Court of Appeal overturns High Court award in cheque reversal dispute, clarifying that cheques are not money – A bank’s obligation to pay arises only when the client has sufficient funds.

Waboga David
Aug 12
6 min read

Introduction

The law on banking is to the effect that there exists a banker-customer relationship, which is built on a fiduciary nature and primarily arises when a customer opens a bank account with the bank.

This relationship creates a series of mutual obligations: the bank undertakes to safely hold the customer’s funds, to honor instructions to make payments on the customer’s behalf, and to account for all transactions executed.

The customer, in turn, is obliged to maintain sufficient funds to cover payments authorized through the account.

However, whereas the bank has a duty to honor the mandate of making payments when they are due, the bank cannot make unjustified or wrongful payments. To do so would (in the writer's opinion) amount to unjust enrichment, contrary to the principle of “money had and received,” which requires actual receipt of funds for the benefit of the claimant.

Payments made erroneously, without sufficient funds or proper mandate, do not give rise to a valid claim against the bank or its customer.

In a recent decision by the Court of Appeal, which overturned the earlier ruling of the High Court, the court reaffirmed these principles. The High Court had erred in finding the bank liable for wrongfully debiting the respondents’ account on the basis that the credited cheques constituted actual payment. The Court of Appeal held that cheques themselves are not money but merely orders for payment contingent upon sufficient funds.

Consequently, the reversal of cheque credits by the bank did not constitute “money had and received” by the respondents, and the bank’s actions were lawful and justified.

This decision provides important clarification on the limits of a bank’s liability in handling cheque payments and reinforces the fundamental doctrines governing banking transactions and restitution claims under Ugandan law.

Background

The respondents were customers of Barclays Bank (U) Ltd (later ABSA Bank (U) Ltd), holding a current account at its Nakulabye branch.

On 30 March 2009, the respondents deposited two cheques totalling UGX 18,000,000, drawn by the Institute for Advanced Learning (IFAL), another customer of the bank. The bank immediately credited the respondents’ account with the full amount.

However, on 26 June 2009, the bank reversed the credit and debited the respondents’ account for the same sum, citing that the cheques were unpaid due to insufficient funds in IFAL’s account.

The respondents sued for wrongful and/or fraudulent debit of their account, seeking declarations, refund of UGX 18 million, general and punitive damages, interest at the bank’s unsecured overdraft rate, and costs.

The High Court found in their favour, ordering:

Refund of UGX 18 million as money had and received,
UGX 6 million in general damages,
UGX 5 million in punitive damages,
Compound interest on UGX 18 million at the bank’s overdraft rate from 30 March 2009 until payment,
Interest on damages at 10% per annum, and
Costs.

The bank appealed, challenging the evaluation of evidence, the finding of “money had and received,” the finding of wrongful debit, and the award of aggravated damages.

Issues on Appeal

Whether the trial judge properly evaluated the evidence, particularly IFAL’s account statement showing insufficient funds to cover the cheques.
Whether the reversal of the cheque credits constituted “money had and received” for the respondents’ use.
Whether the bank wrongfully debited the respondents’ account.
Whether the award of aggravated damages was justified.

Representation

At the hearing on 25 September 2024, the appellant was represented by Mr. Ernest Sembatya, while Mr. Simon Tendo Kabenge represented the respondents.

Submissions

Ground 1 & 2: Proper Evaluation of Bank Statements and the Doctrine of “Money Had and Received”

The appellant bank’s core submission emphasized that cheque clearance is conditional on the drawer’s account having sufficient funds.

The bank presented IFAL’s bank statement (pages 65-70 in the record) which showed a persistent insufficiency of funds from September 2008 through July 2009.

The appellant further submitted that the delayed reversal of credits was due to technical delays arising from the Barclays-Nile Bank merger and related system integration challenges.

Invoking the legal doctrine of “money had and received” as articulated in Halsbury’s Laws, the bank contended that any claim under this principle requires:

A definite sum of money held by the defendant;
The defendant must be estopped from denying receipt of those funds; and
The funds must be held specifically for the plaintiff.

The bank further cited the precedent set in Serwano Byabasajja Byaruhanga v. Barclays Bank, which affirms a banker’s right to recover mistaken payments.

Submissions for the Respondent.

In contrast, the respondents challenged the authenticity of the bank’s statement, alleging it could have been manipulated since it was prepared by the appellant itself. They further argued that no formal notice of dishonor was ever served, which is a procedural requirement.

The respondents also questioned the unusually long clearance period — three months — as contrary to standard banking practice.

They maintained that once the bank credited the cheques, the funds became theirs, free from any third-party claims.

Submissions on Ground 3

Ground 3: Was There Wrongful Debiting of the Respondents’ Account?

The bank justified the debits by referencing the case Barclays Bank Ltd v. W J Simms Son & Cooke, which establishes that banks may recover payments made under a mistake of fact — in this case, credits issued against cheques without sufficient backing funds.

The bank insisted that the principle of sufficient funds means actual cash in the account, not the value of cheques that remain unhonored. This is a critical distinction that protects banks from liability where provisional credits are reversed.

Submissions by Respondent

The respondents countered by insisting that any recovery should have been pursued through formal court procedures rather than unilateral debiting.

They argued that the payments related to legitimate rent transactions supported by valid consideration.

They also proposed that if recovery was warranted, it should have been against IFAL (the drawer) as an overdraft, not from their account.

Submissions on Ground 4

Ground 4: The Contested Award of Aggravated Damages

On the issue of aggravated damages, the appellant submitted that such damages require clear evidence of aggravating circumstances — such as oppressive, malicious, vindictive, or arbitrary conduct — none of which were present.

The appellant pointed to the respondent’s refusal to settle and their residence abroad as insufficient grounds for aggravated damages, relying on the precedent Betty Tinkamanyire v. Bank of Uganda.

Submissions by Respondent

The respondents, however, argued that their claim was for exemplary damages, not merely aggravated damages, and that the bank’s conduct was calculated to unjustly benefit itself at their expense

Court of Appeal’s Analysis

1 & 2 – Evaluation of Evidence and “Money Had and Received”

The Court reiterated that a cheque is not money but an order to pay from the drawer’s account.

IFAL’s account statement (undisputed) showed it never had sufficient funds to cover the cheques — before, during, or after their issuance.

The bank could not be said to have received money from IFAL for the respondents’ benefit; instead, it had credited funds that did not exist.

For a valid “money had and received” claim, there must be:i) A definite, ascertained sum actually received for the plaintiff’s use, andii) Funds in the defendant’s hands agreed to be held for the plaintiff.

The criteria were not met because no funds ever passed from IFAL to the bank for the respondents’ use.

3 – Wrongful Debit & Notice of Dishonour

The High Court had found fraud based on:

i) No notice of dishonour,

ii) A three-month delay in reversal, and

iii) Alleged countermanding instructions from IFAL.

The Court of Appeal held:

Under the Bills of Exchange Act, notice of dishonour must be given to the drawer (IFAL), not to the payee (respondents).
The reversal was due to insufficient funds, not IFAL’s instructions.
The delay was explained by a bank merger and system integration issues, which affected multiple customers.

Delay alone did not create a legal obligation for the bank to pay non-existent funds.

4 – Aggravated Damages

No basis was shown for awarding aggravated damages, as there was no evidence of malice or oppressive conduct beyond the banking error and delayed correction.

Holding

The appeal succeeded in part.
The orders for refund of UGX 18 million, aggravated damages, and compound interest were set aside.
The award of UGX 6 million in general damages (uncontested on appeal) was upheld.
Costs awarded to the appellant in the Court of Appeal and in the High Court on the claims set aside.

Key Takeaways

Cheques Are Not Money – A bank’s obligation to pay arises only when the drawer has sufficient funds; a cheque itself does not constitute payment.
Money Had and Received Doctrine – Requires actual receipt of funds for the claimant’s benefit; erroneous credits unsupported by actual funds do not qualify.
Notice of Dishonour – Under the Bills of Exchange Act, notice is owed to the drawer, not the payee, unless special arrangements exist.
Bank Errors & Delay – While banks must reverse erroneous credits within a reasonable time, even long delays do not oblige payment if no funds ever existed.
Aggravated Damages – Award requires proof of oppressive or malicious conduct; banking mistakes without such intent do not suffice.

Read the full case below