Karamshi & Company Limited v Credit and Commerce Finance Limited [1996] KECA 115 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed you must pay a promissory note if the holder took it in good faith, even if the original deal collapsed.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the High Court erred in striking out the appellant's defence and entering judgment despite alleged bona fide triable issues
- 2.Whether the respondent was a holder in due course of the promissory notes and whether any failure of consideration could be raised against it
- 3.Whether non-presentment of the promissory notes for payment discharged the maker
- 4.Whether the alteration of the maturity dates of the promissory notes invalidated them as unauthorised material alterations
- 5.Whether the plaint disclosed a cause of action
- 6.Whether the defence denial that Imara endorsed the notes to the respondent raised a triable issue
Key legal issues
#Holder in due course and failure of consideration
The respondent was a holder in due course under section 29(1)(b) of the Bills of Exchange Act; the appellant's defence pleaded nothing to displace that status, and the subsequent seizure and mistaken return of the goods by the C.I.D. could not found total failure of consideration against the respondent.
Title in the goods had passed to the appellant on delivery; their later seizure as suspected stolen goods did not render the original transaction illegal or cause total failure of consideration. Even if Imara had sold stolen goods, that defence would avail only against Imara, not against a holder in due course without notice of any defect, as Chalmers on Bills of Exchange states.
Presentment for payment
Since no particular place of payment was appointed in the notes, presentment was unnecessary under section 88(1), and the maker was not discharged; nor did the plaint need to plead presentment.
Section 88(1) provides that unless a note is made payable at a particular place, presentment is not necessary to render the maker liable. Section 89 makes the maker liable according to its tenor and precludes denial of the payee's existence and capacity to endorse to a holder in due course. Only if presentment were necessary would it need to be pleaded.
Alteration of the promissory notes
The alteration of the maturity dates was made at the appellant's request and was for its benefit, so it was neither unauthorised nor material and did not invalidate the notes.
Under section 64(1) only a material alteration without the assent of the parties invalidates a bill. The respondent's credit manager deponed that the appellant requested a 90-day extension, which the appellant did not deny. The alteration was therefore assented to and, being an extension for the maker's benefit, not material in any event.
Endorsement to the respondent and sufficiency of the defence
The appellant's denial of endorsement was a bare general denial contradicted by its own advocates' letter admitting endorsement, so no triable issue arose and the striking out of the defence was proper.
A general denial does not raise a bona fide triable issue. The appellant's then advocates wrote admitting that Imara endorsed the notes to the respondent, a clear admission binding the appellant. With no pleading of fraud, duress or illegality under section 29(2), and no triable issue on endorsement, presentment or alteration, the defence was properly struck out and judgment properly entered.
Legal principles established
#- A defence of total failure of consideration based on subsequent seizure of goods by the C.I.D. cannot avail a maker against a holder in due course of a promissory note; such a defence, if any, lies only against the original payee.
- Every holder of a bill or note is prima facie a holder in due course unless the pleading alleges fraud, duress, force, fear or illegality affecting the negotiation; absent such pleading, the holder's due-course status stands.
- Presentment for payment is not necessary to render the maker of a promissory note liable unless the note is made payable at a particular place.
- An alteration of a promissory note made with the assent of the parties, or one that is not material (such as an extension of the maturity date for the maker's benefit), does not invalidate the note.
- Particulars supplied pursuant to a request form part of the pleading, so a plaint lacking dates of notes may still disclose a cause of action once particulars are given.
Court orders
#- 1.The appeal is dismissed
- 2.The appellant to pay the costs of the appeal
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi
- H.C.C.C. No. 3736 of 1991
- Jurisdiction invoked
- First appeal to the Court of Appeal from the High Court (statutory appellate jurisdiction; no specific constitutional provision stated in the judgment)
Relief refused
#Setting aside the striking out of the defence and the judgment entered by Shields J
The defence disclosed no triable issue capable of defeating a holder in due course
Costs
Appeal dismissed with costs to the respondent.
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
In the end we do not find any merit in this appeal which is hereby dismissed with costs.
It cannot be a defence against a holder in due course.
Under S.29(2) of the Act every holder of a bill is prima facie a holder in due course unless it is proved that the acceptance issue or subsequent negotiation of the bill is affected with fraud, duress or force or fear or illegality.
Under S.88(1) of the Act, however unless a promissory note in the body of it is made payable at a particular place, presentment for payment is not necessary to render the maker liable.
Under S.64(1) of the Act it is only a material alteration made without the assent of the parties which will invalidate a bill.
As particulars when supplied do form part of the pleading we do not agree that there is any substance in Mr Joshi's submission that the plaint did not disclose a cause of action.
Issues in the judgment
#The trial judge's quoted judgment records the second amount as Shs.146,500/- while the promissory note described earlier in the judgment is for Shs.148,500/-, an apparent discrepancy in the figures.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Karamshi & Company Limited v Credit and Commerce Finance Limited [1996] KECA 115 (KLR)", Case Analysis (1996). Civil Appeal No. 111 of 1994. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1996/115/eng@1996-11-08
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.