Question

“To constitute an apparent alteration within the meaning of the Bills of Exchange Act it should be apparent upon inspection of the bill that its text has undergone a change. The document itself must show that some revision of the text has taken place and its appearance must be consistent with the revision having occurred after completion or issue, although it may also be consistent with the revision having occurred before completion.” Using your knowledge from Week 11 – Financing International Business and with reference to the case above, explain where the burden lies for determining the validity of an endorsement if it is deemed ineffective under Common Law.

Answer 1

This has reference to the famous case of Mair vs Bank of Nova Scotia which was filed in the Court of Appeal of Eastern Caribbean States, Civil Division in 1983.

The appellant was an architect, the payee was Barbara Hill and the defendant was Bank of Nova Scotia.

The case was about a breach in Bill Of Exchange.

As defined, a Bill of Exchange is a three party paper ordering the payment of money. It involves the drawer, the drawee and the bank.

The appellant claimed that bill was altered and hence claimed damages related to the withdrawal with reference to Section 64 of the Bill of Exchange Act.

As per Section 64(1) of the Bill of Exchange Act, where a bill of acceptance is materially altered without the assent of all parties liable on the bill, the bill is avoided except as against a party who has himself made, authorized or assented to the alteration, and subsequent endorsers. Provided that where a bill has been materially altered but the alteration is not apparent and the bill is in the hands of a holder in due course, such holder may avail himself of the bill as if it had not been altered, and may enforce payment of it according to it's original tenor.

Sub-section (2) further states that, in particular, following alterations are material, namely, any alteration of the date, the sum payable, the time of payment, the place of payment, and, where a bill has been accepted generally, the addition of a place of payment without the acceptor's assent.

The appellant had claimed that the bill was altered and Bank of Nova Scotia should have noticed the alteration and stopped it's processing. Bank had rejected it's claim and thus the case came in court.

The court rejected the case and the appellant moved to Court of Appeal.

The court ruled that the bill was altered materially and the Bank should have noticed it as it was obvious.

However, the court didn't rule in favour of the appellant for damage claim since there was no loss to the appellant.

The alteration made to the bill was material and that rendered the bill invalid.

There was proven breach of contract without any actual damages. Hence, the appellant recovered only nominal damages.

Based on the above, it's evident that the burden to prove that the alteration was valid and with the consent of all parties lies with the holders in due course.