CHAPTER XIV.

THE COLLECTION OF CHEQUES: ANALYSIS

OF THE GORDON CASES.

The recent Gordon cases, Gordon v. London City CHAP. XIV. and Midland Bank, Ltd., and Gordon v. Capital and 1902, 1 K.B. Counties Bank, Ltd., affected such important points of 242. banking practice, and such various classes of cheques, that 1903, A.C. an analysis of the results of those cases can hardly fail to be useful. The decision is a storehouse of illustration of this branch of banking law.

These were two cases which arose out of similar transactions, and which were heard and argued together. They were cases where two parties, both innocent, were left to bear the loss occasioned by a fraudulent clerk, and litigated to find upon whom it should fall. Gordon, the plaintiff, carried on busines at Birmingham, under the style of Gordon and Munro, and had employed one Jones, for about ten years, as a ledger clerk. It was Jones' duty to take the business letters from the letter-box daily, and place them on the plaintiff's desk. When customers remitted cheques, the plaintiff used to enter same in his cash book, and pay them into the bank; but when he was absent from business, Jones was authorised to open the letters, and put all cheques and remittances on one side, to await plaintiff's return. Jones had no authority to indorse cheques in plaintiff's name, or to deal with them in any way. Jones carried on a small business on his own account, and had an account at the Sparkbrook branch of the London City and Midland Bank.

240.

CHAP. XIV.

Between August, 1895, and February, 1899, Jones on various occasions stole a number of cheques from letters, which had been delivered through the post at plaintiff's office, indorsed such as were drawn to order with the name of plaintiff's firm, and paid them into his own account. The defendant bank gave Jones immediate credit for these cheques. Jones used to bring the cheques to the bank with the forged indorsement of Gordon and Munro upon them; he used then to add his own name. It was admitted in evidence by the Sparkbrook branch manager that, had Jones not indorsed the cheques before paying them in, he would probably have been required by the cashier to do so. Some of the cheques were crossed before receipt by the bank, and some not. All were subsequently crossed by the bank with a rubber stamp-The London City and Midland Bank, Limited, Sparkbrook, Birmingham, to Head Office, London." This was done as a precaution against dishonesty, the effect being to make the cheques payable to or through the head office only. Those cheques which were drawn upon defendant's own bank were collected by the ordinary bookkeeping process of debit and credit at the defendants' head office and the amounts of them placed to the credit of the Sparkbrook branch.

In the second action-viz., against the Capital and Counties Bank-the facts were the same, except that Jones had not indorsed with his own name all the cheques paid in there. Also the cheques were less numerous. They fell, however, under the same headings, and judgment in the second case, therefore, followed the judgment in the first.

But for the fact of Jones being allowed immediately to draw against his deposits, his accounts would have been constantly in debit.

The table below shows the way in which the cheques were classified for purposes of argument and in the judgment:

With regard to all the cheques, it was quite clear that Jones had wrongfully converted his master's property to his own use, and that the bank who got the cheques from Jones was also liable to the true owner for conversion unless protected by the doctrine of negotiability or by the special provisions of the Bills of Exchange Act.

It was under these circumstances that Gordon sued the bank to recover the value of the cheques.

order and

With regard to class (6), which consisted of cheques O. B. cheques drawn upon other banks crossed to plaintiff's order, and payable to was the most important class, it was claimed that the crossed. bank was freed from liability by section 82 of the Bills of Exchange Act, which provides that "Where a banker Act s. 82. in good faith and without negligence receives payment for a customer of a cheque crossed generally or specially

CHAP. XIV. to himself, and the customer has no title or a defective title thereto, the banker shall not incur any liability to the true owner of the cheque by reason only of having received such payment."

It was pointed out in the judgment that the protection given by the Act was to bankers when acting as agents for collection-that is, when receiving payment for a customer, not for themselves; that in this case the bank had acquired the cheques as holders for value, having given Jones immediate credit for them. This view was held by the Judges independently of the fact that the bank had taken Jones' indorsement, and therefore applied to all the cheques. The fact of Jones' indorsement being taken, however, only strengthened that view, for it was impossible to believe that the bank, in cases where Jones had indorsed, did not intend to have recourse upon him- a thing which a mere agent for collection would not require, and which was not at all necessary for performance of the duty, which, by the legislation as to crossed cheques, was imposed upon bankers-i.e., the receipt of crossed cheques and of payment for them as agents for collection for their customers. If a banker then treats cheques as cash, he is not merely collecting for a customer, and is therefore not within the protection of section 82. It was pointed out that the view that giving a customer immediate credit in account with the amount of a cheque constitutes the bank holders for value of the cheque, had already been pushed to its logical 1894, 2 Q.E. conclusion in the case of Royal Bank of Scotland v. Tottenham, where, the cheque being unpaid, the bank was allowed to sue the drawer.

This is discussed, ante, pp. 178, 180.

715.

O. B. cheques payable to order and

As to class (5), these cheques were like those in (6), and marked “not negotiable" in addition; the bank could non-negoti- not, therefore, be in any better position with regard to these cheques than in the previous case, and judgment was against the bank.

able.

crossed

Class 1.-These cheques were uncrossed when paid CHAP. XIV. in; after receipt by the bank they were crossed with the Uncrossed bank's rubber stamp, as already detailed. It was claimed order cheques. on behalf of the bank that this might be done (which was true), and that the cheques were then crossed cheques Iwithin the 82nd section. The Courts held that such What is crossing did not make the cheques crossed cheques within meant by the protection of the 82nd section. This does not seem cheque in to have been at all necessary to the judgment, for, in §. 82. the view which the Courts took, the banks-having themselves acquired the cheques for value-were not collecting for a customer, and that was enough to stop them from enjoying the protection of section 82. Two Judges in the Appeal Court, however, did touch upon this question of crossing, and I quote a portion from their remarks.

Collins, M.R., said: "They took the cheques, which were not then within the section, and dealt with them in such a manner as, according to the authorities, to constitute a conversion of them to their own use. They cannot purge that conversion and put themselves in any better position by subsequently crossing the cheques themselves. As to that class, therefore, I think our judgment must be for the plaintiff.”

Stirling, L.J., said: "Section 77, sub-section 6, cannot, as it appears to me, afford any protection to the bankers in this case, because it only provides that where an uncrossed cheque or a cheque crossed generally is sent to a banker for collection, he may cross it specially to himself. Therefore, where the banker simply acts as agent for the collection of a cheque, he may protect himself against dishonesty by crossing the cheque specially to himself; but here the defendants did not act merely as agents for collection, but assumed the position of holders of the cheque for value."

And in the House of Lords, Lord Lindley said: "It

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