THE IMPERIAL BANK OF INDIA v. ABEYESINGHE

052-NLR-NLR-V-29-THE-IMPERIAL-BANK-OF-INDIA-v.-ABEYESINGHE.pdf


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Present: Fisher C.J., Schneider and Garvin JJ.
lWt
THE IMPEBIAL BANK OF INDIA v. ABEYESINGHE.
389—D. C. Colombo, 17,884.
Oondictio indebiti—Payment of a forged cheque—Claim by bank—Money paid under mistake of fact—Estoppel.
The defendant, a Proctor, received a cheque in part payment ofthe consideration on the transfer of a land, which he attested asNotary Public. The cheque was drawn in defendant's favour bythe alleged purchaser and was presented by the' defendant personallyat the Bank. On receiving payment the defendant handed themoney to the vendor. It transpired that the signature on thecheque was a forgery and that the land transaction was entirelyfictitious.
In an action brought by the Bank against the defendant for therecovery of the proceeds of the' cheque,—
Held per Fisher C.J. and Schneider J. (Garvin J. dissenti*ente), that the Bank was entitled to recover the money as paid undera mistake of fact.
Per Garvin J.—The payment of the cheque on presentation is arepresentation by the Bank that it believed it to be a genuinecheque of its customer, and the defendant having been induced bvthis representation, to pay the proceeds in accordance with hisinstructions, the money is not recoverable from him.
T
HIS was an action for the recovery of a sum of Es. 2,000 andinterest^ being the proceeds of a cheque paid by the plaintiff
Bank to the defendant in the mistaken belief that it was a genuinecheque drawn by D. S. P. Abeyewardene, one of its customers.The defendant, who is a Proctor and Notary, received a visitfrom one John Perera who represented himself as the ownerof a land which he Wished to sell to D. S. P. Abeyewardene. A fewdays later defendant received a letter dated November 2, 1924,signed by D. S. P. Abeyewardene. The writer instructed the defend-ant to prepare a conveyance of the land belonging to John Pererain favour of his uncle and informed him that he would send a chequein part payment of the consideration due to John Perera. Thedefendant then received a letter dated November 3, 1924, enclosinga cheque for Es. 2,000 in his favour drawn on the plaintiff Bankand signed D. S. P. Abeyewardene. On the- day he received thecheque the defendant went to the Bank and presented it. Onreceiving payment he paid the money to John Perera and obtained
a
1927.
TAe Imperial.
Bank ofJot&*v.
Abeyesinghe
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a receipt. It was arranged that John Perera should come with thepurchaser to complete the transaction a few days later. As they didnot appear, the defendant set inquiries on foot and as a result it wasascertained that the cheque was a forgery and that the land trans-action was fictitious.
The learned District Judge gave judgment in favour, of the Bank,holding, inter alia, that there was no negligence on the part of theBank and that the Bank was not estopped from claiming paymenton account of any loss suffered by the defendant.
Hayley, K.C. (with Bajapakse), for defendant, appellant.—A holder of a bill of exchange is entitled to know on presentationor at the latest before the day of presentation is out, whether thebill of exchange will be honoured or dishonoured. (Vide Cocks v.Masterman'; The' London and River Plate Banhf Ltd. v. The Bank ofLiverpool2 ; Smith v. Mercer.3
The duty is cast on a bank of ascertaining whether a signature onn cheque is a genuine one or not. This principle is borne out by thefact that on endorsement this duty is at an end. Then the bank isnot liable even if the endorsement is a forgery. The reason for thisis that although the bank has ja register of the signature of itsclients, it has no such register of endorsements. (Vide the ImperialBank of Canada v. Bank of Hamilton *)
The bank is estopped by conduct. In paying the money due onthe cheque in question the bank made a representation to the payeethat the signature was in order. It will be noted that if a bank paysmoney on a cheque when there are no funds in the bank to meet it.the bank has no action. The act of the bank in honouring thecheque amounts to a representation that there are funds. (VidePollard v. Bank of England.*)
Counsel also cited Deutsche Bank v. Beriro fi; Holt v. Markham 7;Hart on Banking, at p. 429; and Addison on Banking, at p. 429.
Bartholomeusz, for plaintiff, respondent.—:No title can beconveyed on a forged signature (Section 24 of the Bills ofExchange Act, 1882, Paget 466). The ruling of the Privy Councilin the Imperial Bank of Canada v. Bank of Hamilton (supra), itis submitted, entirely governs the case. Here too there was no thirdparty to whom the defendant had to give notice, on failure of whichhe lost his right of action on the bill. However, apart from this,the bank is entitled to recover the money as paid under a mistake of
> (1829) 9 B. db C. 902.4 (1903) A.C.49
1 (2896) 2 Q. B. 7.6 6 Q. B. 623 and Grant on Banking 85.
3 (1815) 6 Taunton 76.6 (1895) 1 Commercial Cases, 123.
7 (1923) 1 K. B. 504.
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fact. The money was not paid to the defendant as agent. Kelly v. 1927.Solari1; Oates v. Hudson2; Snowdown v. Davies3; Newall et al. v. The ImperialTomlinson et' al.4'; Butter v. Harrison5; Kleinwort, Sons & Co. v. Bank ofDunlop Rubber Co. 6; Kerrison v. Glyn Mills Currie & Co.7; Jones, AbeyesingheLtd. v. Waring rf: Gillow, Ltd.8
The cases cited by the other side have been considered in theImperial Bank of Canada case. The doctrine that a banker shouldknow his customer’s signature has been swept away for the reasonthat the cleverer for forgery the more difficult is it for the bankerto discover it.
Hayley, K.C., in reply.
September 27, 1927. Fisher C.J.—
The history of this case is as follows: In October, 1924, theappellant, who is a Proctor of some 32 to 34 years’ standing, 44 wasinstructed by the person who had agreed to purchase a land calledUswatta to prepare a deed of transfer in respect of the said land andto pay a sum of Rs. 2,000 to the vendor one John Perera, and thesaid person sent the said cheque No. E 000207 to the defendant forthe said purpose ” (see paragraph 2 of the answer). In this way thedefendant in the action, the present appellant, became an un-conscious and unwilling participant in a scheme to defraud therespondent bank. The transaction in which the appellant believedhimself to be involved, and there is no suggestion but that heacted with perfectly good faith throughout the matter, was a fairlysubstantial one involving purchase money of the amount ofRs. 10,000. He was retained by both parties to the transaction andhad apparently very little, if any, previous knowledge of either ofhis new clients. Of the proposed vendor he says in his evidence,
44 I do not know John Perera. He brought me the first letter andtherefore I knew he was the man concerned.” Of the proposedpurchaser, Abeyewardena, he said that at the time he first heardof the proposed purchase he had not had any communication withhim and did not know him, and that he never saw him before hecashed the cheque.
At 2 o’clock on the same da> that he received the 44 cheque ”
(November 3) the appellant took it to the bank, endorsed it, andreceived cash for it and paid over 44 the said sum as instructed bythe said person to the said John Perera ” (see paragraph 5 of theanswer) whom he never saw. again. On November 5 he wrote to thealleged purchaser to inform him of what he had done but he receivedno reply and the letter was eventually returned to him through theDead Letter Office. On November 12 the appefiant went in search
(1841) 9 M.deW. 54.5(1877)2 Cowper 565.
* 6 Exch. 846.•(1907)L. T. 263.
1 Taunton 3597102 L. T. 674.
4 (1870-1) 6 L. R. C. P. 405.8(1926)A. C. 670.
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1957.
foaHBB CJ.
The ImperialBdnk ofIndia v.
Abeyeainghe
of Perera without success, and on November 13 he found thereal Abeywardena who disclaimed all knowledge of the transaction.Next day he went to the Criminal Investigation Department, and onthe 17th he went to the bank. The forger of the cheque was .foundand prosecuted to conviction, and on October 8, 1925, thi6 actionwas begun.
The action came on for trial on July 5, 1926, and on July 9 thelearned Judge of the District Court gave judgment in favour of thebank, holding irCler alia, (1) that there was no negligence on the part ofthe bank; (2) that there was a representation on the part of theappellant that the “ cheque ” was genuine; (3) that there was nodelay on the part of the bank in intimating to the appellant that thecheque wag not genuine; and (4) that the bank was not estoppedfrom claiming repayment of the money on account of their negligenceor on account of any loss suffered by the appellant. The learnedJudge found also, though there was no special issue as to negligence,that the “ real negligence ” was on the part of the appellant and thathe had been “ guilty of gross negligence.”
This is a case of a document which is not a cheque at all. It hasno shred of genuineness in it. It is a document bearing a signaturewhich purported to be that of a person having an account at thebank, and the first question is whether the bank qua bank is in anyspecial position with regard to it and in relation to the appellant.
It is said that a bank is bound to know its customer’s signature.I do not think that there is any authority to support the applicationof that proposition to the circumstances obtaining in this case. Theutmost that can be taken as established is, I think, that the proposi-tion is good as between a ’ntnk and its customer, but in the absence,
* at all events, of any negligence in actually honouring the signatureI do not think that any duty or obligation towards a third party inthe situation of the appellant can be founded upon it.
It is contended further that in honouring the ” cheque ” the bankmust be taken to have made a representation to the payee that thesignature was genuine and is therefore liable for any action takenby the appellant on the faith of that representation.
The appellant received a document in the form of a cheque inwhich his name figured as that of the payee. He may have bad noreason to suspect itwas a forgery.On the other hand he had no
definite reason forrelyingonitsbeing authentic. He himself
apparently had nodoubtsastoits genuineness. Under such
circumstances can itbe saidthatincashing the document the bank
mu6t be taken to have represented to him that the document wasgenuine or to have guaranteed the authenticity of the documents?In any case, presumably, the inference of such a representation isnot absolute and must in some degree be dependent on whether theholder of the document has any information or knowledge, or want
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of information or knowledge, as to the origin of the document whichhe ought to disclose to the person to whom he presents it for pay-ment. But a passage from the judgment of Mr. Justice Matthew inThe London and River Plate Bank v. The Bank of Liverpool 1 wasrelied on in support of the contention. That passage runs asfollows : —
1987.
Fisher CJ.
The ImperialBank ofIndia v,Abeyestnghe
“ It seems to me the principle underlying the decision (Price v.Neal *) is this: That if the plaintiff in that case so con-ducted himself as to lead the holder of the bill to believethat he considered the signature genuine he could notafterwards withdraw from that position.”
In Price v. Neal (supra) Lord Mansfield said : —
'* It was incumbent upon the plaintiff to be satisfied that the billdrawn upon him was in the drawer’s hand before he acceptedor paid it ; but it was not incumbent upon the defendantto inquire into it. Here was notice given by the defendantto the plaintiff of a bill drawn upon him and he sends hisservant to pay it and take it up. The other bill he actuallyaccepts, after which acceptance the defendant innocentlyand bona fide discounts it. The plaintiff lies by for aconsiderable time after he has paid these bills ; and thenfound out that^ they were forged ; and the forger came tobe hanged. He made no objection to them, at the timeof paying them. Whatever neglect there was, was on hisside. The defendant had actual encouragement from theplaintiff himself for negotiating the second bill from theplaintiff having without any scruple or hesitation paid thefirst ; and he paid the whole value bona fide. It is amisfortune which has happened without the defendantsfault or neglect.”
The facts of that case show that the words ” so conducted him-self ” in the passage quoted from Matthew J's judgment refer, asmight be inferred from the words themselves, to something con-siderably beyond the mere honouring of the forged documents, andcannot therefore be taken to support- the contention that simply andsolely by paying the money in the ordinary course to the personwhose name appeared as payee the bank must be taken to haverepresented to him that the document was genuine.
I cannot see therefore that this contention is established by anyauthority, and in default of authority I am not prepared to say thatmerely cashing the document is in itself conduct which amounts to arepresentation that the document is genuine.
With the question of what induced the appellant to part with the
money I will deal later.
1 {1896) 1 Q. B. 7.
* 3 Burr. 1355 ; E. B. 871.
1927*
Fisher C.J.
The ImperialBank ofIndia v.Abeye&inghe
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The question then arises, what circumstances are there to preventthe payer from recovering the money back as money paid under amistake of fact ? It seems to me clear that they (the bank) dealtwith the appellant as principal and not as agent. He was not reallyan agent at all ; he was a dupe. The idea of agency was part of thescheme to which the appellant had unwittingly been made a party,but it is not suggested that he in any way made the bank acquaintedwith the circumstances under which he was drawing the money.He says in his evidence. '* when I handed the cheque D 1 to the bankto be cashed I said nothing to the bank." No duty therefore can beimputed to them on that basis and I see no other relationshipbetween them in consequence of which it could be said that the bankowed a duty to the appellant which they failed to perform. Thatbeing so the opinion of Lord Atkinson in Kleinwort, Sons & Co. v.Dunlop Rubber Co. 1 is in point. He says: —
" They (the authorities) seem to establish that whatever may infact be the true position of the defendant in an actionbrought, to recover money paid to him under a mistake offact he will be liable to refund it if it be established that hedealt as a principal with the person who paid it to him."And in the judgment of Lord Esher (then Brett J.) in Netcdll v.Tomlinson 2 the same view is indicated. He says: —
" The defendants were originally liable because under a mistakethey received money which they were not entitled to.They cannot get rid of that liability, unless they bringthemselves within the rule as to an agent who has receivedmoney on account of his principal and has paid it overto him. It seems to me that they have failed to bringthemselves within that rule. They did not receive themoney for their principals. They stood with regard tothe plaintiffs as original contractors."
Then it was urged that the appellant having altered his positionfor the worse by paying away the money it cannot be recovered.Under what circumstances has he paid awtay (the money ? Themistake of the bank was not the proximate cause of his paying itaway. He paid it away '* as instructed " under a supposed butnon-existent duty which came into being in his mind before hepresented the cheque. The money was obtained from him by afalse pretence ; he was still a victim of the original fraud and assuch he pad away the money. I do/not see on what principle thebank can be made to hold him harmless from the effects of thedeception practised on him.- He seems to me to be in much thesame position as he would have been if on leaving the bank he hadhad the money stolen from him or if h£ had paid it to the forgerhimself.
1 97 L. T. 65
* (1871) L. R. $ C. P. 408
( 26a )
But there is authority for saying that tlie fact that he has pat tedwith the money is not under the circumstances of the case a goodanswer to the demand for repayment. In Stamlish v. Ross 1 BaronParke says : —
44 We think these circumstances form no impediment to the rightto recover if the money was paid over under an ordinarymistake of fact; it could not be any bar to the recovery ofit that the defendant had applied the money in the mean-time to some purchase which he otherwise would not havemade, and so could not be placed in statu quo.**
Another decision in the same direction is Durrant v. The Ecclesi-astical Commissioners 2 in which the plaintiff was held entitled torecover the money paid by him under a mistake notwithstandingthat owing to lapse of time the defendants had been placed in aworse position as regards the money claimed since the payment wasmade. Baron Pollock in his judgment in that case says: 44 Cocks v.Masterman3 and other similar cases proceed upon the ground ofsome mutual relations between the parties creating a duty onthe part of the plaintiff, breach of which disentitles him fromrecovering/*
In my opinion, therefore, inasmuch as there has been no breachof duty arising from mutual relations between the parties, nonegligence on the part of the bank, no express or implied represen-tation by them, there is no reason why they should not recover thismoney on the ground that it was paid by them to the appellantunder a mistake of fact.
As regards (1) of the findings which I have set out above—thequestion of negligence on the part of the bank was not seriouslyraised in this court.
As regards (2) I do not think that mere presentation of thedocument on the part of the appellant can be taken to be a represen-tation on his part that the cheque was genuine. He merely presentedhimself as the reason who was in fact designated as .payee on thedocument.
As regards (3) the appellant found out for himself ten days afterthe receipt of the money that the document was not a genuinecheque. Moreover it is not contended that he was prejudiced byany want of notice.
I have already dealt with the points raised by finding (4).
As regards the finding as to negligence on the part of the appellantthere is, in my opinion, some foundation for it, inasmuch as theappellant, an experienced Proctor, dealng with two. strangers whowere both apparently quite accessible seems to me to have ratherrashly jumped to the conclusion that the matter was an ordinarybo/iii Me piece of business, and if it were necessary to decide this casei 3 Ex. 627. 534.* 6 Q. B. D. 234.3 9 B. & C. 902.
1927.
Fisher C.J.
The ImperialBank ofIndia v.Abtytftinghe
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by applying the test of which of two innocent parties had enabled aFisher C.J. third party to cause loss it seems to me that the appellant must bearThe~Imperialthe responsibility.
Banfs of One other question was raised by Mr. Hayley for the appellant,Abeyesinghe and *llat was in any event his client was not liable for interest.
I do not think he is liable to pay interest from the date on which themoney was paid to him, but I think he is liable from the date whenrepayment was definitely demanded. It does not appear from theevidence that there was any definite demand until letter (P 7) whichI think must be taken to have reached the appellant on March 19,1925. I think therefore that interest should run from that date.
In my opinion this appeal should be dismissed with costs.Schneider J.—
This appeal has come before this Bench of Three Judges, as MyLord the Chief Justice and my brother Garvin before whom it wasoriginally argued fully were unable to agree as it its decision. MyLord the Chief Justice has kindly afforded me the opportunity of-reading his judgment after the argument before this Bench. Withthe narrative of the circumstances of the case given by him and withhis conclusions, and reasons for those conclusions I respectfullyagree. I further respectfully agree with him that the money waspaid by the respondent Bank to the appellant under a mistake offact. All the authorities cited before us, with the exception of a fewpassages from text books on banking to show how the cases had beenregarded, were decisions of the Courts of England. I presume uponthe assumption that they were applicable. I accept that assumptionas correct. If the question involved in this case be regarded as onein respect of a matter connected with a cheque, section 2 of theOrdinance No. 5 of 1852 would make the law of England applicable.So would the Ordinance No. 22 of 1866 if the question be regardedas one in respect of the law of Banks and Banking or Principal andAgent. But if the provisions of neither of these Ordinances haveany application the authorities cited would still be applicable for thereason that ithis is a cage according to the English law, for moneyhad and received and is founded on the same principle of equity asthe Boman-Dutch law action of condictio indebiti. Speaking ofthe English law case, said Lord Mansfield in Lady Windsor’s case 1:"It is a liberal action, founded upon large principles of equity,where the defendant cannot conscientiously hold the money. ” AndRolfe B. said in Kelly v. Solari2:“ Wherever it (money) is paid
under a mistake of fact, and the party would not have paid it if thefact had been known to him, it cannot be otherwise than un-conscientioug to retain it." Grotius 3 says that the obligation upon
Sadler v. Evan*—{1766) 4 Bur. Rep. 1985—1987
{1841) 9M.&W. 54-59.
Introduction to Dutch Jurisprudence, 61. 111. chapter SO.
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which the condictio indebiti is founded is closely allied to natural lawand give rise to a right of reclamation of that which a person hasthrough ignorance paid as a debt when not actually due. Heproceeds to explain that within debts not due were included 44 whatwas due by anyone to a third person and not paid to the right party.”Both actions being founded on the same principle, the decisions ofthe learned Judges of the English Courts based upon the applicationof that principle to cases which have arisen in modern or nearlymodem times should be regarded by us not only ns guides but evenus binding authorities in appropriate circumstances. I wouldtherefore accept the English decisions cited to 113 as authorities indeciding this case. Not one of those decisions can he said to heprecisely in point, but the facts of this case appear to me exactly tomeet all the requirements of the principle set forth in 1841 in Solari'scase (supra) which was approved and followed by the House of Lordsin Jones9 Ltd. v. Waring Oillow, Ltd*,1 cited to us by Mr. Bartholo-meusz, counsel for the respondent. In the latter case Lord Shawdifferentiated the class of cases ruled by Watson v. Russel – from thatclass of cases decided upon the principle of refund on account ofmistake of fact as expounded by Parke B. in Solari's case (supra).He cited with approval the following passage from the judgment ofParke B.: —
“ I think that where money is paid to another under the influenceof a mistake, that is, upon the supposition that a specificfact is proved, which would entitle the other to themoney, but which fact is untrue, and the money would nothave been paid if it had been known to the payer thatthat fact was untrue, an action would lie to recover itback, and it is against conscience to retain it; though ademand may be necessary in those cases in which the partyreceiving may have been ignorant of the mistake. Theposition that a person so paying is precluded from re-covering by laches, is not availing himself of the meansof knowledge in his power, seems from the cases citedto have been founded on the dictum of-Mr. Justice Bayleyin the case of Milnes v. D-uncan 3 and with all respect tothat authority I do not think it can be sustained in pointof law. If, indeed, the money is intentionally paid, with-out reference to the truth or falsehood of the facts theplaintiff meaning to waive all inquiry into it, and that theperson receiving shall have the money at all events,whether the fact be true or false, the latter is certainlyentitled to retain it; but if it is paid under the impres-sion of the truth of a fact which is untrue, it may, generally
1 (192$) A. C. 670.* 3 B.& C. 34 ; 6 B.dt C. 968.
3 (1827) 6B&C . 671.
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A beyesivffhe.
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speaking, She recovered back, however careless the partypaying ,may have been, in omitting to use due diligenceto inquire into the fact. In such a case the receiver wasnot entitled to it, not intended to have it.”
Speaking of Solan's case (supra), Lord Shaw said:—” Since itsdate in 1841 it has, I believe, remained of paramount authority as partof the law of England.” More recent cases have affirmed the generalprinciple, and I refer in particular to the judgment of Lord Sumner(then Hamilton J.) in Kerrison v. Glyn Mills Currie Co.1 Takingthe view that I do that the present case conics within the principleof Solari's case (supra) I do not think it necessary to discuss any ofthe other cases cited by Mr. Hayley, who argued his appeal fullyand ably. Those cases can be differentiated from the present caseon one ground or another. Considerations arising from the presenceof agency, negligence, negotiation of an negotiable instrument orcircumstances importing a duty, or that the payment had beenmade under a condition not communicated to the receiver, tendto differentiate them.
I did not understand Mr. Hayley to argue that* there was eithernegligence or agency in the present case. I entirely agree, if I may-say so with all respect, with the observations of my Lord the ChiefJustice on those points.
The ground upon which the respondent- Bank seeks to recover isthat the money was paid under a mistake of fact, that is- to say, thatthe respondent believed that the document presented by theappellant was a genuine cheque drawn on the respondent by Abeye-wardene who had an account with the respondent Bank. Whereas,jn fact, the signature of the drawer on the document was a forgeryand the document was not a cheque at all. Upon the authority ofthe two cases already mentioned above and several of the-other casescited there can be no doubt as to the right of the respondent tosucceed on this ground but for the special defence raised by theappellant. The substantial defence offered by Mr. Hayley wasthis:—The appellant is in the same position as the holder of a billof exchange, being the payee named in the document in questionwhich must be regarded as ft cheque. He did not argue, nor could liein the face of Jones, Ltd. v. Waring & Qittoiv, Ltd. (supra) that he wasa holder in due course. He argued that the position of the appellantwhen he presented the cheque for payment was identical in allrespects to that of the holder of a bill of exchange as that positionwas described by Dean Ames of Harvard, which description wascited and adopted by Pickford L.J. in Guarantee Trust Company ofNew York v. Harney & Co.2:—“ The attitude of the holder of a bill whopresents it for payment is altogether different from that of a vendor.The holder is not a bargainer. By presentment for payment he» 15 Com. Case 1.2 (*»/#) 2 K. B. 623-631.
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does not assert expressly or by implication that the “bill is his or thatit is genuine.” He in effect says: ” Here is a bill which has cometo me, calling by its tenor for payment by you. I accordinglypresent it for payment that I may either get the money or protestit for non-payment.” Mr. Hayley stated that the respondent Bankby its conduct in paying the cheque represented that it was genuineand the appellant was induced thereby to part with the money. Itwould be to his detriment to be required to repay it now. I thinkthis argument is unsustainable. The signature of the drawer onthe document in question is admitted to be a forgery by which bothparties to this action were deceived. Under section 24 of the Billsof Exchange Act, 1882, that signature is “ wholly inoperative ” andno right can be acquired through or under it ” unless the re-spondent ” is precluded from setting up the forgery.” Now he canbe so precluded only if he by some act or omission intentionallycaused or permitted the appellant to believe that the signature wasnot a forger}- and to act upon that belief. (Section 114, EvidenceOrdinance, No. 14 of 1895). It cannot be said that the respondentwas guilty of any omission to do something he was bound to doin honouring ” the cheque.” Although as between the Bank and itscustomers the law imposes a duty on the Bank to know the signatureof its customer and thereby debars the Bank from, pleading as adefence to a claim by a customer that a payment had been made inbona fide ignorance that a signature was a forgery, I am not awareof any law which imposes that duty on a bank to all persons whopresent cheques for payment. No authority was cited to support thatproposition and in the absence, of any authority I am not preparedto accept the contention that it was the duty of the bank, even asregards the appellant to have discovered before payment was madethat the signature was a forgery. There is authority to the contrary.
In the passage cited above from Solari’s case (supra) Parke B.observed that the position that a person paying under the influenceof a mistake is precluded from recovering by laches, in not availinghimself of the means of knowledge in his power could not be sus-tained in point of law. It would seem therefore that it is notcorrect to say that the respondent was guilty of an omission in thatthe respondent did not disclose to the appellant that- the signaturewas a forgery before the appellant parted with the money. Nordoes it- seem to me to be correct to say that the mere fact of paymentof the money upon presentment of “ the cheque ” was an act on thepart of the respondent by which the respondent had intentionallycaused or permitted the appellant to believe that the signature wasnot a forgery and thereby induced the appellent to part with themoney. No doubt the money Was paid intentionally, but that factalone will not disentitle the respondent to claim a refund. Aspointed out in the passage cited above, if it were paid under the ,
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The ImperialSank ofIndia v.
•Ak*tjG*inf}he
impression of the truth of a fact which is untrue it is, generallyspeaking, recoverable back unless it was paid without reference tothe truth or falsehood of the facts, the respondent meaning to waiveall inquiry into it, and that the appellant shall have the money atall events whether the fact be true or .false. It is not possible toregard the money as having been paid in these circumstances, norcan I regard the statement as correct that the appellant was inducedto pay the money to a third person by the fact that the respondentpaid the money to the appellant. It may be that if the appellanthad not received the money from the respondent he would not havepaid the money to that third person probably because he wouldthen have not had the money wherewith to pay. The facts seem tobe that he paid the money because of the request that he should doso, contained in the letter which he had received, which letter wasalso a forgery. If there had been no such request made to him, it isobvious the appellant would have retained the money. Unless therespondent is estopped from denying that the signature on thedocument in question is a forgery the appellant cannot be regardedas the holder of a cheque and therefore as being in the same positionas the holder of a bill of exchange as described bv Dean Ames.The facts of that case are distinctly different. The document thatwas being considered there was a genuine bill of exchange, and theelement of forgery was confined to a bill of lading which was thesecurity for the bill of exchange. If the appellant had not partedwith the money there can be no question, upon the authorities,that he would be obliged to refund the money to the respondentunless the respondent by -some representation had induced him topart with the money. As I have already said, it cannot be heldthat the respondent had made any such representation.
I agree that the order on this appeal should be the one indicatedin the judgment of My Lord the Chief Justice.
(tarvin J.—
This is an appeal from a judgment condemning the defendant- topay to the plaintiff a sum of Rs. 2,000 and interest. The principalsum of Rs. 2,000 represents the proceeds of a cheque paid by theplaintiff bank to the defendant in the mistaken belief that it was agenuine cheque drawn on them by D. S. P. Abeywardene, one oftheir customers. The cheque has been proved to be a forgery.
The defendant is a Proctor and Notary who has been in practicefor over 83 years. Towards the latter end of- the year 1924 hereceived a visit from a person calling himself John Perera who*represented himself as the owner of an allotment of land for whichhe produced a Crown grant. John Perera informed the defendantthat he wished to sell the property to D. S. P. Abeyewardene and
( 269 )
inquired whether he had received a cheque from him. The defendantsaid that he has received no cheque. A few days later a letterdated November 2, 1924, signed 44 D. S. P. Abeyewardene ” reachedhim. The writer instructed him to prepare a conveyance of theland belonging to John Perera in favour of his uncle and said that ofthe sum of Bs. 10,000, which was the consideration for the transfer,he would send a sum of Bs. 6,000 or Bs. 7,000 the next morning forJohn Perera who was in a hurry 44 to enable him to attend to hisemergencies.
John Perera called again and was again told that a cheque had notbeen received. The letter P 2, which had apparently been left athis house by a messenger next reached the defendant. This letteris dated November 3, 1924, and is signed D. S. P. Abeyewardene.A cheque for Bs. 2,000 in defendant's favour drawn on the plaintiffbank and signed D. S. P. Abeyewardene was enclosed with anexpression of regret at the inability of the writer to send any moreand the assurance that he would be ready with the balance by theend of the week or early the next week.
The defendant went to the bank about 2 p.m. on the day hereceived the cheque, w’hich was presented and paid in the usualcourse. That evening about 8 p.m. the defendant in accordancewith the instructions contained in the letter earlier referred to paidthe money to John Perera and obtained a receipt. It was arrangedthat John Perera should come with the purchaser in two or threedays time to complete the transaction. Neither John Perera norAbeyewardene came to see him, and on November 12 the defendantwho had to pay a business visit to Negombo took the opportunityto inquire for John Perera. He failed to find him. On the next-day he went to see Abeyewardene, but did not find him at theaddresses given by him. Finally he went to Hill street, where hemet D. S. P. Abeyewardene and was told by him that he hadnot issued such a cheque and knew nothing of the matter. Thedefendant then gave information to the Criminal InvestigationDepartment. In company with an Inspector of Police he went tothe bank on November 17, and placed the officers of the bank inpossession of the facts. But for the defendant’s information thebank would have continued under the impression that the chequewas genuine.
The inquiries thus set on foot resulted in prool of the fact that thecheque was a forgery, and that it had been forged by one Zoysa.
The cheque was forged on a leaf issued by the bank and the num-ber on the leaf had been altered to correspond to one of the numbersof the series of cheque leaves issued to D. S. P. Abeyewardene.
This exceptionally cunning scheme was conceived and contrivedby a Proctor’s clerk of the name of Zoysa.
19271
Garvin J.
The Imperial'Bank ofIndia v.Abeyeeinghe
( 270 )
1927.
Gabvin J.
The ImperialBank ofIndia v.
Abeyesinghe
The defendant, M* Abeyesinghe, and the plaintiff bank have both'unwittingly played the parts assigned to them in the scheme forobtaining this sum of Bs. 2,000. Throughout the defendant actedperfectly bona fide.
The learned District Judge in combating a defence of estoppel6et up to the claim of the bank has denied the defendant the benefitof the plea on the ground that he was guilty of gross negligence.
No allegation of negligence was made and no issue was raised nordoes the evidence appear to me to. justify the conclusion that thedefendant acted with gross negligence or even carelessly. He wasthe victim of a very unusual elaborate and cunningly contriveddeceit practised on him by a person who has skilfully employed hisintimate knowledge of the routine and course of business in aProctor's office to perpetrate this fraud. Short of refuging to actfor the writer of the letter unless formally introduced it is difficultto imagine any more effective method of obtaining information asto the position of the writer than the one employed by the defendant.He presented the cheque at the bank on which it was drawn'by thewriter of the letter. The inference which would ordinarily be drawnfrom the fact of payment by the bank is that there was such a personns D. S. P. Abeyewardene, that he had an account in the bank whichwas in funds and that the cheque bore his signature.
Xow it is beyond question that the defendant presented thischeque for payment in perfect good faith.
The bank paid it in the belief that it bore the signature of theircustomer, D. S. P. Abeyewardene. The defendant received themoney and a .few hours later parted with it in accordance with whathe believed to be Abeyewardene’s instructions. The money isirretrievably lost.
The plaintiff and the defendant are both innocent and to neithercan any actual negligence be ascribed. It is the case of one of twoinnocent parties seeking to shift his loss on to the shoulders of theother.
Both under the English law and under the Roman-Dutch lawrelief is given from the consequences of his mistake in certaincircumstances to a person who has paid money under a mistake of fact.
The remedy under the English law appears to be based on thebroad ground that a person who has thus mispaid money should bepermitted to recover his money from the person to whom it waspaid where it would be “ unconscientious ” of that person to resistthe claim, Price v. Neal.1 The action for money had and received,which was the remedy in such cases, is referred to by Lord Mansfieldin the case of Saddler v. Evans: 2
“ It is a liberal action founded upon large principles of equity wherethe defendant can not conscientiously hold the money/*
J {1702) 3 Burrows 1355.* {1766) 4 Burrows at p. 1987.
( 271 )
The principle upon which the condidio indebiti is granted to a 1WT*person who pays money under a mistake of fact is that no one Gabviji J.■s to be enriched at the expense or to the prejudice of another.-— ,
Maasdorp, vol. 3t page 390.Bwkqf
I*
The Roman-Dutch law commentators deal very generally with Abtye^it^ghethe subject and nothing which is directly applicable to a case suchas this is to be found in their writings. Indeed, none of thenumerous decisions of the English Courts referred to in the courseof argument is directly in point.
The cases appear to fall into two classes:—(c) Those which referto payments made on negotiable instruments; '(b) Other cases ofpayment under a mistake of fact.
The series of cases consisting of Price v. Neal (supra), Smith v.Mercer,* Cods v. Masterman,2 and The London and River Plate Bank,Ltd. v. The Bank of Liverpool,3 all relate to documents which possesssome negotiability by reason of the presence thereon of two ormore genuiue signatures. It is contended for the respondent thatthe existence of this quality of negotiability is the foundation of thejudgments which are only an authority for the proposition thatwhere such bills ” are paid in the mistaken belief that they aregenuine and not forgeries the money if received in good faith maynot be recovered when there is an interval of time in which theposition of the holder may be altered.
The case under consideration differs in that the payment wasmade direct to the payee and there is the further distinction thatwhereas in the cases referred to credit was given before the bill waspresented for payment and the money received remained in thepossession of the person to whom it had been paid, the defendantin this instance gave no value for the cheque and merely presentedit for payment in accordance with the instructions in the forgedletter referred to earlier and has parted with the money in accord-ance with those instructions.
The case of The London and River Plate Bunk, Ltd. o. The Bank ofLiverpool (supra) and the other cases of that series are relied on bycounsel for the appellant as establishing that whether a banker whopays upon the forged signature of his customer be guilty of actualnegligence or only of a technical falling short of an absolute standardexpected of him lie does by the fact of payment represent to theholder of the document that it bears the genuine signature of bis.client. In some of the earlier of this series of cases there are in thejudgments references to negligence and the duty of a bauker toknow the signature of his customers. But in the case of The London
(1815) 0 Taunt 76.
» (1896) 1 Q. B. 7.
* (1829) 9 B. & C. 902.
( 272 )
1927.
CrABVXK J.
3. 'he ImperialBank ofIndia v.Abeyesinghe
and River Plate Bankt Ltd, v. The Bank of Liverpool (supra)Matthew . J. expressed the view that the true principle underlyingthese decisions is—
“ That if the plaintiff …. so conducted himself as tplead the holder of the bill to believe that he considered thesignature genuine he could not afterwards withdraw fromthat position.”
Later on in the judgment he says: —
” In Cock8 v. Masterman (supra) the simple rule was laid down inclear language for the first time that when a bill becomesdue and is presented for payment the holder ought to knowat once whether the bill is going to be paid or not. If themistake is discovered at once it may be the money can berecovered back; but if it be not, and the money is paid ingood faith and is received in good faith and there is aninterval of time in which the position of the holder may bealtered the principle seems to apply that money oncepaid cannot be recovered back. That rule is obviously,as it seems to me, indispensable for the conduct of business.A holder of a bill cannot possibly fail to have his positionaffected if there be any interval of time during which heholds the money a.s his own, or spends it as his own and ifhe is subsequently sought to be made responsible to handit back.”
The document with which we are concerned is a forgery and not anegotiable instrument even in the special sense in which a forgerywhich bears a number of genuine endorsements is sometimes referredto as a bill. It is impossible therefore to equiparate the facts of thiscase to the facts of any of the cases in the series referred to.
But the document was presented for payment and paid by thebank, and the money was received in good faith. There was arepresentation by the bank that it believed the signature to be thatof their customer and whereas the question of prejudice was in thecases referred to largely a matter of conjecture, there can here beno question that as a direct result of the representation implied bypayment the defendant parted with the proceeds in accordance withwhat he believed to be the instructions of a client. This is theextent to which reliance is placed on this series of cases.
The case of The Imperial Bank of Canada v. Bank of Hamiltonwas referred to in the course of argument. In so far as it is anauthority for the proposition that the rule in Cocks v. Masterman(flupra) should not be extended to other cases in which no loss had
1 (1903) A. C. 49.
( 270 )
been sustained by reason of want of notice of the mistake under
which mone™ was paid it is sufficient to observe that it is notcontended that this is a case to which that rule is applicable. Thefacts of The Imperial Bank of Canada v. Bank of Hamilton (supra),however, bear no resemblance to those with which we are hereconcerned. The alteration of the defendant’s position in that casewas in no sense influenced or occasioned by the fact of payment—ithad taken place before the cheque was presented for payment—norwas any prejudice sustained by the absence of prompt notice of thediscovery of the mistake.
The respondent’s contention is that in the case of money paidunder a mistake of fact the money was always recoverable unlesswhere it was paid on a negotiable instrument the case falls withinthe rule in Cocks v. Masterman (supra), and in other cases of moneypaid under a mistake unless it was paid to and received by the payeeas agent and the agent had paid the money over to his principal orotherwise materially altered his position to his prejudice in relianceon the payment- before he received notice of the mistake.
With the first part of this contention we are not concerned. Thisis not a case to which the rule in Cocks v. Mas-terman (supra) is
1927.
Garvin J.
The ImperialBank ofIndia t4.Abeyesinghe
applicable.
The latter part of the proposition appears to be too wide a state-
ment and takes no note of the money cases in which the action hasfailed though the money was paid to a person who received it forhimself and as principal.
It purports to be based on the following passage in the judgmentof Atkinson L.J. in the case of Kleimvort, Sons <f* Co. v. DunlopRubber Co.1:—
" They (the cases cited) seem to establish that, whatever may infact be the true position of the defendant- in an actionbrought to recover money paid to him under a mistake offact he will be liable to refund it if it be established that hedealt as a principal with the person who paid it to him.”
This passage must, I think, be read as a statement of the lawapplicable to the special state of facts with which their Lordshipswere concerned. There was no suggestion that the plaintiff hadbeen guilty of any breach of duty or that any representation hadbeen made nor were any special circumstances relied on by way ofdefence material to this aspect of the case beyond the allegation ofa payment over before notice. When this case went up in appealthe Lord Chancellor (Lorebum) in a judgment, in which Lord Jamesof Hereford conctirred, declined to deal with the contention that thedefendants were really principals and were therefore liable to repaywhether they had paid the money over or not. His Lordshippreferred to rest his decision on the indisputable ground “ that if
1 (1907) 97 L. T. 263.
( 274 )
1927.
Garvin J.
The ImperialBank ofIndia v,Abeyennght
money is paid under a mistake of fact and is redemanded from theperson who received it before his position ha$ been altered to hisdisadvantage, the money must be repaid in whatever character itwa6 received.**
As Sir John Paget says in his work on.the Law of* Banking: ” It issomewhat difficult to justify the negation to the man who takes asprincipal of any such protection as is afforded the agent by alterationof position.”
There undoubtedly are cases in which money paid by mistake hasbeen held to be irrecoverable though the money was received in thecharacter of principal or when the recipient was in fact an agentthough the fact of agency was not known to the person who paid themoney.
It is sufficient to instance Shy ring v. Greenwood The DeutcheBank v. Berio 2; and Holts v. Markham.3
The position of the defendant in this case is akin to that of anagent. He did not receive this money with the intention of keepingit for himself. He collected the proceeds of this cheque to be passedon to John Perera in accordance with what he believed to be theinstructions of ]). S. V. Abeyewardene.
He believed that the cheque bore the genuine signature of Abeye-wardene and the bank passed it as the genuine cheque of theircustomer Abeyewardene.
It is contended that Skyriny v. Greenwood (supra) and DeutscheBank v. Beriro (supra) proceeded upon a breach of duty on the part ofthe person who mispaid the money. But in the later case of Holts v.Markham (mtpra) where no breach of any duty was alleged both thesecases were relied on as authority for the proposition that where theplaintiff by his conduct induced a belief in the mind of the defendantthat lie might treat the money as correctly paid he was estoppedfrom pleading that it was paid under a mistake where the defendantacting on the belief had parted with the money.
In the Deutsche Bank v. Beriro (supra), Lindley L.J. after liddingthat the plaintiffs would be entitled to recover if it were not- for theother facts, observes: —
** We have to see whether it would be just to compel the defend-ants to return the money which they had -received andto do what we have to consider what has taken place.”
His Lordship then proceeded to discuss the question of theadmissibility of certain correspondence which he held to be ad-missible and proceeded as follows: —
“ If the correspondence is admitted, it is quite obvious thatthe defendants accounted to Benatar for the moneybona fide before they were informed of the mistake and
1 (1825) 4 B. <t* C. 281.2 (MS) 1 Com. Cast 255.
(1023) 1 K. B. 504.
( 275 )
that he paid it away to his principals, or vendors— it isnot clear which they were. The defendants, therefore,cannot recover the iponey hack from Benatar. It wouldbe the reverse of justice, equity, and good sense to makethe defendants responsible for the plaintiffs* blunder
1987.
Gabvik J.
The imperialBank ofIndia v.
A lMye*inghe
Where u cheque or a bill is paid by a bank under the mistakenbelief that the customer's account is in funds to meet them, themoney so paid cannot be recovered from the payee who on the factsof their representation lias been induced to part with it (Chamber* r.Miller,l and Pollard v. The Bank of England2), .
The ground upon which the judgment in The Loudon and HirerPlate Bank( Ltd. v. The Bank of Liverpool (supra) and the earliercases ni that series proceeds is that the banker or other payer hasmade a representation that they considered the bill to be genuine,and where such a representation has been made to an endorseewhose rights against previous endorsees may be prejudiced by wantof notice of dishonour, the Court will not inquire whether or not anyactual loss was sustained.
In this case both parties were deceived into the belief that thecheque bore the genuine signature of D. H. P. Abeyewardene. litthis belief the defendant presented it for payment and receivedthe money not for himself but to be disposed of in accordance withhis instructions. There, can be little doubt that the fact that itwas paid confirmed him in his belief and induced him to dispose ofthe monev in accordance with those instructions. The money isirretrievably lost and that loss would not have been sustainedbut for the mistake of the plaintiff in paying the cheque and therebyinducing in the mind of the defendant the belief that the cheque wasgenuine ahd that it was paid out of the funds to the credit- of hiscorrespondent.
In presenting the cheque to the plaintiff bank he did no more thanan endorsee who presents a bill to those upon whom it is drawn asin the cases of Price v. Neal (supra) and Cocks v. Masterman (supra).It cannot be said that he did anything which induced the belief thatthe cheque bore the genuine signature of D. S. P. Abeyewardene.
These being the circumstance_s the plaintiff who has by his mistakesustained a loss should not in my judgment be permitted to shiftthat loss on to the defendant. The money paid under a mistakewas received in good faith and in good faith paid out to John Perem.
It was urged that Durrani v. The Ecclesiastical Commissioners,9 wasconclusively in favour of the plaintiff's right to succeed. But thefacts and circumstances of that case are in material particularsdifferent. There was a common mistake, but' it was a mistake for
• (1862) 13 C. B. A S. 123.* {1871) L. R. 6 Q. B. 623.
3 (1880) 6 Q. B. D. 234.
( 276 )
1927.
Garvin J.
The ImperialBank ofIndia v.
A beyeeinghe
which the defendants were primarily responsible, and there is nothingto show that the plaintiff had any reason to suppose that the amountdemanded of him as tithes included a sum as tithes of a land of whichhe was not in possession. Moreover there was <f no conduct on thepart of the plaintiff such as would disentitle him from recovering.”
Whereas in this case though the result of a mistake it was theimplied representation that the cheque was genuine which inducedthe defendant to pay over the' proceeds.
The facts of this case cannot be equiparated with those of any ofthe cases reviewed above; nor i.s there a single case which can fairlybe said to be an authority decisive of the case under consideration.
If is the simple, and I assume not unusual case, of a business manwho receives in the course of business a letter from a person withwhom he has had no previous dealings seeking to employ him orentrust some commission to him and enclosing a cheque on n localbank the proceeds of which are to be applied in connection with thebusiness proposed. Before acting as suggested in the letter hetakes the precaution of presenting the cheque at the bank. It ispaid and the money thus received is applied in accordance withinstructions. It would not have been so applied had not the bankrepresented that it considered the cheque to bear the genuinesignature of its customer. It is found later that the letter as wellas the cheque are forgeries and that the money applied in terms ofthe letter is irretrievably lost. The recipient of the latter neitherhas the money in his possession nor has he had the benefit of themoney. As matters stand it is the bank upon whom the loss hasfallen.
Upon what principle is the loss which the bank has sustainedthrough its mistake to be passed on to the payee of the cheque ?
It is said that the broad principle upon which such questionsshould be decided is that which is enunciated by Parke B. in Kelly v.Solari1 in the following terms: —
“ I think that where money is paid to another under the influenceof a mistake, that is, upon the supposition that a specificfact is proved, which would entitle the other to the money,but which fact is untrue, an action would lie to recoverit back, and it is against conscience to retain it; though ademand may be necessary in those cages in which the party-receiving may have been ignorant of thq mistake.”
But there is no question here of an uneonscientious- claim to retainmoney paid by a mistake. The money paid by the bank is not inthe possession of the defendant nor has he derived any benefitdirectly or indirectly from the money so paid.
By the cunning contrivance of the forger the money paid out bythe bank has passed into liis possession or that of his accomplice
1 9 M. W. 64-59.
( 277 )
and is irrecoverable. A loss has been sustained; which of these twoinnocent parties is to bear it ? As between the bank and thedefendant, the latter has done nothing beyond presenting the chequefor payment or dishonour. In so acting he has done no more thanany endorsee of a cheque does when he presents a cheque for pay-ment. He has done nothing to .induce the bank to accept thesignature on the cheque as the genuine signature of its customer.Nor was it of any concern to the defendant whether it was paid ordishonoured. Indeed it would have saved him much, had it beendishonoured. As a result of its own mistake the bank has sustaineda loss. I am unable as at present advised to see why or upon whatprinciple the defendant should be called upon to relieve the bank ofthat loss or how it can be considered unconscientious in him to claimthat the loss should remain where it now lies and not be shifted on tohis shoulders.
For these reasons I think this appeal should be allowed and theplaintiff's action dismissed with costs to the defendant both hereand in the Court below.
1927.
Garvin J.
The ImperialBank ofIndia v.Abtyeeinghe
Appeal dismissed.