Held: There is no law that, as between a bank and the general public, or as between an individual and the
general public, there is a duty so to control a cheque book that it cannot be used without connivance of the
owner for the purpose of fraud.

There is no authority that the owner of a cheque book has a liability to the general public at large for the
negligent loss of the cheque book.

(GARDENER Ag. D.C. J., )

The facts of the case were that a third party approached the plaintiff and ordered a quantity of meat for
which a cheque was offered. The plaintiff indicated that it would not be satisfied with anything other than
a bank certified cheque. Later, the third party brought a bank certified cheque to the plaintiff and on
inspection it appeared to be in order. The meat was supplied to the value referred to in the judgment.
When the cheque was presented to the plaintiff’s bank it was returned because it was found to be a
forgery. Evidence was adduced that one of the defendant’s customer’s cheque books had been stolen and
a cheque therefrom was used to perpetrate the fraud. It was the plaintiff’s contention that the defendant, a
commercial bank in this country, when it became aware that one of its cheque books had been stolen, had
a duty to advertise that fact in order to prevent any unauthorized person from using the cheques for the
purpose of fraud.

There is no law whatsoever that, as between a bank and the general public, or indeed, as between an
individual and the general public, there is a duty so to control a cheque book that it cannot be used
without the connivance of the owner for the purposes of fraud. To suggest otherwise would be a complete
travesty of the law. There is no remedy in this case in tort and there is no remedy in contract. All the case
to which we have been referred relate to circumstances where there was privity; certainly there is no
authority for the proposition that the owner of a cheque book has liability to the general public at large for
the negligent loss of the cheque book.

In the circumstances, we have no hesitation in saying that this appeal against the judgment of the High
Court must succeed. The appeal is court and in the court below.
Appeal allowed

Jetha Ismail Ltd v Somali Bros (1961) EALR 26 (Court of Appeal of Uganda)
The respondents drew two postdated cheques in favour of S who was erecting a building for them. S then
negotiated the bills to the appellant, whom he owed money. He however fell behind in his work, so that
the respondent stopped payment on the cheques. The respondent, having been informed that the cheques
were with the appellant, requested for their return and the appellant agreed to deliver the cheques, but did
not do so. In the interim, the respondent paid S for the work on the building. The appellant presented the
chequs for payment. They were dishonoured and he brought this action.

Held. s. 62 of the Bill of Exchange Ordinance could not apply because a waiver by a holder under that
section was required to be in writing. However, the appellant had made a representation to the respondent
that they had remitted payment of the cheque, and that they would look to S for the sum owed to them. By
paying S, the respondent acted upon that representation to their detriment, and as such, the appellants
were estopped from denying the fact that they had remitted payment of the cheques.
\
Kirji Anandji & Co. v Punja Shah (1964) EALR 3 (Court of Appeal of kampala; Uganda)
In satisfaction of a debt, the appellant made out four promissory notes in favour of the respondent. All
four notes were not paid when they fell due. In order to give the appellant more time to pay, a set of
eleven noted were drawn by the appellant. The first note was payable after a month and the other notes
were payable in succession, one month after the prior. In the first 90 days, the three notes that ought to
have been paid were all dishonoured. The respondent brought an action on the initial; four notes. The
appellant argued that the respondent was not entitled to sue on the old notes until all the eleven new notes
were dishonoured.

Held.The subsequent eleven notes were a renewal of the initial four. ‘A bill is renewed when another bill
is taken in its place, the parties to the bill and the amount on it being the same’. (Newbold JJ at 5).
Renewal of a bill operates as an extension of the time of payment. The renewal bill is conditional
payment; the condition being that the initial debt revives if the condition is not realized.
In failing to meet the first three notes, the appellant had evinced a clear intention to renunciate the
agreement. This breach of condition revived the initial four notes.

Gama v Republic (1966-68) The Africa Law Report (Malawi) 138 (H.C)
The appellant stole a cheque, forged an endorsement and cashed the cheque himself. He was charged and
convicted of stealing a cheque worth 2d, being the price of the paper used to make the cheque. He
appealed on the ground that the sentence was too severe.

Held.A person who steals and converts a cheque should be convicted of stealing a cheque whose value is
the amount for which the cheque is made out for. For this reason, the measure of damages in the tort of
conversion is the face value of the cheque.

Grindlays Bank International (Z) Ltd v Nahar Investments Ltd (1990 - 1992) ZR
86 (SC)

(The facts appear from the judgment of the court delivered by Ngulube DCJ)

This is an appeal against the decision of a High Court judge who held that the appellant was negligent in
allowing a fraudulent employee of the respondent to overdraw on the latter's account resulting in a loss
which must be borne by the appellant. The appellant sued the respondent to recover a sum of K50 000
plus interest in the following circumstances: the parties had a long-standing relationship of banker and
customer and each enjoyed the full confidence of the other. The respondent maintained two current
accounts, one at the Lusaka branch and the other at the Ndola branch of the appellant. It was in evidence
that the account at Lusaka was normally healthier than the one at Ndola and when need arose a cheque
drawn on the Lusaka branch would be deposited into the account at Ndola to improve the position there.
The account at the Lusaka branch was operated by the directors of the respondent while the one at Ndola
was operated by an employee named Daya. At the material time, the directors were travelling abroad.
They left a pre-signed blank cheque drawn on the Lusaka account with Daya for his official use at his sole
discretion should the need arise to replenish the funds at Ndola. The employee filled in the cheque in the
sum of K50 000 and deposited it at Ndola in the account on which he was the authorised signatory. The
employee made several cash withdrawals from the Ndola account on the strength of the Lusaka cheque
which was subsequently returned unpaid because the account at Lusaka had only something in the region
of K34 000 in it. Exchange control approval would be needed to overdraw the account and the Lusaka
branch endorsed the cheque to that effect. Meanwhile, Daya had already withdrawn sums totalling K50
000 from Ndola and the respondent's position was that the employee had committed a fraud and taken all
this
money for his own use. The account became overdrawn with the reversal of the whole of the credit for
K50 000 earlier deposited. Bank of Zambia approval for the overdraft was obtained ex post facto since the
respondent company belonged to non-Zambians and the exchange control regulations required such
approval. The appellant itself arranged for such approval to cover the overdraft which arose. The Central
Bank also directed that K50 000 made available by the respondent be held in a blocked account pending
the resolution of the dispute between the parties as to which one of them should bear the loss occasioned
by Daya's fraud. For completeness, we should mention that the evidence indicated that the respondent had
never before overdrawn on its account nor required exchange control approval for any overdraft. The
learned trial judge agreed with the respondent that the appellant alone was negligent in allowing the
overdraft occasioned by the employee's fraudulent conduct and that the loss should, therefore, be born by
the appellant who should not debit the respondent or seek recovery from the respondent.

On behalf of the appellant, Mr Maketo advanced a number of arguments in his grounds of appeal,
supported by heads of argument. In particular, he argued that the case of London Chartered Bank of
Australia v McMillan [1] relied upon below was distinguishable. That was a case where an unsolicited
overdraft arose as a result of a fraudulent employee under-banking the revenues collected. There was, in
that case, a very special and elaborate arrangement embodied in a written agreement between the
government agency concerned and the group of banks participating in the arrangement whereby revenue
collected would simply be deposited for onward transmission. The bank there kept on remitting the
correct amounts when in fact, to their knowledge, less money had been banked and the documents
falsified by fraudulent employees on both sides. The Court there found that there was enough material to
put the bank on guard that something was wrong. We agree that the case is distinguishable and, as will
shortly appear, the respondent here did not seek to rely on that authority. Mr Maketo also argued that this
case is similar to that of London Joint Stock Bank Ltd v McMillan and Arthur [2]. He relied on the
discussion of the applicable principles which is to be found at pages 830 et seq. In that case, a firm who
were customers of a bank entrusted to their clerk the duty of filling in their cheques for signatures. The
clerk did not write the amount in words but wrote the amount in figures in such a way that, after he had
obtained the requisite signature, he increased the figure and wrote in words such higher sum. It was held
to the effect that a customer owes a duty to the bank in drawing a cheque to take reasonable care and
ordinary precautions against forgery and where the customer neglects to take such precautions, he must
bear the loss as between himself and the banker. The Court in that case discussed the obligations of the
bank to the sum indicated on a cheque which is properly signed and which someone with ostensible
authority presents for payment. The customer in such a situation is not allowed to plead any limitation on
the agent's ostensible authority to deal with the cheque when such limitation is unknown to the bank and
not obvious on the face of the cheque. We have considered that case which even Mr Mwanawasa
indicated he had no quarrel with; its usefulness lies in supporting
the proposition applicable to the present case: the respondent could not be heard to complain about the
loss through the fraud of their employee if it happened that Daya had filled in the pre-signed cheque,
deposited it, and withdrawn cash which was actually available in the accounts.

Mr Mwanawasa, however, draws a distinction: the account became overdrawn, at that stage, in breach of
exchange control regulations, though approval was subsequently given. He pointed out that there has been
an actual loss through fraud and submitted that this was enabled by the appellant negligently allowing
cash withdrawals on the Ndola account before confirmation had been received from Lusaka. Mr
Mwanawasa quite properly conceded that had there been no fraud, such as if Daya had used the money on
his employer's legitimate business, the respondent could not have complained about the overdraft per se.
It was Mr Mwanawasa's argument, therefore, that if the respondent is liable at all, this should be only to
the extent of the money in credit which was actually available in the accounts, and the excess should be
borne by the appellant. This submission accepted the position that whatever sum had stood to the credit of
the respondent would be their own loss if fraudulently taken out by their own employer who undoubtedly
had actual authority to transact business on these accounts.

As we see it, the fact that an overdraft resulted when the customer's authorised agent presented a cheque
for which there were insufficient funds can not of its own be regarded as evidence of negligence on the
part of the banker. As already indicated, no cause for complaint on the part of the customer could have
been entertained if the employee had used the money on legitimate matters, for the benefit of the
employer. There are authorities which have held that drawing a cheque payable at the banker's where
there are not funds sufficient to meet it amounts to a request for an overdraft. However, the position of
this case appears to have been that the Ndola branch credited as cash the cheque deposited in respect of
the cheque drawn on the Lusaka branch. No question of consciously creating an overdraft arose, quite
obviously, and this was because, as the appellant's witnesses stated, they were dealing with a long
established and well trusted customer through an employee who was equally well-known to the bankers.
Mr Mwanawasa relied very heavily on the creation of the uncharacteristic overdraft as evidence of a
circumstance which ought to have alerted the appellant. However, we find that the converse could equally
be the case, that is to say, the appellant did not expect this particular customer to give a bad cheque and
anticipated no problem in receiving funds from Lusaka. They practically said so in their evidence. It is
also unrealistic to ignore the fact that the complication which arose in the transaction emanated from the
customer's side through their known agent who had full authority, to the knowledge of both parties, to
operate the accounts. In the premises, we are unable to support the finding of negligence made below
which rested solely on the fact that an overdraft arose in the circumstances to which we have already
made reference. We are also unable to accept Mr Mwanawasa's argument suggesting some sort of
contributory negligence so that the loss should be apportioned such that the appellant should bear the loss
represented by cash disbursed in excess of the funds which were then actually in credit.

The plain fact is that the appellant was misled by the respondent's agent and the fraud alleged was
committed by the respondent's own authorised agent. From the long relationship, the appellant was
obviously entitled to repose trust and A confidence in the respondent who was a good customer. If
anyone breached that trust, it was the customer through its fraudulent employee. The real issue as we see
it, therefore, is which of the two innocent parties in this appeal should bear the loss occasioned by the
fraudulent operation of the accounts by Daya? The better authorities are agreed that this is not the type of
situation where the employee could be regarded as having been on a frolic of his own. For instance,
Uxbridge Permanent Benefit Building Society v Pickard [3] and Lloyd v Grace, Smith and Company [4]
and similar cases have established the principle that if the fraudulent conduct of the servant falls within
the scope of the servant's authority, actual or ostensible, the employer will be liable. The actual or
ostensible authority of the employee in such cases has led third persons to change their position in
reliance upon it when the employer has brought them into contact with the dishonest employee. In
discussing the principle herein, Lord Shaw stated in Llyod v Grace, Smith and Company at page 740.

'I look upon it as a familiar doctrine as well as a safe general rule, and one making for security instead of
uncertainty and insecurity in mercantile dealings, that the loss occasioned by the fault of a third person in
such circumstances ought to fall upon one of the two parties who clothed that third person as agent with
authority by which he was enabled to commit the fraud.'

It was for the foregoing reasons that we allowed the appeal, with costs, reversed the learned trial judge
and entered judgment for the appellant for the amount claimed in the action. With regard to interest, we
take into account the fact that the cause of action arose some 12 years ago, with the writ being issued in
February 1979. The trial did not take place until 1985, with judgment being delivered in May 1987. The
record of appeal was filed only in October 1990. In addition to the time taken, we note that a sum of
money equal to the claim has been lying in a non-interest bearing blocked account on the direction of the
Central Bank and neither party can be blamed for this. In these circumstances, we cannot ignore the fact
that full interest for such a time-span would be colossal and unjustified. We consider that the justice of the
case will be served by limiting the duration of pre-trial interest to three years from the date of the writ,
which time we consider adequate for any case which is prosecuted with diligence to have been finalised.
The rate of interest claimed on the writ and applicable during that period, which was well before the
dramatic devaluations of the kwacha started, will apply, namely 12%.
Appeal allowed.

Indo -Zambia Bank Limited v Lusaka Chemist Limited (Supreme Court of Zambia)
SCZ No. 12 Of 2003

(The facts appear from the judgment of the court delivered by Mambilima, JS)

This is an appeal against the decision of the Court below which upheld the Respondent’s claim of K162,
055,492.52 against the Appellant in respect to payments it made on various cheques allegedly drawn on
the Respondent account which was maintained at the Appellant’s Bank.

The Respondent Company maintained a business account with the Appellant. There were three
signatories to the account all of whom were Directors of the Respondent Company. These were Mr. J. A.
Patel, Mr. D. N. Patel and Ms. Susan Patel. The mandate given to the bank was that only cheques bearing
any two signatures of the three Directors were to be honoured. During the material time, the procedure
which was maintained at the Respondent’s Company was that the Accountant, a Mr. Steward Sinkamba,
was responsible for writing the cheques which he then referred to any of the signatories for signature.

The Accountant also wrote the Cash Book from information obtained from bank statements and cheque
counterfoils. The Respondent company had also employed a part-time accountant consultant, Mr. Joseph
Moonjelly, whose functions included, inter alia, the verification of all sales, records and depositing of
cash cheques at the bank. He was on leave from November, 1999.

Between December 1999 and 29th January 2000, Mr. J. A. Patel, one of the signatories was out of the
country. On 29th December 1999, Mr. D. N. Patel, another of the signatories received information from
the bank to the effect that the company accounts had a negative balance and some cheques had been
returned unpaid. When he probed the matter, he found that a number of forged cheques prepared by Mr.
Sinkamba had been paid out on the account. The cheques in question had been drawn in the name of
Wencha Pharmaceuticals. According to the evidence of the Appellant’s witnesses in the Court below, the
said Wencha Pharmaceuticals was not one of their clients. On 5th January, 2000, the Respondent
instructed the bank to stop payment of listed cheques and thereafter reported the matter to the Police.

Two handwriting experts, both from the Zambia Police Service and based at Force Headquarters were
called as witnesses. One of the experts, Mpande was of the opinion, after examining signatures on one
hundred and thirteen disputed cheques and the specimen signatures which he obtained from the three
signatories, that the simulated signatures on the disputed cheques were forgeries and did not belong to the
three signatories.
The other handwriting expert, Mr. Bombeck Philby Kaoma examined signatories on twenty me disputed
cheques and he was unable at the end of his examination to say whether the signatures on the cheques
were forgeries by way of simulation.

The Appellant’s evidence in the Court below was that before paying out the money, signatures on the
cheques were compared with specimen signatures and there was nothing to suggest that the signatures on
the cheques were forgeries. Every month, the Respondent was provided with statements and no queries
were received from them and neither did the Respondent report any cheques lost or stolen. Instructions to
stop payment were only received on the 5th of January, 2000.

The bank maintained that at all times, they acted diligently. It is their Senior Chief Manager who
informed Mr. J. A. Patel of the irregularity in the way the company account was operating. This happened
on 29th December, 1999 when 12 cheques were presented for payment and there were insufficient funds
in the account.

Until then, the Respondent had not realized that there were forgeries on their account. After evaluating the
evidence on record, the learned trial Judge found that the Respondent had proved that the disputed
cheques were forged and that the forgeries started in June, 1999 and continued unabated until the end of
December, 1999. He also found that both the Appellant and the Respondent were not aware of the
forgeries. He concluded that although the Appellant was not negligent, it was liable because it paid out
the cheques without the mandate of the Respondent.

MAMBILIMA SJ. , We have considered the evidence on record, the Judgment of the lower Court, the
elaborate submissions by Counsel and the issues raised. On the first ground of appeal, that the learned
trial Judge erred in law and fact when he found that the endorsement of the word “forged” on some of the
cheques was an admission that the Appellant knew that some of the cheques were forged, we find that the
evidence of PW2, D. N. Patel and DW1, P. Sreedharan clearly established that before 29th December
1999, neither the Appellant nor the Respondent were aware of the forged cheques. It was therefore
cardinal for the learned trial Judge to have ascertained the date when the endorsements of the words
“forged” were made on some of the cheques in the light of this evidence from PW2 and DW1.

The finding by the trial Judge therefore, that the endorsement of the word “forged” on some of the
cheques was an admission that the Appellant knew that some of the cheques were forged prior to 29th
December 1999 is not supported by the evidence on record. We uphold the first ground of appeal that the
learned trial Judge erred in law and fact to have made such a finding. Coming to the second ground of
appeal that the learned trial Judge ought to have applied a different standard of care to the Appellants’
duty in detecting forgeries on the Respondents’ Account as opposed to that expected of handwriting
experts we are grateful for the authorities cited to us by Counsel. These authorities establish that what is
required of banks is not expert knowledge on detection of forgery but a degree of knowledge ordinarily
required for the discharge of their duties.

In our view, the need for a microscopic examination would only arise if there are circumstances which
ought to put the bank on inquiry with regard to the authenticity of the cheques. As Bailhache J. put it in
the case of Ross vs Lord on County Westminister and Parrs Bank (3); “it is therefore necessary to
consider whether a Bank cashier of ordinary intelligence and care on having these cheques presented to
him by a private customer of the bank would be informed by the terms of the cheques themselves that it
was open to doubt whether the customer had a good title to them”. It would of course be negligent for any
bank to honour a cheque if the circumstances are such that they ought to be put on inquiry.

Sankay L J stated in the case of Lloyd Bank Limited vs Chartered Bank of India, Australia and China (9)
to which Mr. Ndhlovu has referred us, that whether or not a person has been negligent is a question of
fact.

Relying on the legal principles found in Morrison vs London County and Westminster Bank (7) he went
on to state that “the test of negligence is whether the transaction of paying on any given’ cheque was so
out of the ordinary course that it ought to have aroused doubts in the bankers mind and caused them to
make inquiry.”

From the evidence on record, the two handwriting experts who gave evidence in the Court below differed
on whether the cheques presented to them were forgeries. These are experts who were called in aid to
determine whether the cheques presented to Appellant were forgeries. The evidence from the Appellants
was to the effect that the signatures on the cheques were verified with specimens kept by the Bank. The
question to be resolved is whether there was anything out of the ordinary to have aroused doubts in the
minds of the Appellant’s employees. Mr. Kasote argued that there was enough material to put the
Appellant on guard that something was wrong because many cheques were presented to the Bank bearing
the same date and the same Payee. We find this argument to be self defeating because the transactions in
question went on for more than six months, during which time statements were being sent to the
Respondent who did not notice the running down of the Account. Also, it is not usual for Banks to query
the expenditure on an account for as long as there are sufficient funds to meet the documents.

It goes without saying that every cheque issued against money held in an account will be honoured
because that is the mandate given to the bank. As it was held in the case of Natal Westminster Bank vs
Barclays Bank International (10) merely by honouring an undetectably forged cheque, a bank did not
represent that the cheque was genuine and in the absence of negligence, no estoppel by representation
could arise on the bank clearing such. a cheque...” From the evidence on record, it would appear to us that
the forgery this case were perfect and therefore could not be detected by the Appellant which applied the
ordinary standard of verification expected of a bank standard is below that expected of handwriting
experts. The second ground of appeal therefore succeeds.

On the third ground of appeal, we find that it is common cause that perpetrator of the fraud was the
Respondent’s own employee. The forgery went on from June to December 1999. Both parties were not
aware of forgeries until 29th December, 1999. A glance at the cheques exhibited on the record of appeal
shows that it were issued from as early as May, 1999. Mr. Kasote argued that the perpetrator of the crime
did it stealthily. He did not present the cheques to the Directors. The said Directors could not be expected
to have known what was happening is on record that the Respondent had employed an Accountant
Consultant, Joseph Moonjelly, whose functions included verification of all sales, reconciliation,
depositing of cash cheques at the bank and obtaining bank statements.

Ndhlovu also referred us to the evidence of PW2 on page 364 of the record appeal to the effect that
irregular payments could be uncovered by looking at details on the counterfoils. We therefore agree with
Mr. Ndhlovu that had the Respondent been prudent in checking and reconciling their account, the fraud in
this case could have been discovered much earlier.

Coming to the last ground of appeal, we again restate that the evidence on record shows that both parties
were not aware of the fraud until 29th December 1999. We have found that the Appellant applied the
ordinary standard of verification expected of a banker. We have also found that with a proper system in
place at the Respondent/s place of work, the Respondent acting with due diligence could have discovered
the fraud much earlier. We are persuaded by the views of Mathew J. who stated in the case of London and
River Plate Bank vs Bank of Liverpool Ltd (11) that “... if the Plaintiff in that case conducted himself as to
lead the holder of the bill to believe that he considered the signature genuine, he could not afterwards
withdraw from that position.” For six months, cheques were presented and no query or complaint was
raised by the Respondent as obviously they were not aware of the fraud but if anyone could have been put
on inquiry, it was the Respondent. In our view, no negligence can be attributed to the Appellant. Section
24 of the Bills of Exchange Act 1882 provides: “Subject to the provisions of this Act, 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, and the right to retain the bill or to give a
discharge therefore or to enforce payment thereof against any party thereto can be acquired through or
under that signature, unless the party against whom it is sought to retain or enforce payment of the bill is
precluded from setting up forgery or want of authority provided that nothing in this section shall affect the
ratification of an authorized signature not amounting to forgery”.

We are of the view that on the facts of this case, the Respondent is precluded from setting up forgery. The
appeal is allowed and the decision of the court below is set aside. Costs in this Court and on the Court
below shall be for the Appellant to be taxed in default of agreement.

Traveller’s Cheques
Widely used by tourists and business men 2 signatures – (1) “Signature” (2) “Counter Signature”

Traveller’s Cheques treated as containing promise of the issuing bank to pay the amount specified in
instrument provided signature and counter signature corresponds.

Traveller’s cheques are not bill of exchange because they are conditional, as honouring them depends on
the correspondence between the initial signature and countersignature. Although they are not bills of
exchange, traveller’s cheques are regarded as negotiable instrument by mercantile community and tourist
all over the world.

Promissory Notes
A promissory note is defined by section 83 of the act to be an unconditional promise 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 to or to the order of a specified person or to bearer. A promissory
note may be made by two or more makers, and they may be liable either jointly, or jointly and severally,
according to its tenor (~ 85). For the most part, rules of law applicable to a bill of exchange apply also to
a promissory note, but they require adaptation. A note differs from a bill in this: it is a direct promise to
pay, and not an order to pay. When it issues it bears on it the engagement of the principal debtor who is
primarily liable thereon. The formula for applying to notes the rules as to bills is that the maker of a note
shall be deemed to correspond with the acceptoi of a bill, and the first indorser of a note shall be deemed
to correspond with the drawer of a bill payable to drawers order ( 89). Rules relating to presentment for
acceptance, acceptance, acceptance supra protest, and bills in a set, have no application to a note.

For ordinary legal purposes a bank note may be regarded as a promissory note made by a banker payable
to bearer on demand. It is not discharged by payment, but may be re-issued again and again. In the
interests of the currency the issue of bank notes is subject to various statutory restrictions. A bank, other
than the Bank of Zambia, may not issue notes in Zambia. Bank of Zambia notes are legal tender except by
the bank itself

Lombard Banking Ltd v Vithaldas Gorhandas & Another (1960) EALR 345 (High
Court of Uganda)
The defendant’s were maker and endorser, respectively, of two promissory notes drawn in the plaintiff’s
favour. The first note read; ‘at 120 days after date I pay to….’, and the corresponding part of the second
note was identical save that the word ‘pay’ was omitted. The defendant averred that the two documents
were not promisory notes as defined under the Bills of Exchange Ordinance, but were merely receipts for
goods supplied.

Held.(a) A document can only be titled a promissory note if it contains an undertaking to pay. No
particular form of words is essential to the validity of the note, provided the requirements of s. 81 (1) be
fulfilled. It must be such as to show an intention to create a note. Therefore;
(b) Since the words ‘I pay’ in the first note could fairly be construed as saying colloquially; ‘I promise to
pay’, it was a valid promissory note. The omission of the word ‘pay’ from the second note was fatal, so
that it could not be valid.

Discharge of a Bill
Normally a bill is discharged by payment in due course, that is to say, by payment by the drawee or
acceptor to the holder at or after maturity. But it may also be discharged in other ways, as for example by
coincidence of right and liability (section 61), voluntary renunciation, cancellation (section 63), or
material alteration (section 64).

By section 64 of the Act, a bill may be discharge by alteration in certain instances. The section provides
that:

(1) Where a bill or acceptance is materially altered without the assent of all parties liable on the bill, the
bill is avoided except as against a party who has himself made, authorised, or assented to the alteration,
and subsequent indorsers. Provided that, where a bill has been materially altered, but the alteration is
not apparent, and the bill is in the hands of a holder in due course, such holder may avail himself of the
bill as if it had not been altered, and may enforce payment of it according to its original tenor.

(2) In particular the following alterations are material, namely, any alteration of the date, the sum
payable, the time of payment, the place of payment, and, where a bill has been accepted generally, the
addition of a place of payment without the acceptor's assent.

Overman & Co Ltd v Rahentulla & Premji (1929-1930) Kenya Law Reports 131.
The appellant accepted four bills of exchange drawn on him by T. M. Jones and made payable 90 days
after sight to or to the order of Standard Bank of South Africa. One of these bills was altered by deleting
the name of the payee and inserting in lieu thereof, the name of another payee. The bill in question was
subsequently negotiated to the respondent. The appellant refused to honor the bill and this action was
brought.

Held. An alteration of a bill by erasing the name of the payee and inserting in lieu thereof another name,
is a material alteration within the meaning of s. 64 (1) of the Bills of Exchange Act 1882. Further, the fact
that the appellant did not consent to the alteration entails that he was discharged of any liability under the
bill, insofar as the acceptance was concerned.
Fakara Stores Ltd v London Confirmers Ltd (1965) EALR 159 (Court of Appeal of
Nairobi)

The respondent brought this action in respect of four bills, to which the respondents were acceptors. The
bills were initially accepted unconditionally, but subsequently, the words ‘subject to extension’ were
added. The bills were, at all material times after the initial acceptance, in the possession either of the
respondents or their bankers. There was no evidence adduced to show that the appellant had been privy to
the alteration.

Held.(a) According to s. 64 (2) of the Bills of Exchange Ordinance, an alteration of a generally accepted
bill, converting it into a conditionally accepted bill is a material alteration. Any bill that bears an apparent
material alteration is, by s. 64, viod, except as regards a party who was privy to the alteration.

(b) The onus is on the party suing on bills that have been altered in a material respect, to establish that the
defendant had been privy to the alteration, and, therefore, that the bill is valid as regards that party.

(c) As the respondent had failed to establish that the appellant was privy to the alteration, the bills were
void as regards the latter.

National Bank of Commerce v Allidina (1969) EALR 89 (High Court of Tanzania)

The plaintiff was the endorsee in possession of a promissory note made by the defendant. Without the
latter’s consent, the appellant altered the note by inserting a place of payment. The note was later
dishonoured. The defendant’s defense was that the note was void, by s. 64 of the Bills of Exchange
Ordinance, for having been altered in a material respect, and apparently so, without his consent or
authority.

Held.1) The case does not fall within the instances of alterations that are deemed to be material under s.
64 (2) because: (i) There was not an ‘alteration’ of a place of payment as under that section, but merely an
addition of one. (ii) s. 90 (3) stipulates that a note need not be accepted. Thus, ‘addition of a place of
payment’ as a material alteration under s. 64 (2) only refers to bills and not notes, since the former rather
than the latter require acceptance.

(2) However, s. 64 (2) is not exhaustive. Other alterations, though not specifically enumerated may still be
material. Such cases are governed by general principles of law. The general rule is that:‘Any alteration
which affects the rights of the parties to the bill is a material alteration, even though it be an alteration
prejudicial to the party making it’. (Georges CJ at 90)
on the facts, the contract entered into between the parties and any rights thereunder were not affected by
the insertion of a place of payment, so that the alteration was held not to be a material one. The bill was
thus not void.