3PLR – MOTOR TRADERS GUARANTEE CORPORATION LTD. V. MIDLAND BANK LIMITED
POLICY, PRACTICE AND PUBLISHING, LAW REPORTS 3PLR
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MOTOR TRADERS GUARANTEE CORPORATION LTD.
V.
MIDLAND BANK LIMITED
KING’S BENCH DIVISION
14, 15 OCTOBER 1937
CITATIONS
(1937) 4 All E.R. 90
BEFORE: GODDARD J
REPRESENTATION
H U Willink KC and C L Henderson for the plaintiffs.
F J Tucker KC and Kenelm Preedy for the defendants.
Solicitors: Dennes & Co, agents for Latchams & Montague, Bristol (for the plaintiffs);
Coward Chance & Co (for the defendants).
C St J Nicholson Esq Barrister.
MAIN ISSUES
BANKING AND FINANCE:- Banking practices and instruments – Crossed cheques – Third-party cheque indorsed by customer to himself – Forged indorsement – Onus on bank to make inquiries before honouring a check – How satisfied
HISTORY AND SUMMARY
Turner, a motor trader in Bristol, had an account with the defendant bank. He induced the plaintiffs, a hire-purchase finance firm, to make out a cheque to W & Co for £189 5s, which cheque was crossed and marked not negotiable in print. Turner, having forged the indorsement of W & Co upon it, then added his own indorsement to it and paid it into his own account. The cashier asked Turner if he had obtained the cheque from W & Co, to which question he replied in the affirmative. The cashier then inspected Turner’s account and saw there were considerable dealings between him and W & Co. Turner then volunteered the information that he had bought a car from W & Co, and sold it to a customer of his, and mentioned a cheque for £484 10s which had passed through his account in favour of W & Co, and led the cashier to believe that a hire-purchase arrangement had been entered into with the plaintiffs in respect of a car bought from W & Co and sold to one of his customers. The defendant bank’s regulations require such a cheque to be dealt with by the branch manager, and not by the cashier. The cheque was not brought to the branch manager’s notice, nor did the cashier by inquiry discover, as the fact was, that many cheques drawn by Turner on his account had been dishonoured, or honoured only after repeated presentation. The bank made no inquiry of W & Co respecting the cheque. The plaintiffs sued the bank for the conversion of the cheque:—
Held –(i) a breach of the bank’s own regulations was not conclusive proof that the cashier made insufficient inquiry, nor is a customer entitled to require literal performance of such regulations.
(ii) the past banking history of Turner was such that the bank should have made further inquiry, possibly by reference to the drawer or the payee of the cheque.
Notes
This case differs rather from the earlier cases in which a bank has relied upon the Bills of Exchange Act 1882, s 82, in that the question for decision is not whether the bank were in the circumstances put upon inquiry but whether the inquiries they made were sufficient to discharge the onus placed upon them. It would seem that such inquiries must extend to the past banking history of the customer, at any rate so far as it is known to the branch at which the account is kept. The case also considers the question of whether the bank are bound to observe their own regulations applicable to the case, upon which it is said that the sufficiency of the inquiry must be determined without reference to a literal observance of such regulations; but a departure therefrom is necessarily strong evidence of negligence in the matter.
As to Conditions of Bank’s Protection, see Halsbury (Hailsham Edn), Vol 1, pp 809–812, para 1330; and for Cases, see Digest, Vol 3, pp 240–242, Nos 681–692.
Action
Action for damages in respect of the conversion of a cheque, crossed and marked “not negotiable” in print, the indorsement of which was forged. The defendants claimed the protection of the Bills of Exchange Act 1882, s 82. The facts are fully stated in the judgment.
MAIN JUDGMENT
15 October 1937. The following judgment was delivered.
GODDARD J.
This is an action brought by the Motor Traders Guarantee Corpn Ltd, against the Midland Bank Ltd, claiming damages in respect of the conversion of a cheque. The real question in the case is the familiar question which arises when a bank claims the protection of the Bills of Exchange Act 1882, s 82, as to whether or not, in dealing with a third-party cheque, as it is called, the bank have acted with due regard to the interests of the true owner. The facts in this case are a little unusual. There have been a great many cases decided under the section, and a great many cases decided in quite recent years. This case rather stands by itself, because, according to my recollections of the cases, I think that in every case the question which has been raised has been whether the circumstances of the transaction were such as to put the bank on inquiry. In this case, it is unnecessary really to consider whether the circumstances were such as to put the bank on inquiry, though I think that, on the whole, they were, because inquiry was in fact made by the cashier, and the real question in the case, I think, is whether or not he made a sufficient inquiry, or whether he ought to have been satisfied without further inquiry, in view of the story which was told to him, and in view also of the fact that he knew the antecedents of the customer. I do not mind stating at once that my mind has fluctuated considerably in the course of the argument, and, had it not been for what, at a very late stage in the case, no doubt by an oversight, was disclosed, namely, the family history of the person in question, a man of the name of Turner, I think it is quite likely that my judgment might have been different.
The facts in the case are these. The bank have a branch at Staple Hill, Bristol, and a customer of the name of Turner, who was carrying on a motor business. It could not have been a large motor business; I do not suppose that it was considered by the bank to be a large business. Turner was introduced to them in January by Mr Pride. Mr Pride was a gentleman holding a high position with the General Accident, Fire & Life Assurance Co Ltd, in Bristol, and the plaintiffs, the Motor Traders Guarantee Corpn Ltd, are a subsidiary of the General Accident, Fire & Life Assurance Co Ltd, and had what is generally known as a hire-purchase finance business. That business is well-understood, and has been the subject of many cases in the courts. If a customer wants to buy a car on hire purchase, he goes to a dealer, with whom he arranges the terms as to the price of the car, the instalments to be paid, the allowance to be made for any other car, and so forth. The dealer, wanting his money, and not wanting to be out of his money during the period of the hire purchase, enters into an arrangement with the hire-purchase finance corporation by which the financier buys the car from the motor trader and lets it on hire to the customer. It would appear likely from the account of Mr Turner, as there are various entries showing dealings with the Motor Traders Guarantee Corpn Ltd—I say only that it appears likely, because there has been no definite evidence upon the point—it appears that, in July 1936, Mr Turner, by some story which he told to the Motor Traders Guarantee Corpn Ltd, induced them to make out a cheque for £189 5s to Messrs Welsh & Co. Messrs Welsh & Co are large distributors of, and dealers in, cars at Bristol, and it is only fair, especially to the cashier in this case, to say that they are in an entirely different part of Bristol; they are down in Bristol City, some 3 or 4 miles away from Staple Hill, and Mr Hatherell, the cashier who dealt with this matter at the bank, and who lived at Bath, had no particular knowledge of Messrs Welsh & Co, although he knew that they were motor dealers in Bristol, but he did not know whether they were big or small, or really anything about them. This cheque, as I have said, was obtained by Turner on the representation that it was to buy a car from Messrs Welsh & Co, which in turn would be let on hire purchase by the plaintiffs to him, Turner; and it is quite clear—and here I think it is only fair to the cashier to say—that the Motor Traders Guarantee Corpn Ltd, appear to have had just as much trust in Turner as the people at the bank had. As a matter of moral blame in this matter, it seems to me that the Motor Traders Guarantee Corpn Ltd, were every bit as much to blame—if there is blame in the matter at all—for trusting this man with the cheque as were the bank for paying it. The fact was that both the Motor Traders Guarantee Corpn Ltd, and the bank regarded Turner as an honest man. Turner, however, was not an honest man; at the moment—I shall have to deal with the bank account more in detail—when he received this cheque, he was in debit to the extent of £7 8s 3d. He had no arrangement with the bank to overdraw. There were becoming due, apparently, some obligations which he had not the means to meet, because one notices that on 3 July cheques were presented by a man named Brown for nearly £100, and one by another concern for £17 14s 9d, and he also required cash, perhaps for wages or current expenses of £50, and none of that money would have been forthcoming from the bank if he had not been able to pay in some large credit on that date. Of course, the bank cashier would not know what cheques were coming in, but Turner knew what his position was. He took this cheque; he forged Messrs Welsh & Co’s signature; he took the cheque to the bank and paid it in there, representing that it was a cheque which had been negotiated to him. Of course, in the first instance, it is not usual for traders to indorse cheques over from one trader to another in the way in which this was apparently done. I think that it probably struck Mr Hatherell that that was a matter to be inquired into, and Mr Hatherell also made inquiries because there are very definite rules laid down by the bank and circulated to their branch managers, who are told to make their cashiers acquainted with those regulations with regard to dealing with third-party cheques, as they are called in this case—that is to say, a cheque not made payable to the customer, but apparently indorsed over to him. The cheque in this case, I should say, was indorsed quite generally; it was not indorsed specially. It did not purport to be indorsed specially to Turner; it was indorsed by Welsh & Co, and Turner added his own indorsement to it, as the customer of the bank which he was requesting to clear the cheque. Mr Hatherell took the cheque, and, seeing that it was what is called a third-party cheque, he asked the question, which, of course, on this, was not a very valuable question to ask, but it was by way of opening the inquiry:”Did you get this cheque from Messrs Welsh & Co?” The answer was, “Yes.” It does not follow that the answer would not have been “Yes,” because it might have been that Messrs Welsh & Co, if it had been a genuine transaction, had indorsed the cheque to someone who could not have handed it over to Turner, but Turner said it had been indorsed to him by Messrs Welsh & Co. Thereupon, Mr Hatherell went and looked at the account, and I think that that was a prudent thing to do, and a thing which one would expect a careful cashier to do. What he saw was that there had been quite substantial dealings on about three occasions—when I say “substantial dealings,” I mean dealings involving substantial sums of money—between Messrs Welsh & Co and Turner, and he said that he had not the slightest suspicion of Turner being other than an honest man; he was quite satisfied about his honesty, and he apparently was prepared to accept the cheque on that. All I can say is that, if Mr Hatherell was put on inquiry by this cheque, as I think he was, by reason of one trader bringing in another trader’s cheque, there were circumstances here, having regard also to the amount of the cheque, which ought to put a banker on inquiry. I am bound to say that I should not hold that Mr. Hatherell made enough inquiry, but, before he had actually accepted the cheque for collection, and while the man Turner was still in the bank, Turner gave him further information. He said that he had sold a car which had been supplied by Messrs Welsh & Co; in other words, he had got the car from Messrs Welsh & Co and had sold it to a customer of his. Turner said that he had paid Messrs Welsh & Co, and he called attention to a very considerable cheque which had passed through the account in favour of Messrs Welsh & Co on 25 June for £484 10s, and he said that that cheque which he paid to Messrs Welsh & Co was a cheque included in the price of this car, which was represented by the sum of £189 5s. It was said that it led Mr Hatherell to understand, and that Mr Hatherell did understand (and I think, on the whole, that it was not unreasonable for him to understand), that a hire-purchase arrangement had been entered into, or was about to be entered into, with the plaintiffs; that they made out their cheque to Welsh & Co; in other words, they were buying a car from Welsh & Co, and were going to let it on hire purchase direct to Turner’s customer, and, therefore, if this cheque was paid to Welsh & Co, Welsh & Co would be paid twice over, and so Welsh & Co just indorsed the cheque over to him. If Turner was a man whose business antecedents were thoroughly satisfactory, I must say I should have hesitated long before I should have held that Mr Hatherell had not made enough inquiry, and that he had not had told to him a story which any reasonable man, believing his customer to be thoroughly honest, might not have accepted.
It is not necessary, I think, to go at any length through the large number of cases which is always cited on these occasions. The principles which are laid down in those cases depend, I think, very much upon what are the circumstances which are enough to put a bank on inquiry. As to whether or not the bank or its officers exercised due care in any particular case, that must depend upon the facts of the particular case. One point in this case which Mr Willink has stressed, and has stressed very strongly, is that the bank’s own regulations provide that these matters are to be dealt with by the manager. They do not say so quite in those terms, but the regulations say that the manager must see that cashiers are fully instructed regarding the danger of receiving third party cheques for credit or exchange. This is not a regulation treating managers and cashiers, so to speak, as one and the same; it is distinguishing between the manager and the cashier. The manager is to instruct the cashier as to the dangers, and as to his duties, in relation to third-party cheques. Then it says:
‘Extreme caution must be exercised in all cases where a customer tenders for credit or exchange a cheque payable to a third party, and such cheques should not be dealt with unless the manager is fully satisfied that the customer is entitled to deal with the article in the proposed manner.… Where a branch receives cheques payable to third parties for the credit of a customer at another branch, unless the branch manager is satisfied that the cheques can be properly dealt with in the proposed manner, it is advisable to delete such cheques from the credit note and counterfoil and send them to the customer’s branch to be dealt with.’
Then there are other directions given, but it is quite clear, so far as the bank are concerned, that the bank put upon the manager the duty of deciding whether a third-party cheque should properly be taken into the credit of the bank’s customer. The regulations between the bank and the customer do not strictly concern the plaintiffs. The bank are not owing a duty as bankers to the plaintiffs except in so far as, under s 82 of the Act, in order to escape a liability in conversion, they have to show that they have acted with due regard to the interests of the true owner of the cheque. But it is said, and said with great force, by Mr Willink, that, if he shows that the officers of the bank did not obey their own regulations, he goes a very long way to establishing a case of negligence. I think it cannot be taken always as a universal principle because, if the facts showed that the bank cashier had taken every reasonable precaution to satisfy himself, and that he was satisfied with the information he had got, and that the conclusion which he had been able to draw from that information was such as would satisfy anyone that the bank might safely and properly take that cheque, I do not see how it can be said that, because he had not followed out to the letter the regulations of the bank, because he had not submitted it to the manager’s attention directly, the bank would have been guilty of negligence. The bank could not have been guilty of negligence if their servant, whether the cashier or manager, had taken all reasonable precaution. But for one fact in this case, I think I should have held that Mr Hatherell had made reasonable inquiries. He had checked up the account, he had heard the man’s explanation, a man whose honesty he did not doubt, and I think I should probably have held that the bank had discharged the onus which was upon them. But the difficulty in this case, from the point of view of the bank, is that it may be that Mr Hatherell—I do not doubt for a moment that it was so—did not suspect Turner’s honesty, but it is a little difficult to say that Turner was a man whose banking record was so satisfactory that Mr Hatherell was entitled to take upon himself the duty of deciding whether or not this cheque should be accepted, because, though it was not known until this case had been opened, and some way through, that between January 1936, when the account was opened, and 1 July 1936, 35 cheques (I think it was) of varying amounts, and some for very considerable amounts, had been returned dishonoured by the bank. Some of them were subsequently paid. Others, and others to a considerable amount, had not been paid, and it was quite obvious that Turner was a man who was in the habit—I think one may say in the habit, in view of all these dishonoured cheques—of drawing cheques, and drawing trade cheques, because it is quite clear that some of these were trade cheques, for amounts which, when the cheques were presented, he had not assets to meet. Although his account was an active account, and although it never actually went into debit to any great extent, quite clearly the reason why it did not get into debit to any considerable extent was because the bank were not paying cheques except against assets which they had in their hands, and they were not granting him any banking accommodation at all. I think that could hardly have been in Mr Hatherell’s mind. He could not have referred—I am not saying he is bound to refer to one book or to another—but when he was allowing himself to be satisfied of the honesty of Turner he certainly had not in his mind, I think (for if he had I should be somewhat surprised that he acted as he did), a very large number of cheques, and drawn for very considerable amounts, which had been returned from time to time. It is quite true, and I do not overlook the fact, that many of these cheques which were returned were presented more than once. Many cheques seem to have been presented three times before they were met, and some cheques were presented quite a number of times, and did not get honoured at all. That seems to me to put a different complexion on this case, because, in those circumstances, it does seem to me that Mr Hatherell ought not to have taken upon himself the responsibility of accepting that cheque.
I think that this is exactly the class of case which ought to have been referred to the manager. It is no good speculating on what view the manager would have taken, or what steps would have been taken, because the matter was never submitted to him. Here was a man whose cheques were constantly coming back because there were not enough assets to meet them; he had run down from £503 in June, quite quickly, by drawing a large cheque to Welsh & Co for £484, so that his account was rapidly run down from being £500 in credit to being £7 8s 3d overdrawn, with no arrangement to overdraw at all. Then comes along this cheque, which is not an ordinary cheque, in the sense that it is not a cheque drawn payable to him; it is a cheque drawn to another person, a person unknown to the bank, but a person who was known to be in Bristol. Before the cheque was put through for clearing, I should have thought it would have been quite simple to have rung up and asked if the cheque was in order, or to have asked the drawers of the cheque whether it was in order. An inquiry might have been made of Messrs Welsh & Co. I am far from saying, and I do not intend to lay down until there is some authority which compels me to so hold, that it can be stated that there is an absolute duty upon a banker, even where he is put on inquiry, to inquire of the payee of the cheque or of the drawer of the cheque. The circumstances may be such that that is the only course that he can take to get satisfactory information. What I mean to say is that it would be going too far to hold that in every case a banker can discharge the onus which is upon him, if he wishes to take the protection of s 82, only by showing that he has inquired of one or other of these people. It may very well be that, in certain cases, the information that he gets is enough, and, as I have already said, I think that, if Turner’s banking history had been different from what it is now shown to have been, I should have been inclined to hold, and I think that I probably should have held, that the inquiries which were made by Mr Hatherell were enough. But with a man who had this history of dishonoured cheques, and dishonoured cheques for considerable sums, I think it is obvious that Mr Hatherell should have consulted the manager, which is the course of conduct which the bank regulations set out. I again say that I am far from saying that the plaintiffs, or any other person whose property has been converted, are entitled to rely upon a literal performance, or are entitled to require a literal performance, by the bank of these regulations. The bank does not owe a duty to them to carry out this rule, that rule, or the other rule. Indeed, I doubt whether they owe their own customers the duty of carrying out all the rules which they may lay down as counsels of perfection. The question in every case is not whether the bank require a particular standard of conduct, but whether the particular acts which are done are enough to discharge the onus which is upon the bank either in respect of their own customer or in respect of some other customer. In this case it seems to me that Mr Hetherell, if he had in mind, as he probably had not, the somewhat remarkable banking history of Turner, ought to have referred the matter to the manager. I am by no means satisfied that a manager, or an ordinary careful cashier with a knowledge of Turner’s banking history in his mind, would have allowed this cheque to be collected and placed to the credit of Turner without some further inquiry. It is for that reason, and for that reason alone, I may say, that I think the bank fail to discharge the onus which was placed upon them. It is quite clear that their own regulation was not followed, and the circumstances show, I think, that it was a case in which the regulations ought to have been followed. In the circumstances, it seems to me that the bank have failed to discharge the onus which s 82 places upon them, and that, therefore, there must be judgment for the plaintiffs for the amount claimed, with costs.
Judgment for the plaintiffs for £189 5s and interest at 4 per cent from 1 July 1936.
