Marshall v Colonial Bank of Australasia Ltd

[1904] HCA 31

1 CLR 632

[ ] W. L. MARSHALL AND ANOTHER

THE COLONIAL BANK OF AUSTRALASIA Banker and customer--Cheque-Fraudulent - alteration of amount after signature- 1904.

Duty of customer to take precautions against forgery.

As between banker and customer there is no absolute and unqualified duty on August 10, 11, the part of the customer, in drawing a cheque, to take precautions against forgery.

Young v. Grote, 4 Bing., N.C., 253, considered and distinguished. All contractual relations impose upon the parties a mutual obligation that neither shall do anything to hamper the other party in performing the contract, or to delay him in performing it.

The mere fact that a customer signs a cheque upon which there are spaces before the amount in words and in figures is not sufficient evidence of such breach of duty towards his banker as will give rise to estoppel or to a claim for damages, if another person, subsequently to such signature, fraudulently inserts in such spaces other words and figures, SO as to increase the amount, and the banker is thereby induced to pay away the larger amount.

Decision of Full Court, 29 V.L.R., 804; 25 A.L.T., 255, reversed.

APPEAL from the decision of the Full Court. The plaintiffs, W. L. Marshall and H. J. Day, and one R. Myers, were the executors of Ann Myers, and, as such executors, kept a banking account with the Colonial Bank of Australasia, Ltd., at Melbourne. This account was, at all material times, in credit There was evidence that the bank was only to pay cheques signed by the three executors. It was the custom that Myers should fill

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up the cheques and forward them to the other executors for their signature, after which they were returned to and signed by him and issued. Myers, on different occasions, drew open cheques for £10, £2 6s. 4d., £50, £10, and £10 respectively. He wrote the AND ANOTHER amounts in words and in figures, SO as to leave considerable spaces before these amounts, and, in writing the amounts, he began each number with a capital letter. These cheques were forwarded to the other executors, who signed them as they were drawn, and returned them to Myers, who wrote in other words and figures, SO that the cheques appeared to be for the following amounts respec- tively, £110, £32 6s. 4d., £150, £110, and £110. Myers then cashed the cheques, receiving the larger amounts, and appropriated the moneys in excess of the smaller amounts to his own use. The plaintiffs, on the refusal of the bank to pay to them the amount alleged by them to be to the credit of the executors, brought an action claiming £430. The bank set up the following defence (inter alia) :- " If the cheques were fraudulently altered and increased in amount, such cheques were drawn by the plaintiffs and Myers without reasonable care or precaution, and in a manner and form

SO negligent that they enabled and permitted the alterations and increases to be made, and the bank paid such cheques SO altered in good faith, and without knowledge of any alteration, and without negligence. It will contend that the plaintiffs, by reason of the aforesaid facts, are estopped from alleging that the cheques

SO altered and increased were not their cheques, or drawn by them, or with their authority, and from alleging that the said cheques were in fact fraudulently altered and increased in amount."

The action was tried before Madden, C.J., and a jury of six. The following questions, amongst others, were put to the jury, and they gave the answers set opposite to them respectively :-

1. Were the cheques, or any of them, drawn by the plaintiffs negligently ? Answer-Yes.

3. If you answer No. 1 in the affirmative, then could the bank, by the exercise of ordinary care and caution, have avoided paying the cheques SO altered ? Answer--No.

4. Were the cheques altered and increased by Myers with the knowledge and authority of the plaintiffs. Answer-No.

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In his charge to the jury, Madden, C.J., dealing with the first question above set out, said :- I will proceed to tell you what I refer to there. If a customer of a bank is drawing a cheque upon that bank, it appears, according to our law (as I think it still exists), that the customer is bound to avoid such negligence in drawing out his cheque as will unreasonably expose the banker to the risk of having to pay more than the proper amount of the cheque which was drawn out by such customer, that is to say, nobody is bound to suppose that anybody else will be a criminal, nor that anybody into whose hands the instrument will come will commit a forgery upon it.

But if you draw a cheque in a manner which a jury thinks is SO negligent that it induced or caused opportunity to a person who chances to be desirous of committing a forgery, to effect that forgery, SO that the banker is exposed to the paying of a larger amount than you (the cus- tomer) intended when you signed the cheque, then the law is that if a jury is of opinion that such action of the customer amounts to negligence, and negligence of such a kind as, in the opinion of the jury, ought to preclude him from complaining of the fact that the banker paid the altered cheque, then the customer cannot complain against the bank." The jury having answered the questions as above set out, gave a general verdict for the defendant, and judgment was entered accordingly.

The plaintiffs thereupon appealed to the Full Court from the judgment, and, in the alternative, moved for a new trial. The appeal, which was heard by a'Beckett, Hodges and Hood, JJ., and is reported 29 V.L.R., 804; 25 A.L.T., 255, was dismissed with costs.

The plaintiffs now appealed to the High Court. Coldham and Starke for the plaintiffs, appellants. It was not pleaded that there was an implied contract, and that defence cannot now be relied on. There was no evidence of any contract at all.

[GRIFFITH, C.J.-It must be a contract by implication of law.] In order to get an implication there must be evidence of such a state of facts as will give rise to an implication.

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[GRIFFITH, C.J.-The implication arises from the relationship H. of banker and customer, not from the evidence.]

Even in that case there must be evidence on the matter. The appellants might have been able to call evidence that the re- spondent did not act on any such implied contract. If the defence be based upon contract, this extraordinary result follows, that the banker would have a cause of action against his customer for not drawing his cheques in the agreed manner. So in every case where the customer omits to observe the contract the banker must recover nominal damages at the least. If the Full Court intended to decide that this case was governed by Young v. Grote, 4 Bing., 253; 12 Moo. C.P., 484, that case was not decided on contract.

[GRIFFITH, C.J.-There were four opinions there upon four different grounds.

O'CONNOR, J.-It is said in Scholfield v. Londesborough, (1896) A.C., 514, that it was decided on contract.]

Suppose the action is based on contract, then, unless it was in the contemplation of the parties, or was the natural and reason- able consequence of filling up the cheque in the way it was tilled up, that a larger amount would subsequently be inserted, the respondent cannot succeed. In Beven on Negligence, (2nd ed.), vol. II., pp. 1,575, et seq., Young v. Grote (supra) is cited on the question of estoppel, and as laying down the principle that a person who misleads his banker is responsible. With that principle the plaintiffs do not disagree. In Scholfield v. Londes- borough, (1895) 1 Q.B., 536; (1896) A.C., 514, it was decided that, in the case of bills of exchange, drawn as this cheque was, the maker is not liable for a subsequent forgery. See also Orr V. Union Bank of Scotland, 1 MacQ., 513, at p. 522; Robarts V. Tucker, 16 Q.B., 560, at p. 579.

[GRIFFITH, C.J.-It seems to me that the respondent must go this length, that if a person draws a cheque in such a way as to leave room to insert other words, and SO increase the amount of the cheque, any other person who has possession of the cheque has his implied authority to put in such other words.]

That may apply in the case of a blank cheque. Once the contract is complete between the maker and the holder of a cheque, there is no difference between a cheque and a bill of

1 CLR 636

exchange. There is no authority to be found laying down any

obligation to fill up a cheque in any particular manner. If there is a duty not to draw a cheque in an unusual manner, it is a question for the jury what is an unusual manner ? What is unusual for one person may be usual for another. As between banker and customer the bank has to look after itself, and satisfy itself that the cheque is the proper cheque of its customer. As to Young v. Grote (supra) see also Halifux Union v. Wheelwright, L.R., 10 Ex., 183; Imperial Bank of Canada v. Bank of Hamilton, (1903) A.C., 49; Union Credit Bank v. Mersey Dock's and Harbour Board, (1899) 2 Q.B., 205, at p. 210; Farquharson Bros. V. King &Co., (1902) A.C., 325, at p. 334.

(1) The relation of banker and customer involves no duty on the part of the customer to draw his cheques in such a manner that facilities for fraud are not afforded, nor has the customer any duty to take reasonable care or precaution that opportunities for fraud are not afforded. Apart from banker and customer no such duty lies upon anybody. The real protection for the banker in such cases is the criminal law. (2) Supposing that there is such a duty, the appellants were not in fact guilty of any neglect of that duty. That is, there was no evidence of neglect of duty. (3). Assuming that there were both a duty and a breach of that duty, the loss that occurred was not the reasonable and probable consequence of the breach. The appellants' act was not the proximate cause of the loss. The proximate and direct cause was the forgery. (4). The defendant bank was guilty of contributory negligence. As to (1) the respondents are forced to admit that a man may be as reckless as he pleases in issuing negotiable instruments and other mercantile documents to the world. There is no principle of law making a man liable for SO acting. It is, however, contended for the respondent that there is a special obligation between banker and customer, viz., that the customer must take reasonable care to protect his banker. But there is no more reason for protecting the banker in the one case than there is for protecting the public in the other.

[O'CONNOR, J.-The customer lends his money to his banker, and the banker undertakes to pay it back to the customer on his order.

If he dishonours the order he may be liable in an action.

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Must there not be a relative obligation on the customer ? Can he make the banker's obligation unreasonably onerous ? ]

The customer is bound not to make misrepresentations to his banker or to mislead him. A man is bound not to mislead his agent by his acts. Has the act of the appellants misled the bank, or was it the act of the defendant Myers ? The duty put by the respondent is that the customer is liable for every incidental loss following upon his act, i.e., every loss arising ex occasione mandati. Such a principle if it exists should apply throughout the whole range of law. If the whole cheque were a forgery the banker would have to bear the loss; Hall v. Fuller, 5 B. &C., 750. But the result of the defendant's contention is that, if a space is left, then, if it is skilfully filled up by a forger, and in a manner that a prudent man could not be expected to anticipate, the banker bears the loss; if clumsily, and in a manner that a prudent man ought to anticipate, the customer bears the loss. Then a question would arise what degree of care must be used by the customer; must it vary with the time and place of the issue of the cheque, with the ink or paper used ? Is it to be the reasonable care of a prudent man ? In Foley v. Hill, 2 H.L.C., 28, the relation of banker and customer was defined as being simply that of debtor and creditor with a super-added obligation, imposed by the custom of bankers, to honour the drafts of the customer. If this other duty on the part of the customer had existed it would not have escaped the notice of the Court. It is nowhere suggested in the Instruments Act 1890 (Victoria), which is a codification of the law, that this duty exists; if it does exist, it is an extraordinary thing that it is not stated in that Act. See secs. 21, 25, 65. The banker is bound to know his customer's signature, and if he pays a cheque bearing a forged signature, he must bear the loss. Why then should he not also have the responsibility of investigating the amount of the cheque ?

[GRIFFITH, C.J.-May not the case be brought under sec. 65 of the Instruments Act to a question of estoppel

Yes. The question is, is there any such duty as alleged, which operates as an estoppel This supposed duty not to facilitate fraud has been negatived in the cases of (a) the acceptor of a bill

1 CLR 638

OF of exchange, (b) merchant's orders for goods, (c) the custody of

seals and documents, (d) the issue of mercantile documents such MARSHALL

as the certification of shares, and (e) the makers of promissory notes. As to (a), see Scholfield v. Londesborough (supra); THE COLONIAL

Imperial Bank of Cunada v. Hamilton, (1903) A.C., 49; Lea V. Graham, (1862) 1 S.C.R. (N.S.W.), 288; Bank of Australasia V. Erwin, 1 W.W. &A'B. (L.), 70; Burchfield v. Moore, 3 El. &B., 683. As to (b), see Union Credit Bank v. Mersey Docks, (1899) 2 Q.B., 205, at pp. 210, 214; Farguharson Bros. v. King &Co., (1902) A.C., 325, at pp. 336,342 As to (c), see Bank of Ireland V. Trustees of Evans's Charities, 5 H.L.C., 389, at pp. 410, 413; The Mayor &. of the Staple of England v. Governor and Company of the Bank of England, 21 Q.B.D., 160 Swan v. North British Australasian Co., 2 H. &C., 175, at p. 180; Freeman v. Cooke, 2 Ex., 654; Arnold v. Cheque Bank, 1 C.P.D., 578; Northern Counties of England Fire Insurance Co. v. Whipp, 26 Ch. D., 482; Patent Safety Gun Cotton Co. v. Wilson, 49 L.J.Q.B., 713. As to (d), see Whitechurch Ltd. v. Cavanagh, (1902) A.C., 117. As to (e), see Holmes v. Trumper, 7 Amer. Rep.,661; Greenfield Savings Bank v. Stowell, 25 Amer. Rep., 67; Burrows v. Klunk; 14 Amer. State Rep., 371; Brown v. Bevan, 9 N.Z.L.R., 487. The argument for this duty existing is based on Young v. Grote (supra), and on Halifux Union v. Wheelwright, L.R., 10 Ex., 183.

[GRIFFITH, C.J.-That was a case where an arbitrator had found that the loss arose from the plaintiff's negligence, and there was no way of getting behind that finding.]

It seems, also, to go on the exploded principle in Lickbarrow V. Mason, 6 T.R., 131, viz., that, of two innocent persons, he shall suffer who has done most to bring about the loss. If this principle does exist between banker and customer, it is an exception to the general law. It is true that in Marcussen v. Birkbeck Bank, 5 T.L.R., 463; id., 646, the case need not have been sent back for a new trial if the principle does not exist. The case, however, has not been reported in the authorized reports, and it was decided before Scholfield v. Londesborough (supra). [They also referred to Société Générale v. Metropolitan Bank, 27 L.T. (N.S.), 849.] The limit of estoppel is laid down in Bank of England V. Vagliano Brothers, (1891) A.C., 107. At page 113 the true

1 CLR 639

rule is stated, viz., that if a customer actively misleads his banker H. by some misrepresentation by act, conduct, or words, even though innocently, the customer is liable. There must be some direct misrepresentation of fact. (2) If the duty exists, there was no evidence of negligence on the part of the appellant. The mere fact of there being blank spaces left before the amount is not in BANK OF itself evidence of negligence; Scholfield v. Londesborough, (1895) 1

Q.B., at p. 542. See also Curr v. London &N. W. Ry. Co., L.R., 10 C.P., 307. (3) Assuming the duty, and its breach, the loss occasioned was not the reasonable and probable consequence of the breach. See Barendule v. Bennett, 3 Q.B.D., 525; Mayne on Damages, 7th ed., p. 48: Ewart on Estoppel, pp. 28 et seq. (4) As to contributory negligence, the finding of the jury was wrong. This is a question to be decided by looking at the cheques. Is it reasonable to assume that the bank took reasonable care: The alterations are such as should, at least, have put the bank upon inquiry. If the Court thinks, upon this question, that the evidence was such that no reasonable man could have come to the conclusion to which the jury came, there should be judgment for the appellant or a new trial. Scown v. Haworth, 24 V.L.R., 313 20 A.L.T., 102; 25 V.LR., 88; 21 A.L.T., 36. (5) As to the settlement.

[GRIFFITH, C.J.-It would be more convenient to hear Mr. Bryant upon that question first.]

Bryant and Schutt, for the defendant bank respondent. The argument that there is not owing by a customer to his banker a duty to SO draw his cheques as not to facilitate fraud, is against the whole current of English authority, the text writers, and the law in America. That such a duty exists is supported by reason and good sense. In order to find out what the duty is, it is neces- sary to see what the relationship is. It used to be held that the relation of banker and customer was that of debtor and creditor with a super-added duty on the part of the banker to honour his customer's cheques. In addition to that there unquestionably exists the relation of principal and agent, and it is out of that relation that the duty of the customer arises.

[GRIFFITH, C.J.-It is decided in Foley v. Hill (supra), that that relation does not exist to its full extent.]

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That is only as to the investment of money. If Foley v. Hill lays down generally that the relation of principal and agent does not exist, it has been departed from in later decisions of the House of Lords. See Capital and Counties Bank v. Gordon, (1903) A.C., 240.

[GRIFFITH, C.J.-Of course the banker is agent for his customer to collect crossed cheques. But it does not follow that he is the customer's agent quoad moneys at the customer's credit.]

The relationship cannot be split up, but at any particular time it must be taken as a whole. It is out of the combination of relationships that the duty arises. That relationship is recognized in Vagliano v. Bank of England (supra), at p. 114; in Scholfield V. Londesborough (supra), at pp. 536 and 545; in Capit it and Counties Bunk v. Gordon (supra), at p. 245; in the Instruments Act 1890, sec. 76; and in Paget's Law of Banking, at p. 66. However the duty arises, it does exist, and it may be expressed as the duty SO to act as not to facilitate fraud, or as not to mis- lead the banker into paying an amount different from that in the original cheque. It is the basis of the decision in Young V. Grote (supra), at least of Best, C.J., and has been recognized in the following cases :-Foster v. Green, 7 H. &N., 881; Société Générule v. Metropolitan Bank (supra) Halifax Union v. Wheel- wright (supra): Bank of Ireland v. Evans's Trustees (supra) Orr v. Union Bank of Scotland (supra); Arnold v. Cheque Bank (supra) Johnson v. Credit Lyonnais Co., 3 C.P.D., 32; London and S. W. Bank v. Wentworth, 5 Ex. D., 96, at p. 104; Bunk of England v. Vagliano Brothers (supra), Marcussen V. Birkbeck Bank (supra) (the charge in which case is reported in Journal of Institute of Bankers, vol. IX. (1890), at p. 404); Leather Manufacturers' Bank v. Morgan, 117 U.S.R., 96, at p. 114; Critten v. Chemical National Bunk, 171 New York R., 219, which is after Scholfield v. Londesborough (supra). Imperial Bank of Canada v. Bank of Humilton (supra) 31 Canada S.C.R., 344, is distinguishable, as it was not a case of banker and customer. In Scholfield v. Londesborough the House of Lords, though invited to deal with Young v. Grote (supra), expressly excepted it and the relation of banker and customer from their decision. The current of the text books is in the same direction. See Willis's

1 CLR 641

Law of Negotiable Instruments, p. 175 Byles on Bills, 16th ed., H. OF pp. 25, 256, 350; Sington's Law of Negligence, p. 375: Watson on Cheques, p. 68; Story on Promissory Notes, 5th ed., p. 642; Bullen &Leake, 5th ed., p. 116; II. Sm. L.C., 10th ed., p. 862. The principle is founded on good sense. The banker has to use reasonable care

SO as not to pay away money of his customers, and he is liable to BANK repay money paid away by him negligently. If SO it is reason- able that there should be a corresponding duty on the customer to take care that the banker shall not be exposed to risks. The Court has been invited to approach this case untrammelled by any authority. If the Court holds that there is no duty on the customer to draw cheques SO that the banker may not be misled to his damage, it will be over-ruling a number of authorities in England and Australia, and will be acting contrary to the authorities in America. The duty may be put in this way, it is a duty not to prejudice the banker's position by neglect of any precaution which a reasonable man would in a matter affecting his own interest, i.e., in the ordinary course of his business, adopt. See Morse on Bunking, vol. II., 3rd ed., p. 480.

[GRIFFITH, C.J.-We think there is a duty, but the question is to what extent it goes.]

The principle, as applicable to banker and customer, is not an exception to the ordinary principle. It applies as between bailor and bailee. A bailee has to use reasonable care in the custody of goods entrusted to him by the bailor. If he leaves a window open through which thieves get and steal the goods, he must bear the loss. He has been guilty of negligence which gave facility for the theft. The case of hotelkeeper and guest is similar. See Beale on Builments, p. 148; Robins &Co. v. Gray, (1895) 2 Q.B., 501. In Paget on Banking, p. 144, it is said that crime must be in the contemplation of the parties.

[GRIFFITH, C.J.-That involves a startling doctrine. Do you draw any distinction between banker and customer and the case where a person draws a bill of exchange on another who has funds in his hands and is bound to honour the bill of exchange ?]

No. Assuming the obligation to pay, the loss would fall on the drawer. The Instruments Act protects the drawer except in that one instance. According to the contention for the other side the

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OF A. maker of a cheque may be as careless as he pleases. The case of

banker and customer is only an example of the general principle which imposes a duty on all persons who have transactions with one another. That general principle is that one shall not act SO as to mislead the other. The duty incumbent on a customer towards his banker, in drawing a cheque, is to use reasonable care and skill to avoid any act or omission which may mislead the banker, or which may offer opportunities for the banker being misled, to his prejudice or loss. See Ireland v. Livingston, L.R., 5 H.L., 395. The duty arises in the transaction, and SO does not apply to the careless keeping of a cheque or seal. The avoidance of ambiguity is only a particular example of that general duty of carefulness. Young v. Grote (supra) IS referable to one of two grounds, either that there was a duty to take care, and that its non-observance gave rise to an estoppel, or that a blank cheque was signed by the customer, in which case there would be an implied authority to fill it up for any amount. The reason for the decision in Scholfield v. Londesborough (supra) was that there was no transaction between the parties, and, therefore, no negli- gence in the transaction. Per Lord Esher, M.R., (1895) 1 Q.B., at p. 541. See also Carr v. London and N. W. Ry. Co., L.R., 10 C.P., 307, at p. 318. So, in Imperial Bunk v. Bank of Hamilton (supra), the question was not between the parties to any trans- action. See also Gaden v. Newfoundland Savings Bank, (1899) A.C.,281. [They also referred to Metropolitan Bank v. Wright (supra) Holmes v. Trumper (supra); Greenfield Bank V. Stowell (supra) ]. As to the next question, assuming the duty to exist, was there any evidence of negligence ? This is a ques- tion for the jury, and their verdict is a reasonable one, and the Court will not disturb it. As to the question whether the loss was the reasonable and probable consequence of the act of the plaintiff, the relationship existing, and the duty arising under it, it follows that the loss is to be taken to have been in the contempla- tion of the parties, as the reasonable and probable consequence of the breach. That view is apparently taken in Scholfield V. Londesborough (supra), and has been acted on in the cases already referred to. The intervention of a third party, even feloniously, does not deprive the banker of his remedy, if, in the contempla-

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tion of the parties, the act of the customer is the effective cause H. C. of the loss. The parties must be taken to have contemplated that, if any harm resulted from the customer's act, it would be the MARSHALL result which in fact did happen. As to proximate cause, see Arnold v. Cheque Bank (supra) Baxendule v. Bennett (supra) Clark v. Chumbers, 3 Q.B.D., 327; Engelhart v. Farrant &Co., BANK OF (1897) 1 Q.B., 240; McDowall v. Great Western Ry. Co., (1903) 2 K.B., 331; The Moorcock, 14 P.D., 64, at p. 68; Bank of England V. Vagliano Brothers (supra) The Bernina, 13 App. Cas., 1. Probable harm does not mean that harm is to be expected, but it means that, if harm does result, this is the class of harm which will probably occur. If there had been an express agreement in this case, this is the only harm that could have been in their con- templation. See The Notting Hill, 9 P.D., 105, at p. 113. The rule as to remoteness of damages is the same in contract as in tort; Cobb v. Great Western Ry. Co., (1893) 1 Q.B., 459. It is a question for the jury whether the act of the first person was the proximate cause of the loss. The jury has said that there was no contribu- tory negligence.

[GRIFFITH, C.J.-We do not see any reason for saying that there was not sufficient evidence upon which the jury might negative contributory negligence.]

As to the question of payment to one of several joint debtors, see Bell v. Rowe. 26 V.L.R., 511 22 A.L.T., 156; Steeds v. Steeds, 22 Q.B.D., 537; Innes v. Stephenson, 1 Mo. &R., 145; Stone V. Marsh, Ry. &Mo., 364.

[They also referred to McMahon v. Brewer, 18 N.S.W.L.R. (Eq.), 88 at p. 100, and Whitmore v. Wilks, 3 C. &P., 364, as to Young V. Grote (supra).]

in reply. The case for the defendant has been put at one time on an implied agreement, at another, on some duty not the result of contract but flowing out of the relationship of the parties. The Court does not imply agreements unless the implica- tion amounts almost to a certainty that an agreement was made. Re Cadogan and Hans Place Estate Ltd., 73 L.T., 387, per Rigby, L.J., at p. 390. If without the implication the contract would be futile then the Court will make the implication; see Lamb V.

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Evans, (1893) 1 Ch., 218. Estoppel must come down to a repre- sentation of fact. In the case of an omission to do or say some- thing there must be a duty to act or speak. So negligent conduct in order to amount to estoppel must really amount to a misrepre- sentation of fact, Cababé on Estoppel, pp. 93, et seq. The

OF AUS- misrepresentation must be clear and precise, and not ambiguous;

Low v. Bouverie, (1891) 3 Ch., 82, at pp. 103, 106, 113. Careless- ness in issuing documents has never been considered to create an estoppel. See Lindley on Companies, 6th ed., p. 671 5th ed., P. 486, and the comment there on Young v. Grote (supra). In Davis v. Bank of England, 2 Bing., 393; 5 B. &C., 185, Best, C.J., took an opposite view from that which he took in Young V. Grote. See also Burton v. London and N.W. Ry. Co., 24 Q.B.D., 77, at pp. 87, 89; British Mutual Banking Co. v. Charnwood Forest Ry. Co., 18 Q.B.D., 714. It is said that the duty imposed upon the customer arises out of the contractual relationship between banker and customer. But the same sort of relationship, that is, a contractual relationship, exists between a company and its shareholders, and there the duty has been denied. Bank of Ireland v. Evans Charities (supra); Davis v. Bunk of England (supra): Burton v. London and T.W. Ry. Co. (supra). Why should a banker have a right not given to other persons? The duty, which has been stated in different ways, must come to this, viz., a duty not to facilitate fraud, for that is the charge to the jury, and the respondent must support it, or a new trial is inevit- able. The jury might have approached any other proposition with very different minds. The true proposition is that laid down in Bank of England v. Vagliano (supra), viz., that a person must not by his acts or omissions make a misrepresentation of fact to his banker. That is a duty of general application. As to Young V. Grote (supra), see Chalmers on Bills of Exchange, 6th ed., p. 209. The American cases relied on are cases on stated accounts, and find their counterpart in the English Courts in Parkinson V. Hanbury, L.R. 1 H.L., 1.

Cur. adv. vult.

GRIFFITH, C.J., read the judgment of the Court :- This is an appeal from an order of the Full Court dismissing a

1 CLR 645

motion for a new trial or judgment for the plaintiff after a trial before Madden, C.J., and a jury, when judgment was given for the defendants. The plaintiffs, who are two of three executors, the third being joined as a defendant, brought the action to recover a balance to the credit of the executors in the hands of the defendants, who were their bankers. The defence, SO far as BANK it is now necessary to consider it, was that there was no balance, the plaintiffs and their co-executor having drawn cheques for the full amount to their credit, which the defendants had duly paid. The account was opened in the names of all three executors, and on the express stipulation that cheques drawn on the account were to be signed by all of them. The question arises in respect of five cheques, which, when paid, appeared to be for the sums of £110, £32 6s. 4d., £150, £110, and £110 respectively. The plain- tiffs, who were respectively a dairy farmer and a watchmaker, were not familiar with accounts, and left the clerical work con- nected with the testator's estate to their co-executor Myers, who,

SO far as they knew, was a man of probity. The cheques in question were, in accordance with their usual practice, filled up by Myers in his own handwriting, and taken or sent by him to the plaintiffs for signature. The cheques were then for the respective sums of £10, £2 6s. 4d., £50, £10, and £10. The amount of each was stated in words and figures, the writing being in each case about the middle of the line, and beginning with a capital letter, while the figures representing the pounds were placed at a short distance from the symbol £. After the cheques SO filled in had been signed by the plaintiffs, Myers fraudulently altered them to the larger amounts in his own writing, and obtained the full amounts from the defendants. The plaintiffs claimed to recover the difference, £430. The learned Chief Justice, at the trial, directed the jury that, if a customer draws or signs or issues cheques on his banker in a manner which a jury thinks SO negligent that it induced or caused opportunity, or was a temp- tation to a person desirous of effecting a forgery to effect that forgery, SO that the banker is exposed to the payment of a larger sum than the customer intended, then the customer is precluded and estopped from complaining and showing that the banker paid a forged and altered cheque; and, further, that if a cheque is SO

1 CLR 646

unreasonably and carelessly drawn by a customer on his banker as to invite fraud and give a chance or opportunity for the committing of fraud, the banker ought not to be made liable for paying a forged or altered cheque.

The substantial question for our determination is whether this direction, which was founded upon the doctrine supposed to be established by the case of Young v. Grote, 4 Bing., N.C., 253; 12 Moore C.P., 484; 29 R.R., 552, was right. In the Full Court, a'Beckett, J., thought that if Young v. Grote is good law it would govern the present case, and that, in that view, the direction of the learned Chief Justice was correct. He further thought that Young V. Grote had not been over-ruled, and was still law. Hodges, J., while admitting that it is difficult to say on what ground Youn V. Grote ought to have been decided, or to define accurately upon what grounds the present case should be decided, thought that that case was not over-ruled. He further thought that the relation between banker and customer being one of contract, the customer undertakes that he will not, by his mode of drawing his cheques, give facilities for their alteration, or, putting the obliga- tion in other words, that he undertakes that, if the banker is misled by the fault of the customer in the manner of filling up the cheques, the loss must fall upon the customer. In the present case, he thought it clear that the method of drawing up the cheques did give facilities for a fraudulent alteration, and that loss resulted from the facilities SO given, and, consequently, the loss should fall upon the customer, and not upon the bank. Hood, J., preferred to state the doctrine thus-that the duty of the customer towards his banker is not to draw his cheques in such an inaccurate way as to afford facilities for fraud.

Upon the argument of the appeal, it was contended for the appel- lants that the supposed doctrine of Young v. Grote must be taken to be over-ruled, and is no longer law. We say "supposed doctrine," because the rule as laid down by the learned Chief Justice is not to be found in that case in express words. It was further contended that there is no such rule of law as that the drawer of a cheque is bound to anticipate and take precautions against forgery that in the present case, even if there is such a doctrine, there was no evidence of any breach of that duty; and that in any case, the

1 CLR 647

payment of the increased amounts was not the natural conse- H. quence of the breach of duty. For the respondents it was contended that it is the duty of a customer to his banker not to prejudice the latter by omitting any precaution in drawing a cheque which a reasonable man would take in a matter affecting his own interests, and that this obligation included an obligation to take precautions against forgery.

Before proceeding to examine the case of Young v. Grote in detail, it may be well to refer to some principles of law which are quite free from doubt, and which will afford useful guid- ance in arriving at the true principle which should govern cases such as the present. The relation of customer and banker is, no doubt, a contractual relation. It is not, however, the ordinary relation of principal and agent (Foley v. Hi 1, 2 H.L.C., 28), but the relation of creditor and debtor, with the super- added obligation to honour the creditor's orders with respect to payment of the money which constitutes the debt. Now, all contractual relations impose upon the parties a mutual obligation that neither shall do anything which is calculated to hamper the other in the performance of the contract on his part. This rule was recently expressed by Taughan-Williams, L.J., as follows: " In this contract, as in every other, there is an implied contract by each party that he will not do anything to prevent the other party from performing the contract or to delay him in performing it. I agree that generally such a term is by law imported into every contract." (Barque Quilpué Ltd. v. Brown (1904), 2 K.B., 264, at p. 271.) A banker cannot, however, discharge himself of his debt by alleging payment otherwise than upon the order of his customer. If the order is ambiguous in form, he would, no doubt, be entitled to the benefit of the rule of which Ireland V. Livingston, L.R. 5 H.L., 395, affords a good example. But a forged order gives no protection to the banker. Again, if one party to a contract has himself occasioned a breach of it by the other party, he cannot effectively complain of the breach. This inability is sometimes based on estoppel, and sometimes on avoid- ance of circuity of action.

The case of Young v. Grote was decided by the Court of Common Pleas in 1827. It has been often cited and commented

1 CLR 648

on; seldom, if ever, followed many different explanations of it have been given; and in Scholfield v. Earl of Londesborough (1896), A.C., 514, Lord Halsbury, L.C., invited the House of Lords to formally over-rule it. Young v. Grote came before the Court upon a special case stated by an arbitrator in an action by a

BANK OF Aus- customer against his banker for the balance of his account. The

special case stated, amongst other things, that the plaintiff, being about to leave home for several days, signed and left with his wife five blank cheques, desiring her to have them filled up for such sums as the purposes of his business might require. His wife, requiring £50 2s. 3d. to pay wages, delivered one of the blank cheques to one Worcester, a clerk of the plaintiff, desiring him to fill it up for that sum, which he did, and showed it to her SO filled up, whereupon she asked him to get it cashed. He afterwards fraudulently wrote the words "three hundred and" before the word "fifty" in the body of the cheque, and the figure "3" before the figures "50," making the alteration in the same writing as the rest of the cheque, "and in such a manner that no person using due and ordinary diligence, could have discovered that it had been made improperly after the draft had been once filled up for another sum, and signed by the drawer." The defendants paid the amount of the altered cheque to Worcester. The arbitrator thought that it was plaintiff's draft for the £50 2s. 3d. only, but he thought also "that he had been guilty of gross negligence by causing his draft to be delivered to Worcester (in whose hand- writing the body of it had been filled up) in such a state that the latter could and did, by the mere insertion of other words, make it appear to be the plaintiff's draft for the larger sum, and that as he, partly by his negligence, had caused the bankers to pay the larger sum, he was bound to make good to them the loss which by reason of his negligence they had sustained by paying that sum. If the Court should think that opinion wrong, he awarded that the plaintiff should recover £300 from the defen- dants." It will be observed that amongst the facts found by the arbitrator was the inference of fact that the plaintiff had been guilty of gross negligence. And it does not appear that the Court could review this finding. The arbitrator did not seem to think that the bank could set up that they had paid the money in accordance

1 CLR 649

with the plaintiff's order, but he thought that they were entitled to an indemnity, i.e., to maintain an action against him for the same amount. According to the report in 4 Bing., Best C.J., after pointing out that a banker who pays a forged cheque is in general bound to pay the amount again to his customer, because in the first instance he pays without authority, added that though that rule is perfectly well established, yet if it be the fault of the customer that the banker pays more than he ought, he cannot be called on to pay again." According to the report in 9 Moore, he said :- If a banker, through the fault of his customer, pays more than he ought to pay, the loss must be borne by him through whose default the erroneous payment has been made." According to both reports, he then proceeded to quote from Pothier (Traite du Contrat de Change, Part I., C. 4, sec. 99, p. 59), who lays down the doctrine that if a banker has been led into error by the fault of the drawer of a bill of exchange, the drawer not having taken care to write his draft in such a manner as to prevent falsifications--for instance, if he wrote the sum drawn for by the draft in figures, and someone added a cypher-the drawer would, in that case be bound to indemnify the banker for the loss he had sustained by the falsification of the draft, for which the drawer by his fault had afforded opportunity. So far, the only doctrine asserted by Best, C.J., is that if the loss occurs through the fault or default of the customer, it must fall on him, which doctrine is, he says, in accordance with Pothier's view. It may be remarked, in passing, that in Scholfield's Case Lord Halsbury denied that Pothier's doctrine is, or ever was, part of the commercial law of England (p. 531); and further, that the illustration given by Pothier is very different from the case of a cheque in which the amount is written in words at length, although his language is large enough to cover any case in which the drawer has not taken such care as to prevent falsification.

The Chief Justice, having stated the rule, proceeded to apply it to the facts of the case as found by the arbitrator. According to the report in Bingham, he rested his decision mainly on the facts that the plaintiff had left blank cheques in the care of his wife, who was not conversant with business, as such an agent ought to have been, and that she had, in turn, trusted a person with whose

1 CLR 650

character she was not perfectly acquainted, to receive the amount

of the cheque. He went on, according to that report, to point out that a competent man of business would have guarded against fraud in the mode of filling it up, and would have placed the word "fifty" at the beginning of the line, and would have begun it

OF Aus- with a capital letter, and would have placed the figure 5 SO near the

printed £ as to prevent the possibility of interpolation, adding-

It was by the neglect of these ordinary precautions that Grote and Co. were induced to pay," and concluded by saying: We decide here on the ground that the banker had been misled by want of proper caution on the part of his customer." According to the report in Moore, he said that the plaintiff had left five blank cheques in the hands of his wife, who was therefore his agent; that a person who leaves blank cheques to be filled up ought to entrust them to a person conversant with business, and who would take due care that they were properly filled up; that the plaintiff's wife had acted indiscreetly in entrusting the cheques to a person with whose character she was not perfectly acquainted, and who turned out to be untrustworthy; that the word " fifty," having been commenced in the middle of the line, and with a small instead of a capital letter, too much opportunity was given to the clerk to effect the alteration, and that the whole being in the same handwriting, it was not possible for the bankers to discover that there was any fraud. And he added-" Under the circumstances,

I think that gross negligence may fairly be imputed to Young, or his agent, and that the bankers, who have been misled by the want of caution, and thus induced to pay the money, are not liable to be called upon to make good the loss." J. A. Park, J., according to the report in Bingham, after pointing out that if a banker pays moneys upon an order which is not genuine he must bear the loss, went on to say-" Can anyone say that the cheque signed by Young is not a genuine order I say it is. The cheques left by him to be filled up by his wife, when filled up by her became his genuine orders. However, the arbitrator finds expressly that he was guilty of negligence, and I concur in that opinion." According to the report in Moore, he said-" Here the order appeared, upon the face of it, to be genuine. The maker left it with his wife to be filled up at her pleasure, and to any amount.

1 CLR 651

It was, therefore, his draft to the extent of the property he H. C. OF had in the hands of his bankers. The arbitrator has found that he was guilty of gross negligence. I think he was guilty of gross negligence in leaving blank cheques in the hands of a person SO ignorant of business as to give rise to such a gross fraud." Burrough, J., according to both reports, said that the arbitrator had found that no blame attached to the bankers, and that the whole blame legally attached to the plaintiff. According to the report in Bingham, he described the blame as consisting, first, in leaving a blank cheque with his wife, and then in her causing it to be filled up in an unusual way. According to Moore's report, the blame consisted in the plaintiff's improvidently leaving blank cheques in the hands of his wife, who saw the cheque in question filled up in an unusual manner, both as to the figures and in the body, and then gave it in that state to her husband's clerk to get changed, thus affording him an opportunity to effect the fraud; and he added-' The drawer of the cheque, being the sole cause of the fraud, must bear the loss." Gaselee, J., according to Moore's report, said: - The arbitrator "has expressly found that the drawer was guilty of gross negligence. The authority was not confined to the wife, as it appears by the award that she was to have the cheques filled up as circumstances required." According to Bingham's report, he merely said that there was certainly great negligence on the part of Young, and therefore the rule to pay the £300 must be discharged.

It is impossible to regard this judgment as anything more than a decision upon the facts of the particular case. Each of the learned Judges seemed to have assented to the rule of law formulated by Chief Justice Best, that if it is the fault of the customer that the banker pays more than he ought, he cannot be called on to pay again. And they all thought that the facts of the case warranted the inference of fact drawn by the arbitrator that the loss had arisen from the customer's fault. No other rule of law can be deduced from the decision than that SO formulated. The case has, however, been treated as laying down in its widest sense the doctrine of Pothier, that if the banker is led into error by the fault of the drawer, the drawer not having taken care to write

1 CLR 652

the draft in such a manner as to prevent falsification, the

drawer must indemnify the banker. So far from the judgments supporting this view, it will be seen that each of the Judges relied on other circumstances as establishing the default of the drawer. In Scholfield's Case, Lord Halsbury is reported to have said (p. 523), that the time had come when it would be desirable to examine how far the case of Young v. Grote ought to be quoted as on authority for anything. In our opinion, it is an authority for this and no more-that the drawer of a cheque may, by his negligence in connection with drawing it, disentitle himself to complain that the banker has paid a larger sum upon it than the drawer intended. Other authori- ties for the same principle are the comment of Lord Cranworth, L.C., on Young v. Grote in Orr v. Bank of Scotland, 1 Macq. H.I. Cas., 513, at p. 523: The principle is a sound one, that, where the customer's neglect of due caution has caused his bankers to make a payment on a forged order, he shall not set up against them the invalidity of a document which he has induced them to act upon as genuine;" and the observation of Lord Watson in Scholfield's Case (at p. 536) :- " If on the other hand the decision in Young V. Grote was based upon the ratio that the customer, in filling up the cheque through his wife, whom he had constituted his agent for that purpose, had failed in the duty which he owed to his banker by giving facilities for its fraudulent alteration, I am not prepared to affirm that it cannot be supported by authority." This rule is, indeed, an instance of the wider rule already referred to, which imposes upon all persons between whom contractual relations exist, a mutual obligation that neither party shall hamper the other in the performance of his contractual duty. But the rule SO stated leaves entirely open the question of what conduct will amount to such negligence as to disentitle the drawer to complain of a subsequent fraud. And it is a very long step from this rule to the direction given by the learned Chief Justice to the jury in the present case. It is necessary, therefore, to inquire whether that direction can be supported upon any other authority, or upon principle. If it is correct, then in every case where a cheque has been fraudulently altered, it is a question at large for the Court or jury to say whether in their opinion the

1 CLR 653

banker or the customer should bear the loss. The inconvenience of such a rule is manifest.

The case of Guardians of Halifax Union v. Wheelwright, L.R., 10 Ex., 183, in which Young v. Grote is said to have been fol- lowed, was also a special case stated by an arbitrator. In that case, the defendant was the plaintiffs' treasurer, and was the manager of a bank in which the plaintiffs' account was kept. Orders signed by the plaintiffs were cashed at the bank. Several orders signed by the guardians were fraudulently altered after signature, and the question was whether the defendant was liable to make good the amounts by which they had been fraudulently increased. The arbitrator found as a fact that " the payment by the treasurer's clerks of the excess" in these instances was "due solely to the fact that they were misled by want of proper caution on the part of the guardians and their clerk in signing the orders fraudulently prepared by him for their signature." Counsel for the defendant relied expressly upon this finding, which was conclusive upon the question of fact. In that case, as in Young v. Grote, the person who committed the fraud was in the service of the plaintiffs, and the fraud was effected while the orders were still in the possession of their servant. Cleasby, B., who delivered the judgment of the Court of Exchequer, after quoting the passage above recited from the award, said :- The question therefore which arises upon this item" (there was another point in the case) 'is, whether the negligent drawing of the drafts disentitles them" (the plaintiffs) " to complain of the cashing those drafts. Upon this question we had before us the principal case of Young V. Grote, followed by several other cases, among others, Robarts V. Tucker, 16 Q.B., 560; 20 L.J. Q.B., 270, and Swan v. North British Australasian Co., 2 H. &C., 175; 32 L.J. (Ex.), 273. We think the position taken by the defendant is made good by those authorities." An examination, however, of the two last-mentioned cases shows that the learned Baron was in error in supposing that they followed Young v. Grote, as in both of them that case was distinguished. We have not been able to find any of the "several other cases" referred to by the learned Baron. He added that 'it is, perhaps, only an application of one of those general principles which do not belong to the municipal law of

1 CLR 654

any country, but which we cannot help giving effect to in the

administration of justice, viz., that a man cannot take advantage of his own wrong; a man cannot complain of the consequences of his own default against a person who was misled by that default without any fault of his own." This case does not carry the matter any further. The only reported case cited to us in which the question of the negligence of the drawer of a cheque has been left to a jury is Marcussen v. Birkbeck Bank, 5 T.L.R., 179, 463, 646, in which a cheque drawn for £8 5s. had been fraudulently altered to £80 5s., a wide space having been left between the words "eight" and "pounds." At the first trial the jury thought that the alteration was easily notice- able, and should have been detected by the bank. A new trial was ordered on the ground that the question of the plain- tiff's negligence should have been left to the jury, and this order was affirmed by the Court of Appeal. Cotton, L.J., who delivered the judgment of the Court of Appeal, merely said that the defence of the alleged negligence of the plaintiff had not been put to the jury, and that the case had not been satisfactorily dealt with at the trial, and that the proper course was to let it go back for a new trial. Fry and Lopes, L.JJ., con- curred. Of this case it may be remarked that it does not appear that the Court of Appeal seriously considered the sup- posed doctrine of Young v. Grote, which had been cited at the trial, but not, apparently, in the Divisional Court. If, however, the Court did consider the question, it would seem from the con- currence of Lopes, L.J., that they agreed with his view of Young V. Grote, (see Scholfield v. Eurl of Londesborough (1895), 1 Q.B., 536, at p. 544), as a binding authority for that doctrine. We are told that Marcussen's Case was again tried before Mathew, J., when the defendants had a verdict, and that the summing up of that learned Judge was in accordance with that of Madden, C.J. But we do not think that this case can be regarded as adding any authority to the case of Young v. Grote.

The substantial question for our decision is whether the mere failure to take precautions against forgery is a breach of the implied duty owed by the customer to his banker. If it is, it would appear prima facie that a similar duty must be implied in

1 CLR 655

the case of all contracts in which the duties of one party arise H. upon written communications from the other. Before considering whether such a duty is implied by the law of England, it will be convenient to say a few words as to the real nature of the defence founded upon the supposed breach of the implied contract. It has sometimes been based on the ground of avoid- ance of circuity of action, the damages sustained by the banker by reason of the customer's breach of contract being exactly equal to the amount which he has paid without the latter's authority. It has more often been put on the ground of estoppel, arising from disregard of duty, and the argument for the re- spondents was mainly based on this view of the case. The doctrine of estoppel in pais was not, however, formulated in England in 1827, when Young v. Grote was decided, nor until the case of Pickard v. Sears, 6 A. &E., 469, which was decided in 1837. The case of Young v. Grute was clearly not formally based upon any such doctrine. And if it is sought to apply the doctrine a further difficulty arises. The fact which the customer is to be estopped from denying is that the cheque is his cheque. Now, as ex concessis, the writing is not his own, it must be the writing of his agent. He is, therefore, to be taken to be pre- cluded from denying that the forger, i.e., any person into whose hands the cheque may come, is his agent to alter it, subject, however, to this singular proviso, that the forgery must be done with such skill as not to be apparent. Such an authority is not lightly to be implied. It seems, therefore, more in accordance with the reason of the thing to regard the defence as being a claim for damages for a breach of the implied contract. The result will not be affected whichever view is taken. Is there then any such doctrine as that a person, who, being under con- tractual relations with another, imposes some duty upon the other by a written communication sent to him for the purposes of the contract, is bound to take precautions against forgery ? Or, if there is no such general doctrine, is there such a doctrine with regard to cheques ? There is no doubt that, as a general rule, the loss arising from a forgery must fall upon the victim, and not upon the person whose writing is forged. A contrary

1 CLR 656

rule has never been suggested, except in the case of negotiable

Scholfield v. Earl of Londesborough (1896), A.C., 514, was an action by the indorsee against the acceptor of a bill of exchange for £500, which, after acceptance, had been altered by fraudu- lently inserting the words "three thousand" before the words "five hundred," and the figure 3 before the figures 500, the bill having been drawn in such a form that the alteration was easy. The questions were-(1) Whether there was a duty incumbent on the acceptor with respect to subsequent holders for value, and apart from contract with the drawer, to see that the bill is not in such a form as to invite or facilitate such fraudulent operations as would mislead a holder ? (2) Whether there was a breach of that duty ? (3) If SO, whether the breach was the proximate cause of the plaintiff being misled In that case the argument for the plaintiff was necessarily based upon estoppel, there being no contractual relations between the acceptor and subsequent indorsee at the moment of acceptance. On the first point, Lord Halsbury, L.C., said (p. 532) :- My Lords, this very case has in almost precisely similar circumstances been already decided in the Adelpli Bank v. Edwards, and I regret very much that that case has not been reported. I entirely concur with what Lindley, L.J., said in that case, that it was wrong to contend that it is negligence to sign a negotiable instrument SO that somebody can tamper with it; and in the wider proposition of Bovill, C.J., in a former case, Société Générale v. Metropolitan Bank, 27 L.T. N.S., 849, 856, that people are not supposed to commit forgery, and that the protection against forgery is not the vigilance of parties excluding the possibility of committing forgery, but the law of the land."

Lord Watson also referred to the case of Société Generale V. Metropolitan Bank (supra), in which the time of payment of a bill of exchange having been fraudulently altered after acceptance from eight to eighty days, it was sought to make the acceptor liable, on the ground of negligence, in accepting the bill in such a form that alteration of it was easy, and added (p. 540):-" None of the learned Judges affirmed that there was any duty incumbent upon the indorser to take precautions against forgery; but, on that

1 CLR 657

assumption, they all held that there had been no negligence. Two H. of them used language whith does not appear to me to be consis- tent with the existence of such a duty. The Chief Justice observed: ' Persons are not to be supposed to commit forgery, and the protection against such a crime is the law of the land, not the vigilance of parties in excluding all possibility of committing it. The present Master of the Rolls said: I not only protest that there was no negligence, but say that no Judge ought to leave to a jury the fact as evidence of negligence. But there is no duty on any- one to suppose that those against whose character there is no imputation will commit forgery whenever the opportunity occurs."

He then referred to the unreported case Adelphi Bank V. Edwards, decided in 1882, in which a bill of exchange for £22 10s. had been fraudulently altered to £222 10s., and in which the Court of Appeal negatived the existence of any rule or principle requiring the acceptor of a bill to exclude facilities for its altera- tion, and quoted with approval the language of Lindley, L.J., who, after referring to Young v. Grote, "and that class of cases," pro- ceeded thus:- We cannot say there was negligence here, unless we go to the whole length of saying that it is negligence to sign a negotiable instrument SO that somebody else can tamper with it

I cannot go that length. I think it would be wrong. There is no authority which compels us to do anything of the sort." Lord Macnaghten said (p. 544) :- I cannot think that, there is any rule which forbids you to give a person with whom you are acquainted, and whom you believe to be honest, some little credit for honesty, even when he comes for your promised acceptance to a bill of exchange. I cannot think that, even on such an occasion, you are bound to scan his handiwork with the eye of a detective. as the production of a would-be forger. The prevention of crime is perhaps better left to the operation of the criminal law." Lord Shand said (p. 549) :-" As to the form of the document, I think an acceptor, while himself acting in bona fide, who has the sum for which he has agreed to grant his acceptance expressed in the body of the bill, is not called upon to anticipate and provide against forgery." Lord Davey expressed his entire concurrence in the reasons and conclusions of Lord Watson.

Scholfield's Case was the case of the acceptor of a bill of

1 CLR 658

exchange, between whom and subsequent holders there is, as

already pointed out, no existing contractual obligation at the time of acceptance. But the arguments used by the learned Lords in their speeches as to the supposed duty to guard against forgery are prima facie applicable to all written documents. In Union Credit Bank v. Mersey Docks Board (1899), 2 Q.B., 205, Bigham, J., had to deal with two delivery orders used for the purposes of the delivery and transfer of goods in a warehouse, both of which had been fraudulently altered. In one case, the order had been signed by the plaintiffs in blank under a fraudulent representation made to them by one Nicholls, and the descrip- tion of certain goods was afterwards inserted by him. In the other case, the goods intended to be dealt with were des- cribed before signature, but the description of other goods was afterwards added by Nicholls. Bighum, J., was of opinion that in the first case the plaintiffs, who had signed the order in blank, were estopped from denying that they had conferred on Nicholls a delegated authority to fill up the blank, and that they must bear the loss for an excessive and improper exercise of that delegated authority. In the second case, he held that the plaintiffs were not bound by the fraudulent alteration. He said (p. 214) It is not necessary for me to say anything upon the question, which was much discussed in argument, as to whether the plaintiffs owed any duty at all to the defendants, but I will express my opinion upon it. It seems to me that the only duty which the plaintiffs owed to the defendants was a duty to express in unambiguous language on the face of the transfer order, what the goods were which they desired the defendants to transfer. There was no duty to communicate in any way that they desired no other goods to be transferred. It was said that the case in its facts resembled that of Young V. Grote, and that the conclusion arrived at there ought to be adopted here. I am, however, of opinion that Young v. Grote can no longer be regarded as good law if the judgment in it is to be read as proceeding on the supposed negligence of the plaintiffs; and think it therefore has no application to the present case. I find that there was no carelessness in signing the transfer order as filled up, and that there was no duty on the plaintiffs to see that

1 CLR 659

it was filled up differently; and, further, that if there was such a duty, the loss of the goods did not result from the breach thereof." He also found as a fact that a failure to anticipate fraud and to provide against it by filling up all blank spaces SO as to prevent insertion of other words does not of itself constitute negligence.

It seems impossible to distinguish in principle the case last cited from the present. In the one case the defendants were the plaintiff's debtors, in the other the custodians of their goods, and in each they were bound by contract to dispose of property in accordance with the plaintiffs' written orders. No other instance was cited to us in which it has been attempted to extend the supposed doctrine of a duty to anticipate and provide against fraud to any case other than that of a cheque or negotiable instrument.

If, however, the doctrine applies to the case of a cheque, it must also apply to the case of the acceptor of a bill of exchange as between him and the drawer, and it should, in principle, apply to every case in which one man, by a written communication, requires or requests the performance of some act or duty by another. There is no trace of any such doctrine to be found in the English law, but the contrary rule-that a forgery is a nullity -is well established. A fraudulent exercise of an actual and apparently unlimited authority, however created, is of course not a forgery in the sense in which that term is here used.

Sec. 65 of the Instruments Act 1890 (Victoria), which corres- ponds with sec. 64 of the English Bills of Exchange Act, provides that where a bill or acceptance is materially altered, but the alter- ation is not apparent, and the bill is in the hands of a holder in due course, the bill is avoided except as against a party who has himself made, authorized, or assented to the alteration.

In this section, which applies as well to cheques as to other bills of exchange, no distinction is drawn between drawers and acceptors as between themselves and a holder in due course. Assuming, in accordance with Lord Watson's opinion (1896) A.C., p. 543, that authority to alter a bill of exchange or cheque can be proved by evidence of facts raising an estoppel, it is clear that failure to take precautions to prevent

1 CLR 660

forgery would not establish such authority as between the

acceptor and the holder (Scholfield's Case), nor upon the same reasoning, as between the drawer (or maker of a cheque) and the holder. It is not easy to see why the same facts which are no evidence of negligence or breach of duty as between the acceptor Aus- and the holder, or as between the drawer and the holder, should

be held to establish authority or estoppel as between the drawer and the drawee, We can see no reason for such a distinction, and we have looked in vain for any authority which would support it.

It appears, then, that the only foundation for the proposition relied on by the respondents is the dictum of Pothier cited, but without any express assent, by Best, C.J. This dictum, according to Lord Halsbury, "is not, and never has been, the law of England," (1896) A.C., p. 535. In our judgment, when a person signs a writing which is on the face of it a complete document, and issues it to another, he is not bound by any subsequent alteration of it made without his authority, and such authority cannot be inferred merely from the existence of blank spaces in the document. It may well be that the existence of blank spaces, combined with other circumstances, either intrinsic to the document or extrinsic, may be evidence of delegated authority to fill them up. But the mere existence of a blank is not sufficient. It follows that the dictum of the learned Chief Justice, SO far as it laid down that, if a cheque is SO drawn as to invite or afford opportunity for or temptation to forgery, the customer is estopped from complaining of the forgery, cannot be supported. The learned Chief Justice treated the matter as being entirely a question for the jury, whether they thought the manner of drawing the cheques "so negligent" that it induced or caused opportunity, or was a temp- tation to, forgery. If this rule were adopted, it would, as already pointed out, depend upon the caprice of the particular jury in each case whether the customer or banker should bear the loss.

It is manifest that a rule of law must be capable of being stated with sufficient precision to enable an ordinary person to know what are his duties under it. A rule that the drawer of a cheque must use such care to avoid forgery as a future jury may think he ought to have used would not afford any definite assistance to drawers. If the rule is put in the form that he must use reason_

1 CLR 661

able care to prevent forgery, the question arises, what is meant by "reasonable care" ? Usually, in considering whether a thing is reasonable or not, all the circumstances must be taken into con- sideration. In this view, what would be reasonable care in an illiterate farmer might not be reasonable care in a skilled account- ant. A rule which would make the question depend upon the capacity or education of the drawer of the cheque can hardly form part of the mercantile law. In the present day in Australia banking accounts are kept by all sorts and conditions of men and women, who must equally be bound by the mercantile law. If bankers think that an intending customer is SO unskilled as to be likely, from his carelessness in drawing cheques, to give oppor- tunities for forgery, they can decline to accept him as a customer. Or they can stipulate, by a note printed in the cheque book or otherwise, that certain precautions shall be taken in drawing cheques. There is, therefore, no inconvenience in applying to cheques the general rule which applies to other cases of forgery.

It remains to consider whether there was in the present case any evidence to be left to a jury with a proper direction as to what constitutes negligence or breach of duty. The cheques, as already said, were on their face complete documents; the words denoting the amounts began with a capital letter; and the person by whom they were filled up was a person with whom the plain- tiffs had had dealings for many years, and whose honesty they had no reason to suspect. The cheques were, however, capable of fraudulent alteration. Under these circumstances there was, in our opinion, no evidence to go to the jury of any breach of duty such as would give rise to estoppel or to a claim for damages.

In Scholfieid's Case, Lord Esher, M.R., and Rigby, L.J., were of opinion that, even if there was a breach of duty on the part of the defendant, the intervening felonious act, and not the breach of duty, was the cause of the loss. It is not necessary for us to express any opinion on this point. But for the reasons above stated, we are of opinion that the appeal must be allowed. The judgment and order of the Supreme Court must be discharged and judgment entered for the appellants for £430, with costs of action, including the costs of the appeal to the Full Court. The respondents must also pay the costs of the appeal.

1 CLR 662

Appeal allowed with costs.

for appellants, with costs. Solicitor, for appellants, C. J. McFarlane, Melbourne. Solicitors, for respondent, Moule, Hamilton &Kiddle, Mel- bourne.

[HIGH COURT OF AUSTRALIA.] DONOHOE BRITZ

RESPONDENT (No. 2). Practice-Costs--Reciew of taxation-Costs of three counsel-Costs of preparing

fresh briefs for appeal.

The Registrar, on taxation as between party and party, disallowed the SYDNEY,

costs of a third counsel, in an appeal to the High Court, which involved a large Sept. 17.

sum of money, and raised difficult and important questions of constitutional law, on the ground that the employment of three counsel is not justifiable unless, in addition to the above elements of difficulty and importance, the case involves the CHAMBERS. consideration of a large and complex mass of evidence. On a summons for a

review of taxation, the Court, not being satisfied that the Registrar was clearly wrong, or that the case was of such an exceptional nature as to render it essentially necessary, for the purpose of doing justice, that three counsel should be employed, refused to direct a review, and dismissed the summons with costs.

Kirkwood v. Webster, 9 Ch. D., 239, applied. Semble, that a case may be of sufficient difficulty and importance to justify a party in engaging three counsel to argue the appeal, although the three elements of difficult and intricate points of law raised, a very large amount of money involved, and a complicated and voluminous body of evidence to be considered, are not all present together.

The costs of preparing, for the purposes of an appeal to the High Court, fresh copies of the briefs used by counsel when the case was argued before the Supreme Court, were not allowed to the party successful on the appeal.

SUMMONS for review of taxation. In this case an appeal from the Supreme Court had been dis- missed with costs (ante, p. 391). On taxation the District Registrar