Universal Import Export GmbH v Bank of Scotland [1994] ScotCS CSIH_5 (28 October 1994)

Universal Import Export GmbH v Bank of Scotland [1994] ScotCS CSIH_5 (28 October 1994)

The bank and minuters' defences are irrelevant because the law does not permit a bank to refuse payment on a bank draft to a bona fide payee for value on the basis of third party fraud or alleged illegality in the source of funds, where the underlying contract is genuine and not prohibited by statute. The general rule that third party fraud does not vitiate a contract applies equally to negotiable instruments, and there is no authority or public policy basis for an exception. Payment under the draft is not illegal, and the pursuers are entitled to decree.

Citation
[1994] ScotCS CSIH_5
Parties
Pursuer: Universal Import Export GmbH; Defender: Bank of Scotland; Minuter: Minuters (unnamed third party)
Jurisdiction
Scotland
Judgment Date
28 October 1994
Procedural Posture
Civil Appeal (reclaiming Motion) / Decision on Relevancy of Defences After Procedure Roll Hearing
Outcome
Reclaiming motion refused; decree for pursuers affirmed with correction to interlocutor.
Legal Topics
Bankers' Drafts, Fraud, Money Laundering, Negotiable Instruments, Illegality in Contract, Third Party Fraud, Bona Fide Purchaser, Personal Bar
Contract Law Banking Law Commercial Law Bankers' Drafts Fraud Money Laundering Negotiable Instruments Illegality in Contract +3 more

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Parties

Universal Import Export GmbH

Pursuer

Bank of Scotland

Defender

Minuters (unnamed third party)

Minuter

Procedural Posture

Civil Appeal (reclaiming Motion) / Decision on Relevancy of Defences After Procedure Roll Hearing

Legal Issues

  1. 1 Whether a bank can refuse payment on a bank draft due to alleged third party fraud or illegality in the provenance of funds.
  2. 2 Whether the general rule that third party fraud does not vitiate a contract applies to negotiable instruments such as bank drafts.
  3. 3 Whether payment under the bank draft would be illegal as part of a fraudulent scheme or money laundering.

Ratio Decidendi

The bank and minuters' defences are irrelevant because the law does not permit a bank to refuse payment on a bank draft to a bona fide payee for value on the basis of third party fraud or alleged illegality in the source of funds, where the underlying contract is genuine and not prohibited by statute. The general rule that third party fraud does not vitiate a contract applies equally to negotiable instruments, and there is no authority or public policy basis for an exception. Payment under the draft is not illegal, and the pursuers are entitled to decree.

Court Disposition

Reclaiming motion refused; decree for pursuers affirmed with correction to interlocutor.

Orders

  • Refuse reclaiming motion.
  • Adhere to interlocutor of Lord Ordinary, subject to correction that pursuers' third plea in law is sustained.