(COURT OF APPEAL)*

MOHAMED OSMAN HAMRA v. COMMERCIAL BANK OF SUDAN

AC-REV-117-1966

 Principles

·  Negotiable Instruments- Discounting of bills—It is an act of purchasing the bill and not an act of money lending

·  Banking-Appropriation of payment in current account -Where neither the bank nor the customer has made any appropriation; the law appropriates the payment to the earliest debt.

(i) Discounting of bills is not an act of money-lending, but it is one of purchasing the bills at their face value.’
(ii) In cases of current account, provided that there has been no appropriation by the bank or the customer, then the law appropriates the payment, i.e., it s the first item on the debt side that is discharged or reduced by the first item on the credit side. Clayton’s case is applied.

Judgment

Advocates; Ahmed Suliman for applicant

Mohamed Beshir Abelel Rahim for respondents

Babiker Awadalla C.J. February 6, 1967: —This is an application against the summary dismissal by His Honour the Province Judge, Khartoum, of an application to him against the judgment and decree of the learned District Judge, Khartoum, in CS-332-1964.

The claim as shown on plaint is for recovery of a sum of £S.2, 750.800m/ms. “cash loan in consideration of bills discounted” by the respondent bank (plaintiff) together with interest thereon.

Applicant (defendant) though admitting the loan and discounting of the bills contested the claim on an allegation of repayment of the loan.

The court framed one issue, viz.:

Did defendant settle the sum in issue?’’

No evidence was adduced by applicant save his own statement in which he asserted that he had settled bills of a later date than the ones forming the subject-matter of the present claim. He admitted that he has no documentary evidence of having paid the amount claimed.

Respondents produced the relative documents, which appeared to be promissory notes drawn by a certain Abdalla Mohamed Nabag in favour of applicant and indorsed by the latter to respondents. Those notes were as follows

(i) Note dated January 10, 1963 for a sum of £S.780.500m/ms. payable on April 1, 1963.

(ii) Note dated January 6, 1963, for a sum of £S.720.000m/ms. payable on April 6, 1963.

(iii) Note dated February 9, 1963, for a sum of £S.5000.000m/ms. payable on April 9, 1963.

(iv) Note dated February 25. 1963, for a sum of £S.75o.300m/ms. pay able on May 28, 1963.

(Ex. 2.)

They also produced two letters from applicant to them, viz.: Exs. 8 and 4 dated April 25 and May 8, 1964, respectively. Those letters were answers to claims made by them for settlement of the amount now claimed.

In those letters applicant did not at all contest the claim but simply stated that he was “coming for a meeting with them for negotiations.”

The learned District judge allowed the claim and save judgment in favour of respondents (plaintiffs). He dismissed applicant’s contention that settlement of later bills was evidence of settlement of earlier ones. Furthermore, in the view of the learned District Judge, the wording of the letters (Exs. 8 and 4) was inconsistent with denial of liability.

Application to His Honour the Province Judge against that decision was summarily dismissed and hence the present application.

In my view this case is not the simple one as it appears. The cause of action disclosed by the plaint is “recovery of money lent in consideration of bills discounted.”

The discounting of bills cannot be the consideration for “money lent,” for money lent is recoverable without proof of consideration, its historical basis being the action of “debt” and not “assumpsit.”

What appears to me to have happened in this case is that respondents accepted the bills for discounting in their normal course of business as bankers. Now, the discounting of bills is not an act of rnoney1ending, but it is one of “purchasing” the bill at its face value (i.e., the sum for which it is drawn) LESS the amount of interest on the bi for the time to elapse before it falls due for payment” (cf. Evelyin Thomas, Banking and Exchange, 98).

If in the present case applicant was a customer of the respondent bank and kept an account with them, then most probably respondents would have credited his account with the face amount of those bills, and debited him with the discount and other charges.

In the meantime the respondent bank would have become a holder’ in due course and could have negotiated the bills, and if at the time of their maturity the bills were not paid the respondent bank, or if it had negotiated the bills, any other holder, would be entitled to proceed against all parties provided the necessary formalities under the sills of Exchange ordinance had been complied with.

To contend therefore that this was a money-lending transaction would simply be t to give it a deceptive colour which does not hold.

Applicant had himself submitted to the court three promissory notes drawn by the same Abdalla Mohamed Nabag in favour of applicants and also discounted with the respondent bank apparently at later date than those now under consideration. Those three notes were:

(i) Note dated March 30, 1963, for a sum of £S.670.600m/ms. payable on June 30, 1963.

(ii) Note dated July 8, 1963, for a sum of S.750.300m/ms. payable on October 8, 1963.

(iii) Note dated July 10, 1963, for a sum of £S.675.200m/ms. payable on September 10, 1963.

The total of those three notes was therefore £S.2, 096,100m/ms.

The learned District Judge in his judgment dismissed applicant’s contention about the relationship of those latter bills to the earlier ones as being irrelevant to the point in controversy, for in the learned District Judge’s opinion each note gave rise to an “independent obligation which could be settled without affecting earlier or later bills.”

Now, I cannot say whether that would be true or otherwise in the case of a casual deal with a bank, but it is certainly not true in the case of a customer who keep6 a current account into which the proceeds of the bills are paid and when the discounting takes place. When such a customer draws money out of his account to the extent of those proceeds and later the bills are dishonoured and their value debited to his account so that he becomes a debtor by virtue of his liability under the bills, then if he pays money in discharge of that liability, the rule Devaynes V. Noble, Clayton’s Case (1816) 1Mer. 572, would apply. The ratio decidendi of that case is a follows:

“When a current account is kept between parties as in the case of accounts between bankers arid their customers, if there is no expressed intention to the contrary and no special circumstances from which such an intention can be implied, the account rendered is evidence that the payments in on one side are appropriated to the pay out on the other side in the order in which they take place; i.e., that the first item on the debit side is discharged or reduced by the first item on the credit side.”

Evidence is therefore essential as to what the real relation between, the parties is in this case and whether or not their dealings were recorded in the manner of a current account. If the relation of banker and customer is established and a current account is proved to have been kept then the specific question should be ascertained whether any—and if so what— express or implied appropriation has been made by either party at the time of payment. If no such appropriation is established then the law appropriates the payment and the first item on the debit side is discharged by the first item on the credit side.

In such a situation, it would not be in the mouth of respondents to contend that the value of later bills as shown in the account was paid first.

This application should therefore in my view be, and is hereby accordingly allowed with costs and case sent back for a proper hearing The attention of the court is drawn to the fact that, should respondents elect to invoke the promissory notes, then they have to establish that the proper formalities required by the Ordinance as to protest a notice thereof, should be proved to have been complied with.

Osman El Tayeb J. February 6, 1967: ---I agree that this case has to .go back for reconsideration.

No experienced advocate would make the cause of action, as in this case, a loan, the consideration of which is promissory notes for discounting. A loan, an action of debt, requires no consideration; it is either a debt (money advanced) or no debt. On the other hand, the consideration for a promissory” note is presumed (see Bills of Exchange Ordinance, s. 29 (1)), and it does not arise unless specifically contested.

In a case of this kind, the cause of action is either for be promissory notes or for the consideration, and bankers normally sue on the notes according to the nature of their business. It is not clear here on what b is suing.

When a cause of action is balance of debt then the whole dent must be proved then the payment in and the balance. Where the cause action is collection of promissory notes handed over for discounting, then the relationship with the bank must be proved as a matter of fact.2 Halsbury, Laws of England, 226 (3rd ed., 1953), says:

A banker discounts a bill, as opposed to taking it for collection as a security for advances, when he takes it definitely and at once as transferee for value. It does not matter that the amount of the bill, less discount, is carried to current account. In the case of customer that is the usual course. Whether the bill is taken for collection or as security, or discounted for him, is a question of fact,

In the case of current account the rule of appropriation of payment in, Clayton’s case applies.