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BARCLAYS BANK LTD
W J SIMMS SON AND COOKE (SOUTHERN) LTD AND ANOTHER
QUEEN’S BENCH DIVISION
24 APRIL 1979
 1 QB 677
 3 All ER 522
BEFORE: LORD ROBERT GOFF J
David Hunter QC and Peter Cresswell for Barclays.
Edward Evans Lombe QC and Michael Crystal for the defendants.
Durrant Piesse (for Barclays)
Harvey, Ingram, Leicester (for the defendants)
K Mydeen ESQ Barrister
COMMERCIAL LAW:- Contract – Mistake – Mistake of fact – Money paid under mistake of fact – Recovery – Relevant considerations
BANKING AND FINANCE LAW:- Banking Practices – Cheque Clearance – Check stopped by drawer yet paid by bank due to oversight – Whether bank intended payee to have money at all events – Whether payment made for valuable consideration – Whether payee changing his position – Whether money recoverable from payee – Whether payee can invoke defence that he had been deprived of opportunity of giving notice of dishonour – Bills of Exchange Act 1882, s 50(2)(c).
DEBTOR AND CREDITOR LAW:- Bank Customer – Recovery of sum on a countermanded check which was paid by bank due to oversight –Relevant considerations – How treated
Cases Referred to in Judgment
Aiken v Short (1856) 1 H & N 210, [1843–60] All ER Rep 425, 25 LJ Ex 321, 27 LTOS 188, 156 ER 1180, 35 Digest (Repl) 159, 481.
Barclay & Co Ltd v Malcolm & Co (1925) 133 LT 512, 35 Digest (Repl) 161, 491.
Chambers v Miller (1862) 13 CBNS 125, 1 New Rep 95, 32 LJCP 30, 7 LT 856, 9 Jur NS 626, 143 ER 50, 35 Digest (Repl) 161, 489.
Cocks v Masterman (1829) 9 B & C 902, [1824–34] All ER Rep 431, Dan & Ll 329, 4 Man & Ry KB 676, 8 LJOSKB 77, 10 ER 335, 3 Digest (Reissue) 643, 4019.
Colonial Bank v Exchange Bank of Yarmouth, Nova Scotia (1885) 11 App Cas 84, 55 LJPC 14, 54 LT 256, PC, 3 Digest (Reissue) 569, 3664.
Diplock’s Estate, Re, Diplock v Wintle  2 All ER 318, sub nom Re Diplock, Diplock v Wintle  Ch 465,  LJR 1670, CA; affd sub nom Ministry of Health v Simpson  2 All ER 1137,  AC 251, HL, 8(1) Digest (Reissue) 416, 1481.
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd  All ER 122,  AC 32, 111 LJKB 433, 167 LT 101, HL, 12 Digest (Reissue) 495, 3470.
Imperial Bank of Canada v Bank of Hamilton  AC 49, 72 LJPC 1, 87 LT 457, PC, 35 Digest (Repl) 165, 519.
Jones (RE) Ltd v Waring & Gillow Ltd  AC 670,  All ER Rep 36, 95 LJKB 913, 135 LT 548, 32 Com Cas 8, HL; rvsg  2 KB 612, CA, 35 Digest (Repl) 161, 492.
Kelly v Solari (1841) 9 M & W 54, [1835–42] All ER Rep 320, 11 LJ Ex 10, 6 Jur 107, 152 ER 24, 35 Digest (Repl) 164, 512.
Kerrison v Glyn, Mills, Currie & Co (1911) 81 LJKB 465, [1911–13] All ER Rep 417, 105 LT 721, HL; rvsg (1910) 15 Com Cas 241, CA, 3 Digest (Reissue) 555, 3600.
Kleinwort, Sons & Co v Dunlop Rubber Co (1907) 97 LT 263, HL, 3 Digest (Reissue) 569, 3666.
Larner v London County Council  1 All ER 964,  2 KB 683,  LJR 1363, 113 JP 300, 47 LGR 533, CA, 35 Digest (Repl) 170, 558.
London and River Plate Bank v Bank of Liverpool  1 QB 7, [1895–9] All ER Rep 1005, 65 LJQB 80, 73 LT 473, 1 Com Cas 170, 6 Digest (Reissue) 100, 770.
Morgan v Ashcroft  3 All ER 92,  1 KB 49, 106 LJKB 544, 157 LT 87, CA, 35 Digest (Repl) 159, 484.
National Westminster Bank Ltd v Barclays Bank International Ltd  3 All ER 834,  QB 654,  2 WLR 12,  2 Lloyd’s Rep 506, 3 Digest (Reissue) 637, 3998.
Norwich Union Fire Insurance Society Ltd v William H Price Ltd  AC 455,  All ER Rep 352, 103 LJPC 115, 151 LT 309, 40 Com Cas 132, 49 Ll L Rep 55, PC, 29 Digest (Repl) 349, 2683.
Pollard v Bank of England (1871) LR 6 QB 623, 40 LJQB 233, 3 Digest (Reissue) 634, 3980.
Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177, 38 ALJR 184.
Price v Neal (1762) 3 Burr 1354, 1 Wm Bl 390, 96 ER 221, 6 Digest (Reissue) 98, 763.
Sinclair v Brougham  AC 398, [1914–15] All ER Rep 622, 83 LJ Ch 465, HL, 3 Digest (Reissue) 543, 3545.
Thomas v Houston Corbett & Co  NZLR 151, CA.
United Australia Ltd v Barclays Bank Ltd  4 All ER 20,  AC 1, 109 LJKB 919, 46 Com Cas 1, HL, 3 Digest (Reissue) 607, 3842.
Ward & Co v Wallis  1 KB 675, 69 LJQB 423, 82 LT 261, 35 Digest (Repl) 171, 565.
Weld Blundell v Synott  2 All ER 580,  2 KB 107, 109 LJKB 684, 163 LT 39, 45 Com Cas 218, 35 Digest (Reissue) 162, 497.
HISTORY AND SUMMARY
On 12 September 1977 a customer of Barclays Bank who owed £24,000 to a building company drew a cheque in favour of the building company for that amount. On 13 September, the building company’s bankers, National Westminster Bank, appointed a receiver of the building company under the terms of a mortgage debenture granted to them. On 14 September Barclays’ customer learned of the appointment and on 15 September telephoned Barclays instructing them to stop payment of the cheque. Barclays immediately prepared that instruction for their computer, which was programed accordingly. The customer subsequently confirmed its instructions in writing. The cheque reached the receiver in the ordinary course of post. Being unaware of the instructions to stop payment on the cheque, he paid it into National Westminster with a direction that it be specially cleared. On 16 September, due to a mistake by an employee who had overlooked the stop instruction, Barclays paid the cheque. Barclays subsequently demanded repayment of the cheque from the receiver but he refused to repay. Barclays thereupon brought an action against the building company and the receiver claiming repayment of the £24,000 as money paid under a mistake of fact. The defendants contended that Barclays were not entitled to recover the money because (i) there had been no mistake of fact between Barclays and the defendants or either of them, or alternatively that any mistake or misapprehension of fact was confined to Barclays; (ii) the money had been paid by Barclays and received by the building company in discharge of an obligation owed to the company or alternatively under the cheque; and (iii) Barclays had failed to give notice of their claim on the day the cheque was paid so that the defendants had a good defence to the claim on the established principle that they had been deprived of the opportunity of giving notice of dishonour on that day and so were deemed to have changed their position.
(1) Where a person paid money to another under a mistake of fact which caused him to make the payment, he was prima facie entitled to recover it as money paid under a mistake of fact. His claim might however fail if (i) the payer had intended that the payee should have the money at all events (irrespective of whether the fact was true or false) or was deemed in law to have so intended; (ii) the payment had been made for good consideration, and in particular if the money had been paid to discharge, and did discharge, a debt owed to the payee (or a principal on whose behalf he was authorised to receive payment) by the payer or by a third party by whom he had been authorised to discharge the debt, or (iii) the payee had changed his position in good faith or was deemed in law to have done so. However, his claim would not fail merely because the mistake had not been ‘as between’ the payer and the payee or because the mistake had not induced the payer to believe that he was liable to pay the money to the payee or his principal (see p 531 b c, p 532 f g, p 534 f to h and p 535 e to p 536 e, post); dictum of Parke B in Kelly v Solari [1835–42] All ER Rep at 322, Aiken v Short [1843–60] All ER Rep 425, Kleinwort, Sons & Co v Dunlop Rubber Co (1907) 97 LT 263, Kerrison v Glyn, Mills, Currie & Co [1911–13] All ER Rep 417 and R E Jones Ltd v Waring & Gillow Ltd  All ER Rep 36, applied; dictum of Erle CJ in Chambers v Miller (1862) 13 CBNS at 133 explained; Colonial Bank v Exchange Bank of Yarmouth, Nova Scotia (1885) 11 App Cas 84 and Morgan v Ashcroft  3 All ER 92 considered; dictum of Bramwell B in Aiken v Short [1843–60] All ER Rep at 427 and Barclay & Co Ltd v Malcolm & Co (1925) 133 LT 512 not followed.
(2) Where a bank paid, under a mistake of fact, a cheque drawn on it by one of its customers, it was prima facie entitled to recover payment from the payee if it had acted without mandate (e.g if it had overlooked a notice of countermand given by a customer) unless the payee had changed his position in good faith or was deemed in law to have done so (see p 539 f to j and p 540 a b and d, post); Chambers v Miller (1862) 13 CBNS 125 and Pollard v Bank of England (1871) LR 6 QB 623 distinguished.
(3) It was a prerequisite to the application of the defence that the defendant had been deprived of the opportunity of giving notice of dishonour and was therefore deemed to have changed his position that the defendant was under a duty to give notice of dishonour. However, since s 50(2)(c)a of the Bills of Exchange Act 1882 provided that notice of dishonour was dispensed with, as regards the drawer, where the drawer countermanded payment, the payee could not invoke that defence in the case of a simple unendorsed cheque, payment of which had been countermanded by the drawer (see p 541 d and p 542 b to d, post); Imperial Bank of Canada v Bank of Hamilton  AC 49 applied; Cocks v Masterman [1824–34] All ER Rep 431 distinguished.
(4) Barclays were entitled to succeed in their claims because (i) their mistake in overlooking the drawer’s instructions to stop payment of the cheque had caused them to pay the cheque, (ii) they had acted without mandate since the drawer had countermanded payment, and so the payment was not effective to discharge the drawer’s obligation on the cheque and as a result the payee had given no consideration for the payment, and (iii) there was no evidence of any actual change of position on the part of either of the defendants and, as notice of dishonour was not required in the circumstances, the payee was not deemed to have changed his position by reason of the lapse of time in giving notification of the error and claiming repayment
By a writ issued on 5 December 1977 the plaintiffs, Barclays Bank Ltd (‘Barclays’), brought an action against the defendants, W J Simms Son & Cooke (Southern) Ltd (‘the company’) and William Sowman (‘the receiver’), claiming £24,000 as money paid under mistake of fact. The facts are set out in the judgment.
Cur adv vult
24 April 1979. The following judgment was delivered.
ROBERT GOFF J read the following judgment.
This case raises for decision the question whether a bank, which overlooks its customer’s instructions to stop payment of a cheque and in consequence pays the cheque on presentation, can recover the money from the payee as having been paid under a mistake of fact. The point is one on which there is no decision in this country; and it is a point, I was told, of considerable importance to bankers, not only because it is an everday hazard that customer’s instructions may be overlooked, but because modern technology, rather than eliminating the risk, has if anything increased it.
The matter comes before the court on agreed facts, which I now propose to set out in this judgment.
On 10 June 1971 W J Simms Son & Cooke (Southern) Ltd (which I shall call ‘the company’) granted to National Westminster Bank Ltd (which I shall call ‘National Westminster’) a mortgage debenture which provided, inter alia, as follows:
‘2. The Company as beneficial owner … (v) charges by way of floating security its undertaking and all its other property, assets and rights whatsoever and wheresoever present or future …
‘7. At any time after this security shall have become enforceable [National Westminster] may by writing … appoint any person … to be a Receiver of the property hereby charged … Any Receiver so appointed shall be the agent of the Company and the Company shall be solely responsible for his acts or defaults and for his remuneration and any Receiver so appointed shall have power: (i) to take possession of, collect and get in the property hereby charged and for that purpose to take any proceedings in the name of the Company or otherwise … (v) to do all such other acts and things he may consider necessary or desirable for the realisation of any of the property hereby charged.
‘8. All monies received by any Receiver shall be applied by him in the following order: (i) in payment of the costs charges and expenses of and incidental to the appointment of the Receiver and the exercise of all or any of his powers and of all outgoings paid by him (ii) in payment of remuneration to the Receiver at such rates as may be agreed between him and the Bank at or at any time after his appointment (iii) in or towards satisfaction of the amount owing on this security (iv) the surplus (if any) shall be paid to the Company or other person entitled to it.’
The mortgage debenture was registered pursuant to s 95 of the Companies Act 1948 on 24 June 1971.
On 21 June 1976 the company entered into a contract in the RIBA standard form of building contract, 1963 edition, with the Royal British Legion Housing Association Ltd (which I shall call ‘the association’) to perform certain works for the association at Borstal Road, Rochester, Kent, for the total sum of £699,024. Clause 25 of the building contract provided:
‘… (2) In the event of the Contractor … having … a receiver or manager of his business or undertaking duly appointed, or possession taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property comprised in or subject to the floating charge, the employment of the Contractor under this Contract shall be forthwith automatically determined but the said employment may be reinstated and continued if the Employer and the Contractor [or] his … receiver or manager … shall so agree.
‘(3) In the event of the employment of the Contractor being determined as aforesaid and so long as it has not been reinstated and continued, the following shall be the respective rights and duties of the Employer and Contractor: —(a) The Employer may employ and pay other persons to carry out and complete the Works … (b) The … Employer may pay any supplier or sub-contractor for any materials or goods delivered or works executed for the purposes of this Contract (whether before or after the date of determination) in so far as the price thereof has not already been paid by the Contractor. The Employer’s rights under this paragraph are in addition to his rights to pay nominated sub-contractors as provided in clause 27(c) of these Conditions and payments made under this paragraph may be deducted from any sum due or to become due to the Contractor … (d) The Contractor shall allow or pay to the Employer in the manner hereinafter appearing the amount of any direct loss and/or damage caused to the Employer by the determination. Until after completion of the Works under paragraph (a) of this sub-clause the Employer shall not be bound by any provision of this Contract to make any further payment to the Contractor, but upon such completion and the verification within a reasonable time of the accounts therefor the Architects shall certify the amount of expenses properly incurred by the Employer and the amount of any direct loss and/or damage caused to the Employer by the determination and, if such amounts when added to the monies paid to the Contractor before the date of determination exceed the total amount which would have been payable on due completion in accordance with this Contract, the difference shall be a debt payable to the Employer by the Contractor; and if the said amounts when added to the said monies be less than the said total amount, the difference shall be a debt payable by the Employer to the Contractor.’
On 2 September 1977 Messrs Michael Aukett Associates, architects under the building contract, issued an interim certificate based on a valuation of works performed at 25 August 1977, certifying that £24,000 was payable under the building contract by the association to the company.
At all material times the association has been a customer of the plaintiffs, Barclays Bank Ltd (which I shall call ‘Barclays’), at their branch at 78 Victoria Street, London SW1 (which I shall call ‘the branch’).
On Monday, 12 September 1977, the association drew a cheque (which I shall call ‘the cheque’) for £24,000 on its account with Barclays at the branch in favour of the company in payment of the interim certificate. At all material times there were sufficient funds in the account to meet the cheque. On Tuesday, 13 September 1977, pursuant to the terms of the mortgage debenture, National Westminster appointed Mr William Sowman, a chartered accountant, to be receiver of the undertaking, property and assets of the company. On Thursday, 15 September 1977, at 9.20 am, the association telephoned the branch and instructed Barclays to stop payment on the cheque. The branch immediately prepared that instruction for the computer which was then programmed accordingly. On the morning of Friday, 16 September 1977, a member of the branch staff checked the computer amendment applied report to ensure that the stop details had been recorded correctly. The association subsequently confirmed its telephone instructions in writing to Barclays. The cheque was received by Mr Sowman in the ordinary course of post and his assistant paid in the cheque at the Waddon branch of National Westminster with a direction that the cheque be specially cleared. It is not suggested that in giving such instruction for special clearance or at any time prior to the cheque being specially cleared, Mr Sowman, or his assistant or the company, was aware of the instructions given by the association to Barclays on Thursday, 15 September 1977.
Late on Thursday, 15 September, or early on Friday, 16 September 1977, a special presentation from the Waddon branch of National Westminster was received by the branch enclosing the cheque. Details of its presentation were recorded in the branch register on Friday, 16 September 1977, and the cheque was paid by the branch that day due to a mistake by the paying official at the branch who overlooked the stop instruction. A credit for National Westminster’s special presentation account was sent to National Westminster in the branch credit transfers that evening. The cheque was rejected by Barclays’ computer on Monday, 19 September 1977, the next business day, and was placed to the debit of the computer’s suspense account for the work of 16 September 1977. The cheque was subsequently filed with the association’s vouchers and its omission from the association’s statement was discovered at Barclays’ central accounting unit on Monday, 19 September 1977. On 27 September 1977 Barclays’ head office telephoned the branch to state that there was an outstanding item for £24,000. The branch then telephoned the association to establish the reason for payment being countermanded. The association have since confirmed to Barclays (i) that they heard of the receiver’s appointment on about 14 September 1977 and (ii) that they decided to stop the cheque in the belief that they were entitled so to act under the building contract.
Barclays subsequently demanded repayment of the cheque from Mr Sowman, who declined to make such repayment. Correspondence ensued between Barclays and its solicitors and Mr Sowman and his solicitors. The bank subsequently commenced proceedings claiming repayment of the £24,000 from the company and/or Mr Sowman as moneys paid under a mistake of fact. Mr Sowman has at all times since December 1977 held £24,000 in a separate account pending a decision in these proceedings.
In the receivership there is likely to be a deficiency as regards the preferential creditors. There will certainly be a substantial deficiency in the receivership for National Westminster, the mortgage debenture holder.
In the action as constituted, the plaintiffs, Barclays, claimed to be entitled to recover the money from the first defendants, the company, and the second defendant, the receiver as money paid under a mistake of fact. Pleadings were served. In the defence, apart from certain non-admissions of fact (which were subsequently resolved in the agreed facts), the substantial point taken by the defendants was that Barclays were not entitled to recover because there was no mistake of fact between Barclays and the defendants or either of them, or alternatively that any mistake or misapprehension of fact way confined to Barclays. This point went to the nature of the mistake necessary to ground recovery, the matter to which the greater part of the argument in the case was devoted; and the defendants’ argument on this point was (as will be seen) the subject of some development. However, in the course of argument other points were raised by the defendants. These were as follows: (i) the money was irrecoverable from either defendant, because it was paid by Barclays and received by the company in discharge of the association’s obligation to the company under the building contract or alternatively under the cheque; (ii) since Barclays failed to give notice of their claim on the day when the cheque was paid, they were unable (on the principle in Cocks v Masterman and other cases) to recover the money; (iii) in any event, no action lay against the receiver (iv) it was at one time submitted that the effect of the crystallisation of the floating charge was that Barclays could only succeed in their claim if they could establish that the money was impressed with a trust in their favour, and this, it was submitted, on the authority of Re Diplock’s Estate and other cases, Barclays could not establish. This submission provoked the response by Barclays that the money was indeed impressed with such a trust, and would not therefore go as a windfall to the company’s creditors; alternatively that Barclays would if necessary seek leave to join as defendants National Westminster, as the immediate recipients of the payment. In the outcome the point was not pursued by the defendants; and it was recognised by them that, since the action was intended to be in the nature of a test case to ascertain whether money paid in the circumstances of the present case was recoverable, Barclays’ action should not fail for want of parties and that, on Barclays not proceeding further against the receiver, the receiver would procure payment of any sum found due by the judgment.
I propose to deal with the matter as follows. I shall first consider the principles on which money is recoverable on the ground that it has been paid under a mistake of fact. Next, I shall consider the application of those principles to a case where a bank has paid, under a mistake of fact, a cheque drawn on it by a customer. Then, I shall consider how far the defence in Cocks v Masterman is available to defeat a claim brought by a bank which has paid a cheque under a mistake of fact. Lastly, I shall consider the application of these principles to the present case.
Nearly 40 years ago, Asquith J stated that ‘it is notoriously difficult to reconcile all the cases dealing with payment of moneys under a mistake of fact’ (see Weld Blundell v Synott ( 2 All ER 580 at 583,  2 KB 107 at 112)). This is indeed true, and it does not make easy the task of the trial judge, whose duty it is both to search for guiding principles among the authorities, and to pay due regard to those authorities by which he is bound. I have, however, come to the conclusion that it is possible for me, even in this field, to achieve both these apparently irreconcilable objectives. The key to the problem lies, in my judgment, in a careful reading of the earliest and most fundamental authorities, and in giving full effect to certain decisions of the House of Lords. It is necessary therefore for me to review the leading authorities.
I shall go straight to three early cases, the first of which provided the basis of the modern law on this topic. That is Kelly v Solari. The action was brought by the plaintiff, as one of the directors of Argus Life Assurance Co, to recover from the defendant a sum of money alleged to have been paid to her under a mistake of fact. The evidence was that the money had been paid to her, as executrix of her deceased husband, on a policy on the life of her hsuband, in entire forgetfulness that the assured had by mistake allowed the policy to lapse by reason of the non-payment of the premium. At the trial, Lord Abinger CB directed a nonsuit, expressing the opinion that if the directors had had knowledge, or the means of knowledge, of the policy having lapsed, the plaintiff could not recover; but he reserved leave to the plaintiff to move to enter a verdict for him for the amount claimed. The plaintiff obtained a rule nisi accordingly, or for a new trial; and the Court of Exchequer made the rule absolute for a new trial. The principal issue in the case was therefore whether negligence on the part of the plaintiff precluded recovery; it was held that it did not, a conclusion that has stood ever since. For present purposes, however, the case is important for a statement of principle by Parke B in the following terms (9 M & W 54 at 58–59, [1835–42] All ER Rep 320 at 322):
‘I think that where money is paid to another under the influence of a mistake, that is, upon the supposition that a specific fact is true, which would entitle the other to the money, but which fact is untrue, and the money would not have been paid if it had been known to the payer that the fact was untrue, an action will lie to recover it back and it is against conscience to retain it … If, indeed, the money is intentionally paid, without reference to the truth or falsehood of the fact, the plaintiff meaning to waive all inquiry into it, and that the person receiving shall have the money at all events, whether the fact be true or false, the latter is certainly entitled to retain it; but if it is paid under the impression of the truth of a fact which is untrue, it may, generally speaking, be recovered back, however careless the party paying may have been, in omitting to use due diligence to inquire into the fact.’
Rolfe B said (9 M & W 54 at 59, [1835–42] All ER Rep 320 at 322):
‘Wherever [money] is paid under a mistake of fact, and the party would not have paid it if the fact had been known to him, it cannot be otherwise than unconscientious to retain it.’
The case was concerned with a payment made with the intention of discharging a supposed liability of the plaintiff to the defendant. It is no doubt for that reason that the first part of Parke B’s statement of principle was directed to such a case; although it is to be observed that, in the context of such a case, Parke B did not place any restriction on the nature of the mistake which would ground recovery. But it would not, in my judgment, be right to infer that Parke B was stating that money paid under a mistake of fact was only recoverable in cases where the plaintiff’s mistake led him to believe that he was under a liability to the defendant to pay the money to him. There is nothing to indicate that the first part of his statement of principle was intended so to restrict the right of recovery; indeed later in his judgment he stated the principle of recovery in broader terms, as did Rolfe B, which appears to indicate that it is sufficient to ground recovery that the plaintiff’s mistake has caused him to make the payment.
The second of these three cases is Aiken v Short. The plaintiffs were bankers. The bank was the transferee from one Carter of an inheritance to which Carter was supposedly entitled. The plaintiffs paid £226 16s 6d (£200 plus interest) to the defendant in discharge of a debt owed by Carter to the defendant, which was secured by an equitable mortgage on Carter’s supposed inheritance. It transpired that Carter had no inheritance; and the plaintiffs claimed to recover the money from the defendant as having been paid under a mistake of fact. It was held by the Court of Exchequer that the money was in those circumstances irrecoverable. It is a crucial fact in the case that, the payment having been authorised by Carter, it was effective to discharge the debt which was in fact owed by Carter to the defendant; the defendant therefore gave consideration for the payment which was, for that reason irrecoverable. This was the basis of the decision of both Pollock CB and Platt B; it seems likely, from interventions in the argument, that Martin B (who was absent when judgment was given) would have decided the case on the same basis. Pollock CB said ((1856) 1 H & N 210 at 214, [1843–60] All ER Rep 425 at 427):
‘The Bank had paid the money in one sense without any consideration, but the defendant had a perfect right to receive the money from Carter, and the bankers paid for him … The money was, in fact, paid by the Bank, as agents of Carter.’
Platt B said (1 H & N 210 at 215, [1843–60] All ER Rep 425 at 427):
‘Carter referred [the defendant] to the Bank, who paid the debt, and the bond was satisfied. The money which the defendant got from her debtor was actually due to her, and there can be no obligation to refund it.’
The case is, however, remembered principally for an obiter dictum of Bramwell B. He said (1 H & N 210 at 215, [1843–60] All ER Rep 425 at 427):
‘In order to entitle a person to recover back money paid under a mistake of fact, the mistake must be as to a fact which, if true, would make the person paying liable to pay the money; not where, if true, it would merely make it desirable that he should pay the money.’
He recognised that the bankers were under no antecedent obligation to pay the money (1 H & N 210 at 215, [1843–60] All ER Rep 425 at 427): they ‘were at liberty to pay or not, as they pleased’; and, having ‘voluntarily parted with their money to purchase that which the defendant had to sell’, they were unable to recover. It appears from a rather fuller report (25 LJ Ex 321 at 324) that Bramwell B did not necessarily regard his statement of principle as comprehensive. But, strictly construed, it appears to restrict the right of recovery more narrowly than did Parke B in Kelly v Solari. It purports to exclude recovery in cases where the plaintiff’s mistake did not lead him to believe that he was liable to pay the money to the defendant; and it appears in particular to exclude recovery in a case where the plaintiff had paid the money to the defendant in the mistaken belief, not that he was liable to the defendant to pay it, but that he was under an obligation to a third party to pay it to the defendant, even when the payment did not discharge a debt owing to the defendant who therefore gave no consideration for it. Subsequent decisions of the House of Lords show that so restricted a statement of the principle of recovery does not represent the law.
The third of the early cases to which I must refer is Chambers v Miller, not because it sheds any particular light on this branch of the law, but because its effect has been misrepresented in certain textbooks, and in particular a dictum of Erle CJ has frequently been cited out of context and so misunderstood. The case was not concerned with recovery of money paid under a mistake of fact, but with an action for assault and false imprisonment. The plaintiff was a clerk, who presented for payment at the defendant’s bank a cheque held by his employers, drawn on the bank by one of their customers. The cashier, overlooking the fact that the customer’s account was insufficient to meet the cheque, received it and placed the amount in cash on the counter. The plaintiff counted the money, and was counting it a second time when the cashier, realising his mistake, returned and said that the cheque could not be paid. The plaintiff put the money in his pocket, whereupon the cashier detained him, under threat of being given into custody on a charge of theft; he was so detained until he handed over the money, when he was given back the cheque uncancelled. The cheque was subsequently presented to the drawer and paid by him. The crucial question in the case was whether, in these circumstances, the property in the money had passed to the bearer of the cheque. All the members of the court held that it had, and a rule nisi to enter a verdict for the defendant was accordingly discharged.
It was part of the defendant’s argument that the money was recoverable, as having been paid under a mistake of fact. However that was, as at least two members of the court recognised (see per Williams and Byles JJ ((1862) 13 CBNS 125 at 135, 136–137)) irrelevant to the question whether the property had passed; indeed, where an action is brought to recover money paid under a mistake of fact, property will almost invariably have passed to the defendant, the effect of the action, if successful, being simply to impose on the defendant a personal obligation to repay the money. Furthermore, the kind of mistake that will ground recovery is, as Parke B’s statement of the law in Kelly v Solari shows, far wider than the kind of mistake which will vitiate an intention to transfer property. The court was satisfied in Chambers v Miller that the cashier’s mistake did not prevent the property in the money from passing. It was in the context of considering that question that Erle CJ referred to the mistake as being (13 CBNS 125 at 133) ‘not as between [the cashier] and the bearer of the cheque, but as between him and the customer’. This dictum has, however, been taken out of its context and it has subsequently been suggested on its authority that no action will lie to recover money paid under a mistake of fact, unless the mistake was ‘as between’ the payer and the payee, in the sense that both parties were suffering under the same mistake. Chambers v Miller provides, in my judgment, no basis for any such proposition, which was later to be authoritatively rejected by the House of Lords.
Such are the early cases most frequently cited on this topic. I propose to go next to three cases in the House of Lords, in which the law on this subject was authoritatively established; but before I do so, I will first refer to a decision of the Privy Council, which was later to be relied on in one of the cases in the House of Lords. This is Colonial Bank v Exchange Bank of Yarmouth, Nova Scotia. A firm called B Rogers & Son was in business in Yarmouth, Nova Scotia. They instructed agents in Antigua to remit certain funds to the Halifax branch of the Bank of British North America. The agents paid the funds into the plaintiff bank, and gave them ‘rather ambiguous instructions’ for their remittance in favour of the Bank of British North America, which omitted any reference to that bank’s branch in Halifax. The plaintiff bank then gave instructions to New York agents to carry out the instructions so received by them from B Rogers & Son’s agents. The New York agents proceeded to put the New York branch of the Bank of British North America in funds, but gave them instructions in terms which erroneously required payment ‘for account Yarmouth Bank, credit of Rogers’. The Bank of British North America had no branch in Yarmouth, but considered that the proper way of remitting funds to Yarmouth was to pay them to the defendant bank, with whom they had arrangements. This they did, paying the money to the defendant bank, ‘credit of Rogers’. It so happened that Rogers was a customer of the defendant bank, and was considerably in their debt at the time, and so they put the money to the credit of Rogers, and to the debit of the Bank of British North America. On the following day the Bank of British North America in New York, having been advised by Rogers of the mistake, called for the repayment of the money from the defendant bank; this was refused on the ground that the credit had been ‘used’, which meant that it had been placed in the defendant bank’s books in reduction of Rogers’s indebtedness to them. It was held that the plaintiff bank were entitled to recover the money from the defendant bank. The principal question in the case was whether the plaintiff bank had a sufficient interest to proceed direct against the defendant bank for the money. But for present purposes, the decision is of interest because the plaintiff bank did not suffer under a mistake which led them to believe that they were under any liability to the defendants to pay the money to them; indeed nobody, in the whole chain of parties, believed that they were under any such liability. The decision is therefore clearly contrary to the view, founded on Bramwell B’s dictum in Aiken v Short ((1856) 1 H & N 210 at 215, [1843–60] All ER Rep 425 at 427), that to ground recovery, a mistake of fact must fall within any such restrictive category; indeed there is nothing in the advice of the Board in this case, which was delivered by Lord Hobhouse, to suggest that there is any limitation to be placed on the category of mistake necessary to ground recovery, other than that it must have caused the payment.
I come then to the three cases in the House of Lords. The first is Kleinwort, Sons & Co v Dunlop Rubber Co. A firm called Messrs Kramrisch were rubber merchants, who were financed both by the appellants, Messrs Kleinworts, and by another merchant bank, Messrs Brandts. Kramrisch supplied the respondents, the Dunlop Rubber Co, with a quantity of rubber, directing them to pay the price to Brandts, who had an equitable mortgage on it. The respondents mistakenly paid it to the appellants, who received it in good faith. Messrs Kramrisch failed and the respondents were subsequently held liable to pay the money to Messrs Brandts. They claimed to recover from the appellants the money they had mistakenly paid to them. It was held that they were entitled to recover it as having been paid under a mistake of fact. The main question in the case was whether the appellants could rely on the defence of change of position; but that plea was conclusively negatived by the answers of the jury at the trial. For present purposes, the interest of the case lies in two matters. First, there was no question of the respondents mistakenly believing that they were under any liability to the appellants to pay the money to them. Second, Lord Loreburn LC stated the principle of recovery in very broad terms. He said (97 LT 263 at 264):
‘… it is indisputable that, if money is paid under a mistake of fact and is redemanded from the person who received it before his position has been altered to his disadvantage, the money must be repaid in whatever character it was received.’
The second of these cases is Kerrison v Glyn, Mills, Currie & Co. The appellant paid a sum of money to the respondents, for the account of a New York bank called Kessler & Co, in anticipation of a liability to recoup Kessler & Co for advances made by them to a mining company in Mexico in which the appellant was interested. Unknown to the appellant or the respondents, Kessler & Co were insolvent at the time of the payment. The money was not paid over by the respondents to Kessler & Co; but since Kessler & Co were indebted to them, the respondents claimed to be entitled to retain the money and declined to refund it to the appellant. It was held that the appellant was entitled to recover the money from the respondents. Two questions arose in the case. First, whether the arrangements between the appellant and Kessler & Co were such that he was indebted to Kessler & Co in the sum of money; it was held by the House of Lords (differing from the Court of Appeal on this point) that he was not, and that the money was paid only in anticipation of a future liability. Had the appellant been so indebted, it was recognised by the House of Lords that the money would have been paid in discharge of an existing debt and would have been irrecoverable, despite the fact that the appellant had paid it under the misapprehension that Kessler & Co were solvent. Lord Atkinson, who delivered the leading speech, said ((1911) 81 LJKB 465 at 470, [1911–13] All ER Rep 417 at 422):
‘[The appellant] lodged the money in the belief that Kessler & Co were a living commercial entity able to carry on their business as theretofore, that they were in a position to honour and would honour the drafts of the Bote Mining Co. up to the sum which he, in anticipation, sent to recoup them for their repeated advances. Kessler & Co. had, in fact, ceased to be in that position.’
The second question was whether the fact that the respondents were bankers enabled them to resist the appellant’s claim, on the ground that money once paid into a bank ceases altogether to be the money of the payer. That was held to be irrelevant.
This decision, too, is therefore inconsistent with the proposition that the only mistake which will ground recovery is a mistake which leads the payer to believe that he is liable to the payee to pay it to him. But the case is also of interest for present purposes because of statements in the speeches of their Lordships relating to the type of mistake which will ground recovery. These are in very broad terms. Lord Atkinson said ((1911) 81 LJKB 465 at 470, [1911–13] All ER Rep 417 at 422):
‘I cannot doubt but that on general principles, [the appellant] would be entitled to recover back money paid in ignorance of these vital matters as money paid in mistake of fact.’
Lord Shaw said (81 LJKB 465 at 471, [1911–13] All ER Rep 417 at 423):
‘The money was paid … under the mistake in fact—which was material, and was indeed the only reason for payment—that Kessler & Co. could perform their obligations.’
Lord Mersey said (81 LJKB 465 at 472, [1911–13] All ER Rep 417 at 424) that the facts brought the case directly within the terms of the judgment of Lord Loreburn LC in Kleinwort, Sons & Co v Dunlop Rubber Co, and then quoted the passage (97 LT 263 at 264) from that judgment which I have set out above. He went on to dismiss an attempt by the respondents ‘to take the case out of this plain and simple rule of law’. It is to be observed that Lord Loreburn LC was a member of the Judicial Committee in Kerrison’s case, and concurred, as did the Earl of Halsbury.
It thus appears that, provided the plaintiff’s mistake is ‘vital’ or ‘material’, which I understand to mean that the mistake caused the plaintiff to pay the money, the money is prima facie recoverable; but that if the payment discharged an existing debt owing to the payee (or to a principal on whose behalf the payee is authorised to receive the payment) it is irrecoverable. Such a conclusion is, if I may say so with respect, entirely consistent with the decision in Aiken v Short, though not with the dictum of Bramwell B (1 H & N 210 at 215 [1843–60] All ER Rep 425 at 427) in that case.
The third decision of the House of Lords to which I must refer is R E Jones Ltd v Waring & Gillow Ltd. The facts of the case are complicated and somewhat unclear, due in part to the curious way in which they were found, since they appear to have been taken by the trial judge from the opening speech of the plaintiff’s counsel. In summary, a rogue named Bodenham obtained from the respondents furniture and other effects to a value of over £13,000 on hire-purchase terms, under which the down payment was to be £5,000. It appears that Bodenham defaulted in making the down payment, and that the respondents then repossessed the goods. Bodenham then approached the appellants, informing them that he represented a firm of motor manufacturers called International Motors who had control of a car called the Roma, and he persuaded the appellants to accept an appointment as agents for the sale of the car in certain parts of this country, one term of the agency being the payment of a deposit of £5,000 (_££10 for each of 500 cars). Bodenham told the appellants that the people who were financing the thing and who were the principals behind him in the matter were the respondents, and that the deposit might be paid to them. The appellants then made out two cheques payable to the order of the respondents, one for £2,000 and one for £3,000, and handed them to Bodenham; he handed them to the respondents, who received them from him in respect of his deposit under the hire-purchase agreement. The respondents’ accountant observed that the cheques bore the signature of only one director; he then arranged with the appellants to exchange them for one cheque for £5,000, duly signed. This exchange was effected in good faith, nothing being said about the nature of the transaction. The cheque for £5,000 was cashed by the respondents, who then restored to Bodenham the furniture they had seized, and let him have some more. Subsequently, the fraud came to light, and it transpired that there was no International Motors and no Roma car. The respondents resumed possession of the furniture. The appellants claimed repayment of the sum of £5,000 from the respondents.
The trial judge gave judgment for the appellants; but his judgment was reversed by the Court of Appeal. The reasons given by the members of the court vary; but for present purposes the significant judgment is that of Pollock MR. He held that the appellants’ claim to recover the money as paid under a mistake of fact must fail, because the mistake was not a mistake as between the appellants and the respondents. He referred to the dicta of Parke B in Kelly v Solari ((1841) 9 M & W 54 at 58 [1835–42] All ER Rep 320 at 322) and of Bramwell B in Aiken v Short ((1856) 1 H & N 210 at 215); he also referred to the decision in Chambers v Miller and to the dictum of Erle CJ in that case (32 LJCP 30 at 32; cf 13 CBNS 125 at 133). Pollock MR concluded ( 2 KB 612 at 632):
‘The plaintiffs and the defendants were each of them under misapprehension —different misapprehensions—and different mistakes of fact. It appears to me, therefore, that it is not possible for the plaintiffs to recover the money as having been paid under a mistake of fact.’
The House of Lords were however unanimous in concluding that the appellants’ mistake of fact was sufficient to ground recovery, although a minority considered that the respondents had a good defence to the claim because they had changed their position in good faith. The House accordingly allowed the appeal. For present purposes, I am only concerned with the nature of the mistake which will ground recovery. Viscount Cave LC (with whose speech Lord Atkinson agreed) stated the principle in very broad terms, which show that he considered it sufficient for the plaintiff to show that he suffered under a mistake of fact which caused the payment. He said ( AC 670 at 679–680,  All ER Rep 36 at 39):
‘The plaintiffs were told by Bodenham that he represented a firm called International Motors which was about to be formed into a company, that the firm had control of a car called the “Roma” car which he described as an existing car, and that the defendants were financing the firm and were the principals behind him and behind International Motors in the matter. Believing these statements to be true, the plaintiffs entered into an agreement which bound them to pay a deposit of 5,000l. on 500 Roma cars; and still believing them to be true, and that the respondents as the nominees of International Motors could give a good receipt for the 5,000l., they paid that sum to the respondents. In fact the statements were untrue from beginning to end; and the money was, therefore, paid under a mistake of fact induced by the false statements of a third party and, apart from special circumstances, could be recovered. As to the general principle, it is sufficient to refer to the well known case of Kelly v. Solari, and to the more recent decisions in Colonial Bank v. Exchange Bank of Yarmouth, Nova Scotia and Kerrison v. Glyn, Mills, Currie & Co.’
It is significant that Viscount Cave LC did not consider it necessary to identify the precise capacity in which the appellants supposed that the respondents received the money; it was enough for him that the appellants supposed that the respondents were ‘nominees’ of International Motors who could give a good receipt for the money, a purely neutral term. It follows that he did not regard it as necessary that the appellants should have supposed that they were liable to the respondents to pay the money to them, as is borne out by his citation of the Colonial Bank case and of Kerrison’s case. It is scarcely surprising that Lord Atkinson, who delivered the leading speech in Kerrison’s case, agreed with Viscount Cave LC on this aspect of the case. Lord Shaw also agreed with Viscount Cave LC that the money was paid under a mistake of fact. He concluded ( AC 670 at 686,  All ER Rep 36 at 43) that it seemed quite clear that the appellants would never have parted with the money if they had had any knowledge of the real truth, and that the money was recoverable. It appears from his statement of the facts that he did not consider that the appellants mistakenly believed that they were liable to the respondents to pay the money to them. Lord Sumner ( AC 670 at 691–692,  All ER Rep 36 at 45) stated the facts in terms which show that he considered that the appellants supposed that, in paying the money, they were discharging an obligation to International Motors, not an obligation to the respondents. Lord Carson, in agreeing with Viscount Cave LC that the money was paid under a mistake of fact, cited and relied on both the dictum of Parke B and the very broad dictum of Rolfe B in Kelly v Solari (9 M & W 54 at 58–59, [1835–42] All ER Rep 320 at 322), of which at least the latter requires only that the plaintiff’s mistake should have caused him to pay the money.
I wish to make three comments on the decision of the House of Lords in R E Jones Ltd v Waring & Gillow Ltd. First, the House of Lords must have rejected the view, expressed by Pollock MR ( 2 KB 612 at 632), that to ground recovery the mistake must have been ‘as between’ payer and payee, in the sense of having been a mistake shared by both parties. Second, it is implicit in the speeches of all their Lordships that it is not a prerequisite of recovery that the plaintiff must have mistakenly believed that he was liable to the defendant to pay the money to him. Third, as I understand their Lordships’ speeches, in particular the speech of Viscount Cave LC (with which Lod Atkinson agreed) and the speeches of Lord Shaw and Lord Carson, it is sufficient to ground recovery that the plaintiff’s mistake should have caused him to pay the money to the payee.
I should add, with great respect, that the reasoning, if not the decision, of Roche J in Barclay & Co Ltd v Malcolm & Co cannot in my judgment be reconciled with the decision of the House of Lords in R E Jones Ltd v Waring & Gillow Ltd. It is striking that Barclay & Co Ltd v Malcolm & Co was argued and decided between the decisions of the Court of Appeal and the House of Lords in R E Jones Ltd v Waring & Gillow Ltd. Moreover, leading counsel for the plaintiffs in Barclay & Co Ltd v Malcolm & Co had appeared for the respondents in R E Jones Ltd v Waring & Gillow Ltd before the Court of Appeal only three months earlier. The decision of the Court of Appeal in the latter case is not mentioned in the report of Barclay & Co Ltd v Malcolm & Co; but that case is very briefly reported in the Law Times Reports, and it is inconceivable that so recent an authority, in which counsel had appeared, was not cited to Roche J. In Barclay & Co Ltd v Malcolm & Co, the plaintiff bank had mistakenly paid the same sum twice to the defendants, in the belief that a confirming letter from another bank constituted a second set of instructions. Roche J held that the money was not recoverable. The first and principal ground on which he so held was expressed by him in the following words (133 LT 512 at 513):
‘It is not contrary to good conscience that the defendants should be allowed to keep the money in question. The mistake was in no way due to them. The mistake which was made concerned only the plaintiffs and the Warsaw Bank by whom the plaintiffs were instructed, and it was not a mistake with regard to the liability of one person to pay or the right of another person to receive. The nearest authority appears to be Chambers v. Miller. In my view, the first point gives a good defence to the action.’
Such reasoning is, in my judgment, inconsistent with the ratio decidendi of the decision of the House of Lords in R E Jones Ltd v Waring & Gillow Ltd.
From this formidable line of authority certain simple principles can, in my judgment, be deduced.
To these simple propositions, I append the following footnotes:
(a) Proposition 1.
This is founded on the speeches in the three cases in the House of Lords, to which I have referred. It is also consistent with the opinion expressed by Turner J in Thomas v Houston Corbett & Co ( NZLR 151 at 167). Of course, if the money was due under a contract between the payer and the payee, there can be no recovery on this ground unless the contract itself is held void for mistake (as in Norwich Union Fire Insurance Society Ltd v William H Price Ltd) or is rescinded by the plaintiff.
(b) Proposition 2(a).
This is founded on the dictum of Parke B in Kelly v Solari ((1841) 9 M & W 54 at 58, [1835–42] All ER Rep 320 at 322). I have felt it necessary to add the words ‘or is deemed in law so to intend’ to accommodate the decision of the Court of Appeal in Morgan v Ashcroft, a case strongly relied on by the defendants in the present case, the effect of which I shall have to consider later in this judgment.
(c) Proposition 2(b).
This is founded on the decision in Aiken v Short, and on dicta in Kerrison’s case. However, even if the payee has given consideration for the payment, for example by accepting the payment in discharge of a debt owed to him by a third party on whose behalf the payer is authorised to discharge it, that transaction may itself be set aside (and so provide no defence to the claim) if the payer’s mistake was induced by the payee, or possibly even where the payee, being aware of the payer’s mistake, did not receive the money in good faith: cf Ward & Co v Wallis ( 1 KB 675 at 678–679) per Kennedy J.
(d) Proposition 2(c).
This is founded on the statement of principle of Lord Loreburn LC in Kleinwort, Sons & Co v Dunlop Rubber Co. I have deliberately stated this defence in broad terms, making no reference to the question whether it is dependent on a breach of duty by the plaintiff or a representation by him independent of the payment, because these matters do not arise for decision in the present case. I have, however, referred to the possibility that the defendant may be deemed in law to have changed his position, because of a line of authorities concerned with negotiable instruments which I shall have to consider later in this judgment, of which the leading case is Cocks v Masterman.
(e) I have ignored, in stating the principle of recovery, defences of general application in the law of restitution, for example where public policy precludes restitution.
(f) The following propositions are inconsistent with the simple principle of recovery established in the authorities:
(i) that to ground recovery, the mistake must have induced the payer to believe that he was liable to pay the money to the payee or his principal;
(ii) that to ground recovery, the mistake must have been ‘as between’ the payer and the payee. Rejection of this test has led to its reformulation (notably by Asquith J in Weld Blundell v Synott by Windeyer J in Porter v Latec Finance (Qld) Pty Ltd ((1964) 111 CLR 177 at 204)) in terms which in my judgment mean no more than that the mistake must have caused the payment.
In the case before me, counsel submitted on behalf of the defendants that I could not proceed on the basis of the simple principles I have stated, because I was precluded from so doing by binding authority, viz the decision of the Court of Appeal in Morgan v Ashcroft. That case came on appeal from the county court. The respondent was a bookmaker, with whom the appellant was in the habit of making bets. The respondent claimed that his clerk mistakenly credited the appellant twice over with a sum of £24 2s 1d, and claimed to recover that sum from the appellant as having been paid under a mistake of fact. The county court judge held that the respondent was entitled to recover the money. The Court of Appeal allowed the appeal, holding that the money was not recoverable. The first ground of the court’s decision was that, in order to ascertain whether there had been an overpayment, it would be necessary for the court to examine the state of account between the parties, and that the court could not do, by reason of the Gaming Act 1845. However the court also held that the money was in any event not recoverable as having been paid under a mistake of fact. Counsel relied in particular on a passage in the judgment of Greene MR in which he stated ( 3 All ER 92 at 98,  1 KB 49 at 66):
‘… a person who intends to make a voluntary payment, and thinks that he is making one kind of voluntary payment, whereas, upon the true facts, he is making another kind of voluntary payment, does not make the payment under a mistake of fact which can be described as fundamental or basic.’
That passage counsel for the defendants identified as being the crucial passage in Greene MR’s judgment on this point; and he submitted further that the expression ‘voluntary payment’ must here be understood as a payment made without legal obligation, so that, generally speaking, a person who makes a payment without the intention of discharging a legal obligation cannot recover the money from the payee although it has been paid under a mistake of fact, except possibly in circumstances where the mistake can be described as fundamental, for example where the mistake is as to the identity of the payee.
It is legitimate to observe the consequences of counsel’s submission. If he is right, money would be irrecoverable in the following, by no means far-fetched, situations (i) A man, forgetting that he has already paid his subscription to the National Trust, pays it a second time. (ii) A substantial charity uses a computer for the purpose of distributing small benefactions. The computer runs mad, and pays one beneficiary the same gift one hundred times over. (iii) A shipowner and a charterer enter into a sterling charterparty for a period of years. Sterling depreciates against other currencies; and the charterer decides, to maintain the goodwill of the shipowner but without obligation, to increase the monthly hire payments. Owing to a mistake in his office, the increase in one monthly hire payment is paid twice over. (iv) A Lloyd’s syndicate gets into financial difficulties. To maintain the reputation of Lloyd’s, other underwriting syndicates decide to make gifts of money to assist the syndicate in difficulties. Due to a mistake, one syndicate makes its gift twice over.
It would not be difficult to construct other examples. The consequences of counsel’s submission are therefore so far-reaching that it is necessary to examine the ratio decidendi of this part of the decision in Morgan v Ashcroft to ascertain whether it produces the result for which counsel contends. Only two judges sat to hear the appeal in Morgan v Ashcroft: Greene MR and Scott LJ. Furthermore, there are considerable differences between their two judgments on this part of the case. First, there was difference in the basic philosophy expounded by the two judges. Greene MR favoured the so-called ‘implied contract’ theory as the basis of recovery of money paid under a mistake of fact. Citing a well-known dictum of Lord Summer from Sinclair v Brougham ( AC 398 at 452, [1914–15] All ER Rep 622 at 648) he rejected the principle of unjust enrichment and stated that the claim was based on an imputed promise to repay ( 3 All ER 92 at 96,  1 KB 49 at 62). Scott LJ adopted a less restricted view. While accepting that the moral principle of unjust enrichment had been rejected as a universal or complete legal touchstone whereby to test the cause of action, he referred to passages from the works of eminent jurists and concluded that his citations emphasised ( 3 All ER 92 at 104,  1 KB 49 at 76)—
‘the importance of trying to find some common positive principles upon which these causes of action called “implied contracts” can be said to rest, and which will not altogether exclude that of unjust enrichment embodied in those citations.’
Scott LJ’s approach has been amply vindicated by subsequent developments in the law, as is shown in particular by authoritative statements of principle in the House of Lords by Lord Atkin in United Australia Ltd v Barclays Bank Ltd ( 4 All ER 20 at 36–37,  AC 1 at 28–29) and by Lord Wright in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd ( 2 All ER 122 at 135–136,  AC 32 at 61).
How far Greene MR’s narrower philosophic approach affected his analysis in Morgan v Ashcroft is difficult to tell; but there was a further difference between him and Scott LJ in their view of the nature of the mistake which will ground recovery of money paid under a mistake of fact. Again, Greene MR adopted a more restricted view. He founded himself on the dictum of Bramwell B in Aiken v Short ((1856) 1 H & N 210 at 215, [1843–60] All ER Rep 425 at 427), which he accepted as an authoritative statement of the law ‘so far as regards the class of mistake with which he was dealing’, ie in ‘cases where the only mistake is as to the nature of the transaction’ ( 3 All ER 92 at 98, 99,  1 KB 49 at 66). From that dictum he deduced the conclusion on which counsel for the defendants relied before me, viz that if a person thinks that he is making one kind of voluntary payment, whereas on the true facts he is making another kind of voluntary payment, his mistake is not fundamental or basic and therefore cannot ground recovery ( 3 All ER 92 at 98–99,  1 KB 49 at 65–67). Scott LJ, on the other hand, was not prepared to accept Bramwell B’s dictum as authoritative; in particular, he referred to Kerrison’s case and said that the decision of the House of Lords in that case seemed to him ( 3 All ER 92 at 103,  1 KB 49 at 73–74)—
‘conclusive that the rule as stated in Aiken v. Short cannot be regarded as final and exhaustive in the sense that no mistake, which does not induce in the mind of the payer a belief that payment will discharge or reduce his liability, can ground an action for money had and received.’
In these circumstances it is by no means easy to determine the ratio decidendi of this part of the case. It may well be found in the opinion of both judges that an overpayment of betting debts by a bookmaker is not made under a mistake of fact sufficiently fundamental to ground recovery, apparently on the basis that the payment is in any event intended to be a purely voluntary gift, because ‘the law prevents the plaintiff from saying that he intended anything but a present’ (per Scott LJ ( 3 All ER 92 at 105,  1 KB 49 at 77)) and the plaintiff is therefore deemed in law to intend that the payee shall be entitled to retain the money in any event.
That the ratio decidendi is not to be found in the passage from Greene MR’s judgment on which counsel relied is shown by the fact that the subsequent decision of the Court of Appeal in Larner v London County Council is, in my judgment, inconsistent with that passage. In that case, the London County Council had resolved to pay all their employees who went to the war the difference between their war service pay and their civil pay until further order. Mr Larner was an ambulance driver employed by the council, who was called up in 1942. As a result of his failure to keep the council accurately informed about changes in his war service pay, the council overpaid the difference. In contending that the overpayment was irrecoverable, Mr Larner’s counsel relied on the dictum of Bramwell B in Aiken v Short ((1856) 1 H & N 210 at 215, [1843–60] All ER Rep 425 at 427). The Court of Appeal, however, held that the money was recoverable. Denning LJ ( 1 All ER 964 at 966,  2 KB 683 at 688), who delivered the judgment of the court, declined to follow that dictum, because the ‘dictum, as SCOTT, L.J., pointed out in Morgan v. Ashcroft ( 3 All ER 92 at 103,  1 KB 49 at 73–74), cannot be regarded as an exhaustive statement of the law’. He pointed out that the council ( 1 All ER 964 at 966,  2 KB 683 at 688) —
‘made a promise to the men which they were in honour bound to fulfil. The payments made under that promise were not mere gratuities. They were made as a matter of duty … ’
but he went on to state that it was irrelevant that the council’s promise was unsupported by consideration or unenforceable by action. It was enough that the council would never have paid the money to Mr Larner had they known the true facts. It is doubtful if the decision in Larner v London County Council is one of which Greene MR would have approved; but, if I may say so with respect, it is entirely consistent with the principles of recovery established in the earlier decisions of the House of Lords to which I have referred. Accordingly it is those principles which I intend to apply in the present case.
It is a basic obligation owed by a bank to its customer that it will honour on presentation cheques drawn by the customer on the bank, provided that there are sufficient funds in the customer’s account to meet the cheque, or the bank has agreed to provide the customer with overdraft facilities sufficient to meet the cheque. Where the bank honours such a cheque, it acts within its mandate, with the result that the bank is entitled to debit the customer’s account with the amount of the cheque, and further that the bank’s payment is effective to discharge the obligation of the customer to the payee on the cheque, because the bank has paid the cheque with the authority of the customer.
In other circumstances, the bank is under no obligation to honour its customer’s cheques. If, however, a customer draws a cheque on the bank without funds in his account or agreed overdraft facilities sufficient to meet it, the cheque on presentation constitutes a request to the bank to provide overdraft facilities sufficient to meet the cheque. The bank has an option whether or not to comply with that request. If it declines to do so, it acts entirely within its rights and no legal consequences follow as between the bank and its customer. If, however, the bank pays the cheque, it accepts the request and the payment has the same legal consequences as if the payment has had been made pursuant to previously agreed overdraft facilities; the payment is made within the bank’s mandate, and in particular the bank is entitled to debit the customer’s account, and the bank’s payment discharges the customer’s obligation to the payee on the cheque.
In other cases, however, a bank which pays a cheque drawn or purported to be drawn by its customer pays without mandate. A bank does so if, for example, it overlooks or ignores notice of its customer’s death, or if it pays a cheque bearing the forged signature of its customer as drawer; but, more important for present purposes, a bank will pay without mandate if it overlooks or ignores notice of countermand of the customer who has drawn the cheque. In such cases the bank, if it pays the cheque, pays without mandate from its customer; and, unless the customer is able to and does ratify the payment, the bank cannot debit the customer’s account, nor will its payment be effective to discharge the obligation (if any) of the customer on the cheque, because the bank had no authority to discharge such obligation.
It is against the background of these principles, which were not in dispute before me, that I have to consider the position of a bank which pays a cheque under a mistake of fact. In such a case, the crucial question is, in my judgment, whether the payment was with or without mandate. The two typical situations, which exemplify payment with or without mandate, arise first where the bank pays in the mistaken belief that there are sufficient funds or overdraft facilities to meet the cheque and second where the bank overlooks notice of countermand given by the customer. In each case, there is a mistake by the bank which causes the bank to make the payment. But in the first case the effect of the bank’s payment is to accept the customer’s request for overdraft facilities; the payment is therefore within the bank’s mandate, with the result that not only is the bank entitled to have recourse to its customer, but the customer’s obligation to the payee is discharged. It follows that the payee has given consideration for the payment, with the consequence that, although the payment has been caused by the bank’s mistake, the money is irrecoverable from the payee unless the transaction of payment is itself set aside. Although the bank is unable to recover the money, it has a right of recourse to its customer. In the second case, however, the bank’s payment is without mandate. The bank has no recourse to its customer, and the debt of the customer to the payee on the cheque is not discharged. Prima facie, the bank is entitled to recover the money from the payee, unless the payee has changed his position in good faith, or is deemed in law to have done so.
It is relevant to observe that if, in Chambers v Miller, the action had, instead of being a claim by the bearer for damages for false imprisonment, taken the form of a claim by the paying bank for recovery of the money as having been paid under a mistake of fact, that claim would, on the foregoing analysis, have failed, because the mistake of the bank in that case was a mistaken belief that there were sufficient funds in the customer’s account to meet the cheque. Similarly in Pollard v Bank of England, where a bank paid a bill of exchange accepted by one of their customers payable at the bank, in ignorance of the fact that the balance of the credit of the acceptors at the bank was insufficient to meet the bill and indeed that the acceptors had, in the general sense, stopped payment (and so were unable to pay their debts when they fell due), the bank was held to be unable to recover from the payee the money so paid: see per Blackburn J (LR 6 QB 623 at 631), who delivered the judgment of the court. In both these cases, the bank acted within its mandate; but where the bank’s mistake relates not to sufficiency of funds in its customer’s account, but arises from ignorance or oversight of a notice of countermand, the bank acts without mandate, and the money is in my judgment prima facie recoverable.
The authorities on this topic have recently been analysed by Kerr J in National Westminster Bank Ltd v Barclays Bank International Ltd, an analysis which I gratefully adopt and which makes it unnecessary for me to burden this judgment with a full analysis of the authorities. The case before Kerr J was concerned with a claim by the plaintiff bank to recover from the defendant bank a sum paid by it on a forged cheque presented by the defendant bank on behalf of a customer for special collection, which the plaintiff bank had paid to the defendant bank in ignorance of the forgery, and the defendant bank had then credited to its customer’s account. A principal question in the case was whether the plaintiff bank was estopped from claiming repayment by a representation, in honouring the cheque, that the cheque was genuine. Kerr J, in holding that the bank made no such representation and was not so estopped, considered the line of cases, commencing which the decision of Lord Mansfield CJ in Price v Neal, in which payments of bills of exchange which contained forged signatures had been held irrecoverable on a number of grounds. The early cases on the topic culminated in the leading case of Cocks v Masterman. In that case the plaintiff bankers paid a bill, which purported to have been accepted by their customer, in ignorance of the fact that the acceptance was forged, a fact they did not discover until the day after payment. It was held by the Court of King’s Bench that they could not recover the money from the defendants, the holders’ bankers. Bayley J, who delivered the judgment of the court, said (9 B & C 902 at 908–909, [1824–34] All ER Rep 431 at 433):
‘… we are all of opinion that the holder of a bill is entitled to know, on the day when it becomes due, whether it is an honoured or dishonoured bill, and that, if he receive the money and is suffered to retain it during the whole of that day, the parties who paid it cannot recover it back. The holder, indeed, is not bound by law (if the bill be dishonoured by the acceptor) to take any steps against the other parties to the bill till the day after it is dishonoured. But he is entitled so to do, if he thinks fit, and the parties who pay the bill ought not by their negligence to deprive the holder of any right or privilege. If we were to hold that the plaintiffs were entitled to recover, it would be in effect saying that the plaintiff might deprive the holder of a bill of his right to take steps against the parties to the bill on the day when it becomes due.’
The principle to be derived from this case is probably that, if the plaintiff fails to give notice on the day of payment that the bill contained a forged signature and that the money, having been paid in ignorance of that fact, is being claimed back, the defendant is deprived of the opportunity of giving notice of dishonour on the day when the bill falls due, and so is deemed to have changed his position and has a good defence to the claim on that ground. But, whatever the precise basis of the defence, it is clearly founded on the need for the defendant to give notice of dishonour; and it can therefore have no application where notice of dishonour is not required. Thus in Imperial Bank of Canada v Bank of Hamilton it was held by the Privy Council that the defence had no application to an unendorsed cheque in which the amount of the cheque had been fraudulently increased by the drawer after it had been certified. The cheque was regarded as a total forgery, and not as a negotiable instrument at all. Lord Lindley, who delivered the advice of the Board, said ( AC 49 at 58):
‘The cheque for the larger amount was a simple forgery; and Bauer, the drawer and forger, was not entitled to any notice of its dishonour by non-payment. There were no indorsers to whom notice of dishonour had to be given. The law as to the necessity of giving notice of dishonour has therefore no application. The rule laid down in Cocks v. Masterman, and recently reasserted in even wider language by Mathew J in London and River Plate Bank v. Bank of Liverpool, has reference to negotiable instruments, on the dishonour of which notice has to be given to some one, namely, to some drawer or indorser, who would be discharged from liability unless such notice were given in proper time. Their Lordships are not aware of any authority for applying so stringent a rule to any other cases. Assuming it to be as stringent as is alleged in such cases as those above described, their Lordships are not prepared to extend it to other cases where notice of the mistake is given in reasonable time, and no loss has been occasioned by the delay in giving it.’
Likewise, in National Westminster Bank Ltd v Barclays Bank International Ltd, Kerr J held that the defence had no application in the case which he had to consider of a wholly forged cheque, which was also not a negotiable instrument at all.
In a passage in Paget’s Law of Bankingb, which was relied on by counsel for the defendants in the present case, it is suggested that the law as expounded by Lord Lindley in the Imperial Bank of Canada case is open to criticism, on the ground that if a bill is paid and the money is thereafter reclaimed no dishonour takes place until the money is reclaimed and therefore no notice of dishonour can be given until then, from which it follows that it is hard to conceive of any case of payment by mistake where the opportunity of giving notice of dishonour is lost. I am unable to accept this criticism. If the money is recovered, then the bill will not have been paid on the due date or at all, for the payment will not have discharged the debt due on the bill. It follows that, in such a case, the bill is in fact dishonoured on the day it falls due, and as Bayley J in Cocks v Masterman and Lord Lindley in the Imperial Bank of Canada case both contemplated, unless notice of the plaintiff’s claim is given on that date, the opportunity of the defendant to give notice of dishonour on that day is lost. Like Lord Lindley in the Imperial Bank of Canada case, I can find nothing inconsistent with this conclusion in the decision of Mathew J in London and River Plate Bank v Bank of Liverpool.
It is therefore a prerequisite to the application of the defence that the defendant should be under a duty to give notice of dishonour. The provisions regarding notice of dishonour in the Bills of Exchange Act 1882 are contained in ss 48 to 50 of the Act. In s 50(2) are set out the circumstances in which notice of dishonour is dispensed with. For present purposes, the relevant provision is contained in s 50(2)(c), which provides (inter alia) that ‘Notice of dishonour is dispensed with … (c) As regards the drawer … where the drawer has countermanded payment’. It follows that in the case of a simple unendorsed cheque, payment of which is countermanded by the drawer, notice of dishonour is not required; and in such a case, the payee cannot invoke the defence established in Cocks v Masterman.
It is to be observed that, in the Imperial Bank of Canada case ( AC 49 at 57), Lord Lindley described the rule laid down in Cocks v Masterman as a stringent rule. It is not merely stringent, but very technical. It is possible that if, in due course, full recognition is accorded to the defence of change of position there will be no further need for any such stringent rule and the law can be reformulated on a more rational and less technical basis. Whether the law will hereafter develop in this way remains to be seen.
In the light of the above principles, it is plain that in the present case Barclays are entitled to succeed in their claim. First, it is clear that the mistake of the bank, in overlooking the drawer’s instruction to stop payment of the cheque, caused the bank to pay the cheque. Second, since the drawer had in fact countermanded payment, the bank were acting without mandate and so the payment was not effective to discharge the drawer’s obligation on the cheque; from this it follows that the payee gave no consideration for the payment, and the claim cannot be defeated on that ground. Third, there is no evidence of any actual change of position on the part of either of the defendants or on the part of National Westminster; and, since notice of dishonour is not required in a case such as this, the payee is not deemed to have changed his position by reason of lapse of time in notifying them of Barclays’ error and claiming repayment.
I must confess that I am happy to be able to reach the conclusion that the money is recoverable by Barclays. If the bank had not failed to overlook its customer’s instructions, the cheque would have been returned by it marked ‘Orders not to pay’, and there would have followed a perfectly bona fide dispute between the association and the receiver on the question, arising on the terms of the building contract, whether the association was entitled to stop the cheque, which ought to be the real dispute in the case. If Barclays had been unable to recover the money, not only would that dispute not have been ventilated and resolved on its merits but, in the absence of ratification by the association, Barclays would have had no recourse to the association. Indeed, if under the terms of the building contract the money had not been due to the company, non-recovery by Barclays would have meant quite simply a windfall for the preferred creditors of the company at Barclays’ expense. As however I have held that the money is recoverable, the situation is as it should have been; nobody is harmed, and the true dispute between the association and the receiver can be resolved on its merits.
I have, however, to consider the identity of the party against whom Barclays are entitled to judgment. As at present advised I am reluctant to enter judgment against the company without further argument. I say that because the argument before me was concentrated on the right of recovery generally, and there was not fully canvassed before me the question whether, assuming that National Westminster received the payment as agent for the company, an action well lie against its principal to whom Barclays had neither paid the money nor done anything equivalent to payment. I will be glad, therefore, to hear submissions from counsel as to how the parties wish the matter to be taken from here.
[There followed a discussion with counsel, in the course of which the defendants by their counsel conceded that, for the purposes of the case before the court, the receipt of the money by National Westminster, as collecting banker or agent of the company, was a sufficient receipt of the money by the company to entitle Barclays to judgment for the sum so paid as against the company.]
Judgment for Barclays against the company for £26,451·38 being £24,000 together with £2,451·38 by way of interest. Action against the receiver dismissed.