Daniel Meyer Export Ltd v Makali Cycle Mart (Civil Appeal No. 81 of 1954) [1950] EACA 26 (1 January 1950)

# H. M. COURT OF APPEAL FOR EASTERN AFRICA

Before SIR BARCLAY NIHILL (President), SIR JOHN GRIFFIN, Chief Justice (Uganda) and BRIGGS, Justice of Appeal

#### DANIEL MEYER (EXPORT) LTD., Appellants (Original Plaintiffs)

## MAKALI CYCLE MART, Respondents (Original Defendants)

### Civil Appeal No. 81 of 1954

(Appeal from the decision of H. M. High Court of Uganda, Low, J.)

Bill of Exchange—Endorsement in blank—Whether person in possession is a "holder" and can sue in his own name—Bills of Exchange Ordinance, sections 2, 8 (3), 21 (2) (b), 31 (1), 32 (6), 34 (4), 35 (1), 38 (1), 57 and 59.

This was an appeal from a judgment and decree of the High Court dismissing on a preliminary point a suit brought on a bill of exchange. The appellants had drawn a bill of exchange on the respondents for the cost of one of several consignments of bicycles. The bill was payable to the appellants or order and they endorsed it in blank thus rendering it payable to bearer. The bill was subsequently endorsed to the Standard Bank of South Africa Ltd., by Barclays Bank Ltd., London. It was accepted by the Standard Bank, Kampala, and in due course dishonoured. The plaintiffs attempted by evidence to show the capacity in which and the purpose for which Barclays Bank came into possession of the bill, to show that the plaintiffs were entitled to strike out Barclays Bank's indorsement and to show that the plaintiffs had been obliged to pay the bill and were therefore entitled to recover under section 59 $(2)$ (b) of the Bills of Exchange Ordinance. The trial Judge upheld a preliminary objection that the plaintiffs were not holders of the bill and had no title to sue thereon, at least in their own name and that even possession as owner having given value for the bill did not entitle the plaintiffs to sue without joining the Standard Bank who were the owners in law, and dismissed the suit.

*Held* (12-3-55).—The appellants should have been given the opportunity, if they could, to adduce evidence which might show that they were within the provisions of section 57 and/or section 59 of the Ordinance and if by that evidence they could establish that they were prima facie entitled to payment from the respondent as acceptor, then the other issues raised by the defence would arise for determination.

Appeal allowed. Judgment and decree 'of the High Court set aside, proceedings remitted for trial on the issues under sections 57 and 59 and, if necessary, on the other issues raised.

Cases referred to: Sutters v. Briggs. (1922) A. C.1: Denton v. Peters. (1870) L. R. 5 Q. B., 475; Good v. Walker. (1892) 61 L. J. N. S. 736; Subramanian Chetty v. Alagappa Scheity and others, (1907) I. L. R. 30 Mad. 441; Stones v. Butt. (1834) 2 C. and M. 416;<br>149 E. R. 822; National Savings Bank v. Tranah. (1867) L. R. 2 C. P. 556; Mayer v.<br>Jadis. (1833) 1 Mood. and R. 247; 174 E. R. 84; Merali A Edwards Ltd., E. A. C. A. Civ. App. No. 83 of 1954.

#### Wilkinson for appellants.

Russell for respondents.

BRIGGS, J. A.—This is an appeal from a judgment and decree of the High Court of Uganda dismissing on a preliminary point a suit brought on a bill of exchange. The appellants are a confirming house carrying on business in London and the respondents are bicycle dealers in Kampala. The respondents ordered through the appellants a number of bicycles on detailed specification from manufacturers in Holland, to be sent in several consignments. The appellants drew the bill in question on the respondents for the cost of one of these consignments. It is at sixty days after sight and is payable to the appellants or order. The appellants indorsed it in blank, thus rendering it payable to bearer. After their indorsement appears the following,

"Pay to the order of the Standard Bank of South Africa Ltd. Value for Collection

For Barclays Bank Limited, West End Foreign Branch, 1, Pall Mall East London S. W.1.

sd. (illegible) Manager".

The bill was in the appellants' possession before they sued. There are no further indorsements. The bill appears from bank stamps to have come into the hands of the Standard Bank, Kampala, on 1st April, 1952, to have been accepted on 4th April, 1952, and to have been presented for payment and dishonoured on<br>6th June, 1952. The plaint does not state whether the plaintiffs sue as drawers, as holders, or in any particular capacity. The suit was brought by summary procedure and the respondents obtained leave to defend.

The defence raises numerous issues of which only one is at present material. It is that the plaintiffs are not holders of the bill and have no title to sue thereon. at least in their own name. This issue was tried separately and the learned trial Judge upheld the defence's contentions and accordingly dismissed the suit. The plaintiffs appeal, and ask that the suit be sent for trial on this and the remaining issues.

The learned trial Judge held that the indorsement in favour of the Standard Bank was a restrictive indorsement, a conclusion with which I respectfully agree, and Mr. Russell, for the respondents, although he did not actually concede this, did not argue to the contrary before us. Mr. Russell did, however, argue, and the learned trial Judge held, that it was also a special indorsement, which did not prohibit further negotiation, "but with the direction or restriction that it shall be dealt with for collection". The Court relied on section 32 (6) of the Ordinance, and added: "As I see it the plaintiffs can only thereafter become the holders if the Standard Bank had endorsed it back to them or had endorsed it in blank and delivered it to them". The Court also noted that "A special indorsement following an indorsement in blank displaces the previous indorsement in blank". See Chalmers, 12th edition, 112. The Court further held that even possession as owner having given value for the bill did not entitle the plaintiffs to sue without joining the Standard Bank who were the holders in law.

A good deal of difficulty arose in this case from an obscurity as to the facts, which Mr. Wilkinson for the plaintiffs attempted to clear up in the Court below, by adducing evidence (1) as to the capacity in which, and the purpose for which, Barclays Bank came into possession of the bill, (2) to show that the plaintiffs were entitled to strike out Barclays Bank's indorsement and (3) to show that the plaintiffs had been obliged to pay the bill and were therefore entitled to recover under section 59 (2) (b) from the acceptor. The learned trial Judge apparently gave no formal ruling on this request during the hearing, but the effect of his judgment was to refuse to accept the evidence. It had been agreed between the parties that that evidence, if held to be receivable at all, should be given by affidavit, and the necessary affidavit was available. The appellant asks us to say that that evidence should be admitted on the further trial of the suit.

Mr. Wilkinson's first point for the appellants is that they are "holders" within the terms of the definition in section 2 of the Ordinance, irrespective of any question of negotiation, since they are "payees" and are "in possession of" the bill. I cannot accept this contention. The words "payee or indorsee" in this context must, I think, mean "payee (if there are no indorsements), or last indorsee (if there are indorsements)". Any other construction would make nonsense of a great part of the Ordinance. His next point, which I confess has caused me a good deal of difficulty, is that the indorsement by Barclays Bank was not in any real sense a special indorsement at all. He points to section 34 (4) as the normal means by which the holder of a bearer bill can convert or reconvert it into an order bill; but I think he would concede that this can be done equally by adding a normal special indorsement below the indorsement in blank. Chalmers gives no authority for this proposition (9th edition, p. 112), but I do not think it can be disputed, and it is in accordance with the definition of a bearer bill in section 8 (3). See also Halsbury's Laws of England, 3rd edition. Vol. 3, p. 184, note $(m)$ . Mr. Wilkinson, however, distinguishes the position where the later indorsement is restrictive and made merely for purposes of collection. He says that in such a case the indorsement and delivery effect only "a mere authority to deal with the bill as thereby directed and not a transfer of the ownership thereof" (section 35 (1)). This is, no doubt, a most important distinction, for some purposes at least. The intended collector, though he can sue in his own name, is never the owner of the bill and the indorser can still give an effective receipt on payment. Halsbury ibid., p. 185, note (d). The collector cannot transfer his rights in the bill or even delegate his duties of collection unless expressly authorized. He is hardly more than an agent of the indorser. I think that Mr. Russell accepted this up to a point. He certainly felt some difficulty in submitting that the Standard Bank should have reindorsed the bill to the appellants, perhaps on the ground that they could only thereby have constituted the appellants what I may call "sub-collectors". He met this difficulty by submitting that what was really required was an indorsement by the apparent true owners, i.e. Barclays Bank. I think this is erroneous. We are concerned with an indorsement from the apparent holders, the commercial owners, of the bill. That would be sufficient to ensure the appellants' right to sue, regardless of the true ownership, which may or may not be in Barclays Bank. Mr. Wilkinson submits that Barclays Bank had never lost or purported to transfer their title in the bill, whatever it was, by the indorsement, and moreover had not by such indorsement reconverted it into an order bill. They continued to hold under an indorsement in blank and delivery by the payees, and they could transfer the true title to the bill by mere delivery, notwithstanding the special and limited rights they had created in the collectors, which would of course continue to be binding on any transferee. They have delivered to the appellants and this should be sufficient to give the appellants a prima facie right to sue in their own names.

A corresponding submission could be made on a wider basis. There is no evidence before us, but it seems to me to be in accordance with the normal probabilities of commercial practice that, when the appellants indorsed the bill in blank and delivered it to Barclays Bank, they did so not by way of transferring the title to the bill, but for a limited purpose only (see section 21 (2) (b)). That purpose was, if I may be allowed to speculate, probably a dual one, first, to enable them to collect payment as agent for collection for the appellants, and secondly, to enable them to hold the bill as security for any advance made thereon, which may have been merely by way of an increase of general balance. If that was the true situation, the appellants would, I think, have been allowed to prove the facts by evidence as against Barclays Bank or the Standard Bank

Compare the words "may be shown" in section 21 (2) (b) and the opinion of Lord Birkenhead in *Sutters v. Briggs*, (1922) A. C. 1, notably where he says at p. $14 :=$

"And it must be borne in mind that it is impossible for the drawer to know whether the person, be he banker or not, who presents the cheque for payment, is a holder in his own right or a mere agent for collection. It is a question of fact in each case what is the capacity in which a person holds a bill. $...$

But I think all these arguments ignore certain factors which are fundamental. If this is still a bearer bill, as Mr. Wilkinson contends, the appellants are undoubtedly the holders; but I think it became an order bill by virtue of Barclays Bank's indorsement. I think that, quâ the acceptor, a special indorsement does not lose its character as such merely because it contains restrictive terms, even when those show that the true ownership is not transferred. See Denton $v$ . Peters, (1870) L. R. 5 Q. B. 475, where Miller, $J$ ., said at 477:

"As against the acceptor, this would, no doubt, have been a valid indorsement. All that is necessary to give a good title as against him is the writing of the name of the holder, and a manual delivery of the bill, with intent to transfer the property in it to the indorsee, as between him and the acceptor. But as between indorser and indorsee there must be the additional element of an intent to stand in the ordinary relation of indorser, that is, to guarantee the payment if the acceptor makes default."

Payment by the acceptor in due course discharges the bill (section 59 (1)), and payment "in due course" means payment to the holder (ibid.). There can only be one holder (or one set of joint holders) of a bill at any one time, and only the holder can directly enforce payment (section 38 (1)). Chalmers at p. 185 states : $\leftarrow$

"A right of action on a bill must be distinguished from a right of action which a party to a bill may have arising out of the bill transaction, but wholly independent of the instrument. The former is transferred by negotiating the instrument, the latter is not, and may be incapable of being transferred. The former is extinguished by the discharge of the instrument, the latter may or may not be so."

If a holder negotiates the bill his right of action on it disappears, and negotiation for this purpose does not necessarily imply a transfer of ownership, but only such a transfer as constitutes the transferee the holder of the bill. See section 31 (1). An agent for collection under a restrictive indorsement is a holder. Sutters v. Briggs, supra. It therefore appears to me that where the owner of a bill has indorsed it restrictively for collection he has, temporarily at least. abandoned the right to sue in his own name, although he can still give a good discharge if payment is made to him. No doubt in this case the Standard Bank could not now sue on the bill, for it is no longer in their possession, and they are therefore no longer holders (section 2); but the right to sue in their own names has not revested in the appellants, there being no indorsement in their favour. If further authority is needed it can be found in *Good v. Walker*, (1892) 61 L. J. N. S. 736 where Cave, J., said at p. 737:-

"Now section 88 of the Act lays down the liability of the maker of a promissory note as follows: 'The maker of a promissory note by making it—first, engages that he will pay it according to its tenor; secondly, is precluded from denying to a holder in due course the existence of the payee and his then capacity to indorse'. I need not enter into any questionupon the latter of these clauses—it is sufficient to deal with the former—that

the maker of the note is to pay according to its tenor. In this case he promised to pay the Gold Ores Reduction Company Limited, or their order, but the action is neither brought by them nor their indorsee. Clearly the present plaintiffs do not fill any of the positions ordinarily filled by persons suing on a note. They are neither indorsees, payees, nor bearers. Bearer is defined by section 2 as 'the person in possession of a bill or note which is payable to bearer'. Nor are they holders, because of the definition in the same section, which is that, 'holder means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof'. Here the plaintiffs are neither indorsees, payees, nor bearers; therefore they cannot be holders, and therefore, do not fall within any of the ordinary categories of persons entitled to sue. It is said, however, that sub-section (4) of section 31 gives them this right. Section 31, sub-section (1), is as follows: 'A bill is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder of the bill'. Here the bill was payable to order. Sub-section (4), which is relied on, is in these terms: 'Where the holder of a bill payable to his order transfers it for value without indorsing it, the transfer gives the transferee such title as the transferor had in the bill, and the transferee in addition acquires the right to have the indorsement of the transferor'. It is argued that the plaintiffs in the present case come under this sub-section as transferees of the note transferred to them by the holder without indorsement, and in support of this contention Hood v. Stewart is cited. The decision in that case is admittedly a new departure, and I have considerable difficulty in seeing upon what ground it rests. The sub-section gives the transferee—under that name and no other—such title as the transferor had in the note. Now it is said that, inasmuch as the transferor had a title to sue in his own name, the transferee had the same title. To this argument I cannot assent.

The transferee may well have such title as the transferor had in the note, and yet not be able to sue on it. There is the ordinary instance of the transfer of a chose in action or of rights under an agreement; but such transfer does not give the transferee a right to sue in his own name, except under special circumstances. I have considerable doubt that those words can be construed as introducing so general a change into the law of bills of exchange as it is contended they do. If the transferee can sue without indorsement, I can see no reason why the words were added giving him the right to have the indorsement of the transferor."

The same arguments apply to a bill, as section 54 obliges the acceptor in the same way to "pay according to the tenor of his acceptance". The obligation is to pay, not merely to the payee, but to his order, and the acceptor is both bound by, and entitled to rely on, the indorsements.

The present position of the appellants appears to me to be explained by section 31 (4). They are in possession of the bill, and as it is probably their property they may be assumed to have received it for value, but in the absence of any indorsement in their favour they are merely in the position of equitable assignees, unable to sue in their own names. See Chalmers, p. 107.

It has been held in India (Subramanian Chetty v. Alagapaa Chetty and others, (1907) I. L. R. 30 Mad. 441) that where a holder of a bill indorses it specially for collection and the indorsee, having failed to collect, returns the bill to his indorser, but does not reindorse it, the indorser may strike out the indorsement for collection and sue on the bill. The Indian Act is not in the same terms as the English Act, but the differences do not appear to be material for this purpose, and the decision purports to rest on English and American authority, notably on Stones v. Butt, (1834) 2 C. and M. 416, 149 E. R. 822. That the American authorities support the proposition I do not doubt, but I do not think the English authorities do so at all clearly. It does not appear in the report of *Stones v. Butt* that there was no reindorsement before action. The passage in Byles which is referred to appears to be the following: See p. 340 of the 20th edition. "It is a good defence that at the time of action brought the bill was outstanding in the hands of an indorsee; but if the indorsee held the bill as an agent or trustee for the plaintiff, the plaintiff, though not in actual possession of the bill may sue. . . " Stones v. Butt and National Savings Bank v. Tranah, (1867) L. R. 2 C. P. 556, are cited in support. The latter case, however, merely decides that a bill given to a third party, "not in satisfaction but only on account of the claim" is no bar to an action of debt where the holders are merely trustees for the plaintiff. I can find no authority in England for the practice of striking out indorsements on a bill payable to order except those contained in section 59 and section 63 (2), and 1 am not prepared to hold that there is any other right to do so. The position as regards a bearer bill is similar. Mayer v. Jadis, (1833) 1 Mood and R. 247, 174 E. R. 84. Apart from section 59 the holder can strike out an indorsement: but to entitle him to do so he must be holder according to the tenor of the bill. In the present case there is the additional difficulty that the indorsement for collection made by Barclays Bank followed the indorsement in blank of the payee, and *non constat* that indorsement did not actually transfer ownership.

There remains only the question whether the appellants can rely, or should have been allowed to rely, on the provisions of sections 57 and 59 or either of them. As regards section 57, if the appellants as drawers "have been compelled to pay the bill" they have rights over against the respondents as acceptors. They desire to adduce evidence to put themselves within the section and $\hat{I}$ think they should have been allowed to do so. I have felt some doubt as to the sufficiency of the appellants' pleading for this purpose, but on the whole I think that the plaint is sufficiently widely drawn for the purpose. See the judgments of this Court in Merali Alibhai and others v. Rikh and Edwards Ltd., Civil Appeal No. 83 of 1954, unreported. As regards section 59 (2) (b), the position again depends on facts which the appellants desire to prove, and I think they should have been allowed to prove those facts. But as regards both section 57 and section 59 l express no opinion whether the claim could succeed. I go no further than saying that in my view the learned trial Judge should have allowed, and did not allow, a claim on that footing to be developed before him. This in my opinion is sufficient to oblige us to set aside the judgment and decree of the High Court on the preliminary point and send back the suit for trial on the issues under sections 57 and 59 and, if necessary, on all other issues arising in the suit which have not yet been tried. The question of the right of the appellants to sue in their own name as holders of the bill should not, in my opinion, be reopened. It seems to me to be a question of law only. I wish to add that on this, the main issue in the appeal, I feel more than a little doubt as to the correctness of my conclusions. It seems clear that when the Standard Bank handed this bill to the appellants' solicitors they intended and expected that the appellants should be able to sue on it in their own name. One would not expect a bank to be mistaken on such a matter and it may well be that I have overlooked some vital point: but, as I see it, in the absence of an indorsement to them the appellants cannot so sue, unless by virtue of section 57 or section 59.

In the result the appellants succeed on one issue but fail on the other. I would allow the appeal and order as indicated above. I think that the appellants should have half the costs of the appeal and that the costs of the abortive hearing in the High Court should abide the result of the suit on the rehearing.

NIHILL, President.-I have had the advantage of reading the judgment prepared by the learned Justice of Appeal. I agree with him that the suit should go back to the High Court to enable the appellants to establish, if they can, by evidence, that they are within the provisions of sections 57 and/or 59 of the Ordinance. If by this evidence they can establish that they are prima facie entitled to payment from the respondent as acceptor, then the other issues raised by the defence will then arise for determination.

As regards the legal point as to whether the appellants could sue in their own name as holders of this bill irrespective of sections 57 and 59, I prefer at this stage to express no definite view. Like my learned brother I feel in considerable doubt, although on the authorities available to us I also agree with him that it would seem that they could not, and that accordingly we should not now allow this matter to be reopened. An order will be made in the terms proposed both as regards the reference back and in respect of costs.

GRIFFIN, C. J.—I have read the judgment of the learned Justice of Appeal with which I am in agreement.

I have nothing to add.