Narni Pty Ltd v National Australia Bank Limited. This paper examines the agreement by conduct to extend overdraft limit and whether an implied term not to terminate the account without notice exists.

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TABLE OF CONTENT

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Preface         2

Question 1 : Reason behind the litigation         2

Question 2: breach of the implied term by the National Australia Bank         3

Question 3: Raise of an estoppel claim         5

Conclusion         6

REFERENCES         7


Narni Pty Ltd v National Australia Bank Limited

Preface:

This paper examines the agreement by conduct to extend overdraft limit and whether an implied term not to terminate the account without notice exists. The relevant case is Narni Pty Ltd v National Australia Bank Limited [1998] VSC 146. The following sections are going to address the three matters based on the reading of the case.

  1. Question 1: Reason behind the litigation

Before answering this question, it is essential to recall the case that leads to the litigation by Narni Pty Ltd. The appellant’s business was a nursing home set up in 1987 and all of the business premises were financed by borrowings from direct loans or indirect responsibilities to its shareholders. The pricipal shareholders and directors were registered nurses, Narni McCarthy and her sister Norma Caringal. Due to the cash flow problems, Mrs McCarthy frequently contacted with Clem Kealy, the manager of the Elwood branch of the Bank for an overdraft. However, the manager allegedly said she should wait and see how things developed. No overdraft facility was approved till June 1988.

The day to day income of the nursing home was solely funded by income received from the Federal Department of Health and Community Services (DCS). These contributions account for 80% of the nursing home budget and were received at the beginning of each month with a final payment about two weeks later. Immediately after the receipt of the funds from DCS, the account was then in credit with the bank. However, after the most substantial outgoings were taken out, the bank account dwindled to nil at the month’s end. It is indication that the account was inevitably overdrawn.

Despite the fact that Mrs McCarthy had required the bank manager to provide an overdraft, no formal overdraft facility was put in place. The manager guaranteed payments to the company when cheques presented and that there was no need for a formal writing. In November 1988, formal approval for an overdraft facility of $65,000 was given but after that point the account was frequently in dire debit which was in excess of the approved limit. By the end of May 1989, the account was in debit for $174,568. Shortly thereafter the bank started to dishonour the cheques. The consequence was that debenture securities were called upon and the physical assets were claimed by the mortgagee. The liquidation of business took place in 17 August 1989.

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The dishonour of wage cheques caused upset among the payees. The argument used by Narni was that the Bank had agreed to provide an overdraft facility upon a current account to support its business. The company went further in arguing that “the action of the wrongfully dishonouring cheques precipitated a failure of the business and its sale on behalf of a debenture holder. The appellant (Narni Pty Ltd) was then placed in liquidation and remained subject to a deed of company arrangement” (para 2 per Tadgell JA). For that reason, Narni sued the Bank to seek for compensable loss resulting ...

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