The Gazette 1983

JULY/AUGUST

1983

GAZETTE

Bank of New Zealand Ltd, [1883] 8 App. Cas. 755, PC, and Egbert v. National Crown Bank [ 1918] AC 903 applied. (The above principle was accepted by the bank). (2) (reversing the decision of the High Court) that the Guarantee applied to all current accounts which K. Ltd. might have with the bank from time to time, that it was not limited to the two accounts in existence prior to 24 May 1973, and that accordingly it applied equally to the No. 3 account, the existence of which the plaintiff knew on that date and that to ascertain "the ultimate balance that shall remain unpaid" the No. 3 account had to be considered; therefore, the arrangement in relation to the No. 3 account was not a variation of the plaintiffs obligation under the Guarantee and he was not thereby discharged from the said obligation; it followed that he was not entitled to the return of his title deeds. National Bank of Nigeria v. Awolesi [1964] WLR 1311, distinguished. (3) a paying bank was under a contractual duty to exercise such care and skill as would be exercised by a reasonable banker and that such care and skill included, in appropriate cir- cumstances, a duty to enquire before paying and that a reasonable banker would make such enquiries when there were grounds for believing that the authorised signatories were misusing their authority for the purpose of defrauding the company of which they were agents, but that drawing of cheques on the accounts of private companies in order to discharge personal expenses was common practice and that in the instant case the bank was not put on enquiry and the action for negligence would be dismissed. Karak Rubber Co. Ltd. v. Burden (No. 2) [1972] 1 All ER 1210 adopted but case distinguished on its facts. (4) Accordingly, the appeal by the bank from the decision of Hamilton J. was allowed and the cross-appeal by the plaintiff was dismissed. John P. McEnroe v. Allied Irish Banks Limited, Supreme Court, (per Griffin J. Parke J. concurring and Kenny J), unreported, 31 July 1980. Patrick J. C. McGovern LICENSING — Six Count Summons — Limited Company — Nominee — Liability of Company as Licence Holder — Liability of Nominee for aiding and abetting. This case was an appeal by way of case stated from a decision of the

accounts of K. Ltd. were overdrawn in the sums of £25,800 and £63,000 respectively. This was in excess of the credit which the Bank would permit. In order to provide working capital for K. Ltd. the bank manager suggested that a third account should be opened and that it should not be set off against the first two accounts without the consent of the directors of K. Ltd. This was agreed, it was further agreed that moneys standing to the credit of the No. 3 account would not be set off for the purposes of interest against the liability of the Company on foot of the Nos. 1 and 2 accounts. It was held by the High Court (Hamilton J.) that the plaintiff was later that day informed of the opening of the No. 3 account but not of the arrangements in respect thereof between the Bank and K. Ltd. It was further held that W. was not the agent of the plaintiff at the meeting with the bank manager (although the plaintiff had subsequently claimed the contrary in correspondence) but no appeal was taken from that finding. (Kenny J., however, concluded that W. had the authority of the plaintiff to make the arrangement with the bankmanager), L. failed to honour his obligations and left the jurisdiction. In May 1975 the bank had demanded payment of the plaintiff of £75,000, being the limit of his liability under the Guarantee). Following his inability to enforce a court order against L., the plaintiff instituted proceedings against the bank claiming a declaration that he had been discharged from his obligations under the Guarantee, recovery of the title deeds of his property, detinue, and damages for negligence in conducting the company's accounts and paying certain cheques. The bank counter- claimed for the amount due under the Guarantee. The substantial question for deter- mination in the action was whether the arrangement made by the bank with L., on behalf of K. Ltd., whereby K. Ltd., already having a No. 1 and No. 2 account, should open a No. 3 account, was permissible under the terms of the Guarantee. The Supreme Court Held: (1) when a guarantee guarantees a transaction between two persons, neither of them may make any alteration in the terms of the contract guaranteed unfavourable to the interest of the guarantor without his consent and that if they did so, the guarantor would be discharged. Holme v. Brunskill [ 1878] 3 QBD 495, CA, adopted by the Privy Council in Ward v. National

Recent Irish Cases

BANKING — Opening of additional bank account held not to discharge Guarantee. Duty of care of paying banker. The Plaintiff was managing director and controller of K. Ltd. which was indebted to the defendant bank. In order to secure advances to K. Ltd. by the defendant the Plaintiff in 1971 lodged with the defendant title deeds of land owned by him part of which was leased to K. Ltd. As additional security the plaintiff on 2 November 1972 executed in favour of the defendant bank a guarantee ("the Guarantee") in connection with the accounts of K. Ltd. with the bank. At that time K. Ltd. had two trading accounts with the bank. Under the Guarantee the plaintiff guaranteed payment to the Bank of "all and every sum or sums ofmoney hereto- fore or hereafter advanced to or paid for or on account of K. Ltd. by the bank "on foot o f . . . current account or otherwise howsoever" subject to a limit of £75,000 plus interest. The Guarantee was to be "a security for any ultimate balance that shall remain unpaid" by K. Ltd. to the bank. By May 1973 K. Ltd. was in severe financial difficulties and, rather than liquidate or countenance the appoint- ment of a Receiver, the plaintiff sought to find a purchaser. At a meeting in the plaintiffs office on 24 May 1973 an arrangement was made whereby the plaintiff was to transfer his interests in K. Ltd. to the control of L., resign as a director of K. Ltd., and L. guaranteed that by the end of October 1973 the deeds of the plaintiffs property would be returned to him by the bank and that L. would lodge with the bank the necessary collateral security to secure such release. The arrangement remained to be confirmed by the bank. On the same day, the plaintiffs son (who was to be retained in the employment of K. Ltd.), his accountant, W., and L. met the manager of the relevant branch of the bank. The plaintiff was not present. On the date in question the two trading

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