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E can look to C and the subsequent indorser D for the $200 he gave for the E can sue C or D for

or the $200 or sue either A or B for the $20 (the


cheque. But he has no right against A and B who did not make or authorise original tenure).
the alteration
Types of Alteration

Apparent alteration Non-Apparent alteration

Intending holder on scrutinizing the document with reasonable Alteration is executed so cleverly that is not visible on reasonable
care - would observe that it has been altered. scrutiny.

Effect - Only a person who made the alteration Effect - The holder of the cheque has the right to enforce the
and all subsequent parties will be bound by cheque according to its original tenor.
the cheque as it is altered.

A RM20 B RM20 C RM20


0 D RM20
0 E A RM20 B RM20 C RM20
0 D RM20
0 E
Customers (Drawers) Duty of Care
Against Fraudulent Alterations

General Rule Drawer's Duty of Care

Drawers owes a duty of care towards Barbour Ltd v Ho Hong Bank (1926)
Customer of paying banker (drawer) the paying bank (Drawee/paying The manger drew a cheque for $2520.
would not be liable upon the cheque if Bank) to take precautions in drawing The figure was altered to $12520. The
the cheque has been fraudulently up the cheque. bank paid out the altered sum. Held the
altered by a dishonest payee/holder. respondent (Drawer) had to bear the loss
If a dishonest holder alters the amount because the manager was negligent in
The paying bank (drawee bank) of the cheque due to the drawers
cannot debit the account of its drawing the cheque
negligence in not properly drawing up
customer (drawer) the cheque, the paying bank (drawee)
is entitled to debit the customers
account with the full amount
London Joint Stock bank v
Macmillan
A sum was stated in figures but not in
words, 2 pounds was changed to 120
pounds . Held the bank could debit
the firms account with 120 pounds, the
partners had been negligent by
leaving blank spaces for the amounts
in words to be altered.
Protection of Collecting Bank

Definition Risks Protection

Bank which collects the amount of


A collecting bank may be
liable on 2 grounds: - To minimize the risk S 85 of BEA
the cheque fr. the paying bank on protect the C/Bank if he collects
behalf of its customer.
payment on behalf of his
Paying bank is under a duty to pay customer who is actually not
the amount and credit its customers To its customer for breach entitled to the payment.
account with such amount of duty
Due to the failure of the
collecting bank to collect the
amount when it was instructed
to do so.
Conditions:

(a) Must acted for its customer S 85


To the true owner for CUSTOMER:
conversion Who has an account with a bank
When the collecting bank Becomes a customer as soon as he
improperly collects on behalf opens an account with the bank.
of its customer who was not
entitled to the money
(b) Must acted in good faith S 95
The C/bank must acted honestly in
collecting the amount on behalf of his
customer.

(c) Must acted without negligence


If the banker acted in good faith but
negligently the banker will not be
protected under S 85.
The Collecting banker is negligent if he is not making
proper inquiries in the following suspicious
circumstances:

Examples: Cases

Lyood Bank Ltd v Charted Bank of India, Australia


a) Where a customer presents a cheque in favour of & China
his company, but to be credited into a private
account. An employee of the plaintiff bank, who had authority to
sign on behalf of his employer, drew a total of 19
b) Where a customer presents a cheque in favour of cheques which were sent to the defendant bank for
collection with a request to credit the amount into his
his official capacity, but to be credited into his private private account. Held - the defendant bank was
account.
negligent in not making inquiries because the amount
credited were such that they could not be payments of
c) Where a customer presents a cheque in favour of salary.
his principal, but the sum is to be credited into his
own account
MIdland Bank Ltd v Reckittt & Ors
A solicitor fraudulently drew cheques on the account
d) Where a customer presents a cheque crossed of his client. these cheque were paid into the
account payee and he is not the payee named on solicitor's account.
the cheque
Held: The bank was negligent in not questioning the
crediting of the cheques. the situation should have put
e) Where a customer pays in a cheque for an them into suspicion, as it was not the solicitor's
unusually large amount, which is out of character with money.
his normal circumstances.

f) Opening an account without enquiry into the


identity and circumstances of the customer.