LIABILITY OF A PAYING BANK AND A COLLECTING BANK ON A FORGED CHEQUE:

• Citation: (1994) 6 SAcLJ 451
• Date: 01 December 1994
• Author: ANGELINA CHAN HUI LIAN
• Published date: 01 December 1994

The Case of Bintan Kindenko Pte Ltd v. The Sanwa Bank Ltd & Malayan Banking Bhd

In what circumstances may a paying bank and a collecting bank rely for statutory protection under Sections 80 and 85 respectively of the Bills of Exchange Act (Cap. 23) (“the Act”)?

This case note and comment looks at the recent case of Bintan Kindenko Pte Ltd v. The Sanwa Bank Ltd & Malayan Banking Bhd1 in which two banks found themselves unable to rely on the above statutory provisions for protection from liability in respect of a forged cheque.

Facts of the Case

The plaintiffs, a trading company (“Bintan”), issued a cheque crossed “Not Negotiable. A/C Payee Only” for the sum of $260 payable to GD Printing Services. The said cheque drawn on the first defendants (“Sanwa”), was handed to the receptionist for posting to GD Printing Services but it never arrived. The amount was eventually altered to $126,260 and the payee to one “Chong Sau Kam 1C No 7494646”.

Subsequently, a female purporting to be “Chong Sau Kam” opened a savings account with the second defendants (“Malayan”). Malayan, as collecting bank, cleared the cheque for collection. Sanwa paid over to Malayan the sum of $126,260 and debited Bintan accordingly. Later, “Chong Sau Kam” withdrew $900 followed by another withdrawal of $95,000, leaving a balance of $30,360 in the account.

The matter came to light when Bintan received the statement of account for the relevant period. Bintan notified Sanwa that they did not authorise the debit and lodged a police report. The remaining $30,360 in the account was frozen under an order of seizure by the police, pending direction of the court or disposal enquiry.

Bintan commenced proceedings claiming:

1. (i) against Sanwa, a declaration that the purported debit of $126,260 and interest thereon was without authority and of no effect and alternatively payment of the sum of $126,260, interest and costs;

2. (ii) against Malayan, damages for conversion in the said sum of $126,260 and alternatively payment of the same as money had and received. Bintan also claimed interest and costs.

(i) The case against The Sanwa Bank Ltd (Paying Bank)

Bintan’s case was that a banker who pays on a materially altered cheque does so without the customer’s mandate. In the present case, both the amount as well as the payee’s name had been altered.

Sanwa denied liability contending that:

1. (a) having acted in good faith and without negligence, they were protected by Section 802 of the Act;

2. (b) Bintan was in breach of their duty to exercise reasonable care in drawing up the said cheque thereby facilitating the alterations and Bintan was therefore estopped;

3. (c) Sanwa was excluded from liability by the exclusion clauses contained in the agreement to open a current account.3

Goh J, held as follows:

1. (a) As the alterations to the said cheque were clearly material alterations, the cheque was avoided by Section 644 of the Act, and therefore, Section 80 did not apply to protect Sanwa.

1. Citing Slingsby and Others v. District Bank, Limited5 Goh J. agreed with the view that the protection given by Sections 80 and 85 of the Act is excluded by the fact that the alteration has made the paper a null and void document, no longer a cheque.

2. (b) A customer owes a duty to his banker to exercise reasonable care and take reasonable precaution against fraud.6 Whether Bintan had exercised reasonable care and taken reasonable precaution against fraud in drawing the said cheque is one of fact taking into account the course of dealings between Bintan and Sanwa.

   Sanwa’s main criticism was that there were spaces between the word “Dollars” and the printed amount and between “$” sign and the written amount in figures.

   Cross-examination of Sanwa’s Manager revealed, inter alia, that it was Sanwa’s practice to accept cheques written with a cheque printing machine notwithstanding that they were not in compliance with the caution in...