LEGAL PRINCIPLE: BANKING LAW – Banker-Customer Relationship – Collecting Bank’s Right to Debit Customer’s Account – Where Customer Draws Against Uncleared Cheques That Are Subsequently Dishonoured
PRINCIPLE STATEMENT
It is common ground on the pleadings that these cheques in all to the value of N185,650.00 were paid 'in or about December 1978/June 1979' into the defendant's account at Maiduguri and that the Bank in course of its normal banking duties dispatched the cheques for payment by the Kano City branch.' Without waiting for the usual period to ensure clearance of the cheques the defendant withdrew from his account the total value of the uncleared cheques. Eventually, the Bank did not receive the total or any value of the five cheques even-though the defendant had received benefit of the total amount of the cheques. After abortive attempts to make the defendant perform the undertakings he had given to repay the sum of N185,650 being value he had received for the uncleared cheques, the Bank debited the defendant's account with that amount and so advised the defendant... The collecting bank has a duty to present a cheque within a reasonable time after it reaches him. He is liable to his customer for loss arising from delay. When a cheque is dishonoured the collecting bank's duty is, in my opinion, prescribed by section 49 (m) of the Act... The question whether a collecting bank, apart from being an agent, also becomes a holder for value of a cheque is one dependent on the facts. The mere fact of crediting the customer's account before receipt of the proceeds of a cheque does not make the bank a holder for value... Where cheques are credited as cash prior to receipt of payment, the customer is entitled to draw on them at once only if there is an agreement, express or implied, to that effect. If a cheque received for collection is dishonoured or if the banker has to account to the true owner for the proceeds, the banker is entitled to debit the customer's account accordingly.
RATIO DECIDENDI (SOURCE)
Per Ayoola, JSC, in Bank of the North Ltd. v. Alhaji Bala Yau (2001) NLC-2501993(SC) at pp. 34–35; Paras A–C.
"It is common ground on the pleadings that these cheques in all to the value of N185,650.00 were paid 'in or about December 1978/June 1979' into the defendant's account at Maiduguri and that the Bank in course of its normal banking duties dispatched the cheques for payment by the Kano City branch.' Without waiting for the usual period to ensure clearance of the cheques the defendant withdrew from his account the total value of the uncleared cheques. Eventually, the Bank did not receive the total or any value of the five cheques even-though the defendant had received benefit of the total amount of the cheques. After abortive attempts to make the defendant perform the undertakings he had given to repay the sum of N185,650 being value he had received for the uncleared cheques, the Bank debited the defendant's account with that amount and so advised the defendant... The collecting bank has a duty to present a cheque within a reasonable time after it reaches him. He is liable to his customer for loss arising from delay. When a cheque is dishonoured the collecting bank's duty is, in my opinion, prescribed by section 49 (m) of the Act... The question whether a collecting bank, apart from being an agent, also becomes a holder for value of a cheque is one dependent on the facts. The mere fact of crediting the customer's account before receipt of the proceeds of a cheque does not make the bank a holder for value... Where cheques are credited as cash prior to receipt of payment, the customer is entitled to draw on them at once only if there is an agreement, express or implied, to that effect. If a cheque received for collection is dishonoured or if the banker has to account to the true owner for the proceeds, the banker is entitled to debit the customer's account accordingly."
EXPLANATION / SCOPE
When a customer draws against uncleared cheques that are later dishonoured, the bank is entitled to debit the customer’s account for the value received. The bank must present cheques within a reasonable time—delay may cause liability. Mere crediting before proceeds are received does not make the bank a holder for value. The customer may draw immediately only if there is express or implied agreement. If cheques are dishonoured or the bank must account to the true owner, the bank can debit the customer. The customer cannot retain benefit without payment. The right to debit arises from the implied undertaking that the customer will repay if cheques are dishonoured. The bank’s right is equitable—preventing unjust enrichment. The customer’s admissions of liability strengthen the bank’s case. Waiver of notice of dishonour may be inferred from conduct.