TOPIC VI

Cheques and other Documents intended to enable a person obtain payment

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The law relating to cheques is contained in the Bills of Exchange Act Cap 68. This Act reproduces
the provisions of the Bills of Exchange Act 1882 45 & 46 Vict c. 61 of England which set out ‘to
codify the law relating to Bills of exchange’’. In other words the Bills of Exchange Act Cap 68 is in
fact a code and special rules of interpretation apply, that is, the first step taken is to interpret the
language of the Act, and an appeal to earlier decisions can only be justified on some special ground.

A. Definition of a cheque.
A cheque is the customers mandate to his or her banker to pay. Section 72(1) of the Bills of
Exchange Act defines a cheque as a bill of exchange drawn on a banker payable on demand.
Section 2(1) of the Act defines a bill of exchange as an unconditional order in writing, addressed by
one person to another, signed by the person giving it, requiring the person to whom it is addressed
to pay on demand or at a fixed or determinable future time a sum certain in money to or to the
order of a specified person or to bearer. Subsection 2 goes on to provide that an instrument which
does not comply with these conditions or which orders any act to be done in addition to the
payment of money is not a bill of exchange.

According to subsection 3 an order to pay out of a particular fund is not unconditional within the
meaning of the section; but an unqualified order to pay, coupled with an indication of a particular
fund out of which the drawee is to reimburse himself or herself or a particular account to be
debited with the amount; or a statement of the transaction which gives rise to the bill, is
unconditional.

There are certain characteristics of a bill as defined above which are not part of the cheque.
Therefore a definition of a cheque is only possible if certain requirements of s. 2 are combined
with those of s. 72(1). Thus a cheque can be defined as unconditional order in writing drawn by one
person upon another who is a banker to pay on demand a sum certain in money to or to the order
of a specified person or to bearer.

The person who draws a cheque is known as a drawer. The banker on whom the cheque is drawn is
called the drawee banker or paying banker. The person who is supposed to receive payment is the
payee. If the drawer is the person to be paid then the drawer and payee are the same. The order
must be unconditional. In Bavins Jnr & Sims v. London and South Western Bank Ltd (1899) 81
L.T. 655, an instrument which was in the form of a cheque but with the order followed by the
words ‘provided the receipt form at the foot hereof is duly signed’. The court held that the receipt
requirement was a condition which made the instrument not a cheque.

A cheque must be addressed by one person as a drawer to another, being a bank as drawee. The
FIA, 2004 s.2 provides that a bank means any company licensed to carry on financial institution
business and includes all branches and offices of that company in Uganda. Therefore a bank being a
company is one legal entity. It follows that drafts drawn by one branch on another or the head
office are not cheques or bills because they are not addressed by one person to another. But s. 4(2)
of the BEA provides in part that where in a bill drawer and drawee is the same person, the holder
may treat the instrument as a bill of exchange or a promissory note.

A cheque must be payable on demand. But modern cheque forms do not include the word ‘on
demand’. This omission is remedied by s. 9 of BEA which stipulates that a bill is payable on demand
which is expressed to be payable on demand, or at sight, or on presentation; or in which no time
for payment is expressed.

A cheque must have a drawer, a drawee or paying banker and a payee or if no payee then a bearer.
Thus s.6 (1) provides that where a bill is not payable to the bearer, the payee must be named or
otherwise indicated with reasonable certainty.

B. Ante-dating and Post dating

It was generally thought that a post dated cheque would not have qualified as a cheque because s.
72 defines a cheque inter alia as being payable on demand. In Brien v. Dwyer (1979) 22 ACR 485,
Barwick CJ suggested that a postponed cheque constituted a bill of exchange payable at a future
date, rather than a cheque which had to be payable on demand.

The law inclined to the view that a post dated cheque is valid in all regards. The reasoning is
based on section 12(2) of the Act, under which a bill is not invalid by reason of its being postdated,
ante-dated or undated.

It appears therefore that postdated cheques are within the meaning of s.72 and s.12 (2) was not
necessary to make them cheques.
However post dated cheques should always be handled with care as they can both be ‘troublesome
and dangerous for bankers’
First, under s. 74 the death of the customer which comes to the knowledge of the banker
determines the customer’s mandate and consequently all outstanding cheques cannot be honored
by the banker.

Secondly s.74 gives the customer the right to determine the bankers duty and authority by
countermand of payment, that is to withdraw his or her mandate before the cheque has been
honored. This means that a person holding the cheque cannot get payment from the bank. In he
case of Thaker Singh (Electrician) and Sons v. Quarbanlite Ltd 9178 (2) ALT Comm. 324 where
the Court of Appeal of Kenya held that when a negotiable instrument was taken in lieu of money
payment, there was a presumption that the parties intended it to be a conditional discharge only,
and that their original rights were to be restored if the cheque were dishonored or if the drawer
acted in a manner inconsistent with giving of the cheque such as by countermanding payment.

Thirdly, the bankruptcy of the customer may create problems for the banker because of the
doctrine of relation back. Under this doctrine bankruptcy is deemed to have started on commission
of the first available act of bankruptcy.

Fourth, if the bank mistakenly honours a post dated cheque and dishonours other cheques drawn on
it by the customer, it will be liable to the customer for wrongful dishonour.

C. Notice of Dishonour.
Section 47 provides that when a bill, such as a cheque has been dishonoured, notice of dishonour
unless excused under s. 49(2) (c), must be given to the drawer. If it is not given the drawer will be
discharged from liability both on the cheque and on consideration for which it was given.

Notice of dishonour to be valid must be given under the rules specified under section 48 of the Act.

The Court of Appeal of Sudan in the case of Emile Habib Bateekha v. Rosen Alam Eddin 1970 (1)
ALR 205 said that the holder of a dishonored bill, note or cheque may sue an immediate party
liable thereon on the consideration as well as on the instrument, and where a negotiable
instrument has not been protested for non payment and thus cannot be sued upon, the drawee can
use the instrument as evidence in an action on the consideration, and if there have been
presentment and notice of dishonour the instrument will prima-facie be evidence, though
otherwise it may not be sufficient.

The notice of dishonour must be given by a person entitled to call for payment and must convey to
the recipient that the cheque has been dishonored and that he or she will be held responsible.
In the case of Obed Tashobya vs. DFCU Bank HCCS No. 742/2004 the issue was whether the suit
cheque was dishonoured and if so whether proper steps were taken on dishonor. Court held that
the telex message and the personal communication of the dishonor to the Plaintiff by the
Defendant are sufficient evidence that the suit cheque was dishonoured. That all that is required
of a collecting bank in these circumstances is to give notice of dishonor to its client if the cheque is
dishonoured.

D. Payment by a Cheque.
Simply stated the law seems to be that when there is payment by cheque the presumption is that
the parties intended it to be a conditional discharge only and that their original rights are to be
restored if the cheque were to be dishonored or if the drawer acted in a manner inconsistent with
giving of the cheque such as countermanding payment.

The rule was stated by the Court of Appeal of Sudan in Mirghani Shebeika v. Mohammed Ahmed
1972 (1) ALR. Comm. 346, the general rule is that payment by cheque or other negotiable
instruments is conditional payment and the debtor is not discharged unless and until the cheque or
other instrument is honored, but there is nothing to prevent a negotiable instrument from being
given and taken as absolute payment if the parties so intend, and the creditor may receive the
instrument in absolute discharge of the debt, trusting solely to his or her remedies on the
instrument.

In that case a judgment debtor issued cheques to the judgment creditor. He waited for six months
before presenting the cheques for payment and they were dishonored. Relying on s. 44 of the
Sudan’s bills of Exchange Ordinance which is similar to s.44 Bills of Exchange Act of Uganda, the
court held that if a creditor takes a bill or note as a conditional payment, and he or she is guilty of
laches in respect of it, as where a creditor takes a cheque and takes an unreasonable time in
presenting it, whereby his or her debtor’s position is altered, the bill or note is then treated as
absolute payment., and between the debtor and creditor the debt is discharged, and six months is
not a reasonable time for the payee of a cheque to wait before presenting the cheque for payment.
Be that as it may, a bill of exchange or promissory note is to be treated as cash and must be
honoured unless there is some good reason to the contrary.

E. Other Documents to enable a person obtain payment.

These docucuments include promissory notes, treasury bills, dividend and interest warrants.
Section 82(1) of the Bills of Exchange Act states that a promissory note is an unconditional promise
in writing made by one person to another signed by the maker, engaging to pay, on demand or at a
fixed or determinable future time, a sum certain in money, to, or to the order of, a specified
person or to bearer.

In Lombard Banking v. Vithaldas Gordlands (1906) E.A. 345, the documents were worded;

‘At one hundred and twenty (120) days after date I pay to M/s Ghusal Revji & Sons Ltd K’la the sum
of Shs. Five thousand for value received as per invoice No. 45.’

It was argued that because the usual words ‘I promise to pay’ were not used these documents were
not promissory notes.

The court held that no particular form of words is essential to the validity of the note provided the
requirements of the section are fulfilled.