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For a strange New Zealand contribution, where the bank did sue both the payee and its customer, see Westpac v Rae [1992] 1 NZLR 338

Charles Rickett

on 7/5/01 2:51 PM, Lionel Smith wrote:

Having debited the Payor's account, can the bank also claim the money back from the payee on the ground of mistake as to the authenticity of the signature? The bank would argue as follows. The bank would not have effected the payment instruction but for its mistake as to the authenticity of the signature. But it was in fact acting without mandate (Natwest v Barclays Bank [1975] QB 654, 666). Since the bank was acting without mandate, the payee did not give consideration for the payment and thus was liable to repay the bank (Barclays Bank v. Simms). The fact that the bank has debited the Payor's account pursuant to the indemnity is irrelevant because passing on is not a defence.

This doesn't sound right, does it?

If the question is whether, on those facts, the bank could recover from the payee, I think Barclays v Simms says that it can. But it is not clear why it would want to, if the customer was not making trouble about the debit, unless the bank were trying to debit the account AND recover from the payee ...

If the question is whether, having recovered from the payee, the bank could keep both lots of money, it does not sound right. Surely the indemnity between banker and customer is just that, an indemnity; the customer promises to indemnify against loss; once the bank has recovered from payee, there is no loss, and the bank would have to re-credit the account. The customer might even have a security interest under Lord Napier & Ettrick. The fax-instruction indemnity against loss is not the same as authority to debit the account. It is more like a consensually created estoppel.

Lionel