Banks Duty Of Care As Agent (forged cheques)
This is basically the ruling in LIPKIN GORMAN v KARONALE (1989). Bank should not pay any cheques not authorised by the customer (i.e. that the bank has no mandate to pay); and this basically means those with forged or unauthorized signatures.
If the bank pays such cheques it must make good the loss to the customer.
Problems:
Well, there are the one you would expect! How on earth do you know when it’s forged; good ones by definition will not be noticeable?
Further, what if someone has got the authority to draw cheques, but is simply misappropriating funds? This will be even harder to detect.
To complicate things even more, the bank has a duty of confidentiality. The existence of this may prevent them from disclosing facts they know.
The judge in LIPKIN GORMAN had the happy task of sorting this out. (The rulings he established are all quite straightforward if you remember that it’s just a case of when a bank can wrongly pay a cheque and get away with it).
The basic premis are that the bank will be protected if they didn’t know it was a cheque they shouldn’t have paid.
What the judge was giving were the criteria for when they couldn’t reasonably be expected to know that they should not have paid, and will thus be entitled to debit the customers account.
The criteria he established were as follows:
1. When the circumstances are such that a reasonable banker would hesitate to pay the cheque at once.
2. If they did have grounds for hesitating, then to continue and pay would amount to negligence by the bank and render the bank liable.
The question to ask is; whether a reasonable and honest banker, knowing the relevant facts, would have considered that there was a serious or real possibility that the funds were being (misused).
Here the judge held that the bank had no such knowledge and were therefore entitled to debit the customers account. Surprise, surprise the bank won!
