CEYLON COMMERCIAL BANK VS. CEYLON TOBACCO CO. LTD

CEYLON COMMERCIAL BANK VS.
CEYLON TOBACCO CO. LTD

COURT OF APPEAL
SALAM J.
CA 872/95 (F)
DC 93650/M
JULY 21,2008

Bank - Customer relationship - Cheque forged - liability of the Bank to pay - Bills of Exchange Ordinance Section 24, Section 80 - Breach of duty of care? Conduct of the Bank - customer - account payee cheque -Paying in good faith - without negligence - burden to establish forgery on whom? Evidence Ordinance Section 114.

The Appellant Bank debited the respondent customer's currant with Rs. 5,926,786/- upon the presentation of 8 cheques. The respondent customer maintained that the debit entries made by the bank was wrongful, unlawful and made without authority or mandate of the customer - in as much as the cheques contained forged signatures of the authorized signatories - The Appellant Bank is liable to pay bank the aggregate amount on the cheques with interest.

The Appellant Bank contended that the disputed cheques were duly drawn and issued by or on behalf of the customer and appeared on the face to be so drawn, and that, the cheques were specially crossed with the endorsement "account payee" and the officers of the Bank acted in good faith and without negligence when they honoured the cheque. The Appellant Bank also contended that there was a breach of duty of care owed to it by the customer.

The District Court held against the Bank.

Held

Per Abdus Salarn, J.

"The burden of proof of the cheques issued not having been drawn and or issued or signed by the drawer was on the customer

notwithstanding the decision in Kolonnawa Urban Council case be it a authority or otherwise."

(1) Cheque which is the form of a mandate to the Bank to bear the signature which is the duty of the Bank to compare with the specime signature and in case the Bank finds the drawers signature on the cheque differ from the spekimen signature that the Bank should not honour it. Even if the signature on a cheque is a clever forgery the Bank cannot debt the customer's account with the amount of the cheque, as it has no legal authority from its customer to part with the funds.

(2) It is trite law that the customer of a Bank would be precluded from suing the Bank for the recovery of the sum paid on a forged cheque if it can be proved that the customer was actually aware of the forgery and failed to disclose it to the Bank as a consequence of which the Bank has lost its right of action against the forger.

(3) According to banking practice when a cheque is crossed 'account payee' the collecting Bank only guarantees the fate of the cheque namely that the proceeds of the cheque would be credited to the 'payee'. Provisions of Section 80 of the Bills of Exchange Ordinance would apply only where a banker pays a genuine cheque which has been duly issued by its customer but credited to the account of some other person other than the correct payee due to a fraudulent endorsement.

(4) The respondent customer has done everything within its power to prevent the payment of any cheques referred to have gone missing and therefore cannot be said to have acted negligently or in a manner unbecoming of a customer or adopted the conduct which would estopped it from claiming the recovery of the funds paid out of its account upon presentation of the impugned chaques.

Per Abdus Salam. J.

"The Bank having admitted that they are in possession of the specimen signature card quite surprisingly did not produce the same at the trial for comparison by the handwriting experts ..... Having considered the unusual mode of suppression of the

specimen signature cards, admittedly in the possession of the Bank I am compelled to justify the presumption impliedly drawn in the judgment of the District Judge that it has been so withheld by the Bank as the production of it could otherwise be prejudicial or adverse to the defence raised in the case."

APPEAL from the judgment of the District Cour

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