Finance Law Cheques



Finance Law ChequesDrawer - the person who is ultimately responsible for payment.Drawee - the financial institution where the cheque can be presented for paymentPayee – The entity to whom the drawer issues the cheque.Collecting Bank – bank which is paying of the cheque to the customerPaying Bank – bank which cheque is being drawn on(MENTION COLLECTING AND PAYING BANK!!!!)Difference between Cheques and Bill of ExchangeThe primary purpose of a cheque is to make a simple payment – whereas the primary purpose of a bill is to provide extended credit.The Manning Committee established that – ‘the drawer of a cheque is the person who is ultimately responsible for payment, whereas it is the acceptor who is primarily liable on a bill of exchange and this fundamental difference caused problems throughout the application of the BEA to cheques.’Every Cheque Should be transferable – it should not be possible for the drawer of a cheque to insert words which prevented the payee from transferring the cheque to some other party.s6(2) of BEA – The cheque sections of the Bills of Exchange Act 1909 now provides that the BEA does not apply to any instrument to which the new Act applies.Cheques Act 1986Cheque FormalitiesDuty of the drawee institution is to pay its customers cheques and it is to the strict definition of ‘cheque’ that we now turn. S10 – A cheque is an unconditional order in writing that:Is addressed by a person to another person, being a financial institution; andIs signed by the person giving it; andRequires the financial institution to pay on demand a sum certain in moneyAn instrument that does not comply with subsection (1), or that orders any act to be done in addition to the payment of money, is not a cheque.Financial Institution – Refer to ACT – only part a) and b) listed belowS3(1) - The drawee must be a ‘financial institution’ as defined in s3(1)The Reverse Bank of AustraliaA body corporate this is an ADI (authorised deposit-taking institution) for the purposes of the Banking Act 1959‘Party to the Cheque’ – not defined in the act itselfMeans a person whose name appears on the cheque itselfThe Act requires only two parties in the definition:the drawer – the person who gives the order to pay the drawee – the person whom the order is directed to.There is nothing in the Act which requires that the drawer be a customer of the drawee, but if he or she is not, then the drawee owes the customer no duty to honour the cheque.An ‘Order’ – s11S11 – Provides than an Order must be more than authorisation or request to pay.Same issues as those in the s8(1) of the BEA 1909.‘Unconditional’ s 12(2)Cheque’s will usually indicate the amount to be debited and it is useful and common to write on the cheque itself an indication of the transaction which gave rise to the cheque. S12(2) – provides that the order may be unconditional even if the cheque includes one or both of these indications.Conditional – ‘Pay X on completion of the attached receipt’ is a conditional order – Babins Junior and Sims v London and South Western Bank Ltd.Unconditional – ‘The attached receipt must be completed’Addressed to a financial institution – s13(1)It is the essence of a cheque that it be drawn on a financial institutionS13(1) highlights that an order must be addressed to the institution and to no other person.Sum to be Paid – s15(1)The sum must be specified with ‘reasonable certainty’ in the instrument containing the order.Cheques expressed in foreign currency can cause problems in determining the amount.If a prior agreement of a fixed exchange has occurred, then the exchange rate must be specified on the cheque otherwise the current exchange rate will be used.On Demands14(1) – Order must be to pay ‘on demand’ – s14(1) provides than an order is an order to pay on demand if it requires payment ‘on demand’, ‘at sight’ or ‘at presentation’. Payment ‘on demand’ does not mean that the bank must hand over the money immediately. The bank must be permitted a reasonable time to check the stat of the account and to perform reasonable book keeping operations – Marzetti v Williams (1830) 1 B & Ad 415. Date – s16(1)When the cheque is dated, there is rebuttable resumption that the cheque was drawn on that day: s16 (1). On the other hand, a cheque need not be dated at all to be a valid cheque s16(2)(a).Post Dated Cheques s16 – A post-dated cheque give rise to difficultly that such a cheque is ‘payable on demand’. It is common ground that the bank should refuse payment of a post-dated cheque which is presented before the date on the cheque: Brien v Dwyer (1978) 141 CLR 378Hodgson & Lee Pty Ltd v Mardonius Pty Ltd (1986) 5 NSWLR 496S61(2) – An attempt to obtain payment prior to the date on the cheque is not a ‘presentment’ of the cheque for payment. S58 – The drawer and others are not liable on the cheque if it has not been presented for payment.Role of the drawer’s signatureIt serve’s three different purposes:It is necessary for the creation of ‘cheque’It is necessary in order to establish the liability of the drawer in an action against the drawer by a holder of the chequeIt is the device whereby the drawer gives a mandate to the paying bank.Cheque CreationS10(b) – Drawers signature is necessary for the creation of a cheque, for a ‘cheque’ is an order which is signed by the person giving it.S32(1) - If the signature is forged or unauthorised, then the signature is wholly inoperative as that of the person whose signature it purports to be unless the signature is adopted or ratified, or unless the person against whom it is sought to assert a right on the cheque is estopped from asserting the true position.The forged or unauthorised signature operates as the signature of the person who wrote or placed it on the cheque in favour of any person who takes the cheque or pays its without notice that the signature was forged or unauthorised. To establish liabilityThe second role of signature is that it is necessary in order to establish that the presumed drawer is liable in action of the cheque. S32(1) – An unauthorised signature which purports to be that of the drawer is ‘wholly inoperative’ as that of the person whose signature it purports to be unless it is possible to raise an estoppel against that person or the signature is adopted or ratified by the person.It is noted that the only important exceptions to the rule are that drawee institutions may treat certain forged signature as genuine for certain purposes.Mandate to the drawee The final role of the signature does not owe its existence to the Act, but rather to the banker-customer relationship.National Westminster Bank Ltd v Barclays Bank International Ltd [1975] QB 654 at 667:The common aphorism that a banker is under a duty to know his customers signature is in fact incorrect even as between the banker and his customer. The principle is simply that a banker cannot debit his customers account on the basis of a forged signature, since he has in that event no mandate from the customer for doing so.CrossingWho may cross? S56 states that a crossing can only be done by either the ‘drawer’ or ‘any other person in possession of the cheque’. S57 – A person ‘in possession’ may add a crossing to a cheque even if it already contains a crossing and may add the words ‘not negotiable’ to an existing crossing S54 – The effect of crossing a cheque is that the crossing acts as a direction by the drawer to the drawee not to pay the cheque otherwise than to a financial institution. This makes it clear that the crossing is part of the mandate to the drawee.Bobbet v Pinkett (1876) 1 Exch D 368 – A banker erroneously and negligently paid a cheque to a banker other than the one name in the crossing. The judge found the banker guilty saying ‘It cannot be denied that the crossing operated as a mandate to the drawee to pay the cheque to the bankers named and to no one else, and that the plaintiff might … have declined to allow this account to be debited with the amount so paid contrary to his orders’Relationship with s93S93(1) – subject to s93(2) – where the drawee institution pays a crossed cheque otherwise than to a financial institution, the drawee institution is liable to the true of the cheque for any loss the true owner suffers as a results of the having been paid otherwise than to a financial institution.S93(2) – If the crossing has been skilfully removed and the drawee pays the cheque in good faith and without negligence contrary to the instructions from the removed crossing, then the bank does not incur any liability by reason only of its failure to pay the cheque to a bank and is deemed to have paid the cheque in due course.Authorised Crossings S53(1) – Where a cheque clearly bears across the front the addition of two parallel transverse lines with or without the words ‘not negotiable’ between, or substantially between the lines. S53(2) - Nothing other than this is effective as a crossing of the cheque.Mather v Bank of New Zealand (1918) 18 SR (NSW) 49 – ‘Nobody would argue that the lines must be geometrically parallel. Neither would anybody argue that they must run across the full width of the cheque, nor that they should be some particular distance apart. The question in every case must be for the jury to say whether that which the drawer of the cheque has done can fairly be said to be a crossing within the meaning of the Act, and to indicate to the banker that the cheque is intended to be crossed’.This was applied in Hunter BNZ Finance Ltd v Maloney Pty Ltd (1988) 18 NSWLR 420 – two lines did not run the entire width of the cheque. Held that since the lines were plainly visible and clearly revealed their status of performing the function of crossing – it was deemed to be valid.Not NegotiableThe effect of the crossing with the words ‘not negotiable’ is not to make the cheque non-transferable. It is a widespread misconception and one that is clearly incorrect of s39 of the CA. s39 clearly states that nothing written on the cheque can have the effect of making it non-transferable. S55 – When the cheque is transferred by negotiation, the person taking the cheque does not receive and is not capable of giving a better title to the cheque than the title of transferor. This section gives the words the effect which is given to them when they are a part of a crossing.Account Payee Only – ******REFER STATUTORY DEFENCESThe words ‘Account Payee Only’ do not affect the negotiability of the cheque, at least in the sense that it may be transferred. This is consistent with common law – Universal Guarantee Pty Ltd v National Bank of Australasia Ltd [1965] NSWR 342.It does seem that the order does have some effect if the collecting institution is attempting to rely upon the statutory defence to conversion. The words do not have any effect on the bank paying the cheque. IN particular, there is no obligation on the paying banking to ensure that the cheque being collected for the account of the named payee – Universal Guarantee Pty Ltd v National Bank of Australasia Ltd [1965] NSWR 342. Honourable Society of the Middle Temple v Lloyds Banks plc [1999] 1 All ERWithout NegligenceDefintion comes from Commissioner of Taxation v English Scottish and Australian Bank Ltd [1920] AC 683‘…the test of negligence is whether the transaction of paying in any given cheque [coupled with the circumstances antecedent and present] was so out of the ordinary course that it ought to have aroused doubts in the bankers mind, and caused them to make inquiries…’Bank ChequesBank cheques have been clarified by s5 of the CA. S5(2) provides that nothing in the CA, apart from the statutory defences available to banks, shall be taken to affect any liability that a bank would, but for the CA, have in relation to a bank cheque or bank draft drawn by it.Dishonour of bank chequesBank cheques may be dishonoured and that the drawer of a bank cheque may raise defences in exactly the same way as the drawer of an ordinary cheque.The Drawer – Payee Contract‘Payment’ by chequePayment by cheque does not unconditionally discharge the debt which gave rise to the drawing. Not an assignment of fundsS 88 – Drawing of a cheque does not of itself operate as an assignment. The debt owed by the banker remains owed to the drawer of the cheque, not to the payee.Consequences: The payee has no right against the bank on the cheque itself.The only obligation owed by the bank to the payee is to deal with the cheque promptly – Diamond (HH) v ANZ Banking Group Ltd [1979] 2 NZLR 739The bank may not obtain a discharge of the debt owed to its customer unless the order in the cheque is strictly followed. The cheque is merely a mandate, not a transfer of rights.This means that if the bank refuses to pay the payee for any reason – the only remedy in such a case is to proceed against the drawer of the cheque.Conditional paymentIf a creditor does accept payment by cheque, then the payment is conditional only.The payment is then a subsequent condition where the cheque will be met upon proper presentment for payment.If the cheque is so presented and paid, then the contractual time of payment as between the creditor/payee and the debtor/drawer is generally taken to be the time at which the cheque was delivered, although that time may be altered by express or implied agreement – Tilly v Official Receiver (1960) 103 CLR 529; Armco (Australia) Pty Ltd v Federal Commissioner of Taxation (1948) 76 CLR 584When a cheque is dishonoured, the payee will generally have two causes of action against the drawer:The first is on the cheque itselfThe obligations on the cheque are autonomous and separate from the underlying contract and the courts have shown themselves reluctant to do anything which would interfere with that autonomy. Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH [1977] 1 WLR 714Mobil Oil Australia Ltd v Caulfield Tyre Service Pty Ltd [1984] VR 440The second is the contractual right which gave rise to the original debtPaid cheques as evidence One of the significant advantages of paying by cheque is that the cheque itself may be retrieved as evidence of payment.S113 provides than an order cheque which has not been indorsed by the payee and which appears to have been paid by the drawee bank is evidence of the receipt by the payee of the sum ordered to be paid by the cheque.Undertakings implied by the ActS71 - Drawing a cheque means that the drawer will pay the cheque upon due presentment and that if it is dishonoured, the drawer will pay.Undertakings implied by case lawWhen the payee accepts a cheque as a conditional satisfaction of debt and the debtor draws such a cheque, there are implied terms which are part of the contract between them. Philmore LJ R v Page [1971] 2 QB 330 – ‘Those terms are that the drawer of the cheque has an account with the drawee bank, that the drawer has authority to draw on the account for the amount of the cheque, and that the cheque, is a valid order to that amount, that is, that in the ordinary course of events, the cheque will on its presentment be met’DishonourWhen a cheque has been accepted as payment but has been dishonoured, then the payee has an option of suing on the original contract or of suing the drawer on the cheque itself. S69 – The meaning of ‘dishonour’ is that the cheque has been duly presented for payment, the payment has been refused by the drawee bank the refusal has been communicated by the drawee bank to the holder or the person who presented the cheque on the holder’s behalf.The duty to pay chequesThe duty to pay cheques is not an absolute duty. It only arises when certain conditions are met:The cheque is a proper mandate- i.e. it is drawn in a proper form and signed by a person who is authorised to draw on the accountThere are funds which are available to meet the chequeThere are no legal impediments to the bank’s honouring the cheque; andThe cheque is properly presented for payment.The bank may refuse payment if any one of these conditions is not fulfilled.Cheques drawn in a proper mannerA cheque is a mandate (order) to make a payment. ‘A bank is not required to attempt to give effect to a mandate which is not clear and free of ambiguity’ – London Joint Stock Band Ltd v Macmillan and Arthur [1918] AC 777S15(2) & (4) – If the figures amount and the sum amount is different, then the bank can pay the lesser of the two amounts under s15(2)They could always also refuse to pay but there is not statutory indication that they mustFunds availableThere is no obligation for a bank to pay unless a cheque unless there is sufficient balance in the account to pay the entire amount or unless overdraft arrangements have to made‘..where the creditor is a customer and the debtor a bank on current account, the ‘peculiar incidents’ of that relationship govern the position and determine what the plaintiff must prove….If the ‘balance’ falls short then it fails althogether, another distinction which distinguishes the creditor-debitor relationship in the case of a customer and banker from that relationship in other cases’ - Bank of New South Walves v Laing [1954] 135No legal impediment to payment, Stale Cheques and Death or Mental IncapacityMareva injunctions, cheques older than 15 months (s3(5)) and death or mental capacity ( s90(1)(c) and s90(1)(b) ) – imply that a bank cannot pay a cheque and the account must be frozen.Wrongful DishonourThe bank may breach its duty to pay cheques in one of two ways:Wrongful Dishonour - It may fail to pay a cheque when the preconditions for payment exist; or It may pay a cheque in circumstances when it should not.Wrongful DishonourGives rise to liability for breach of contract with the customer. Wrongful dishonour occurs when the bank has failed to credit deposits made by the customer. This may happen because of customers with similar names; orThe amount of a deposit is understated by a misplacement of the decimal point; orThe customer has funds available to meet the cheque, but the bank mistakenly believes that the account is in; orThe bank does not realise that the customer has overdraft on their account and dishonours the cheque.Damages for Breach of ContractThe banker will be liable for all damage which is foreseeable as a consequence of the failure to carry out contractual promise. This includes:Any damages which flow directly and naturally from the failure to perform the contract; and‘Any damage which is reasonably foreseeable in the light of any special knowledge which might be known to the party in breach’ – Hadley v Baxendale (1854) 9 Exch 341Case: Evra Corp v Swiss Banking Corp – Plaintiff required to make a payment of $26,000 under a charterparty. In failing to make the payment, the plaintiff forefieted his rights, with damages assessed at $2,000,000. The court applied Hadley v Baxendale and found that the loss was too remote. If the bank had known of the importance of the transaction, then more care would have been taken. Wrongful Dishonour related to specific tradersTraders – Page 240Non-traders – Page 240-241Defamation – Page 241Wrongful PaymentS15(2) & (4) – If the figures amount and the sum amount is different, then the bank can pay the lesser of the two amounts under s15(2)They could always also refuse to pay but there is not statutory indication that they mustCase: London Joint Stock Bank Ltd v Macmillan & Arthur [1918] AC 777, Imperial Bank of Canada v Bank of Hamilton [1903] AC 49 – The bank may also pay the wrong amount when the cheque has been fraudulently altered.Paying the Wrong PersonS 22 – If a cheque is not payable to order ,then it is payable to bearer and the duty of the bank is simply to pay whoever might in possession of the cheque.This is important because it means that it is virtually impossible for the bank to pay a bearer cheque to the wrong person.S 19 – A Person is not a payee of the cheque unless the person is named or otherwise indicated with reasonable certainty in the cheque and is not a fictitious or non-existing personFictitious PersonUsed in s19(1). The importance of its meaning is the matter for the simple payment instrument is that, if the payee is fictitious, the cheque is to be taken as payable to the bearer of it s22. Thus, if a cheque that is made payable to ‘John Jones’ is stolen by Bob Brown and paid by the drawee bank, then on the fact of it the paying bank is in breach of contract and may not debit its customer since it has paid the wrong person.Selangor United Rubber Estates Ltd v Cardock [1968] 1 WLR 1555The court found that the paying bank was in breach of its obligation to discharge its duties carefully even though the cheque was properly drawn.General rule from case – ‘a bank should question a mandate when a reasonable and honest banker with knowledge of the relevant facts would consider that there was a serious possibility that the customer was being defrauded or that the funds were being misappropriated’ - Lipkin Gorman v Karpanale Ltd [1991] 2 AC 548.Defences for the Paying BankThere is a duty by the bank to observe reasonable precautions in relation to the payment of cheque. Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd (1981) 55 ALJR 574Customers Breach of ContractIf the wrongful payment is a result of an alteration of a cheque which was validly drawn by the customer, then it may be a breach of the customers duty. Changing payee name – If the name of the payee has been changed, it would be difficult to establish a bank defence since it may not be a breach of the customers duty to leave blanks following the payee’s name. Slingsby v Westminster Bank Ltd (No 2) [1931] 2KB. S91S91 gives the bank some defences if they have paid a cheque. These are assuming the bank has paid the cheque in ‘good faith’ and ‘without negligence’. Without NegligenceDefintion comes from Commissioner of Taxation v English Scottish and Australian Bank Ltd [1920] AC 683‘…the test of negligence is whether the transaction of paying in any given cheque [coupled with the circumstances antecedent and present] was so out of the ordinary course that it ought to have aroused doubts in the bankers mind, and caused them to make inquiries…’Bearer ChequesS22(b) – Where a cheque is not payable to order, the cheque shall be taken to require the drawee bank to pay the sum ordered to be paid by the cheque to the bearer.This does NOT mean that the bank can escape all liability merely because the payment is to the bearer of a bearer cheque. There may be some extraneous circumstances which should raise the suspicion of the bank and indicate to it that the cheque should not be paid without making inquiries. REFER Selangor United Rubber Estates Ltd v Cardock [1968] 1 WLR 1555Payment of Crossed ChequesS92 – Where a bank, in ‘good faith’ and ‘without negligence’, pays a crossed cheque drawn upon it to a bank, the bank shall be deemed to have paid the cheque in due course.Payment MUST BE in ‘good faith’ and ‘without negligence’ – if the bank ignores warning signs on the face of the cheque, the payment will not be ‘without negligence’. – Nemur Varity Pty Ltd v National Australia Bank Ltd [1999] VSC 342Payment Contrary to a crossingS93(1) – When a bank disregards the crossing and pays the cheque otherwise than to a bank, the bank is liable to the true owner of the cheque for any loss that the true owner suffers as a result of the cheque being paid other than to a bank. It may be liable to 2 parties:The true owner of the cheque has rights against the bank either by virtue of s93(1); orThe ordinary action in conversion and the drawer of the cheque may resist the debt of the account: see Bobbet v Pinkett (1876) 1 Exch D 368Collecting ChequesWhen an institution is collecting a cheque on behalf of its customer, it is acting as an agent and so has the legal obligations of an agent. S62 & S61 – Due presentment for payment by a collecting institution is effected by making a demand for payment of the cheque after the date of the cheque in accordance with the above sections.Post-dated ChequesIt is impossible for a post-dated cheque to be duly presented for payment prior to the date on the cheque: see CA s61(2).‘Duly Presented’ – A cheque is duly presented if a demand is made for payment in accordance with procedures established in ss62, 62A or 63. S61(2) - A post-dated cheque is no ‘duly presented’ if the demand is made prior to the date of the cheque.IMPORTANT - Hunter BNZ Finance v ANZ Banking Group [1990] – The drawer of a bearer cheque remains the true owner after parting possession in the event that the cheque does not reach the hands of the payee.Misappropriated ChequesA cheque is misappropriated when it is acquired by a person who has no right to the cheque or when a person with a limited right to the cheque uses it for some unauthorised purpose. There are typically two legal actions that may arise when a cheque is misappropriated:The ‘true owner’ of the cheque may sue in the tort of conversion; orThe drawer of the cheque may have a claim against the paying institution for breach of contract.The action in conversionChattel = Personal propertyConversion is a tort which is primarily concerned with improper dealing with chattels.It deals with the intention required when dealing with the chattel, and there must be intention in dealing with the chattel. True OwnerIt is not defined in the act, but does appear in s93.A plaintiff in an action for conversion must show an immediate right to possession at the time of the alleged interference. When the chattel in question is a cheque – the person with an immediate right to possession is usually referred to as the ‘true owner’.Citibank Ltd v Papandony [2002] NSWCA 375 – The drawing of a cheque is induced by fraud and effects the ‘true owner’:the fraud is such that no contract ever comes into existence;the fraud creates a voidable contract, and the bank collects the cheque for the payee/owner before the contract is avoided;the fraud creates a voidable contract, but the bank collects the cheque for a person who is not entitled to it.The first case: the drawer remains the true owner of the cheque and is entitled to bring an action in conversion.The second case: the bank has not converted the cheque at the time that it dealt with the cheque, and no later act of rescission can change the character of that act.The third case: the bank has participated in the conversion of the cheque, but the drawer of the cheque may rescind the contract and bring an action against the collecting bank. The action for breach of contractWhen a cheque is misappropriated, it will most likely be paid to the ‘wrong’ person and, if altered, for the wrong amount. In the case of a cheque payable to bearer, it will always be paid to the ‘right’ person, at least in the sense that the bank will be following the order of its customer. Holder for ValueThe collecting bank is exposed only to an action in conversion or for money had and received since there are no contractual relationships with any of the parties who are entitled to the misappropriated cheque.Capital & Counties Bank Ltd v Gordon [1903] – House of Lords decided:A bank is not collecting a cheque for a customer in any case where the bank is a holder of value of the cheque.A bank is a holder for value of a cheque if it credits the account of its customer with the amount thereof before the proceeds of the cheque have been collected from the paying banker, and this position prevails even though the fact of credit the account has not been communicated to the customer.It was in this case that the House of Lords also decided that a bank is either a:Agent for collection; orA holder for valueIT cannot be both.Statutory Defences – s94/s95S94 – Protection of the drawee institution paying cheque lacking indorsement or with irregular or unauthorised indorsement Protects the paying bank in the event that it pays an indorsed cheque or ‘order’S95(1) – Where a bank in good faith and without negligence collects for a customer who has no title or a defective title, then the bank incurs no liability to the true owner of the cheque merely by the collection.This section makes it clear that the bank may use the defence whether or not the account is credit before or after the actual receipt of the payment, thus overcoming any possible difficulties remaining from Capital & Counties Bank Ltd v Gordon.In order to invoke the s95(1) defence – the instutition has the burden of showing that its actions fall within the test: Commerical Bank of Australia Ltd v Flannagan (1932) 47 CLR 61 & Hunter BNZ Finance Ltd v Maloney Pty Ltd (1988) 18 NSWLR 420.Whether the action was in ‘the ordinary course of business’ – i.e. ‘the business of banking’Carpenters Co v British Mutual Banking Co Ltd [1938] 1 KB 511Where there is evidence that the bank the bank has acted according to its rules and in the ‘ordinary course of business’, then the bank must show this evidence – Papandony v Citibank Ltd [2002] NSWSC 388Acted in ‘good faith’ – s3(2) S3(2) – A reference in this Act to an act or thing being done in good faith is a reference to that act or thing being done honestly, whether or not the act or thing is done negligently.It is up to the banker to prove that the collection was ‘without negligence’:Savory (EB) & Co v Lloyds Bank Ltd [1932] 2 KB 122‘Section 82 [now s95] is therefore not the imposition of a new burden or duty on the collecting banker but is a concession affording him the means of avoiding a liability in conversion to which otherwise there would be no defence. As it is for the banker to show that he is entitled to this defence, then onus is on him to disprove negligence’The distinction has several very important consequences. These are:It is for the bank to establish that it acted ‘without negligence’ - Hunter BNZ Finance Ltd v Maloney Pty Ltd (1988) 18 NSWLR 420If it fails to establish that it so acted, then there is no need for the plaintiff to show that the losses were caused by the bank’s action - Savory (EB) & Co v Lloyds Bank Ltd [1932] 2 KB 122; Hunter BNZ Finance Ltd v Maloney Pty Ltd (1988) 18 NSWLR 420 ‘Without Negligence’Defintion comes from Commissioner of Taxation v English Scottish and Australian Bank Ltd [1920] AC 683‘…the test of negligence is whether the transaction of paying in any given cheque [coupled with the circumstances antecedent and present] was so out of the ordinary course that it ought to have aroused doubts in the bankers mind, and caused them to make inquiries…’Marfani v Midland Bank Ltd [1968] 1 WLR 968 – ‘What facts out to be known to the bank, that is, what inquiries he should make and what facts are sufficient to cause him reasonably to suspect that the customer is not the true owner, depend upon current banking practices and change as that practice changes. Cases decided thirty years ago, when the use by the general public of banking facilities was much less widespread and may not be a realiable guide to what the duty of a careful banker, in relation to inquiries and as to facts which should give rise to suspicion, is today’.‘Not Negotiable’Savings Bank of South Australia v Wallman (1935) 52 CLR 688 – ‘There is, of course, no doubt that special vigilance is demanded when…a crossed cheque is tendered’.Commissioners of the State Savings Bank of Victoria v Permewan Wright& Co Ltd 91914) CLR 457 – ‘The words ‘not negotiable’ on a crossed cheque are a danger signal held out before every person invited to deal with it, and are equivalent to saying ‘Take care: this cheque may be stolen’…A reasonably careful man to whom such a cheque is tendered should therefore examine the cheque to see whether there is anything upon its face to indicate such a purpose. If there is not, it may be that he may safely rely on the honesty of the bearer; but if there is, it is his duty to make inquiries and if he fails to do so he cannot claim to have acted without negligence’.‘Account Payee Only’The manning committing considered that the ‘account payee’ crossing should receive no statutory approval. In the CA, s53(2) declares that nothing written or placed on a cheque is effective as a crossing other than the general crossing and the ‘not negotiable’ crossing described in s53(1), but s54 describe that the effect of a ‘crossing’ as a direction to the drawee bank. In Ladbroke & Co v Todd (1914) 30 TLR 433 – the words ‘account payee’ should have put the bank on inquiry even though the customer represented that he was the named payee.Important: House Property Co of London v London County and Wstminster Bank Ltd (1915) 84 1846 – A cheque was crossed ‘Account Payee’ yet drawn to ‘Pay X or bearer’ Rowlatt J found:That collection without inquiry of such a cheque for the account of a third party disentitled the bank from reliance on the statutory defence.The argument that the bank followed the drawers orders by paying the cheque to the ‘bearer’ was dismissed as ‘shallow’.In Hunter BNZ Finance Ltd v Maloney Pty Ltd (1988) 18 NSWLR 420 – Giles J held that the ‘account payee’ crossing put the collecting bank on inquiry even when the cheque appears to be regularly indorsed. In Oris Funds Management Ltd v National Australia Bank Ltd [2003] VSC 315 – the court found that:enquiries would probably have led to assurances that the collection was within the authority of the director who indorsed the chequesPay A or B or bearerAs highlight previously, it is clear that a cheque cross with ‘account payee’ and made payable to more than one person should not be collected for the account of only one of the named payees.In Moser v Commercial banking Corp of Sydney (1973) 22 FLR 23 – ‘it seems clear that the mere addition of the words ‘or bearer’ is not sufficient to justify the bank regarding the details concerning the payee or the payee’s details as of little or no consequence’.However, in Day v Bank of New South Wales (1978) 19 ALR 32 – Supreme Court found that the ‘contributory negligence’ is not a defence to an action for conversion. Contributory NegligenceThe use of the word ‘negligence’ in s95 has led to arguments that the bank may plead contributory negligence of the customer.Apportionment based on contributory negligence when the action is for the conversion of a cheque has been refused in Australia in:Tina Motors Pty Ltd v ANZ [1977] VR 205Day v Bank of New South Wales (1978) 19 ALR 32 ................
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