CHP 24 – BANKING LAW AND PAYING INSTRUMENTS

LEARNING UNIT 9

• Banking law is not an individual branch of law

• Application of concepts of law of obligations (contract & delict) and the law of things

• 4 important aspects: 1. the bank- customer relationship 2. the SA Code of Banking Practice 3. the bank’s duty of confidentiality and secrecy and the effect of money - laundering legislation on this duty 4. cheques as a prime example of a paying instrument

CHP.24- BANKING LAW AND PAYING INSTRUMENTS: SELECTED TOPICS

• Involves various contracts: 1. Mandate 2. Loan for use 3. Depositum 4. Deposit- taking • Banks may choose who they will accept as clients and may terminate a contract with a client

unilaterally • Parties may be a creditor and a debtor, depending on the circumstances • Eg. When a customer deposits money into their savings account: customer is the lender (CDT) and the bank is the borrower (DBT) When a customer applies for an overdraft on a current account: the customer is the borrower (DBT) and the bank is the lender (CDT)

[indicates the multi- faceted nature of the relationship]

THE BANK- CUSTOMER RELATIONSHIP

• Arises from contract

• = multi- faceted

• The customer lends money to the bank on a current account, the bank undertakes to repay on demand by honouring cheques drawn on it and by performing certain other services, such as:

1. Collection of cheques 2. Payment of stop and debit orders 3. Keeping and account the customer’s accounts at the bank • Relationship often involves other types of contracts:

Depositum – The depositor (customer) delivers

and object to the depository (bank) Depository then keeps the object

safe Must return that same object Eg. safety- deposit box

Loan for consumption – Customer deposits money in savings

account. Bank uses the money Must later pay the same amount

(with/without interest) back to customer Bank does not have to give back the

same money

• Contract which founds the relationship between bank/customer is, in essence, a contract of MANDATE

• BC is a lengthy document which provides for a large variety of aspects relevant to the banker-

customer relationship: 1. Provision of information by the bank to the customer regarding services offered by the bank

and accounts held at the bank by the customer 2. Charges levied by the bank on such services and accounts 3. Protection of personal information of the customer by the bank 4. Provisions regarding internet and telephone banking • BC also provides for guidelines regarding its own interpretation: 1. “will be legally binding in a court of law” 2. “may be used be used to influence the legal interpretation of the legal relationship between

a customer and the bank” 3. “will give rise to trade custom or tacit contract or otherwise between a customer and a

bank”

THE SOUTH AFRICAN CODE OF BANKING PRACTICE

•Banking Ombudsman = voluntary scheme amongs banks ito the Financial Services Ombud Schemes Act

• Scope of activities is contained in the South African Code of Banking Practice (Banking Code) AS WELL AS the Banking Ombudsman’s Terms of Reference

Office of the Banking Ombudsman • Purpose = provide customers of banks with a dispute

resolution mechanism which is easily accessible, informal, quick, affordable and affective WITHOUT affecting the right of a customer to resort to litigation at any time if he wants to

Banking Ombudsman Terms of Reference = govern the actions of the Banking Ombudsman Contains 31 paragraphs (Part 1 : 1- 16, Part 2: 17- 31)

Paragraph Provision

1 Principle powers and duties of the BO

1.3 Places a R1.3mil limit on the amount of compensation which the BO may

recommend

2 Lists the obligations of the member banks

3 Jurisdiction

3.2 Limitations to jurisdiction

7 Processes related to assessment, mediation ,hearing, recommendation

and determination of a complaint or dispute is explained

7.4(b) Neither bank/ complainant has to accept the recommendation of the OB

but if the complainant does and the bank does not the OB may issue a

determination

8 Board (review panel) must consist of at least 3 retired high court judges

9(2) Details of all determinations and reviews may be published

17- 31 Operational procedures for the hearing of complaints

• Banks owe customers a duty to maintain confidentiality and secrecy regarding their affairs

• This duty is naturalia of the contract between the bank and the customer

The ENGLISH case (Tournier case) stated 4 exceptions to this duty: 1. where disclosure is under compulsion of law 2. where there is a duty to the public to disclose 3. where the interests of the bank require disclosure 4. where the disclosure is made by the express or implied consent of the customer NB READ middle paragraph on page 360 for an explanation of numbers 2- 4!!!

BANKS DUTY OF CONFIDENTIALITY AND SECRECY

This washing is done by circulating the money through the formal systems (eg. a bank account) to conceal the blemished nature and criminal element of the money POCA contains most of the legislative provisions dealing specifically with laundering Also aims at curbing racketeering and gansterism

•5 Acts in SA are of importance when it comes to divulgence of info “under compulsion of law”

Prevention of Organised Crime Act (+ Regulations 47 and 48 of the Banks Act)

= POCA Money laundering is where illegal money is "washed"

Go to the website to download these Act…

National Prosecuting Authority Act

= NPAA

Focus on section 28

"any person" includes a bank

What does this actually mean? READ paragraph 24.1.3.2.2 page 361

Aims to giving effect to the Constitution (access to info held by State or another person which is needed to exercise or protect rights)

• Ito section 64(1) a bank must refuse a request for access to records, if the records contain financial or commercial info if the disclosure could likely cause harm to the customer

• Section 65 further states that a request to access info must be refused it is would breach the duty of confidence owed to a third party (customer)

• These sections thus do not help to define section 28 of the NPAA

Promotion of Access to Information Act = PAIA

Main objects of FICA: 1. To establish a financial intelligence centre and a money- laundering advisory council to

assist with the anti- money laundering effort 2. Impose specific KYC standard obligations on banks 3. FICA compliments POCA and introduces administrative measures to deter and prevent

laundering and financing of terrorist activities Imposes various obligations on designated persons aimed at identifying and reporting laundering activities

Financial Intelligence Centre Act = FICA

Banks become acquainted with the identity of their clients and the nature of the client’s business and must retain records to this effect

Encompasses many anti- money laundering provisions

Introduced the “Know – Your – Customer” standard (KYC standard)

a) attorneys b) boards of executors or a trust company c) estate agents d) financial instrument traders e) management companies of unit trusts f) mutual trusts g) long-term insurance businesses h) persons dealing in foreign exchange i) banks j) persons rendering investment advice including accountants k) persons who issue, sell or redeem travellers' cheques, money orders or similar instruments l) post banks m) members of the stock exchange

FICA provides a list of so- called “accountable institutions” which could potentially be used for laundering:

1. ID the clients

2. Keep records of transactions 3. Report suspicious transactions to the Financial Intelligence Centre 4. Train employees to comply with FICA provisions

FICA imposes 4 obligations on financial institutions

Deals with mobile banking Dealt with in Learning Unit 10

The Regulation of Interception of Communications and Provision of Communication- Related Information Act

INSTRUMENTS OF PAYMENT

“Negotionable instruments” are a specific group of paying instruments which include: 1. Cheques 2. Bills of exchange 3. Promissory notes

SOURCES : •Legislation •SA common law •Decisions made by courts •English case law (persuasive) •English Bills of Exchange Act (persuasive) •Express or implied terms of the agreement

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YOU TELL ME…

THE NEGOTIABLE INSTRUMENT AS INSTRUMENT OF PAYMENT Page 365- 366

CHEQUES

= STILL THE TYPE OF NI MOST COMMONLY USED IN COMMERCE!!!

“unconditional order in writing, addressed by one person to a bank, signed by the person giving it, requiring the bank to whom it

is addressed to pay on demand a sum certain in money to a specified person or his order, or to bearer”

EFT has however become the most preferred method of payment

PARTIES

3 necessary parties: 1. the person who gives the order (the drawer) eg. Marco 2. the bank to whom the order is addressed (the drawee bank) eg. Generic Bank 3. the person to whom the payment must be made (the payee) eg. Thandi

•The drawer draws the cheque on the drawee bank in favour of/ payable to the payee •May be other parties! Eg. indorser and indorsee •This is where you transfer a cheque to someone els…

Thandi

Marco

Drawee bank

Payee

Drawer

RELATIONSHIP BETWEEN PARTIES TO A CHEQUE [Refere to the cheque above] Marco draws a cheque on Generic Bank infavour of Thandi or order. Suppose Thandi negotiates the cheque to Niko. There are actually three separate relationships between Marco, Generic Bank, Thandi and Niko

3. relationship on the cheque •As soon as a cheque has been issued, new relationships come into play •Parties now rely on the cheque itself rather than the underlying relationships in order to enforce it •THUS: rights and duties are derived from the cheque

cheque owes its origins, issue and later transfer to

these relationships

3 relationships: 1. the underlying relationship •= the reason for the cheque •Eg. Marco is paying Thandi for payment •Thandi owes Salman money 2. relationship which arises from the agreement to use the cheque •Parties must expressly/ implicitly agree to use a cheque as a method of payment

8 ESSENTIAL ELEMENTS OF A CHEQUE

1. Order

2. Unconditional

3. In writing

4. Addressed by one person to a bank

5. Signed by the drawer

6. A sum certain in money

7. Payable on demand

8. To the payee or his order, or to bearer

Thoroughly read paragraph 24.3.5.1 pages

368- 371

4 NON- ESSENTIAL ELEMENTS OF A CHEQUE 1) Date

2) Place of payment 3) Stamps 4) Without recourse (limits liability)

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YOU TELL ME…

WHO CAN CLAIM ON A CHEQUE? •= holder •“the payee or indorsee in possession of an order cheque or the person in possession of a bearer cheque” •THUS it is NB to determine whether a cheque is cheque •Holder does not have to be a lawful holder (eg. thief) but such a person will not be able to claim on the cheque since it was not delivered to them Rights of the holder… 1. may sue on the cheque in his own name 2. may present the cheque for payment 3. may make certain additions and alterations to the cheque 4. may ask for a duplicate where a cheque has been lost Duties of the holder… 1. present the cheque within a reasonable time (3- 6 months) 2. where a cheque has been dishonoured by non- payment, the holder has an immediate right of recourse PROVIDED that they give notice of the dishonour of the cheque

failure to give notice will lead to loss of the right of recourse and may only be excused when 1) the drawer has counter demanded payment of the cheque or 2) the drawee bank is not bound to pay the cheque

or

order

bearer

HOLDER IN DUE COURSE A person may acquire a valid title to a cheque EVEN when their predecessor had a defective title or no title at all = “holder in due course THUS a cheque may be “free from equities” How do you become a holder in due course? = “a holder who has taken a cheque, complete and regular on the face of it, under the following circumstances: 1. must have become the holder of the cheque BEFORE it was overdue, and if the cheque had previously been dishonoured, without notice thereof 2. must have taken the cheque in good faith and fir value and at the time that the cheque was negotiated to him, he must not have had notice of any defect in the title of the person who negotiated it”

SELF STUDY paragraph 24.3.6.2.3 “The special position of the holder in due course” page 375- 376

There are thus 8 requirements which qualify a person as a holder in due course:

1. Person must be a holder of the cheque

2. The person must receive the cheque complete and regular on the face of it

3. A person must take the cheque without knowing that is has been previously dishonoured

4. A person should not know of any defect in the title of the person who transferred the cheque to them

2. The cheque was negotiated to him

4. A person must take the cheque before its due date

6. A person should take the cheque in good faith

8. A person should have taken the cheque for value

LIABILITY OF PARTIES ON CHEQUES •A person is liable on a cheque when: 1. the have signed the cheque 2. the have delivered the cheque •= connotes any mark which identifies it as the act of the party concerned

Initial Cross (“X”) Written by someone else acting by or under his authority

SELF STUDY paragraph 24.3.7.1.2 page 377- 380 •Signatures may serve 3 functions: a constitutive function, guarantee function or a transfer function (only one at a time)

Forged signatures (NB: when? Impact thereof?) •Forged signature on a cheque is wholly inoperative •Eg. Marco draws a cheque on Generic Bank in favour of Thandi or order and issues the cheque to her. Henry steals the cheque from her and forges her signature on the back of the cheque as a purported indorsement in blank. If Henry delivers the cheque to Niko, Niko will not be a holder even if she takes the cheque in good faith, as the forged signature is wholly inoperative. Niko is actually still in possession of a cheque payable to Thandi or order, which has not been indorsed by her. •Wholly inoperative = no rights (to retain or to discharge or enforce payment) are obtained UNLESS the party is precluded by the doctrine of estoppel •=person is precluded from denying the truth of a representation previously made by him to another person if that person, believing it to be true, acted on the representation to his detriment •A person who obtains a cheque through a forged indorsement does not even become a holder of the cheque

Sign

atu

re Thandi

Marco

Thandi

Thandi

Marco

Sign

atu

re

•Section 53(2)(b) of the Bill of Exchange Act protects a “holder in course” (who is not actually one) against an indorser (who is actually not one) •THUS! The appearance created to a later possessor is upheld, provided that he would have been a holder in due course if it were not a fact that he had obtained the cheque because of the forged indorsement. •The fact that the APPEARANCE is upheld (against the apparent indorser) does NOT make the APPARENT holder in due course an ACTUAL holder in due course or even an ordinary holder. •Could be called a “holder by estoppel” and if the drawee bank pays the holder by estoppel the cheque is still not discharged

Sign

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How section 53(2)(b) works… Marco draws a cheque on Generic Bank payable to Thandi or order and issues the cheque to Thandi. Henry steals the cheque from her, forges her signature on the back of the cheque and delivers the cheque to Niko. Niko changes the “indorsement” to an indorsement in her name, signs the cheque and delivers it to Lakshmi. BUT if Lakshmi can satisfy the requirements of holdership in due course she can claim payment from Niko by virtue of secion 53(2)(b). As far as Niko is concerned, Lakshmi is a “holder by estoppel,” meaning that Niko cannot raise Lakshmi’s defective title as a defence. In the case of a fictitious payee, any indorsement is superfluous and the cheque is deemed payable to bearer

Thandi

Marco

Thandi

Thandi

Marco

Thandi

Marco

Thandi

Niko

Lakshmi

Sign

atu

re

Unauthorised signature (NB: when? Impact thereof?) Special provisions apply where a person’s signature is placed on a cheque without their authority: 1. a person who signs without authority is personally liable 2. an unauthorised signature is wholly inoperative REMEMBER THE PRINCIPLES OF THE LAW OF AGNECY!!!

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•A person’s contract on the cheque becomes complete and irrevocable only once he has deliverd the cheque •Until delivery there is no liability and the cheque may still be cancelled •= connotes the transfer of possession of the cheque •Made by the drawer/ indorser personally or by someone acting on their behalf under authority •3 functions: constitutive function, guarantee function and transfer function •2 presumptions exist regarding delivery:

1. a cheque is no longer in the possession of a party who has signed it as a drawer or indorser, a valid and unconditional delivery by him is presumed until the contrary is proven

2. but as soon as the cheque comes into the hands of a holder in due course, there is an irrebuttable presumption that there has been valid delivery of the cheque by all prior parties

•“issue” connotes the first delivery of a cheque in its complete form to a holder

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TRANSFER AND NEGOTIATION •Negotiate: where the transferee becomes the holder in due course •Transfer: where there is a transfer of possession of title to the cheque •Used where the payee/ bearer want to transfer the cheque to a different person - unless words are added to the cheque which makes this impossible: Eg. a cheque stipulates that it is payable to a particular payee only (“pay Thandi only”) or it is marked “not transferable” •NOTE! A cheque marked “non negotiable” may still be transferred BUT no one can become a holder in due course •Bearer cheques are transferred by mere delivery and an order cheque by indorsement completed by delivery •SELF STUDY the 4 requirements which an indorsement must meet for valid transfer of a cheque page 385

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3 types of indorsement: 1. blank indorsement- does not specify an indorsee to who the cheque must be paid THUS the cheque becomes payable to the bearer - usually only a signature on the back of the cheque (signature of the indorser) -may be changed into a special indorsement by writing the name of the person to who it must be paid above the signature (bearer cheque is thus converted into an order cheque since the last indorsement is no longer a blank indorsement

2. special indorsement – specifies the person to who the cheque must be paid - indorsers signature AND the name of the person to be paid (“pay Niko or order” and the signature of Thandi) -effect = cheque becomes/ remains payable to order

Pay Niko or order

Thandi

3. restrictive indorsement - 2 types of restrictive indorsements READ the rest of page 386 on your own. Starting at the paragraph “A restrictive indorsement of the second type…”

2. gives the indorser the right to deal with the cheque as indicated in the indorsement without transferring ownership eg. “pay Niko for the account of Lakshi” or “ pay Niko or order for collection

1. completely prohibits further transfer of the cheque eg. “pay Niko only” followed by Thandi’s signature

Pay Niko only

Thandi

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Pay Niko for the account of Lakshmi

Thandi

THE LIABILITY OF THE DRAWER AND THE INDORSER ON A CHEQUE

DRAWER 1. Guarantees that the cheque will be paid according to its tenor if

properly presented for payment 2. Drawer undertakes that if a cheque is dishonoured, he will

compensate the holder 3. The drawer guarantees to the holder in due course that the payee

exists

INDORSER 1. Payment of the cheque on proper presentation 2. Guarantees the holder in due course that the drawer’s signature, and

consequent signatures, are genuine and valid 3. Cannot deny that at the time they indorsed the cheque it was valid

and existing and that they had a valid title SELF STUDY: Discharge of the obligation to pay a cheque paragraph 24.3.8 page 387

RELATIONSHIP BETWEEN THE DRAWEE BANK AND THE DRAWER

•CDT and DBT and based on contract •Drawee bank must carry out the instructions of the customer and may then debit the customer’s account with the amount •THUS a cheque fulfils 2 functions: 1.instructs/ orders the drawee bank to pay a stated amount 2. authorises that bank to debit their account •Where a bank pays on a forged signature, it is at their own risk and they cannot debit the customer’s account •What happens when the bank does pay and does debit an account on a forged cheque? SELF STUDY page 389

loan

mandate

MARKINGS ON A CHEQUE •Markings qualify the drawer’s payment instructions to the drawee bank and may also affect the legal position of the holders of the cheque •4 types: 1. crossings 2. “not negotiable” 3. “not transferable” 4. “account payee only”

1. crossings 2 kinds: 1. general – 2. special A cheque may be crossed at any time before it is discharge through payment SELF STUDY: who may cross a cheque? Page 390 •Crossing is a material part of a cheque and cannot be cancelled, changed or added to •When a cheque is crossed the drawee bank must pay in a certain way: 1. Generally crossed cheque – pay only to another bank 2. Specially crossed – pay only to the bank named in the crossing or to that bank’s agent for

collection • If a bank does not pay in accordance to the instructions/ orders of the customer, the bank may not debit the customer’s account

adding parallel transverse lines only two parallel transverse lines with the words “non negotiable” [do not themselves constitute a crossing]

adding parallel transverse lines only two

2. “not negotiable” 2 consequences:

Cheque is no longer negotiable but remains transferable – any holder of the cheque takes it with equities thus cannot be the holder in due course

Section 81 comes into force – protects the right of the true owner of a lost or stolen cheque which has been crossed and marked in this way

section 80: a person who takes a crossed cheque marked “not negotiable” cannot give a better title to it than the title of the person from whom he took it

Section 81 gives the true owner of a lost/ stolen cheque a right against a subsequent possessor of the cheque (IN SPITE OF THEM ACTING IN GOOD FAITH) To qualify for section 81 protection, the following requirements must be met: SELF STUDY page 391

1.

2.

“not transferable” • A cheque draw in the way described in this section is deemed to be crossed generally, unless it

is crossed specifically • THUS it is possible to indicate that further transfer of a cheque is prohibited on the face of the

cheque

75A Non-transferable cheques (1) Where a cheque bears boldly across its face the words 'not transferable' or 'non- transferable', either with or without the word 'only' after the payee's name- (a) the cheque shall not be transferable but shall be valid as between the parties thereto; (b) the cheque shall be deemed to be crossed generally, unless it is crossed specially; and (c) the words 'not transferable or 'non transferable' may not be cancelled and any purported cancellation shall be of no effect. (2) A bank shall not be negligent by reason only of its failure to concern itself with- (a) an indorsement intended to prevent transfer of the cheque; or (b) words prohibiting transfer, or indicating an intention that it shall not be transferable, other than in the manner provided for in this section. [S. 75A inserted by s. 33 of Act 56 of 2000.]

• It HAS TO BE CROSSED • Read page 392 last paragraph and the first

paragraph of page 393 to see what banks have to say about this…

• A cheque payable to “X only” without the words “non- transferable” cannot be negotiated or transferred and qualifies as a non- negotiable cheque

“account payee only” Standard practice in certain circles to add the words “a/c payee” or “a/c payee only” to crossings on cheques Does not affect the transferability of the cheque. THUS it remains freely transferable

PROTECTION OF THE DRAWEE BANK

SECTION 58 •Generally a cheque is discharged when the drawee bank has paid it to the holder of the cheque •Section 58 relieves the drawee bank of its obligation to pay a cheque only to its holder

58 Bank paying demand draft where indorsement is forged

If a bill payable to order on demand is drawn on a bank, and the bank pays the bill in good faith and in

the ordinary course of business, it is not incumbent on the bank to show that the indorsement of the

payee or any subsequent indorsement was made by or under the authority of the person whose

indorsement it purports to be, and the bank is deemed to have paid the bill in due course, although

such indorsement has been forged or made without authority: Provided such indorsement does not

purport to be that of a person who is a customer of the bank at the branch on which the said bill is

drawn.

Features of section 58:

1. Applies to order cheques 2. If the drawee bank pays a cheque in accordance with this

section, it is deemed to have paid the cheque in due course 3. This section deals with the forged or unauthorised signature

of an indorser, not the drawer 4. The drawee bank should pay the cheque in the ordinary

course of business and in good faith 5. The bank is protected when it pays the cheque containing

forged or unauthorised indorsements only if the indorsements purport to be those of persons who are not customers of the branch of the bank

6. Section applies to crossed and uncrossed cheques, but not to non- transferable cheques

SECTION 79

• Drawee bank is liable for damage if it does not pay a crossed cheque in accordance with crossing

• If it pays a bank in accordance with the crossing in good faith and

without negligence, it will be taken to have paid in due course even though it actually has not

79 Protection to bank and drawer where cheque is crossed

If the bank on which a crossed cheque is drawn, in good faith and without negligence pays it, if crossed generally,

to a bank, and, if crossed specially, to the bank to which it is crossed, or the latter's agent for collection, which is

a bank, the bank paying the cheque, and, if the cheque has come into the hands of the payee, the drawer shall

respectively be entitled to the same rights and be placed in the same position as if payment of the cheque had

been made to the true owner thereof.

[S. 79 substituted by s. 37 of Act 56 of 2000.]

Section 58 may overlap with section 79 as far as crossed cheques are concerned. BUT there are 2 differences: 1. Section 58 requires the payment to have been “in good faith and in the ordinary course of business” but section 79 requires the payment to have been “in good faith and without negligence” 2. section 58 does not protect the drawee bank if the forged indorsement purports to be that of a customer at the particular branch of the bank on which the cheque was drawn. Section 79 does not have a limitation like this Section 79 protects the drawee bank AND the drawer of the cheque The drawer’s protection depends on 2 requirements: 1. the drawee bank should pay in accordance with the crossing in good faith and without negligence 2. payment should occur after the cheque has come into the hands of the payee

NOTE!!!

Eg. Marco draws a cheque on Generic Bank in favour of Thandi or order. The cheque is crossed generally. Henry steals the cheque from Thandi, forges her signature on the back of the cheque, delivers it to Niko who takes it in good faith and for value. Niko deposits the cheque for collection in her account with Random Bank (the collecting bank). Random Bank presents the cheque for payment to Generic Bank and Generic Banks pays it to Random Bank (in accordance to the crossing) in good faith and without negligence. Generic Bank debits the account of their customer (Marco) and Random Bank credits the account of their customer (Niko). Niko is NOT the holder since she is not the payee or the bearer or indorser of the cheque. Henry’s forgery of Thandi’s signature prevents Niko from obtaining any rights on the cheque. Thandi DOES however have rights! Against: Marco – NO. The cheque did come into the hands of the payee (Thandi) Generic Bank – NO. The bank paid in accordance to the crossing, in good faith and without negligence so it is protected “as if payment had been made to the true owner of the cheque” Niko and Random Bank – NO. Niko and Random Bank both acted in good faith even though the cheque had passed through their hands Henry – YES. He acted in bad faith and is liable on delict/ unjustified enrichment SELF STUDY paragraph 24.3.9.3.3 page 396

LIABILITY OF THE COLLECTING BANK • = the bank which, after the customer has deposited the

cheque in their account at the bank, collects payment of the cheque on behalf of its customer by presenting the cheque for payment to the drawee bank

• Can a collecting bank ever be liable to the true owner of a

cheque if the bank is negligent in collecting the cheque and the true owner suffers loss as a result?

Eg. Marco draws a crossed non- transferable cheque on Generic Bank in favour of Thandi. Marco delivers the cheque to Thandi. Henry steals the cheque from Thandi (the true owner) and deposits the cheque in his own account at Any Bank. Any Bank collects payment of the cheque from Generic Bank, which pays the cheque in good faith and without negligence. Generic Bank debits Marco’s account with the amount of the cheque, while Any Bank credits Henry’s account with the same amount. Section 79 prevents Thandi from holding Marco or Generic Bank liable. Also, the cheque is discharged as if payment has been made to Thandi. Henry can be held liable but as often happens in practice, he has either disappeared or been declared insolvent. Any Bank however was negligent in collecting the cheque for the wrong person since only Thandi could have received payment of the cheque (it was non- transferable after all). Any Bank is negligent in collecting payment on behalf of someone else. To succeed in her claim against the collecting bank (Any Bank), Thandi, the true owner should prove: 1. The collecting bank received payment on behalf of someone who was not entitled to it 2. In so doing, the collecting bank acted negligently 3. The conduct of the collecting bank caused the true owner’s loss SELF STUDY page 397- 398: the 5 considerations to determine whether a collecting bank owes a duty of care to the owner of a lost or stolen cheque.