Kenya Programmes for Sustainable Development v Cfc Stanbic Bank Limited [2017] KEHC 9214 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL AND TAX DIVISION

CIVIL SUIT NO. 682 OF 2009

KENYA PROGRAMMES FOR SUSTAINABLE DEV…………..PLAINTIFF

- VERSUS-

CFC STANBIC BANK LIMITED…………………………….….DEFENDANT

JUDGMENT

1. The plaintiff, KENYA PROGRAMMES FOR SUSTAINABLE DEVELOPMENT, was a Non-Governmental Organization.

2. It opened a bank account at CFC STANBIC BANK LIMITED.

3. It is the plaintiff’s case that the defendant caused it to suffer financial losses when it paid out U.S Dollars 32,000 on a cheque whose payment the plaintiff had stopped.

4. The money was paid out to MOULDING MUIGAI JAMES, through a cheque No. 000002.

5. According to the plaintiff, the payment ought not to have been made because the plaintiff had given instructions to the bank, to stop payment.

6. As the defendant disregarded the instructions of the plaintiff, it is the plaintiff’s case that the defendant had acted negligently.

7. The defendant is also said to have debitted the plaintiff’s account with the further sum of U.S. Dollars 32. 00, in respect to charges for having paid out the very cheque which the plaintiff had stopped.

8. In its Defence, the bank asserted that the plaintiff’s claims were ambiguous, unclear, and erroneous.

9. As far as the bank was concerned, it had no knowledge or ability to know when the plaintiff issued the cheque in issue.

10. The bank even denied the assertion that the cheque had been made out in favour of MOULDING MUIGAI JAMES.

11. Thirdly, the bank said that it had acted within its mandate, all through the transaction which gave rise to this suit.  In specific terms, the bank stated that it was right to have honoured the cheque, as the said cheque had been signed by all the 3 signatories, in accordance with the mandate.

12. As far as the allegations of negligence were concerned, the bank denied the same.

13. It was the bank’s position that the instructions from the plaintiff, which required the bank to stop payment, were invalid.

14. The instructions had been signed by one person, instead of the 3 signatories.

15. The bank also denied the plaintiff’s contention that it had suffered losses due to the fact that the bank had honoured the cheque.

16. At the trial, each of the parties called one witness.  FRANCIS KIBURI KAMUNYU testified for the plaintiff, whilst JOSHUA RATEMO testified for the defendant.

17. Francis Kamunyu was the secretary of the plaintiff.  He explained that JAMES MUHIA NJUGUNA, who used to be the plaintiff’s chairman, was deceased.

18. Francis testified that the 3 signatories to the plaintiff’s bank account were;

i) JAMES MUHIA NJUGUNA;

ii) SUSAN WANJIKU KABOGO; and

iii) MOULDING MUIGAI JAMES.

19. The cheque in issue was signed by those 3 signatories.  Therefore, the bank insists that it was obliged to honour the said cheque.

20. But the plaintiff pointed out that on 18th February 2009, it wrote to the bank, notifying it that the cheque should not be paid.

21. Although the letter was dated 18th February 2009, it appears to have reached the bank on 23rd February 2009.

22. Nonetheless, the bank still proceeded to honour the cheque on 28th February 2009.

23. Was the bank negligent?

24. The plaintiff says that the bank was negligent because it already had received the instructions prior to honouring the cheque.

25. But the bank emphasizes that whatever instructions were issued, with regard to the cheque, were invalid; and that, therefore, the bank could not act on them.

26. In his Witness Statement, Joshua Ratemo also took issue with the fact that the instructions to stop the cheque were issued 10 days before the cheque was issued.  That is because the letter is dated 18th February 2009, whilst the cheque is dated 28th February 2009.

27. When it was pointed out to the plaintiff that the letter dated 18th February 2009 was only signed by one person, the plaintiff said that the signatory was the Chairman andCEO of the organization.

28. Therefore, in the opinion of Francis Kamunyu, the chairman had the plaintiff’s authority to correspond with “the outside world”.

29. During cross-examination, Francis Kamunyu let it be known that when the cheque was signed, it had neither a date nor the name of the payee.  The bank suggested to the plaintiff that it was negligent by holding blank, undated cheques, which had been duly signed.  But the plaintiff did not see any negligence in its actions.

30. Kamunyu said that the plaintiff had never alerted the bank that it used to hold signed cheques which were undated, and which did not have the names of the payees.

31. In the circumstances, I can understand why the bank was finding it somewhat baffling that its customer appeared to have written a letter to stop the payment of a cheque which had not yet been issued.

32. The practice of having cheques which have been duly signed by all signatories, but which did not have a date and a payee indicated on its face, is a dangerous one.  I so find because if the cheque got into the wrong hands, the drawer could not blame the bank for paying the wrong person, if such person had inserted his name onto the cheque as the payee.

33. Of course, in situations where signatories were not readily available, a customer may find it convenient to have the signatories pre-sign some cheque leaves which could then be used to make payments even when the signatories were unavailable.  But each customer must be alive to the fact that the pre-signing of cheques had the potential of exposing the customer to the danger of money being paid out to the un-intended person.

34. In my considered view, the plaintiff must bear some measure of blame, for holding cheques which had been duly signed, but which did not have the names of the payees.

35. Surely, by the time the signatories are appending their signatures to a cheque, they must be deemed to have known who the payee is.

36. I found no justification given by the plaintiff for having the cheques duly signed, yet lacking the specific details of the payee.

37. Meanwhile, the bank says that the instructions were invalid, because the letter was signed by only one signatory, instead of three.

38. Pursuant to the mandate which the plaintiff executed, each instruction to the bank, was to be signed by 3 signatories.  It is because of that fact that the cheque in issue was signed by 3 signatories.

39. Once instructions to the bank were signed by 3 signatories, the bank was under an obligation to carry them out.

40. It therefore follows that instructions which were not executed in accordance with the mandate, did not give rise to any obligation on the bank.  In effect, the said instructions were invalid.

41. The invalid instructions, which asked the bank to stop the payment of the cheque, could not counter the valid instructions which were in the form of the 3 recognized signatories, who had signed the cheque.

42. However, the bank had, through the invalid written instructions dated 18th February 2009, been put on notice.

43. The defendant has admitted, in its submissions, that it did owe the plaintiff a duty of care when handling all the transactions.

44. According to the bank, it did verify that the signatures on the cheque were authentic.

45. Thereafter;

“The Defendant also carefully examined the letter containing the purported payment instructions and found that it contained various ambiguities discussed above hence therefore proceeded to pay”.

46. In my considered opinion, whereas the bank was not obliged to act on instructions which were not in accordance with the mandate, the bank ought to have made inquiries from the customer.  I so find because it was not a normal thing for the Chairman of the organization to sign a cheque, and then also sign letter to countermand the payment which he (together with the other 2 signatories) had sanctioned.

47. Contrary to the bank’s submissions, I find that the conduct of the plaintiff’s chairman should have evoked suspicion in the mind of the bank.

48. The plaintiff’s chairman was one of the 3 signatories.  He had signed the cheque, and the cheque thus became “good?, for payment.

49. However, when the chairman later wrote to the bank, indicating an intention to stop the payment of the cheque, his said action could be construed to constitute a “withdrawal? or “cancellation? of the signature he had put on the cheque.

50. At the very least, the instructions for the stoppage of the cheque should have been seen as giving rise to instructions which were inconsistent with those on the face of the cheque.  That development ought to have caused the bank to make inquiries from the customer.

51. By failing to make inquiries, the bank did not discharge its duty of care to the customer.  In the result, the defendant is liable to compensate the customer for the loss which the customer suffered.

52. However, in the light of my earlier finding, that the customer had also failed to properly and adequately protect its cheques, I hold the bank 50% liable.

53. The customer must be responsible for the other 50% of the loss, due to its negligence.

54. Accordingly, I now enter judgement in favour of the plaintiff for U.S. Dollars 16,000.  The said sum will attract interest at Court rates, from the date of judgement.

55. The plaintiff is also awarded 50% of the costs of the suit.

DATED, SIGNED and DELIVERED at NAIROBI this19th day of July2017.

FRED A. OCHIENG

JUDGE

Judgement read in open court in the presence of

Ochieng for the Plaintiff

Wafula for Karungo for the Defendant

Mr. C. Odhiambo, Court clerk.