LAWS 324

CORPORATE LAW 2

BILLS OF EXCHANGE

The practice of using bills of exchange was originally developed by merchants

engaged in international trade. In the early days the means of exchange were silver
and gold and the purpose of employing bills of exchange was to minimize the risk
involved in carrying these precious metals from one country to the other in
settlement of debts arising from their commercial transactions. If Tom in Country A
owed Jolly in country B N100.00 and if Ben in country B owed Tom in country A
N100.00 it was considered absurd that Tom should ship gold to Jolly in country B and
that Ben should ship back the same quantity of gold to Tom in country A since all
these involved risks of loss through shipwreck or theft.
What Tom would do instead is to instruct Ben to pay Jolly N100.00 or its local
equivalent, thereby discharging his liability since Ben and Jolly were in country B.

Sometimes the instructions were framed in such a way that payment was ordered to
be made on demand and at other times that it be made at a future date. These are
the origins of bills of exchange and subsequently they began to be used for internal
transactions also.

Section 3(1) Bills of Exchange Act, 1990

Provides:
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 particular person or to bearer.

It is necessary to emphasize some of the key points embodied in the definition for if
they are not strictly complied with, the document will not be a bill of exchange under
the Act.
1. The directive must be unconditional e.g a document which contains an
additional instruction, such as to pay money and do other things else e.g
dispatch goods, is not a bill of exchange within the Act.

2. The instruction must be peremptory in other to constitute an order as required

by the definition. Thus, a mere request is not enough, though the addition of
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 a polite word such as “please pay” does not make the instruction any less
imperative.

Note that the order must be in writing and writing include type-writing and
printing. The drawing of a cheque in pencil is not prohibited but it is not
encouraged by the banks because of the ease with which it can be fraudulently
altered

3. To pay on demand or at a fixed determinable future time

A bill is payable on demand if it is expressed to be payable on demand or at
sight or on presentation if no time for payment is expressed.

A bill is payable at a determinable future time if it is expressed to be payable at a

fixed period after date or sight or at a fixed period after the occurrence of a specified
event which is certain to happen though the time of the happening may be uncertain.

An instrument expressed to be payable on contingency is not a bill, and the

happening of the event does not cure the defect. Where a bill is payable at a future
date, three days of grace are added. If the last day of grace falls on a Sunday,
Christmas Day or Good Friday, the bill is due and payable on the preceding day. And
if the last day of grace is a public holiday (other than Christmas Day or Good Friday)
or when the last day of grace is a Sunday and the second day of grace is a public
holiday, the bill is due and payable on the succeeding business day.

Now, if Bisi Oni in Lagos owes Adaka Hayato in Tokyo, Japan N50,000.00 and Asa Nola
also in Tokyo owes Bisi Oni in Lagos N50,000.00 the latter can extinguish his liability
by drawing a bill of exchange thus:

N50,000.00 Lagos
23-01-2022
Pay to Adaka Hayato the sum of
Fifty Thousand Naira
To: Asa Nola Bisi Oni
Tokyo, Japan Sgd.

Parties
There are three parties to this bill. Viz:
i) Bisi Oni who is called the drawer because he has drawn up the bill
ii) Asa Nola who is called the drawee because he is the person on whom the bill
is drawn

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iii) Adaka Hayato who is called the payee because he is the person to be paid
After drawing up the bill Bisi Oni will send it to Adaka Hayato the payee, who will in
turn take it to Asa Nola, the drawee and demand payment. The latter will then pay
the N50,000.00 and the transaction is completed. This is the simplest form of a bill of
exchange and is known as a demand bill because it is payable on demand. Often a bill
of exchange is more complicated than this because of the complications and
intricacies of modern business arrangement.

Let us suppose that in the above example Asa Nola’s liability to pay Bisi Oni will not
arise until the latter has sent him some consignment of cocoa beans and he has
inspected same and found them satisfactory. In that event Asa Nola will most
probable not be willing to pay until the beans have arrived and been inspected in that
sort of situation. Bisi Oni will draw his bill to meet the circumstances. In other words
he will leave enough time for the goods to arrive in Japan. Viz:
N50,000.00 Lagos
23-01-2022
Ninety days after date pay to Adeka Hayato or
order the sum of Fifty Thousand Naira

To: Asa Nola Bisi Oni

Tokyo, Japan Sgd.

On receipt of the bill Adaka Hayato will naturally wish to know whether Asa Nola
would honour it, that is, pay on the due date. Moreover, in the event of his
negotiating it to another person that person will want to know whether will want to
know whether the drawee. Asa Nola, will pay on it. For that purpose Adaka Hayato
or a transferee from him will present it to Asa Nola for acceptance. If he intends to
honour it then he will write the word “accepted” on the face of the bill and sign and
date it viz:
Accepted
N50,000.00 Lagos
sigd.
23-01-2022
Accepted
Ninety days after date pay to Adeka
Sgd. Asa or order the sum of Fifty
Hayato
Nola Thousand Naira
23-5-
To:
Asa Nola 2013
mayAsa
not Nola Bisithe
wish to accept the bill until Onigoods have arrived and been
inspected. ButTokyo, Japan that they will Sgd.
if he is confident arrive and will also prove satisfactory.
He will accept the bill. If for any reason the bill is not accepted, for example, because
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the goods are lost, Adaka Hayato will have to demand payment from his debtor. Bisi
Oni.

Once the bill is accepted, Adaka Hayato will present it to Asa Nola for payment ninety
days after its date, subject to three days grace discussed above.

But Adaka Hayato may not wish to wait for that long before getting his N50,000.00.
in that case he may decide to negotiate, that is transfer the bill to another person,
most probably for a little less than N50,000.00. in other words, he will probably
negotiate it at a discount.

As we have seen, however, it is essential that to negotiate a bill it must be in a

deliverable state. Now since the bill is not a bearer bill but an order one it will be
indorsed by Adaka Hayato before transferring it to say, Don Sukato, who becomes
the indorsee, while Adaka Hayato becomes the indorser.

The above are examples of what are called foreign bills because they are drawn on
person or payable to person outside the country, but also in common use are inland
bills which are so called because they are both drawn and payable within the country
or drawn within the country upon some person resident therein e.g

If James Obi in Enugu owes Duro Ajayi in Lagos N300.00 and if Kayode Oki also in
Lagos owes James Obi N300.oo on the Kayodi Oki also in Lagos will owe James Obi
N300.00 on the receipt of a consignment of rice which the latter is about to send to
him, James Obi can draw up a bill as follows and the comments made above apply to
it mutatis mutandis.

N300.00 Lagos
23-01-2022
Ten days after date pay
To Duro Ajayi or order
The sum of Three Hundred Naira

To: Kayode Oki James Obi

Broad Street, Sgd.
Lagos.

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 PROMISSORY NOTE

A promissory note is a promise in writing by a person to pay a sum of money to a

specified person or order. The usual form of a promissory note is like this:

N5,000 Ilisan January

10, 2016.

Three months after date. I promise to pay John

Amos or the Bearer the sum of N5,000 for the
value received.

Abel Carn

Characteristics of Promissory Note

Although this is the usual form, no particular form of words is requisible. It may take
any other form. But in any case, it must possess the following characteristics.

1. Writing: The first essential is that all negotiable instruments must be in writing.
An oral engagement to pay a sum of money is not an instrument, much less
negotiable. The writing may be in ink or pencil.

2. Promise to pay: Secondly, it must contain a promise to pay. A mere

acknowledgment of debt is not a promissory note. Where a note was made in
this form “IOU, Mr. James the sum of sedeteem dollars for value received”. The
court held that it was not a promissory note. The court started in order to
constitute a good promissory note, there should be an express promise to pay
the money. While such promise need not be expressed in any particular form
xxxxx, the language used must be such that the written undertaking to pay may
be fairly deduced therefrom.

Similarly, a mere receipt for money does not amount to a promissory note even
thought it might contain terms of payment.

Thus, in Akbar Khan V. Attar Sighn ILR (1936) 17 Lah 557, where a receipt stated
thus:
This receipt is hereby executed by B…… For N43,000….
received from A…. The amount to be payable after two years.
Interest at the rate of 5 percent to be charged.

The court stated:

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 The instrument is not a promissory note…. It is a receipt for
money containing the terms on which it is to be repaid. Being
primarily receipt, even it coupled with the promise to pay, it is
not a promissory note and it is not negotiable…… Receipt are
generally not intended to be negotiable.

Hence, to be make a promissory note, there must be an express undertaking to

pay the amount mentioned. A mere implied undertaking is not sufficient.

3. Unconditional: Thirdly, the promise to pay the money should be unconditional

or subject to a condition which according to the ordinary experience of mankind
is bound to happen. Thus, in Beardsley v. Baldwin (93) ER 1094, where a written
undertaking to pay a sum of money within so many days after the defendant
marriage was not recognized as promissory note, because possibly, the
defendant may never marry and the sum may never become payable.

Thus, in Roberts v. Peake (1757) 1 Burr 323, an action was brought upon a promissory
note made in the following form.
We promise to pay AB E 116. lls value received, on
the death of George Hindshaw provided he leaves
either of us sufficient money to pay the said sum, or
if we shall be otherwise able to pay.

The court pointed out that if the note had merely been made payable on the death
of George Hindshaw, it would have been a good promissory note, because death is
an event so certain and necessary that it is bound to happen and therefore, the note
will become payable at one time or the other. But, the other condition that it would
be payable provided, there would be sufficient funds left behind made the
instrument bad, because that was an uncertain event, an a note payable to an
uncertain contingency can never be negotiable instrument.

Also, in Williamson V. Rider (1963), where a document stated that the signer
promised to pay $100 on or before 31 December 1956”, it was held that the
document was not a valid promissory note. It went further to state that the
introduction of the date 31 December limited the time within which payment must
be made, but it did not fix the date of payment as required by law.

4. Money Only: The instrument must be payable in money and money only. If the
instrument contains a promise to pay something other than money or something
in addition to money, it will not be a promissory note. The sum of money payable
must also be certain. Negotiable instruments are meant for free circulation and
is their value is not apparent on their face, their circulation would be materially
impeded.
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 Thus, in Smith v. Nightingale (1818) 20 RR 694 held to be bad. I promise to pay
J.E. The sum of $65 with lawful interest for the same, three months after date,
and also all other sums which may be due to him.

The court held that the instrument was too indefinite to be considered a
promissory note. This was because, it contained a promise to pay interest for a
sum not specified and not otherwise ascertained than by reference to the
defendant’s books.

5. Certain Parties: The parties to the instruments must be designated with

reasonable certainly. There are two parties to a promissory note, namely the
person who makes the note known as the maker and the payee to whom the
promise is made. Both the maker and payee must be indicated with certainly on
the face of the instrument. It is not however essential that the payee should be
specifically mentioned provided on reading the document as a whole, there is no
doubt as to the person who is the payee.

6. Signature: The promissory note must be signed by the maker. In addition to these
requirements, the instrument must be intended by the parties to be a promissory
note.

CHEQUES
Section 73 of the Bills of Exchange Act defines a cheque as a Bill of Exchange drawn on a
banker payable on demand. A cheque being a bill of exchange, must therefore be an
unconditional order in writing addressed to a banker by a customer, signed by the
customer, requiring the banker to pay on demand a sum certain in money, to a person
therein named or to his order or bearer. Thus, a cheque is not money until it is presented
to a bank and paid. In Chindo Worldwide Ltd vs Total Nig Plc., it was held that until a
cheque is honoured or cleared and the amount stated on it paid, it is not money. Therefore,
mere lodgment of a cheque in a party’s account, as in this case, cannot be conclusive proof
of payment until the party’s account is actually credited with the amount.

TYPES OF CHEQUES
There are basically two types of cheques (1) Open cheque (2) Crossed cheque
An Open cheque is one which is paid over the counter of the drawee banker once the
identity of the payee or indorsee is not in doubt. If it is a bearer cheque then payment is
made to whoever presents it to the banker.
A crossed cheque on the other hand is one which can only be paid through the bank account
of the payee or indorsee of the cheque. Crossing may be general or special. A cheque is said
to be generally crossed where:-

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a) It bears across its face an addition of the word, “and company” or any abbreviation
thereof between parallel traverse line, either with or without the words “not
negotiable”
b) Two parallel traverse lines simply, either with or without the words “not negotiable”.
That addition constitutes a crossing, and the cheque is crossed generally.
On the other hand, if the cheque bears across its face an addition of the name of a banker,
either with or without the words “NOT NEGOTIABLE” and whether or not there are
transverse, or parallel lines on its face, the cheque is said to be specially crossed. This
crossing is a direction to the banker to pay only to the collecting banker named on the
crossing.
Illustration of General crossing
1) (2)

NOT ABC BANK

NEGOTIABLE IPERU
Illustration of special crossing

The effect of crossing a cheque is that the crossing becomes an information from the
customer drawer to his banker (ie the drawee paying banker) to pay the cheque to a banker
and not to pay in cash across the counter to the person who re-presents the cheque for
payment. If a cheque is generally crossed, it may be paid to any banker, but if it is specially
crossed then it must be paid to the particular banker mentioned on the cheque.
Note that crossings are designed to impose some restrictions on payment which restrictions
act as a safeguard. Apart from the drawer of a cheque, a holder of an open cheque may
cross it or add to a crossing in a crossed cheque such as by converting a general crossing
into a special one or adding the words “not negotiable”
Sometimes cheques are crossed when they are printed and a drawer may before issuing
such a cheque “Open” the crossing and sign the alteration.
Note that all crossed cheques should be paid through a banking account and not by cash,
and if is specially crossed, payment should be made through the particular banker
mentioned on the cheque

Relationship between Banker and Customer

The relationship between a banker and customer is not a fiduciary one but a simple
contractual relationship of debtor and creditor. The customer is the creditor when he has
funds in his account, in which case the banker is the debtor; when his account is overdrawn,
the banker becomes the creditor. However, this contractual relationship does not become
enforceable until there has been a demand for payment of the debt. As a result of this
contractual relationship, a number of obligations arise between a banker and a customer.
Thus in Jimoh Agoro Oweye v. Wema Bank Ltd, It was held that if a customer of a bank
draws a cheque when he has no sufficient funds to meet the withdrawal and the cheque is
honoured by the bank in spite of insufficiency of funds, it amounts to an approval of an
overdraft by the bank to the customer, of the excess above the funds in the customer’s
account.

Duties of a customer

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(a) Duty of care: The customer is under the duty to take a reasonable care in drawing his
cheques so as to draw the cheque in a manner which may not cause or facilitate the
alteration of the amount. A breach of this duty will entitle the banker to debit the
account of the customer with any altered amount, provided the banker pays the
altered cheques in good faith and without negligence. In Nigerian Advertising Services
Ltd v. United bank for Africa Ltd (1965) LL.R84 the plaintiff was a customer of the
defendant. The D paid out three cheques belonging to the P which had been forged by
a manager in P’s employment and debited the account of P with the value of the
cheques. P sued D for wrongfully debiting its account. At the trial evidence was led to
show that the P’s cheque books were kept in a locked drawer to which the messenger
possibly had a master key. The court held that the plaintiff was not guilty of negligence
in keeping its cheque book and that where there are forgeries which are not due to
the customer’s negligence; it is the duty of the banker to credit the account of the
customer whose cheque had been forged.

(b) The customer has a duty to report promptly if he discovers that there is forgery of his
signature. If he fails to notify his banker of a discovered act of forgery, he will not be
entitled to contend that the cheques were forged and his banker will be justified to
debit his account with amount paid on the forged cheque. Thus, in Greenwood v.
Martins Bank Limited, (1933) A.C.1 a husband failed to notify his bank when he
discovered that his wife had forged cheques in his name and relied instead on her
promises not to do so again. When she did in fact forge further cheques and the
husband found this out, she committed suicide. The husband brought this action
against the bank to prevent it from debiting his account with the amount of any of the
forged cheques. The Court held that the husband was precluded from making such a
claim in respect of all the cheques by his own failure to notify the bank of the original
forgeries.

(c) Where the customer has been permitted to overdraw his account, he is under a duty
to repay such amount as he may draw, on demand by the banker.
(d) The customer owes a duty to the bank to check the accuracy of the statements of his
account sent by the bank.
(e) A customer is duty-bound to pay for services rendered to it by a bank as every business
is not charity. In Faagol Inst Ltd v. National Bank of Nigeria Ltd, (1993) NWLR pt 717,
1it was held that a bank is not charitable organization. It is in business for making
profit. Therefore, a customer is, by implication, obliged to pay for services rendered to
him by the banker.
Banker’s Duties to its Customers
(a) Duty to obey a customer’s mandate: The relationship between the bank and its
customer is contractual: that of a debtor and creditor. The bank has an implied duty
to honour its customer’s cheques (i.e. to carry out the customer’s order to make
payment out of his account subject to the customer’s credit or to the extent of any
overdraft. Where a bank fails to observe its duty by wrongful dishonor of the
customer’s cheque, the bank will be liable for breach of contact. Consequently the
customer will be entitled to sue the bank for damages for breach of contract. This
remedy can only be enforced against the bank where:

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 (i) The bank has used defamatory words to describe its reason for dishonouring
the cheque;
(ii) The bank has returned the cheque to the person who presents it over the
counter or to the presenting bank.
The following words if used as reasons for dishonouring a cheque have been
held to amount to defamation:- (a) “Not sufficient”(b) “Refer to Drawer”
Whereas, “Indorsement Irregular”, “Words and figures differ” will not be held defamatory
because unlike “Not sufficient” or “Refer to Drawer”, they do not suggest that the
customer’s credit balance was inadequate to meet the cheque.

By section 75 of the Act, the bank’s duty to honour its customer’s cheque will come to an
end on the occurrence of any of the following:
(i) When there is a countermand of payment by the customer (i.e. an order by the
customer that the cheque should not be paid); a countermand must be
authenticated (i.e. actually signed and confirmed by the customer) and it must have
been brought to the knowledge of the banker. Thus in Curtice v. London City and
Midland Bank, (1908) IKB, 293 a telegram sent to the bank stopping a cheque was
dropped into the bank’s letter box. There was delay in clearing the box, and in the
meantime the cheque was presented and paid. The customer sued the bank for
debiting his account with the amount paid in the cheque, but his action failed. Since
it was held that the cheque had not been countermanded until the manager became
aware of it.

(ii) Notice of presentation of a bankruptcy petition against the customer;

(iii) Where the bank receives notice of the customer’s death;
(iv) Where a petition for the compulsory winding-up of a customer (limited liability)
company is presented;
(v) Where a garnishee order has been served on a bank;
(vi) The account contains trust fund and there is notice of breach of trust.
(b) Duty to pay when there is authority: The bank is not only duty-bound to honour
cheques drawn on it by the customer, it must also ensure that there is proper
authority to pay before honouring the cheques or a cheque. Thus where there are
material and apparent alterations on a cheque or a cheque countermanded and the
bank still pays, it will be liable to the customer. See Bank of the North v. Alhaji Adamu
Ali Maidamisa(1997)1 ONWLR pt 525, p.408.

(c) Duty of secrecy: In order to protect the customer’s private and business interests, a
bank is under a duty of non-disclosure of the financial affairs of customer. This duty
will subsist even after the termination of banker-customer relationship.
Thus, in Tournier v. National Provincial and Union Bank of England, (1924) 1KB 461 T
defaulted in agreed installments of repayment of his overdraft. The bank telephoned
his employers to obtain T’s home address. In that conversation the bank disclosed
that T had suffered betting losses (paid by cheque) and when T’s contract of
employment expired soon afterwards it was not renewed. T sued the bank.

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 The court held that there was a contractual duty on the bank not to disclose or
divulge any facts relating to its customer which the bank discovers while acting in its
capacity as a banker. A bank can however, make disclosure without incurring liability
in the following cases:
(i) Where disclosure is required by law, e.g. under a court’s order;
(ii) Where there is a public duty to disclose;
(iii) Where disclosure is required in the interest of the bank, e.g. if the bank is suing
to recover an overdraft;
(iv) Where the customer permits his bank to make disclosure of his accounts;
(v) Where disclosure is required to protect the interest of a third party who wishes
to have a banker’s reference.
(d) To exercise reasonable care and skill in carrying out the customer’s instruction: In
Akwara v. IBWA Ltd, the court held that where a bank which is also an agent of the
customer is required to give a report which is important for the effectuation of a
certain business transaction and any adverse report could be fatal or jeopardize the
interest of the customer, the bank owes it a duty of care to exercise utmost care in
making such report. There is a duty of care, and where in making such a report
evidence shows that there was manifest negligence, the duty of care has been
broken
(e) To repay deposits and honour withdrawal demands pursuant to the customer’s
mandate.
(g) To pay interest on customer’s deposit.
(h) Tor redeliver securities upon settlement of all obligations by the customer

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