(HIGH COURT)

MISR BANK v. OSMAN IBRAHIM EL ZEIBAG

HC-CS47-1959

 Principles

·  Negotiable Instruments—Promissory notes—Holder in due course can follow either maker or third-party indorser

·  Negotiable Instruments—Holder in due course—Not affected by previous irregularities Negotiable Instruments—Holder in due course—Not bound to accept cheque drawn by another in settlement of its claim

Where a third party indorses promissory notes made by another to a bank. and the bank is a holder in due course, the bank can follow either the third party or the maker, and is not affected by any previous irregularities or fraudulent schemes concerning the notes. Therefore, the fact that the maker can produce a release in the form of a receipt from the third party for the amount of the note does not affect the right of the bank to demand that the maker honour the note on maturity.
Further, the bank is not bound to accept a cheque, drawn by another, in settlement of its claim.

Where a third party indorses promissory notes made by another to a bank. and the bank is a holder in due course, the bank can follow either the third party or the maker, and is not affected by any previous irregularities or fraudulent schemes concerning the notes. Therefore, the fact that the maker can produce a release in the form of a receipt from the third party for the amount of the note does not affect the right of the bank to demand that the maker honour the note on maturity.
Further, the bank is not bound to accept a cheque, drawn by another, in settlement of its claim.

Judgment

Advocate: Ahmed Guma’a ………………... for plaintiff

T. S. Cotran D.J. May 10, 1960 :—On November 16, I954 the defendant, Osman Ibrahim El Zeibag, subscribed in favour of one Christos Simos two promissory notes each for the sum of £S.400 maturing on June 1, 1955, and July 1, 1955, respectively. The said Mr. Christos Simos indorsed the two promissory notes in favour of the plaintiff, Misr Bank. The notes were indorsed. This is clear from the indorsement and the signature of the said Christos Simos on the back of the notes. There is not one iota of evidence to show that these notes were delivered to the bank “for collection” only. Mr. Simos, who was called for the defence, says they were only for collection. I do not believe him at all. In my opinion his evidence is just a pack of lies. I shall explain the reasons in a minute. The notes, as I said, were indorsed to the bank on January 17, 1955. (On the back of the notes the dates read “January 17, 1954,” but this is an obvious error and probably occurred because the clerk failed to change the seal of the bank in the New Year.) The bank documents in which these notes were entered show the correct date as January 17, 1955. The notes were originally three in number. One of them had been paid and was shown by the defendant in favour of Christos Simos, who in turn indorsed it to the bank, for the sum of £S400 maturing on May 1, 1955. The two notes subject-matter of this case and the note I have just referred to were all indorsed on January 17, 1955 The bank duly informed the drawer (the defendant) by a letter dated the same day that they were now the holders of the three notes and asked him (the defendant) to pay them the value on maturity. The defendant denied receiving such a letter. In my opinion the defendant is lying. For one thing I believe the bank when they say the letter was sent registered, and if it had not been received by the defendant it would have been returned. Secondly, he (the defendant) had settled the note that matured on May 1, 1955  which note was covered by the same letter which he denied receiving.

The bank is therefore a holder in due course, and the defendant must pay the value of the notes to the plaintiff.

The defendant, in my opinion, has no leg to stand upon, and what his advocate had done for him in obtaining from Christos Simos a release in the form of a receipt for £S.800 is simply a futile and ineffective attempt to circumvent the rules relating to negotiable instruments. Similarly, it is clumsy and futile on the part of the defendant to send to the bank in settlement of the promissory note two cheques drawn by Christos Simos himself. The bank, in my opinion, was quite right in rejecting those cheques. Why did not the defendant cash them and pay the value of the notes when they were presented to him for payment? The promissory notes were protested on July 9, 1955 The two cheques which were sent to the plaintiff by the learned advocate for the defendant were dated June 1, 1955, and July 1, 1955 Why did not the defendant himself cash them to settle the notes? The defendant, on protest, said: ‘ I refuse payment because Christos Simos is liable.” In my opinion this is a nonsensical answer. The defendant’s case, as stated by him, is that he made out these notes in favour of Christos Simos “in consideration of Simos giving him two post-dated cheques for the same amount.” The plaintiff further stated that he had received no value for the notes. Mr. Simos also gave evidence. I have already said his evidence is unsatisfactory. Though he was called by the defence, he gave evidence that the notes were in consideration of goods, a motor-car, which was in fact not, received by the defendant. How could the notes say “For goods received,” when in fact no goods were actually received? How could he say in the receipt that he received £S.800 from the defendant when in fact, as he himself had admitted, he has not? It is clear beyond doubt that Mr. Simos is not telling the truth about these notes; the notes were subscribed by the defendant in favour of Simos as a sort of accommodation. This form of business is, unhappily, quite prevalent, but to say the least, as far as Mr. Simos is concerned, it may be obtaining money from the bank by false pretences. What happened was that Mr. Simos had arranged with the plaintiff (the bank) to discount promissory notes for him. The bank, of course, assumes that Mr. Simos will deliver to them genuine notes. Mr. Simos would then arrange with some of his friends to subscribe to him notes for value, but as an accommodation, and he would then discount them at the bank. On the date of maturity of the notes Mr. Simos hopes to be able to pay them. If he is unable to, the bank as a bona fide holder for value without notice, can follow either Mr. Simos or the defendants. It is not, as a holder in due course, affected by any irregularity. Therefore all the attempts of the defendant to shift from himself the responsibility for payment are of no avail. I thought that the legal position of the defendant was so elementary as not to need argument, but apparently advocate Guma’a does not think so, and he argues that his client is not liable, because by a sort of fiction he had “settled” with Mr. Simos.

Mr. Simos had mentioned that he gave the notes to the bank “for collection” only. It is not necessary for me to decide this point. But if I have to decide it, in my opinion, the notes were indorsed to the bank by Mr. Simos. The indorsement on the back of the notes is clear. In adition, Mr. Simos had a bill account with the plaintiff bank and delivered to them these notes. The bank duly informed the defendant that it was holder, and one of the notes, as we have seen, has actually been honoured by the defendant or by somebody on his behalf, most probably Mr. Simos himself But let us assume that these notes were genuine notes (i.e.for values)  If Mr. Simos claimed from the defendant the value of the notes  the defendant should have either refused to pay Mr. Simos as he is no longer the holder, or he should have raised an interpleader under Civil  justice  Ordinance 1929,s. 130.

For these reasons judgment will be entered in favour of the plaintiff for the  sum of LS.800 with 9 per cent. interest from July 1, 1955, until settlement, with costs.