Consmat Singapore (Pte) Ltd v Bank of America National Trust & Savings Association

JurisdictionSingapore
CourtHigh Court (Singapore)
JudgeL P Thean J
Judgment Date29 May 1992
Neutral Citation[1992] SGHC 146
Citation[1992] SGHC 146
Plaintiff CounselKhong Swee Lin (Chan Cher Boon & Leong)
Published date19 September 2003
Docket NumberSuit No 4125 of 1983
Date29 May 1992
Defendant CounselSarjit Singh Gill (Shook Lin & Bok)

Cur Adv Vult

In this case, the parties have agreed on the facts, which, so far as relevant, are as follows. The plaintiffs were, at all material times, customers of the defendants at their branch at 97 and 99 Corporation Drive, Jurong Town, Singapore. Sometime in May 1981, in opening their account, the plaintiffs signed the usual forms for opening the account and also an agreement with the defendant called the General Agreement for Commercial Business (`the general agreement`). Thereafter, the plaintiffs operated their banking account with the defendant at their branch in Jurong.

In early May 1983, the plaintiffs discovered that the defendants had, during the period from 4 May 1982 to 28 March 1983, honoured and paid 15 cheques drawn on the plaintiffs` account. The amounts drawn by these cheques were debited to the plaintiffs` account and the total amount debited was $94,355.32. These cheques were purported to have been signed by the authorized signatories of the plaintiffs. In fact, the plaintiffs did not draw the 15 cheques or authorize the drawing thereof; the signatures thereon were forged by some person or persons unknown. The defendants were immediately notified of the forgeries on or about 5 May 1983. There was no dispute that the signatures on the 15 cheques were forged. The plaintiffs therefore demanded the refund of $94,355.32 being the total amount paid out by the defendants on the 15 cheques and debited to their account, but the defendants refused. Thereupon, the plaintiffs brought this action claiming the amount from the defendants.

In resisting the claim, the defendants relied on cl 3(c) of the general agreement and pleaded that the clause precludes the plaintiffs from raising the issue that the 15 cheques were forged. The plaintiffs in their reply, as subsequently amended, pleaded that (i) cl 3(c) of the general agreement does not preclude them from raising the issue of forgeries on the 15 cheques; (ii) in the alternative, assuming that cl 3(c) does have that effect, it is an unreasonable term within the meaning of the Unfair Contract Terms Act 1977 of the United Kingdom; and (iii) cl 3(c) is an onerous and unreasonable term and the defendants have failed to bring it to the attention of the plaintiffs.

The issues before me are therefore as follows:

(i) whether cl 3(c) of the general agreement relieves the defendants from liability for the payment made by them on the 15 forged cheques;

(ii) if it does, whether the Unfair Contract Terms Act 1977 applies in the determination of that issue;

(iii) if that Act applies, whether cl 3(c) has satisfied the test of reasonableness as laid down in the Act; and

(iv) whether cl 3(c) is an onerous and unreasonable term and the defendants have failed to bring it to the attention of the plaintiffs.



At common law the relationship between a bank and its customer is as follows. A bank in making payment on cheques drawn by its customer acts upon the mandate given by its customer. The mandate comes into operation when the customer issues a cheque or other order or direction. If the customer`s signature on the cheque is forged or unauthorized, the signature is inoperative: see s 24 of the Bills of Exchange Act (Cap 23) which provides:

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 unauthorised 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 authority:

Provided that nothing in this section shall affect the ratification of an unauthorised signature not amounting to a forgery.



Hence, a bank has no mandate to pay on a forged cheque of a customer, and if it makes payment thereon, it is liable to its customer, unless the customer by agreement or conduct is precluded from raising the forgery. In the absence of any express agreement to the contrary, a customer owes the following duties of care to the bank in the operation of his account with the bank, namely:

(i) a duty to refrain from drawing a cheque in such a manner as to facilitate fraud or forgery: London Joint Stock Bank Ltd v Macmillan & Arthur, [1918] AC 777 and

(ii) a duty to inform the bank of any forgery or unauthorized drawing of cheques as soon as he becomes aware of it: Greenwood (Pauper) v Martins Bank Ltd [1933] AC 51.



However, a customer, in the absence of express agreement, does not owe a duty of care to his bank to prevent forgery of his cheques and is not under a duty to check his bank statements. In this case, the plaintiffs have entered into the general agreement with the defendants, and cl 3(c) thereof provides as follows:

I/We hereby undertake to verify the correctness of each statement of account and accompanying cheques or vouchers received from you and to inform you within seven (7) days from the receipt thereof of any discrepancies, omissions or debits wrongly made to or inaccuracies or incorrect entries in the account as so stated and that at the end of the said period of seven (7) days the account as kept by you shall be conclusive evidence without any further proof that, except as to any alleged errors so notified and any payments made on forged or unauthorized indorsements, the account is and entries therein are correct, and except as provided above you shall be free from all claims in respect of the account.



The defendants relied on this clause in their defence to the claim by the plaintiffs, and the question is whether this clause relieves the defendants from their liability to the plaintiffs for the payment of the 15 forged cheques.

An authority which is in point is the Canadian case of Arrow Transfer Co Ltd v Royal Bank of Canada. In that case, the bank paid out 73 forged cheques drawn on their customer`s account over a period of five years, and the amounts of these cheques debited to the customer`s account came to C$165,109.03. The forgeries were committed by the customer`s chief accountant and office manager who forged the signatures of the authorized signatories of the customer. Upon discovery, the customer immediately notified the bank and thereafter sought to recover the amount from the bank. One of the defences raised by the bank was a provision in the verification agreement which had been entered into by the customer with the bank; the provision, so far as relevant, was as follows:

In consideration of ..., the undersigned hereby agrees with the bank in respect of each account ... to verify the correctness of each statement of account received from the bank and if a statement of account and relative vouchers are not received by the tenth day after the end of each month or, ... to obtain them from the bank and within 30 days after the time when they should have been received to notify the bank in writing ... of any alleged omissions from or debits wrongly made to or inaccurate entries in the account as so stated and that at the end of the said 30 days the account as kept by the bank shall be conclusive evidence without any further proof that except as to any alleged errors so notified and any payments made on forged or unauthorized indorsements the account
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24 cases
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    ...Corp (1987) 2 SCC 666; AIR 1987 SC 1603 (refd) Consmat Singapore (Pte) Ltd v Bank of America National Trust & Savings Association [1992] 2 SLR (R) 195; [1992] 2 SLR 828 (distd) Fried v National Australia Bank Ltd (2001) 111 FCR 322 (refd) HIH Casualty and General Insurance Ltd v Chase Manha......
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    ...Li Ling (Wee Ramayah & Partners) for the defendant. Consmat Singapore (Pte) Ltd v Bank of America National Trust & Savings Association [1992] 2 SLR (R) 195; [1992] 2 SLR 828 (distd) Zinnia, The; Stag Line Ltd v Tyne Ship Repair Group [1984] 2 Lloyd's Rep 211 (refd) Application of English La......
  • Pertamina Energy Trading Limited v Credit Suisse
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    ...and Greenwood were applied by the High Court in Consmat Singapore (Pte) Ltd v Bank of America National Trust & Savings Association [1992] 2 SLR 828 52 Periodic attempts have been made by the banking industry to extend the common law obligations of its customers beyond the Macmillan and Gree......
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2 books & journal articles
  • Contract Law
    • Singapore
    • Singapore Academy of Law Annual Review Nbr. 2011, December 2011
    • 1 December 2011
    ...is provided by the High Court decision of Consmat Singapore (Pte) Ltd v Bank of America National Trust & Savings Association[1992] 2 SLR(R) 195, where the court observed that both parties were commercial entities and had entered into the contract concerned out of their own free will. Howeve......
  • Banking Law
    • Singapore
    • Singapore Academy of Law Annual Review Nbr. 2000, December 2000
    • 1 December 2000
    ...where the bank first succeeded with such a term was in Consmat Singapore (Pte) Lte v Bank of America National Trust & Savings Association[1992] 2 SLR 828. LP Thean J (as he then was), making reference to the UK Unfair Contract Terms Act 1977, felt that the term was not unfair to the custome......

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