Marfani & Co v. Midland Bank

Facts

• A clerk employed by Marfani & Co received cheques payable to the company
• The clerk opened a personal account at Midland Bank and deposited the company cheques
• Midland Bank collected the proceeds without questioning why company cheques were going into a personal account
• Marfani & Co discovered the fraud and sued Midland Bank for conversion

Issue

1. Whether a collecting banker is negligent under S.131 (equivalent) when it collects cheques payable to a company into an employee's personal account without inquiry.

Held

• The bank was negligent. A reasonable banker would inquire when cheques payable to a corporate entity are deposited into the personal account of an individual. The discrepancy between corporate payee and personal account is a red flag that demands inquiry. The bank's failure to inquire constituted negligence, destroying statutory protection. The bank was liable for conversion.

Ratio Decidendi

Collecting a cheque payable to a company into an individual's personal account without inquiry constitutes negligence on the part of the collecting banker. S.131 protection is lost. The bank is liable for conversion to the true owner.