Origin of crossing.

CHAP. XII. The establishment of the Clearing-house is comparatively modern, and was within the memory of several of the witnesses. It afterwards became a common practice to cross cheques which were not intended to go through the Clearing-house at all, with the name of a banker or with the words 'and Co.,' and a custom or usage has certainly sprung up in regard to this also. All the witnesses agreed as to the fact of the existence of such a custom, and we think that the great preponderance of the evidence on both sides tended to show the custom to be that which is reported to have been stated by some of the witnesses in the case of Stewart v. Lee, viz., 'that where a cheque is crossed, bankers generally refuse to pay it to anyone except a banker; and if they do pay it to a person not a banker, they consider that they do it at their peril in the event of the party to whom the payment is made not being entitled to receive it. That the object is to secure the payment, not to any particular banker, but to a banker, in order that it may be easily traced for whose use the money was received, and that it was not intended thereby to at all restrict the circulation or negotiability of the cheque, but merely to compel the holder to present it through a quarter of known respectability and credit.'

Cf. Bills of
Exchange
Act, s. 79,

and post, P.
163.

great public advantage and benefit that the custom or usage which we have already mentioned as being said to exist in point of fact, should be maintained; and we think it well may, without at all improperly trenching upon or restricting the negotiability of cheques. We think the crossing of a cheque is a protection and safeguard to the owner of the cheque, and that in the event of a banker paying a crossed cheque otherwise than through a banker, the circumstance of his so paying would be strong evidence of negligence in an action against him."

It will be seen that at this date the courts in Eng- CHAP. XII. land were prepared to recognise a general crossing, and

to give effect in law to the custom that had grown up as to the purport of such a crossing. In the case from which I have been quoting, however, the plaintiffs, two joint drawers, had crossed the cheque specially to the Bank of England; it had not been paid to that bank, and the action was brought against the paying banker (really Coutts and Co.) to recover the amount, which had, of course, been debited to drawer's account. What had happened was, that the payee of the cheque, instead of putting it through the Bank of England and using the proceeds for a special purpose, had struck his pen through that special crossing and added another special crossing, to his own banker, through whom he collected, and then converted the proceeds to his own use. The court did not consider that any legally binding custom as to special crossings was established by the evidence, and held, therefore, that the bank could successfully plead payment of the cheque through a banker, and that payment through Effect of general any banker satisfied the requirements of the crossing. crossing. This would not be so held now. Very soon after this decision the first Crossed Cheques Act was passed. An amending Act followed soon afterwards in consequence of the decision of a court of law that a crossing was not an integral part of a cheque. The Act declared that a crossing should be held to be a material part of a cheque, and made it unlawful to obliterate or add to a crossing except in the authorised ways. This Act first gave validity to the special crossing.

These statutes were soon subjected to the critical examination of the Court of Appeal. This occurred in the case of Smith v. Union Bank of London. The facts 1875, 1 Q. B.D. 31. were very simple. Mills and others owed Smith £21 9s., and gave him a cheque for that amount, payable to his order, upon the Union Bank of London. Smith indorsed

CHAP. XII. his name on the cheque, and crossed it with the name of his bankers, i.e., London and County Banking Co.; in this state the cheque was stolen, and eventually passed for full value to C. C paid it into his account with the London and Westminster Bank, who obtained payment of it from the Union Bank. The Union Bank thus paid in contravention of the crossing; but they paid it to C, who by negotiation of the cheque had become the true owner. The man from whom the cheque had been stolenNegotiability Smith-then brought an action against the paying bank. not destroyed by special It was held that he could not recover, as, owing to the crossing. quality of negotiability and the fact that C had got the cheque honestly, title in the cheque had passed to C; and, having no title to the cheque, Smith had no title to its proceeds. The principle of the decision has never been questioned. It is an excellent illustration of the nature of negotiable instruments.

It is easy to see the difficulty that confronted the court when first asked to decide upon the legal effect of special crossings, for, if special crossings were to be strictly observed, the cheque should not be expected to be presentable through any banker, be he the banker of the payee or of any subsequent holder; and if a subsequent holder could not get payment through his bank, must it not have been intended to limit transfer. Yet the Act had not in express terms interfered with the doctrine of negotiability (an attribute stronger than mere transferability), and the decision shows how firmly established the doctrine is, seeing that the Courts continued to recognise it as a governing characteristic in a cheque, even after the special crossing had been authorised and made an integral part of the cheque by Act of Parliament.

In their judgments in this case, however, the judges made it clear that the bank had done wrong in paying in contravention of the special crossing. The decision

shows (and it is in harmony with other decisions) that CHAP. XII. a special crossing, whether it be placed there by the drawer of the cheque or afterwards by a holder (in an authorised manner) becomes a part of the customer's mandate to his banker, which the banker can only neglect at his own risk. Indeed, in this very case, the drawer of the cheque might have inquired into the manner of payment and repudiated payment of it against his account, by reason of his banker's negligence; really it was the case here that the bank could have been made liable at the suit of the drawer (if he could show damage), but he was bound to pay his own cheque to the bona fide holder for value, and the bank had done that for him. The bank had the luck to have paid to the agent for collection of a bona fide holder for value and to be sued by one who, having lost all his rights, was not damnified in any way by the action of the bank.

After this decision a further Crossed Cheques Act Not negotiable crossing was passed, introducing the not negotiable crossing. Any introduced. cheque may now be crossed not negotiable in addition to either a general or a special crossing. The effect is to destroy negotiability, and if it is intended that the payee shall have the cheque collected at once, and that it shall not go into circulation, it is a wise precaution for any drawer to take, or any holder, for holders are entitled to add this crossing. It does not render the cheque not transferable; the cheque remains transferable, but only See ante, p. to the same extent as any other transferable chose in action, so that, a thief exchanging it for value to an honest man, can give him no title. Soon after the notnegotiable crossing was introduced, the law with regard to cheques was codified in the Bills of Exchange Act.

Before referring to the exact terms of the sections at present in force, however, I should point out that in New South Wales the history of crossed cheques was somewhat different. We had here, instead of a series of

146.

CHAP. XII. Crossed Cheques Acts, only one Act. It was passed in 1857, and seems to have been equivalent only to the first Act passed in England; it did not recognise either the special or the not-negotiable crossing, and so the matter remained until the passing of the Bills of Exchange Act in 1887.

I have mentioned the Crossed Cheques Acts were repealed and consolidated in the crossed cheques sections of the Bills of Exchange Act, where they form a group of seven sections. They are almost the same in Australia 77-83 in Vic. as in England, and are the sections Nos. 76 to 82, and Q. The law is therefore now the same here as in

See infra

inclusive.
England.

These sections are briefly as follows:

Sec. 76 defines general and special crossing.

Sec. 77 says (1) a cheque may be crossed generally or specially by the drawer; and in succeeding subsections lays down the manner in which it may be crossed or further crossed after issue.

Sec. 78 enacts that the crossing is a material part of the cheque.

Sec. 79 sets out the duties of the paying banker. Sec. 80 gives a measure of protection to the paying banker and to the drawer of crossed cheques duly paid.

Sec. 81 provides that a person taking a cheque with a not negotiable crossing shall not have, and shall not be capable of giving, a better title to the cheque than that which the person from whom he got it had.

Sec. 82 provides for the protection of the collecting banker in certain cases.

Next chapter deals with the position of the collecting banker, and we may leave him on one side for the present. Referring now more particularly to such of these sections as directly affect the paying banker, attention should first be directed to the definitions of crossings. The section is as follows: