NATIONAL BANK OF COMMERCE v PERMA SHOE COMPANY 1988 TLR 224 (CA)

 NATIONAL BANK OF COMMERCE v PERMA SHOE COMPANY 1988 TLR 224 (CA)

Court Court of Appeal of Tanzania - Mwanza

Judge Makame JJA, Kisanga JJA and Omar JJA

29 November, 1988

Flynote

H Banking - Collecting banker - Cheque lost in the course of collection - Whether there is a duty on banker not to be negligent - Extent of such duty.

Negotiable Instruments - Cheque - Lost in the course of collection - Banker's duty of care to customer - Extent.

I Negotiable Instruments - Cheque - Lost in the course of collection 

- Customer's right to compensation on ground of depreciation of value of money.

-Headnote

The respondent presented his cheque to the appellant bank for collection. The bank credited the customer's account on 18.6.1982. More than a year later the appellant informed the respondent that the cheque was lost in transit and required it to get a fresh cheque from the drawer. It was not possible to get another cheque from the drawer since he had left the country. The respondent sued the appellant claiming damages for loss of the cheque and compensation for depreciation in value of the shilling due to devaluation of the Tanzania shilling. The High Court decided in favour of the respondent allowing damages and compensation.

On appeal, the appellant challenged the decision of the High Court arguing that the bank had no duty of care towards the customer in respect of the cheque presented for collection. The amount of compensation in the sum of shs. 50,000/= for depreciation was attacked as being excessive.

Held: (i) Where a customer deposits a country cheque with a collecting bank and the cheque gets lost, the bank E owes a duty of care to the customer to inform him promptly of such loss so that the customer may take such appropriate steps that might be open to him to avert any or further consequences resulting from such loss;

(ii) that duty exists whether the cheque was lost by the bank itself or by a third party having possession thereof on behalf of the bank;

(iii) the imposition of such a duty of care will not throw the banking system into disorder or prove socially hazardous;

(iv) the trial judge made the compensation award on a correct principle. He was entitled to take into account G the changes in the purchasing power of money due to depreciation and devaluation of the shilling.

Case Information

Appeal dismissed.

Rutabingwa, for the Appellant H

Rweyemamu, for the Respondent

[zJDz]Judgment

Kisanga, Makame and Omar, JJ.A.: This appeal arises from the decision of the High Court (Mwalusanya, J.) allowing a claim for damages by the respondent company against the appellant I

A bank for the loss of a cheque drawn in favour of the respondent company. The High Court awarded shs. 34,500/- being the amount stated on the lost cheque, and a further shs. 50,000/- being compensation for the depreciation in value of the former sum due to devaluation of the Tanzania Shilling.

The facts of the case were scant, but as far as could be ascertained from the record they may be stated as follows: The Kashozi branch of the appellant bank at Bukoba accepted a country cheque for shs. 34,500/= deposited by the respondent company and credited the respondent's account with the amount of the cheque. The bank claimed that in the meantime it sent the cheque to its branch upcountry at Ngara, in the same region of Kagera, to be debited against the drawer who maintained an account there. After some 461 days the bank notified the respondent that the cheque was lost while in transit with the post office, and required the respondent to ask the drawer to issue a fresh cheque of an equal amount. The respondent on the other hand claimed that upon making enquiries, it could not trace the drawer, adding that in any case it was not obliged to look for the drawer but rather it was the obligation of the bank to do so. Whereupon the bank proceeded to debit the respondent's account with the amount of the cheque, and hence the filing of the suit by the respondent.

The High Court found that the bank had been guilty of negligence in failing to notify the respondent promptly of the loss of the cheque.

In this appeal the bank is represented by Mr. J.K. Rutabingwa while the respondent is represented by Mr. J.S. F Rweyemamu. The same advocates had represented the respective parties at the trial in the High Court. In arguing the appeal, Mr. Rutabingwa criticised the trial judge for finding negligence on the part of the bank.

He contended that on the evidence the cheque was lost not by the bank but by the post office while in transit from Bukoba to Ngara, and that in law the bank owed no duty of care to the respondent to promptly report to it the loss of the cheque. On the first limb of counsel's submission, it seems plain in the circumstances of this case that the onus is on the bank to prove that the cheque was lost not through its own negligence but by the post office. But the only evidence adduced on that point was that of D.W.1, the Kashozi branch manager, to the effect that the cheque was sent to Ngara by registered post No. 936 and that it was lost while in transit. Quite clearly such a bare assertion was I not at all sufficient to prove loss by the post office. No certificate of posting from the post office was produced to support the assertion that the cheque was sent to Ngara by registered mail No. 936, nor did anyone from the post office at Bukoba come to confirm the posting of the A alleged register. On the other hand it could well be that the alleged register containing the cheque was, in fact, posted as alleged and reached Ngara, but no one was called from the Ngara branch to say that the cheque was not duly received there. In the circumstances, therefore, it has not been established that the cheque was lost by the post B office, and in the absence of any other explanation, the bank was rightly found to have lost the cheque through negligence.

Submitting on the second limb on the issue of negligence, learned counsel contended that a collecting banker's C liability in negligence is limited to two situations only, namely: (1) At the time of opening a customer's account when the bank has to exercise care in order to be satisfied as to the character of the customer, and (2) At the time of paying the proceeds of the cheque when the bank must ensure that it does not pay the same to strangers. He D strongly maintained that the liability in negligence of a collecting banker, which is what his client was, has not been extended beyond these limits. The trial judge addressing himself at great length to this aspect of the case, had held that the bank owed a duty of care to the respondent to promptly report to it the loss of the cheque, and that the E bank was in breach of that duty. In coming to that conclusion, the learned judge reviewed a number of decisions from various jurisdictions of the Commonwealth. He cited, among others, the decision of the House of Lords in Anns v Morton London Borough Council [1978] A.C. 728, restating the test to be applied when deciding F whether or not a duty of care arises in a particular situation, and the judgment of the Supreme Court of Nigeria in Agbonmagbe Bank Ltd. v C.F.A.O. [1966] I ALR Comm. 238; (Alan Milner and Susan Abrahams - Modern African Banking Cases 1973 Ed. p. 190) in which it was held that the bank owed its customer a duty of promptly sending him notice of dishonouring of cheques drawn in his favour. The learned judge also stated that he saw no policy considerations which required that the scope of the duty so imposed on the collecting bank ought to be limited or qualified. For, in his view, such a duty will not throw the banking system into disorder or prove socially hazardous. We think that, the learned judge properly directed himself in the matter. We cannot agree with Mr.  Rutabingwa that the collecting banker's liability in negligence is limited only to the two situations as set out in his submission. We are firmly of the view that where, as in this case, a customer deposits a country cheque with a collecting bank and the cheque gets lost, the bank owes a duty of care to the customer to inform him promptly of such loss so that the customer may take the appropriate steps that might be open to him to avert any or further consequences resulting from such loss. That duty we think, exists whether the cheque was lost by the bank itself or by a third party having possession thereof on behalf of the bank. Like the trial judge, we are also of the view that the imposition of such a duty of care will not throw the banking system into disorder or prove socially hazardous. On the contrary we think that the imposition of that duty will serve to re-affirm and enhance the confidence of the public in the banking system in as much as it seeks C to ensure a greater degree of security for the customer's money at the bank.

Mr. Rutabingwa further contended that even if the bank had a duty to promptly notify the respondent of the loss of the cheque, the bank was not in breach of that duty. It will be recalled that the bank notified the loss after 461 days of the issue of the cheque. Counsel claimed that the loss of the cheque was detected only after what he described as the routing slip had travelled all the way from the Bukoba branch to the Central Clearing House in Dar es Salaam, to the Ngara branch, back to the Central Clearing House in Dar es Salaam and then back to the Bukoba branch. He stated that this long journey took a long time because of the communication problems with Ngara which existed at the time. However, there was not a shred of evidence adduced of any communication problems with Ngara existing at the time.

Nor was evidence given of any routing slip showing when it was dispatched from the collecting bank at F Bukoba and when it was received back there. In those circumstances the period of 461 days was clearly an inordinate delay in reporting the loss of the cheque, and the trial judge was perfectly justified to hold the bank liable in negligence.

In another dimension counsel for the appellant bank took the view that the respondent company was itself to blame in the matter for having neglected to require the drawer of the cheque to issue a fresh cheque in place of the H lost one as provided for under section 69 of the Bills of Exchange Ordinance (Cap. 215). That section provides:

69. Where a bill has been lost before it is overdue, the person who was the holder of it may apply to the drawer to give him another bill of the same tenor, giving security to the drawer if required to indemnify him against all persons whatever in case the bill alleged to have been lost shall be found again.

If the drawer on request as aforesaid refuses to give such duplicate bill he may be compelled to do so. A Learned counsel contended that at the time the cheque was lost the respondent was the holder of the cheque and that the cheque itself was not overdue. As such, therefore, the respondent was in a position to take the necessary B step in terms of the section to put the situation right. Mr. Rweyemamu for the respondent, however, submitted that at the time the cheque was lost the bank, not the respondent, was the holder of the cheque, and that the cheque itself was long overdue, in which case his client could not validly be expected or be called upon to take any steps in terms of the section in order to rectify the matter.

The trial judge in his judgment had dealt with the question who was the holder of the cheque, and he came to the conclusion that it was the bank. In the course of dealing with that issue he considered, first, the provisions of section D 27(2) of the Bills of Exchange Ordinance (Cap. 215) which provides that:

(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. Applying that provision to the facts before him, the learned judge found that the bank had given value for the cheque first by crediting the respondent's account with the amount of the cheque and second by impliedly agreeing that the F respondent could draw against the cheque before the proceeds thereof were received. Mr. Rutabingwa submitted that mere crediting of the respondent's account with the amount of the cheque did not amount to giving value for the cheque. In this respect he referred, inter alia, to the English case of A.L. Underwood Ltd. v Bank of Liverpool and Martins [1924] 1 K.B. at page 805 where it was held that:

... the mere fact that the bank in their books enter the value of the cheques on the credit side of the account on the day on which they receive the cheques for collection does not without more constitute the bank a holder for value. To constitute value H there must be in such a case a contract between banker and customer, express or implied, that the bank will before receipt of the proceeds honour cheques of the customer drawn against the cheques. Such contract can be established by course of business and may be established by entry in the customers pass book, communicated to the customer and acted upon by him.

But the point is that in the instant case the trial judge found that the bank did more than just crediting the respondent's account and the question is whether that finding was justified.

It was common ground that the bank had discretion whether or not to credit the respondent's account with the amount of the uncleared cheque. Then there was the evidence of the branch manager of the appellant bank (D.W.1) to the effect that for a good customer the bank credits the account straightaway on depositing the cheque, but for a bad customer it does not. In this particular case, the witness said, the respondent was a good customer with no problems and so the bank credited its account straightaway with the amount of the cheque. Indeed, the witness added, the bank had recently given the respondent a loan to develop its business. Such evidence clearly suggests that the bank considered the respondent to be a reliable and creditworthy customer to whom credit facility could be extended without difficulty.

Again it was undisputed that after crediting the respondent's account, the bank kept silent for a whole year while the respondent continued to operate its account. For all that period there was no evidence of any restriction or limitation imposed by the bank on the respondent to make withdrawals against its account to the extent of the uncleared cheque. By keeping silent for so long the bank clearly led the respondent to believe that all was well and that it could proceed to draw on its account to the extent of the cheque. The view that the bank had given credit to the respondent as aforesaid appears to be confirmed by a letter (Ex.B) which the bank wrote to the respondent in the course of this matter. The relevant part of that letter reads:

CHEQUE NO. G.027808 OF SHS. 34,500/= DEPOSITED INTO YOUR ACCOUNT 18.6.1982

On 18.6.1982 you deposited cheque No. 027808 of Shs. 34,500/=. The cheque was drawn by one of your clients from Ngara. It has come to our attention that the cheque got lost on transit. We cannot recover our money from the drawer of the cheque because it is not debited to his account with our Ngara branch. We are intending to debit your account with Shs. 34,500/= on I 1st October, 1983. You are required to obtain a fresh cheque from the drawer and ask him to place stop-payment order with his bankers in Ngara for the lost cheque.

It would seem to us that the expression "We cannot recover our money from the drawer" is a clear admission that the bank had parted with its money in favour of the respondent, and it was now facing a difficulty in recovering the same. For, it is not possible to talk of recovering something when that thing was not lost or was not parted with in the first instance.

As stated earlier the trial judge in effect found that the bank had impliedly allowed the respondent to draw against the uncleared cheque in anticipation of the proceeds thereof being received. To that extent the bank had given value C for the cheque, thereby entitling it to have a lien on the cheque. Then he went further and considered the provisions of section 27 (3) of Cap. 215 which says that:

(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 D for value to the extent of the sum for which he has a lien.

He found that since the bank had a lien on the cheque to the full amount thereof, then the bank was accordingly deemed to be the holder for value of the cheque. We think that his reasoning and conclusions were sound. It therefore follows that Mr. Rutabingwa's submission that the respondent was to blame for failing or neglecting to require the drawer to issue a fresh cheque in terms of section 69 of Cap. 215 must fail because the respondent was not the holder of the cheque at the material time, and so it could not rightly be asked to take the steps as contemplated by that section.

Mr. Rweyemamu's second limb of this submission was that even assuming that the respondent was the holder of the cheque at the material time, the respondent was not in a position to do anything in terms of section 69 to secure the issuing of a fresh cheque because the drawer of the cheque could no longer be traced, and the cheque itself was long overdue. We find some merit in this submission. P.W.1 in his evidence stated that he tried by letter to contact H the drawer of the cheque but was told that he was out of the country to Arabia. That evidence stood unchallenged. The defence never adduced any evidence to show that the drawer of the cheque never left the country or that he left but returned afterwards. In the circumstances the bank cannot validly complain that the respondent failed or neglected to require the drawer to issue a fresh cheque when it is not established that the drawer himself was available.

On the submission that the cheque was overdue, Mr. Rweyemamu relied on the provisions of section 40 (1) and (3) and section 45 of Cap. 215. Section 40 (1) and (3) provides that:

40. (1) Subject to the provisions of this ordinance, when a bill payable after sight is negotiated, the holder must either present it for acceptance or negotiate it within a reasonable time.

(2) ....

(3) In determining what is a reasonable time within the meaning of this section, regard shall be had to the nature of the bill, the usage of trade with respect to similar bills, and the facts of the particular case. And the relevant part of section 45 says:

45. Subject to the provisions of this Ordinace a bill must be duly presented for payment if it be not so presented the drawer and endorsers shall be discharged.

Mr. Rweyemamu submitted that according to these provisions the cheque in the present case ought to have been presented for payment within reasonable time. This, however, was not done and consequently the drawer was thereby discharged. So that even if the respondent was the holder of the cheque at the material time, that would be of no avail in as much as the cheque was stale then. The difficulty we are facing here is that no evidence whatever was adduced as to what is reasonable time for pesenting the cheque for payment according to the banking practice in Tanzania. Mr. Rweyemamu was of the view that a cheque becomes stale after six months from the date of its G issue. Mr. Rutabingwa, on the other hand, asserted that once a cheque is duly stamped by the collecting bank, it can never became overdue or stale. We do not feel justified to decide this issue purely on the basis of the statements H made from the Bar. We are rather inclined to defer our decision in the matter to a future date when a suitable case comes up in which the necessary evidence shall have been adduced. It should be noted, however, that our decision on this point was not essential for the determination of this appeal. It is clear from the preceding pages of this I judgment that the appeal is disposable on other grounds.

We are therefore unable to uphold Mr. Rutabingwa's submission that the respondent was to blame for failing or A neglecting to take steps under section 69 to require the drawer of the cheque to issue a new cheque. Like the trial judge we find that the bank, and not the respondent, was the holder of the cheque at the time the cheque was reported lost. As such the respondent could not, in terms of section 69, require the drawer of the cheque to issue a B fresh cheque. We also agree with Mr. Rweyemamu's submission that the taking of steps by the respondent under section 69, as submitted by counsel for the appellant bank, appears to have been rendered impracticable by the fact that the drawer of the cheque could no longer be traced as he was said to be away in Arabia. The learned judge, C therefore, was justified in finding against the appellant bank on the basis of negligence, and we can see no reason to interfere.

Mr. Rutabingwa also complained about the part of the award relating to Shs. 50,000.00 and said that there was not D ground on which it was based. In awarding that sum the trial judge took into account the element of depreciation of money due to the devaluation of our shilling. The respondent had been deprived of the use of his money for a period of four years from 1983. At the end of that period his money would fetch less goods because of its E diminished purchasing power. The learned judge, therefore, made the award in order to compensate the respondent such that as far as possible it could be in a position to buy the same amount of goods as it would have bought has it not been deprived of its money. We think that the learned judge made the award on a correct principle. He was F entitled to take into account the changes in the pruchasing power of money due to depreciation and devaluation of the shilling. That was a practical aspect of life which we think it would have been unrealistic to ignore. Although he did not set out any mathematical formula on which he computed the award, we think that the sum of Shs. 50,000.00 was not excessive so as to warrant interference.

After a careful consideration of the issues involved in this appeal and the engaging arguments by counsel for both sides, we are satisfied that the learned judge properly directed himself on the issues before him and came to the right conclusions. Admittedly the facts as adduced at the trial were most scanty. In the whole case only two witnesses gave evidence, one for the plaintiff and one for the defendant.

Their evidence was very brief, hardly a page each. That was not fair for a case involving issues of this magnitude. However, the trial judge did his very best in the circumstances and, on the evidence before him, his decision cannot be faulted. In the result the appeal fails and it is dismissed with costs.

Appeal dismissed.

1988 TLR p234

B