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The business of banking is the business not of the customer but of the bank. The principle is clear that where the signature of the customer on the cheque drawn on the banker is forgery, the banker cannot debit its customer''s account. And like most of rules, there are some exceptions (1) the forgery flows from any failure by the customer to take reasonable care in drawing the cheque; or (2) the customer has failed to inform his bank of any unauthorized cheques of which he has become aware.
The only duty of care that a customer owes his bank in operating his current account is to take reasonable care in drawing his cheques and to notify the bank of any forgery of which he becomes aware. The customer is under no duty to inform the banker of fraud committed on him of which he is unaware of. The customer is also under no duty to examine passbook is or to communicate to the banker within a reasonable time of the debits which he does not admit. One can fully understand that the banks must today look for protection. So be it. They can increase the severity of the terms of their business, and they can use their influence, as they have in the past, to seek to persuade the legislature that they should be granted by statute further protection.
(2) Forged indorsement of payee
In essence the cheque is a specilised form of bill of exchange and is framed in Bills of Exchange Act 1882. The bill of exchange developed, in the UK, not only as a means of payment, but, almost more importantly, as a source of credit which is not only transferable but also negotiable. The cheque, however, has far outstripped the bill, in importance and usage, as a form of payment instrument. It is therefore something of a legal anachronism that the main body of law relating to cheques should be contained in an Act which treats the cheque as a sub-set of the bill of exchange.
(i) Bills of Exchange Act 1882
In the Bills of Exchange Act 1882, the payee of cheques should indorse on the cheques. Making enquiries in the case of each cheque is obviously impossible task for the drawee banker. Firstly, such enquiries would have taken him in every part of this country and in many places abroad. Secondly, if a drawee banker refuses or delays payment without very good reason he will be liable in damages to his customer for injury to latter’s credit under breach of contract. So section 60 was framed to relieve the banker of liability to the true owner of the cheque where an essential indorsement has been forged if the payment is ‘in good faith and in the ordinary course of business’. The section 80 framed similar protection to drawee banker and drawer where cheque is crossed, and section 82, replaced by section 4 of the Cheques Act 1957, gave the protection of bankers collecting payment of cheques where a banker in good faith and without negligence. The payee or the true owner, however, would lose his property in the cheque when it was paid in due course, even if the drawee banker paid the chque with a forged indorsement to a person other than holder.
(ii) Chques Act 1957
The cheques had long since been forgotten by most people as an instrument to be freely transferred (which of course was and still is) and is looked upon rather as an payment instrument where the indorsement of the payee is not placed thereon for the purpose of transfer and passage of title but rather to effect a discharge of the instrument. In consequence, the main purpose of the Cheques Act 1957 was to eliminate the necessity of an indorsement of a chque. This objective, however, has not been wholly achieved, as the Committee of London Clearing Bankers banks insisted on indorsement on cheques would be required in some circumstance, for example cashed over the counter.
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