Lloyd's Maritime and Commercial Law Quarterly
THE “LIGGETT” DEFENCE: A BANKER’S LAST RESORT
E. P. Ellinger*
C. Y. Lee.†
I. Introduction
In the modern banking scene, there are many situations in which cheques are debited to a customer’s account although his bank does not have the authority to do so. Generally, these are regarded as the wrongful payment of cheques by banks. It is important to identify the different situations which may arise in cases of such wrongful payments. They occur principally in four situations: cases involving the absence of a mandate ab initio; cases in which the mandate is avoided by specific provisions in the Bills of Exchange Act 1882; cases in which the bank makes an error with regard to the mandate; and cases in which the bank wrongly assesses its own obligation vis-à-vis the customer.
The first group of cases relates, in the main, to situations in which the drawer’s signature has been forged: in this example, the cheque is not authentic and there is simply no mandate at all1.
The second group of cases includes situations in which a cheque is avoided as a result of forgery or fraud. The cheque in which the amount has been raised by the payee and the cheque in which the payee’s endorsement has been forged by a thief2 are cases in point. In this group of cases, the initial mandate is avoided by specific provisions in the Bills of Exchange Act 18823. It is thought that the avoidance of the cheque also vitiates the mandate4.
The third group of cases covers situations in which the bank, through an oversight, has honoured a countermanded cheque. In addition, there are the cases in which cheques are paid although they do not bear all the requisite signatures. An example concerns the case in which a cheque, which should bear the signatures of both owners of a joint account, is signed by one party only. A like example occurs where a cheque, drawn on behalf of a company, lacks some of the necessary signatures. A third example appears where a bank has honoured a cheque although the signer, acting in a representative capacity, has drawn it for an amount exceeding his actual authority as notified to the bank.
The common thread in the first three groups of cheques which are wrongfully paid by the bank is that the error, which induces the bank to honour the cheque, relates to the mandate given to the bank by the customer. In all three types of cases, the bank makes payment as it erroneously believes that it has the authority to do so.
* Sir John Barry Professor of Law, Monash University, Australia.
† Senior Lecturer in Law, Monash University, Australia.
1 See also cases in which cheques are signed in blank but filled in by a rogue: e.g. Smith v. Prosser [1907] 2 K.B. 735; cf. Bills of Exchange Act 1882, s. 20.
2 Note that this is applicable only to cheques payable to “order”; a bearer cheque is transferable by mere delivery: Bills of Exchange Act 1882, s. 31(2).
3 Bills of Exchange Act 1882, ss. 24, 64. But note that in these cases, the cheque is valid as between parties that took it in good faith after the forgery: s. 55.
4 This is implied in Imperial Bank of Canada v. Bank of Hamilton [1903] A.C. 49, 58; London Joint Stock Bank v. Macmillan [1981] A.C. 777, 818; National Westminster Bank Ltd. v. Barclays Bank International Ltd. [1975] Q.B. 654, 666.
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