312 / 346
GAZETTE
JULY/AUGUST
1983
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
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
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
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