Case ID:54376

Amratlal Stores Limited v Shah Hirji Manek Limited [2013] eKLR

Case Metadata

Case Number:

Civil Appeal 281 of 2003

Parties:

Amratlal Stores Limited v Shah Hirji Manek Limited

Date Delivered:

20 Sep 2013

Case Class:

Civil

Court:

Court of Appeal at Nairobi

Case Action:

Judgment

Judge(s):

Roselyn Naliaka Nambuye, Agnes Kalekye Murgor, Stephen Gatembu Kairu

Citation:

Amratlal Stores Limited v Shah Hirji Manek Limited [2013] eKLR

Advocates:

Ngatia for the appellant

Case History:

(Appeal from the Judgment of the High Court at Nairobi (Hon. Mr. Justice J. W. Mwera) dated 19th September 2003 in HCCC No 552 of 2001

Court Division:

Civil

County:

Nairobi

Advocates:

Ngatia for the appellant

History Docket No:

552 of 2001

History Judges:

John Wycliffe Mwera

Case Summary:

Circumstances when Insertions into a negotiable instrument would not constitute material alteration

Amratlal Stores Limited v Shah Hirji Manek Limited

Civil Appeal No. 281 of 2003

Court of Appeal at Nairobi

R. N Nambuye, S. K Gatembu, & A. K Mugor, JJ.A

September 20, 2013

Reported by Mercy Ombima

Brief Facts

The Respondent, a limited company, had earlier succeeded in a claim in the High Court against the Appellant, another limited company, to recover sums of money from nine dishonored Promissory Notes. The Appellant appealed against the High Court decision claiming that the Promissory Notes in question had been materially altered and were therefore void. The Appellant also alleged that there had been no notice of dishonor issued to it, which had the effect of discharging its liability to the Respondent and that there had been inordinate delay between the date of dishonor and the date of commencement of the suit which in effect extinguished the claim.

The Appellant as the Drawer, had drawn the Notes but did not specify the due dates (the date when the Notes would become operational) or include the word “days”. It was at the time of discounting the Promissory Notes, that the Respondent included those wordings in order to complete the Notes. The Appellant had claimed that the further alteration of the Notes was without its authority and consent, and it concerned the addition of one Harish Devani (the Respondent’s personal guarantee) as an endorser of the Notes. During the negotiations with the Respondent, Harish Devani had sought to include a further endorsement at the back of the Notes, stating that:-

“I, Harish Devani hereby bind myself as surety in solidum and co-principal debtor for the payment of this bill on due date”.

The Promissory Notes were due to mature sometime in January 1997. The Appellant was not issued with any demands for payment until 19

th

March 2001. Thereafter, the Respondent filed a suit on 17

th

April 2001 seeking payment of the bill in the sum owed. That was nearly four years after the Promissory Notes were dishonored.

Issues

When was a person considered to be a holder in due course of a bill of exchange?

Whether the inclusion of due dates (the date when the Notes would become operational) and the word “days” in the Promissory Notes had the effect of materially altering the Promissory Notes.

Whether the inclusion of the Respondent’s guarantee (holder in due course) as an endorser of the Promissory Notes without the consent of the Appellant ( a Drawer) to endorse the Promissory Notes, rendered the Promissory Notes void

Whether the duration of four years was inordinately long for the Respondent to have decided to pursue the repayment of the dishonored promissory notes

Negotiable Instruments

– bills of exchange - Promissory Notes as bills of exchange - holder in due course of a Promissory Note – circumstances when a person would be considered to be a holder in due course of a Promissory Note - Bills of Exchange Act Cap 27 section 29 (1); 30.

Negotiable Instruments

– bills of exchange - alterations to a bill of exchange – where a bill of exchange is altered without the consent of all parties liable on the bill – consequences of such an alteration – where the Respondent included the words “days” in the Promissory Notes in question and subsequently endorsed at the back of the Promissory Notes without the authority of the Appellant – whether the changes to the Promissory Notes rendered them void - Bills of Exchange Act Cap 27 section 64.

Negotiable Instruments

– Promissory Notes – endorsements to a promissory Note – where the Respondent, a holder in due course, made insertions to some promissory Notes and subsequently its personal guarantee endorsed the Notes at the back – where the endorsement was made without the authority of the Appellant, the Drawer – consequences of inclusion of the Respondent’s personal guarantee as an endorser of the Promissory Notes without the consent of the Drawer – whether the Notes could be considered as valid.

Negotiable Instruments

– Promissory Notes – dishonor of a bill of exchange – circumstances when a bill of exchange would be considered as dishonored – consequences of dishonor of a bill of exchange - where the Promissory Notes in question were dishonored – where the Respondent failed to issue the Appellant with a notice of dishonor – whether it was mandatory for the Respondent to issue the Appellant with a notice of dishonor - Bill of Exchange Act Cap 27, section 47(1); 47(2); 48; 52(3); 90(1)

Words and Phrases

– definition of the phrase “holder in due course” – definition according to section 29 (1) of the Bills of Exchange Act Cap 27 Laws of Kenya

Held

Section 29 (1) of the Bills of Exchange Act Cap 27 provided that, a holder in due course was a holder who had taken a bill complete and regular on the face of it under the following conditions:

That he became the holder of it before it was overdue and without notice it had previously been dishonored, if that was the fact.

That he took the 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 the title of the person who negotiated it.

A holder in due course was a person who took a bill complete and regular on the face of it and in good faith and for value before it was overdue. Under section 30 of the Bill of Exchange Act, every holder of a bill was prima facie deemed to be a holder in due course. However, if in an action on a bill, it was admitted or proved that the acceptance, issue or subsequent negotiation of the bill was affected with fraud, duress or force and fear, or illegality, the burden of proof was shifted. That was unless and until the holder proved that subsequent to the alleged fraud or illegality; value had in good faith been given for the bill.

There had been no evidence of fraud, duress, force or fear or any illegality, and therefore, it could be considered that the Respondent was a holder in due course within the meaning of the Act.

Section 64 of the Bills of Exchange Act provided that where a bill of acceptance was materially altered without the assent of all parties liable on the bill, the bill was avoided, except as against the party who had himself made, authorized or assented to the alteration. In order to determine whether a bill had been materially altered would depend on whether the legal basis of contract as between the parties had been altered, so as to alter the rights and obligations of the parties.

In order to arrive at the due date or the date when the Notes would become operational, it was necessary that the period of credit be specified, that is, whether the period of credit referred to days or months. The insertion of the word “days” or the due dates in the Notes did not result in an alteration of the legal obligations as agreed between the parties, when they set out to negotiate the Notes. That was because there was no alteration to the basic tenets of the Notes, as what remained after the alterations was the unconditional promise to pay. There was no interference with the sum of payment, or the title acquired by the holder.

Provided that the alteration did not interfere with the parties’ agreed intentions, then the alteration would not be considered material. The insertion of those wordings was therefore only for the purpose of completing the Notes, and thus could not be considered a material alteration.

The inclusion of the respondent’s personal guarantee, as an endorser, without the Appellant’s consent, unequivocally altered the Notes as well as the respective obligations of the parties. That alteration was unknown to the Appellant, which remained the position, until the Respondent made demanded for payment on the Notes, following the demise of its guarantee. As such, the Notes were altered beyond that which the Appellant had consented to. They could not therefore be considered to be Notes as drawn by the original maker, who was the Appellant. In the circumstances, the Notes were materially altered with the result that the Notes could be avoided by the Appellant.

Section 45 of the Bills of Exchange Act provided that a bill was required to be duly presented for payment, and if it was not presented, the drawer and the endorsers would be discharged. Sections 47 (1) and 47(2) of the Act stipulated that a bill was dishonored by non-payment, when it was duly presented for payment, and payment was refused or could not be obtained; or when presentment was excused and the bill was overdue and unpaid. When a bill was dishonored by non-payment, an immediate right of recourse against the drawer and endorsers accrued to the holder. Section 48 of the Act provided that when a bill was dishonored by non-acceptance or by non-payment, notice of dishonor was required to be given to the drawer and each endorser. Any drawer or endorser to whom such notice was not given was discharged.

Section 90 (1) stated that the provisions of the Act relating to bills of exchange applied, with the necessary modifications, to promissory notes. In order to render the acceptor of a bill liable, it was not necessary to protest it, or that notice of dishonor should be given to him.

In respect of the Promissory Notes, no notice of dishonor was necessary or mandatory to be issued to the maker of the Notes, i.e. The Appellant.

Section 45 (2) (a) specified that, where bills were payable on demand, presentment would be within a reasonable time after its issue in order to render the drawer liable. Having regard to the provisions of the Act, the nature of the bill and the usage of trade, the Notes were time bound, and the inordinate delay of over four years, to pursue the claim against the appellant was unreasonable. As a consequence, the Appellant was not to suffer loss for the inactivity of the Respondent.

Appeal Allowed

History Advocates:

One party or some parties represented

History County:

Nairobi

Case Outcome:

Appeal Allowed

Disclaimer:

The information contained in the above segment is not part of the judicial opinion delivered by the Court. The metadata has been prepared by Kenya Law as a guide in understanding the subject of the judicial opinion. Kenya Law makes no warranties as to the comprehensiveness or accuracy of the information

IN THE COURT OF APPEAL

AT NAIROBI

(CORAM: NAMBUYE, GATEMBU & MURGOR, JJ.A)

CIVIL APPEAL NO. 281 0F 2003

BETWEEN

AMRATLAL STORES LIMITED ………………………………APPELLANT

AND

SHAH HIRJI MANEK LIMITED……………………...……..RESPONDENT

(Appeal from the Judgment of the High Court at Nairobi

(

Hon. Mr.

Justice

J. W. Mwera

) dated 19

th

September 2003

in

HCCC No 552 of 2001

************

JUDGMENT OF THE COURT

The respondent’s claim against the appellant, Bambi Agencies Limited and Harish Devani was for the sum of Kshs 29,095,500, in respect of nine dishonoured promissory notes (Notes), together with a further claim against the Harish Devani on his personal guarantee endorsed at the back of the Notes binding himself to pay. The respondent contended that, a request for payment was made on due date, but despite the notice of dishonor having been issued to the appellant, the notes remained unpaid. The respondent therefore demanded, the sum of Kshs 29,095,500 together with interest at the rate of 36% per annum from 10 September 1996 until payment in full.

In the amended written statement of defence, the appellant denied that the respondent was the holder or holder in due course for value of the Notes. The appellant contended that, when it made the Notes and delivered them to the Harish Devani they were inchoate and irregular on their face. They were neither payable on demand, nor did they provide for payment at a fixed or determinable future time and were not valid Notes within the meaning of the

Bills of Exchange Act Cap 27 Laws of Kenya (the Act)

. Further the Notes were rendered void by apparent material alteration made on the face of Notes after they had been issue without the knowledge, consent or authority of the appellant, and further the appellant had not waived the irregularities. As a consequence, the appellant contended that it was discharged from all liabilities; the appellant refuted the contention that, notices of dishonor was issued, or that numerous demands were made in respect of each Note; that, at no time was it liable for the repayment of the Notes, as at all times the respondent sought payment from Bambi Agencies Limited and Harish Devani, and, finally, that there had been an inordinate and inexcusable delay on the part of the respondent in bringing this action, and the respondent was estopped from claiming any amount or interest on the Notes.

On 19

th

September 2003 of Mwera, J. (as he then was), gave judgment in favour of the respondent in the sum of Kshs 29,095,500 together with interest at court rates.

Being dissatisfied with the judgment of the High Court the appellant filed this appeal which is before us.

Mr. Ngatia, learned Counsel for the appellant appeared before us, while there was no appearance by the respondent nor their Counsel, despite their having been served with a Hearing Notice.

Mr. Ngatia informed us that he would urge the grounds of appeal under the following headings:

The promissory were materially altered and therefore void;

There was no notice of honour issued, and consequently liability was discharge;

Delay between date of dishonor and date of commencement of the suit resulted in a delay of over 4 years and 6 months. The delay was inordinate and extinguishes the claim.

Before, we turn to the issues in contention, to begin with, it is imperative that we consider the question of whether the respondent was a holder in due course, as this will have a bearing on the issues that have been raised. According to the respondent, it was a holder of the 9 promissory notes in due course.

Section 29 (1)

of the Act

, (

which is the same as the UK Bills of Exchange Act 1882) provides that, a holder in due course is a holder who has taken a bill complete and regular on the face of it under the following conditions:

“

a) That he became the holder of it before it was overdue and without notice it had previously been dishonoured, if that was the fact.

That he took the 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 the title of the person who negotiated it.”

In other words, by Section 29, a holder in due course, is a person who takes a bill complete and regular on the face of it, in good faith for value, before it was overdue.

Section 30

(2)

provides that

,

“

Every holder of a bill is prima facie deemed to be a holder in due course; but if in an action on a bill it is admitted or proved that the acceptance, issue or subsequent negotiation of the bill is affected with fraud, duress or force and fear, or illegality, the burden of proof is shifted, unless and until the holder proves that, subsequent to the alleged fraud or illegality, value has in good faith been given for the bill”.

From the record of proceedings there is no evidence of fraud, duress, force or fear or any illegality, and therefore, it can be considered that the respondent was a holder in due course within the meaning of the Act.

With respect to the first issue as to whether the Notes were valid, or irregular, and therefore void within the meaning of the Act, Mr. Ngatia contends that, the Notes were rendered void by the material alterations made on the face of the Notes after issue, without the authority or consent of the appellant, that the alterations made, were firstly, the insertion of the due dates on the Notes in the column headed “Due Date”, and, the inclusion of the word “days” after the digits “...75, 80, 90, 110” on all the Notes, and secondly, the endorsement on the back of the Notes by Harish Devani without the authority or consent of the appellant.

From the materials before us, there was significant discourse between the parties as to whether the Notes were altered by the inclusion of the due dates and the word “days”. What is agreed is that the appellant as the Drawer drew the Notes, but did not specify the Due Dates or include the word “days

[Gatembu K1]

”. It was at the time of discounting the Notes, that the respondent included these wordings in order to complete the Notes. In his judgment the learned Judge stated that,

“

This court was not satisfied with evidence tendered that there were such material alterations to the bills that amounted to discharging the defendant. The parties knew what 75 stood for. Even the 1

st

Defendant is witness (Thakar DW2) told the court that once parties trading together established and practiced a usage or understanding that facilitated their business, then what they did bound either. DW2 went so far as to count 75 days as days on bill 281 and found the arithmetic correct in that regard. It was this court’s view that whatever the parties did after negotiations e.g. Inserting the number of days and the due date, was all in the process of completing but not altering a valid bill which was then discounted and value enjoyed.”

Our attention has also been drawn to the case cited in the Superior Court by the Respondent to support the contention that, the insertion of the date in the bill is not a material alteration,

Geometra E.A. Ltd vs Road Sea Link Limited (2001) 2 EALR

page 378.

Section 64 provides that where a bill or acceptance is materially altered without the assent of all parties liable on the bill, the bill is avoided, except as against the party who has himself made, authorized or assented to the alteration. In order to determine whether a bill has been materially altered, will depend on whether the legal basis of contract as between the parties has been altered, so as to alter the rights and obligations of the parties.

However, in the case before us, in order to arrive at the due date or the date when the Notes would become operational, it was necessary that the period of credit be specified, that is, whether the period of credit referred to days or months. At the time of discounting of the Notes, Harish Devani and the respondent inserted the word days, and thereafter computed and inserted the due date in respect of each Note. Would these insertions result in a material alteration of the Notes?

Having regard to the circumstances of this case, we are of the considered view that, the insertion of the word “days” or the due dates would not result in an alteration of the legal obligations as agreed between the parties, when they set out to negotiate the Notes. We say this for reasons that, there was no alteration to the basic tenets of the Notes, as what remained after the alterations was the unconditional promise to pay, there was no interference with the sum of payment, or the title acquired by the holder. Provided that the alteration did not interfere with the parties’ agreed intentions, then the alteration would not be considered material. We therefore agree with the learned Judge that, the insertion of these wordings was only for the purpose of completing the Notes, and thus could not be considered a material alteration.

The appellant contended that, there was further alteration of the Notes was without its authority and consent, which concerned the addition of Harish Devani as an endorser of the Notes. It is not disputed that, during the negotiations with the respondent, Harish Devani sought to include a further endorsement at the back of the Notes, stating that:-

“

I, Harish Devani hereby bind myself as surety in solidum and co-principal debtor for the payment of this bill on due date”.

In the case of

Gardener vs Walsh 1855 5 E & B 83,

the addition of a new maker to a joint and several note without the consent of the original maker, was considered to be a material alteration.

Conversely, the inclusion of Harish Devani as an indorser without the appellant’s consent, unequivocally altered the Notes, as well as the respective obligations of the parties. This alteration was unknown to the appellant, which remained the position, until the respondent made demanded for payment on the Notes, following the demise of Harish Devani. As such, we consider that, the Notes were altered beyond that which had been consented to by the appellant, and they could not therefore be considered to be Notes as drawn by the original maker, the appellant in this case. In the circumstances, we find that, the Notes were materially altered by the respondent and Harish Devani, with the result the Notes could be avoided by the appellant.

We turn now to the second issue, the notice of dishonor. The Notes were due to mature sometime in January 1997. The respondent stated that, presentment of Notes was made to appellant, Bambi Agencies and Harish Devani on due date, but were dishonoured. According to the appellant, however, no notice of dishonor was issued to it by the respondent, and that, at all times, communications on the repayments were carried on between the respondent and Harish Devani. Indeed, on 17

th

January 1996 (read 1997), Bambi Agencies and Harish Devani wrote to the respondent under letter referenced

“BILLS PAYMENT

” stating,

“……

.We are fully aware of our liability to be paid to M/s SHAH HIRJI MANEK and do take full responsibility for the same…….”

“……

It is unfortunate that there has been a delay. If you can bear with us, we would pay up the amount, but if you still very inpatient, then you can go ahead and take whatever action you may wish.”

The appellant was not issued with any demands for payment until 19

th

March 2001, when the respondent’s counsel issued a demand for Note no.281. Thereafter, the respondent filed its suit on 17

th

April 2001 seeking payment of the bill in the sum of Kshs 2,899,500, which was later amended to a claim for Kshs 26,095,500 in respect of 9 promissory Notes. By this time Harish Devani had died on 18

th

April 2001.

The learned Judge held in respect of presentment of the notices, that;

“

The court was satisfied that this was done, and there was nonpayment. It was not shown that the Plaintiff had defaulted on this point…..”

The question that arises is, was the appellant entitled to be issued with a notices of dishonor as required by the Act, and were they in fact all issued with notices of dishonor for non-payment of the Notes?

Mr. Ngatia cited

Sections 45

to

49

of the Act and made reference to

Caunt vs Thompson (1849) 7 CB 400

, Re Fenwick, Stobart & Co Limited 1902 I Ch 507

and

Nanji Khodabhai vs Sohan Singh and Another 1957 EALR 291,

all of which specify an elaborate procedure that

must

be followed when a bill is dishonoured for non-payment.

Section 45

provides that a bill must be duly presented for payment, and if it is not presented, the drawer and the endorsers shall be discharged.

At

Section 47 (1)

stipulates that a bill is dishonoured by non-payment when it is duly presented for payment, and payment is refused or cannot be obtained; or when presentment is excused and the bill is overdue and unpaid.

Sub-section (2)

states that, when a bill is dishonoured by non-payment, an

immediate

right of recourse against the drawer and endorsers accrues to the holder. Whilst

Section 48

provides that when a bill has been dishonoured by non-acceptance or by non-payment, notice of dishonour must be given to the drawer and each endorser, and any drawer or endorser to whom such notice is not given is discharged.

However where promissory notes are concerned,

Part IV

of the Act would be applicable.

Section 90 (1)

states that,

“

Subject to the provisions of this Part and except as provided by this section, the provisions of this Act relating to bills of exchange apply, with the necessary modifications, to promissory notes

.”

Whilst,

section 52(3)

is clear that in order to render the acceptor of a bill liable it is not necessary to protest it, or that notice of dishonour should be given to him.

In the case of

African Overseas Trading Co.

v Bhagwanji Harjiwan (1960) E.A. 417

where it was held:-

“

in view of the terms of Section 52(3) and Section 90 (2) of the Bills of Exchange Ordinance it was not necessary for notice of dishonour of the promissory note to be given

.

As such, we agree with the learned Judge, and accordingly hold that, in the respect of the Notes, no notice of dishonor is necessary or mandatory to be issued to the maker of the Notes, in this case the appellant.

The third issue for determination is, the question of unreasonable and inexcusable delay in pursuing the repayments, after the Notes were dishonoured.

Mr. Ngatia submitted that, following the respondent’s failure to issue the appellant with a notice of dishonour, the respondent did not subsequently pursue the repayments from all the parties with a reasonable period thereafter. The repayments became due sometime in January, 1997, but, no demand was made on the respondent until March, 2001, following the demise of Harish Devani. This was nearly four years after the Notes were dishonoured.

Section 45 (2) (a)

specifies that, where bills are payable on demand, presentment must be within a reasonable time after its issue in order to render the drawer liable.

In the case of

Lickborrow & Another vs Mason & Others

(1775-1802) All ER Rep 1

,

which was cited with approval in

Universal Bank Limited vs Double Whiteland Stationary & Printers and 2 Others HCCC No 561 of 1998

Ashhurst C.J. stated,

“

We may lay it down a broad general principle that whenever one or two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it.”

In

Universal Bank Limited vs Double Whiteline Stationary & Printers

,

the Plaintiff did not make demand on the drawer of the promissory notes for six months. The Court held that:-

“

I am of the view that the loss in this case was occasioned by the inactivity of the Plaintiff in failing to seek payment of the notes on the due date and that had they done so, then the lie told to the 1

st

Defendant, as to the whereabouts of the notes, would have been discovered in good time

.”

We consider that, having regard to the provisions of the Act, the nature of the bill and the usage of trade, the Notes were time bound, and the inordinate delay of over four years, to pursue the claim against the appellant was unreasonable. As a consequence, we find that the appellant should not have to suffer loss for the inactivity of the Respondent.

Consequently, we find for the appellant, in that it was discharged from repayment of the Notes for reasons that, the Notes were materially altered, and, arising from the unreasonable and inexcusable delay on the part of the respondent in claiming the repayment from the appellant.

For the foregoing reasons, we allow the appeal, with costs to the appellant.

Dated and delivered at Nairobi this 20

th

day of September, 2013.

R. N. NAMBUYE

………………………

..

JUDGE OF APPEAL

S. GATEMBU KAIRU

………………………

..

JUDGE OF APPEAL

A. K. MURGOR

………………………

..

JUDGE OF APPEAL

I certify that this is a true

copy of the original.

DEPUTY REGISTRAR

/jkc

[Gatembu K1]