London Joint Stock Bank Ltd v Macmillan
| Jurisdiction | UK Non-devolved |
| Year | 1918 |
| Court | House of Lords |
| Date | 1918 |
Bank - Customer - Mandate - Cheque - Negligence of Customer in Mode of Drawing Cheque - Space for Amount in Words left Blank - Alteration of Amount of Cheque by Forgery.
A customer of a bank owes a duty to the bank in drawing a cheque to take reasonable and ordinary precautions against forgery, and if as the natural and direct result of the neglect of those precautions the amount of the cheque is increased by forgery, the customer must bear the loss as between himself and the banker.
A firm, who were customers of a bank, entrusted to a confidential clerk, whose integrity they had no reason to suspect, the duty of filling in their cheques for signature. The clerk presented to one of the partners of the firm for signature a cheque drawn in favour of the firm or bearer. There was no sum in words written on the cheque in the space provided for the writing and there were the figure “2.0.0” in the space intended for figures. The partner signed the cheque. The clerk subsequently added the words “one hundred and twenty pounds” in the space left for words and wrote the figures “1” and “0” respectively on each side of the figure “2,” which was so placed as to leave room for the interpolation of the added figures. The clerk presented the cheque for payment at the firm's bank and obtained payment of 120l. out of the firm's account:—
Held, that the firm had been guilty of a breach of the special duty arising from the relation of banker and customer to take care in the mode of drawing the cheque; that the alteration in the amount of the cheque was the direct result of that breach of duty; and that the bank were therefore entitled to debit the firm's account with the full amount of the cheque.
Per Lord Shaw of Dunfermline: In the case of a customer's cheque, admittedly genuine, no responsibility rests upon the banker for what has happened to the cheque before its presentation to the bank, but the responsibility for what has happened to it between the dates of signature and presentation rests upon the customer.
APPEAL from an order of the Court of AppealF1 affirming a judgment of Sankey J.F2
The respondent firm, Messrs. Macmillan and Arthur, were customers of the appellants, the London Joint Stock Bank.
The question raised by the appeal was whether the appellants were entitled to debit the respondents' account with the full amount of a cheque, which when presented for payment appeared to be a cheque for 120l., by reason of the alteration of the amount by the forgery of the respondents' clerk Klantschi, or whether they were only entitled to debit the account with 2l., the amount for which the cheque was sighed and issued by the respondents.
The facts are fully stated in the judgment of the Lord Chancellor and are summarized in the head-note.
The appellants having paid 120l. on the cheque to Klantschi debited the respondents' account with that amount.
The respondents brought an action against the appellants, claiming a declaration that the appellants were not entitled to debit the respondents' account in respect of the cheque beyond the amount for which it was originally drawn.
Sankey J. found that the respondents were not guilty of any negligence in the mode of signing the cheque, and that, assuming that they had been guilty of negligence, the negligence was not the proximate cause of the loss. He therefore ordered judgment to be entered for the respondents for 118l.
The Court of Appeal (Swinfen Eady L.J., Scrutton L.J. and Bray J.) agreed with the conclusions of the learned judge.
1918. April 12, 15, 16, 18, 19. Douglas Hogg K.C. (with him Alexander Neilson) for the appellants. The appellants are entitled to judgment on the authority of Young v. GroteF3, which is substantially similar to the present case. That case may be supported on two principles. The first principle, which was adopted by three out of the four judges who decided the case, is based on the hypothesis that the document was a completed instrument when it left the hands of the drawer. On that hypothesis two questions arise: Has the drawer been careless in the mode of drawing the instrument? Does he owe any duty to the bank not to be careless? Best C.J., in effect, answers both these questions in the affirmative, and, after quoting a passage from Pothier's Traité des Contrats de Change, Part I., c. iv., s. 99, in support of this view, says: “We decide here on the ground that the banker has been misled by want of proper caution on the part of his customer.” Burrough and Gaselee JJ. take the same view. The other principle on which the case call be explained proceeds on the hypothesis that the document when it left the hands of the drawer was an incomplete instrument, and, although a customer is not responsible for a payment made on a cheque which is not his genuine order, yet if he signs a cheque leaving the spaces for the amount wholly or partially blank he is estopped from denying that the cheque is his genuine order, though it is filled up with a figure in excess of the authority. That is the view adopted by Park J. Both principles are right and either is sufficient for the appellants in the present case. The Court of Appeal were wrong in treating Young v. GroteF4 as no longer a binding authority; it has been approved in several cases, and the only case in which it has been definitely disapproved is Colonial Bank of Australasia v. MarshallF5, a decision of the Privy Council. Taking the authorities in order of date: in Whitmore v. WilksF6 Lord Tenterden's judgment shows that it is the duty of a customer to draw his cheques in such a form as not to be easily alterable to a larger amount. In Robarts v. TuckerF7, which decides that a banker is liable if he pays on a forged indorsement, Parke B. quotes Young v. GroteF4 without disapproval, but his explanation of that decision differs in the different reports of the case. In the report in the Queen's Bench Reports he is reported to have explained the decision on the ground that the customer by signing a blank cheque gave authority to any person in whose hands it was to fill up the cheque in whatever way the blank permitted. But in the reports in the Law Journal and the Jurist the decision is explained on the ground of negligence in the manner of drawing the cheque itself. In Barker v. SterneF8 Pollock C.B. discusses Young v. GroteF4 without disapproval and leaves open the question which of the two principles above stated is the better ground for supporting the decision. In Orr & Barber v. Union Bank of ScotlandF9 Lord Cranworth states the principle of Young v. GroteF10 to be, “where the customer's neglect of due caution has caused the bankers to make a payment on a forged order, he shall not set up against them the invalidity of a document which he has induced them to act on as genuine,” and he approves that principle, subject to a doubt whether the conclusion in point of fact in that case was well warranted; and in British Linen Co. v. Caledonian Insurance Co.F11 he expresses himself substantially to the same effect. In Bank of Ireland v. Trustees of Evans' CharitiesF12, which was a case of negligence in the custody of a corporation seal, whereby the secretary was enabled to forge a number of transfers, Parke B., delivering the unanimous opinion of the judges who were called in to assist the House, approved Young v. GroteF10, which he based upon want of proper caution in the mode of drawing the cheque, but stated that the negligence, to deprive the customer of his right against the bank, must be negligence in or immediately connected with the transaction itself. Lord Cranworth also approves the principle of Young v. GroteF10, which he again puts upon the ground of estoppel, and Lord Brougham concurs in that approval, subject to a doubt whether the case was rightly decided on the facts. The decision of the House was that mere negligence in the custody of the corporation seal did not amount to an implied authority to execute a transfer of stock standing in the name of the corporation, and that the corporation — or its trustees — were not responsible for the forged transfers. That case shows the distinction between a case where the principal gives authority to his agent to issue a negotiable instrument, which is fraudulently filled up with an amount in excess of the authority, and a case where he gives no authority to issue any instrument at all. The authority of Young v. GroteF10 was again recognized in Ex parte SwanF13 by Erle C.J. and Keating, Williams, and Willes JJ., and by Martin and Channell BB. in Swan v. North British Australasian Co.F14, which was a later stage of the same litigation; and in the same case in the Exchequer Chamber Blackburn J. distinguishes Young v. GroteF15 without disapproving it, and Cockburn C.J. treats it as a binding authority, but, rejecting the estoppel theory of that decision, puts it on negligence. In Halifax Union v. WheelwrightF16 Young v. GroteF15 was followed by the Court of Exchequer, and Cleasby B., delivering the judgment of the Court, discusses the grounds for supporting the decision, and adopts the explanation given by Cockburn C.J. In Arnold v. Cheque BankF17 Lord Coleridge C.J., delivering the judgment of the Court, says that Young v. GroteF15 must be considered as well decided, and bases the decision upon want of proper caution in the mode of drawing the cheque. Baxendale v. BennettF18 is the first case in which the authority of Young v. GroteF15 has been in any way impeached. Bramwell L.J. does not question the decision, but Brett L.J. throws doubt upon it...
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