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The Banker-Customer Relationship: Negligence in the Payment and Collection

of Cheques

Article · December 2010

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C. J. Nagel J. T. Pretorius
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164 2010 (73) THRHR

skuldig is aan huisbraak met die opset om artikel 1(1)(b) van die Wet op
Oortreding 6 van 1959 te oortree, naamlik om sonder toestemming in die
karavaan te wees (of voort te gaan om daarin te wees). Soos reeds hierbo
verduidelik, skep artikel 1(1) twee misdade, naamlik eerstens die binnegaan van
die gebou, en tweedens om voort te gaan om binne te wees nadat die grens na
binne oorgesteek is en die toestemming of regmatigheid van X se teenwoordig-
heid op die perseel nie meer geldig is nie. Dit is, volgens die hof, die tweede
misdaad wat die beskuldigde in hierdie saak bedoel het om te pleeg. Die
oopbreek van die karavaan en die binnegaan daarvan is so nou met mekaar
verweef dat dit onrealisties sou wees om die misdaad wat gepleeg is te beskryf as
huisbraak met die opset om betreding in die sin van die binnegaan van die
struktuur te pleeg.
Die streekhof het ’n vonnis van drie jaar gevangenisstraf wat op ’n sekere
voorwaarde opgeskort is, opgelê. Die hof het hierdie vonnis bekragtig.
CR SNYMAN
Universiteit van Suid-Afrika

THE BANKER-CUSTOMER RELATIONSHIP: NEGLIGENCE IN THE

PAYMENT AND COLLECTION OF CHEQUES
McCarthy Ltd v Absa Bank Ltd 2009 2 SA 398 (W)
McCarthy Ltd v Absa Bank Ltd [2009] ZASCA 118

1 Introduction
Much has been written on the legal nature of the banker-customer relationship
(see eg the extensive discussion by Malan, Pretorius and Du Toit Malan on bills
of exchange, cheques and promissory notes in South African law (2009) para 217
and sources cited there). However, the question whether, absent an express pro-
vision to this effect, the contract between a bank and its client possibly includes
either a tacit or an implied term that the bank is under a duty to fulfil its collect-
ing duty without negligence vis-à-vis its client, was described by Goldstein J as
“a novel one” in McCarthy Ltd v Absa Bank Ltd 2009 2 SA 398 (W). The Su-
preme Court of Appeal eventually had to consider this matter (McCarthy Ltd v
Absa Bank Ltd [2009] ZASCA 118), Goldstein J having granted leave to appeal
against his decision to grant an order of absolution from the instance
In what follows the facts that gave rise to the above question and the decisions
of both the court a quo and the Supreme Court of Appeal are discussed.

2 Court a quo
2 1 Facts (based on paras 3–7 of the judgment of Nugent JA)
Mc McCarthy (M) established that between November 1994 and March 2003, a
former employee (C) of M created fictitious debts in the accounts of M and
caused cheques to be drawn and signed by M in purported payment of those
debts.
VONNISSE 165

The named payee on each of the cheques was a combination, in one way or
another, of the name “Fourie” or “L Fourie” and the name “Leathertech” or
“Leathertech CC”. The cheques were crossed and marked “not transferable”. C
was acquainted with Mr and Mrs Fourie. Mr Fourie operated a cheque account at
A’ s Pretorius Street Branch and later its Pretoria Branch (see below). At some
stage, C approached Mrs Fourie and asked her to deposit the first of the fraudu-
lent cheques in the Fouries’ account with Absa (A). She told Mrs Fourie that the
cheque was in payment of commissions that she had earned, and explained why
she preferred not to collect the cheque through her own account.
Mrs Fourie approached the teller at the branch at which the Fourie account
was held (at that stage the Pretorius Street branch) armed with the cheque, a de-
posit slip, and a bearer cheque drawn on the Fourie account for an equivalent
amount (less a small amount that was to be left in the account to cover bank
charges). The teller referred her to a supervisor to approve the transaction. The
supervisor marked the documents to reflect her approval and Mrs Fourie returned
to the teller, who accepted the deposit of M’s cheque, and paid over the amount
of the cheque that had been drawn on the Fourie account in cash over the
counter. There followed a series of similar transactions each of which followed
the same pattern. Mrs Fourie would obtain the approval of a supervisor (in many
cases the same supervisor) for the transaction, present the documents to the
teller, and walk off with a substantial sum in cash, at times as much as R100 000
or more. She would generally receive a “little something” from C for her trouble.
By the time the fraud was discovered 193 fraudulent cheques had been deposited
amounting in all to R14 947 258.
Originally two branches of A were involved. M had a current account at the
Pretoria Branch while Fourie held a similar account with the Pretorius Street
branch (also in Pretoria). A’s Pretoria branch was therefore the drawee (paying)
bank of each of M’s cheques, while its Pretorius Street branch acted as collecting
bank. However, during 2001 the Pretorius Street branch was closed and incorpo-
rated in the Pretoria branch, resulting in the same branch acting as both paying
and collecting bank in respect of the cheques in question.
In its particulars of claim, M pleaded a written agreement between it an A’s
predecessor, Volkskas Ltd, and attached a copy thereof. M then pleaded “express
alternatively implied alternatively tacit terms” as well as breaches of these terms
relating to A’s alleged wrongdoing while acting as Fourie’s collecting bank. Ac-
cording to M, such wrongdoing consisted of A having failed to detect and pre-
vent payment of the cheques into Fourie’s account (para 3 a quo).
After M had closed its case, A applied for absolution from the instance.
2 2 Express term not established
M led no evidence regarding the written agreement and therefore failed to estab-
lish any express term regarding A’s alleged breach of contract. Goldstein J there-
fore agreed with the submission by A’s counsel that as far as tacit and implied
terms were concerned, “these cannot be held to have been established because
they may well notionally be excluded by the agreement’s express terms” (para
4). On that ground alone, the judge found that A was entitled to an order of abso-
lution (ibid).
166 2010 (73) THRHR

2 3 Tacit term not established

M’s counsel contended that on a proper construction of the pleadings and the
pre-trial procedure, M had in fact pleaded a tacit contract between it and A in
terms of which A became M’s banker. Although Goldstein J disagreed with this
contention he nevertheless proceeded to deal with the application for absolution
on the above contention by M’s counsel (para 5). (An application by M’s counsel
to amend their particulars of claim to exclude all references in the pleading to an
express contract regarding an express contractual relationship between the par-
ties was not considered by the judge as he held that absolution had to follow
even if the amendment was granted (ibid)).
Goldstein J considered the legal position where the drawee bank is also the
collecting bank, stating that the question which arose for his decision is whether
in such a case the parties “can be found to have included in their contract the
term that [the bank] would fulfil the collection function without negligence vis-à-
vis [the drawer]” (para 6). Referring to Standard Bank of South Africa Ltd v
Ocean Commodities Inc 1983 1 SA 276 (A) 292B, Goldstein J held that M had
led no evidence of any conduct or circumstances which indicated that the parties
probably intended such a term, and therefore no tacit term was established, there
being “no basis at all for finding the tacit term contended for” (para 7).
2 4 Implied term not established
The judge mentioned that M’s counsel were unable to find a single case in sup-
port of finding the implied term relied on and then posed the following question:
“Is there any reason now to conclude that the law recognises such a term, follow-
ing the reasoning laid down in such cases as Schoeman v Constantia Insurance
Co Ltd 2003 6 SA 313 (SCA) at 322–3, paras [21] to [26] and [28]?” (para 8).
He gave the following reasons for refusing to recognise such term:
Firstly, referring to Indac Electronics (Pty) Ltd v Volkskas Bank Ltd 1992 1
SA 783 (A), Goldstein J held that the drawer of a cheque is protected against a
collecting bank’s negligence by our law of delict and that there is, therefore, no
pressing need for the implied term contended for (para 9). (Of course, the protec-
tion offered by our law of delict is not limited to the drawer but extends to the
so-called true owner of a cheque).
Secondly, the judge held that recognising such an implied term would deprive
a defendant the advantage of apportionment of damages and lead to the result
arrived at in Thoroughbred Breeders’ Association v Price Waterhouse 2001 4
SA 551 (SCA) (para 10). (This is probably why M’s counsel withdrew its alter-
native claim based in delict at the commencement of the trial). Goldstein J re-
ferred to the sentiments of, inter alia, Olivier and Nienaber JJA that it may
sometimes be unfair not to allow apportionment in cases based on contract, but
held as follows:
“Be that as it may, nearly seven years after the decision in Thoroughbred, the
legislature has still not provided for apportionment in the kind of contractual
setting I am confronted with. And so I certainly ought not, in the interests of
justness and fairness, to find the implied term contended for, unless there are very
strong reasons to do so. Clearly, there are none. It follows that the implied term
contended for was not established at all”.
VONNISSE 167

2 5 Decision
In view of the foregoing, the order for absolution was granted. As was mentioned
at the beginning, M’s application for leave to appeal was granted and the Su-
preme Court of Appeal’s approach to the matter will now be considered.

3 Supreme Court of Appeal

3 1 Tacit or implied term
Nugent JA considered (para 15) the court a quo’s approach to the question
whether an agreement between a bank and a customer as regards a cheque ac-
count could be said to include an implied or tacit term to the effect that the bank
would fulfil the collecting function regarding cheques drawn by its customer
without negligence vis-à-vis the latter (see para 2 3 above). The judge held (para
16) that, given the terms in which the question was framed the finding by the
court a quo could not be faulted. Referring to Malan et al para 217, the judge
explained the banker-customer relationship in case of a current account as a con-
tract of mandate that imposes, as naturalia of the agreement, inter alia two main
obligations on the bank. First, the bank undertakes, on behalf of its customer, to
pay from the account cheques properly drawn by the customer, according to their
tenor (provided funds are available in the account). Secondly, it undertakes, on
behalf of the customer, to collect cheques properly deposited for collection. The
judge concluded that the bank has no obligation to collect, on behalf of someone
else, cheques that are drawn by the customer (and to do so without negligence).
However, Nugent JA did “not think that is where the matter ends” (para 17).
3 2 Confusion between payment and collection of cheques
The judge proceeded to point out that a great deal of confusion had been intro-
duced into the case by the use of the above terms in M’s particulars of claim and
heads of argument as if they are interchangeable, “which they are not” (ibid).
The judge explained as follows:
“At the outset it needs to be borne in mind that the collection and the payment of a
cheque are two sides of one coin and the transactions occur simultaneously. (I am
not referring to the acceptance of the cheque for collection, which occurs when the
cheque is deposited, but to the collection of the proceeds of the cheque, which
occurs when the cheque is paid). In this case [A] both collected the cheque on
behalf of Fourie, and simultaneously paid it on behalf of [M]” (ibid).
With the above confusion cleared up, the judge held that M’s claim, correctly
construed, was not founded on an implied term as explained above (see paras 3 2
and 3 1 above).
3 3 True nature of M’s claim
Referring to M’s particulars of claim (quoted at length in the judgment, eg paras
9, 10 and 19), Nugent JA held (para 18) that M’s case on the pleadings was that
A was contractually obliged to exercise the care expected of a reasonable banker
“when disbursing amounts” on behalf of the drawer and explained:
“The ‘disbursement of amounts’ from a cheque account occurs when the bank pays
a cheque that is drawn on the account. (That the bank simultaneously collects the
proceeds to the account of another customer is coincidental)” (ibid).
The apparent confusion referred to by the judge did not, according to him, alter
the foundation of the claim. In support of this view, the judge quoted at length
168 2010 (73) THRHR

from M’s opening arguments, which, according to him, clarified the true basis of
the claim.
Nugent JA held (para 20) that upon a fair reading of the particulars of claim,
the claim advanced by M was that A breached its mandate to exercise reasonable
care when paying McCarthy’s cheques. According to the judge, the references to
collection only conveyed that M’s counsel failed to distinguish the two sides of
the coin.
In the circumstances Nugent JA found that the application for absolution and
the judgment of the court a quo were misdirected. However, the judge added that
to the extent that A might have been misled in the conduct of its case by the
above confusion, the exercise by the court a quo of its discretion to allow the
evidence to be revisited could avoid injustice (ibid).
3 4 Did A have a case to answer?
Nugent JA stated (para 21) that it is trite that the test to be applied by a court
when absolution is sought at the end of the plaintiff's case is whether there is
evidence upon which a reasonable person might (not should) find for the plain-
tiff.
The judge then explained (para 22) that the fact that M had a cheque account
justified the inference that there was an express agreement (not necessarily re-
duced to writing) between M and A that a current account should be operated.
He quoted Malan et al para 217 regarding the bank’s duties in this respect:
“It is the duty of the bank to pay cheques drawn by the customer that are in all
respects genuine and complete, on demand, provided sufficient funds or credit for
their payment are available in the customer’s account . . . In paying cheques, the
bank must adhere strictly to the customer’s instructions, and must perform its
duties with the required degree of care, generally, in good faith and without
negligence”.
In the above context, paragraph 23 of the judgment contains some startling in-
formation that reflects a complete misunderstanding of some of the basic princi-
ples of the law of bills of exchange. M did not allege that A paid the cheques
contrary to their terms. Rather, M’s counsel submitted that the named payee was
fictitious, and that A was thus entitled to pay the bearer (fn 6 contains a reference
to s 5(3) of the Bills of Exchange Act 34 of 1964 (BEA)). This is of course
wrong, as section 5(3) applies to order cheques, while the cheques in question
were marked “not transferable” and thus they were neither bearer nor order
cheques but only valid inter partes. (See Malan et al para 46 for a discussion of
the fictitious payee). However, the thrust of M’s argument was that Absa paid
the cheques negligently, in that it ought at least to have suspected that the bearer
(Fourie) (our emphasis) was not entitled to them, and should therefore have
made enquiry before paying the cheques. There is perhaps some force in this
argument when one imagines the elderly Mrs Fourie sometimes leaving the bank
with as much as R100 000 in cash (see facts above).
In view of the above, A’s counsel conceded (para 24), only for purposes of he
appeal, that A’s employees ought to have suspected that Fourie was not entitled
to the cheques, and thus that they were negligent in having accepted them for
collection (our emphasis). As pointed out by Nugent JA (fn 8) this would have
exposed A to a delictual action recognised in Indac (see para 2 4 above), but as
was pointed out earlier, M had abandoned such a claim at the start of proceed-
ings in the court a quo (ibid). A’s counsel therefore quite understandably argued
that any such negligence was in its collecting capacity on behalf of Fourie and
VONNISSE 169

not in its paying capacity on behalf of M (“hence the misdirected enquiry as to

whether the bank was contractually bound to exercise reasonable care when per-
forming that collecting function” per Nugent JA ibid)).
3 5 The true enquiry
The court held as follows in this regard:
“But the true enquiry is not whether the bank is liable for negligence in collecting
the cheques, but instead whether, in view of the knowledge of its employees (albeit
that it was acquired in the course of accepting the cheques for collection), the bank
was negligent in paying them (at least without further enquiry)” (ibid).
Nugent JA remarked (para 25) that where the paying bank is not also the collect-
ing bank, the above difficulties do not arise since the paying bank usually does
not know to whom a cheque is being paid and therefore the bank is protected by
section 79 of the BEA. However, the court held (para 26) that where the paying
bank is also the collecting bank (A in this case), “the bank will indeed know (or
at least be capable of knowing) whom it is paying, because the drawer and the
holder of the account to which the cheque is paid are both its customers”.
Nugent JA examined at length (paras 27ff) the implications of the operation of
section 79, as explained in Eskom v First National Bank of Southern Africa Ltd
1995 2 SA 386 (A) 397D–E and Standard Bank of SA Ltd v Harris 2003 2 SA 23
(SCA) para 12, namely, that a bank may be negligent in respect of one function
but not in respect of another, for A’s submission that its negligence in collecting
the cheques is to be isolated from its conduct in the payment thereof.
The judge held (para 30) that while it might be conceptually possible for a
bank to be negligent when collecting a cheque, but not negligent when paying it,
he had some difficulty envisaging how that might happen. To him it was a ques-
tion of the same bank wearing different hats:
“For the question whether a bank is negligent will generally depend on what was
known to the bank when it performed the particular transaction, and that would
suggest that a bank might have knowledge while wearing one hat, but cease to have
that knowledge when it dons the other hat. It seems to me that once knowledge is
acquired then it is known whatever hat the person is wearing”.
The court also refrained (para 32) from expressing any view on the correctness
of the Australian decision Nemur Varity Pty Ltd v National Australia Bank Lim-
ited [1999] VSC 342 referred to by M, in which the bank’s conduct in accepting
a cheque for collection was attributed to the bank when considering whether it
acted negligently when paying the cheque. The judge remarked that he men-
tioned the case only to indicate that it cannot be taken for granted that the con-
duct of a bank in collecting a cheque should be ignored when considering
whether the bank paid the cheque negligently.
In the end, Nugent JA was very cautious (para 33) in deciding that it would be
undesirable to express any firm view on the issues raised in this appeal and
found that the court was not on this occasion called upon to answer any of the
questions posed in the course of his judgment. According to him, whether or not
A was negligent is a question to be decided with reference to the facts of the par-
ticular case. He decided that the court had to accept, for purposes of the appeal,
that A’s employees had knowledge that should have caused them to suspect that
Fourie might not be entitled to the cheques; and that they knew that the cheques
had been drawn by their customer M who would have to pay them. He further
held that other facts that emerged from the evidence, for example, that M did not
170 2010 (73) THRHR

raise any query once the first cheques had been paid, need to be brought into the
picture; and that there might also be generally accepted practices of which the
court was not yet aware that would explain why the employee’s knowledge
ought not to be attributed to A when it paid the cheques. However, he found it
sufficient to say that on the evidence placed before the court, a court might in-
deed find that A ought to have made further enquiry before it paid the cheques,
and that its failure to do so was negligent.
Before finding that absolution should not have been granted, Nugent JA made
the following remark (para 34):
“Whether any such negligence was causally connected to the loss, and whether any
causally connected loss extended to all of the cheques, were not matters raised in
this appeal, and I express no view in that regard, beyond saying that a court might
find that at least some loss was caused”.
Perhaps this remark should at best be taken as obiter since causation, an element
of a delict, seems to have been mentioned here in the context of breach of con-
tract.

4 Discussion
4 1 No contractual duty to collect without negligence
The Supreme Court of Appeal’s judgment brought clarity on at least one aspect
of this case, namely, that there is no contractual duty, either express, tacit or
implied, on a bank not to collect cheques in a negligent manner. On the facts of
this case, M’s argument based on a contractual claim is in essence that A is un-
der a contractual duty to take notice that one of A’s other customers (Fourie) is
withdrawing money from its (Fourie’s) own account which does not belong to
Fourie but to M. Surely no contractual duty on A can be that far-reaching.
Unfortunately, some aspects of Nugent JA’s judgement seem no to be as clear.
4 2 Simultaneous payment and collection of cheques
It should be borne in mind that in this case there were two different sets of
cheques, namely, the fraudulent cheques drawn by M at the instance of its former
employee and the cheques drawn by Fourie. What transpired in the bank each
time Mrs Fourie concluded one of the (fraudulent) transactions can be summa-
rised as follows: Mrs Fourie, with the approval of one of A’s employees, depos-
ited one of M’s cheques for collection and immediately presented one of Fou-
rie’s own cheques for payment in cash over the counter (s 78 BEA). When A
paid Mrs Fourie, it paid a cheque drawn by Fourie, definitely not one of M’s
cheques. To hold, as Nugent JA apparently does, that it was in fact M’s cheque
that was paid at that moment holds startling consequences for A: all of M’s
cheques were crossed, which means that A was legally obliged not to pay them
in cash over the counter. At best, one could say that A was in a sense granting
credit to Mrs Fourie on the strength of M’s cheque which still had to collected
and paid through the normal cheque collection process.
Furthermore, it cannot be said that that each of the fraudulent cheques were
cleared (collected and paid) by the bank once the supervisor gave permission for
the transaction to proceed. Even in case of a cheque drawn on the same branch of
a bank (as was the case with M’s cheques), the bank still processes it through its
own internal clearing department where the magnetic code is read and the bank’s
internal computer completes the clearing process before eventually returning the
 VONNISSE 171

paid cheque to the drawer. Because of the decrease in the number of cheques in
circulation, some of the larger banks have decided to outsource even their inter-
nal clearing process to Bankserve (the former Automated Clearing Bureau) to do
the clearing on their behalf. (See Malan et al para 189 for a discussion of the
collection process). The payment of each the fraudulent cheques therefore took
place in terms of the rules of the clearing system and was only completed once
the cheque once again reached A through the system. (Payment of the cheque
also had to be recorded in terms of the National Payment System). Nugent JA’s
statement that “[i]n this case [A] both collected the cheque on behalf of Fourie,
and simultaneously paid it on behalf of [M]” does not seem to reflect current
banking practice and it appears to be incorrect. (As regards the exact moment of
payment of a cheque through the electronic clearing system see Malan et al para
215 and authorities cited).
4 3 Section 79 and negligence in the payment and collection of cheques
It is submitted that there is nothing wrong with the judgments in Eskom and Har-
ris to which Nugent JA referred (see para 3 5 supra) in respect of the question as
to whether the same bank can at the same time be negligent in collecting cheques
but not negligent in paying them and it is not clear whether the judge actually
doubts their correctness. (See also Malan et al para 262). Perhaps too little atten-
tion was given to the final part of the statement by Brand JA in Harris para 12
(which was not quoted by Nugent JA para 28):
“In such circumstances it would be most unfortunate if the bank were to derive
absolute immunity from liability in its capacity as a collecting bank solely by virtue
of it being exonerated from liability as a paying bank by the provisions of s 79. In
fact, I believe that the acceptance of such immunity would fly in the face of the
reasoning which underlies the decision in the Eskom case”.

5 Conclusion
Many years ago Alistair Kerr wrote an interesting article on the persuasive force
of an obiter dictum (“The persuasive force of obiter dicta” 1975 SALJ 136). In
this article he made the point that courts should as far as possible refrain from
making these statements for the simple reason that usually the law on that par-
ticular point was not properly argued before the court and the court thus did not
have the benefit of proper legal argument before the court makes the obiter
statement. In McCarthy we may again have some of these statements that may
influence the further development of our law without there being a proper con-
sideration of the consequences of the particular statement. Perhaps the best
stance to take on the largest part of Nugent JA’s judgment is that, as he himself
said (para 33), it was undesirable for the court to express any firm views on the
many questions raised. This is especially so where there are insufficient evidence
placed before the court. The ill-conceived admissions of counsel also did not
make matters easier for the court. Then, perhaps the decision not to proceed with
the delictual action may be real cause of the M’s problems. However, we fully
agree with the finding regarding the absence of the contractual duty explained in
paragraphs 1, 2, 3 1 and 4 1.
CJ NAGEL
University of Pretoria
JT PRETORIUS
University of South Africa

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