TRUST BANK LIMITED V
PARAMOUNT UNIVERSAL BANK LIMITED & 2 OTHERS [2009] EKLR.
In this case the Plaintiff’s alleged that on the 9th, 11th,
14th, 15th and 16th September, 1998 respectively, with full knowledge of the
imminent closure of the Plaintiff Bank by Central Bank, the 2nd and 3rd
Defendants who were directors of the Plaintiff Bank, fraudulently caused a run
on the Plaintiff Bank by siphoning money out the Plaintiff Bank before its
closure, in gross abuse of their positions of trust. The Plaintiff further alleged that the funds
fraudulently siphoned or defrauded out of the Plaintiff Bank included the sum of
Kshs.4, 927,792.50 being the total value of seven (7) Bankers cheques drawn on
the Plaintiff in favour of Universal Bank Limited and one Banker’s cheque drawn
in favour of Paramount Bank Limited. The
cheques were crossed. The court held that the 2nd and 3rd Defendants had a
fiduciary duty as directors of the Plaintiff Bank to act as agents of the
Plaintiff and therefore owed a duty to the Bank to exercise an independent
judgment accordingly. In allowing Trust Capital Services Limited to overdraw
its account, the two Defendants failed in their fiduciary duty to the
Plaintiff. The fact that the two Defendants were signatories of, and sole
directors and subscribers of Trust Capital Services Limited, must have informed
their decision to allow the overdrawing of the Plaintiff’s account. The Court
held that the two contravened the clear provisions of section 11 of the Banking
Act and therefore held liable for the loss suffered by the Plaintiff to the
extent claimed and proved in this case.
The court in this case
relied on the principle that was laid down in the case of Banque Belge
vs. Hambrouck [1921]
1 K.B. 321. Where the court held that:
“If Cheques be obtained by fraud and then transferred by the fraudulent
holder to a transferee without consideration, the transferee acquires no better
title to hold them than the fraudulent holder had.
If the
fraudulent holder or his voluntary transferee pays the cheque into a Banking
account, quaere where the true owner, having a right in equity to follow the
proceeds or so much thereof as remains to the credit of the account, can
recover the same amount by an action at law against the Bankers or their
customer for money had and received.”
Another reasoning that the court relied on is the ruling that
was made on unjust enrichment as was enunciated in Lipkin Gorman (a firm) v.
Karpnale Ltd [1992] 4 All ER 512 at 534, [1991] 2 Ac 548 at 580:
“…The
mere fact that the [recipient] has spent the money, in whole or in part, does
not of itself render it inequitable that he should be called upon to repay,
because the expenditure might in any event have been incurred by him in the
ordinary course of things”
In
such a case, the recipient is still as enriched by the receipt of the stolen
money as if he had retained the original coinage in his hands. In a simple case where the recipient has
received the money and has done nothing with it, or had merely used it to pay
for things which he would have had to pay for out of other resources, there is
no reason why the victim of the theft should not recover what is stolen and no
reason why the recipient should continue to be enriched. Any such enrichment would be unjust. .The second principle is that of restitution as enunciated in the case of Barros Mattos Jnr. v. Macdaniels [2004]
3 All ER 299 at page 303, the court stated the principle as follows:
“The starting point of
the claim is the principle that someone who receives stolen money is placed
under a legal obligation to hand it, or an equivalent sum, back to the rightful
owner. If he does not, he will be unjustly enriched. The obligation on the recipient is personal. It is not dependent on the stolen money being
still in the recipient’s hands.
As per my view, the court decision was legally sound on the
basis of the doctrine of trust. The directors held the funds in trust for the
customers of the bank and drawing that money and later depositing in another
bank shows their ill will because they drew the money on hearing that the bank
was due to be closed by the Central Bank and that they did that out of malice.
Since they had broken that trust, it is imperative that they returned the money
because in the first instance, it was not their money and holding that the
money would unjustly enrich them. This could also prevent bank officers from
drawing on their customers’ deposits when they sense imminent closure believing
that the customers will be compensated by the Deposits Protection Fund provided
for under the Act.
VICTORIA
COMMERCIAL BANK LTD V INTRA AFRICA ASSURANCE CO LTD(2000)
KLR 446
The plaintiff at the request of a company known as Universal
Apparels Limited agreed to make available certain facilities and the directors
of the bank were to execute personal guarantees in favour of the plaintiff. In
addition, the company was required to provide performance bonds issued by a
reputable insurance company for US$ 1 million. These securities were given. The
plaintiff thus issued the monies and provided banking facilities and other
financial accommodation to the company and later the company defaulted leading
to the plaintiff’s call of the performance bonds which the defendant refused to
settle arguing that no event upon which the performance bond was payable had
occurred.
The court held that:
A
performance guarantee is similar to a confirmed letter of credit. Where a bank
has given a performance guarantee, it is required to honour the guarantee
according to its terms and is not concerned whether either party to the
contract which underwrites the guarantee is in default. The only exception is
where there is fraud by one party on the underlying contract and the bank had
notice of that fraud.
The court relied on the holding in Edward Owen Engineering Ltd v Barclays Bank International Ltd(1978)1
All ER where it was held that a performance guarantee was similar to a
confirmed letter of credit.
Since the defendants guarantee provided for payment on
demand without proof or conditions, and was in nature of a promissory note
payable on demand, the defendants were required to honour their guarantee on
demand made.
KITUI
TOBACCO DISTRIBUTORS LTD V BARCLAYS BANK OF KENYA
(2001)KLR 667
In this case, the plaintiff had issued two cheques to pay its
creditor. The defendant bank paid the creditor at its Nairobi Branch but the
cheques were stolen before the bank had debited the plaintiff’s account at
Kitui. The bank subsequently did the debiting 18 months after the cheques were
issued but before it had received them. The plaintiff sued arguing that the
bank should not have debited the account in Kitui in the absence of the two
cheques and that since six months had elapsed since the stealing of the
cheques, or even if they, were not stolen, and such was a long time rendering
them stale.
The issues before the court were whether the loss of a cheque
revokes the banker’s authority to pay and when a cheque becomes stale, what a
banker’s lien is, its parameters and when it accrues or not.
The court held:
The
defendant as a holder for value, had a lien for the amount of money represented
on those cheques and as a banker, this was therefore a banker’s lien. That, the
general lien of a banker attaches to all securities deposited with them as
bankers and that the lien attaches when the securities have come onto the
banker’s hands and not on securities or articles in the banker’s hands for safe
custody but does extend to cheques and bills paid in for collection. That the
defendant was bound under section 73(1) of the Bills of Exchange Act the
defendant bank was bound to pay cheques drawn on it and that under section 75
of the Act, the duty and authority of a banker to pay a cheque drawn on him by
his customer are determined by a countermand of payment or notice of the
customer’s death, lunancy, bankruptcy or a garnishee order, defect in title of
the bill’s presenter or a notice of breach of trust. That loss of a cheque or
lapse of time are not reasons enough for revocation of a cheque and that a
cheque only becomes stale where a banker has refused to accept it for payment
and not because it has stayed for six months or more without being presented
for payment.
OCHWADA
V KENYA COMMERCIAL BANK LTD(2003)KLR
453
The
plaintiff was a customer of the defendant bank. The defendant returned the
plaintiff’s cheques unpaid on the grounds that payment required the drawer’s
confirmation. The plaintiff sought special damages for loss of profit including
business opportunity and general damages for libel and breach of contract. The
issue before the court was whether the remarks on the cheques that were
returned were libelous or not and whether thy lowered the plaintiff’s
reputation in the minds of right thinking Kenyans and whether the bank owes a
customer a duty of care and if failure to render such care in instances where
it postpones the payment of a cheque amounts to breach of duty.
The
court held:
The
words “payment requires confirmation” on the returned cheques were not libelous
and nor did the words have the effect of lowering the plaintiff’s reputation in
the minds of right thinking Kenyans. That the bank acted prudently and
reasonably as they merely postponed the payment of the cheque awaiting
confirmation and the postponement was justifiable on the circumstances of that
case and since this was justifiable, there was no breach of contract.
STEPHEN V EURO BANK
LIMITED AND ANOTHER(2003)
KLR119
The applicant deposited
Kshs 30 million in Barclays Bank Hamilton House Branch thereby obtaining Fixed
deposits receipts which were for six months. Upon expiry of the same, he went
to withdraw the money but was informed that the deposits were under
investigation. The bank showed him some warrants served on it by the police
freezing the accounts. The applicant challenged these documents as having been
issued unlawfully and without jurisdiction
The issue before the
court was whether the bank was bound to disclose on the customers state of
accounts and whether there was exception to the rule.
It was held:
A
banker is not bound to disclose the state of a customer’s aacounts except on
reasonable grounds such as where the disclosureis under compulsion by law or
there is a duty to the public to
disclose or where the interest of the bank requires the disclosure or where the
disclosure is made by the express or implied consent of the customer.
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