Business/commercial law essay question and answer

Mr. Karanja signed blank cheques and left them with his wife to draw cash while he was away attending to business affairs. Mrs Karanja instructed Hatari, a clerk in the firm of Karanja and Karanja Associates to fill in the cheques. Hatari filled in the amount leaving a gap after the words “Sh.” and wrote the amount in words from the middle of the line without using a capital letter. Hatari showed the cheques to Mrs Karanja written “Sh. 50,000” and fifty thousand only.” He was authorized to encash the cheque.

However before presenting the cheque for payment Hatari added figure “3” to the amount in figures and “three hundred” in the words. He encashed the chequed for Sh. 350,000. He then gave Mrs. Karanja Sh. 50,000 only. These facts have come to light after Hatari’s resignation and Mr. Karanja intends to sue his bankers.

Advise the bank. (10 marks)

ANSWER
• This problem is based on the obligations of the customer in a banker-customer relationship.
• In this case Mr. Karanja has lost Kshs. 300,000 to Hatari who completed the cheque and encashed it.
• It is evident that there is a banker-customer relationship between Karanja and the banker. Karanja therefore owes the banker a duty of care when drawing cheques to avoid alteration.
• Mr. Karanja is not only careless but negligent signing blank cheques. It is clear that Mrs. Karanja is equally negligent hence the loss. The Karanjas have no one to blame other than themselves.
• My advise to the bank is that there is no cause for alarm as the Karanjas have no sustainable claim against it if they were sue. The bank has a watertight defence of negligence on the part of the Karanjas.
• My advise is based on the decision in London Joint Stock Bank Ltd V. Mcmillan and Arthur whose facts were substantially similar.



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