049-NLR-NLR-V-57-MERCANTILE-BANK-OF-INDIA-LTD-Appellant-and-V.-S.-RATNAM-Respondent.pdf
1955Present : Gratiaen, J., and Swan, J.SrERC-ANTILK BANK OR INDIA LTD., Appellant, and V. S. RATNA3I,.Resjiondent
S. C. 366—D. C. Colombo, ‘26,215
Cheque—Crossed generally—Theft of cheque—Payment by drawee otherwise than toa banker—Drawee's liability to drawer—Bills of Exchange Ordinance, ss. S (5),70 (_>>.
Where a cheque crossed generally by the drawer is paid by the drawcootherwise than to n banker, the drawee’s liability to the drawer is not automatic ;it arises only if, by reason of the unauthorised ntodo of payment, tho drawerproves that he has incurred a loss for which responsibility may fairly be imputedto the drawee. Therefore, where such a cheque is stolen after tho paj-oe indorsesit in blank and is subsequently paid across the counter to a holder, the drawercannot avail himself of the provisions of section 79 (2) of tho Bills of ExchangeOrdinance to institute action for a declaration that tho drawco is not entitledto debit his account with the amount of the cheque.
l’L’KAL from a judgment- of the District Court, Colombo.G. K. Chilly, with -J. de Gamut, for the defendant appellant.
_Y. l. Cftoksy, Q.C., with D. J. Tautpae and K. Jf. U. Ja i/unetli, forthe plaint iff respondent.
Cur. ado. cull.
November 17, 1955. Gbatiakn, J.—
According to the facts as found by the learned trial Judge, the plaintiffhad borrowed Ks. 2,000 from Dr. Tluirairajali (hereafter called “ thepayee ”) on the security of his cheque dated 1st December 1950 drawnoil the defendant Bank in favour of the payee t; or order ”. At the timeof its delivery to the payee, the cheque had been crossed generally. Thearrangement was that the cheque should be presented for payment ona future date to be agreed upon, and in the meantime the payee was tobe paid Rs. 13‘ 33 each month by way of interest on the loan. Six monthslater (i.e., on 1st June 1951) the plaintiff was in a position to repay theloan but, as the cheque in its original form might be rejected as ,c stale ”,the plaintiff, at the payee’s request, altered the date “ 1.12.50. ” to“ 1.6.51.” and placed his signature below the alteration. The payeethen took back the cheque and shortly afterwards, having indorsed itin blank, gave it- to someone to be sent by post to the Bank of Ceylon for 'collection.1
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Unfortunately, the payee had not taken the precaution of indorsingthe cheque specially in favour of the Bank of Ceylon or even of makingit “ not negotiable
On or about 11th June 1951 the payee began to feel uneasy becausethe Bank of Ceylon had not acknowledged receipt of the cheque, liethen learnt that his letter, with the cheque enclosed, had not reachedthem. The plaintiff was informed, and he visited the defendant Bankwhere he discovered that the amount of the cheque had been paid acrossthe counter on 4th June 1951 to a subsequent indorser signing himselfas “ IV- D. Fernando ”. The cheque, at the time when it was presentedfor payment, bore words cancelling the original crossing and also pur-porting to contain, immediately beneath those words, the plaintiff'ssignature.
The plainti/F has repudiated the signature purporting to authorisethe cancellation of the crossing, and his evidence on the point has beenaccepted by the learned Judge. I would therefore hesitate to take adifferent view, but the resemblance of the impugned signature to hisadmitted signatures is so remarkable that (as the learned Judge himselfremarked) the officers of the Bank could not be blamed for acting uponthe purported cancellation.
The pa3'ee’s honesty was not challenged at the trial, so that (uponthe trial Judge’s findings of fact) the inference is irresistible that somebodyhad dishonestly intercepted the letter containing the cheque eitherbefore or after it was sent by jjost to the Bank of Ceylon. The detailsof what occrured thereafter have not been investigated, and there is noevidence on record from which we can determine whether “ W. IXFernando ” whose indorsement appears below that of the payece partici-pated in the fraud. He may have been the thief, or he may have beenan innocent person with whom the thief negotiated the stolen chequefor valuable consideration. Speculation on these intriguing questionsis unprofitable and unnecessary for the purpose of our decision.
The plaintiff and the payee were uncertain as to which of them shouldclaim the value of the stolen cheque from the defendant Bank. At firstthe payee sent the Bank a letter of demand, b-.it ultimately it was decidedthat the plaintiff should institute this action on his own account for adeclaration that the Bank was not entitled to debit his account with thesum of Rs. 2,000 representing the payment made across the counter on4th June 1951.
The learned Judge entered a decree in favour of the plaintiff on theground that, by reason of the Bank having paid the crossed chequesotherwise than to a Banker, the plaintiff’s original debt to the payee wasrevived by operation of law. The Bank was therefore held liable toindemnify the plaintiff for the loss resulting to him from its disobedienceof his mandate as to the mode of payment.
It may be assumed for the purposes of this appeal that, when thecheque was presented for payment by “ Y. D. Fernando ” on 4th June1951, the Bank realised (or should have realised) that- it was still crossedgenerally and ought not to have been paid across the counter. Thequestion is—what legal consequences flow from this unauthorised modeof payment ?
Section 79 (2) of the Bills of Exchange Ordinance expressly providesthat, -where a cheque crossed generally has been paid by the drawee“ otherwise than to a Banker ", he is liable to the “ true owner ” for “ anyloss he may sustain owing to the cheque having been so paid Theproviso to the section introduces a statutory exemption from liabilitywhich has ho bearing on thepresent- case. Indeed, section 79 (2) admitted-ly docs not apply to the plaintiff It was the payee who became the
tme owner ” of the cheque when he took delivery of it on 1st Juno1951 ; and, for reasons which I shall later exjdain, the payee had himselfbeen divested of ownership before the cheque was paid across the counterto “ W. D. Fernando
In what circumstances then, can the drawer of a cheque which wasgenerally crossed refuse to let the drawee debit his account if the chequewas paid across the counter ? The Ordinance does not prohibit thismode of payment in express terms, nor does it provide the drawer himself(as opposed to the true owner ”) with a statutory remedy in such asituation. Nevertheless, under the common law of England whichapplies to Ceylon in cases of this kind, the general crossing of a chequeoperates as a mandate to the drawee to make the payment to a bankerand to no one else ; accordingly, a drawee who makes a payment acrossthe counter in disobedience of the mandate acts at his peril. His liabilityto the drawer in such an event is not, however, automatic : it arisesonly if, by reason of the unauthorised mode of jjaymeiit, the drawerproves that he has incurred a loss for which responsibility may' fairlybe imputed to the drawee.
In Bobbett v. Bin bet t1, 13 ram well J. has given an example of a situationin which the drawer of a crossed cheque can, if so minded, repudiatea payment made by the drawee in an unauthorised manner. In thatcase a specially crossed cheque was stolen from the payee before he hadindorsed it, and the drawee ultimately paid the cheque upon a forgedindorsement to a banker other than that named in the crossing. Itwas held inter alia that the drawer could have objected to his accountbeing debited with the amount of the cheque. The reason is quite clear.The payee had not parted with his title to the cheque at the time it wasstolen, and the forged indorsement could not operate to pass title to asubsequent holder (however innocent). In that state of things, thedrawer's original debt to the payee was revived because the payee hadrelied on the jjrotcction of the special crossing when he “ accepted thecheque as discharge of the debt ”. Grant’s Lau-s of Banking (Edn. 5th)p. 214. Accordingly the drawer’s loss, resulting from the revival of theearlier debt, was directly referable to the drawee’s failure to obey themandate contained in the crossed cheque.'
A different situation was incidentally discussed in Smith v. The UnionBank of London If, notwithstanding the unauthorised mode of payment,the money is in fact jraid to the lawful holder of a crossed cheque no actionlies against the drawee. In other words, it is an essential element ofthe drawer’s cause of action that he had sustained a loss directly resultingfrom the unauthorised mode of payment. Provided that'the money
J (1S76) 1 Ex. D. 269.* (.1876) 10 Q.ll. 291.
im
reaches the hands of the true holder of the cheque, the actual mode ofpayment is irrelevant- The Court of Appeal affirmed the judgment ofBlackburn J. in Smith’s case 1.
Tlic' principle that an unauthorised mode of payment of a crossedcheque does not automatically attach liability to the disobedient bankerseems to be tacitly recognised in Baines v. The National ProvincialBanh A bookmaker had there delivered a crossed cheque for £200to a customer shortly before 3 p.m., on 14th August 1925. The customerarrived in great haste on the same day at the office of the Bank on whomthe cheque was drawn and persuaded them to pay the money to himacross the counter (instead of through a collecting Bank) «a few minutesafter their normal closing hour. On the next morning the bookmakersent a message to the Bank stopping payment of (he cheque, but wastold that the instructions had arrived too late. The bookmakerunsuccessfully repudiated the payment on the ground that the iJaymenthad been made shortly after closing lime. It was not suggested thatobjection could be taken to the payment across the counter in disobedienceto the mandate, because the true purpose of a mandate contained in acrossed cheque is to prevent the money reaching the hands of someperson other than “ the true holder
It is in the light of these principles that the plaintiff’s claim againstthe defendant Bank must be examined. He did not allege in his plaintthat any loss had resulted to him from the payment of the crossed chequeacross the counter, nor was an issue raised at the trial as to whethersuch loss had in fact occurred. For this reason alone, the learned Judgeshould have upheld the objection that the plaint disclosed no cause ofaction against the Bank. The learned Judge took the view, however,that the plaintiff's liability' to the paj'ee on the original debt was revivedwhen the cheque, having been stolen in transit, fell into the wrong hands.Mr. Chitty contended, on the other hand, that in this particular casethe cheque had been accepted in complete satisfaction and not as con-ditional payment, of the earlier debt. There is much to support Mr.Chi tty’s argument, but in my opinion, even upon the theory of a condi-tional payment, the debt did not revive. J-et me explain why.
Assuming that the cheque was accepted only as conditional paymentof the original debt-, the payee had indorsed it in blank and subsequently-ceased to be its “ true holder ” at the time when it was stolen. Thepayee’s indorsement converted the cheque into a bill payable to bearerby virtue of section 8 (3) of the Ordinance. Accordingly, W. J).Fernando ” who presented the cheque bearing the payee’s genuineindorsement in blank was its ‘'holder” at that point of time, so thatpayment to “ W. D. Fernando ” (even if he were the actual thief) operatedas “ a discharge of the bill Grant {supra) p. 193. The circumstance(•hat the crossed cheque was paid across the counter instead of througha Bank did not divert the proceeds into wrong hands. Indeed, thepayee’s failure to protect himself by'making the cheque not negotiable ”was the primary cause of his loss. He was in no better position, afterlosing the cheque which he had indorsed in blank, than he would have
1 (1S7-5) 1 Q.B.D. 521.- [1927) 90 L. /.K.B. SOI.
been if be bad lost a currency note which he had taken in satisfactionof the earlier debt. In such a situation, the loss clearly lies (as betweenhimself and his debtor) where it falls.'
In this case the plaintiff had delivered to the payee a-cheque in pre-cisely the form in which it was asked for, and funds were available,inthe Hank to meet it upon presentation. The subsequent conversionof the document, by indorsement, into a “ bearer cheque ”, was" theprimary consequence of the loss sustained by the payee. Once thecheque was paid to “ XV. I>. Fernando ” the payee had no further claimsupon the plaintiff; nor indeed, had he a remedy against the Bank tindersection 70 (2) because he was not the “ true holder ” of the cheque atthe time that it was paid. His only remedy is against the thief if hecan find him.
For these reasons I would hold that the plaintiff has not establisheda right to repudiate the payment by the Bank. He intended the chequeto discharge his earlier liability to the payee, and ho achieved that result.Accordingly, the Bank was clearly entitled to debit bis account with tbosum of Us. 2,000 paid across the counter. I would allow the appealand dismiss the action with costs in both Courts..
Appeal allowed.
Swan, J.—I agree.