Negotiable Instruments
Negotiable Instruments
Negotiable Instruments
Negotiable Instruments
In this module, we focus on financial instruments which replaced the need for physical exchange of money or other valuables in commercial transactions, and which could facilitate complex arrangements, not possible with physical only settlements.
We start with Bills of Exchange and Promissory Notes and then discuss Cheques-- a special type of negotiable instrument. A good working knowledge of the Bills of Exchange Act and Cheques Act is required.
so they can recognise when that is not met and an instrument is not a valid negotiable instrument, or what qualities certain characteristics or crossings impart that affect dealing in these instruments.
Be able to work through problems involving fraud (with or without
forgery) and understand the contract between customer and banker in the light of both Statute and common law.
CONCEPT OF NEGOTIABILITY
involved in having large sums of cash, gold or silver always and immediately available and to overcome problems with transporting them over dangerous distances.
Grew out of Merchant practice. Later codified in statute. All negotiable instruments are transferable.bills of exchange,
cheques, bearer debentures, promissory notes, some bonds.but not all things transferable are negotiable.share certificates, money orders, IOUs.
As well as payment method, extensive use in liquidity management
Title is capable of transfer by mere delivery (or where payable to order, by endorsement and then delivery) No requirement for notice of transfer to be given to person liable. (Contrast s. 12 Conveyancing Act) Holder can sue in his/her own name. Holder who takes in good faith and for value takes it free of equities and may obtain better title than transferor. A presumption of bona fides and consideration.
What is it?
A documentary collection consists of a Bill of Exchange plus various shipping documents relating to the goods you are importinginvoice, bill of lading, other transport documents, insurance policydelivered to you-via your agent bank. These documents are released to you in exchange for: On the spot payment (sight documentary collection) Your endorsing the Bill of exchange as a promise to make payment at a future date, as negotiated and specified in the Bill of exchange (term documentary collection)
Who initiates it? Your supplier, once terms have been agreed with you usually
Documentary collection
2. Shipment
8. Buyer (importer)
1. Contract of Sale
3. Seller (exporter)
4. Lodgement of shipping documents
6. Shipping documents
11. Payment
7. Presenting bank
10. Payment
5. Remitting Bank
Documentary Collection
1. 2. 3. 4. Contract is negotiated between buyer seller. Method of payment -documentary collection, shipment prior to payment. Exporter prepares shipping documents, BOE and instructions Documents lodged with remitting bank, who acts in accordance with instructions from exporter 5. Remitting bank examines documents 6. Remitting bank dispatches documents to presenting bank. 7. Upon receipt shipping documents, presenting bank presents BOE to importer 8. Importer will either agree to make payment or refuse 9a. If importer agrees to payment, payment or acceptance of BOE 9b. Shipping documents released to importer on payment or return of accepted BOE 10. Presenting bank makes payment to remitting bank 11. Remitting bank makes payment to exporter.
Instead of A sending currency to B and B sending money to C, B could send a written order to A to pay C the amount of Bs debt. The drawing of a BofE is distinct from the underlying sale of goods.
To be effective the bill must comply with s. 8 BEA B is drawer, A is drawee (and if A accepts, the acceptor),C is the payee This bill is an unconditional order in writing given by B, signed by B, requiring A to pay not on demand, but at a fixed or determinable future time a sum certain in money to the order of C.there is no bearer in this bill
BILLS OF EXCHANGE
DEFINITION S. 8 BILLS OF EXCHANGE ACT UNCONDITIONAL ORDER IN WRITING ADDRESSED BY ONE PERSON TO ANOTHER SIGNED BY DRAWER REQUIRING DRAWEE TO PAY ON DEMAND OR AT FIXED OR DETERMINABLE FUTURE TIME A SUM CERTAIN IN MONEY
John Shearer was a dealer in Agricultural machinery and for many years distributed machinery manufactured by Gehl. Gehl terminated the distributorship and Shearer dishonoured various Bills of Exchange Gehl served statutory demands pursuant to the provisions of the Corporations Law s.459 (part of 1993 amendments). Shearer claimed it was a new basis whereby a company could apply to the court to set aside that demand by disputing the genuineness of the debt or relying on an offsetting claim. Court reviewed authorities (under Bills of Exchange Act, possible only to dispute in exceptional circumstances (if bill procured by fraud, duress or for a consideration which had failed,) interaction with the provisions of the corporations law (was not a Code which replaced the law re Bills of Exchange and must be read together) and policy (need for certainty in law merchant). In view of the importance of the preservation of the law merchant in international and intranational transactions, would not permit law of Bills of Exchange to be amended by implications. It had to fit very specifically within the meanings.
TRANSFERABILITY - easy, no notice required SECURITY - no need for cash DISCOUNT - liquidity when desired NEGOTIABILITY - transferee can hold free of prior defects in title PAYMENT - facilitate payments at a distance FINANCING - commercial paper, flexible, liquid DISHONOUR - can sue on bill rather than establish facts of debt DEFENCES LIMITED - no set- off for unliquidated damages USE IN MULTIPLE TRANSACTION SCENARIO - can eliminate need for some
ACCEPTANCE
The assent of the drawee to the order Drawee not liable until acceptance
Acceptance can be general or qualified Qualified acceptance varies effect and must be clear and unambiguous Conditional Partial States expressly that acceptor will only pay at specified place and no other Limits time of acceptance Made by less than all drawees indicated on bill Holder may refuse qualified acceptance and may treat it as dishonoured for non-acceptance Must dissent within time or deemed to have assented to it
INDORSEMENTS
SANS RECOURS - No recourse. Indorser or drawer negatives liability to holder in event dishonour.
Subject to the provisions of this Act, where a signature on a bill is forged or placed thereon without the authority of the person whose signature it purports to be, the forged or unauthorized signature is wholly inoperative, and no right to retain the bill or to give a discharge therefor or to enforce payment thereof against any party thereto can be acquired through or under that signature, unless the party against whom it is sought to retain or enforce payment of the bill is precluded from setting up the forgery or want of authority. Provided that nothing in this section shall affect the ratification of an unauthorized signature not amounting to a forgery.
LIABILITIES OF PARTIES
S. 58 FUNDS IN HANDS OF DRAWEE A bill of itself does not operate as an assignment of funds in the hands of the drawee available for the payment thereof and the drawee of a bill who does not accept as required by this Act is not liable on the instrument. S. 59 LIABILITY OF ACCEPTOR The acceptorengages that he will pay it according to the tenor of his acceptance; and is precluded from denying to holder in due course, the existence of drawer genuineness of his signature and his capacity and authority to draw the bill and.. S. 60 LIABILITY OF DRAWER OR INDORSER The drawer engages that on due presentment it shall be accepted and paid according to its tenor and that if it is dishonoured he will compensate the holder or any indorser who is compelled to pay it, provided that the requisite proceedings on dishonour are duly taken and is precluded from denying to a holder in due course the existence of the payee and his then capacity to endorse.
LIABILITIES OF PARTIES
CONT.
S. 61 STRANGER SIGNING BILL LIABLE AS INDORSER Where a person signs a bill otherwise than as drawer or acceptor, he thereby incurs the liabilities of an indorser to a H in due course. S. 63 TRANSFEROR BY DELIVERY AND TRANSFEREE Where the holder of a bill payable to bearer negotiates it by delivery without indorsing it, he is called a transferor by delivery.(who) is not liable on the instrumentwarrants to his immediate transferee being a holder for value that the bill is what it purports to be, that he has a right to transfer it, and that at the time of transfer he is not aware of any fact which renders it valueless.
DISCHARGE OF BILLS
S. 64 PAYMENT IN DUE COURSE - A bill is discharged by payment in due course by or on behalf of the drawee or acceptor. Payment in due course means payment made at or after maturity of the bill to the holder thereof in good faith and without notice that his title to the bill is defective. S. 69 ALTERATION OF A BILL - (1) Where a bill or 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 indorsers. 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 its original tenor. (2) In particular, the following alterations are materialany 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 acceptors assent.
HELLER FACTORS V. TOY CORP (1984) 1 NSWLR 121 In mid May, Toy drew BE to its own order,mistakenly dated 3.12.82; the due date. Accepted by Cassidy. Indorsed by Lumsden, MD of Toy and handed to Heller, financiers of Toy. In June 82, Beech of Heller wrote Invoice No 7190 on Bill. In Sept 82, altered date on bill to 14.5.82. Lumsden initialled alteration. Bill presented to Cassidy 31.12.82. Dishonoured. Heller sued Toy (Receivers) and Cassidy in SC Yeldham J. Irregular on its face. Indorsement irregular-did not mention name indorser. Original date and date of maturity same. (s. 34 not holder in due course if bill not complete and regular on the face of it). Prima facie,Plaintiff is holder in due course s. 35(2).Regularity differs from validity and liability (Arab Bank). Would indorsement or obvious error in date reasonably give rise to doubt? No, Lumsden was MD and no doubt his signature was one on behalf of company.s.8. Bill not invalid by reason only undated. Heller was holder in due course. Addition of Invoice No 7190 material alteration? No Change to date material alteration? Refer to s. 69(2)-yes, defined as so. On this ground alone, not assented to by Cassidy, claim against Cassidy fails
CLUTTON AND CO V. GEORGE ATTENBOROUGH & SON (1897) AC 90 Mr. Piper was clerk with Clutton and Co. He tricked employer to draw cheques in favour of George Brett. No such person. Piper took cheques, endorsed them as Brett and gave them to Attenborough, pawnbrokers to redeem goods. He was known to pawnbrokers as Brett. Clutton and Cos bank paid out on cheques Piper was found out. Clutton and Co sued pawnbrokers. Not successful. Appeal dismissed. Appeal to HL Lord Halsbury LC - Cheque made payable to fictitious or nonexistent person still considered payable to bearer although drawer believed it was a real person. NOTE Bearer cheque can be negotiated by delivery. Order cheque must be negotiated by endorsement and delivery. Payable to bearer When it explicitly says Pay Bearer. Last or only endorsement is one in blank. Payee is fictitious or nonexistent person
Greenwood opened cheque account with Martins. Wife forged signature Most drawn in favour of non-existing person. She indorsed them and obtained payment from bank.11 months later, Mr. G found her out. Allowed another 7 months to go by before reporting. She then shot herself. He claimed bank could not debit him for cheques. Bank denied claim. He sued and was successful. Appeal to CA successful. Greenwood appealed to HL. Crockett J - No question of ratification or of adoption. Estoppel? Essential factors giving rise to estoppel: --A representation or conduct amounting to same to induce a course of conduct --An act or omission resulting from representation, whether actual or by conduct by the person to whom the representation made.--Detriment to such person as a consequence Mere silence not representation BUT When there is duty and then deliberate silence this may become a representation. As in this case. Duty to disclose forgery to bank admitted. Appeal dismissed
Mr. and Mrs I had used car business - Tina Motors Pty Ltd. Cheque account with ANZ. Bank Manager was Hardy. Mrs I could sign cheques. Brother in law Mr. Stella worked in business He forged her signature on cash cheques over 7 months. Paid on
cheques by bank Subsequently found out. Tina Motors sued. Crockett J 1. Normally Tina Motors would succeed because a signatory did not sign the cheques 2. However in this case evidence showed Mr. Hardy had twice been doubtful of authenticity of signature and been reassured by Mr. I. Mr. I put on inquiry and chose not to examine situation 3. Continuing duty to act with reasonable care to ensure proper working of account
PROMISSORY NOTES
S. 89 DEFINITION An unconditional promise in writing made by one person to another signed by the maker engaging 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 Not a Bill of Exchange BUT Main BEA provisions apply with modification Note their use in financing and why No need to go into underlying debt If signed by more than, one deemed joint and several
Westpoint
Issued PNs
Westpoint
Guarantee
Development Manager
1. Emu Brewery Mezzanine Pty Ltd (Emu Brewery Mezzanine) promises to pay to R & L Andrew Pty Ltd ATF R & L Andrew Superannuation Fund (the Investor) of 13 Gertrude Street Sunshine VIC 3020 Australia (a) the sum of $71,000 and (b) interest (Interest) in accordance with the terms set out below
Emu Brewery Mezzanine Ltd (in Liq) v. ASIC (2006)WASCA 105 Westpoint use of Promissory Notes
ASIC claimed in cross appeal $35m raised by issue of PNs used were securities and Emu/Westpoint offered to issue securities (a debenture) to investors without preparing lodging or providing a disclosure document as required by Corporations Act. Not so, said majority. Did a right of early repayment prevent there being a fixed or determinable future time for payment? Or, sum certain? No
CHEQUES
CHEQUES ACT 1986 DEFINITION s. 10 (1) A cheque is an UNCONDITIONAL ORDER IN WRITING that; (a) Is addressed by a person to another person (being a FINANCIAL INSTITUTION) (b) Is signed by the person giving it and (c) Requires the FINANCIAL INSTITUTION to pay ON DEMAND A SUM CERTAIN in money (2) An 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. See also: s. 3 for definitions of FIC INSTITUTION, FINANCIAL INSTITUTION, FINANCIAL INSTITUTION CODES s. 11 for what is an ORDER s. 12 for what is the meaning of UNCONDITIONAL ORDER TO PAY s. 13 for what is meant by ORDER ADDRESSED TO A FINANCIAL INSTITUION s. 14 for meaning of ORDER TO PAY ON DEMAND s. 15 for ORDER TO PAY A SUM CERTAIN
Definitions cont.
s. 11 CHEQUES ACT Order to pay An order to pay must be more than an authorization or request to pay. s. 12 CHEQUES ACT Unconditional order to pay (1) An order to pay on a contingency is not an unconditional order to pay and the happening of the event does not make the order an unconditional order to pay. (2) An order to pay shall not be taken not to be an unconditional order to pay by reason only that the order is coupled with either or both of the following: (a) An indication of a particular account to be debited by the financial institution to which the order is addressed; (b) A statement of the transaction giving rise to the order
Definitions cont.
s. 13 CHEQUES ACT Order addressed to a financial institution (1) An order to pay is not addressed to a financial institution unless: (a) The order is addressed to a financial institution and to no other person; (b) the order is addressed to one financial institution only; and (c) the financial institution is named, or otherwise indicated with reasonable certainty, in the instrument containing the order. (2) An order to pay may be an order to pay addressed to a financial institution notwithstanding that a person other than the financial institution on which the instrument containing the order is drawn, the payee or the drawer is specified in the instrument.
Definitions cont.
s.14 CHEQUES ACT Order to pay on demand (1) Subject to subsections (2) and (3), an order to pay is an order to pay on demand if: (a) the order is expressed to require payment on demand, at sight or on presentation; or (b) no time for payment is expressed in the instrument containing the order. (2) Subject to subsection 16(3), an order to pay is not an order to pay on demand if the order is expressed to require, or requires by implication, payment otherwise than on demand, at sight or on presentation. (2) Without limiting the generality of subsection (2), an order to pay is not an order to pay on demand if the order is expressed to require, or requires by implication, payment only: (a) at or before a particular time; or (b) where the instrument containing the order is presented at or before a particular time.
Definitions cont.
s. 15 CHEQUES ACT Order to pay a sum certain (1) Subject to subsection (2), an order to pay is not an order to pay a sum certain unless the sum ordered to be paid is specified with reasonable certainty in the instrument containing the order. (2) Where more than one sum is expressed to be payable in an instrument containing an order to pay, the lesser or least, as the case may be, of the sums so expressed to be payable shall be taken to be the only sum ordered to be paid by the instrument. (3) An order to pay may be an order to pay a sum certain notwithstanding that the order requires a sum to be paid according to a rate of exchange specified in, or to be ascertained as directed by, the instrument containing the order. (4) Where an instrument contains: (a) an order to pay a specified sum; and (b) an order to pay not more than a specified sum; the instrument shall be taken to require payment of the lesser of the sums so specified.
Definitions cont.
S. 19 CHEQUES ACT Meaning of specification of person as payee or indorsee (1) A person shall not be taken to be specified in a cheque as payee or indorsee unless the person: a) Is named or otherwise indicated with reasonable certainty, in the cheque: and b) Is not a fictitious or non-existing person (2) Where the holder for the time being of an office is specified in a cheque as payee or indorsee, the person who is the holder for the time being of the office shall be taken to be named in the cheque as payee or indorsee, as the case may be. SO--When is a payee or indorsee NOT a payee or indorsee for the purposes of the Cheque Act? When: A fictitious person / A non-existing person / Reference is too obscure or uncertain
Definitions cont.
S. 20 CHEQUES ACT A CHEQUE IS EITHER PAYABLE TO ORDER (REQUIRES DRAWEE TO PAY TO OR TO ORDER OF A PERSON SPECIFIED, OR 2 OR MORE PERSONS JOINTLY OR IN THE ALTERNATIVE AS PAYEE OR INDORSEE S. 21) OR PAYABLE TO BEARER (IF NOT PAYABLE TO ORDER WITHIN S. 21SEE S. 22)
ONLY 2 CHOICES!
Definitions cont.
S.23 CHEQUES ACT A cheque may be converted from payable to bearer to one payable to order. Where the only, or last , indorsement of a cheque requires the drawee institution to pay the sum ordered to be paid by the cheque to bearer, the holder may, using the signature of the indorser, convert the cheque into a cheque payable to order by adding to, or altering, the indorsement so that the cheque is expressed to require the drawee institution to pay the sum ordered to be paid by the cheque to or to the order of: a) A person specified in the cheque as indorsee; or b) 2 or more persons specified in the cheque, jointly or in the alternative, as indorsee.
UNAUTHORISED SIGNATURE
S. 32 CHEQUES ACT (1) Where a signature is written or placed on a cheque as that of the drawer without the authority of the person whose signature it purports to be (in this subsection referred to as the relevant person), the signature is wholly inoperative as that of the relevant person unless: (a) the person against whom it is sought to assert a right on the cheque is estopped from denying the genuineness of the signature or the existence of authority for the signature, as the case requires; or (b) the signature is ratified or adopted by the relevant person; but the signature operates as the signature of the person who wrote or placed it on the cheque in favour of any person who, in good faith and without notice that it had been written or placed on the cheque without the authority of the relevant person, pays the cheque or takes the cheque for value.
(2) Subject to sections 74 and 92, subsection 93(2), section 94 and subsections 95(1) and (3) and 98(1), where a signature is written or placed on a cheque otherwise than as that of the drawer without the authority of the person whose signature it purports to be (in this subsection referred to as the relevant person), the signature is wholly inoperative as that of the relevant person unless: (a) the person against whom it is sought to assert a right on the cheque is estopped from denying the genuineness of the signature or the existence of authority for the signature, as the case requires; or (b) the signature is ratified or adopted by the relevant person; but the signature operates as the signature of the person who wrote or placed it on the cheque in favour of any person who, in good faith and without notice that it had been written or placed on the cheque without the authority of the relevant person, pays the cheque or takes the cheque for value.
HOLDER IN DUE COURSE DEFINED S.50 CHEQUES ACT (1) The holder (def.s.3)of a cheque is a holder in due course if; (a) The cheque was transferred by negotiation to the holder and, at the time when the holder took the cheque, the cheque; (i) Was complete and regular on the face of it; (ii) Was not a stale cheque; and (iii) Did not bear a crossing of the kind referred to in 53(1)(b)2 parallel transverse lines with the words not negotiable between; and (b) The holder took the cheque: (i) In good faith; (ii) For value; and (iii) Without notice; A. Of any dishonour of the cheque; or B. Of any defect in the title of the person who transferred the cheque to the holder or that the person who transferred the cheque to the holder had no title to the cheque (2) Without limiting the generality of paragraph (1)(b) the holder of a cheque shall, for the purposes of that paragraph, be deemed to have taken the cheque with notice of a defect in the title of the person who transferred the cheque to the holder if the holder took the cheque with notice that the person transferred the cheque to the holder in breach of faith or under circumstances amounting to a fraud.
CHEQUES ACT S.53, 54, 55 CHEQUE CROSSINGS S. 53 Crossing and crossed cheque defined 2 parallel transverse lines; or 2 parallel transverse lines with the words not negotiable between, or substantially between, the lines Just putting the words not negotiable is NOT ENOUGH s.54 Effect of crossing on payment of a cheque A crossing has effect as a direction by drawer to drawee not to pay the cheque otherwise than to a financial institution s. 55 Effect of taking cheque crossed not negotiable Where a cheque that bears a crossing of the kind referred to in paragraph 53 (1)(b) is transferred by negotiation to a person, the person does not receive, and is not capable of giving, a better title to the cheque than the title that the person from whom the first mentioned person took the cheque had.
DISTINGUISH CHEQUES from BILLS OF EXCHANGE AND PROMISSORY NOTES A CHEQUE is Drawn only on a financial institution Mostly for commercial transactions within a country Drawn on a financial institution and payable on demand Financial institution pays because of banker/customer relationship rather than acceptance Is a subset of Bills of Exchange A BILL OF EXCHANGE Can be drawn on anyone Often used for international transactions Does not use crossings Accepted by party on whom drawn A PROMISSORY NOTE Bilateral legal relationship and not tripartite Unconditional promise rather than unconditional order
BANK CHEQUES
THEIR STATUS? Do not comply with s. 10 definition-- It is not drawn by one person on another.Drawn by a financial institution on itself.s. 5 clarifies and excludes operation of certain sections with respect to bank cheques. IS CONFIDENCE IN THEM JUSTIFIED? Bank has no duty to warn public if cheques stolen. No duty to ensure they do not come into hands unauthorised persons. See text 28.48. Not negotiable crossing means holder is not holder in due course. Which means holder can obtain no better title than person from whom he took cheque. Can be met with defence of total failure of consideration. This happened in Sidney Raper case. Note however, successful action for misleading and deceptive conduct, in Lyritzis v. Westpac. Some attention to problem by ABA Still situations where they will be dishonoured.
Moffitt P No value given by Raper for cheque. Total failure of consideration Credit in account conditional on clearance of cashiers cheque Bank cheque equivalent to cash? Not in this case. Unwarranted assumption. Still a cheque
Athanasios Lyritzis and Janelle Ronda Lyritzis v. Westpac Banking Corp. No SG54 of 1992 FED No 812/94
Lyritzis opal miners and dealers in Coober Pedy. Mr Lyritzis accepted 4 bank cheques purportedly drawn on ANZ from interstate buyer unknown to him. He alleged that shortly before transaction, Pearson, Manager of W told him that a bank cheque was as good as cash and acceptable to any bank as a good and valid order for payment, but failed to advise him that there were circumstances in which a bank cheque could be dishonoured (in particular, that if bank cheque fraudulently obtained and completed, the bank on whom it was drawn could refuse to honour it$170,000 cheque dishonoured because ANZ said form had been stolen). Interstate buyer disappeared with the opals. Federal Court SA Flourishing cash economy. Almost all deals in cash between miners and dealers. Only exceptions being when dealing with trusted and well established friends. W was only bank in town. Turned on credit. Court believed evidence of Lyritzis and Ms. Braun who introduced deal rather than Pearson.
Athanasios Lyritzis and Janelle Ronda Lyritzis v. Westpac Banking Corp. No SG54 of 1992 FED No 812/94 Cont. ABA Guidelines for Dishonour 1. Forged or counterfeit instruments 2. Bank cheques materially altered 3. Bank cheques reported lost or stolen 4. Failure of consideration for the issue of a bank cheque 5. Court order restraining payment Advice was misleading /deceptive failure to warn possibility of dishonour Circumstances where s. 52 TPA conduct may be constituted by factual matrix which includes silence as well as overt activity silence is to be assessed as a circumstances like any other. Failure to qualify plainly misleading No doubt on evidence that Mr. L relied on the advice. Negligence would also succeed. Established customersduty to exercise reasonable care and skill when advising customer.failure to qualify advice a breach of that duty.
DISHONOUR
MAIN CONTRACTUAL OBLIGATION OF FINANCIAL INSTUTION TO CUSTOMER CAN BE LIABLE for BREACH OF CONTRACT/DEFAMATION EXCEPTIONS: BANK CAN REFUSE PAYMENT STALE CHEQUES (S. 3(5) 15 months; see also ss. 89,60) COUNTERMAND i.e. stopping. Unambiguous and identify particular cheque concerned, made to responsible person, by drawer s. 90. Note Commercial Bank of Australia v. Younis re mistake in fact. NOTICE CUSTOMERS MENTAL INCAPACITY S. 90(1)(b) NOTICE of CUSTOMERS DEATH s. 90(1)(c) NOTICE BANKRUPTCY ss. 125 and 126 of Bankruptcy Act NOTICE of WINDING UP of A COMPANY SERVICE of GARNISHEE POST DATED CHEQUES s. 16 KNOWLEDGE by BANK of DEFECT IN TITLE of PRESENTER NOTICE OF ASSIGNMENT
$2,000 He presented both and both paid. Bank sued him on first and succeeded. He appealed. Hope JA Recovery of money paid under mistake of fact Unjust enrichment for Y to keep the money Bank to recover Note: Might be different if Y had changed his circumstances in reliance on money
THE DRAWERs SIGNATURE - General position is that financial institution cannot debit customers account. Unless situation is within s. 32. INDORSEMENTS - Financial Institution receives protection under s. 94 (1) Not restricted to situation where cheque paid to another financial institution. 94 Protection of drawee institution paying cheque lacking indorsement or with irregular or unauthorised indorsement (1) Subject to subsection 32(1), where: (a) the drawee institution, in good faith and without negligence, pays a cheque, whether or not to a financial institution; and (b) an indorsement has been written or placed on the cheque without the authority of the person whose indorsement it purports to be the drawee institution:
CUSTOMER DUTIES with respect to forgery, unauthorised signature 1) Duty to take care to prevent fraudulent alterations of cheques which might cause loss to banker Commonwealth Trading Bank of Australia v. Sydney Wide Stores which confirmed Macmillan (English case). In absence of express agreement to contrary, customers duty is limited to duty to refrain from drafting a cheque in such a manner as to facilitate fraud or forgery. 2) Duty to inform bank of any unauthorised cheques as soon as aware No duty to check statements Tai Hing Cotton Mill Ltd v. Liu Chong Hing Bank Ltd (1986), Applying Greenwood Attempts to expand duty have failed: Tai Hing Cotton Mill Ltd (1986); National Australia Bank Ltd v. Hokit (June 96). But notice in Westpac v. Metlej (1987)-court prepared to contemplate wider duty.
COMMONWEALTH TRADING BANK OF AUSTRALIA V. SYDNEY WIDE STORES (1981) 148CLR 304 Sydney Wide drew cheques on CTB CAS or order (Computer Accounting Services) Crossed and marked Not negotiable and A/c Payee Only Employee named Prior, added H to CAS=CASH and cashed the cheques Sydney Wide sued the bank and won CTB appealed to HC Arising from the contract between banker and customer, there is a duty upon the customer to take usual and reasonable precautions in drawing a cheque to prevent a fraudulent alteration which might occasion loss to the banker. Whether there is a breach of this duty by neglecting some usual and reasonable precaution in the drawing of cheques is a question of fact. Appeal allowed and remitted back to SC.
TAI HING COTTON MILL V LIU CHONG HING BANK (1986) 1 AC 80 Leung (accounts clerk) with Tai Hing in HK, forged signature MD over 5 yrs on 300 cheques/HK D5.5m--paid into accounts with names similar to real suppliers. Leung took money,fled to Taiwan. Cheques drawn on 3 banks. Company sued 3 banks and won against Liu Chong. Appeal to CA by banks successful. Appeal to PC by Tai Hing. Lord Scarman DOES LAW RECOGNISE ANY DUTY OF CARE OWED BY CUSTOMER TO BANK BEYOND: 1) Duty to refrain from drawing cheque in way which facilitates fraud, forgery London Joint Stock Bank Ltd. V. Macmillan (1918) 2) Duty to inform bank of any forgery as soon as he (customer) becomes aware of it? Greenwood v. Martins Bank Ltd (1933) AC 51 Banks alleged duty widerimplied term in contract to take reasonable precautions in management of business with bank to prevent forged cheques to be presentedand in tort, duty to check periodic statements and advise of irregularities Test of whether a term should be implied in contract is necessity. Not necessary here. If banks want it, they have to put it in contracts expressly, or use influence to get it into legislation.Any obligations in tort no greater than those in contract. None here
M was a partner in a building partnership with Cheque account with Westpac.2 people to sign cheques, one of whom solicitor. Solicitor signed a number of cheques and M would add signature when it needed to be paid. Kept cheque book in lunch box in car. Someone stole 3 cheques, forged Ms signature and got away with money. M sued Westpac and won. Westpac appealed to CA
Court was prepared to contemplate wider duty than in Tai Hing However, not necessary No breach of duty in circumstances Even if breach, not sufficiently relevant Legal cause of loss is Westpac failure to detect forgery
Hokit, R and M operated hairdressing salons. Companies employed Banno as bookkeeper. In 1990-94 Banno signed cheques in name of Mark and Peter. Mark controlled Hokit and later other companies, knew that Banno was signing cheques in his name and was writing amounts larger than amounts recorded. He allowed her to sign his name and gave her signed blank cheques as a means of obtaining cash for himself WHO BEARS BURDEN FORGED CHEQUES? Bank argued for extension of customer duties to include 1. Obligation to take reasonable care to prevent presentation forged Cheques 2. Companies estopped from denying regularity of cheques signed because they knew of and acquiesced in her signing other cheques
Was the bank put on inquiry? Not on facts as presented to judge No need to upset that Appeal dismissed
A bank which collects the proceeds of a cheque crossed not negotiableaccount payee only for a customer who is NOT the named payee of the cheque without making inquiry as to how the customer came to be paying the cheque into their own account has not acted without negligence and will not be protected by s. 95 against an action in conversion by the true owner of the cheque. See Universal Guarantees Pty Ltd v. NAB Found to apply even where there was an apparently proper indorsement of the cheque by the payee. Hunter BNZ Finance Ltd v. CG Maloney P/L (1988) 18 NSWLR 420
UNIVERSAL GUARANTEE V. NATIONAL BANK OF AUSTRALASIA (1965) 1 WLR 69 Universal was finance company. Moffitt was acceptance officer for HP applications. He began creating fictitious applications which he accepted. Later, he arranged cheques drawn in favour fictitious applicants. When he banked money for company, he would extract some cash and replace it with one of the cheques endorsed by him back to the company. Stole 60,000 pounds. Moffitt was found out. Company sued the National Bank without success. Appealed to PC
Lord Upjohn
In circumstances nothing paid out or in. Debtor creditor relationship unaffected. Analysis on basis paying /collecting banker unrealistic. Has Bank failed in contractual duty? Should have been put on inquiry because it was not paid to payee. Had not been paid through another bank? s. 86 BEA crossing s.87 not negotiable a/c payee etc operate as warning but do not prevent negotiation. Found nothing suspicious to put bank on inquiry.