Banker must honour Customer’s draft on customer’s money in his hands – COURT HOLDING

A banker must recognise the person from whom or for whose account he has received the money in an account as the proper person to draw on it, and cannot set up the claim of a third person as against that of his customer: whether the customer holds the account in his own right or as trustee, and in the latter case even though he draws on it for the purpose of a breach of trust, the banker is bound to honour the customer’s order with respect to money belonging to the customer in his hands; but he may show that he did not receive the money from or for the account of the customer or that it does not belong to the customer, as where the proceeds of a cheque paid in for the credit of a third person’s account have been credited to the customer’s account held in the customer’s own right and not in trust for the third person

ADENIILUYI v. AFRICAN CONT. BANK LTD. (1964) NCLR (page 17, line 32—page 18, line 36) H.C. (West)

Facts of the case

The plaintiffs brought an action to recover from the defendants, their bankers, the amount of a cheque drawn by the plaintiffs payment of which was refused by the defendants. The first plaintiff opened an account with the defendant bank in the joint names of himself and the second plaintiff.

The defendants believed that the plaintiffs held the account in trust for certain third parties, whom they, the defendants, regarded as their customers. The third parties believed there was an account in their name with the defendants designated or known as a special account. They paid in a cheque endorsed to them, to be credited to their special account, and the defendants paid the proceeds into the plaintiffs’ account.

The plaintiffs drew a cheque on the account which would have been covered by the credit balance in the account if the third parties’ cheque had been properly credited to it, but otherwise not. The third parties directed the defendants to freeze the account. The defendants marked the plaintiffs’ cheque “payment counter-manded” without the plaintiffs’ authority, and refused payment. The plaintiffs instituted the present proceedings, as holders of the account in their own right and not as trustees, alleging a breach of contract by the defendants in not paying out on the cheque out of moneys of the plaintiffs in their hands.

Ack: Alan Milner. All Rights Reserved (LawHub NG).