“There Are Two Principle Duties That Are Owed by the Customer to the Institution... These Two Duties Are Sometimes Referred to as the Macmillan Duty and the Greenwood Duty.”

Week 5 – Duties of the Customer / Cheques

1. “There are two principle duties that are owed by the customer to the institution... these two duties are sometimes referred to as the Macmillan duty and the Greenwood duty.” (Blay & Clark, Australian Law of Financial Institutions)

(a) Discuss the content of these two duties.

Within the common legal relationship between the banker and the customer, there are two principle duties owed by the customer. Both the Macmillan Duty and the Greenwood Duty are both named after landmark cases and are imposed to prevent irregular banking transactions.

The Macmillan duty places the customer under a duty to exercise reasonable care in the drawing of cheques to ensure the banker is not misled and forgery is not facilitated. The Australian High court placed this duty beyond doubt in 1981 by the decision in Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd . The case saw the older Australian authority (Colonial Bank of Australia Ltd v Marshall ) overruled in favor of the United Kingdom’s decision in London Joint Stock Bank Ltd v Macmillan and Arthur .

The Greenwood duty is the second duty of the customer - to notify the bank of any forgeries known to the customer. As the bank bears the risk of a forged drawers signature, it would be unacceptable for the customer to withhold any information that may prevent unnecessary losses to the bank. The Greenwood duty extends from notifying known forgeries to any knowledge of unauthorized transactions on the account, however there is no duty to discover forgeries and other account irregularities. The origins of the Greenwood duty are linked directly to the decision upheld in Greenwood v Martins Bank Ltd , in which the plaintiff (husband) was held liable for his wife’s torts due to a failure to notify by the bank of known forgeries.

(b) Is there a duty of care upon a customer to take reasonable care in the conduct and overall management of his or her bank account?...