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Bareddo v PNGBC Ltd [2002] PGLawRp 20; [2002] PNGLR 541 (26 April 2002)

[NATIONAL COURT OF JUSTICE]


RESURRECTION BAREDDO


v


PNGBC LIMITED


WAIGANI: DAVANI J


17 March; 26 April 2002


BANKING – Debt claim – A Bank cheque and a Bank draft are Bills of Exchange – A Bank cheque is consideration subject to proper clearances of cheques by the Bank – Bills of Exchange Act of 1951 s. 8 s. 43(1)(b)(I)(ii), s. 43(2)(b).


Facts


The plaintiff by a writ of summons and statement of claim filed on 21 February 2001, claims various orders one of which is for judgement against the defendant in the sum of K110,129.14, together with interest at 8% per month from 25 January 2001 until the date of payment. The principal sum represented the proceeds of bank cheque deposited by the plaintiff into the account with the defendant and credited but cancelled because payment was of dishonoured cheques.


Held


On a request for payment of a bank cheque, a contract existed between the banker and customer and on failure of consideration, the bank is not liable to the customer: Sidney Raper Pty Ltd v Commonwealth Trading Bank of Auatralia [1975] 2 NSWLR 227 followed.


Other cases cited


Sidney Raper Pty Ltd v Commonwealth Trading Bank of Australia; 1975 NSWLR 227


Counsel


G Sheppard for the plaintiff.
Mr Lightfoot for the defendant.


26 April 2002


Davani J. The plaintiff, by a writ of summons and statement of claim filed on 21 February 2001, claims various orders one of which is for judgement against the defendant in the sum of K110,129.14, together with interest at 8% per month from 25 January 2001 until the date of payment.


The defendant denies the claim in its entirety and also filed a cross claim seeking payment of K10,000.00 from the plaintiff but then, abandoned that claim at trial.


Facts


The plaintiff claims he is owed money in the sum of K170,129.14, by a company SNP Consultancy and Financial Services ('SNP'). On 24 January 2001, after receiving that payment from SNP, the plaintiff presented fourteen (14) cheques totalling K170,129.14 from the SNP to the Boroko Branch of the Papua New Guinea Banking Corporation ('PNGBC') for payment. The cheques were drawn on SNP's account. On presentation of these cheques on the same day, the bank's Branch Manager authorized payment of five of those fourteen cheques totalling K46,442.67. The Branch Manager debited SNP Account No. 312808 with K3,557.33 to make up the K50,000.00 cash requested by the plaintiff. In relation to the balance, the Branch Manager used nine of the SNP cheques to purchase a bank cheque in favour of the plaintiff for K120,129.14 which was then issued to him on the same day. The plaintiff deposited the said cheques then withdrew K10,000.00 from those funds.


The next day, 25 January 2001, the Branch Manager received confirmation that all fourteen cheques had been dishonoured. She then stopped payment on the bank cheque of K120,129.14 which by then had been deposited into the plaintiff's account and sought reimbursement of the K50,000.00 cash from SNP.


Issue


The issue before the court is whether consideration had passed. If consideration had passed between the parties, then the claim should be upheld. If there is a failure of consideration, the claim should be dismissed.


The plaintiff claims that on exchange of the cheques and on receipt of the bank cheque for K120,129.14, there was consideration. In so doing, he became a "holder in due course" as defined in s 43 (1)(b)(i) and (ii) of the Bills of Exchange Act of 1951 (the 'Act'). This section reads;


"43. Rights of Holder.


(1) The holder of a bill has the following rights and powers:-


(a) he may sue on the bill in his own name;

(b) where he is a holder in due course, he –


(i) holds the bill free from any defect of title of prior parties, as well as from mere personal defences available to prior parties among themselves; and


(ii) may enforce payment against all parties liable on the bill.


(1) where a holder's title is defective –


(a) if he negotiates the bill to a holder in due course – the holder in due course obtains a good and complete title to the bill; and


(b) if he obtains payment of the bill – a person who pays him in due course gets a valid discharge for the bill.


A "holder" and a "holder in due course" are defined in s 1 of the Act as:


"holder – in relation to a bill means –


(a) the bearer of the bill; or

(b) the payee or endorsee of the bill who is in possession of it."


"holder in due course – in relation to a bill means a holder who has taken the bill, which was 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 that it had been previously dishonoured (if such were the fact);


(b) 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."


The plaintiff was the holder in due course when he received the fourteen (14) SNP cheques from SNP. When he paid the cheques to the Bank for a Bank cheque, the Bank became the holder in due course.


The issue is, whom can the plaintiff sue for recovery of his monies. As for the defendant, although not raised by counsel, the defendant is probably asking itself whom it can sue for the monies owed to it as a result of this bungled transaction. Section 43(1)(b) of the Act states that a holder in due course "may enforce payment against all parties liable on the bill." s 43(2)(b) of the Act states further that where a holder's title is defective, and he obtains payment of the bill, the person who pays him in due course gets a valid discharge for the bill. I interpret this to mean that on payment to the plaintiff of the bank cheque, the bank was discharged from it.


The fourteen (14) SNP cheques are Bills of Exchange and fall within the definition of s 8 of the Act. The Bank cheque paid by the Bank is a Bill of Exchange as defined in s 8 of the Act.


This section reads;


"8. Bill of Exchange


(1) Subject to this division, a bill of exchange is 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." (my stress)


There is therefore this uncertainty as to whether the Act is wide enough to embrace a bank cheque as distinct from a bank draft.


These "anamolies" were rectified in Australia when it passed the Cheques and Payment Orders Act of 1986 where a distinction was made between 'bank cheques' and 'bank drafts'. For our purposes, the Act would apply to all cheques or any "...unconditional order in writing..." (re s 8 of the Act).


The plaintiff demands payment of the monies he claims that is owed to him when the bank dishonoured the SNP cheques as he is the holder in due course of the cheques.


The defendant submits that the plaintiff's purchase of bank cheques upon payment to the Bank of the SNP cheques was a contract but has now failed as there was no consideration, therefore giving rise to a defective title.


The defendant bank further submits that the bank cheque is not cash and therefore can be dishonoured for failed consideration. He submits that the plaintiff came to the bank with fourteen (14) worthless cheques, therefore, there can never be a good title as consideration for the purchase failed. Furthermore, he submits, a bank cheque can be dishonoured days after it is prepared.


In making those propositions, Mr. Lightfoot relies on the case Sidney Raper Pty Ltd v Commonwealth Trading Bank of Australia; Jacobsen (Third party); Jacobsen and another (second third party) 1975 2NSWLR 227. This was an appeal arising from a trial in which a Mr. and Mrs. Jacobsen took with them to Australia from the United States of America, a bank cheque in US Dollars drawn in favour of Mr. Jacobsen by a bank in America. These funds were deposited into the defendant bank above, in Australia and a drawing made immediately, but, subject to the American cheques being cleared which was a condition of the transaction. Mr. Jacobsen then deposited the funds from the drawings to a bank to be banked. It was later dishonoured. The company then sued the Bank and the Bank joined Mr. and Mrs. Jacobsen as third parties. The trial court found for the company and Mr. and Mrs. Jacobsen.


On appeal, and in their summation, the appeal court held there was a total failure of consideration given by Mr. and Mrs. Jacobsen for the bank cheques, as value was not given for it by the company. The court also said further that Mr. and Mrs. Jacobsen, the true plaintiffs, were not entitled to recover the proceeds of the bank cheques and at the same time ignore the dishonour of the American bank cheques, which they had used to obtain the issue of the bank cheques in Australia.


In this case, the cheques presented to the defendant bank to be cashed were SNP or company cheques. Evidence is that SNP holds its account with the PNGBC Boroko Branch. The plaintiff conducted the transactions the subject of these proceedings, at the same branch. He claims SNP's cheques were all dishonoured the same day. The Bank Manager denies that. She states in her evidence that on 24 January 2001, fourteen (14) SNP cheques totalling K170,129.14 were presented to her. She authorized payment of five (5) of the fourteen (14) cheques totalling K46,442.67 and debited SNP's account with K3,557.33 to make up the K50,000.00 requested by the plaintiff. She then used the remaining nine (9) SNP cheques to purchase a bank cheque for the plaintiff in the amount of K120,129.14 which was issued to him the same day. The same day the plaintiff deposited the bank cheques to his account.


On 26 January 2001, the Bank Manageress found that all SNP's cheques were dishonoured. The Bank then put a stop order on the bank cheque for K120,129.14. The plaintiff submits that the bank cheque of K120, 129.14 is equivalent to cash and that the defendant bank is liable to the plaintiff for that amount.


In saying that, the plaintiff relies on a statement in Michael Brindle and Raymond Cox's text on "Law of Bank payments" (1996) as authority for the proposition that;


"...the courts attach great importance to the unconditional nature of a bill of exchange, and have repeatedly stated that a bill is to be regarded as akin to cash and must be honoured unless there is some good reason to the contrary." (page 213).


So it is not a binding proposition then, but is subject to many prevailing circumstances. In fact, in the text "The Law relating to Bank and Customer in Australia" by Weaver and Craigie, it states that "...the view that a bank cheque is "the equivalent of cash" was, in the respectful opinion of the authors, derived more from superstition than from law."


On request of payment of the bank cheques, a contract existed between the plaintiff and the bank. But there was a failure of consideration. In this case, the bank cheques for the K120,129.12 may be a bill of exchange within the meaning of s 8 of the Act but it is not cash. I take judicial notice of the common banking procedures that exist where cheques including bank cheques must be cleared within a certain number of days. This was what the Bank Manageress did.


I cannot understand the reasoning behind the plaintiff's persistence to sue the bank when it is SNP's account that does not have sufficient funds. Only when SNP has sufficient funds in its account, will the Bank then be able to credit the plaintiff's account. The bank in fact, has also made a loss as a result of these transactions.


If anything, the plaintiff should pursue the SNP for the money it owes to him. I do not believe that the plaintiff, in all probability, has a claim against the defendant bank as it has performed its role according to banking procedure. The law should not be interpreted to suit a party who clearly is not entitled to the remedy being sought but persists anyway for one reason or another, as in this case, where the plaintiff knows he cannot recover monies owed to him from SNP as it no longer operates.


I find the plaintiff does not have a claim against the defendant and dismiss it with costs of the proceedings, to be assessed and to proceed to taxation, if not agreed upon.


Lawyer for the plaintiff: Maladinas Lawyers.
Lawyer for the defendant: Pacific Legal Group.


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