[1951] EACA 126

## COURT OF APPEAL FOR EASTERN AFRICA

Before Sir Barclay Nihill, President, Sir Newnham Worley, Vice-President, and SIR HECTOR HEARNE, C. J. (Kenva)

#### DHANESHWER VAJESHANKER MEHTA, Appellant (Original Defendant)

# DOKA FATUHNAL, Respondent (Original Plaintiff)

# Civil Appeal No. 26 of 1951

(Appeal from decision of H. M. Supreme Court of Kenya—Connell, Ag. Judge)

## Cheque—Whether accord and satisfaction for loan if dishonoured—Whether notice of dishonour necessary—Whether interest as damages payable.

The respondent having lent the appellant the sum of Sh. 10,150 received from him in August, 1948, a cheque for this amount post-dated to 15th July, 1949. The cheque was drawn on a printed cheque form issued by the Standard Bank of S. A., Ltd., Mbale branch. The word "Mbale" was struck out and "Jinja" was stamped on in two places with a rubber stamp. "Jinja" was cancelled in ink and "Mbale" written in ink. In November, 1949, the respondent endorsed the cheque to Barclays Bank who notified him in due course that the cheque was unpaid and gave the reason. On 30th November appellant wrote to respondent promising to settle but failed to do so.

The respondent filed a plaint claiming the sum lent and as damage interest thereon at 6 per cent with monthly rests as from 1st September, 1948, to date and continuing.

The appellant contended that the cheque was given in accord and satisfaction of the money lent and that the cheque was not presented for payment on due date and was not dishonoured by non-payment, but assuming it was dishonoured no notice of dishonour had been given. The trial Judge found that the loan was for Sh. 10,150 repayable in four months and rejected the contention that the cheque was given in accord and satisfaction of the debt but held it was given in conditional payment. He held further that the appellant had failed to prove that the cheque was dishonoured. The appellant contended that the Judge should have held the cheque was dishonoured by non-payment making it imperative on the respondent to give due notice of dishonour, and that after dishonour and omission to give notice of dishonour the respondent could not sue appellant either on the cheque or on the original loan. The respondent cross-appealed asking for his claim for interest to be allowed.

Held $(4-12-51)$ .—(1) The final endorsement by the Bank on 24th December indicated that the Bank then regarded the cheque as worthless. The cheque was therefore dishonoured.

(2) In the absence of any clear pronouncement as to whether notice of dishonour of a cheque is or is not legally necessary, Worley, V. P., was of opinion that notice is dispensed with where the payee and drawer are the only parties interested and where the cause of dishonour is attributable to the act or omission of the drawer.

(3) The appellant's letter of 30th November, 1949, amounted to waiver. The fact that waiver had not been pleaded but was raised for first time on appeal was not a fatal objection.

(4) On the cross-appeal as to interest by way of damages, neither at common law nor by the Indian Contract Act can interest in such a case be awarded as damages. The Indian Interest Act, 1839, did not apply to Kenya.

Cases discussed: London Joint Stock Bank v. Macmillan, (1918) A. C. 777; Peacock v. Purssell, (1863) 32 L. J. C. P. 266; Pratt v. McDougall, English and Empire Digest,

Vol. VI, p. 252, note (a); Cordery v. Colville, (1863) L. J. C. P., p. 211; Goodall v. Dalley, (1787) 1 T. R. 712; Woods v. Dean (1862) 3 B. & S. 101; London, Chatham and Dover Railway Co. v. South Eastern Railway Co. (1893) A. C. 429; Page v. Newman, 9 B. & C. 378.

Appeal dismissed. Cross-appeal dismissed.

### Gautama for appellant.

#### Angus for respondent.

JUDGMENT (delivered by SIR NEWNHAM WORLEY).—This is an appeal from a decree of the Supreme Court of Kenya awarding the respondent the sum of Sh. 10,150 on a claim for money lent with three-quarters of his taxed costs of the suit.

The material facts, as they emerge from the evidence and from the judgment of the learned trial Judge, are that in April, 1948, the respondent (plaintiff in the Court below) in the Colony of Kenya at the instance and request of one Ratilal Raval lent to the appellant the sum of Sh. 10,150, the loan to be repaid in four months. The appellant is a merchant and carries on business at Mbale in the Uganda Protectorate. The respondent is a permanent-way sub-inspector<br>on the Railways and Raval was his superior in the Railway Administration. Raval was originally joined as second defendant in the suit in his capacity as guarantor of the loan, but he died before the matter came to trial and the action proceeded against the appellant only. In this judgment I am concerned only with the facts and pleadings so far as they relate to the appellant and respondent.

The loan did not carry interest, and at the time it was made the respondent was given a cheque for Sh. 10,150 drawn by the appellant, who told him to keep it safely, not to show it to anyone, and to produce it to the bank four months from date. In August or at the beginning of September, 1948, the appellant, being unable to repay the loan, took back his first cheque and gave the respondent another cheque for the same amount post-dated to 15th July, 1949 (exhibit 2). He asked the respondent to hold it one and a half months, promising that he would then repay the money and take back the cheque. This cheque is drawn on a printed form issued by the Mbale (Uganda) Branch of the Standard Bank of South Africa, Ltd., and is made payable to the respondent or order. The word "Mbale" has been struck out and the word "Jinja" stamped on in two places with a rubber stamp. "Jinja" has also been cancelled in ink and the word "Mbale" written in ink in a handwriting which seems very similar to that in the body of the cheque, which is presumably the handwriting of the appellant. The cheque is an "inland bill" within the definition of section 4 of the Bills of Exchange Ordinance (Cap. 291 of the Laws of Kenya, 1948).

The appellant did not fulfil his promise to repay the loan in six weeks' time, and from time to time telegraphed and wrote to the respondent offering excuses for non-payment. The respondent held his hand until some day in November, 1949, when he endorsed the cheque to Barclays Bank, presumably at their Kitale (Kenya) Branch. The cheque appears to have been sent to the Mbale Branch of that bank for collection at the Standard Bank there and bears on its face a note dated 17th November, 1949, as follows: —

(1) "Alteration of domicile requires drawer's confirmation.

(2) Bank discharge required."

(This second answer is, I think, immaterial to the case: the respondent had endorsed the cheque to the order of Barclays Bank and the bank had probably omitted to endorse it as payee before presentment to the Standard Bank.)

On 24th November, 1949, Barclays Bank at Kitale notified the respondent of the fate of the cheque as follows: -

"Unpaid and held over by our Mbale Branch as D. V. Mehta is away from Mbale for a week or so. Further information received from Mbale will be conveyed to you."

On 14th December, 1949, the bank further notified the respondent as follows:-

"Unpaid, answer stated on cheque. Mehta's son informs that there is possibility of Mr. Mehta's return in near future. Cheque returned H/W."

The cheque has been endorsed back to the respondent by Barclays Bank without recourse.

On 30th November, 1949, the appellant wrote to the respondent from Nairobi as follows: -

"Your telegram of 28.11.49, received on 29.11.49. As you are unable to come to Morendat with your Memsahib and you wish to have money there, now as you are unable to come here, so I have decided to come to you at Hoey's Bridge and settle our account.... I am sorry to note that you sent cheque to Mbale Bank when I am in safari, and you know that I am writing to and informing you the whole position. Anyhow it will be settled when I am there."

The promise to settle was not fulfilled, although in December, according to the respondent's uncontradicted evidence, the appellant came to his house and offered an instalment of Sh. 1,150 which he refused. The respondent had by then instructed an advocate, and, at some date unspecified before action brought, the appellant also made an offer in the advocate's chambers to pay by instalments.

The plaint in the action was first filed on 14th March, 1950, the cause of action laid being the consideration, that is, the sum lent. The plaintiff also claimed by way of damage interest on Sh. 10,150 at 6 per centum with monthly rests as from 1st September 1948 to date and continuing. Paragraph 5 of the plaint averred (incorrectly) that on 15th July, 1949, the appellant gave to the respondent a cheque drawn upon the Standard Bank of South Africa, Mbale, in favour of the respondent, which cheque was duly presented for payment, but was returned to him by the bank marked as detailed above. The appellant in his statement of defence admitted having been lent Sh. 10,000 only. He denied that this loan was to be repaid within four months, and alleged that it was agreed between him and the respondent that he would be given six months' notice before repayment of the loan could be asked for. He admitted giving the respondent the cheque for Sh. 10,150, and averred that it included Sh. 150 as interest. He further contended that the suit was not maintainable, alleging that the cheque was given in accord and satisfaction of the plaintiff's claim, that it was not presented for payment on the due date, was not dishonoured by non-payment, and that, assuming the cheque to have been dishonoured, no notice of dishonour was given to him. He contested the claim for damages and prayed that the suit be dismissed with costs. But he deposited into Court Sh. 10,150 to be paid to the respondent if the Court held that the suit as laid was maintainable and that the plaintiff was found entitled to this amount. No reply was filed.

At the trial the respondent and his wife gave evidence, but the appellant neither gave nor called any evidence, resting mainly upon his contentions that the cheque had been given in accord and satisfaction of the debt and that he had not received notice of dishonour before action brought. The learned trial Judge found that the amount of the loan was Sh. 10,150 repayable in four months

and that there was no agreement for six months' notice. He also rejected the contention that the cheque had been given in accord and satisfaction of the debt, holding that it was given in conditional payment, the condition being that the debt should revive if the security were not realized. No appeal has been brought from these findings of fact, and the appellant has appealed to this Court on the two following grounds only: $-$

- (1) The learned trial Judge erred in not holding that the cheque was dishonoured by non-payment, making it imperative on the holder, i.e. the respondent, to give due notice of dishonour to the drawer, i.e. the appellant. - (2) As a matter of law, the respondent after $(a)$ dishonour of the cheque, whether given by way of payment or collateral security, and $(b)$ omission to give notice of dishonour, could not sue the appellant either on the cheque or on the original consideration and the learned Judge erred in not dismissing the suit.

The respondent has moved by way of cross-appeal to reverse that part of the decision of the Court below which disallowed his claim for interest by way of damages. Dealing first with the appellant's grounds of appeal, the findings of the Court below on these points were:-

- (a) The learned trial Judge, having referred to the remarks written on the cheque and on the bank slips of 24th November, 1949, and 14th December, 1949, says, "I cannot read these endorsements as indicating that the cheque was dishonoured by non-payment in the sense that payment was categorically refused or could not be obtained. The onus, to my mind, was clearly on the defendant to prove that the cheque was dishonoured and he has failed to discharge that onus". - (b) The cheque having been given by way of conditional payment, the condition being that the debt should revive if the security were not realized and the security not having been realized, the debt clearly revived and was being sued on, and "it matters not one iota whether notice of dishonour was given or not".

The first question for consideration is whether the learned Judge was correct in holding that the cheque (exhibit 2) was not dishonoured. A bill (which here includes a cheque) is dishonoured by non-payment when it is duly presented for payment and payment is refused or cannot be obtained (section 47 (1), Cap. 291). The reason assigned on the face of the cheque for refusing payment was that the cheque had been "materially altered" by an apparent alteration in the place of payment (section $64(2)$ ). The Standard Bank was therefore, having regard to the provisions of section $64$ (1), entitled to ask for the drawer's confirmation which according to the usual practice would be signified by his initialling or signing the alteration. If a cheque shows irregularity on the face of it the banker should refer to his customer before paying it (London Joint Stock Bank $v$ . Macmillan (1918), A. C. 777). It is common knowledge that a banker requires alterations in a cheque to be initialled by the drawer and few people would regard the banker's request for this as amounting to dishonour. In the London Joint Stock Bank case Lord Shaw (at page 824) refers to a query of this nature as a "delay in payment until the reference clears away the doubt". In most cases, where the drawer is readily available it is at most a mere technicality. But in the present instance, it amounted to something more than that: payment was<br>held up from 17th November until the 24th December on which date Barclays Bank returned the cheque to the respondent after having endorsed it back to him. The significance of this endorsement appears to have escaped the notice of the

learned trial Judge or at least he makes no reference to it in his judgment. To my mind it is an indication that the bank then regarded it is worthless. It is true that payment had not been categorically refused but the prospect of obtaining payment was indefinite and dependent upon the uncertain event and date of the appellant's return to Mbale. Such being the circumstances I think the correct conclusion is that the cheque was dishonoured.

It is now necessary to consider Mr. Gautama's submission that even though the respondent was suing on the consideration yet the suit should have been dismissed because he had failed to give the appellant notice of dishonour. Mr. Gautama relied mainly upon the case of Peacock v. Purssell (1863) 32 L. J. C. P. 266 but that was a case affecting the acceptor of a bill and is of no assistance in the present case. He was unable to refer us to any case in which it had been held that an action, founded on the consideration, had failed through failure to give notice of dishonour of a cheque tendered as evidence of the debt. Nor was he able to quote, neither have my researches disclosed, any clear pronouncement as to when notice of dishonour of a cheque is or is not legally necessary. By section 73 of the Bills of Exchange Ordinance a cheque is a bill of exchange drawn on a banker payable on demand and except, as otherwise provided in Part II of the Ordinance, the provisions of the Ordinance applicable to a bill of exchange payable on demand apply to a cheque. Prima facie therefore a cheque falls within the provisions of the Ordinance relating to notice of dishonour of bills of exchange. But in practice notice of dishonour to the drawer is rarely legally necessary, as absence of effects in the drawer's hands, the almost universal cause of dishonour, excuses it, as does countermand of payment (see Byles on Bills, 17th Ed., p. 46). Mr. Gautama has argued that these two instances are exhaustive, but I am not satisfied that that is so. The learned author of Byles on Bills has the following note to the passage cited above: -

"(y) It may be extremely advisable to give notice, however, as notice, or the facts that dispense with notice, must be alleged in the statement of claim, whether specially endorsed in the writ or otherwise. Fruhauf v. Grosvenor (1892), 61 L. J. Q. B. 717; May v. Chidley (1894), 1 Q. B. 451. Perhaps, however, the omission would not render a statement of claim bad; it would depend on whether a drawer of a cheque was legally entitled to notice, like the drawer of a bill, unless notice was excused or waived. There is some authority that he is per Wills, J., in May $v$ . Chidley (1894), 1 Q. B. at page 453; Paget, 2nd Ed., page 56. But in Carew v. Duckworth (1869), L. R. 4 Ex. 313, the drawer only claimed to be entitled to notice before action, and not that he was discharged by want of notice. Section 73 appears to extend section 48 to cheques."

Mr. Angus for the respondent has referred us to a decision of a Canadian Court cited in the English and Empire Digest, Vol. VI, page 252, note (a), which is as follows:-

"(a) Notice to drawer of cheque.—A maker of a cheque is responsible on it until it is prescribed, and is not entitled to notice or other privileges, unless it be shown that from want of such diligence he had suffered damage, as from the bank on which it is drawn having failed in the interim.—Pratt v. McDougall (1868), 12 L. C. J. 243—CAN."

$\mathcal{I}$

That reference however is of no assistance to us as no report of the case is available and this Court does not know whether or not the relevant statute law applied was identical or similar to the Kenya Ordinance which we have to consider.

For myself I would venture the opinion that notice of dishonour of a cheque is dispensed with where the payee and the drawer are the only parties interested and where the cause of dishonour is attributable to the act or omission of the drawer. It is, as I have said, common knowledge that alterations in a cheque have to be initialled by the drawer and the appellant, who is a businessman, ought to have known, if he did not know, that this particular cheque would be queried on presentation.

But whatever may be the correct view of this question, the Bills of Exchange Ordinance provides in section 50 (2) (b) that notice of dishonour is dispensed. with by waiver expressed or implied, either before the time of giving notice has arrived, or after the omission to give due notice. A promise to pay may operate either as evidence of notice of dishonour, or as a subsequent waiver of notice. Cordery v. Colville (1863), L. J. C. P. at page 211 (per Byles, J.). An acknowledgment of liability made with full knowledge of the facts will operate as a waiver of notice of dishonour: Goodall v. Dalley (1787), 1 T. R. 712.

Mr. Angus relying on the evidence of appellant's letter of 30th November. 1949, and on the evidence of his offer to pay by instalments has contended that even if notice were in this case necessary, there is clear evidence of waiver. In my view that contention succeeds: the appellant's letter shows clearly that he knew before the bank returned the cheque on 24th December, 1949, that it had been presented and held up, and with that knowledge, admitted his liability and promised to discharge it. Mr. Gautama could only reply that waiver of notice had not been pleaded and was raised for the first time on this appeal. I do not think that is a fatal objection: it was said in Cordery v. Colville (supra) that the Court will in such a case if necessary amend. See also, on the question of amendment if necessary, *Woods v. Dean* (1862), 3 B. & S. 101, at pp. 106, 107.

Turning now to the cross-appeal, the learned Judge was in my opinion clearly right in holding that neither by the common law nor by the Indian Contract Act (which is an applied act in Kenya) can interest in such a case as the present be awarded as damages. Section 57 of the Bills of Exchange Ordinance has no application as the respondent did not sue on the cheque but on the consideration. The only statutory provision in Kenya affecting this issue is section 73 of the Indian Contract Act which provides: -

"73. When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge is entitled to receive the same compensation from the party in default as if such person had contracted to discharge it and had broken his contract."

Illustration $(n)$ is as follows: —

Ą

"A. contracts to pay a sum of money to B. on a day specified. A. does not pay the money on that day; B. in consequence of not receiving the money on that day, is unable to pay his debts, and it totally ruined. A. is not liable to make good to B. anything except the principal sum he contracted to pay, together with interest up to the day of payment."

The effect of that section so far as regards interest as damages is, I think, correctly stated in Pollock and Mulla's Indian Contract Act, 5th Edition, at pages 413 and 414 as follows: $-$

"Section 73 is merely declaratory of the Common Law as to damages, and no interest is allowed at Common Law by way of damages for mere wrongful detention of money.

The rule of English Common Law, and therefore presumably of British India apart from the Interest Act, is 'that interest is not due on money secured' even 'by a written instrument, unless it appears on the face of the instrument that interest was intended to be paid, or unless it be implied from the usage of trade, as in the case of mercantile instruments'. 'At common law interest was not payable on ordinary debts, unless by agreement or by mercantile usage; nor could damages be given for non-payment of such debts.' There does not seem to be any sufficient ground for reading into illustration $(n)$ to the present section an intention to abolish this rule and supersede the Act of 1839. Indeed, the illustration does not say that the defendant is necessarily liable to pay interest, but only assumes that he may be so under the Act of 1839 or otherwise, and says that he is not in any event liable for more."

The Indian Interest Act, 1839, is a short Act based on section 28 of 3 and 4 Will IV c. 42 commonly known as Lord Tenterden's Act. Neither of these Acts applies in Kenya. This claim therefore can only rest, if at all, upon the common law. Like Lord Herschell L. C. in London, Chatham and Dover Railway Co. v. South Eastern Railway Co. (1893), A. C. 429 at page 437, I have considered this part of the case with every inclination to come to a conclusion in favour of the (respondent) . . . and for the same reason namely, that "I think that when money is owing from one party to another and that other is driven to have recourse to legal proceedings in order to recover the amount due to him, the party who is wrongfully withholding the money from the other ought not in justice to benefit by having that money in his possession and enjoying the use of it, when the money ought to be in the possession of the other party who is entitled to its use". But in the case cited the learned Lord Chancellor, after considering a number of earlier cases in which attempts had been made to state a rule as to when interest would be allowed as damages, came reluctantly to the conclusion that he was bound to follow the long-established rule adopted by Lord Tenterden in Page v. Newman, 9 B. & C. 378, that "interest is not due on money secured by a written instrument unless it appears on the face of the instrument that interest was intended to be paid, or unless it be implied from the usage of trade, as in the case of mercantile instruments". The other noble and learned Lords concurred with the Lord Chancellor's conclusion and since then it has been settled law that, at common law, interest as damages cannot be granted save in the circumstances contemplated in the rule set out above.

This result is, in my view, far from satisfactory and the respondent, even though he recovers the whole of his capital, gets less than justice. He has been kept out of his money, which was earning interest in the Post Office Savings Bank or on deposit at the bank, by the guile and persuasion of the appellant, who has had the use of it all these years, who is described as a wealthy man and who was able to lodge this considerable sum in Court but who did so on terms that prevented the respondent from withdrawing it. It is evident from a reading of the English cases that almost all the distinguished Judges who have had to consider the question have regarded the common law rule as working injustice and Lord Herschell even considered that the provisions of Lord Tenterden's Act were too narrow for the purposes of justice. Nowadays it may rarely happen that money is lent without a stipulation for interest but when such

a case does come before the Courts, as in the present instance, it is irksome and does not redound to the credit of the law, that judgment must go upon a rule so widely recognized as antiquated and unjust. I venture therefore to express a strong hope that the Legislature will see fit to enact a short Ordinance on the lines of the Indian Interest Act which will at least afford a partial remedy.

In conclusion, therefore, I would dismiss this appeal with costs and also dismiss the cross-appeal as to which each party should bear their own costs.

SIR BARCLAY NIHILL, President.—I also am of the opinion that there is no merit in this appeal, for on the evidence accepted by the learned trial Judge. I consider that the defendant-appellant had no defence to the claim, whether the action be regarded as one founded on the cheque or on the money lent. I am in full accord with all that has been said by my learned brethren on the two aspects of this appeal. As to the cross-appeal I agree that the trial Judge was right in holding that the plaintiff-respondent could not be awarded interest by way of damages, although he has been denied the use of his money for a long period. As the learned Vice-President has pointed out the law we have to apply to this point, which is of course the law of Kenya, is in an unsatisfactory condition, for it is the rigid rule of the English Common Law, untempered either by Lord Tenterden's Act or the Indian Interest Act, 1839. It is not the first time that this Court has remarked on the need for a review by those responsible for such matters over the whole field of applied and non-applied Indian legislation. The various territories in East Africa owe a great debt to the legislature of what was formerly British India, for many important branches of our legal administration could not have functioned, save for the application of various great Indian statutes. These Acts were, however, applied many years ago, and since then, certainly on the civil side, little attempt has been made either to keep the applied Acts up to date or to replace them by local enactments. Admittedly the task will be a heavy and complex one but it is to be hoped that some day it will be tackled. Meanwhile this African railway employee must go without his interest.

The appeal is dismissed and an other will be made in the terms proposed by the learned Vice-President.

SIR HECTOR HEARNE, C. J. (Kenya).—I concur and would merely add that, in my opinion, the defence of lack of notice of dishonour, even if it was open to the appellant in the absence of waiver of which there was undoubtedly evidence, was irrelevant in an action which was founded, not on the cheque, but on a claim for money lent. If the respondent had sued on the claim for money lent as well as the cheque, and it was held that he could not recover on the latter, he would still have been entitled to recover on the former. This is clearly to be inferred from the judgments of Lord Kenyon, C. J., and Grose, J., in Carlos v. Fancourt, 101 E. R. (K. B.) 272. The case is cited in Bullen and Leake's Precedents of Pleadings, 10th edition, at page 93, with the note that: $-$

"In actions between immediate parties it is advisable, if there is any doubt as to the validity of the bill or note or the right of recovering upon it as such, to add an alternative claim on the consideration (the giving of a negotiable security, as a rule, only suspends the original cause of action, see page 507), and in some cases it is also advisable to add a claim on an - account stated." $\cdot \cdot$

The respondent did not sue on the cheque and proved that he was entitled to judgment on the claim for money lent, and that appears to me to conclude the appeal. $\mathcal{A}^{\pm}$