Marfani & Company Ltd v Midland Bank Ltd

JurisdictionEngland & Wales
Judgment Date21 March 1968
Judgment citation (vLex)[1968] EWCA Civ J0321-2
Docket Number1966. M. No. 2172
CourtCourt of Appeal (Civil Division)
Date21 March 1968
1966. M. No. 2172
Marfani & Company Limited
Midland Bank Limited

[1968] EWCA Civ J0321-2


Lord Justice Danckwerts,

Lord Justice Diplock and

Mr. Justice Cairns.

In The Supreme Court of Judicature

Court of Appeal

Civil Division

Appeal from Nield J. Manchester Assizes 26th July, 1967.


Mr. ANTHONY J. L. LLOYD, Q. C., and Mr. GEORGE A. CARMAN (instructed, by Messrs Bower, Cotton & Bower, Agents for Messrs Slater, Heelis & Co., Manchester) appeared on behalf of the Appellants (Plaintiffs).

Mr. W. DEREK HODGSON, Q.C., and Mr. J.W. Da CUNHA instructed by Messrs Addleshaw, Sons & Latham, Manchester) appeared on behalf of the Respondents (Defendants).


I have asked Lord Justice Diplock to give the first judgment.


By an ingenious and elaborate fraud, one Kureshy, the plaintiff company's employee, obtained payment to himself of a cheque for £3,000 drawn by the plaintiff company on the Bank of India in favour of a firm called Eliaszade as payee. The cheque was crossed. To carry out his scheme, Kureshy needed a bank account. He opened one with the defendant bank in the name of Eliaszade, and handed the cheque to them for collection. They presented it for payment to the Bank of India and received payment of it which they credited to the account of Eliaszade, out of which Kureshy drew nearly all of the sum of £3,000 so credited.


The facts are set out with clarity and in detail in the learned judge's judgment. They are now reported in 1967 3 All England Law Reports at pages 968/70. This makes it unnecessary for me to repeat them. I would only add that Kureshy's scheme was very carefully prepared. Well in advance of the actual drawing of the cheque which he fraudulently converted, he had already taken steps to establish a false identity as Eliaszade with Ali, whom he planned to use as his introducer to the defendant bank, who were Ali's bankers. After the cheque had been drawn, but before visiting the bank, he took the precaution upon the day of his employer's departure of making a false entry in the postage book of the plaintiff company to make it appear that the cheque had been posted to the payee, the real Eliaszade, in London. He would have been the only person in the office of the plaintiff company in a position to answer any inquiries about the, cheque, had any been made. This was a cunning calculating rogue.


It may seem odd that in the nineteen-sixties the liability of the defendant bank for the part they were deceived into playing in this transaction should be affected by the series of legal fictions by use of which the lawyers of the sixteenth century evolved from the ancient real action of detinue sur trovera personal action on the case of trover which, with the abolition of forms of action, became the modern tort of conversion. It may also seem odd that the basis of their liability is that the piece of paper on which the cheque was written was "goods" belonging to the plaintiff company, and that the defendant bank's acts in accepting possession of that piece of paper from Kureshy, in presenting it to the Bank of India and accepting payment of it, constituted an unjustifiable denial by them of the plaintiff company's title to its goods, from which damage flowed. But such is the common law of England, and one of the consequences of the historic origin of the tort of conversion and its application to negotiable instruments as "goods" is that the tort at common law is one of strict liability in which the moral concept of fault in the sense of either knowledge by the doer of an act that it is likely to cause injury, loss ordamage to another, or lack of reasonable care to avoid causing injury, loss or damage to another, plays no part.


At common law one's duty to one's neighbour who is the owner, or entitled to possession, of any goods is to refrain from doing any voluntary act in relation to his goods which is a usurpation of his proprietary or possessory rights in them. Subject to some exceptions which are irrelevant for the purposes of the present case, it matters not that the doer of the act of usurpation did not know, and could not by the exercise of any reasonable care have known, of his neighbour's interest in the goods. This duty is absolute; he acts at his peril.


A banker's business, of its very nature, exposes him daily to this peril. His contract with his customer requires him to accept possession of cheques delivered to him by his customer, to present them, for payment to the banks upon which the cheques are drawn, to receive payment of them and to credit the amount thereof to his own customer's account, either upon receipt of the cheques themselves from the customer, or upon receipt of actual payment of the cheques from the banks upon which they are drawn. If the customer is not entitled to the cheque which he delivers to his banker for collection, the banker, however innocent and careful he might have been, would at common law be liable to the true owner of the cheque for the amount of which he receives payment, either as damages for conversion or under the cognate cause of action, based historically upon assumpsit, for money had and received.


So strict a liability, so absolute a duty, upon bankers would have discouraged the development of banking business. It was accordingly progressively mitigated by statute, first by section 82 of the Bills of Exchange Act 1882, then by the Bills of Exchange (Crossed Cheques) Act 1906, and finally by section 4 of the Cheques Act 1957, which is the current statute with which we are concerned, subsection (1) of which reads as follows: "Where a banker in good faith and without negligence (a) receives payment for a customer of an instrument to which this section applies; or (b) having credited a customer's account with the amount of such an instrument, receivespayment thereof for himself, and the customer has no title, or a defective title, to the instrument, the banker does not incur any liability to the true owner of the instrument by reason only of having received payment thereof". Subsection (2) provides that the section applies inter alia to cheques.


A pettifogger might be tempted to thwart the obvious intention of Parliament by treating the immunity of the banker as limited to actions based upon the receipt of payment as constituting the only act of conversion, or as the cause of action for money had and received; and had the matter first come before the courts in the heyday of literal interpretation, it might well have been so construed. But fortunately the interpretation of section 62 of the Bills of Exchange Act 1882 was exposed to the robust common sense of Lord Maonaghten in Gordon v. Capital & Counties Bank, ( 1903 Appeal Cases 240) where he construed the section as extending the immunity "to cover every step taken in the ordinary course of business and intended to lead up to that result", i.e., the receipt of payment of the cheque.


A purist might also comment (and some have) about the use of the expression "negligence", a term of art appropriate to a cause of action different in its legal characteristics from that of conversion or money had and received in respect of which the qualified immunity is conferred. But it is, in my view, clear that the intention of the subsection and its statutory predecessors is to substitute for the absolute duty owed at common law by a banker to the true owner of a cheque not to take any steps in the ordinary course of business leading up to and including the receipt of payment of the cheque, and the crediting of the amount of the cheque to the account of his customer, in usurpation of the true owner's title thereto, a qualified duty to take reasonable care to refrain from taking any such step which he foresees, or ought reasonably to have foreseen, was likely to cause loss or damage to the true owner.


The only respect in which this substituted statutory duty differs from a common law cause of action in negligence is that, since it takes the form of a qualified immunity from a strict liability atcommon law, the onus of showing that he did take such reasonable care lies upon the defendant banker. Granted good faith in the banker (the other condition of the immunity) the usual matter with respect to which the banker must take reasonable care is to satisfy himself that his own customer's title to the cheque delivered to him for collection is not defective, i.e. that no other person is the true owner of it. Where the customer is in possession of the cheque at the time of delivery for collection, and appears upon the face of it to be the. "bolder", i.e. the payee or indorsee or the bearer, the banker is, in my view, entitled to assume that the customer is the owner of the cheque unless there are facts which are known, or ought to be known, to the banker which would cause a reasonable banker to suspect that the customer is not the true owner.


What facts ought to be known to the banker, i.e. what inquiries he should make, and what facts are sufficient to cause him reasonably to suspect that the customer la not the true owner, must depend upon current banking practice, and change as that practice changes. Cases decided thirty years ago, when the use by the general public of banking facilities was much less widespread, may not be a reliable guide to what the duty of a careful banker, in relation to inquiries and as to facts which should give rise to suspicion, is today.


The duty of care owed by the banker to the true owner of the cheque does not arise until the cheque is delivered to him by his customer. It is then, and then only, that any duty to make inquiries can arise. Any antecedent inquiries that he has made are relevant only in so far as they have already brought to his knowledge facts which a careful banker ought to ascertain about his...

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