GROUP COURSE WORKS BANKING LAWS

QUESTION 2
A fraudulent secretary forged signatures of his managing directors on
cheques of 10 million which a bank honored, after four years the bank
sent a statement of account but the managing director did not check
them for accuracy. Now the account is less by the 10 million. Advise the
company if they can get back the money.

A bank is a financial establishment for deposit, loan, exchange or issue of money

and for the transmission of funds.
Section 72(1) of the Bill of Exchange Act defines a cheque as a bill of exchange
drawn on a banker payable on demand.
A customer of the bank is any entity for which the bank agrees to conduct an
account. The determining factor is having an account with the bank to qualify to
be a customer. In Great Western Railway V London and County Banking
LTD, it was held that a person was not a customer of the bank who had no
account of any sort with the bank and nothing his credit as any book or paper
held by the bank, meaning that the mere fact that the bank does some casual
work to him does not make him a customer and the bank is not liable to him as it
would be to its customers. While in Ladbroke v Todd, court held that a person
becomes a customer with money or cheque and asks for an account to be
opened in his name if the bank accepts the money or and is prepared to open an
account for the person becomes the customer of the bank from that point.
When a person becomes a customer of the bank, their relationship becomes
contractual in nature. In Esso Petroleum (U) Ltd v UCB and Mobile (U) Ltd, it
was noted that the relationship between a customer and a bank is contractual. It
is an implied contract whose terms are must dependent on custom of the
bankers. The bank undertakes the borrowed money from the customer as the
customer lends it, until the customer demands for it.
At common law, a customer owes a duty to their bank to take reasonable care
when drawing cheques, therefore, when writing a cheque the customer must
ensure that a cheque cannot be fraudulently altered as it is seen in the case of
Commonwealth Trading Bank of Australia v Sydney Wide Store Ltd,
where it was held that 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 a loss
to the customer. In the case of Greenwoods v Martins Bank Ltd where it was

held that the plaintiff was not entitled to recover the sum claimed by remaining
silent when he knew his wife was forging his signature, the plaintiff had breached
his duty to the bank and was estopped from denying that the signatures were in
fact forgeries despite the fact that the customer owes a duty of care to the bank
while drawing cheques in order to avoid forgeries.
However, when it comes to forgery of signatures, the bank also ought to act
reasonably to ensure that it identifies the signatures of the customer and not
freely accept the cheque drawn to it. Here, the bank has to call its customer
when a cheque is drawn to it so as to inquire from the customer whether he is
aware of the cheque drawn to it and in this way it will have acted reasonable. In
the case of Tai Hing Cotton Mills v Liu Chong Hing Bank wherein, a
fraudulent accounts clerk forged signatures of over 300 cheques drawn on the
companys account over a period of 5 years. It was held that the bank which paid
on the forged cheques was not entitled to debit the companys account. And this
is the same issue in our instant facts of the secretary of the company forging
signatures of the director on cheques for 4 years; therefore the bank was not
entitled to pay to the forged cheques by the secretary. Therefore, the bank acted
negligently, for its the obligation of the bank to verify their customers signatures
whether they are the same as the ones they have in record and also an obligation
to exercise reasonable care when a cheque is drawn to them by informing the
customer about the cheque drawn to them whether he is aware of the cheques
written in his name and signature on the cheques hence the bank not doing so it
was negligent and it is entitled to crediting the companys account which it
debited for the four years. This was clearly illustrated in the case of Keptingala
Rubber Estates Ltd V National Bank of India Ltd, wherein the secretary of
the company forged cheques drawn on the companys account over a period of
two months. Statements given to the company had not been examined by the
directors. It was held that the bank could not charge the company because the
directors were under no duty to organize their business in such a way that
forgeries of cheques couldnt take place. The duty owed by the customer to the
banker is limited to the duty to refrain from drawing cheques in such a manner as
to facilitate forgery and inform the bank as soon as he becomes aware of it.

QUESTION 3
Qn. With the aid of decided cases explain the meaning of section 6(3) of
the bill of exchange Act cap 68.
Section 6 (3) provides that Where the payee is a fictitious or non-existing
person, the bill may be treated as payable to bearer.
Under section 1 of the Act, a bearer, means the person in possession of a bill or
note to whom it is payable.

A bill means bill of exchange, and as from section 2 of the bill of exchange Act,
a bill of exchange is 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.
An instrument which does not comply with these conditions, or which orders any
act to be done in addition to the payment of money, is not a bill of exchange. An
order to pay out of a particular fund is not unconditional within the meaning of
section 2 but an unqualified order to pay, coupled with an indication of a
particular fund out of which the drawee is to reimburse himself or herself or a
particular account to be debited with the amount and a statement of the
transaction which gives rise to the bill, is unconditional.
Under sub section 4 of section 2 of the bill of exchange Act, a bill is not invalid by
reason of it not being dated, not specifying the value given or that any value has
been given therefore and also not specifying the place where it is drawn or the
place where it is payable.
The other terms in the provision of fictitious and non-existing person are
construed differently basing on the facts of the case and the original intention of
the drawer vis--vis the bearer of the bill as it is enunciated in the later cases
below.
The ostensible significance of this provision (section 6(3) of the Bill of exchange
Act) is that if applicable, the acceptor of the bill (or drawee if no acceptance is
necessary) cannot impugn the title of the person demanding payment from him
on the ground that, since the bill is on its face an order instrument and the payee
is 'fictitious', there could be no valid endorsement to the holder.
The provision has, however, another significance, if the acceptor has paid the
holder out of monies in his hands belonging to the drawer, or if he has a right of
recovery against the drawer, the latter can neither plead that the acceptor has
paid the wrong person and hence claim reimbursement nor that his adversary
has lost his right of recourse, as the case may be. Besides that, we shall still see
that such a provision portrays the exception nature of the nemo dat non qou
non habet rule where the person to whom the bill is negotiated, receives a
better title than what his or her transfer did not have regardless of the presence
of
fraud
or
not
besides
other
factors.
While the policy of the provision is intelligible or understandable, its application
has resulted in significant litigations. Perhaps it can now be said that its
construction is a matter of settled law. If so, its application should not give rise to
any greater difficulty than that ordinarily created by the special facts of a
particular
case.

Nevertheless, the application of the doctrine to cheques, a species of bills of

exchange but distinguished from the genus or category by the special
relationship existing between the drawer and drawee, has presented certain
difficulties flowing from its almost sui generis character.
The recent decision of the Quebec Court of Appeal in Bank of Montreal V.
Barbeau illustrates those difficulties and the manner in which the judicial
process influences the development of the positive law.
The facts of the Barbeau case are, Mr. Barbeau who was interested in buying
real estate in Montreal appointed Gerald Tousignant, a truck driver and old
acquaintance, his agent. The latter reported an offer of sale of a property for
$8,500, which he said belonged to Ldo Maher but which in fact, belonged to
Dame Rath. As a result of this information, Mr. Barbeau signed an offer to
purchase this property for $8,500 and gave Tousignant as deposit a cheque for
$1,000 drawn on the Canadian National Bank and payable to Ldo Maher.
Tousignant had the cheque certified at the Canadian National Bank and then went
to the Bank of Montreal with a friend named Ldo Maheu. Upon entering the
bank, Maheu remained in the background and was unable to see or hear the
events which followed.
Subsequently Tousignant authorized the cheque using Ldo Maher's name. This
cheque was presented to Tousignant's half-sister who worked in the bank. Upon
recognizing her brother she asked who Ldo Maher was. When Tousignant pointed
to Maheu in the distance, the cheque was cashed.
Maheu was not asked to identify his signature nor was Tousignant asked to
endorse the cheque in his own name. Later the Bank of Montreal collected
payment from the Canadian National Bank. A few days later when Barbeau
discovered the fraud, he notified both banks and sued the Canadian National
Bank for not fulfilling its mandate to pay Ldo Maher, the Bank of Montreal being
brought in as surety.
Whether the bank was to sustain the loss depended on whether Ldo Maher was
considered to be "fictitious or non-existing" within the meaning of the Bills of
Exchange Act. If the bank could establish this relying on section 21(5) that is an
equivalent of section 6(3) of the Bill of exchange Act of Uganda.
"Where the payee is a fictitious or non-existing person, the bill may
be treated as payable to bearer."
The bank would successfully defend the action. On the other hand, if Barbeau
was to win his case it was necessary to show that the Canadian National Bank
had wrongfully paid the Bank of Montreal.
The only way to arrive at this conclusion was to make the cheque an "order
cheque" with an invalid endorsement (which is an exception to the provision). To
do this, it would be essential for the court to reject the defence that the payee
was "fictitious or non-existing."

The learned trial judge, Ferland J., upheld the plaintiff's action on two separate
grounds.
(1) Regarding the question of the existence of Ldo Maher, he concluded that
Maher was in fact Maheu. It is submitted with all due respect that this belief
concerning Tousignant's intention has no basis in fact on the contrary if
Tousignant had intended Maheu to be Maher he would have used Maheu's name
instead of Maher and this would have in no way affected his plans. Therefore by
using Maher he had clearly in mind a person distinct from Maheu.
(2) But the ratio decidendi of his decision was the bank's careless behaviour
regarding the cheque. It neither verified the identity and signature of the alleged
endorser nor required that the bearer endorse the cheque. The Bank of
Montreal was guilty of negligence and was thus to be held responsible.
The judgment of the Appeal Court rendered by Mr. Justice Choquette (Taschereau
and Tremblay, J.J. concurring) also maintained the plaintiff's action, but on
different grounds. The learned judge states that the crucial question to be
decided is the interpretation of s. 21 (5) which is equivalent to section 6(3) of
the bill of exchange Act.
Referring to Falconbridge and the accepted jurisprudence he concluded that the
question of "fictitious" is determined by an examination of the drawer's
intention well as the determination of "non-existence" is a question of fact
not of intention.
It is important to note that on the facts as found by the trial judge, the name
Maher did not correspond to any existing person in so far as the proof of the case
was concerned. Inspite of that finding the learned appeal judge went on to link
Maher with Maheu. First he pointed out. Therefore he held that the word
Maher referred to Maheu, the man who accompanied Tousignant to the
bank, there being merely a misdescription on the cheque.
To justify this conclusion he invoked the provisions of s. 64 of the bill of exchange
Act which is equivalent to section 31(d) of the Bill of Exchange act cap 68 of
Uganda which states that.
"Where, in a bill payable to order, the payee or endorsee is
wrongly designated, or his name is misspelt, he may endorse the bill
as therein described, adding his proper signature; or he may endorse
by his own proper signature."
However in this context section 31(e) of the bill of exchange Act cap 68 is
irrelevant since it is only an enabling provision referring to the case where a
person lawfully entitled to a bill is wrongly designated on the face of it. In this
express situation the bill or cheque can be negotiated in accordance with s. 31(e)
of the bill of exchange Act cap 68.
Therefore, this section will not cure a defective title. In this respect, it is
submitted that Choquette, J., by invoking section 64 as a means of providing
Maheu with a good title to the cheque, was being supplicant to the question.

In addition to having no basis in law, the similarity of Maheu to Maher also has
no basis in fact. Nothing in the case shows that Maheu was entitled to the
cheque. On the contrary, Tousignant always used the name Maher and indeed
when in the bank, Tousignant pointed out Maheu as Maher. (Clearly his endorsing
as Maher was not a spelling mistake). Nor is the assumption that Barbeau would
have accepted any name that Tousignant gave him, including Maheu, relevant.
Since he did insert the name Maher it is the consequences which flow from that
name that are of concern, not hypothetical situations.
A further difficulty in determining the question of "non-existence" and whether
the name Maher on the cheque can apply to Maheu was raised by the learned
judge yet his finding that Maher is an existing person is based not on facts but on
an examination of intention.
In an orthodox bill of exchange, the drawer is not the party who creates the
instrument but the drawee. On the other hand, the significant feature of the
cheque is that the drawer is the principal debtor; the bank, unless it confirms the
cheque, is merely the paying agent.
This difference can have important practical results as seen in the jurisprudence.
In Vagliano v the Bank of England, the British courts were faced with an
extraordinary set of circumstances which required the formulation of certain fixed
rules in connection with the interpretation of the term "fictitious or nonexisting" payee. The facts of this well-known decision are unique. Vagliano was
a London merchant who kept his account with the Bank of England and made
his numerous bills payable there. Among his foreign associates was Vucina who
for several years had drawn a large number of bills upon him, several of them
being to the order of C. Petridi and Company. His clerk, Glyka, seized on these
facts and forged bills drawn by Vucina payable to Petridi and then obtained
Vagliano's honest acceptance. The Bank would be instructed to pay the bills in
due course. Glyka would forge the endorsement of C. Petridi and Co., present
the bills and obtain the money.
The House of Lords held that the drawer, Vucina, had no intention to pay
Petridi, his name having been forged, the payee was held to be 'fictitious' and
the bank was entitled to debit the acceptor's account with the sum so paid.
The ratio decidendi of the case constitutes the criterion for determining the
content of 'fictitious'. One looks at the drawer's intention. If the drawer has
named the payee, by way of pretence only, without the intention that the named
payee shall be the person to receive payment then the payee is fictitious.
However it is important to note that this fact pattern involved a bill of exchange
in which the debtor is always the acceptor and not the drawer. In the case of a
cheque the drawer as in the Barbeau case was always the debtor in the
transaction and he naturally intends to pay the person designated, unless the
drawer himself is effecting a fraud or intending to negotiate the cheque in the
name of the 'fictitious payee'.

The practical results of applying the Vagliano decision can be seen in the
subsequent leading cases involving cheques. In Clutton v. Attenborough,
where the payee was a non-existent person the fact that the drawers of the
cheque believed and intended the cheques payable to the order of a real person
resulted in the payee being "non-fictitious" within the meaning of the Act.'
Similarly in North and South Wales Bank v. Mae Beth where the payee did in
fact exist, it was held that "where a cheque is drawn by a real drawer who
designates an existing person as the payee and intends that that person should
be the payee it is impossible that the payee can be fictitious." In this case, a
fraudulent person White induced Mae Beth to draw a cheque in favour of Kerr an
existing person who was intended to have the benefit of the cheque. It was held
that the equivalent of section 6(3) did not apply because the drawer of the
cheque intended that the payee or his transferee should receive the money thus
the payee was not fictitious
Vinden v Hughes 1905 1 KB 795, a clerk fraudulently induced his employers
to draw a number of checks in the names of their customers. He obtained the
firms signatures forged the endorsements and negotiated the checks to an
innocent third party who obtained payment from the firms bankers. when the
third party was sued for the money, the court held that at the time the checks
were drawn the employer believed that they were being drawn in the ordinary
course of business for the purpose of the money being paid to the named payees
thus the payees could not be regarded as fictitious or non-existing.
Since the drawer of a cheque is invariably the debtor in the transaction and
therefore intends to pay, in nearly all cases the bank has lost on its plea of
fictitious payee. However in one Ontario decision, London Life Insurance
Company v. Molson's Bank followed in Metropolitan Life Insurance
Company v. Quebec Bank, a different criterion for determining the question of
fictitiousness was put forward. An agent of the insurance company had policies
issued in the names of existing persons but without their knowledge. He paid the
premiums for a time, and then submitted a forged proof of their death and other
necessary papers. The company sent him the cheques in settlement, payable to
the order of the respective claimants drawn on the Molson's Bank. He forged the
authorizations and obtained the money.
The Court of Appeal held that the payees were fictitious and the cheques were
payable to bearer. The court arrived at its decision not by considering the
intention of the drawer but by deciding whether the payee was fictitious in
relation to the transaction. "... Were the payees really and for all business
or practical purposes, fictitious? i.e. whether the payee was in fact fictitious
for purposes of the transaction. If this reasoning were to be followed then every
bill, the drawing of which was induced by fraud, would be considered 'fictitious'
and thus always payable to bearer.

This case does not reflect the principles followed today and in fact was
overruled in both Bank of Toronto v. Smith and Harley V. Bank of Toronto
which adopted the reasoning of the Mac Beth case, now the leading authority. In
this latter case Lord Loreburn discussing the question of 'fictitious' payee
distinguished the Vagliano case. "Since the Vagliano case is not a case in
which the drawer intended the payee to receive the proceeds of the
bill"...
Regarding the question of "non-existing", the Courts have consistently held it
to be a question of fact. In Clutton v. Attenborough since the payee was a nonexistent person the court held that no one either could or did intend him to be
the recipient of the proceeds of the cheque which as a result was treated as
payable to bearer. Therefore jurisprudence has authoritatively settled the issue of
the 'fictitious' or non-existent payee.
The question that remains to be answered is how sound is the Barbeau decision
in the light of the foregoing principles. In view of Barbeau's intention to pay
Maher, it is submitted that the finding of 'non-fictitious' was rightly decided in
law. However with all due respect, exception must be taken to the decision of the
learned appeal judge regarding the question of "non-existing", for clearly in law
and in fact the payee Leo Maher was non-existent and on this basis Barbeau's
action should have failed. The difficulties which arise from the finding that Leo
Maher did exist cannot be reconciled in law. The conclusions of the court that
Maher existed in Tousignant's mind would mean that Tousignant was entitled to
endorse as Maher and therefore there was no forgery and therefore Barbeau had
no action.
However one may argue that the basis for the decision is not to be seen in law
but rather in the special circumstances of the case, namely that the Bank of
Montreal's bad banking practice was not to be encouraged. The Bank by
arranging to honour Barbeau's cheques undertook to pay the named payees or
their order. It was bound to do so only upon being furnished with proper evidence
of the identity of the payees or of the genuineness of their endorsements and of
subsequent endorsements, if any. Consequently the Bank was penalized for being
negligent in not taking the ordinary precautions any Exchange Bank should take.
But to do this it was necessary to find the cheque payable to order and thus
Tousignant's endorsement should be a forged one and Barbeau could recover
from the Canadian National Bank (section 49(3)).
Subsequently in view of section 50(1), the Canadian National Bank would recover
from the Bank of Montreal which was to be ultimately responsible. Although on
the surface the court's decision may appear arbitrary, it is submitted that
equitable considerations, derived from the special circumstances of the case,
provided the motivation. But clearly the decision is not founded on the accepted
principles found in our jurisprudence. It is thus impossible to extract any ratio
decidendi which might be useful in interpreting section 21(5). With this in mind

and in view of the doctrine of stare decisis it is submitted that sec. 21(5) be
amended by the competent legislature.80 The unfavourable position of Banks
under the present law suggests not only an amendment to section 21 but also to
the sections on forgery. Perhaps they should be afforded the same protection as
is given British Banks 31 that has acted in good faith and in the ordinary course
of business.
Basically with regard to the above provision, the Supreme Court in Grannis v.
Ordean (1914) 234 US 385 at 395, held that even in names, due process of
law does not require ideal accuracy. In the spelling and pronunciation of proper
names there are no generally accepted standards, and the well-established
doctrine of idem sonans recognises this.
In that case, a person with the unusual name of Albert Gilfuss ignored the
delivery of a summons and court pleadings against "Albert Gilfuss"
(presumably typed in all-caps) and the default judgment against him was binding.
A similar ruling on a misspelling on an indictment in Faust v. US (1896) 163 US
452.
[Idem Sonans is when a name sounds the same, but spelled differently. And
thus why, if you answer to a name that sounds the same as yours, yet is spelled
differently, you give the court jurisdiction. So don't answer! Also, notice that
Albert had these papers "delivered" to him, implying he had an address, which
gave the court jurisdiction.]
In a Missouri prosecution in 1996, "one of the 'freemen' stood up to announce
that...he refused to recognize anything but his 'full Christian name' (clearly not
printed in all caps and with some punctuation). This resulted in an unusual scene.
An arrest warrant was issued and executed for the defendant's failure to appear
at his prosecution even though he was physically present in the court room." 1
Therefore apart from the name its self being different in spelling and
pronunciation, it is immaterial and in this case, court considers such other
factors for example;
a. The presence of the body cures the error in the name; the truth of the
name cures an error in the description.
b. An error in the name is immaterial if the body is certain.
c. An error in the name is nothing when there is certainty as to the person.
d. The truth of the demonstration removes the error of the name.

1 J.W. Nixon & E.R. Ardini, Combating Common Law Courts, Criminal Justice, spring 1998,
p.14

e. A general appearance cures antecedent irregularity of process, a defective

service, etc.
Certain legal consequences are attached to the voluntary act of a person.

Conclusion.
With regard to section 6(3) of the bill of exchange Act cap 68, a bill is payable to
bearer whether fictitious or non-existing though this brings with it restrictions in
the same sense that were the bill is paid by the drawee out of his or her
negligence, the he or she is liable for the loss in such case but were the drawee
does so with in his or her ordinary course of action, then he or she is not liable as
illustrated in the above with due regard of the afore construed exceptions.