“Stopping Payment on a Cheque Does Not Extinguish the Underlying Debt Obligation; a Payee May Sue Directly on the Cheque Itself, Even if Disputes Exist About the Underlying Contract,” High Court Rules

FACTS

The plaintiff advanced a loan of UGX 71,750,000 to the defendant to fund the purchase of land for iron ore mining. As security for the repayment of this loan, the defendant issued DFCU Bank cheque No. 000009, drawn in favour of the plaintiff and dated 30 April 2020.

On 25 May 2020, just 25 days after issuing the cheque, the defendant instructed DFCU Bank's Ndeeba Branch to stop payment on the cheque. The stated basis for the countermand, as disclosed in paragraph 21 of the defendant's own witness statement, was an alleged breach of contract by the plaintiff, specifically, that the plaintiff had failed to deliver maize as purportedly agreed.

Both parties filed pleadings and witness statements. However, at the adjourned hearing on 10 July 2025, the defendant was absent despite having been served. An affidavit of service was filed on 22 April 2025. The Court, pursuant to Order 9, Rule 20(1)(a) of the Civil Procedure Rules, directed that the matter proceed ex-parte.

Issues for Determination

1. Whether the defendant was indebted to the plaintiff.

2. What remedies were available to the parties.

SUBMISSIONS

Plaintiff's Submissions

The plaintiff submitted that the defendant issued the cheque as security for the loan, with the funds being handed over at the defendant's workplace on Kazooba Road, Kabale Municipality.

The plaintiff contended that a cheque, being a bill of exchange, creates an unconditional obligation to pay;

That the issuance of a cheque gives rise to a legal obligation independent of any underlying transaction;

The countermand of the cheque was unilateral and without legal justification in the context of a bill of exchange; and

The defendant's absence and failure to testify meant that no defence of failure of consideration was proven.

Defendant's Position (from Filed Pleadings)

Although absent at the hearing, the defendant's witness statement was on record. The defendant admitted, in paragraph 19, to issuing the post-dated cheque of UGX 71,750,000 and, in paragraph 21, to instructing the bank not to honour the cheque on the grounds of an alleged breach of contract by the plaintiff (non-delivery of maize).

LEGAL REPRESENTATION

Plaintiff Represented by M/S Lawtons Advocates

Defendant Absent and unrepresented at trial

COURT’S FINDINGS

On the Indebtedness of the Defendant

The Court held that the issuance of a cheque creates an unconditional obligation to pay. Drawing on the Bills of Exchange Act, Cap. 68, the Court applied the following statutory framework, Section 3(1) on the Definition of a Bill of Exchange,

"...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 specified person or to bearer."

Section 72(1), Definition of a Cheque:

"A bill of exchange drawn on a banker payable on demand."

Section 74(a) on Countermand Authority

While the drawer may lawfully countermand payment under Section 74(a), the Court made it clear that such authority does not extinguish the underlying obligation to pay. The defendant’s admission in his witness statement that he issued the cheque and stopped payment was fatal to his defence.

The Court observed that

“Absent fraud, and on the basis of the uncontroverted evidence of the plaintiff, the drawing of the cheque by the defendant was to settle a financial obligation. The terms may have been onerous, but the defendant's failure to prosecute his case in court does not avail him of relief.”

The Court also cited with approval the reasoning of the Commercial Court in Steel & Tube Industries v Mwesigwa Titus, Civil Suit No. 446 of 2010 [2012] UGHCommC 30 (Madrama J.), where it was held:

“In view of the fact that the bases of the plaintiff's claims are covered by the face value of the dishonoured cheques, the plaintiff is entitled to judgment without much ado.”

Issue 2 on Remedies

The Court treated a bounced or countermanded cheque as an independent cause of action, with consideration being collateral to that action.

The court held that:

“A bounced cheque is an independent cause of action; consideration is collateral.”

This means that the payee can sue based solely on the dishonoured cheque, regardless of disputes relating to the underlying transaction.

The court also relied on the decision in Steel & Tube Industries Ltd v Mwesigwa Titus

In that case the court held:

“In view of the fact that the bases of the plaintiff’s claims are covered by the face value of the dishonoured cheques, the plaintiff is entitled to judgement without much ado.”

The Court made the following key findings, that;

1. A claim on a bill of exchange, absent illegality, requires no more proof than the presentment of a countermanded or dishonoured cheque.

2. The defendant’s justification for the countermand (non-delivery of maize) lies outside the terms of the bill of exchange and is therefore legally irrelevant to the cheque action.

3. General damages were declined because the precise loss was already quantified by the face value of the cheque; instead, the court awarded the exact amount reflected on the instrument.

On Interest

The court awarded commercial interest of 16.5% per annum, rather than the court rate, noting that the defendant had made no effort to pay the plaintiff for nearly seven years.  given the nature of the transaction. In doing so, it relied on Begumisa Financial Services v General Holdings Limited and Another [2007] 1 EA 28, as cited in Attorney General v Dr Maj. (Rtd) Anthony Jallon Okullo, Civil Appeal No. 207 of 2016, where the Court stated:

“An award of interest is discretionary and the basis of an award of interest is that the defendant has kept the plaintiff out of his money and the defendant has had the use of it himself, so he ought to compensate the plaintiff accordingly.”

The Court applied a commercial bank interest rate

HOLDING

The Court entered judgment for the plaintiff and ordered as follows;

1. Judgment for the plaintiff for UGX 71,750,000, being the face value of the countermanded DFCU cheque.

2. Interest at 16.5% per annum (commercial bank rate) on the principal sum, running from the date of filing of the suit until payment in full.

3. Costs of the suit were awarded to the plaintiff.

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Key Takeaways

1. Countermanding a Cheque Does Not Extinguish Liability

A drawer may instruct the bank to stop payment, but this does not cancel the debt owed to the payee.

2. Dishonoured Cheques Create an Independent Cause of Action

A payee may sue directly on the cheque itself, even if disputes exist about the underlying contract.

3. Admissions in Witness Statements Can Be Decisive

The defendant’s own admission of issuing the cheque and stopping payment significantly influenced the outcome.

4. Failure to Appear in Court is Risky

A defendant who fails to appear risks the court proceeding ex parte, leading to judgment based solely on the plaintiff’s evidence.

5. Commercial Interest May Be Awarded

Where a defendant deliberately withholds payment, courts may award commercial interest rates rather than the standard court rate.

6. The Case Reinforces Financial Certainty in Commercial Transactions

The decision protects the integrity of cheques as financial instruments, ensuring that parties cannot escape liability simply by countermanding payment.

7. Scope of a Cheque's Terms Is Narrow

Justifications for countermand that lie outside the four corners of the bill of exchange (e.g., disputes about the delivery of goods or breach of collateral agreements) are legally irrelevant to the cheque action. The drawer's only lawful basis for countermand must relate to the instrument itself, not the underlying commercial dispute.