Marfani and Co Ltd v Midland Bank Ltd: CA 1968

A rogue opened a new bank account under a false name with the help of an incorrect reference from a valued customer.
Held: When an account is fraudulently opened with the bank in the name of another person by someone pretending to be that person, the person opening the account is the customer.
The court explained the tort of conversion, with special reference to bills of exchange. Liability is strict for misappropriation of goods.
Diplock LJ: ‘It is, however, in my view, clear that the intention of the subsection and its statutory predecessors is to substitute for the absolute duty owed at common law by a banker to the true owner of a cheque not to take any steps in the ordinary course of business leading up to an including the receipt of payment of the cheque, and the crediting of the amount of the cheque to the account of his customer, in usurpation of the true owner’s title thereto a qualified duty to take reasonable care to refrain from taking any such step which he foresees is, or ought reasonably to have foreseen was, likely to cause loss or damage to the true owner.
The only respect in which this substituted statutory duty differs from a common law cause of action in negligence is that, since it takes the form of a qualified immunity from a strict liability at common law, the onus of showing that he did take such reasonable care lies upon the defendant banker. Granted good faith in the banker (the other condition of the immunity), the usual matter with respect to which the banker must take reasonable care is to satisfy himself that his own customer’s title to the cheque delivered to him for collection is not defective, i.e., that no other person is the true owner of it. Where the customer is in possession of the cheque at the time of delivery for collection and appears upon the face of it to be the ‘holder’, i.e., the payee or indorsee or the bearer, the banker is, in my view, entitled to assume that the customer is the owner of the cheque unless there are facts which are, or ought to be, known to him which would cause a reasonable banker to suspect that the customer was not the true owner.
What facts ought to be known to the banker, i.e., what inquiries he should make, and what facts are sufficient to cause him reasonably to suspect that the customer is not the true owner, must depend upon current banking practice, and change as that practice changes. Cases decided 30 years ago, when the use by the general public of banking facilities was much less widespread, may not be a reliable guide to what the duty of a careful banker in relation to inquiries, and as to facts which should give rise to suspicion, is today.
What the court has to do is to look at all the circumstances at the time of the acts complained of and to ask itself: were those circumstances such as would cause a reasonable banker possessed of such information about his customer as a reasonable banker would possess, to suspect that his customer was not the true owner of the cheque?
In all actions of the kind with which we are here concerned, the banker’s customer has in fact turned out to be a fraudulent rogue, and attention is naturally concentrated upon the duty of care which was owed by the banker to the person who has in fact turned out to be the true owner of the cheque. We are always able to be wise after the event, but the banker’s duty fell to be performed before it, and the duty which he owed to the true owner ought not to be considered in isolation. At the relevant time, the true owner was entitled to take into consideration the interests of his customer, who, be it remembered, would in all probability turn out to be honest, as most men are, and his own business interests, and to weigh those against the risk of loss or damage to the true owner of the cheque in the unlikely event that he should turn out not to be the customer himself.’

As to the practice of bankers: ‘The only evidence of the practice of bankers was given by the manager and the securities clerk of the branch in question of the defendant bank. No evidence that the general practice of other bankers differed from that adopted by the defendant bank was called by the plaintiff company, although they knew well in advance of the trial, as a result of searching interrogatories, exactly what steps the defendant bank had taken, and what inquiries they had made. It seems a reasonable inference that what the defendants did in the present case was in accordance with current banking practice. Nield J accepted that it was, and Mr Lloyd has not sought to argue the contrary. What he contends is that this court is entitled to examine that practice and to form its own opinion as to whether it does comply with the standard of care which a prudent banker should adopt. That is quite right, but I venture to think that this court should be hesitant before condemning as negligent a practice generally adopted by those engaged in banking business.’
References: [1968] 1 WLR 956, [1968] 2 All ER 573
Judges: Diplock LJ
Statutes: Cheques Act 1957 4
Jurisdiction: England and Wales
This case cites:

  • Approved – Commissioners of State Savings Bank v Permewan, Wright and Co 18-Dec-1914
    (High Court of Australia) The court considered the nature of negligence in a banker: ‘the test of negligence is whether the transaction of paying in any given cheque [coupled with the circumstances antecedent and present] was so out of the ordinary . .
    ((1914) 19 CLR 457, [1914] HCA 83, )

This case is cited by:

  • Cited – Dextra Bank and Trust Company Limited v Bank of Jamaica PC 26-Nov-2001
    (Jamaica) A cheque was drawn which was used as part a complex financial arrangement intended to purchase foreign currency to work around Jamaica’s foreign exchange control regulations. It was asserted that by presenting the cheque used in the . .
    (, , [2002] 1 All ER (Comm) 193)
  • Cited – Architects of Wine Ltd v Barclays Bank Plc CA 20-Mar-2007
    The bank appealed summary judgement against it for conversion of cheques. The cheques had been obtained by a fraud.
    Held: The court considered the question of neglience under section 4: ‘The section 4 qualified duty does not require an . .
    (, [2007] EWCA Civ 239, [2007] 2 Lloyd’s Rep 471, [2007] Bus LR D37)
  • Cited – White v Withers Llp and Dearle CA 27-Oct-2009
    The claimant was involved in matrimonial ancillary relief proceedings. His wife was advised by the defendants, her solicitors, to remove his private papers. The claimant now sought permission to appeal against a strike out of his claim against the . .
    (, [2009] EWCA Civ 1122, [2010] Fam Law 26, [2009] 3 FCR 435 [2009] 3 FCR 435)

These lists may be incomplete.
Last Update: 26 November 2020; Ref: scu.181845