BANKING LAW IN UGANDA

BANKING AND NEGOTIABLE INSTRUMENTS

Qn 1.

-                     Brief facts

-                     Issues

1.                 Whether the Faculty of law is a customer of the bank?

2.                 Whether the cheque for 3m/= was payable to a ficticious person, and if so whether Oloka can recover money from Omega?

3.                 Whether the dean/Oloka has breached his duty to the Bank and if so whether or not he can recover the 70m/= from the bank?

4.                 What options are available to Oloka in the circumstances?

Resolution:

ISSUE (1)

A person is a customer of a bank if he has an account with the bank it can be a current or deposit account on his credits and debits are recorded. In Great Western Railway Co. Vs London City Banking the House of Lords stated the above position and added that an agreement to open an account is sufficient to constitute one a banker and a customer, also in Ladbroke Vs .Todd the above position of law was reiterated.

In the present case, therefore, the faculty of law has an a/c with the bank and thus a customer of the bank.

ISSUE (2)

Where a cheque is not payable to bearer, the payee must be specified or other wise identified with reasonable certainty. (S.6 (i) of the Bills of Exchange Act. Under S.6 (3) a cheque is treated as payable to the bearer if the person named as payee is fictitious or none Existent. In Bank of England Vs .Vagliano the Hol held that a cheque is treated as payable to bearer where the person named as payee or to whose order it is payable on the face of it is a real person but was never intended to have rights under the Bill. The word fictitious was defined to mean counter feit ie the name of the payee is written on the cheque as a matter of pretence.

In Clulton Vs .Attenborengh and Sons where the clerk induced an employer fraudulently to draw a cheque in favor of a fictitious person whose endorsement he forged in favor of a Bonafide transferee for value, the House of Lords held that the money could not be recovered from the transferee because the cheque was drawn payable to a fictitious person. Thus the equivalent of 3.6 (3) applied.

According to the authors of Pagets Law of Banking, the primary factor is the state of mind and intention of the drawer of the cheque or bill if his mind was drawn to a specific person, who should receive the benefits, such person is not fictitious even if the drawer is induced by fraud to draw the bill, so that a 3^rd party acquires a right under the cheque. But where by fraud a drawer is induced to draw a cheque is the name of the payee imaginary, although people of that name exist, the payee is ficticious.

In the present case the name of Magathought Co. is put on the cheque as a matter of pretence, thus a ficticious payee with in the meaning of S.6 (3) of the Act because the Co. is not known to the University and therefore the cheque is payable to the bearer.

The 3MF

ISSUE (3)

  According to Foley Vs. Hill, The customer and the bank enjoy a contractual relationship, Lord Atkins in Joachimson Vs. Swiss Bank Co.operation stated that it is implied in a contract between the customer and a banker whose terms are not written down but depend on the custom of the bankers. That the contract carries with it super added obligations which do not affect the main contract. That the super added obligations are those duties and obligations which arise in the ordinary course of business such as the relationship of a debtor and a creditor. Because of the relationship of a debtor and banker and a customer, Lord Atkin stated that its an implied term of the contract between the banker and his customer that the customer under takes to exercise reasonable care in executing his written instructions so as not to mislead the bank or else facilitate forgery. In Joachinson Vs .Swiss Bank Cooperation. It was stated that if the customer draws a cheque in a manner as to facilitate a forgery or invite an increase in the amount by fraud if the cheque should get into the hands of a dishonest person, then he is liable for breach of duty to the bank and liable to any loss which is natural and direct consequence of the customers negligence. In Tai Hing Cotton mills Vs. Liv Chong Hing Bank Court noted that a customer owes a duty to his banker to organize his affairs in such away as to prevent forged cheques from being presented for payment. Thus the fraudulent clerk who forged over 300 signatures drawn on the companies account for over 5 years, court held that the bank could not debit the customers a/c, that the duty is limited to refraining from drawing cheques on the a/c and to notify the bank of any forgeries on the a/c when the customer becomes aware of them.

On the facts Oloka is not in breach of the duty owed to the bank under the contractual relationship and therefore the debiting of the faculty a/c is unlawful hence the 70m is recoverable from the bank.

         

ISSUE (4)

In view of the fore going submission on the position of law, Oloka cannot claim the 3m since the transaction fell with in s.6 (3) of the bills of exchange Act, but can recover the 70m since was not in breach of any implied terms under the banker – custom per contractual relationship.

Qn. 4

ISSUES

1.                 Whether Walubiri can sue the bank for wrongful dishonour of the cheque and if so.

2.                 Whether Walubiri can recover substantiated damages?

RESOLUTION

ISSUE (1)

The bank is bound to honor a customers cheque drawn on it as long as there is in the bank sufficient funds standing to the credit of the customer or on cheques which are with in the limits of an agreed over draft. Where the customer’s cheque is wrongfully dishonored the bank is liable to the customer in damages for injury to the customer’s commercial credit.

Notably, it’s a general rule in contract law that the plaintiff must prove actual damages if not he will be awarded nominal damages. But in case of a cheque, the damages depend on whether or not the person is a trader.

The law is that a trader is a person entitled to substantial damages without pleading and proving actual damages since such is presumed. In Rolin Vs. Stewerd where the plaintiff was a trader, and drew three cheques and were dishonored, he presented it again the following day and it was dishonored and he sued for damages without any evidence for damages actually suffered. Never the less, court awarded him £200 in substantial damages. This decision was in Uganda applied in Patel Vs. National and Grindlays Bank where court held that a trader whose cheque has been wrongfully dishonored need not plead and prove actual damage for the breach of contract by the bank that the refusal of payment is injurious to his trade, credit and commercial reputation.

It should be noted that non traders need to prove actual damages in order to be awarded substantial damages. Evans Vs. London and Provincial Bank, a cheque was mistakenly dishonored. The plaintiff was not in business and did not prove actual damages, court awarded him nominal damages.

Further in Coker Vs. Standard Bank of Nigeria a cheque of a legal practitioner was dishonored. Court held that a bank customer such as a lawyer can only recover nominal damages in an action for wrongful dishonor of a cheque unless he can prove actual damages.

Smart and Chalmers have criticized the above position and accordingly there is an exception to the above rule today by referring to what constitutes a trader or a non trader. In Balogun Vs National Bank of Nigeria the Nigerian Supreme Court held that while it is true that a trader is in business, all persons in business are not necessarily traders. That although a person in trade is in business, he is not necessarily a trader but a trader is engaged in business, court therefore, preferred the expression person in trade for it refers to persons engaged in occupation who are skilled but not necessarily learned as a means of a livelihood.

In the instant case therefore, a lawyer was regarded as a person in business so as to be entitled to substantial damages.

According to Holden the distinction between a trader and a non trader is not important because a person whose cheque is wrong fully dishonored can sue on libel and recover substantial damages in order to determine whether or not the words are libelous, the test was laid down in Smith Vs. Stretch as the words tending to lower the plaintiff in the estimation of right thinking members of the society generally. It has never been held that use of words like “not sufficient,” “Refer to the Drawer” “no account” or not arranged for” are Libelous.

The criteria of assessing damages for libel was laid down in Banker Vs. Newzealand and Australia Bank as follows: position and plaintiffs standing nature of libel mode and extent of publication, absence of an apology or retraction as well as the whole conduct of the defendant from the time of the libel was published to judgment.

In the instant case, in view of the foregoing authorities, issue (1) is resolved in the affirmative. Walubiri can sue the bank for wrongful dishonor of a cheque since it was dishonored as a mistake on the credit standing on his account.

Secondly, Walubiri can on the authority of Coker V. Standard Bank of Nigeria as a lawyer recover substantial damages for wrongful dishonor of a cheque as a person in trade.

Further still on the authority of Baker Vs Newzealand and Australia Bank, Walubiri can sue in Libel and recover substantial damages depending on his status as a lawyer, absence of an apology nature and extent of publication. No account as words of dishonour of a cheque were held in Smith V. Stretch as libelous.

Qn 5

ISSUES

1.                 Whether MB investments is a customer of the bank?

2.                 Whether MB investments is entitled to 250,000,000,000/=

3.                 Whether the bank could debit MB investments a/c with US 50,000,000

4.                 Whether the bank could lawfully terminate the contract with Mubiru Blasio?

5.                 Whether Mubiru is entitled to some profit made out of the account.

Resolution

ISSUE (1)

A person is bank customer if he has an account with the bank as was held by the Hol in Great Western Railway Vs. London and City Banking, or agrees to open a/c with the bank as was held in Ladbroke Vs. Todd. In the present case, Mubiru Blasio is a customer of the bank because he has an a/c.

ISSUE (2)

In Foley V. Hill it was held that the banker and a customer enters into a contractual relationship. This relationship gives rise to a duty of care between parties. The banker has a duty to take care not to over credit. The customers account and not to induce the customers by representation contained in the bank statement to draw money which he is not entitled to as held Lloyds Bank Vs Brooks. In Holland V. Manchester and Liverpool District Banking it was held that a customer whose a/c has been over credited believes the money is his and adjusts his position in reliance on the statements of the banker which estopped from recovering the money.

Therefore once the customer honestly believes that the money is his, and alters his position in reliance thereof, the bank is estopped from claiming the money.

In the instant case, Mubiru knows that the money is not his and has not adjusted his position in reliance on the banks representation. Thus the bank is therefore justified in correcting the error.

ISSUE (3)

Lord Atkin Stated in Joachinson’s case that its an implied duty in the contract between a banker and a customer that the customer undertakes to take reasonable care in executing his written instruments so as not to mislead the banker or to facilitate forgery.

It was also stated that the customer must notify the bank of any forgeries on the a/c when he becomes aware of them. In Green wood V. Martins Bank where the appellant failed to notify the bank of forged cheque on his a/c drawn by his wife which he knew about the Hol.

The forged cheques were in order and therefore the appellant was estopped from denying their genuineness.

In Tai hing Colton Mills V. Liv Hing Chong Bank. The Privy Council held inte ralia that the customer owes a duty to his bank to prevent forged cheques from being presented for payment as a duty being limited among others to informing the bank of any forgeries on the a/c as soon as he becomes aware.

On the facts of the instant case, Mubiru discharged his duty of notification by calling the guard shipping payments on any payments or any cheques that day. The bank was therefore negligent and could not debit Mubiru’s a/c with the 50m/=.

ISSUE (4)

The bank can close a customer a/c upon giving reasonable notice. Giving reasonable notice is part of the contract between the banker and the customer as was held in Joachimsons case. The notice will help the customer to make alternative banking arrangements, where a banker unlawfully terminates the relationship; he is liable to the customer in damages. In Benex Ltd V. Gold Trust Bank Ltd where the bank suspended operations on a customer’s a/c because the Co. had dropped a director and appointed another. The Co. had given to the bank a written resolution containing the changes. The bank insisted that the changes were irregular and refused to honor the companies’ cheques. The supreme court of Uganda held that the bank should have honored the company’s resolution that the bankers duty to act in accordance with lawful requests of his customer in normal operation of customers a/c. there fore, the suspension was breach of a contract.

In the present case, the bank has not given Mubiru reasonable notice before termination of the contract. Therefore the bank is in breach of contract and thus liable to Mubiru for damages for refusal to honour cheques.

ISSUE (5)

One of the fundamental terms of a contract between a banker and a customer is that the banker under takes to borrow money from the customer as and when he deposits it on the a/c. In Foley V. Hill it was stated that money paid into the bank ceases to be the money of the principal; it is the money of the bank and the bank is bound to return the equivalent sum to the customer. It is the money known to the customer to be placed there under the control of the bank. The bank can deal with it as it can make profits as it can and retain it to its self. He can only pay back the principal according to the custom of the bankers in some places or pay the principal and a small rate of interest in other places.

In the present case the bank is entitled to make profit out of Mubiru’s money and retain it to its self. Therefore Mubiru is not entitled to some part of the profit of sh 16m made out of his money.

Qn 2

ISSUE

1.     Whether Lutaya was a holder in Due course?

2.     Whether Mutibwa could lawfully countermand?

3.     Whether there any defenses available to the parties?

4.     Whether there are any remedies available to the parties?

Resolution:

ISSUE

A holder in due course (HIDC) is a person who has taken the bill complete and regular on the face of it, under the following conditions.

(a).         He became a holder of it before it was over due and without notice that it had previously been dishonoured if such was the fact.

(b).         He took bill in good faith and for value and that at the time the bill was negotiated to him he had no notice of any defect in title of the person who negotiated it as per S.28 (1) of the Act.

(c)          One must be a holder S.1 defines a holder as a person who is in possession of a bill or the bearer thereof.

              In Re Jones V. Warring and Gillow (1926) AC 670 Court stated that I do not think the expression “HIDC” includes the original payee of the cheque it appears from S.29 (1) (our S.28 (1) that a HIDC is a person to whom a bill has been negotiated and from S.31 (now S.30) a bill is negotiated by being transferred from one person to another and if payable to order by endorsement and delivery. In view of there definitions it can be a HIDC with in the meaning of the Act. In the present case Lutaya was a holder in due course with in this element of a HIDC.

(d) The cheque must be complete and regular on the face of it. In Arab Bank V. Ross lord Denning observed that looking at the bill or cheque front and back without the aid of outside evidence it must be complete and regular his lordship further continued at P.228, that S.3 (4) now (S.29 (4) (a) ) provide that a cheque is not valid by reason of it not being dated and under S.11 a holder can fill in the date. But it would appear that though a cheque without a date is not invalid, it is not complete and regular for purposes of S.28 of the Act because regularity is different from validity.

In the present case there fore, Lutaya took the cheque not complete and regular on the face of it because it is not dated. He is therefore a holder and not a HIDC as stated by Lord Denning in Arab Bank V. Ross a person who takes a bill which is irregular on the face of it is in the same position as a person who takes a bill which is over due. He is a holder but not a HIDC and does not receive the bill on its intrinsic credit. He takes it on the credit of persons who give it to him, he can sue in his own name, because he takes it subject to the defects of title of prior parties.

In the present case, Lutaya having taken the cheque incomplete and irregular on the face of it is not a HIDC but a holder and therefore takes it on the credit of Kato who has given it to him.

ISSUE (2)

S.74 (a) of the Bills of exchange Act cap68 gives a customer the power to stop the banks mandate to honor a bill through counter manding payment. This is after drawing a bill but before payment. In Thaker Singh and Sons Ltd. V. Quar Bentile Ltd The respondent countermanded payment on a cheque before payment when the appellant sued the court of appeal held that when a cheque is given in lien of money payment, the presumption is that it acts as a conditional discharge only and the parties original rights will be restored if the cheque is dishonoured or if the drawer does an act inconsistent with giving it such as countermanding of a cheque. Since the cheques were given in satisfaction of a debt the appellants act of countermanding payment amounted to repudiation of the agreement therefore according to the supreme court of Uganda in Esso Petroleum V. UCB the plaintiff may sue for the price of the goods sold and delivered for which the cheques were issued.

In the present case, the countermand is lawful and the parties’ original rights are restored the countermand. In this case, Lutaya’s rights are subject to that of Kato.

ISSUE (3)

Mutibwa can plead failure of consideration it should be noted that every party whose signature appears on a cheque is presumed to have become a party there to for value S.29 (1). This was held in Nonolal Vvajdas v. Chunilal Dhaij Mehte that the above can be rebutted by adducing evidence to the contrary evidence showing failure of consideration. The goods for which the cheque was drawn hence total failure of consideration. Given that Lutayas right is subject to that of kato in relation to the cheque, he cannot recover from Mutibwa since Kato has failed to furnish consideration for it by not delivering the goods Lutaya may sue Kato personally.

ISSUE (4)

In view of the fore going position of law Lutaya has a cause of action against Kato. He can sue for the goods or price for which the counter manded cheque was negotiated to him by Lutaya.

Qn5

ISSUES

1.                 Whether crane bank breached its duty by opening the account without references and paying the cheque?

2.                 Whether Basimma can recover the 4m from crane bank.

Resolution

ISSUE (1)

Under S.77, a crossing is a material part of cheque and under S.63 it is unlawful for any person to alter, obliterate or add to a crossing except as provided by the Act. Under S.80 where a banker pays a cheque contrary to the crossing he is liable to the true owner for the loss suffered by the true owner in Lodipo V. standard Bank of West Africa Court stated that in the absence of statutory provisions, a banker who pays a crossed cheque contrary to the crossing cannot debit the payment from customers account Customer either because such a payment is negligent on his part and if  loss  ensues he cannot charge the customer or because the payment being contrary in the customers mandate is an unauthorized payment for which he cannot debit the customer. it should be noted that under S.78 (2) where the drawee bank pays a crossed cheque contrary in the crossing, it is liable to the true owner for any loss he may have suffered owing to the cheque having been so paid.

However under provision two of the same section, the bank will not be liable if it pays the cheque in good faith and without negligence.

Further under S.81 where a bank in good faith and without negligence receives payment for the customer of a cheque crossed generally, or specially to him self and the customer has no title there to, the bank shall not incur liabilities to the true owner of the cheque by reason of having received such payment.

Therefore when a bank operates or opens an account or collect cheque for the customer of a cheque crossed generally or the test of negligence is whether the circumstances of the transaction or actual or proposed conduct of the a/c that it ought to have aroused reasonable suspicion in his mind and caused him to make some inquiries or to take steps so as to satisfy himself as to the customer identity and true circumstances. Failure to take steps was discussed in Ladbroke V Todd where it was held that a banker is guilty of negligence to words the drawer of a cheque crossed a/c payee only if he opens an a/c for the person presenting the cheque and collects the money on it without making inquiries Lord Bailhache Said “the last question is and collected the money for it without breach of duty towards himself or towards the person who is his customer…… its true that banks were willing to take cheques but before they would allow them to be operated upon they must be satisfied as to the respectability of the intended customer. Some times it was done by reference and sometimes by introduction through other customers that being the ordinary practice bankers, am not left to form my own opinion. The defendant in fact did not fall short of the degree of care ordinarily exercised by bankers and therefore, he is guilty of negligence.In Lloyds Bank Ltd V Chartered Bank of India Australia, and China it was stated that one of the numerous tests of negligence is whether the banker made as to the customer inquiries in opening an a/c

In the present case therefore, by opening an a/c for Tibesiima without any references, the Bank is guilty of negligence.

ISSUE (2)

Where the bank pays contrary to the crossing it is liable to the owner of the cheque for loss suffered as a result of having so paid. It was thus held in Lloyds Bank Ltd V Sevoy and Co. that unless the applicant can establish that they acted without negligence, they like other bankers in a similar position are responsible in damages for conversion if their customer had no title or a defective one once the true owner proves his title and the act of taking by the defendants.

In the present case, therefore crane bank can be sued in damages for conversion and for its negligence in paying to Tibasiima without any references.

Qn. The failure of Bank of Uganda in its legally conferred duties to control and supervise its institutions which is evident in the collapse of banking institutions in the recent past has been due to lack of proper legislation. Discuss.

The financial institution sector in Uganda is regulated by the BOU and the legal frame work governing the regulation of financial institutions is the financial institutions Act No.2 of 2004. Its regulations and controls include licensing of commercial banks, supervision, vetting of minimum capital requirements restrictions on credit and the range of investment engaged in by commercial banks of recent the banking sector /industry in Uganda has been characterized by a number of hardships that have resulted into the closure of some banks. From 1990 to 2007 –five banks were wound up including Teefe trust bank, international credit bank (ICB), Greenland bank, The co-operative bank and trust bank. Others were taken over by the BOU, restructured and handed back to the owners like the Allied international bank, Nile bank and UCB which had problems and was even privatized. There problems are as result of legal and extra legal problems.

Legal weaknesses

The financial institutions sector lacks uniform commercial laws governing accounting requirements by private business firms. This has left the accounting procedures used poor and misleading. It’s this weakness in the legal system which has incapacitated BOU in its supervisory and regulatory roles

The existing legislation fragmented responsibility for the formulation and implementation of monetary policy between BOU and the financial institution Act of m3 of respectively. The above limited the power of the central bank to enforce its directions because it had to first seek the approval of the minister of finance. This compromised the central banks authority and ability to assume its proper role at the apex of the financial institution sector. Therefore prudent regulation and supervision of banks and other financial institutions was eroded by lack of clarity in enforcement and responsibility between the bank of Uganda and the minister of finance.

The law did not make it mandatory for bank of Uganda to implement supervisory mechanisms e.g. S.18 (1) of the 1969 banking act made it discretionary. The result was inability and unwillingness on the part of bank of Uganda to use its existing enforcement powers effectively and as such experienced difficulties in early identification of emerging weaknesses in the system. In the absence of supervision, inspection as ideally required, bank of Uganda couldn’t detect any irregularities before it was too late to save the banks from collapsing.

The law did not allow bank of Uganda to extinguish the share ownership in banks that it had taken over. So while in essence the original banking entity did not exist, in the conventional sense , exit had not taken place , the bank could not be liquidated, the owners did not lose their holdings entirely and depositors were not dissolved or their responsibility in their choice of bank. The effect of such scenario was that the insolvent banks were defectol  allowed to stay in the market which was a violation of prudent practices / principles of management hence the collapse.

The law required the central bank to first get the approval of the minister before it could take over a bank which was operating against depositor’s interests. S.23 (1) of the 1969 banking Act. The duties of the central bank were therefore curtailed and delayed. Moreover some of these banks were government owned (UCB) and therefore the government was in most cases reluctant to have these banks taken over despite the fact that they were practically insolvent or operating inconsistent to the depositors interests.

The legal frame work allowed low capital requirements creating room for weak bank to operate. Capital requirements under the financial institutions statute was set at 2m and remained the same despite the increasing inflation and in 1987 it was further reduced to 200,000 after the currency reform. The minimum requirements were worth little and as a result banks were undercapitalized _ hence collapse.  

Extra legal weaknesses

The financial polices pursued by successive governments in the 1970s and 80s was unfavorable. The sector suffered serious upheavals following civil disturbances and a cute political instability in which banks were robbed causing capitalization problems . Further during the 1970s , monetary  polices were poor , non professional management and fraud became common  in financial institution  and business discipline  collapsed.

Poor communication one of the biggest structural weaknesses which have affected BOU in its regulatory and supervisory roles is poor communication. Banks and financial institutions have pursued an expansionist policy to bring services closer to the people and are therefore scattered and spread country over. This is a problem because the supervision of distant institutions is difficult due to poor roads and communication networks this made coordination between on site supervision crews and BOU teams/staff difficult.

Fraud BOU has been faced with the problem of fraud within the financial sector which has disenabled it to analyze appraise and investigate the financial witness of financial institutions and commercial banks.e.g ICB and Greenland bank were found by the commission probing the collapse of GBL, ICB and Cooperative Bank were fraudulently falsifying records submitted its proper and effective assessment of the functioning of the financial institutions in Uganda.

Lack of skilled and capacity BOU was incapacitated by lack of skill and capacity necessary to effectively regulate and supervise the financing system on site inspections were not conducted regularly while off-site inspections was inadequate because commercial banks and other financial institutions tended to provide insufficient bank returns for this purpose and moreover, there records were sometimes not collected and analysed by BOU.

Gov’t bailouts the central bank has always been directed to bailout financial institutions in trouble. e.g 19 billion bailout to Greenland bank, 16.9.billion bailout to co. operative bank (1994-99 ). This kept in business banks with a high level of Non. Performing Assets Trust (NPAT).

Lack of banking ombudsman to supervise the banks and their supervisor (BOU) put in place checks and balances, demand for accountability etc.

Qn “A holder in due course gets free from all equities” Explain the statement and examine the privileges of a holder in due course.

S.28 of the BOE act defines a holder in due course as a person who has taken bill complete and regular on the face of such a holder under S.37 (b) and C (i) of the Act takes free from all equities ie he takes free from all charges or claims prior on cheque which would render the title of the person negotiating it ineffective. For a holder to be a holder in due course though, the following conditions must be met

(a) One must take the bill complete and regular on the face of it

 (b) There must be no notice of previous dishonor,

 (c) One must become a holder of a bill before it was overdue ie within a reasonable time which is a question of fact under S.33(3)

(d) The cheque must be taken without notice of the defect of title on the part of the person to whom its negotiated under S.28 (i) (b)

 (e) One must have taken the cheque for value and in good faith. A holder in due course who meets the above conditions has several privileges which support the view that he takes free from all equities and these are:-

Under S.37 (b) a HIDC takes better title than the transferor and can enforce it against all others. S.37 (b) enacts that a holder in due course holds the bill free from any defect of title of prior parties as well as from mere personal defenses available to prior parties among themselves, and may enforce payment against all parties liable on the bill. Under S.37 (a) he may sue on the bill in his or her own name.

Further under S.37 © even where the title of a holder is defective, if he/she obtains payment of the bill in due course, gets a valid discharge of the bill. This special status proves the fact that a HIDC takes free from all equities.

Under S.20 (2) of the Act its stated that an unauthorized delivery of a bill for a special purpose may not affect a remote party who is a holder in due course. The section states that as between immediate parties and remote parties (rather than a HIDC) the delivery in order to be effectual must be made either by or on under the authority of the party drawing, accepting or endorsing but if it falls in the hands of a HIDC a valid delivery of the bill by all parties prior to him so as to make them liable is conclusively presumed. This supports the view that he takes free from all equities.

Further under S.61 (2) of the Act, the liabilities of any party to the bill may be renounced under S.61 (1) by a holder before, at or after its maturity but this does not affect the rights of a holder in due course without notice of renunciation. This protection is a result of the legal position that a HIDC takes free from all equities.

Relatedly under S.63 (i) where a bill is materially altered but the alteration is not apparent and the bill is in the hands of a HIDC such holder may avail him self the bill as if unaltered and may enforce it in its original character and if the cheque has been altered without the drawers; authority he is discharged from liability and the drawee bank will be unable to credit the drawers a/c if it paid such but if payment is made to a holder in due course and the alteration is not apparent the drawee bank will be entitled to debit the a/c with the original amount authorized by the customer.

More still S.87 (b) provides that the maker of a promissory note is precluded from denying to a holder in due course the existence of a payee and his/her then capacity to endorse. This statutory stopped creates a privilege for a HIDC to affirm that he takes free from all equities.

Additionally under S.47 (a) where a bill is dishonoured by non. Acceptance and notice of dishonour is not given the rights of a holder in due course subsequent to the omission are not prejudiced by the omission. This privileged as has been argued before supports the view that a HIDC takes free from all equities.

The most favored position of a HIDC is contained in S.28 (3) where its enacted that whether for values or not a holder who delivers title to bill though a holder in due course and who himself is not a party to any fraud or illegality affecting it has all the rights of a holder in due course. According to prof. Holden, this applies even where the cheque affected by fraud or illegality is negotiated to a person without knowledge of such irregularity and who becomes a HIDC and then negotiates it to a person who has knowledge of the irregularity but is not a party there to.

Its Notable however, the status and privileges of a HIDC are not absolute, therefore in some circumstances as here to below considered, he may not take free from all equities.

S.29 (2) provides that there is a presumption that every holder is a holder in due course but if there is evidence that their was failure of consideration or consideration was illegal, the status of a HIDC breaks.  In Sirley V. Tanganyika Tegry Plastics Ltd the fact that the cheque relied on by the appellant as establishing his title to a promissory note was drawn on a client’s a/c rebutted the presumption in his favour that he was a HIDC.

Under S.44 (3) (b) where the HIDC does not present the cheque in proper time (reasonable time) after its endorsement, the endorser will not be liable. Reasonable time is questions of fact decide basing on the Usage of trade, regard to similar bills and facts of a particular case.

Failure to give notice of dishonour extinguishes the rights of a HIDC. S.47 and 54 (a) and (b) details the rules relating to notice of dishonour. Notice must be given as soon as the cheque is dishonoured, these rules are applied strictly by courts in Govind Ukeda Patel V Bhangi Nanyi.

There was dishonour of a cheque on 16/12/1958 and notice was given on 23^rd /12/56. The EACA held that on the evidence, it was clear that notice of dishonor had not been given within a reasonable time.

A HIDC can not enforce payment against a person whose signature has been forged and placed on a cheque without his authority. In such case, the title of transferees is Void and therefore have no right to retain it or discharge it. A bank cannot credit such a person’s a/c under S.23 of B.O.E