swarb.co.uk - law index

Banking - From: 1970 To: 1979

This page lists 19 cases, and was prepared on 03 April 2018.

"It is because the obligation of the guarantor is to see to it that the debtor performed his own obligations to the creditor that the guarantor is not entitled to notice from the creditor of the debtor's failure to perform an obligation which is the subject of the guarantee, and that the creditor's cause of action against the guarantor arises at the moment of the debtor's default and the limitation period then starts to run."

He continued: "It follows from the legal nature of the obligation of the guarantor to which a contract of guarantee gives rise that it is not an obligation himself to pay a sum of money to the creditor, but an obligation to see to it that another person, the debtor, does something; and that the creditor's remedy for the guarantor's failure to perform it lies in damages for breach of contract only. That this was so, even where the debtor's own obligation that was the subject of the guarantee was to pay a sum of money, is clear from the fact that formerly the form of action against the guarantor which was available to the creditor was in special assumpsit and not in indebitatus assumpsit... Mines v. Sculthorpe (1809) 2 Camp.215.

The legal consequence of this is that whenever the debtor has failed voluntarily to perform an obligation which is the subject of the guarantee the creditor can recover from the guarantor as damages for breach of his contract of guarantee whatever sum the creditor could have recovered from the debtor himself as a consequence of that failure. The debtor's liability to the creditor is also the measure of the guarantor's."
Lord Reid said: "With regard to making good to the creditor payments of instalments by the principal debtor there are at least two possible forms of agreement. A person might undertake no more than that if the principal debtor fails to pay any instalment he will pay it. That would be a conditional agreement. There would be no prestable obligation unless and until the debtor failed to pay. There would then on the debtor's failure arise an obligation to pay. If for any reason the debtor ceased to have any obligation to pay the instalment on the due date then he could not fail to pay it on that date. The condition attached to the undertaking would never be purified and the subsidiary obligation would never arise.
On the other hand, the guarantor's obligation might be of a different kind. He might undertake that the principal debtor will carry out his contract. Then if at any time and for any reason the principal debtor acts or fails to act as required by his contract, he not only breaks his own contract but he also puts the guarantor in breach of his contract of guarantee. Then the creditor can sue the guarantor, not for the unpaid instalment but for damages. His contract being that the principal debtor would carry out the principal contract, the damages payable by the guarantor must then be the loss suffered by the creditor due to the principal debtor having failed to do what the guarantor undertook that he would do."
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Lloyds Bank plc v Bundy [1975] QB 326; [1974] 3 All ER 757
1974
CA
Lord Justice Denning MR, Sir Erich Sachs, Cairns LJ
Banking, Undue Influence, Equity
"Broadchalke is one of the most pleasing villages in England. Old Herbert Bundy, the defendant, was a farmer there. His home was at Yew Tree Farm. It went back for 300 years. His family had been there for generations. It was his only asset. But he did a very foolish thing. He mortgaged it to the bank." The defendant and his son were the banks customers over many years. He had been advised that he could not afford to give greater support to his son, but later did so by extending the guarantee, and charging his property. The Bank sought to rely on the guarantee given to a bank by a father to support his son's existing borrowing. The lending bank was found to have exercised undue influence over the customer. It was inappropriate for the father to give the guarantee because the bank manager knew the father and that thefather would rely upon him. Held: The court set out to create a general principle of relief against harsh bargains on the ground of inequality of bargaining power.
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Amoco Australia Pty Ltd v Rocca Bros Engineering Co Pty Ltd [1975] AC 561
1975


Banking
A court looking to see if an unconscionable bargain had been reached could look at whether or not the transaction benefits the mortgagor.

 
General Credits (Finance) Pty Ltd v Stoyakovich [1975] Qd R 352
1975


Commonwealth, Equity, Banking
A mortgagee sued the mortgagor for money owing under a mortgage after the sale by the mortgagee of the security. The mortgagors alleged that the sale was at a gross undervalue and sought to set-off their claim against the debt owed to the mortgagee. On an application by the mortgagee for summary judgment, Dunn J. in the Queensland Supreme Court gave the mortgagors conditional leave to defend; if there was a sale at the alleged undervalue of $l0,200, the mortgagee's claim should be reduced by that sum.
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Dublin Port and Docks Board v Bank of Ireland [1976] IR 118
22 Jul 1976

Griffin J
Banking, International
(Supreme Court of Ireland) The court discussed a bank's obligation to process cheques issued by its customers: "a banker should pay his customers' cheques in the order in which they are presented, subject to the interest of the customer being taken into account".
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[ Bailii ]
 
Offshore International SA v Banco Central SA [1977] 1 WLR 399
1977
ChD
Ackner J
Banking
A standby letter of credit was issued by a Spanish bank and advised (but not confirmed) by a New York bank payable in New York. Held: The governing law was the law of New York, as the place where the letter of credit was opened, the documents were to be presented and payment was to be made, rather than the law of Spain, the law of the country where the issuing bank was situated. The court also considered the duties of an issuing or confirming banker towards the seller of the goods in connection with a Letter of Credit. The court emphasised the difficulties for an advising bank if it had to consider its obligations under a foreign law and emphasised the difficulty which would arise if the advising bank had confirmed the letter of credit.
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Momm v Barclays Bank International Ltd [1977] QB 790
1977
ComC
Kerr J
Banking
The court considered the situation arising where there had been a payment from one customer’s account to another customer’s account within the same bank, and then reversed. Held: The bank had until the end of the value date to decide whether to credit the customer's account. It had decided so by 16.14 on that day to place a marker on the account and had therefore declined to make the funds available, but that did not avoid the consequences that a debt had already been created by the CHAPS procedures which had caused the Claimant's account to be credited before the decision to place a marker on it and that marker had not divested the credit balance. Kerr J said: "The issue is whether or not a completed payment had been made by the defendants to the plaintiffs on June 26 . . If there were no authorities on this point, I think that the reaction, both of a lawyer and a banker, would be to answer this question in the affirmative. I think that both would say two things. First, that in such circumstances a payment has been made if the payee's account is credited with the payment at the close of business on the value date, at any rate if it was credited intentionally and in good faith and not by error or fraud. Secondly, I think that they would say that if a payment requires to be made on a certain day by debiting a payor customer's account and crediting a payee customer's account, then the position at the end of that day in fact and in law must be that this has either happened or not happened, but that the position cannot be left in the air. In my view both these propositions are correct in law."
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Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH [1977] 2 All ER 463; [1977] 1 WLR 713
1977
HL
Lord Wilberforce, Lord Dilhorne, Lord Salmon, Lord Russell of Killowen
Banking, Contract
English and German companies traded in partnership. They agreed that all disputes between them should be arbitrated in Germany. The English company sold machinery to the German company and by way of payment received some 24 bills of exchange. After the first six bills of exchange had been paid, the German company refused further payment on the ground that the English company had mismanaged the affairs of the partnership and that the machinery which it supplied was defective. The English company then began in England an action on the bills. The German company sought to stay the action under the provisions of the Arbitration Act.
Bristow J at first instance refused the stay but his decision was reversed by the Court of Appeal. Held: The appeal succeeded. The arbitration agreement did not extend to disputes on bills of exchange upon which, in any event, their Lordships pointed out, there was no dispute.
Lord Wilberforce said: "I take it to be clear law that unliquidated cross-claims cannot be relied upon by way of extinguishing set-off against a claim on a bill of exchange . . As between the immediate parties, a partial failure of consideration may be relied upon as a pro tanto defence, but only when the amount involved is ascertained and liquidated . . The amount claimed here in respect of the machines is certainly neither ascertained nor liquidated, and the claim in respect of the mismanagement is one for a wholly unrelated tort, so that there would seem to be no basis for denying the appellant's claim that, as regards the bills, there is no dispute."
Lord Salmon (dissenting but on a different point) said: "I agree that there is no defence to the bills, since the only possible defence (which is not relied upon by the respondents) could be that their acceptance had been procured by fraud, duress or for a consideration which had failed and because the damages claimed in the arbitration are unliquidated damages and such damages cannot be set off against a claim on the bills of exchange."
Lord Russell of Killowen said: "It is in my opinion well established that a claim for unliquidated damages under a contract for sale is no defence to a claim under a bill of exchange accepted by the purchaser: nor is it available as a set-off or counterclaim. This is a deep rooted concept of English commercial law. A vendor and purchaser who agree upon payment by acceptance of bills of exchange do so not simply upon the basis that credit is given to the purchaser so that the vendor must in due course sue for the price under the contract of sale. The bill is itself a contract separate from the contract of sale. It's purpose is not merely to serve as a negotiable instrument; it is also to avoid postponement of the purchaser's liability to the vendor himself, a postponement grounded upon some allegation of failure in some respect by the vendor under the underlying contract, unless it be total or quantified partial failure of consideration."

 
Beevor v Mason (1978) 37 P & CR 452
1978


Landlord and Tenant, Banking, Agriculture
Under the 1948 Act, effect must be given to a notice to quit served after failure to comply with a notice requiring the tenant to pay any rent due within two months of the notice. The evidence showed that the landlord had previously accepted payment of the rent by cheque posted on the date it was due. The court held that a cheque posted in this way on the last day of the two month notice period was payment of the rent on that day if the cheque was honoured. The cheque was not received by the landlord until after the notice had expired. Nevertheless, as a result of the previous course of dealing, the court held that the tenant was entitled to pay by cheque and treated the post office as the landlord’s agent for the purpose of deciding when the cheque was delivered.
Agricultural Holdings Act 1948
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 Edward Owen Engineering Ltd v Barclays Bank International Ltd; CA 1978 - [1978] 1 All ER 976; [1978] 1 QB 159; [1977] 3 WLR 764; [1978] 1 Lloyds Rep 166

 
 R D Harbottle (Mercantile) Limited v National Westminster Bank Limited; 1978 - [1978] 1 QB 146
 
Barclays Bank v WJ Simms and Cooke (Southern) Ltd [1979] 3 All ER 522; [1980] QB 677
1979
QBD
Robert Goff J
Banking, Contract
The customer made out a cheque to pay his builder, but countermanded it. The bank paid the cheque when it was presented by mistake, and now sought repayment from the builder. Held: The bank succeeded. The court discussed the extent of a banker's obligations to its customers.
Robert Goff J set out the defences to a claim in restitution: "(1) If a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact. (2) His claim may however fail if (a) the payer intends that the payee shall have the money at all events, whether the fact be true or false, or is deemed in law so to intend; or (b) the payment is made for good consideration, in particular if the money is paid to discharge and does discharge a debt owed to the payee (or a principal on whose behalf he is authorised to receive the payment) by the payer or by a third party by whom he is authorised to discharge the debt; or (c) the payee has changed his position in good faith or is deemed in law to have done so."
"It is a basic obligation owed by a bank to its customers that it will honour on presentation cheques drawn by the customer on the bank, provided that there are sufficient funds in the customer’s account to meet the cheque, or the bank has agreed to provide the customer with overdraft facilities sufficient to meet the cheque. Where the bank honours such a cheque, it acts within its mandate, with the result that the bank is entitled to debit the customer’s account with the amount of the cheque, and further that the bank’s payment is effective to discharge the obligation of the customer to the payee on the cheque, because the bank has paid the cheque with the authority of the customer.
In other circumstances, the bank is under no obligation to honour its customer’s cheques. If however a customer draws a cheque on the bank without funds in his account or agreed overdraft facilities sufficient to meet it, the cheque on presentation constitutes a request to the bank to provide overdraft facilities sufficient to meet the cheque. The bank has an option whether or not to comply with that request. If it declines to do so, it acts entirely within its rights and no legal consequences follow as between the bank and its customer. If however the bank pays the cheque, it accepts the request and the payment has the same legal consequences as if the payment had been made pursuant to previously agreed overdraft facilities; the payment is made within the bank’s mandate, and in particular the bank is entitled to debit the customer’s account, and the bank’s payment discharges the customer’s obligation to the payee on the cheque.
In other cases, however, a bank which pays a cheque drawn or purported to be drawn by its customer pays without mandate. A bank does so if, for example, it overlooks or ignores notice of its customer’s death, or if it pays a cheque bearing the forged signature of its customer as drawer, but, more important for present purposes, a bank will pay without mandate if it overlooks or ignores notice of countermand of the customer who has drawn the cheque. In such cases the bank, if it pays the cheque, pays without mandate from its customer; and unless the customer is able to and does ratify the payment, the bank cannot debit the customer’s account, nor will its payment be effective to discharge the obligation (if any) of the customer on the cheque, because the bank had no authority to discharge such obligation.
It is against the background of these principles, which were not in dispute before me, that I have to consider the position of a bank which pays a cheque under a mistake of fact. In such a case, the crucial question is, in my judgment, whether the payment was with or without mandate. The two typical situations, which exemplify payment with or without mandate, arise first where the bank pays in the mistaken belief that there are sufficient funds or overdraft facilities to meet the cheque, and second where the bank overlooks notice of countermand given by the customer. In each case there is a mistake by the bank which causes the bank to make the payment. But in the first case, the effect of the bank’s payment is to accept the customer’s request for overdraft facilities; the payment is therefore within the bank’s mandate, with the result that not only is the bank entitled to have recourse to its customer, but the customer’s obligation to the payee is discharged. It follows that the payee has given consideration for the payment; with the consequence that, although the payment has been caused by the bank’s mistake, the money is irrecoverable from the payee unless the transaction of payment is itself set aside. Although the bank is unable to recover the money, it has a right of recourse to its customer. In the second case, however, the bank’s payment is without mandate. The bank has no recourse to its customer; and the debt of the customer to the payee on the cheque is not discharged. Prima facie, the bank is entitled to recover the money from the payee, unless the payee has changed his position in good faith, or is deemed in law to have done so."
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Montecchi v Shimco (UK) Limited [1980] 1 Lloyds R 50; [1979] 1 WLR 1180
1979


Banking
Lord Bridge of Harwich said: "it is elementary that as between the two immediate parties to a bill of exchange which is treated in international commerce as the equivalent of cash, the fact that the defendant may have a counterclaim for unliquidated damages arising out of the same transaction forms no sort of defence to an action on a bill of exchange."

 
Siebe Gorman and Co Ltd v Barclays Bank Ltd [1979] 2 LL Rep 142
1979
ChD
Slade J
Banking
It was possible to create a fixed charge over present and future book debts and on its true construction, the debenture granted to Barclays Bank Ltd in this case had done so. If the chargor of book debts, having collected the book debts, "[had] had the unrestricted right to deal with the proceeds of any of the relevant book debts paid into its account, so long as that account remained in credit . . the charge on such book debts could be no more than a floating charge." The debenture in this case: "creat[ed] in equity a specific charge on the proceeds of [the book debts] as soon as they are received and consequently prevents the mortgagor from disposing of an unencumbered title to the subject matter of such charge without the mortgagee's consent, even before the mortgagee has taken steps to enforce its security".
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British Airways Board v Parish [1979] 2 Lloyd's Rep 361
1979


Banking
Once a cheque is presented for payment and payment is refused, the cheque is deemed not 'duly paid'.
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