United Nigeria Insurance Co V. Muslim Bank (West Africa) Ltd (1972)

LawGlobal-Hub Lead Judgment Report

ELIAS, C.J.N.

 In suit No. LD/597/67 in the High Court of Lagos, the plaintiffs claimed against the defendants the sum of 550 pounds as damages suffered by the plaintiffs from the defendant’s negligence in failing to make inquiries about a customer upon opening an account and collecting the plaintiff’s crossed cheque for the said sum dated February 14, 1967, and drawn in favour of one Mr. Olatunde Odubiyi, a barrister-at-law of Abeokuta, which said cheque was wrongfully dealt with by the defendants.

After due hearing, the learned trial Judge, Sowemimo, J., (as he then was), found the defendants not liable on the claim and awarded them fifteen guineas costs. He, however, made an order that the defendants refund to the plaintiffs the sum of 300 pounds. 10/, being the amount then standing in the name of one Olatunde Odubiyi who kept an account with the defendant Bank and who had since disappeared. From this judgment appellants have appealed to this court.

The facts were that the plaintiffs, an insurance company, drew a cheque for 550 pounds on their bankers, the Standard Bank of West Africa Ltd., Marina Branch, Lagos, now known as the Standard Bank of Nigeria Limited, in favour of Mr. Olatunde Odubiyi, barrister-at-law, for value in settlement of an insurance claim arising out of a motor accident which occured on or about July 13, 1966, along the Lagos-Abeokuta Road on behalf of his client, Madam Simbiatu Popoola. The cheque was endorsed “Not negotiable A/C/ Payee only” and was crossed. The cheque having apparently been stolen was presented to the defendants with a forged endorsement upon it purporting to have been made by the said Olatunde Odubiyi. The amount of 550 pounds on the cheque was collected by the defendants from the plaintiff’s bank for this man who had opened an account in the sum of 3 pounds with the defendant bank. The plaintiffs had on demand paid to the said Olatunde Odubiyi another amount of 550 pounds in settlement of the insurance claim.

It was the plaintiffs’ case that the defendants as bankers acted negligently and in bad faith in collecting from the plaintiffs’ bank the cheque for 550 pounds. The defendant’s alleged specific acts of negligence and bad faith consisted, according to the plaintiffs in failure to obtain necessary references on opening of the account for the fictitious Olatunde Odubiyi, failure to obtain necessary authority from the Standard Bank before parting with the proceeds of such a large cheque, failure to make necessary inquiries from the plaintiffs, (who are well known), as to whether the said cheque was in order before collecting the proceeds thereof and parting with the same which inquiries could have been promptly and easily made, failure to take into consideration the unsatisfactory banking record and dealings of the “stranger and/or thief” and failure to conform with the code of procedure adopted by members of the Nigerian Bankers Committee in dealing with new customers and crossed cheques. The defendants, on the other hand, had averred in his Statement of Defence, that one of their customers named Olatunde Odubiyi deposited into his account with them the cheque in question for 550 pounds on February 25, 1967, that this cheque was subsequently collected for him from the bank on which it was drawn, that they received payment of the cheque from the paying banker in good faith and without negligence, that the person for whom they collected the cheque was a customer, and that, as the cheque was crossed, they claimed all the protection afforded by the Bills of Exchange Act to collecting bankers.

What happened was that Mr. Olatunde Odubiyi opened a savings account with the sum of 3 pounds on February 23, 1967, and two days later, on  February 25, 1967, he lodged a cheque for 550 pounds with the bank. On March 3, 1967, he withdrew 2 pounds.10/ and, on March 6, 1967, he withdrew a further sum of 250 pounds, leaving a balance of 300 pounds.10/ in the account.

The police officer (Sergeant Albert Ogunro) to whom a report was made about the stolen cheque, tendered the bank statement of account, and said that, on inquiry at the address given him by the defendant bank, he found the customer Olatunde Odubiyi had never lived there; he added that the alleged customer had never been produced up to the date of  hearing of the case in Court.

The defendants alleged having received from the customer a letter of introduction from the plaintiffs who, on being shown, denied ever having issued such a letter. The police officer then returned the forged letter to the defendant bank, but it was never produced at the trial. The learned trial Judge observed that “the letter was not produced either by the police officer who investigated the case or the defendants”, and later in his judgment, “I have not been told why that letter has not been produced. If the defendant bank had acted on that letter I do not see what other enquiries they were expected to make.”

The learned trial Judge rejected the plaintiffs’ allegations that failure to obtain the necessary authority before parting with the proceeds of such a large cheque, to enquire of the plaintiff whether the cheque was in order before collecting the same, and to take into consideration the unsatisfactory banking record and dealings of the said Olatunde Odubiyi amounted to negligence.

But we consider that the learned trial Judge should not have rejected the allegations of negligence relating to the defendants’ failure to obtain necessary references and to follow necessary banking practice on the opening of an account. As regards the ground of negligence alleged to consist in the defendants’ failure to conform with the code of procedure adopted by members of the Nigerian Bankers Committee in dealing with new customers on crossed cheques, the only evidence adduced by the plaintiff was that of the Chief Clerk of the Standard Bank of West Africa- Mr. Alfred Adeyemi Beckley, who had admitted not being himself a member of that Committee; it was nowhere shown in evidence that he was a member. We are prepared to ignore the submission by Mr. Sofola, learned counsel for the appellants that Mr. Olatunde Odubiyi was not a customer of the defendant Bank, but we disagree with the learned trial Judge that “no negligence had been proved against the defendant bank.” It may be asked: On what ground did the learned trial Judge order that the balance of 300 pounds.10/ still standing in the bank account of the said Olatunde Odubiyi, who had since disappeared, be paid to the plaintiffs

Mr. Sofola, in his submissions argued all the grounds together in order to avoid repeating himself, since the grounds as filed tend to overlap. He cited Baker v. Barclays Bank Ltd. (1955) 2 All ER 571, in support of his contention that there is a universal practice for collecting banks to require reference before paying cheques. The court observed however, that whereas in the Baker case (supra) the bank in question gave evidence in the case on appeal, the defendant bank had given none at the trial. Mr. Sofola also referred us to Motor Traders Guarantee Corporation Limited v. Midland Bank Ltd., (1937) 4 All ER 90, at p. 95, as supporting his submission that the collecting bank must have regard to the customer’s banking history, which in this case covered only the three items in the relevant statement of account. We consider that R.E. Jones Ltd. v. Waring and Gillow Ltd., (1926) AC 170 to which he next referred us, which was a case of an attempt to recover money paid by mistake, has no relevance to a collecting banker’s responsibility for the payment of cheques. Mr. Sofola finally cited Mafiani & Co. Ltd. v. Midland Bank Ltd. (1968) 2 All E.R. 573, where the collecting bank had obtained only one of the two references it demanded and had on the strength of that one reference opened an account for a new customer who within a week rapidly ran down the account and disappeared. The Bank in that case was held not negligent for the purpose of the English Cheques Act, 1957.

There, Lord Wright’s dictum in Lloyds Bank Ltd. v. Savory (1933) AC 201 had been
referred to as being in support of the view that it is the duty of a banker, when opening a new account, to ascertain the name of the customer’s or customers’s spouse’s employer, in addition to obtaining suitable references. Mr. Sofola, therefore, submitted that the defendant bank had been negligent in opening an account for a new customer without having obtained any reference as to identity and character; and that, by so doing, it had not followed the standard of the reasonable banker, as it had failed to give evidence of a satisfactory mode of conducting its banking business.

Mr. G.O.K. Ajayi for the respondents submitted that the defendant bank had not been negligent. He said he would rely on Section 2(2) of the Nigerian Bills of Exchange Act, 1964 which he claimed to be in pari materia with Section 88 of the Federal Bills of Exchange Act, 1909, of Australia.

He cited Commissioners of Taxation v. English. Scottish and Australian Bank Ltd. (1920) 36 TLR 305 and quoted extensively from the judgment the facts of which he stressed were hardly distinguishable from those of the defendants’ case, and in which the Privy Council had ruled that the collecting bank was not liable in negligence. Counsel tried to show by means of Exhibit K that the defendant bank had taken all necessary steps to obtain a reference and so prevent fraud, but he could not satisfy us as to why his clients had failed to produce the alleged letter at the trial. He, however, insisted that the defendants were not put on enquiry as to the cheque presented by the customer (who had soon thereafter disappeared) was regular on the face of it, it having been unnecessarily endorsed at the back by the payee to himself. He, too, cited Motor Traders Guarantee Corporation Ltd. v. Midland Bank Ltd., (supra) in support of this his final submission.

We must first point out that the Commissioners of Taxation Case (supra) on which Mr. Ajayi rested his case was in the later case of Savory & Co. v. Lloyds Bank Ltd., (1932) 2 KB 122 distinguished and clarified, per Lawrence LJ., at p. 144., as follows:

“In the later case (Commissioner of Taxation v. English, Scottish and Australian Bank) Lord Dunedin, in delivering the judgment of the Board, after stating that the standard of care to be taken by bankers which had been laid down by the Chief Justice in the High Court of Australia as not being less than a man invited to purchase or cash a cheque for himself might reasonably be expected to take, was inapposite, said at p. 306: “If, therefore, a standard is sought, it must be the standard to be derived from the ordinary practice of bankers, not individuals. In my judgment neither of the pronouncements so relied upon was intended to cover such a case as the present, where bankers, solely for the convenience of their customers, have adopted a system with an inherent and obvious defect which no reasonably careful banker could fail to observe. The respondent bank did not adduce any evidence tending to justify the system from the point of view of the true owner of the cheques collected under it:
….
“In my opinion, bankers who have disregarded their statutory duty towards the true owner of the cheques collected by them for a customer cannot, when challenged by the true owner, successfully plead that they have acted without negligence in his case because for a long time they and other bankers have acted in disregard of their statutory duty in other cases.”
…
In Lloyds Bank v. Savory & Co. (1933) AC 201, on appeal before the House of Lords, P. and S. were clerks in the employment of a firm of London Stockbrokers and managed to have crossed cheques of certain of their employers’ customers paid into the London bank’s two country branches at one of which P had an account and, at the other, Mrs. S. had an account, The manager of P’s country branch bank knew he was a stockbroker’s clerk but did not know and did not ask the name of his employers. Mrs. S’s branch bank knew nothing of S. Both P and Mrs. S. had, however, given references which appeared satisfactory to the respective branch managers. P. stole many cheques and paid them in at one or other of the bankers’s London branches. The stolen cheques were in each case received by the London Officer and sent to the Clearing House. When P’s acts were discovered, the stockbrokers sued the bankers for conversion of the stolen cheque, and the bankers pleaded Section 82 of the Bills of Exchange Act, 1882, alleging that they had in good faith and without negligence received payments of the cheque for their customers P and Mrs. S. It was held by a majority of 3:2 of the House of Lords, confirming the court of Appeal which had earlier affirmed the trial Judge’s ruling, that the managers of the crediting branches had omitted to make sufficient inquiries when accepting P and Mrs. S. as customers and that, in the circumstances, the bankers had failed to prove that they had acted without negligence, and consequently, that they were liable. Lord Wright was particularly instructive regarding the scope of the Commissioners of Taxation, when he said, at pp. 230-1:
“It is true that the question of absence of negligence must be considered separately in regard to each cheque, but it is also true that the matter must be considered as Lord Dunedin says in Commissioners of Taxation v. English, Scottish and Australian Bank (supra), in view also of all the circumstances antecedent and present. There may thus be relevant negligence in connection with the opening of the customer’s account by the banker. It is now recognised to be the usual practice of bankers not to open an account for a customer without obtaining a reference and without inquiry as to the customer’s standing; a failure to do so at the opening of the account might well prevent the banker from establishing his defence under Section 82 if a cheque were converted subsequently in the history of the account: this rule was applied by Bailhache, J., in Ladbroke v. Todd 11 L.T. 43, who on that ground held that the banker had not made out his defence under Section 82.”
It is clear law that if X draws a crossed cheque, marked “A/c Payee Only” on the Y bank in favour of Z and sends it by ordinary post in the course of which is stolen and comes into W’s hands who personates Z by forging his signature and opening an account with a banker with the stolen cheque, the banker will be liable in negligence and will not be protected under Section 82 of the Bills of Exchange Act, 1882 if he fails to make necessary inquiry about W’s identity or character before collecting the cheque for W’s account: Ladbroke & Co. v. Todd (1914) 11 LT 43, approved in Lloyds Bank v. Savory (1933) AC 201.

We, therefore, hold that the defendant/appellant bank was negligent in not obtaining satisfactory references when opening the savings account for Mr. Olatunde Odubiyi or when the latter came to deposit the cheque for 550 pounds two days later especially as they had failed to make an initial inquiry about the prospective customer. The defendant/appellant had failed to observe the standard expected of the reasonable banker.

The appeal is accordingly allowed with costs assessed at 36 guineas.

The judgment and order of the High Court of Lagos in Suit No.LD/ 597/67, including the order for costs, are hereby set aside. Judgment is entered for the plaintiff in the sum of 550 pounds as claimed, with costs assessed and fixed at 60 guineas.

SC.193/1969