Economics students struggling with a Law project!? Help us please?

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bretters
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Hi, we are currently studying for a module on the law of finance/banking etc.
We have been given a project regarding cheques and as it crosses so far into law territory are struggling to source any information or understand all of the law lingo!

The question is as follows:


Outline and fully explain the legal protection for a bank found to have collected a cheque on behalf of a payee, where the cheque has been presented by someone who is not the true owner of it (i.e. it has been stolen).

We are struggling to find any information on the banks protection, mostly just information on how to avoid cheque fraud in general.

It would be greatly appreciated if anybody could shed any light on this or point us in the direction of where we might find some information. We have tried various law of finance texts, which don't seem to have a lot of info or any that we can comprehend (we prefer numbers) and we have also scoured the internet.

Thanks!
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(Original post by bretters)
Hi, we are currently studying for a module on the law of finance/banking etc.
We have been given a project regarding cheques and as it crosses so far into law territory are struggling to source any information or understand all of the law lingo!

The question is as follows:


Outline and fully explain the legal protection for a bank found to have collected a cheque on behalf of a payee, where the cheque has been presented by someone who is not the true owner of it (i.e. it has been stolen).
Well, the law is contained in s 4 Cheques Act 1957, which you can find by googling.

But to explain what it means you should really grab a decent textbook on Banking Law from the library, say Ellinger & Lomnicka, and see what it says about that section, and about cases on it. Have a read through p 691 et seq.

Appreciate I haven't explained it but the textbook probably does it better than I can!
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bretters
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Thanks for the quick reply! We do have a copy of ellinger but it didn't prove to useful, we just don't understand any of it!
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bretters
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We're trying to decode the act but there are too many thereofs, himselfs and other confusingly structured sentences!
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(Original post by bretters)
Thanks for the quick reply! We do have a copy of ellinger but it didn't prove to useful, we just don't understand any of it!
Well I'll have a go, but you'll have to bear in mind that this particular aspect of Banking Law wasn't on my course.

The true owner would ordinarily be able to sue the collecting bank in conversion. The piece of paper belonged to him, and the collecting bank have dealt with it in a manner inconsistent with his ownership.

Conversion is ordinarily a tort of strict liability. That means that it doesn't matter if the collecting bank took every reasonable precaution to establish the ownership of the cheque, still, if they got it wrong, they were liable. The BEA 1882, now the Cheques Act 1957 s 4, provides them with a statutory defence if, as the section says, the collecting bank collects:

a) In good faith
b) without negligence (i.e. taking all reasonable precautions)
c) for a customer (i.e. not for someone who just walks in off the street, and tries to get £100 cash for his cheque)

then they will not be liable to the true holder in conversion. I'm not sure what the 'good faith' requirement adds, as if the bank had acted in bad faith they might be liable in other ways, and surely couldn't have acted 'without negligence' anyway.

Um, I think that's basically it, the cases just flesh out what the meaning of 'customer' is, and what the meaning of 'without negligence' is, i.e. what the reasonable banker should do to verify someone's identity.

Of course, this might seem harsh on the true owner of the cheque, but remember that he still hasn't been paid by the drawee of the cheque, so the underlying liability will still be there. And if that seems harsh on the drawee, remember that he will have a claim against his bank, the paying bank, for paying his money to the wrong person, and they won't have any defence against *that*, unless he has drawn his cheques in a manner to facilitate fraud - London Joint Stock Bank v Macmillan, I think. So liability will usually fall on the paying bank, I assume.
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