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Forged Indorsements and Bankers' Liability
Published online by Cambridge University Press: 12 February 2016
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I. Conditions of Protection: (1) A “Bill”: a) General observations, b) conditional instruments i) uncrossed instrument ii) crossed instrument, c) banker's draft i) uncrossed instrument ii) crossed instrument, d) instrument to order of unspecified person, e) instrument with forged drawer's signature or material alteration, f) “bill” distinguished from “cheque”, g) non-negotiable bill.
(2) Indorsement: a) Indorsement distinguished from receipt, b) forgery of signature of drawee bank's customer, c) unauthorized signature
(3) Good Faith
(4) Ordinary Course of Business
(5) Lack of Negligence: a) When this element required, b) meaning of concept
(6) Payment: a) Payment distinguished from collection, b) payment otherwise than by drawee bank, c) protection distinguished from cause of action
The subject of this study is one aspect of the complex of rights and obligations created upon the perpetration of forgery in the indorsement of a bill. In general terms we are concerned here with the conversion of a bill, its forged indorsement, the payment thereof by the drawee and a claim by the owner of the bill upon the drawee for the amount of the bill. The local law recognizes the right to such a claim but interposes a shield protective of the drawee under certain conditions. The purpose of the present study is to examine the nature of this protection, to identify the conditions thereof and to examine its reasonableness. The intention is to confine attention solely to this protection and accordingly no inquiry will so far as possible, be conducted into any principle which possesses broader projections beyond this limited theme. Nevertheless, one cannot ignore a number of relationships which arise as a consequence of this protection but are not created between the true owner and the drawee themselves. In order to examine the reasonableness of the protection, these relationships require investigation, if only briefly.
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References
1 This expression does not appear in sec. 23 of the Bills of Exchange Ordinance (New Version) 1957 (hereinafter called the Ordinance) but is mentioned in secs. 79, 80 and 82 thereof. The expression is not defined either in the Ordinance or in the English Statute. It appears, however, that its general meaning is clear—the person entitled to possess the bill and collect it from the bank (see Kupat Aliyah v. Kirstein (1963) 17 P.D. 2282, 2286 per Berinson J.; Chorley, , Law of Banking (3rd ed., 1950) 182Google Scholar; id. (5th. ed. 1967) 187 (hereinafter respectively referred to as Chorley I and Chorley II). It seems that it has the same meaning in all the instances mentioned (Bute v. Barclays Bank [1954] 3 W.L.R. 741, 745). Since a forged signature cannot vest any right (as will be explained later) the person from whom a forged bill has been converted remains the owner thereof and is entitled to possess it.
As will appear later, the materiality of this term in the given context lies mainly in the vesting of a right to claim in conversion. Accordingly, actual ownership, within the meaning of the law of property, is unnecessary and actual possession or the right to immediate possession is sufficient (see Bute v. Barclays Bank, ubi supra at p. 475 per McNair, J. and Falconbridge, J.D., Banking and Bills of Exchange (1956) 568).Google Scholar It should be noted that when filing his claim the true owner does not hold the bill because he does not have it in his possession (see sec. 1 of the Ordinance).
2 The term “forgery” is not defined in the Ordinance nor in the English Bills of Exchange Act. It is, however, defined in criminal law statutes and it appears that generally speaking the definition must be drawn from this source. Sec. 1 of the Israeli Penal Law Amendment (Deceit, Blackmail and Extortion) Law, 1963 defines forgery inter alia as “the signing of a document with the name of a particular person without lawful authority or with a fictitious name and purporting to be done by that person or a person of that name.”
By contrast the English Forgery Act, 1913, gives a much narrower definition, since the mental attitude of the forger is one of the elements of the definition. This definition, including the said mental element, is drawn upon by English textbook writers who treat of Bills of Exchange. (Byles, on Bills of Exchange (2nd. ed. 1965) 245Google Scholar (hereinafter referred to as Byles II)). It is dubious whether the mental attitude of the forger ought to change the relief which the civil law provides as a result of a signature made without authority and purporting to be the signature of the person authorized to sign. The definition last cited should be exhaustive for the present purpose. The criminal law is interested in the gravity of the forger's act; the civil law is concerned with the rights and duties thereby created, principally vis-à-vis other persons.
Sec. 23 of the Ordinance deals with two alternatives—forgery and a signature made without the authority of the person whose signature it purports to be. In those instances where these two alternatives are not distinguished, no significance attaches to the classification since both are included under “forgery”, as that exists in local and English law.
Notwithstanding the foregoing, it seems that there is no absolute linkage with the definitions taken from the criminal law. A person who represents himself as another and obtains from the true owner a bill to the order of that other person and indorses it in his name prima facie commits a forgery in the light of the said definitions. For the present purposes such indorsement, however, is not regarded as a forgery (see Kessler, F., “Forged Indorsements” (1938) 47 Yale L.J. 863CrossRefGoogle Scholar; Bailey, H.J., The Law of Bank Checks (1932) 495Google Scholar; Farnsworth, E.A., “Insurance against Check Forgery” (1960) 60 Colum. L.R. 284, 308CrossRefGoogle Scholar; Note in (1957) 66 Yale L.J. 1107, 1112; “Allocation of Losses from Check Forgeries under the Law of Negotiable Instruments and the Uniform Commercial Code” (1953) 62 Yale L.J. 417, 427).
Sec. 3–404 of the Uniform Commercial Code deals with another term, “A signature made without authority”. Clearly forgery also is such a signature.
3 Sec. 23 (a) of the Ordinance, sec. 24 of the Bills of Exchange Act, 1882, (here inafter called “the Act”). See also sec. 23 of the U.S. Negotiable Instruments Law and sec. 3–404(2) of the Uniform Commercial Code.
4 It also follows from this that if the existence of the right is not conditional upon the existence of the signature, the forgery cannot prevent the existence of the right. A bearer bill is negotiable by delivery (sec. 30(b) of the Ordinance); accordingly a forged indorsement cannot negative the possibility of acquiring rights in such an instrument. See also sec. 31(2) of the Act.
By virtue of sec. 6(c) of the Ordinance one may deal with a bill where the payee is a fictitious or non-existing person as if it were a bearer bill (see sec. 7(3) of the Act).
5 Continental law is different. It will later be compared with local law.
6 Payment is not made to the holder (see sec. 60 of the Ordinance and sec. 59 of the Act).
7 Britton, W. E., Handbook of the Law of Bills and Notes (1961) 417, 418Google Scholar; Kessler, op. cit. at p. 879; Barak, A., “The Uniform Commercial Code—Commercial Paper: An Outsiders View” (1968) 3 Is.L.R. 184, 197–98CrossRefGoogle Scholar; Note in (1926) 26 Colum. L.R. 113, 114; see Corker, E., “Risk of Loss from Forged Indorsements, a California Problem” (1952) 4 Stan.L.R. 24, 34, 36, 37.CrossRefGoogle Scholar See the above authorities also with regard to the question whether this right is conditional upon compliance with the holder's duties.
8 Thomson v. Bank of British North America, 82 N.Y. 1, 9 (1880); Miller v. North ern Bank, 137 A.L.R. 870, 873 (1941); Note in (1926) 26 Colum. L.R. 113, 114; Bailey, op. cit., pp. 26–28, 514; Note in (1942) 28 Va.L.R. 652, 653; Kessler, op. cit., p. 879; Lewis v. Jay (1933) 3 D.L.R. 763, 768, 770; affirmed (1934) 3 D.L.R. 228, 230, 231, 235.
9 Falconbridge, op. cit., p. 596. See as against this, Note in (1921) 14 A.L.R. 764.
10 McFaddon v. Follrath, 114 Min. 85; 130 N.W. 542 (1911) as cited in Farnsworth, E.A., Cases and Materials on Negotiable Instruments (1965) 201Google Scholar; James v. Union National Bank, 238 Ill.App. 159 (1925); Corker, op. cit., pp. 36, 37.
11 Barak, op. cit., pp. 196, 197; Britton, op. cit., p. 422; Kessler, op. cit., p. 879.
12 The claims are either in conversion or in money paid and received. Bailey, op. cit., pp. 515–17; Bavins and Sims v. London and South Western Bank Ltd. [1900] 1 Q.B. 270; Corker, op. cit., pp. 34, 35; (1953) 62 Yale L.J. 417, 422.
13 Capital and Counties Bank v. Gordon [1903] A.C. 240, 247; Auchteroni and Co. v. Midland Bank Ltd. [1928] 2 K.B. 294, 300; James v. Union National Bank, ubi supra, 166; Britton, op. cit., pp. 421, 422; id., “Defences, Claims of Ownership and Equities: A Comparison of the Provisions of the Negotiable Instruments Law with Corresponding Provisions of Article 3 of the Proposed Commercial Code” (1955) 7 Hastings L.J. 1, 44; Barak, op.cit., p. 194; Brannan, B., Negotiable Instruments Law (1948) 1321, 1322Google Scholar; Chitty, and Hulme, , A Practical Treatise on Bills of Exchange (1854) 298Google Scholar; Falconbridge, op. cit., p. 568; Salmond, , Law of Torts (1961) 268Google Scholar; Woodward, F.C., “The Risk of Forgery or Alteration of Negotiable Instruments” (1924) 24 Colum. L.R. 469, 476CrossRefGoogle Scholar; Chafee, Z., “Progress of the Law — Bills and Notes” (1919) 33 Harv. L.R. 255, 270CrossRefGoogle Scholar; Note in (1926) 26 Colum. L.R. 113, 114; Note in (1942) 28 Va. L.R. 652, 653.
14 Britton, op. cit., pp. 419–21; Brannan, op. cit., pp. 1321, 1323; Woodward, op. cit., pp. 475, 476; Falconbridge, op. cit., pp. 571 (money paid and received); Capital and Counties Bank v. Gordon, ubi supra, (money paid and received) ; Smith v. Commercial Banking Co. of Sydney (1900) 11 Commonwealth R. 667, 673, 676, 680 (constructive acceptance).
15 Thomson v. Bank of British North America, ubi supra at p. 6.
16 This defence exists today in a number of common law countries. See the list of such countries and the provisions corresponding to sec. 60 in Cowen, D.V., On the Law of Negotiable Instruments in S. Africa (1966) pp. 549, 571.Google Scholar
17 Where the true owner in fact has the benefit of the bill he can no longer sue the drawee bank, even if it contained a forged indorsement. The Bank has this protection quite apart from the statutory protection dealt with below. See Bailey, op. cit., p. 495; Falconbridge, op. cit., p. 571; Williams, J.P., “Liability of Drawee Bank on Forged Indorsements” (1958) 58 Mich. L.R. 1188.CrossRefGoogle Scholar
18 For this campaign see Holden, J.M., The History of Negotiable Instruments (1955) pp. 223, 224.Google Scholar See also Byles II, p. 267; Charles v. Blackwell (1877) 2 C.P.D. 151, 156.
19 See Chorley, R.S.T., “The Cheque as Mandate and Negotiable Instrument”, 60 J. Institute of Bankers, 391, 394.Google Scholar
20 Chalmers, , “Notes on the Bills of Exchange Act, 1882” (1882) 3 J. Institute of Bankers, 519.Google Scholar
21 This line of development led to the collecting bank remaining without protection in the case of an uncrossed cheque. See a review of the question by Holden, J.M., “Suggested Reform of the Law relating to Cheques” (1951) 14 M.L.R. 33, 51.CrossRefGoogle Scholar
22 The burden of proof that the conditions of the protection exist is upon the bank for whom the protection is granted. See Sussmann, Y., Linei Shtarot [Law of Bills of Exchange] (1967) para. 300, p. 371Google Scholar; Note in (1932) 76 Sol. J. 583; Bute v. Barclays Bank, ubi supra at 747.
23 That is, it is not included within secs. 3 or 84 of the Ordinance. As we shall see later, case law gives the term its technical meaning as defined in the Bills of Exchange Law.
24 I proceed on the assumption that market overt does not apply to an instrument which is a “bill”. The Ordinance may be regarded as incorporating a special provision on the matter which displaces the provision of the Sales Law.
25 Sec. 34 as above.
26 For the obscurity of sec. 10 see Ottolengi, S., “The Law of Assignment of Debts, 1969” (1970) 26 HaPraklit 285, 299, 300.Google Scholar
27 See secs. 3 and 84 of the Ordinance; secs. 3 and 83 of the Act.
28 Set out in sec. 23 of the Ordinance.
29 Capital and Counties Bank v. Gordon, ubi supra at p. 252; Sheldon, , The Practice and Law of Banking (1962) 177Google Scholar; Halsbury's Laws of England (3rd. ed.) vol. 2, pp. 202, 203; Sykes, E., Banking and Currency (1947) 116, 126.Google Scholar
30 I have used the phrase “drawee bank” because the protection of secs. 19 and 60 applies only to a drawee which is a bank.
31 Carpenter's Company v. British Mutual Banking Co. [1938] 1 K.B. 151, 531, 532, 534; Capital and Counties Bank v. Gordon, ubi supra at pp. 251, 252; Holden, op. cit., p. 226; Byles II, p. 268; Chorley, , Law of Banking (1950) 90Google Scholar; id., Law of Banking (1967) 68 (hereinafter respectively called Chorley I and Chorley II). It was otherwise decided in Carpenter's Company v. British Mutual Banking Co. [1937] 1 All.E.R. 183, 187 but this decision was set aside on appeal, as above cited.
32 Chalmers in his lecture to the Institute of Bankers, consequent upon the enactment of the Act, answered one of the questions by saying that the Stamp Act, 1853, was not repealed since it applied to instruments which were not cheques. The lecture was published as “Notes on the Bills of Exchange Act, 1882” in (1882)3 J. Institute of Bankers, 519. See ibid. p. 532. This view was also cited in Capital and Counties Bank v. Gordon, ubi supra, at pp. 521, 522; Byles II, p. 29; Chorley II, p. 68; Chorley I, p. 90; Chalmers, on Bills of Exchange Act, (1964) p. 211Google Scholar; id.Bills of Exchange Act (1952), p. 47 (hereinafter respectively called Chalmers IV and Chalmers II); Holden, op. cit., p. 225.
33 Paget's, Law of Banking (1961) 167.Google Scholar
34 (1877) 2 C.P.D. 151, 156. The passage is cited by Paget, op. cit., pp. 166–67.
35 [1938] 1 K.B. 511.
36 I have examined the cases dealing with instruments which are technically not bills—conditional instruments, bankers drafts and instruments not drawn to the order of a particular payee. The courts do not consider these as bills. Firbranks v. Bell (1817) 106 E.R. 14, 15; Carloss v. Fancourt (1794) 101 E.R. 272; Kingston v. Long (1785) 99 E.R. 740; Alexander v. Thomas (1851) 117 E.R. 906; Palmer v. Pratt (1824) 130 E.R. 277; Robins v. May (1839) 113 E.R. 396; Beardesley v. Baldwin (1741) 93 E.R. 1094; Hill v. Halford (1801) 126 E.R. 1357; Williamson v. Bennet (1810) 170 E.R. 1203; Worley v. Harrison (1835) 111 E.R. 568—all these cases dealt with conditional instruments; Miller v. Thomson (1841) 133 E.R. 1271—bankers draft; R. v. Randall (1811) 168 E.R. 576—instrument not drawn to the order of a particular payee. See also the meaning of the words “order” and “draft” in Black's Law Dictionary (1968) 582, 1247; Words and Phrases (1943) vol. 2, p. 133. Apparently the broader of these two words is “order”; “draft” is sometimes regarded as parallel to “bill”: Alpe, , Law of Stamp Duties (1907) 73Google Scholar; Sergeant, , On Stamp Duties (1963) 69, 70Google Scholar; Whitworth, & Mackenzie, , The Law of Stamp Duties (1960) 111.Google Scholar
37 Sheldon, op. cit., p. 177; Halsbury, ubi supra, p. 203.
38 Halsbury, ubi supra, p. 203; Thomas, and Megrah, , Banker and Customer (5th. ed.) 229Google Scholar, quoted in Holden, op. cit., p. 266.
39 See sec. 9(a) of the Ordinance and sec. 10(1) of the Act.
40 See supra n. 32.
41 According to Halsbury, ubi supra, p. 203, Capital and Counties Bank v. Gordon, ubi supra is not to be regarded as an authority for applying sec. 19 to a conditional instrument. Clearly, however, the only fact in the judgment (at 252) which prevents the application of the protection of sec. 19 to instruments which are there included under “class 8” was that the defendant was not the drawee of these instruments. The court extended the protection to bankers drafts (see at 251, 252).
42 This is also the conclusion of Holden, op. cit., pp. 225–26.
43 This matter is dealt with later in section (4) of this Part.
44 The fact that we have a bankers draft or an instrument not drawn to the order of a particular payee can also be ascertained from the form of the instrument.
45 Sec. 1(2) (a) of the Cheques Act, 1957, embraces also the case of a conditional instrument. For the significance of this sub-section see below. The meaning of sec. 1 of the Cheques Act and its relationship with a bank's protection in the event of a forged indrosement is dealt with in Part III below.
46 Carpenter's Company v. British Mutual Banking Co., ubi supra; Note in (1937) 53 Scot. L.R. 150; Paget, op. cit., p. 277. The view of Collins M.R., as may be inferred from his judgment in Gordon v. London City and Midland Bank; Gordon v. Capital Counties Bank [1902] 1 K.B. 242, 274, 275, appears to be different.
47 And also of the Act.
48 Sussmann, op. cit., para. 320, p. 392. The provision reads as follows—“The pro visions of this Ordinance as to crossed cheques shall also extend to any document issued by a customer of any banker and intended to enable any person to obtain payment on demand from such banker of the sum mentioned in such document and shall so extend in like manner as if the said document were a cheque: Provided that nothing herein contained shall be deemed to render any such document a negotiable instrument.”
49 Clearly the protection which in fact deals with crossed cheques does not apply when the banker himself, desiring to rely upon this protection, makes the crossing. Gordon v. London City and Midland Bank, ubi supra, pp. 272, 279, 280; Batt, , The Law of Negotiable Instruments (1931) 149Google Scholar; Sykes, op. cit., p. 107. According to the provisions of sec. 77 of the Ordinance (and of the Act) it seems that a drawer, holder or banker may cross a cheque. If so, a crossing made by the forger or by a person having the cheque under a forged indorsement cannot alter the situation. From what Halsbury, ubi supra, p. 201 has to say, it might be otherwise, except that Halsbury relies upon Simmonds v. Taylor (1857) 140 E.R. 523; affirmed 1165, but this case is not in point. There the crossing made by the drawer was obliterated and the court held that the crossing was not a material part of the cheque. Accordingly, the obliteration did not constitute forgery and the drawee bank might charge the account of the drawer.
50 As to this see infra Part III.
51 Sheldon, op. cit., p. 177; Richardson, , A Simple Guide to Negotiable Instruments and Bills of Exchange (1958) 173Google Scholar; Byles II, p. 271. With regard to the meaning of this expression in the context of sec. 4 of the Cheques Act, see Chorley II, p. 127; and with regard to its meaning in the context of the said sec. 17, see Halsbury, ubi supra, p. 213. In Capital and Counties Bank v. Gordon, ubi supra, p. 252 Lord Macnaghten held that sec. 17 does not confer protection upon a bank paying a conditionally crossed cheque bearing a forged indorsement, and as reason therefor drew attention to his observations regarding the non-application of this section to bankers drafts (p. 250). This reason, however, cannot disqualify the application of the provision to a conditional instrument since sec. 17 applies to any instrument “issued by a customer of any banker”. A bankers draft is not drawn by the bank's customer; a conditional instrument may be so drawn.
52 Secs. 3 and 84 of the Ordinance; secs. 3 and 83 of the Act.
53 Even without the protection of the English sec. 60. See Gordon v. London City and Midland Bank, ubi supra, p. 273; sustained in Capital and Counties Bank v. Gordon, ubi supra, p. 250; Chalmers, , Bills of Exchange Act (1952) 195Google Scholar (hereinafter called Chalmers III); Chalmers IV, p. 211; Sussmann, op. cit., p. 331; Byles II, p. 268; Paget, op. cit., pp. 163, 164, 168; Batt, op. cit., p. 150; Halsbury, ubi supra, p. 202. In Ross. v. London County Westminster and Parr's Bank [1919] 1 K.B., 678, 687 per Bailhache J., it was decided that an instrument drawn by a bank upon itself is a cheque, but no reason was given. It appears that this was also the view of Bigham J. in Brown v. National Bank of India (1902) 18 T.L.R. 669, 670. Bigham J. relied on sec. 5(2) of the Act, which corresponds to sec. 4(b) of the Ordinance. But the latter gives the holder the opportunity of treating such an instrument as a bill and does not come to the assistance of the paying bank. See Capital and Counties Bank v. Gordon [1903] A.C. 204, 250 Two Notes in (1902) 46 Sol. J. 617, 628, were written following upon the Brown case but without critically examining it. On the independent position or otherwise of the branches of a bank in other matters, see The King v. Lovitt [1912] A.C. 212, 219; Prince v. Oriental Bank Corporation (1878) 3 App. Cas. 325, 332, 333; Nederlands Bank of S. Africa v. Stern (1955) 1 S.A. 667; “The Legal Individuality of a Branch Bank” (1927) 71 Sol. J. 872.
54 See Sussmann, op. cit., p. 332.
55 If that is so, why does it deviate from the language of sec. 83 of the Ordinance and of the corresponding English Acts dealing with instruments drawn by a bank on itself (sec. 1 Bills of Exchange (1882) Amendment Act, 1932; secs. 1(2) (b), 4(2) (d) Cheques Act, 1957)?
56 Capital and Counties Bank v. Gordon, ubi supra, pp. 251, 252; Chorley II, p. 68; Byles II, p. 268; Chalmers III, p. 195; Chalmers IV, p. 211; Holden, op. cit., p. 225; Paget, op. cit., pp. 164, 165; Halsbury, ubi supra, p. 202; Hamilton, A.M., Commentary on the Bills of Exchange Act, 1882 (1904) p. 108Google Scholar, note g; Richardson, op. cit., p. 165.
57 Paget, op. cit., pp. 166, 167 expresses a different view. In his opinion, in this case, the protection is not to be given for two reasons. First, the protection should only be available when by virtue of the law the risks of the bank are increased. It cannot be contended that the Stamps Act, 1853, led or was likely to lead to an increase of such instruments. Furthermore the protection is given to the bank because of its duty to pay its customers' cheques since otherwise it lays itself open to a claim in damages. This document is not drawn by a customer and a customer is not entitled to demand that it should be delivered to him.
We must endeavour to have the law regarding Bills of Exchange consistent and logical. That cannot be achieved by considerations of status quo which are foreign to the very nature of the matter. Nor can the second above reason be accepted. The holder of such an instrument is entitled to demand its payment from the bank. Although the bank is likely not to break any agreement with a customer when it refuses in this instance to pay the instrument, if however it acts in this manner without reasonable cause then (a) the value of this type of instrument is dissipated, although, as we have said, it fulfils an important task and we must encourage banks to honour it, and (b) the bank will be sued as drawer and will have to honour the instrument. If so, why refuse to pay it at the outset?
The application of the protection to bankers drafts is a model for giving the protection to a drawee bank when it pays an instrument not drawn upon it by one of its customers (see Halsbury, ubi supra, p. 199). According to Paget, op. cit., pp. 163–65, the protection of secs. 19 and 60 only extends when it is the customer who has drawn the cheque. Where another person draws the cheque as a result of an agreement between him and the customer, the bank is not protected, but no warrant for this limitation is to be found in the statutory terms.
58 The collecting bank is protected under sec. 4(2) (d) of the Cheques Act, and the drawee bank under secs. 4(2) (d) and 5 thereof in association with sec. 79 of the Act. See Paget, op. cit., p. 171; Chorley II, p. 131; Sheldon, op. cit., p. 27; Richardson, op. cit., p. 173; Byles II, p. 271. Before the Cheques Act came into force, this protection applied both to a drawee bank and a collecting bank by virtue of the Bills of Exchange (1882) Amendment Act, 1932. See Paget, op. cit., p. 170; Halsbury, ubi supra, p. 202. This last Act was repealed by sec. 6(3) of the Cheques Act. In this regard attempts have been made to rely upon sec. 17 of the Revenue Act, 1883, which deals with every instrument “issued by a customer of any bank.” In this instance the instrument was issued (see the definition of this term in sec. 1 of the Act) by the bank and not by its customer; accordingly the protection of the section does not apply. Gordon v. London City and Midland Bank, ubi supra, pp. 273, 274, 281 ; upheld Capital and Counties Bank v. Gordon, ubi supra, p. 250; Byles II, p. 268. For this reason the provisions of sec. 95(b) of the Ordinance are not significant in the context. Sec. 83 of the New Zealand Bills of Exchange Act, 1908, prescribes that where a bank carries on business in a number of branches, each branch is to be deemed independent for the purposes of the sections protecting collecting and drawee banks in the case of crossed cheques. Thus, by different paths, English and local law have reached the same result (excluding the case where a particular branch draws a bill upon itself). See on the matter the report of the committee appointed by the Australian Government in 1958 to examine the Bills Exchange Act, para. 309, p. 70.
59 See sec. 7(d) of the Ordinance.
60 See the provisions of secs. 7(1) and 8(3), (4) of the Act. Secs. 23(c) of the Ordinance and sec. 60 of the Act do not apply to such an instrument. Orbit Mining and Trading Co. Ltd. v. Westminster Bank [1962] 3 W.L.R. 1256, 1266, 1267; sustained ibid. 1272, 1276, 1285; Heruti v. Shovess (1964) (I) 18 P.D. 403, 408; Chorley II, pp. 136, 137; Gowen, op. cit., p. 446.
61 Forgery of an indorsement is likely to occur when the payee indorses the instrument to the order of another person alone and the signature of that other person is forged. The bill is not a bearer bill; and in the absence of legal recognition of the right of the person demanding payment to realise the instrument, the drawee commits conversion by paying it to that person. It would be desirable to treat such an instrument as a bearer bill. There is no good reason for frustrating the purpose of the drawer and to withstand a practice which is already widespread. Indeed the matter is so regulated in sec. 9(4) of the Uniform Commercial Code. See Sussmann, op. cit., para. 51, p. 74.
62 In the absence of case law in this regard, it can be assumed that sec. 19 does not apply to the instrument in question. According to this section the instrument is required to be drawn to order and purports to be signed by the person to whose order it was drawn.
63 And in England by virtue of secs. 4(2) (b) and 5 of the Cheques Act (formerly by sec. 17 of the Revenue Act, 1883). See Orbit Mining and Trading Co. Ltd., v. Westminster Bank, ubi supra at pp. 1267–8; upheld ibid. pp. 1277, 1278, 1285, 1291; Chorley II, pp. 138; Cowen, op. cit., p. 446; Sussmann, op. cit., para. 320, p. 392.
64 Sec. 23(a) of the Ordinance and sec. 24 of the Act.
65 This matter will be dealt with below in section (2) (b) of this Part.
66 It is doubtful whether the various forms of protection cover in this instance the forgery of the indorsement, since there is no “bill” or “cheque”. See Sussmann, op. cit., para. 300, p. 371. The only possible protection (regarding only the forged indorsement) is under sec. 19.
67 Sec. 64 of the Ordinance and the Act.
68 And perhaps the protection is not necessary because there is no cause of action in conversion, the document having no value?
69 Secs. 80 and 82 of the Ordinance and Act, sec. 95(b) of the Ordinance and secs. 4(2) (b) and 5 of the Cheques Act.
70 Slingsby v. District Bank [1932] 1 K.B. 544, 559, 562; Chorley I, p. 104; Chorley II, p. 81; Byles II, p. 273; Sussmann, op. cit., para. 300, p. 371. For criticism ol the case mentioned at the beginning of this note and a consideration of the distinction between forgery and a material alteration made in an instrument, see Ben-Porat, M., “The Effect of Forgery on the Rights of the Holder of a Bill” (1966) 1 Ts.L.R. 141, 144.Google Scholar
71 Chorley II, pp. 124, 125; id. “The Cheque as Mandate and Negotiable Instrument” 60 J. Institute of Bankers, 391, 393, 394; Sykes, op. cit., p. 116; Richardson, op. cit., pp. 117, 118.
English law stipulates two conditions—(a) the protection is only afforded to a bank paying the instrument and (b) the bank must be the drawee. As to the second condition see Capital and Counties Bank v. Cordon, ubi supra, p. 252; Chorley II, op. cit., p. 394.
72 By virtue of sec. 90(a) of the Ordinance. In Brown v. National Bank of India, ubi supra, at 670, Bigham J. thought that sec. 60 deals also with promissory notes but he was clearly mistaken.
73 See the introduction to the present study.
74 House of Commons Debates, 1890, vol. 1, col. 1077, 1078, 1081. As against this. Lorenzen, E.G., “The Hague Convention of 1912 relating to Bills of Exchange and Promissory Notes: A Comparison with Anglo-American Law” (1916) 11 Ill.L.R. 247, 256Google Scholar, points out that the English distinction in this respect is arbitrary.
75 Holden, , “Suggested Reform of the Law relating to Cheques” (1951) 14 M.L.R. 33, 46CrossRefGoogle Scholar; Holden, op. cit., pp. 229, 317. See also Halsbury, ubi supra, p. 203. See secs. 8(4) and 35 of the Act.
76 For this condition regarding the various forms of protection, see below para. (4) of this Part.
77 Holden, , “Suggested Reform of the Law relating to Cheques” (1951) 14 M.L.R. 33, 46.CrossRefGoogle Scholar The end of sec. 81 is intended to restrict the rights of the holder but there is nothing in it to deny protection from the paying bank or collecting bank of a crossed cheque.
78 See also sec. 19 of the Stamp Act, 1853 and sec. 60 of the Act.
79 Sec. 60(a) of the Ordinance and sec. 59(1) of the Act.
80 Sec. 1 of the Ordinance and sec. 2 of the Act.
81 See sec. 30(a) and (c) of the Ordinance and sec. 31(1) and (3) of the Act.
82 See the sections mentioned above as well as sec. 20(a) of the Ordinance and sec. 21(1) of the Act.
The point was first decided obiter in Keene v. Beard (1860) 141 E.R. 1210. Chalmers IV, p. 210 observes that it is doubtful whether this dictum is not to be read as having reference only to bearer instruments which were the subject matter of the case, but it appears from what Byles J. had to say there that it also relates to order instruments. And indeed what is the reason for such distinction? See also McDonald v. Nash [1924] A.C. 625, 633, 634; National Bank v. Paterson (1909) T. S. 322;; Stapelberg v. Barclays Bank D.C. & O. (1963) 3 S. 120, 123–28; Smith v. Commercial Banking Co. of Sydney (1910) 11 Comm. L.R. 667, 672, 673, 677–79, 686–88; Shelley v. Buchbaza (1966) (II) 20 P.D. 608, 610, 611; Chorley II, p. 68; Halsbury, ubi supra, p. 200, Byles II, p. 269, n. 19; Cowen, op. cit., pp. 376, 377; Sussmann, op. cit., para 266, p. 331. Although not for the purpose of the present context the same was said by Britton, op. cit., p. 422; Note in (1951) 26 St. John's L.R. 168, 171; Ames, J. B., “The Doctrine of Price v. Neel” (1891) 4 Harv. L.R. 297, 302.CrossRefGoogle Scholar According to Halsbury, ubi supra, p. 200, Cockburn L. J. in Charles v. Blackwell, ubi supra, at 157 reached the opposite conclusion, that is, that we have here an indorsement. Reference to the citation shows that the only passage upon which Halsbury might have relied is the following: “By making a cheque payable to order, the drawer obtained the advantage that if the cheque is stolen or lost before it reaches the payee, it cannot be paid without a forged indorsement”. It is indeed true that this sentence taken literally supports what Halsbury claims for it but it is clear from the context that the judge did not put his mind to the case where a person purports to the bank to be the payee.
83 Megrah, M., Undecided Cases in Banking (Gilbart Lectures, 1960) 5Google Scholar; Halsbury, ubi supra, p. 200.
84 See sec. 1 of the Ordinance and sec. 2 of the Act.
85 It appears from Holden, , “Suggested Reform of the Law Relating to Cheques” (1951) 14 M.L.R. 33, 50CrossRefGoogle Scholar, that here there is no indorsement since this is a signature of receipt and one signature cannot serve the dual purpose of being an indorsement and a receipt. But to the extent that requirements of an indorsement within the meaning of sec. 60 are met, it is doubtful whether the protection does not apply simply because the instrument and its signature can also be used for the purpose of a receipt.
86 See sec. 51(d) of the Ordinance and sec. 52(4) of the Act.
87 Stapelberg v. Barclays D.C. & O., ubi supra, pp. 127, 128; Chorley II, p. 91 and Chorley I, pp. 107, 108; Bisset, and Smith, , Digest of South African Case Law in 1963 p. 17Google Scholar; Cowen, op. cit., p. 378.
88 From what has been said in the text it is not to be understood that the author thinks that the reasoning of the banker is reasonable. Obviously if he is neither payee nor indorsee his signature cannot change the instrument into a bearer bill. All that is intended is to suggest a possibility that directs us to a precise test—whether the intention was to make an indorsement or to sign for purposes of a receipt; the question cannot be answered finally and in principle according to the place where the signature appears. Possibly also the banker who knows the law wants in fact an indorsement and accordingly the protection would apply.
89 Byles II, p. 269, n. 19.
90 Although it is not to be expected of bankers that they will stop demanding this receipting signature. Every banker fears taking any step outside the ordinary course of business. See Chorley II, p. 68. On the influence of the Cheques Act on the question involved, see Part III below.
Sec. 56 of the Ordinance (and of the Act) cannot extend the protection also to the case of a receipting signature. The section deals with the relations between the holder of the bill and those previously liable thereunder. See Shelley v. Buchabaza, ubi supra, p. 611. For the meaning of the section see Sussmann, op. cit., pp. 304–15.
91 The thief would generally prefer to “indorse” the cheque in blank and purport to the banker that the cheque was transferred to him after the said signature. The banker would thus be unable to derive any benefit from ascertaining his identity.
92 Cowen, op. cit., p. 376.
93 Regarding the right of action of the drawee bank against the recipient of payment, see Part II, para. 2 below.
94 Obviously on condition that the bank takes proper precautionary measures to identify the person demanding payment and to record his personal particulars.
95 Sec. 23(c) of the Ordinance, sec. 19 of the Stamp Act, 1853, and sec. 60 of the Act deal expressly with forged indorsements alone. Sec. 80 of the Ordinance and the Act do not expressly mention the world “indorsement” but clearly they do not include the case where there was a forgery in the signature of the drawer. The protection is for “the banker on whom a crossed cheque is drawn” and the intention is to a true drawing signature.
96 Ogden v. Benas (1874) L.R. 9 C.P. 513, 516; Chorley, “The Cheque as Mandate and Negotiable Instrument” 60 J. Institute of Bankers, 391, 395; Sussmann, op. cit., para. 266, p. 332 and para. 300, p. 372; Paget, op. cit., p. 275; Willis, , Law of Negotiable Securities (4th. ed.), 161Google Scholar; Hamilton, op. cit., p. 133, note g.
97 Chorley II, p. 78; Jacobs, , The Law of Bills of Exchange, Cheques, etc. (1943) 230, 231.Google Scholar
98 See sec. 58 of the South African Bills of Exchange Act (cited in Cowen, op. cit., p. 548 and mentioned in Barker, , Principles and Practice of Banking in South Africa (1952) 51).Google Scholar This special restriction gives rise to two matters of surprise. First, why should a particular branch of the bank have to recognise the signature of the customer of another branch when that customer is the drawer of the cheque but that is not expected of it when the person is an indorser? Where the drawer's signature is concerned the protection does not extend, without any reference to the question whether payment through the branch upon which the cheque is drawn is involved. According to Cowen, op. cit., pp. 379, 380, the restriction must be construed as applying to every case where the indorsement purports to be that of the customer of the drawee bank, having no regard to the fact whether payment is actually obtained at the branch upon which the cheque is drawn. This inter pretation, however, has no warrant in the actual terms of the statute. The second matter for surprise arises in respect of the fact that the South African legislature found it proper to restrict the provision dealing with uncrossed cheques but chose not to do so with regard to the corresponding provision dealing with crossed cheques. (See sec. 79 of the South African Act, cited in Cowen, op. cit., p. 571). In Stapelberg v. Barclays Bank D.C. & O., ubi supra, p. 123, the court narrowed down the terms of the restriction in order to arrive at a reasonable result. This case involved the indorsement of the customer upon a change of her name consequent upon her marriage after the account was opened. The bank could not know her new name and the court held that it was protected. Under the terms of the different protections afforded by local and English law it appears that a bank is not protected when its drawer-customer's signature is forged even if he has changed his name after opening the account.
99 It appears otherwise from the remarks of Greer L. J. in Slingsby v. District Bank, ubi supra, p. 562, but there is no foundation for these observations in the language of the relevant provisions.
100 It appears that one cannot say that as long as such a state of affairs exists there is an act that goes beyond the ordinary course of business. In each case one must establish precisely whether the forgery should have aroused the suspicions of the bank.
During the debate in the Canadian Parliament on the introduction of a section corresponding to sec. 60 of the Act a distinction was drawn by Sir Richard Cart-wright between forgery of the payee's signature and forgery of an indorsee's signature (House of Commons Debates, 1890, vol. 1, col. 1079). There are no real grounds to justify this distinction and it would indeed be difficult to find any justification therefor.
101 According to the writer of “Allocation of Losses from Check Forgeries under the Law of Negotiable Instruments and the Uniform Commercial Code” (1953) 62 Yale L.J., 417, 441 it is neither practical nor logical to require a bank to in vestigate indorsements or the signature of the drawer. See also London and River Plate Bank v. Bank of Liverpool [1896] 1 Q.B.D. 7, 10.
102 See the Introduction to this study.
103 Charles v. Blackwell (1876) 1 C.P.D. 548, 554, 555; upheld (1877) 2 C.P.D. 151, 157, 159, 160. This judgment was based on sec. 19, but the language of sec. 23(c) of the Ordinance and sec. 60 of the Act arc even clearer in this regard. See also Halsbury, ubi supra, p. 199.
104 Charles v. Blackwell, ubi supra, pp. 159, 160.
105 The definition of “good faith”, like that of “honesty”, does not add anything to its clarity. See sec. 91 of the Ordinance and sec. 90 of the Act.
106 Jacobs, op. cit., pp. 29, 30.
107 Sec. 91 of the Ordinance and sec. 90 of the Act. See also Auchteroni and Co. v. Midland Bank, ubi supra, pp. 301, 302; Stapelberg v. Barclays Bank D.C. & O, ubi supra; Sussmann, op. cit., para. 265, p. 330; Batt, op. cit., p. 149; Chorley II, pp. 78, 79.
108 Chorley II p. 79.
109 Richardson, op. cit., p. 116.
110 See above Part I, paras. (1)(b)(i) and (c)(i).
111 Smith v. Union Bank of London (1875) L.R. Q.B. 291, 296, per Blackburn J.; Chalmers, , A Digest of the Law of Bills of Exchange (1878)Google Scholar (hereinafter called Chalmers I) art. 263, p. 213; Holden, op. cit., p. 226; Chorley I, p. 91; Paget, op. cit., pp. 278, 279; Halsbury, ubi supra, p. 202.
112 See sec. 23(c) of the Ordinance and sec. 60 of the Act. This requirement does not figure in crossed cheques; instead absence of negligence is necessary (see sec. 80 of the Ordinance and the Act regarding the drawee bank and secs. 82 of the Ordinance and 4 of the Cheques Act regarding the collecting bank).
113 Cowen, op. cit., p. 380; Richardson, op. cit., p. 117.
114 Chorley II, p. 80.
115 See Bank of England v. Vagliano Brothers [1891] A.C. 107, 117; Cowen, op. cit., p. 380.
116 Sussmann, op. cit., para. 265, p. 329; Chorley II, p. 79, Byles, II, p. 268; Slater, Bills, Cheques and Notes (1920) 134Google Scholar; Cowen, op. cit., p. 380; Note in (1934) 78 Sol. J. 307. The same applies where the signature of the indorsement is not clear, such as when it is in an unknown language (see Cowen, op. cit., p. 380). For the effect of the Cheques Act on the present question see Part III below.
117 Chorley II, p. 79; Cowen, op. cit., pp. 380, 381; Halsbury, ubi supra, p. 199. This only applies when the circumstances arouse suspicion, such as payment to a minor or beggar. This is not to say that payment of a large sum across the counter is not in the ordinary course of business, although it is not very usual today. Carpenter's Company v. British Mutual Banking Co. [1937] 1 All E.R. 183, strangely, decides that the ordinary course of business obtains although the bank's suspicion has been aroused and no inquiry has been made to establish the true position. On appeal ([1938] 1 K.B. 551) this was not criticised.
118 Chalmers IV, p. 212; Chorley II, p. 79; Slater, op. cit., p. 134; Richardson, op. cit., p. 117; Halsbury, ubi supra, pp. 198, 201.
119 Baines v. National Provincial Bank (1927) 32 Com. Cas. 216; Note, “Bank Cashing Cheque after Closing Hour” (1927) 71 Sol. J. 530; Chorley II, p. 80; Jacobs, op. cit., p. 231; Cowen, op. cit., p. 380.
120 Carpenter's Company v. British Mutual Banking Co., ubi supra (on appeal) 534 per Slesser L.J.; Paget, op. cit., p. 279; Jones, (Gilbart Lectures, 1949) 51, as cited in Holden, op. cit., p. 226.
121 When presented for payment it is required that the instrument “purport to be indorsed by the person to whom the same shall be drawn payable”.
122 In Carpenter's Company v. British Mutual Banking Co., ubi supra p. 536, McKinnon L. J. expresses the view that since the enactment of sec. 60 the requirement of the ordinary course of business obtains also in regard to sec. 19. This is no doubt a reasonable requirement, but it is not clear what legal basis the judge found for it. Holden, op. cit., pp. 226, 227, infers the intention of the legislature when enacting sec. 19 in 1853 from the terms of sec. 60 of the Act. The latter was intended to replace the former, and shows that the condition in question is also required according to the provisions of the latter section. This proof is difficult to regard as weighty. The intentions of the legislature in 1853 can hardly be determined by its thinking in 1882. Holden also contends that banks must act in the ordinary course of business under common law, but this requirement deals with the bank-customer relations and is not intended to restrict a claim by the true owner against a drawee bank.
This reasoning is similar to that of the corresponding section in South African Law. See National Housing Commission v. Cape of Good Hope Savings Bank Society (1963) 1 S.A. 230, 236.
123 The paying bank—sec. 80 of the Ordinance and of the Act; the collecting bank—sec. 82 of the Ordinance and 4 of the Cheques Act.
124 Sec. 23(c) of the Ordinance, sec. 60 of the Act, sec. 90 of the Stamp Act, 1853, and sec. 1 of the Cheques Act.
125 Carpenter's Company v. British Mutual Banking Co., ubi supra, p. 534 per Slesser L. J., 537 per MacKinnon L. J.; Smith v. Commercial Banking Co. of Sydney, ubi supra, pp. 677, 688; Chorley II, p. 80; Chorley I, pp. 91, 93, 94; Byles II p. 269; Byles, on Bills of Exchange (1955) (hereinafter called Byles I) p. 30Google Scholar; Jones, op. cit., p. 551 as cited in Holden, op. cit., p. 227.
126 Holden, op. cit., pp. 227, 228.
127 Carpenter's Company v. British Mutual Banking Co., ubi supra, p. 534 per Slesser L.J., 536, 637 per McKinnon L.J.; Carpenter's Company v. British Mutual Banking Co. [1937] 1 W.L.R. 183, 187, 188; Note in (1937) 53 Scot.L.R. 150 (dealing with this case); Stapelberg v. Barclays Bank D.C. & O., ubi supra, p. 123; Byles II, p. 269; Chorley II, p. 80; Batt, op. cit., p. 150; Chalmers IV, p. 302; Cowen, op. cit., pp. 381, 382; Crossley, , Personal Property (1962) 212Google Scholar; Richardson, op. cit., p. 117.
128 Holden, op. cit., pp. 227, 228. See also the views of Greer L.J. in the Carpenters case, p. 532.
129 Cowen, op. cit., p. 382.
130 Auchteroni and Co. v. Midland Bank, ubi supra, pp. 298, 299 ; Lloyds Bank v. Savory [1933] A.C. 201, 221 (collecting bank); Kupat Aliyah v. Kirstein (1963) 17 P.D. 2282, 2288; Paget, op. cit., p. 347; Chorley II, p. 87. Holden, op. cit., p. 227 argues for the existence of such a duty of care but continues to deal only with bank-customer relations.
131 It is a different question whether one should not regard the protective sections as constituting a negative arrangement in respect of the application of the duty of care as one of the conditions of protection. See Chorley II p. 80. Were a cause of action in negligence recognised in those cases to which the protection does not extend, the question would arise whether it is possible to plead contributory negli gence. The materiality of the negligence of the true owner when he sues the drawee bank for conversion and that protection is not available to the bank can be gathered from American case law mentioned hereafter.
132 Annett v. Chase (1921) 196 App. Div. 632, 638; Blacker & Shepard Co. v. Granite Trust Co. (1933) 187 N.E. 53, 54; Brown v. People's National Bank (1912) 170 Mich. 416, as mentioned in Stern v. President etc. of Manhattan Co. (1929) 134 Misc. 351, 352, 353; Kessler, F., “Forged Indorsements” (1938) 47 Yale L.J. 863, 880, 882, 884CrossRefGoogle Scholar; Brannan op. cit., para. 189, pp. 1323, 1324; “Allocations of Losses from Check Forgeries under the Law of Negotiable Instruments and the Uniform Commercial Code” (1953) 62 Yale L.J. 417, 430, 431; “Negligence of Payee as a Defence to Bank Paying Check on Forged Indorsements” (1921) 21 Colum.L.R. 703. It was otherwise decided in Stern v. President etc. of Manhattan Co., ubi supra; Independent Oil Men's Ass'n. v. Fort Dearborne National Bank (1924) 142 N.E. 458, 460; Note in (1930) 14 Minn. 170. In National Bank v. Patterson (1909) T.S. 322, 329, the plea was made but the court did not solve our present problems because it decided that the payee had not been negligent.
133 Secs. 79(b) (at end), 80, 82 of the Ordinance and the Act. See Paget, op. cit., p. 348; Chalmers I, p. 216; Batt, op. cit., p. 150, note 3; Kupat Aliyah v. Kirstein, ubi supra, p. 2288. The existence of a cause of action in negligence by the true owner against the bank cannot be inferred from the inclusion of a condition of absence of negligence in the sections protecting a bank with regard to crossed cheques. Even if such action existed, the inclusion of this condition within the framework of the protection would be material. Differences exist between an action in negligence and an action in conversion in which the lack of negligence serves as a condition of the protection. The matter is important with regard to the burden of proof and the amount of damages which in conversion does not depend upon the injury suffered by the true owner by reason of a negligent act.
134 See Part I, para. 1 (b), (c) and (d) above. It follows also that sec. 80 of the Ordinance (and of the Act) cannot be regarded as superfluous. That section together with sec. 95(b) protect the bank in cases of a conditional instrument and an instrument drawn to the order of an unspecified person, in regard to which there is no other protection. The same applies to sec. 80 of the Act with regard to the latter instrument. Another difference that is pointed out between the provisions of sec. 80 and the provisions of sec. 23(c) of the Ordinance and 60 of the Act is that the former are restricted by the negligence condition, which is not the case with the latter (Sussmann, op. cit., para. 299, p. 369; Chalmers IV, p. 268) but the stringency of sec. 80 is not enough to justify its retention (see Holden, op. cit., p. 229). In order to justify its retention we must distinguish the cases in which the protection of sec. 80 applies and that of secs. 23(c) and sec. 60 does not. This would be the position if there were cases in which a bank acted neither in the ordinary course of business nor negligently. The common view denies the existence of such a situation; every departure from the ordinary course of business imports an act of negligence (see Megrah, op. cit., p. 40; Batt, op. cit., p. 150). Chorley II, p. 89 observes that it is possible for a payment not in the ordinary course of business to have been made with caution since sometimes it is reasonable to deviate from normal practice. The latter remarks would be correct if deviation from normal practice to a more cautious course of conduct meant an act “not in the ordinary course of business”. It seems to me that this requirement is not to be construed in such manner. A further difference in the phraseology of the sections is that secs. 19 and 60 only deal with order cheques which is not the case with sec. 80. But in any event, as we have said, there is no need to protect the bank in the case of bearer cheques (Chalmers IV, p. 268; Holden, op. cit., p. 229; Chorley II, p. 89). The difference affecting the materiality of the protection will be considered later. Although, as we have said, sec. 80 is still material, it is to be assumed that the historical reason for its enactment was not to create the said distinction between it and sec. 60 but the wish to emphasize the bank's protection in the case of crossed cheques within the framework of an Act covering this subject, for though it may add nothing it can do no harm.
135 Megrah, op. cit., p. 39. The best way to settle the matter is to lay down one section that protects the paying bank and not a special section dealing with crossed cheques. See Holden, op. cit., p. 39.
136 The position is different under English law with the enactment of sec. 4 of the Cheques Act.
137 It is regrettable that the legislature is intent upon continuing to use this dual nomenclature (see Note in (1957) 224 Law Times, 207). The Australian com mittee appointed to review the Bills of Exchange Act, 1909–1958 has interestingly enough decided to retain this nomenclature as well (Report, para. 150, p. 27). According to the Report, the terms were in all reason suited to their purpose. Over many years a clear and extensive case law had been built up on them and any change would create confusion. The Committee was of the opinion that a change would bring no benefit to any party whatsoever. The picture thus far described shows that the confusion is a legacy of the existing law, the product of a case law over many years. The provision of a standard terminology would remove confusion and lead to a consistent and reasonable law.
The current confusion is increased by the definitions of “negligence” which point to ‘the ordinary course of business’”. Sussmann, op. cit., para. 300, p. 371, adopts the following definition: “The criterion is whether the payment of a particular cheque went beyond the ordinary course of business to an extent that should have aroused doubts in the mind of the banker”. Similar definitions are found in Lloyds Bank v. Savory [1933] A.C. 201, 221 per Lord Warrington; Note in (1932) 76 Sol.J. 583. Common practice may sometimes assist in determining the conduct of a reasonable person (see Mar]ani & Co. Ltd. v. Midland Bank [1967] 3 All.E.R. 967, 972); but supplementary tools alone are involved. Even the most settled practice may be negligent (Lloyds Bank v. Savory, ubi supra, p. 235 per Lord Wright; Chorley II, p. 105). As has been noted, the courts do not in fact distinguish sharply between the two concepts and mix them up.
138 No distinction is made in what follows between the drawee and the collecting bank. It can be assumed that the concept has a single meaning in this connection.
139 See Jacobs, op. cit., p. 239 note h; Bute v. Barclays Bank, ubi supra, pp. 741, 747.
140 [1929] 1 K.B. 40, 69.
141 Sussmann, op. cit., para. 300, p. 372.
142 National Housing Commission v. Cape of Good Hope Savings Bank Society (1963) 1 S.A. 230, 235; Batt, op. cit., p. 153; Note in (1932) 76 Sol.J. 583.
143 Ross v. London County Westminster and Parr's Bank [1919] 1 K.B. 678, 685–87.; Batt, op. cit., p. 153.
144 Chalmers IV, p. 268. On the effect of the Cheques Act in this regard see Part III below.
145 Bellamy v. Marjoribanks (1852) 155 E.R. 999, 1006.
146 Carpenter's Company v. British Mutual Banking Co., ubi supra, p. 187.
147 Lloyds Bank v. Savory, ubi supra; Note in (1932) 76 Sol.J. 583. See also Marfani v. Midland Bank, ubi supra, pp. 972, 973; Note in (1969) 85 L.Q.R. 8.
148 Excluding sec. 82 which protects a bank collecting a crossed cheque.
149 To enjoy the benefit payment need not be in cash to the person demanding it. The account of another customer of the bank may be credited or payment may be by cheque or by taking other measures. See Sheldon, op. cit., p. 26; Halsbury, ubi supra, p. 159.
150 Ogden v. Benas, ubi supra, pp. 516, 517; Arnold v. The Cheque Bank (1876) 1 C.P.D. 578, 585; Carpenter's Company v. British Mutual Bank Co. Ltd., ubi supra, p. 189; on appeal, ubi supra, p. 529 per Greer L.J.; Chalmers I, art. 263, p. 213; Byles II, p. 268; Slater, op. cit., p. 135; Crossley, op. cit., p. 212; Hamilton, op. cit., p. 133, note g. Today the situation is different in English Law. Under sec. 4 of the Cheques Act a collecting bank is protected even with regard to an uncrossed instrument. Chalmers IV, p. 306; Perry, F.E., “The Cheques Act, 1957 — The Ex perience at the Banks” (1967) Journal of Business Law, 107, 115.Google Scholar
151 Carpenter's Co. v. British Mutual Banking Co., ubi supra, pp. 529, 532 per Greer L.J. (in the majority view); Halsbury, ubi supra, p. 198.
152 Gordon v. London City and Midland Bank [1902] 1 K.B. 242, 275 per Collins M.R., 271, 282 per Stirling L.J. Carpenter's Co. v. British Mutual Banking Co., ubi supra, pp. 538, 539 per MacKinnon L.J. (in the minority).
153 A similar problem has arisen with regard to a collecting bank which instead of crediting its client's account only at the end of the process of collection credits his account before then and collects the money for itself. This problem is regulated by law; even in this instance the bank is protected. See sec. 82(b) of the Or dinance and sec. 4(1) (b) of the Cheques Act (previously sec. 1 of the Bills of Exchange (Crossed Cheques) Act, 1906). It is interesting to observe that the Australian Committee above mentioned recommended not to introduce a similar provision. The Report stated that a bank which has an interest of its own in a cheque must be treated like any other person. It is to be noted that if a bank waits and does not credit the account of the person demanding payment until the money is received from the drawee bank, an act of forgery may in the meantime be discovered. Nevertheless it should be remembered that it is a normal service to a customer whom the bank wishes to retain. The prospect of a forgery revealing itself in the meantime is generally not great and accordingly occasion for this distinction is doubtful.
154 In the U.S.A. protection is in fact afforded the collecting bank. See sec. 3–419(3) of the Commercial Code.
155 Ogden v. Benas, ubi supra, p. 517.
156 In Canada, following upon a protracted struggle in Parliament (House of Commons Debates, 1890, vol. 1, col. 1077 ff.) it was decided not to introduce a section corresponding to sec. 60 of the Act but a similar protection was admitted in respect of crossed instruments, without creating an unreasonable distinction. See Abel, A.S., “Overseas Influence of English Law—Canada, Crossed Cheques and Certified Cheques” (1961) 105 Sol.J. 877, 878.Google Scholar
157 The cited by Holden in (1951) 14 M.L.R. 33, 51.
158 The Australian committee above mentioned recommended giving protection to the collecting bank also in the case of uncrossed cheques. See para. 128, p. 21 of its Report. That is also the view of Holden in his article (supra, n. 88) 51.
159 See secs. 60 and 80 of the Act, the said sec. 19 and sec. 1 of the Cheques Act.
160 Sec. 80 of the Ordinance also contains severe conditions.
161 See sec. 60(b)(2) of the Ordinance.
162 The question of the importance of payment to which the protection applies is dealt with in Part II below.
163 See supra n. 161.
164 He can sue the other; it is also possible that the latter or some other person who obtains possession after the forgery may bear the loss. Actions between such persons can be based upon the underlying cause of action; the action on the bill does not exist after the bill is discharged.
165 The loss can revolve upon the person receiving the instrument from the forger by suing A.
166 Anglo-Palestine Bank v. Ashrai Bank Cooperative Society (1936) 8 P.L.R. 44, 45; Sussmannj op. cit., para. 266, p. 330. Lord Kenyon in Mead v. Young (1790) 100 E.R. 876, 877, held, in the minority that an action by an indorsee against the drawee on the cheque should be recognised notwithstanding that the payee's signature was forged. In this regard he compared the order cheque to a bearer cheque by ignoring the particular significance of a forged signature on an order cheque. The other judges in the case commented upon this error.
167 Geneva Bills of Exchange Act, art. 16(2); Geneva Check Act, art. 21. See Kessler, F., “Forged Indorsements” (1938) 47 Yale L.J. 863, 874CrossRefGoogle Scholar; Hudson, M.D. and Feller, A.H., “The International Unification of Laws Concerning Bills of Exchange” (1931) 44 Harv.L.R. 333, 354CrossRefGoogle Scholar; Farnsworth, E.A., “Insurance against Check Forgery” (1960) 60 Colum.L.R. 284, 303CrossRefGoogle Scholar; Chalmers IV, p. 212.
168 Kessler, ubi supra, p. 870; The German Law of Bills of Exchange and of Cheques, 1908, trans, by Leader, (1911) art. 76 at p. 19 and art. 23Google Scholar (cheques at p. 28); Cranford, W.G., “Differences between the English and the German Law Relating to Negotiable Instruments” (1957) 6 I.C.L.Q. 418, 428CrossRefGoogle Scholar (after the Geneva Acts).
169 Geneva Bills of Exchange Act, art. 40; Geneva Check Act, art. 35. See Kessler, ubi supra, pp. 864, 868, 869; Balogh, E., “Critical Remarks on the Law of Bills of Exchange of the Geneva Convention” (1935) 9 Tul.L.R. 165Google Scholar; (1936) 10 Tul.L.R. 36, 48, 49; Farnsworth, E.A., “The Check in France and in the United States—A Comparative Study” (1962) 36 Tul.L.R. 245, 266Google Scholar; id., “Insurance Against Check Forgery” (1960) 60 Colum.L.R. 284, 303; Hudson and Feller, ubi supra, p. 360. According to French law before the adoption of the Geneva Convention, protection extended to a person making payment at due date without having received warning not to do so (Art. 145 of the Commercial Code, 1807). See Boutiron, J., Le Chéque, théorie et pratique (1924) 451, 452Google Scholar; Dalloz, , Table 1932–36, Cheque 173Google Scholar; Dalloz, , Encyclopedie Juridique, Cheque (1956) para. 190, p. 427Google Scholar; Balogh, ubi supra, p. 48; Hudson and Feller, ubi supra, p. 354; Chalmers I, art. 263, p. 185. The Geneva Convention of 1912 adopted the French distinction between payment before due date and payment at due date. For the details of this Convention, see Lorenzen, op. cit., supra, n. 74, pp. 254–56. The French distinction rests on the grounds that if payment is demanded at due date the payer does not have sufficient time to make any investigation. As we have said, the payer generally has no means to do so and the distinction has no factual basis.
170 Kessler, ubi supra, p. 895.
171 See Part IV, para. 2(b) below for the duty of the drawee bank to honour cheques drawn by its customers.
172 Kessler, ubi supra, p. 895; Hudson and Feller, ubi supra, pp. 354, 361.
173 Accordingly the relief given by the Convention to the payer as against the possessor cannot be justified. The protection of both must be conditional upon absence of negligence.
174 See Part II below.
175 See sec. 60(a) of the Ordinance.
176 See sec. 60 of the Act. The phraseology of the other sections is different and I shall deal with this matter below.
177 Charles v. Blackwell (at first instance) ubi supra, pp. 549, 555; upheld, ubi supra pp. 151, 159, 162, 163; Barak, op. cit., p. 185; Kessler, ubi supra, p. 879; Paget, op. cit., pp. 275, 276; Chorley II, p. 77; Report of the Australian Committee, para. 139, p. 25.
178 See secs. 80 and 82 of the Ordinance, sec. 80 of the Act and sec. 4(e) of the Cheques Act.
179 Sec. 19 does not state that payment is treated as proper payment in due course but that an instrument complying with the conditions stipulated therein “shall be a sufficient authority to such banker to pay the amount of such draft or order to the bearer thereof, and it shall not be incumbent on such banker to prove that such indorsement or any subsequent indorsement, was made by or under the direc tion or authority of the person to whom the said draft or order was or is made payable either by the drawer or any indorser thereof”. Clearly, the importance of payment under this section is the same as payment under sec. 60 of the Act. See Chorley II, p. 81; Paget, op. cit., p. 279.
180 See supra n. 178.
181 Chorley I, p. 104.
182 Nor in the terms of secs. 19 and 60 of the Act.
183 And in the Act.
184 (1877) 2 C.P.D. 151, 158. The court followed the position taken up in the lower court, (1876) 1 C.P.D. 548.
Nor does the obligation of the drawer apply because of sec. 55(a) of the Ordinance and the Act since there was no dishonour, as will be later explained.
185 Ibid., 159.
186 Ibid., 162, 163. See infra n. 202.
187 There is some stronger ground for affording protection to the drawer in secs. 23(c) and 60 which provide that payment thereunder shall be deemed to be payment in due course.
188 Obviously if we say that the cheque has been discharged no further action is possible thereon by virtue of the law of bills.
189 As was said above, there is nothing in principle to prevent recognition of a duty of care even between remote parties to the bill.
190 On the law as it should be in this regard see also Part IV below.
191 Holden, op. cit., pp. 237, 238.
192 Judgment in the lower court was given on May 5, 1876, whilst the Act was passed on August 15, 1876, so that the judgment could have made some impression.
193 Cowen, op. cit., pp. 384, 385.
194 See supra n. 134.
195 Chalmers IV, p. 212; Paget, op. cit., p. 278; Halsbury, ubi supra, p. 200; Cowen, op. cit., pp. 384, 385. Contrast Chorley II p. 88.
196 See the requirements of secs. 30(c) and 20 of the Ordinance and 31(3) and 21 of the Act.
197 Charles v. Blackwell, ubi supra, pp. 157, 158; Chorley II, p. 106; Chalmers I, art. 263, p. 213.
198 Halsbury, ubi supra, p. 200 states that constructive acceptance is enough, referring apparently to the observations on this point in the text. Cowen, op. cit., p. 385 raises the question without answering it.
199 where the payee has not demanded payment in this manner, the post is not to be deemed his agent. See National Housing Commission v. Cape of Good Hope Savings Bank Society, ubi supra, p. 232.
200 This is also the conclusion of Kessler, op. cit., p. 879.
201 On this right see the Introduction above.
202 In Charles v. Blackwell, ubi supra, pp. 162, 163, it was said that upon payment under sec. 19 the true owner loses his ownership in the cheque and therefore his right to claim in conversion is negatived. One must understand this as applying only within the framework of the relations between the true owner and the drawee or drawer—the drawee acted in the manner provided for him by the legislature and his act and the act of the drawer if the cheque reaches him, should not be regarded as conversion. That is not to say that there exists here a transfer of ownership by the true owner which deprives him of all right of action against any other party. Chalmers I, art. 263, p. 213 and Chalmers III, p. 243 holds that the cheque upon payment is in the ownership of the drawer. As long as payment is made under a forged indorsement, all that the drawer obtains is protection against an action in conversion. This is not to be regarded as negativing the claim of the true owner against the person who has received payment. One must also remember that it is sufficient for a claim in conversion to prejudice the rights of the person entitled to immediate possession. It is therefore noteworthy that the authority cited by Chalmers in support of the rule that he states does not lend any support to it. In The Queen v. Watts (1850) 169 E.R. 398, the issue was a criminal charge for theft of a cheque from an employer. The cheque was drawn by the latter upon a bank which returned it to him after payment. The purpose of the law of theft is not merely to protect ownership but also possession and there fore one cannot infer from the conviction of the employee anything as regards ownership of the cheque. It should be added that the judgment dealt with a proper payment in due course to the holder and nothing is to be deduced therefrom with regard to payment by virtue of the protection (which then did not yet exist).
203 Chalmers IV, p. 268; Kessler, ubi supra, p. 879. The question arises whether it is possible to convert a bill that has been discharged.
204 In English law, sec. 4 of the Cheques Act.
205 On the underlying cause, no cause of action on the bill itself exists after it has been discharged. See also Kessler, ubi supra, p. 879; Falconbridge, op. cit., p. 559 (where sec. 50(2) of the Canadian Act is cited); Corker, , “Risk of Loss from Forged Indorsements, California Problem” (1952) 4 Stan.L.R. 24, 34.CrossRefGoogle Scholar
206 Chorley II, pp. 124, 125; Holden, op. cit., p. 222; Britton (1955) 7 Hastings L.J. 1, 42; Kessler, op. cit., p. 885; Bailey, op. cit., p. 492; Benjamin, , Treatise on the Law of Bills of Exchange (1889) 90Google Scholar; Negotiable Instruments, American Institute of Banking, Section American Bankers Ass. ed., by Landis, (New York, 2nd ed. 1947) 209Google Scholar; Lewis v. Jay (1933) 3 D.L.R. 763, 768; Thomas, S., Note in (1933) 27 Ill.L.R. 564Google Scholar; Williams, J.P., Note in (1958) 56 Mich.L.R. 1188CrossRefGoogle Scholar; Note in (1930) 30 Mich.L.R. 1108, 1109. That was the position also under Ottoman Law. (See Laniado, M., Kovetz HaHukim HaOttomanim, (1929) 220Google Scholar).
207 Defiance Lumber Co. v. Bank of California 41 Pac. (2d) 135, 138 (1935); Sussmann, op. cit., para. 300, p. 372; Farnsworth, , “Insurance Against Check Forgery” (1960) 60 Colum.L.R. 284, 312CrossRefGoogle Scholar; Woodward, , “The Risk of Forgery or Alteration of Negotiable Instruments” (1924) 24 Colum.L.R. 469, 474, 475CrossRefGoogle Scholar; Bailey, op. cit., p. 495; “Allocation of Losses from Check Forgeries under the Law of Negotiable Instruments and the Uniform Commercial Code” (1953) 62 Yale L.J. 417, 429, 430; Slavers, , Note in (1952) 51 Mich.L.R. 103CrossRefGoogle Scholar; Note in (1930) 30 Colum.L.R. 729.
208 Kessler, op. cit., p. 887; Woodward, op. cit., p. 475.
209 See sec. 23 (a) at end of the Ordinance and sec. 24 of the Act. See also Chorley II, p. 125.
In the U.S.A. and Canada a claim of the drawer to credit his account is denied if he has not notified the drawee of the forgery within a certain time (usually one year) from the date he became aware of it. See Farnsworth, op. cit., p. 312; Woodward, op. cit., p. 477; Kessler, op. cit., p. 895; Falconbridge, op. cit., pp. 543, 544, citing sec. 49 (3) (4) of the Canadian Act.
210 Barak, op. cit., p. 195. Paget, op. cit., pp. 277, 278, observes that payment made by the drawee to the true owner is not payment of the bill but compensation for the tort (conversion) committed by the drawee; hence he cannot charge the drawer's account. This is not acceptable. The relations between drawer and drawee do not need to be influenced by the particulars of a cause of action of the true owner against the drawee. What is determinative is that the amount of the bill is paid to the person to whose order it was drawn and that by virtue of the latter's ownership therein. Paget's conclusion would yield an unreasonable result under which the drawee would suffer loss whilst the drawer would gain. Paget also senses this and therefore adds a serious moral warning to the drawer who nevertheless refuses to have his account charged—“it would be unreasonable and shabby in the customer if he refused in such case to be debited”. It is obviously desirable to base the rules in question on legal regulations mandatory and reasonable rather than a desirable arrangement with the help of moral obligations.
211 Barak, op. cit., pp. 191, 195; Kessler, op. cit., p. 879; Chalmers IV, p. 212; Chalmers I, art. 263, p. 186; Chorley II, p. 88; id., “The Cheque as Mandate and Negotiable Instrument” 60 J. Institute of Bankers 391, 395.
212 Barak, op. cit., pp. 192–94; Kessler, op. cit., pp. 878, 879, 891–93, 896; Britton, op. cit., p. 42; Negotiable Instruments, loc. cit., supra, n. 206; Woodward, op. cit., p. 475; Corker, op. cit., p. 34; Falconbridge, op. cit., pp. 558, 559, citing sec. 50 of the Canadian Act. The drawee is entitled to sue the person receiving payment or the collecting bank even when he would be able to debit the drawer's account.
See (1953) 62 Yale L.J. 417, 432; Corker, op. cit., pp. 39, 40. It should be re membered that the collecting bank is protected if it complies with the conditions of sec. 82 of the Ordinance. This protection may presumably protect it also against the claim in question.
213 The drawer's rights of action against the person receiving payment or the col lecting bank are doubtful in the U.S.A. See Barak, op. cit., p. 198; (1953) 62 Yale L.J. 417, 432; Corker, op. cit., pp. 28, 29; Britton, op. cit., p. 44. As regards the drawer against the person receiving payment under English law, see Ogden v. Benas, ubi supra, p. 516 per Keating J. It was said there that sec. 19 does not affect the existence of this right. See also Chalmers IV, pp. 212, 268. These English authori ties are to be understood as applying only to the state of affairs described in the text. Where the person possessing the instrument is paid by the drawee and the true owner obtains payment from the drawer (or from the drawee who debits the customer's account) the said right of action should not be recognized. The drawer is not to be enabled to benefit as a result of an act of forgery.
214 A separate part has been devoted to this subject since inclusion of it in one of the other parts would affect the continuity of the discussion therein. Where this subject has its projections to one of the questions dealt with in this study, re ference is made on each occasion to that Part.
215 Cowen, op. cit., pp. 441, 442; Chalmers IV, pp. 300, 301.
216 I have already dealt above with the meaning of secs. 4 and 5 of this Act.
217 The Act only deals with cheques. The intention was to obviate waste of time by bankers. This protection was in continuation of the protection against payment of a cheque having a forged indorsement which also only applied to cheques.
218 Cowen, op. cit., p. 444; Chalmers IV, p. 301.
The corresponding Act in South Africa protects the paying bank only if it pays another bank or credits its customer's account. It is not required that the customer shall be the actual payee. See Cowen, op. cit., p. 446. The South African Act is, in one view, an improvement on the English Act (Smout, Book Review of Cowen in (1968) 31 M.L.R. 115–17) and as will appear later there is some basis for this view. According to sec. 65(1) of the proposal made by the Australian Committee, ubi supra, (para 142, p. 25 of its Report) the paying bank should only be protected when it pays to a collecting bank. Apparently this proposal embraces also the case of a negotiated cheque. Reference to further corresponding statutes are to be found in Chalmers IV, p. 305.
219 Cowen, op. cit., pp. 447, 448; Chalmers IV, p. 301.
220 As was said above, it is doubtful whether there is an indorsed signature here.
221 Cowen, op. cit., p. 444; Chalmers IV, p. 210.
222 Chalmers IV, p. 303.
223 See Holden, , “The Cheques Act, 1957” (1957) Journal of Business Law, 353, 354.Google Scholar
224 It appears that the banks themselves did not anticipate so broad a protection; they seemingly feared that this would lead to a decrease in the use of cheques (see note in (1958) 71 Harv. L.R. 1374, 1376).
225 This requirement is mentioned by Byles II, pp. 267, 271; Chorley II, p. 91; Chalmers IV, pp. 210, 211, 301–3; Perry, op. cit., p. 107. A similar notice was drafted by the South African banks although there the matter was less necessary (see supra n. 218). See Cowen, op. cit., p. 443.
226 Megrah, op. cit., p. 41; Chalmers IV, p. 302; Byles II, p. 272; Paget, op. cit., pp. 245, 281; Cowen, op. cit., p. 449; Holden, ubi supra, p. 354; Note in (1958) 71 Harv. L.R. 1374, 1376.
227 Cowen, op. cit., p. 448 (he also mentions the relevant South African Act and deals with the effect of the South African banks' circular on this point). The view of most commentators is different. The bank must, in their view, observe the re quirement of the indorsement when the cheque is negotiated thereunder, even after the Cheques Act. See Chalmers IV, p. 302; Crossley, op. cit., p. 211; Thorn, W. J., Banking (1962) 121, 122Google Scholar; Perry, op. cit., p. 108. Crossley relies on sec. 31(3) of the Act. The provisions of the Cheques Act, as construed in the text, are not inconsistent with this section. The Cheques Act does not define the rules of negotiability; it is intended to protect banks just as other provisions in that regard, despite defects in the cheque.
228 Cowen, op. cit., pp. 444, 448.
229 Byles II, pp. 271, 272; Chalmers IV, p. 211.
230 Subsec. (2) of this section deals with instruments which are not cheques and provides that upon payment they are discharged despite lack of indorsement or irregular indorsement. Apparently nothing turns on the variation of language with regard to the materiality of payment. For some reason the legislature wished to avoid saying that payment of an instrument which does not come within the definition of a cheque should be deemed payment in due course.
231 Chorley II, p. 71. Sheldon, op. cit., p. 27, writes that sec. 1(2) enabled the repeal of the Cheques (Amendment) Act, 1932. In his view therefore sec. 1 deals with forgery. It is more correct to say that sec. 5 of the Cheques Act rendered the 1932 Act superfluous.
232 Richardson, op. cit., p. 164.
233 Paget, op. cit., p. 281; Chorley II, p. 70; Perry, op. cit., p. 115. Cowen, op. cit., p. 452 says that this argument is not tenable since sec. 24 subjects its provisions to the other provisions of the Act. In 1957 the legislative intention is not to be as certained from the provisions of the Act of 1882. The legislature is free to change or to cut down the provisions of an earlier law.
234 And if so, why did the legislature not draft sec. 1 like sec. 4(3) of the Cheques Act by prescribing that for the purpose of the ordinary course of business, within its meaning in regard to the protection of secs. 60, 80 and 19, a bank has no need to examine the form of the indorsements? The legislature drafted sec. 1 as it did so that it should also apply to cases where there was no forged indorsement, such as where the signature of the person demanding payment is a receipt. In this sense its meaning is broader than that of sec. 4 of the same Act.
235 Chorley II, p. 70; Chalmers IV, pp. 211, 306; Byles II, pp. 267, 271; Cowen, op. cit., p. 452; Richardson, op. cit., p. 116. Is it possible to reconcile these observations of Chorley and Richardson with their observations cited above (see supra nn. 231 and 232)?
236 Obviously any solution may be more convenient for one or other party, such as absence of the need of a signature, examination of signatures, conducting inquiries; but the importance of this factor is, in my opinion, nullified in relation to the other factors involved.
237 (1953) 62 Yale L. J. 417, 434, 435.
238 Barak, op. cit., p. 199.
239 Hudson and Feller, op. cit., pp. 354j 361 ; Kessler, op. cit., p. 895.
240 An example of such a list can be found in (1953) 62 Yale L. J. pp. 475, 476. It is there suggested as a basic principle to place the loss upon the negligent party (see ibid., pp. 473, 474).
241 It is desirable also that these duties should be so published that they reach the attention of everyone. The duties of the drawer should be printed on the cover of the cheque book and the duty of the indorsee on the cheque itself.
242 The principle of distributing the loss could also replace its imposition upon the negligent party, except that for the reasons stated in the text, this should not be done.
243 Barak, op. cit., pp. 199–202; (1953) 62 Yale L. J. 417, 474; Corker, op. cit., p. 31.
244 Placing this task upon the drawee bank is preferable to placing it on the collecting bank. First, the drawee bank has a part in every cheque, which is not the case with the collecting bank; secondly, it is desirable to distribute the loss among the drawers when they purchase their cheque books which in any case costs money, rather then among the persons demanding payment. I deal below with cheques alone.
245 A drawee bank which has paid a cheque with a forged indorsement may (even when the protection does not extend to it) debit the account of its customer if he has been negligent. The bank is entitled not to do so but to claim from the person receiving payment. The latter cannot defend such a claim by relying upon the drawer's negligence nor can he sue the drawer. This is an unacceptable result. See (1953) 62 Yale L. J. 417, 432; Corker, op. cit., pp. 39, 40.
246 Charles v. Blackwell, ubi supra, p. 156; Paget, op. cit., pp. 166, 167; Chorley, , “The Cheque as Mandate and Negotiable Instrument” 60 J. Institute of Bankers, 391, 394.Google Scholar
247 Charles v. Blackwell, ubi supra, p. 157; Canadian House of Commons Debates, 1890, vol. 1, col. 1078, 1084 per Sir John Thompson, col. 1081 per Mr. Weldon.
248 Chorley, ubi supra, p. 394; Canadian House of Commons Debates, ubi supra, col. 1082 per Mr. Patterson.
249 Ibid. col. 1083, 1084 per Sir John Thompson.
250 Ibid. col. 1078 per Sir John Thompson who did not point out that a bank paying a cheque having a false indorsement is not acting in accordance with its customer's instructions.
251 Corker, ubi supra, p. 31; Canadian House of Commons Debates, ubi supra, col. 351 per Sir Richard Cartwright.
252 Charles v. Blackwell, ubi supra, p. 157; Ogden v. Benas, ubi supra, p. 516; Stapelberg v. Barclays Bank D.C. & O., ubi supra, p. 125; Byles II, p. 267; Chorley, II, p. 77; Batt, op. cit., p. 151; Canadian House of Commons Debates, ubi supra, col. 352 per Mr. Mulock, col. 1078, 1084 per Sir John Thompson, col. 1081 per Mr. Weldon.
253 Ibid., col. 352 per Mr. Mulock, col. 1078, 1084 per Sir John Thompson.
254 Paget, op. cit., pp. 241–44.
255 Ibid., pp. 244, 255–58; Chorley I, p. 113. According to Kessler, op. cit., p. 896, this duty of the banker is recognized in the case law only when he acts intentionally or with negligence, when he thinks that the drawer's account does not show a balance in his favour. The cause of action against the bank is, as we have said, both in contract and in defamation; neither are restricted by the condition of negligence. In view of the precedents as above, it appears that a bank which does not pay a cheque regular on the face of it even without negligence (for instance, when the bank wishes to make inquiries) will be liable to its customer.
256 Paget, op. cit., p. 255; Chorley I, p. 116.
Regarding this duty of the bank on the continent, see Hudson and Feller, op. cit., p. 361.
257 Holden, op. cit., p. 224.
258 Canadian House of Commons Debates, ubi supra, col. 1985 per Sir John Thompson.
259 Ibid., col. 1086 per Mr. Kenny.
260 Charles v. Blackwell, ubi supra, p. 158.
261 “Holder” is defined in sec. 1 of the Ordinance and sec. 2 of the Act. See Sussmann, op. cit., para. 265, p. 238.
262 Sec. 60(a) of the Ordinance, sec. 59(1) of the Act. See Chorley II, p. 70.
263 (1953) 62 Yale L. J. 417, 423.
264 Sec. 30(b) of the Ordinance, sec. 31(2) of the Act. See Bailey, op. cit., p. 493.
265 Secs. 28(a) and 37 of the Ordinance, secs. 29(1) and 38 of the Act. See Miller v. Race (1758) 97 E.R. 398; Ingham v. Primrose (1859) 141 E.R. 745; Raphael v. Bank of England (1892) 139 E.R. 1030; Britton, op. cit., pp. 454, 455; Richardson, op. cit., pp. 37, 38; American Jurisprudence, (2nd ed.) vol. 11, pp. 803, 804, 807.
266 The debate in the Canadian House of Commons of 1892 has been mentioned a number of times in this discussion. Eventually no provision parallel to that of sec. 60 of the Act was enacted in the Canadian Act and the said protection does not apply there (see Hinton Electric Co. v. Bank of Montreal (1903) 9 B.C.R. 545). As against this, a bank paying a crossed cheque with a forged in dorsement is protected under Canadian law. (see n. 164 above). According to a poll taken among American bankers, it seems that they do not support the introduc tion into American law of a provision corresponding to sec. 60 of the Act (Turner, R. B., “A Factual Analysis of Certain Proposed Amendments to The Negotiable Instruments Law”, (1929) 38 Yale L. J. 1047, 1050, 1051CrossRefGoogle Scholar). Kessler, op. cit., p. 895 observes that this surprising result indicates the fact that banks deal with cheques not only as drawees but also as receivers of payment. Never theless it is difficult to understand why the bankers do not desire the protection even if it is not general. It would appear that the true explanation is that the banks did not understand the questionnaire nor went into it carefully (Turner, ubi supra, p. 1051, note 11).
267 when a cheque has not yet been paid, one may recognize the claim of the person having it in his possession in good faith and without negligence against the drawee bank.
268 So that even when the true owner, suing the drawee bank is negligent, but his negligence did not cause damage to the bank, will he succeed in his claim.
269 Chorley, , “The Cheque as Mandate and Negotiable Instrument” 60 J. Institute of Bankers, 391, 392Google Scholar, requires this form of instrument. See also Holden, , “Sug gested Reform of the Law Relating to Cheques” (1951) 14 M.L.R. 33CrossRefGoogle Scholar; (1953) 62 Yale L. J. 417, 472, 473.
270 This can be recorded on the back of the cheque but may be unnecessary if it is already done.