Esso Standard (U) Limited v Uganda Commercial Bank (Civil Appeal 14 of 1992) [1992] UGSC 29 (1 December 1992)

### IN THE SUPREME COURT OF UGANDA

AT MENGO

(CORAM: MANYINDO, D. C. J., ODER, J. S. C., AND PLATT, J. S. C.)

CIVIL APPEAL NO. 14 OF 1992

### BETWEEN

ESSO STANDARD (UGANDA) LTD $**$ $**$ $**$ APPELLANT

#### A N D

$**$

$**$

UGANDA COMMERCIAL BANK $**$ $**$ **RESPONDENT**

(appeal from the Judgement of the High Court of Uganda at Kampala (Kalanda,J.) dated $23.1.1992)$ IN H. C. C. S. NO. 87 OF 1990)

JUDGEMENT OF ODER, J. S. C.

$/$ which

The appelant Oil Company had a depot in Mbale for distribution of its products, / was managed by one Nabudere, the appellant's employee. It also held a collection current account at B Branch of the respondent bank in Mbale. Cheques and cash payable to the appellant were banked into the collection account, normally by Nabudere. When the funds accumulated on the account, the respondent forwarded it by banker's drafts from time to time to the appellant's head office in Kampala.

There was also in Mbale a service station for sale of the appellant's products. It was run by the proprietor, one Haji Wandera, to whom the appellant routinely sold and supplied its products. The / was called New Mbale Esso Service. /station 'service

During the period from 1.9.1989 to 11.10.1989, Wandera paid by 14 cheques, for a total sum of shs.15,723,726/-, for oil products sold and delivered to him by the appellant. The cheques had var $\cdot$ 12

dates and were drawn by Wandera on his bank, Co-operative Bank Ltd, Mbale branch. Nabudere deposited them in the appellant's collection account in the respondent's B branch Mbale. Due to fraud on the part of Nabudere, Wandera, and Dorothy Atok (DW2) the respondent's employee as a cashier, the cheques were not presented for payment at the Co-operative Bank in time. When the appellant noticed that the proceeds of the cheques in question were not reflected in regular payments from Mbale to its Head office, it complained to the respondent. The complaint prompted the Mbale B branch Manager into action. Consequently on 26.10.1989, the branch Manager presented all the 14 cheques in a bunch to Wandera's Bank, but the cheques were promptly dishonoured for lack of funds. The respondent immediately notified the appellant of the dishonour. These events led the appellant to sue the respondent in the High Court in Kampala for breach of alleged duty as the collecting bank, $+10$ claiming total value of the cheques.

$\mathbf{2}$

The suit was countered by a written statement of defence in which the respondent denied the alleged breach of duty on the grounds, inter alia, that the delay in presenting the cheques was caused by instructions from Nabudere as the agent of the appellant. The respondent was, therefore, not liable. It was also averred that the appellant ought to have sued Wandera, the drawer of the dishonoured cheques, against whom it had a right of recourse.

At the trial of the suit, four issues were framed:-

Whether the defendant owed a duty to present the cheques and 1. given notice of dishonour in the circumstances.

- $\qquad \Rightarrow \qquad$ $3 \div$ - $2.$ Whether there was a breach of that duty. - $3.$ Whether the plaintiff actually suffered loss or damages.

4. Whether the plaintiff is entitled to the remedies claimed. In his considered judgement delivered on 23.1.1992, the learned trial Judge's answers to the issues were all in the negative. Hence this appeal.

Three grounds were set out in the memorandum of appeal, The first and third, which I will consider together, were stated as follows:-

- The learned trial judge erred in law in holding that the $1.$ respondent was not in breach of its duty to the appellant simply because the instructions not to present the cheques for payment were given by Nabudere who was the appellant's depot manager. - 3. The learned trial judge erred in law in deciding that there was no banking until 26.10.1989.

The circumstances leading to the learned Judge's findings which have been criticised under these grounds of appeal may be stated briefly as follows:-

When Dorothy (DW2) as the respondent's cashier received each of the cheques, she stamped and dated only the accompanying banking slip in duplicate, but not the cheque. She then handed over to Nabudere the original of the banking slip, and retained the cheque and duplicate of the banking slip, both of which she did not, thereafter, pass through the normal banking procedure. That was contrary to normal banking practice and what she had instructions to do.

$... / 4$

them manner She hid the cheque away. All the 14 cheques were treated in the same / and ended up being hidden in her house, from where they were eventually retrieved. In her evidence Dorothy claimed that she was instructed by Nabudere and Wandera not to pass the cheques for presentation for payment to the Co-operative Bank, because Wandera's account there lacked She was to wait until the two men would funds to meet the cheques. Libe presented For had tempted indicate to her when the cheques her to act the way she did. Her claim in this regard was supported by several hand written chits which were produced in evidence. For example one of the chits written by Nabudere on 6.10.1992 reads as follows:

## "DOROTHY

- $1.$ Please receive the cheques. The one for the main shall go next week. Keep it. Do not take it there today. The man has no money there today. - $2.$ Kindly wait for the abnking slip for cash as arranged by the boy.

## Mike

# $6/10/89$

3. I shall collect Esso drafts in the afternoon

#### Thanks"

One of the chits from Wandera dated 24.10.1989 reads thus:

"Dear Dorothy, Mike came therein the bank for he the talks to the Manager and you. I don't know whether he has come or not.

Secondly, I have not got the figures I was to clear as yet. But as I told you, I must clear some cheques this week. I am trying everything possible. Therefore I request you not

$...15$

bounce any single cheque before you see me. And do not talk to these boys of mine anything concerning that affair. Hoping to see you anytime. Thanks,

Yours Haji Wandera."

$\overline{5}$

There was also evidence that Nabudere used to bank into the Appellant's collection account his personal cheques, some of which were dishonoured, and that the appellant knew about such cheques. Due to the part they played in the incident, Dorothy and Nabudere were subsequently sacked and criminal proceedings instituted against them by their respective employers.

On the basis of this and other evidnece, the learned trial judge made certain findings: firstly, that Nabudere's role in what gave rise to the appellant's complaints was more than that of banking cheques into the collection account. He was running the depot, selling the appellant's products and receiving payments in any form, which the appellant accepted. This included supplying products to Wandera against the dishonoured cheques while knowing that Wandera lacked funds to meet them. Such a Manager's role, in the learned judge's opinion, was not merely to bank cheques irrespective of whether they were defective or not.

In the circumstances, Nabudere was -

"A proper agent of the plaintiff company who was running that depot on their behalf"

Another finding was that the cheques were not banked until 26.10.1989. What had happened prior to that date was an outside arrangement by Nabudere, Dorothy and Wandera to produce false banking slips in order to deceive<br>the appellant into believeing that the cheques had been banked

$...16$

when they were not. The instructions not to bank the cheques $/having$ ( come from Nabudere as the agent of the appellant, and Wandera as the drawer, the respondent was not liable for the apparent delay in banking of the cheques. In the circumstances, the learned trial judge concluded that the respondent was not under Q duty to present the cheques for payment prior to 26.10.1989. The alleged breach of duty could not, therefore, arise.

Mr. Kateera, learned Counsel for the appellant, attacked these findings. He contended that they were inconsistent with the obligations of the respondent as the collecting bank under the provisions of the Bills of Exchange Act (Cap 76) (hereinafter referred to as "the Act"). The findings were also contrary to evidence adduced at the trial. I am in complete agreement with the learned counsel on this point. Firstly because I do not think that the dishonoured cheques were banked on 26.10.1989, as an examination of the respective roles of the principal players in the saga will show. It is clear available evidence that the appellant's was a collection from account and no more. Mukasa Jim (PWI) testified that Nabudere's role as the depot manager was only to bank cheques into the account. He was not supposed to know its contents, nor deal with it. The respondent's own branch manager, George Osenga (DWI) said what confirmed that position namely, that Nabudere was not operating the account. His duty was merely to bank money and cheques into the account. Only the appellant, as the respondent's customer, could instruct the bank how to deal with money or cheques banked on the acount. With regard to the cheques in question, the appellant never instructed Nabudere to instruct the appellant not

$...17$

present the cheques for payment. In/light of this $/$ the evidence, coming as it does from both parties, I think, with respect, that the learned trial judge attributed to Nabudere a wider authority than he had with regard to the collection account. Not having the authority to do so, he could not have given the respondent instructions regarding what should or should not happen to the cheques after they had been banked on the collection account. His authority and function stopped at depositing the cheque into the account.

$7 \div$

With regard to Wandera, it appears that once the cheques drawn by him had been banked by the respondent as the payee, he had no authority to recall them back except to countermand payment by his bankers under section 75 of the Act, which he did not do. Consequently, I ithink that his purported instructions to Dorothy to hold on to the cheques until money was available at the paying bank did not exonerate the respondent from its liability for not presenting the cheques in time.

In Dorothy's case, she was an employee of the respondent and, as such, performed the duty of the cashier who received the cheques. A question which arises, therefore, is whether she did so and handled them in the course of her employment. I would answer such a question in the affirmative. The case of Muwonge vs. The Attorney General of Uganda (1967) $EA$ 17 is in my view, relevant here. That was a case in

$... / 8$

which the appellant's father had been killed during a riot. The shot which caused the death was fired by a Policeman who had seen the appellant run towards a house, had concluded that the appellant was a rioter and, having followed him, fired wantonly into the house not garing whom he killed or injured. At that the stones were were fired nearby. It was held, on appeal, that firing<br>of shots was an act done within the exericse of the policeman's duty, for which the Goernment was liable as master, even though it was wanton, unlawful and unjustified. In what was the leading Judgement in the case, Newbold, P., said what has since been followed with approval in many cases in this country concerning liability of masters for acts of their servants, and with which I fully agree.

He said this -

$\div$

"An act may be done in the course of a servant's employment so as to make his master liable even though it is done contrary to orders of the master; and even if the servant is acting negligently or criminally, or for his own benefit, nevertheless if what he did is merely a manner of carrying out then his master is liable."

In the instant case eveidence indicates that Dorothy received the dishonoured cheques when performing her duty in the course of her employement. But she subsequently dealt with the cheques fraudulently and criminally. As her boss, Osenga (DW2), said, what she did was wrong. Hence action had to be taken against her. If she had not kept the cheques away they would have been presented in time.

$... / 9$

$\div$ 9 $\div$

In the circumstances, I think, therefore, that though she acted wrongly and contrary to her master's instructions, it was merely a manner of carrying out what she was employed to do, which was to receive cheques, stamp. and date them on the respective dates when they we deposited in the bank, and then pass them through the normal procedure, to facilitate their presentation at the paying bank in time. On the evidence, therefore, I come to the conclusion that the cheques in question were banked not on 26.10.1989 as the learned trial Judge found, but on the respective dates when they were deposited in the bank. It follows, therefore, that the first cheque was banked 25 days and the last cheque 15 days before 26.10.1989 when they were presented for payment.

It was contended for the appellant that such a presentation was not within a reasonable time as required by the provisions of the Act and that, therefore, the respondent acted in breach of its duty to the appellant, for which it is liable. A reasonable time, according to counsel was one day from the time the cheques were banked in this case, as the collecting and paying banks were all located in the same town, Mbale.

The relevant provisons of the Act which were relied on by the appellant's learned counsel state as follows:-

45.

Subject to the provisions of this Act, a bill must be duly presented for payment. If it is not so presented the<br>drawer and endorsers shall be discharged.

A bill is presented for payment which is presented in accordance with the following rules - $.../10$ a) ........................

(b) where the bill is payable on demand, then, subject to the provisions of this Act, presentment must be made within a reasonable time after its issue in order to render the endorser 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.

- 46. (1) 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 fault, misconduct or negligence. When the cause of delay ceases to operate, presentment must be made with reasonable diligence. - $73. (1)$ A cheque is a bill of exchange in this part of this Act, the provisions of this Act applicable to a bill of exchange payable on demand apply to a cheque. - 74. Subject to the provisions of this Act

$(a)$ Where a cheque is not presented within a reasonable time of it's issue, and the drawer or the person on whose account it is drawn had the right at the time of such presentment as between him and the banker to have the cheque paid and suffers actual damage through the delay, he is discharged to the extent of such damage, that is to say, to the extent to which<br>such drawer or person is a creditor of such<br>banker to a larger amount than he would have been had such cheque been paid;

(b) in determining what is a reasonable time regard shall be had to the nature of the instrument, the usage of trackland of bankers, and the facts of the particular case;

(c) the holder of such cheque as to which such drawer or person is discharged shall be a creditor in lieu of such drawer of person, of such banker to the extent of such discharge, and entitled to recover the amount from him.

$.../$

The duty of/collecting bank under Statutory provisions similar to the foregoing provisions of the Act has been

$\div$

$\hat{\mathbf{w}}$ $\mathcal{L} = \mathcal{L}$

discussed and interpreted in many' learned works and decided cases which I find relevant to the instant case, of which I shall refer to a few:for example:-

3 Halsbury's Laws of England Edn., Page 76; Chalmer&s Bills of Exchange, 13th Edn., page 252; Paget's Law of Banking, 13th Edn., page 453; and Barclays Bank Plc vs. Bank of England (1985) 1 All. E. R. 385.

$.../11$

$\div$ 11 $\div$

In summary, the duty appears to be that such a banker as agent for collection, is bound to exercise diligence in the presentation of the cheque for payment. He fulfills his duty if, when the cheque is drawn on a bank in the same place, he either presents or forwards it on the day following receipt. The forwarding may be to another branch or to an agent of the bank, who has the same time after receipt in which to present. Presentation through a recognised clearing house is equivalent to presentment to the bank on which the cheque is drawn. Presentation by post is sufficient, and it would appear that when a bank forwards a cheque by post to the bank on which it is drawn the latter receives it as an agent for presentation to itself, and in that capacity can hold it till the day after receipt.

$\mathbf{I}\!\!\mathbf{f}$ a banker fails $.$ to present a cheque within a reasonable time after it reaches him, he is liable to his customer for loss arising from the delay; the drawer or the endorsee, if any, is discharged if presentation is not made within a reasonable time of its issue or endorsement. The drawer is discharged to the extent of any damage he may have suffered by the failure to pay the cheque of the bank on which the cheque was drawn.

$... / 12$

Turning to the instant case, it is evident, in my view, that the respondent as the collecting bank was under a duty to the appellant to present the cheques in question within a reasonable time as required of it section 45(a) of the Act. But it failed in that duty. The cheques were presented after what the learned counsel for the appellant has contended, rightly so in my view, was an inordinate delay. There were no circumstances excusing the delay under section 46 of the Act. I find, therefore, that the respondent was in breach of his duty emanating from the contractual relationship of banker/customer between it and the appellant, and also imposed by the provisions of the Act. The evidence of Osenga (DWR) could not have been more eloquent in admission of that breach. This is what he said in cross-examination:-

> "Cheque No. 068-032 was received on<br>1/9/89 by Dorothy Atok. I do agree<br>with you that there was delay to send cheques to Co-operative Bank. I do agree that all these cheques were sent late. There was a breach of duty."

In the circumstances, I think that grounds one and three were well founded and should succeed.

What remains to be considered is whether the respondent's breach of duty did cause any loss to the appellant, and, if so, what damages (if any) were recoverable.

13 $\hat{\mathcal{A}}_1$ $\div$

That is the substance of ground two of the appeal. It was contended for the appellant that the respondent having failed in its duty to present the cheques within a reasonable time, Wandera, the drawer of the cheques, was discharged from his liability to the appellant in view of the provisions of section $74(a)$ of the Act, and that the appellant therefore, had no recourse against him. The consequences of such discharge, the learned counsel contended, were that the appellant lost the right to sue Wandera on the dishonoured cheques; nor could it sue for the price of goods sold and delivered for payment of which the cheques had been issued. The loss therebyy occasioned to the appellant was the equivalent of 100% of the total value of the cheques. In terms of section $74(c)$ of the Act, the appellant was entitled to recover the same amount from the respondent, notwithstanding the fact that there had been no funds in Wandera's account to pay the cheques at the time when they were drawn, when they ought to have been presented, and when they were actually presented at Wandera's bank. The absence of funds, in counsel's view, made no difference to the respondent's liability to the appellant for the value of the cheques.

$As I$

1 understand the provisions of the Act applicable to the consequences of nor-presentation of cheques in time, these of $45$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{1}{45}$ $\frac{$ where a cheque is not presented within a reasonable time,

14 $\cdot$ = $\triangle$

the drawer is only discharged to the extent of any actual damage he may have suffered by the failure to pay the cheque of the bank on which the cheque is drawn. And the effect of section $74(a)$ , read together with $74(c)$ , appears to be that where, for instance, a person drew a cheque for X sum of money on his (the paying) bank, which is not presented for payment within a reasonable time of its issue as defined by the Act, and his bank failed to pay the cheque when it was actually presented because at that time funds which would have been available on the account to meet the cheque had it been presented in time were no longer available at the time of actual presentation, due to the delay in presentation, then the drawer is discharged to the extent of X sum of money. That X sum of money, being the actual damage which the drawer has suffered due to the delay, the payee or holder of the cheque is entitled to recover the same amount from the drawer's (the paying)bank. The scenario I have described operates where the delay in presentation of the cheque is caused by the drawer's (the paying) bank, which, it seems to me, is what the framer of section 74 had in mind.

If, however, at the time when the cheque should have been presented (had it been presented in time) or when it was actually presented, there were no funds in the drawer's account to pay the cheque, then it appears that in that case the drawer has not suffered any actual damage due to the delay because he did not have the right at the time of such presentation as between him and the banker to have the cheque paid. Consequently the payee or holder of the cheque would recover nothing from the drawer's (paying) bank because in my view, the drawer was not in a position to be

$... / 15$

$15$

$\triangle$

discharged of his liability on the dishonoured cheques. Not having suffered any actual damage, he would not be discharged by the delay in presentation of the cheque. The scenario I have explained above does, in my view, apply with equal forces where the delay in presentation of the cheque is caused, not by the drawer's bank but instead by the collecting bank, which case the payee or holder of the cheque is entitled to recover from the collecting bank the equivalent of actual damage suffered by the drawer of the cheque as a result of the delay in presentation.

In the instant case, Wandera's account on which the cheques in question were drawn was devoid of funds at the time when the cheques were drawn, at the time when they ought to have been presented in time, and at the time when they were actually presented. He therefore had no right to have them paid. In the circumstances, I think that Wandera did not suffer any actual damage and, therefore, was not discharged from his liability on the dishonoured cheques due to the delay in presentation at his bank by the respondent. Since under the provisions of section $74(a)$ and $(c)$ of the Act, the appellant could recover damages from the respondent only to the extent of Wandera's discharge, it follows, therefore, that it could not recover where Wandera had not suffered any actual damage. In the circumstances, I think that although the respondent acted

$... / 16$

$16$

in breach of its duty to the appellant as the collecting bank, the former did not suffer any loss and, therefore is not entilted to recover any damages from the respondent, since Wandera was not discharged from liability on the dishonoured cheques. The appellant had a right of recourse against Wandera. It was entitled to sue Wandera on the cheques by virtue of the dishonour per se, as it was notified immediately of the dishonour. Moreover, the appellant was also entitled to sue Wandera for the price of goods sold and delivered for which the cheques were issued.

in the end Mr. Kateera stated from the Bar that the appellant had, infact, done so; but had abandoned prosecution of the suit. From my perusal of the referent court record, it appears that the suit was filed in Kampala as High Court Civil Suit No. 5930 of 1990 in which the appellant sued Wandera on $12.7.1990$ , claiming the sum of shs. 15,651,504/-. The cause of action was founded on Wandera's alleged breach of contract by his failure to pay for the oil products supplied to him by the appellant. It was claimed that Wandera had issued cheques for the amount being claimed, and that the cheques had been dishonoured. The numbers and amounts of the cheques stated in the plaint are the same as those stated in the suit leading to the present appeal. According to the relevant record, it appears that the appellant is still

$...17$

17 $\div$

in a position to proceed with the suit if it wishes to do so.

In the circumstances, I think that ground two should fail.

In the result I would allow the appeal in part.

The main ground of appeal was ground two regarding loss claimed to have been suffered by the appellant. The ground having failed, I would award to the Appellant one-third of the costs of the appeal and of the costs in the court below. The respondent should receive twothirds of the costs here and in the court below. DATED at Mengo this !...day of December 1992

DMM.

A. H. O. ODER JUSTICE OF THE SUPREME COURT

## IN THE SUPREME COURT OF UGANDA

#### AT MENGO

(CORAM: MANYINDO, D. C. J., ODER, J. S. C., PLATT, J. S. C.)

CIVIL APPEAL NO. 14/92

## BETWEEN

ESSO STANDARD (U) LTD $\cdots$ APPELLANT

#### A N D

UGANDA COMMERCTAL BANK :::::::::::: RESPONDENT

> (Appeal from the decision of the High Court of<br>Uganda at Kampala (Mr. Justice Kalanda) dated 23rd January 1992 in H. C. C. S. No. 81 of 1990).

# JUDGEMENT OF MANYINDO, D. C. J.

I agree with the judgement of Oder, J. S. C. The respondent bank had a duty to collect the proceeds of the cheques inm question within reasonable time but did not do so. The appellant company could sue for any loss suffered but there was none here as the $bQ0m$ cheques would not have cashed. That is why this appeal can only succeed on grounds 1 and 3. is allowed As Platt J. S. C. also agrees the appeal in part. There

will be an order for costs in terms proposed by Oder, J. S. C..

ecember $\sqrt{ }$ DATED AT MENGO THIS DAY OF 1992

Sgd: S. T. MANYINI

DEPUTY CHIEF JUSTICE