Supreme Court of Canada
Dominion Bank v. Union Bank of Canada, (1908) 40 S.C.R. 366
Date: 1908-06-09
The Dominion Bank (Defendant) Appellant;
and
The Union Bank of Canada (Plaintiff) Respondent.
1908: May 11, 12; 1908: June 9.
Present: Girouard, Davies, Idington, Maclennan and Duff JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR MANITOBA.
Banks and banking—Forged cheque—Negligence—Responsibility of drawee—Payment—Mistake—Indorsement—Implied warranty— Principal and agent—Action—Money had and received—Change in position—Laches.
A cheque for $6, drawn on the plaintiff, was fraudulently altered by changing the date, and the name of the payee, and by raising the amount to $1,000. The drawee refused payment for want of identification of the person who presented it. The defendant bank, without requiring identification, advanced $25 in cash to the forger on the forged cheque, placed the balance, $975, to his credit in a deposit account, indorsed it and received the full amount of $1,000 from the drawee. After receipt of this amount, the defendant paid the further sum of $800 to the forger out of the amount so placed to the credit of his deposit account. The fraud was discovered a few days later and, on its refusal to refund the money it had thus. received, the action was brought to recover it back from the defendant as indorser or as having received money paid under mistake of fact.
Held, that the drawee of the cheque, although obliged to know the signature of its customer, was not under a similar obligation in regard to the writing in the body of the cheque; that, as the receiving bank had dealt with the drawee as a principal and not merely as the agent for the collection of the cheque and had obtained payment thereof as indorser and holder in due course, it was liable towards the drawee which had, through the negligence of the receiving bank, been deceived in respect to the genuineness of the body of the cheque, and that the drawee was entitled to recover back the money which it had thus paid under
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a mistake of fact, notwithstanding that, after such payment, the position of the defendant had been changed by paying over. part of the money to the forger. The Bank of Montreal v. The King (38 Can. S.C.R. 258) distinguished, Newall V. Tomlin-son (L.R. 6 C.P. 405); Durrant v. The Ecclesiastical Commissioners for England and Wales (6 Q.B.D. 234); The Continental Caoutchouc and Gutta Percha Co. v. Kleinwort, Sons & Go. (20 Times L.R. 403) and Kleinwort, Sons & Co. V. The Dunlop Rubber Co. (23 Times L.R. 696) followed. Judgment appealed from (17 Man. R. 68) affirmed, Idington J. dissenting.
Appeal from the judgment of the Court of Appeal for Manitoba reversing the judgment of Dubuc C.J., at the trial, and maintaining the plaintiff's action with costs.
The circumstances of the case and the questions at issue on the appeal are stated in the judgments now reported.
Shepley K.C. and D. H. Laird for the appellant.
Ewart K.C. for the respondent.
Girouard J.—This appeal must be dismissed.
The amount of a forged cheque was paid by mistake by the drawee and the appellant, who received the money, although not due to it by the respondent, must refund it, unless precluded from doing so by some rules of law. I observe in The Bank of Montreal v. The King at page 267:
Whatever was the jurisprudence in the old days, it has been settled by the "Bills of Exchange Act," section 54 (now section 129), which limits the liability of the acceptor to the genuineness of the signature of the drawer, thus impliedly excluding his liability for the forgery of the body of the bill.
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That is still my opinion and I am very happy to learn from the factum of Mr. Ewart K.C. that long before the "Bills of Exchange Act" was passed, that was also the decision the Courts of Appeal of my province had arrived at in The Union Bank of Lower Canada v. The Ontario Bank, where Dorion C.J. said:
If a bank accepts a forged cheque of its own customer and the .forgery consist in the signature of its customer, it cannot recover the money, because it is bound to know the signature of its own customer. But that does not apply to the writing in the body of ihe instrument, because the bank is not bound to know the handwriting in which the document is written.
I have, therefore, come to the conclusion that the respondent is entitled to recover back the amount paid. I may add that the case of The Bank of Hamilton v. The Imperial Bank of Canada supports that conclusion.
The objection is raised by the appellant that its position had entirely changed since it received the money, by remitting it, or the greater part of it, to the holder. The respondent paid the cheque under the erroneous belief that it was genuine, and the appellant received the proceeds acting under the same mistake, and, therefore, the money must be returned. But the recipient bank is guilty of, perhaps, à more grave mistake. The holder was a perfect stranger and it made no inquiry, no effort, in fact it did nothing to ascertain who he was. True, the paying bank could have found out all the circumstances of the forgery, but it was satisfied that the signature of the drawer was genuine and there its responsibility ended. The appellant could have ascertained everything connected
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with the cheque and the payee; it did not do so and it must suffer the loss caused by its imprudence or fault.
Davies J.—The Manitoba Government issued a cheque upon the Union Bank, respondent, signed by the officials authorized to draw such cheques in favour of The Consolidated Stationery Company for the sum of $6.00.
Jones, a clerk of the company, obtained possession of the cheque, misappropriated it, and fraudulently erased both the payee's name and the amount for which the cheque was drawn, and inserted instead the name of Willam Johnson and the sum of $ 1,000.
The forgery was very skilfully done, so much so that no ordinary care could have discovered it.
Jones, pretending to be Johnson, presented the cheque to the drawee, the Union Bank, for payment, but, being unknown and unidentified, payment was refused.
He then took the cheque to one of the branches of the Dominion Bank, the manager of which, without requiring identification, took the cheque, paid the forger $25 and placed the balance to his credit.
The Dominion Bank then indorsed the cheque and passed it through the Clearing House to the Union Bank, which paid the amount of the cheque as forged.
Before the crime was discovered, but after the Union Bank had honoured the cheque, the Dominion Bank paid to the forger Jones $800 of the amount standing to his credit.
On the return of the cheque to the drawer the forgery was discovered and the forger was at once arrested, tried, convicted and sentenced.
Under these circumstances the Union Bank sued to recover back the money paid by it to the Dominion
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Bank on the forged cheque, on the ground that it was paid by mistake, and as to the $ 800 paid out to the forger after payment of the cheque to them by the Union Bank and before discovery of the forgery the Dominion Bank contest their liability.
It is conceded that neither bank can be charged with negligence in not detecting the forgery by mere inspection of the cheque, but the respondent bank submitted that there was negligence on the part of the Dominion Bank in cashing such a cheque without first having had the person asserting himself as the payee identified.
The man turned out to be a forger and a thief, he was unknown to the manager, was not required to be identified, and was successful in obtaining some $825 which it seems to me would have been prevented had the usual banking business precautions been insisted upon.
The Union Bank on the other hand cannot be charged with negligence. It had declined in the first instance to pay the cheque to the alleged payee until he satisfied them of his identity, and only paid it when it came to them through the clearing house with the name of the Dominion Bank stamped across it. No negligence whatever can be imputed to the respondent bank; the names of the officials authorized to draw cheques for the Government were genuine and proper inspection would not and did not enable them to discover the forgery of the body of the cheque.
In the late case of The Bank of Montreal v. The King we had a somewhat analogous case before us, and we there held that the Bank of Montreal, the drawee of the cheque, could not recover back the moneys paid
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by it to another bank for a forged cheque and which moneys the receiving bank had paid out to the forger before it had any notice or knowledge of the forgery.
The great and broad distinction between that case and the one now in appeal, at any rate in the opinion of the majority of the court, was that the name of the drawer of the cheque had been forged and that the payee by paying the cheque had represented to the receiving bank that the drawer's signature was genuine and was consequently disabled from recovering back the money, the signature being a forgery and the receiving bank having acted on the faith of such representation and paid away the money to the forger.
The ground upon which I based my judgment in that case as between the disputing banks was
that by paying the cheques to the persons presenting them the Bank of Montreal represented to them that the cheques had in fact the genuine signatures of the drawers and if upon the faith of that implied representation the holders of the cheques received the moneys, as I think they did, and subsequently paid them away to the person who deposited the cheques with them or otherwise had their positions altered to their prejudice respectively in consequence of such implied representations and in ignorance of the forgeries, they cannot be compelled subsequently by the drawee who paid the money, on discovering that the cheques were forgeries, to pay back the money.
In this case now before us the signatures to the cheque were genuine. It was only the body of the cheque which had been altered and forged. There was no representation express or implied made by the respondent bank to the appellant bank other or further than as to the genuineness of the drawer's signatures, and the ground and reasoning on which it was held the Bank of Montreal could not recover does not here apply. This case is more analogous to that of The
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Imperial Bank v. The Bank of Hamilton, the distinction between them being that in the latter case the payment of the money to the forger by the receiving bank was made before the paying bank had paid over the money to the receiving bank.
The question here is whether the single fact that the receiving bank did not pay over' the $800 in dispute until after the paying bank had paid the cheque to them can avail to prevent the paying bank from recovering the money back on the ground of mutual mistake.
That question it seems to me must be answered by determining whether the paying bank by paying the cheque made any representation as to its genuineness other than the representation of the genuineness of the drawer's signatures and whether the receiving bank was or was not a mere agent to receive and pay over the money. If it was such agent merely and the fact was or ought under the evidence to have been known to the paying bank they cannot recover the money back.
If on the contrary the receiving bank was not a mere agent if it had an interest in the money paid and received the moneys simply as holders of the cheque and not as agent merely for their depositor, the fact of their having paid over the money will not avail them. Newall v. Tomlinson; Continental v. Kleinwort.
I do not think the evidence justifies a holding that the appellant bank received the money from the paying bank as agent merely. As a matter of fact they had paid the forger $25 on account of the cheque when
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they first took it, and, to that extent at any rate, had an interest in it, and there is nothing to shew that the paying bank ought to have known or did know that the receiving bank were only collecting the money as agents to pay it over. The character in which the Dominion Bank presented the cheque through the Clearing House to the paying bank was as the holder of the cheque, and this I think is under the authorities a determining factor. Kleinwort v. Dunlop Rubber Co..
I have already held that there was no representation made as to the genuine character of the cheque beyond that to be implied that the drawer's signature was all right.
For these reasons I think the appeal should be dismissed with costs:
Idington J. (dissenting).—This appeal from the Court of Appeal for Manitoba raises the same questions as we had to decide between the Bank of Montreal and the third party banks in the case of Bank of Montreal v. The King unless the forgery of a signature to a cheque is to be held as materially different in this regard from that of an entire fabrication of a cheque over a genuine signature which the forger has managed to get hold of and use.
In the decision of that case there was not that accord of reasoning in arriving at the result in which all the members of this court were agreed that would of necessity exclude the agitating anew of the bearing of this feature that distinguishes that case from this.
When the matter is approached from the point of
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view that the banker is supposed to know the signature of his customer there is certainly a difference.
The party presenting for payment a cheque. on which the signature of the drawer is forged may in some cases have some better right to complain, if the drawee, to whom the drawer's signature was well known, seeks, after honouring it in the forged form and paying the cheque, to recover back the money paid, than in the case where the signature is genuine and the fabrication over it has been so well done that neither party imposed on had any more chance of detecting the fraud than the other.
In the absence of negligence I did not in the Bank of Montreal Case, and do not now feel much pressed by reason of the alleged duty of a banker to know his customer's signature as forming an important element or having much to do with settling the equities between such a banker and another when it comes to an issue of deciding the right of the banker so paying a forged cheque to recover the money he had paid in discharge of it.
I may remark, in passing on, that, so far as I can see, in the case of The Imperial Bank of Canada v. Bank of Hamilton, where the cheque in question was a raised one as here over a genuine signature and originally certified to by the Bank of Hamilton, no importance seems to have been attached to the alleged duty of knowing the customer's signature as a factor in such a case. I do not find that suggested as a reason for distinguishing that case from others.
There the bank was excused even for not having looked at its books from which it could have detected the forgery.
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The case was determined if I understand it aright upon the broad principle that the money was paid by mistake and therefore prima facie recoverable; that notice of the mistake was given
in reasonable time and no loss had been occasioned by the delay in giving it.
It is by an application of the principles that govern the right to recover money paid by mistake that the issue raised here must be decided.
I proceeded on that ground in The Bank of Montreal v. The King, at pages 280 and 283.
I need not repeat my reasons stated there. Discarding here, as I did there, the respective side issues raised, as of no significance there or here, I find no difference in the cases save in the length of time that elapsed between the passing of the cheque through the clearing house and the demand for re-payment.
I cannot say that I find the difference in length of time between the mistake and demand for re-payment so essential as to enable me to distinguish the cases.
The essential feature of the receiving bank having parted, as in duty bound apparently, with the money to the extent it did, relying on the paying bank having acquiesced and paid, remains here, as there, the substantial answer to what else would be a most equitable demand.
Let us go beyond in the agency cases, and get to the reason for the rule, a good method to solve legal difficulties in many cases, I submit, and reason by analogy therefrom. Doing so, I venture to think the banker's business, is of that nature that it would be just as inequitable as in the case of an agent receiving and paying to ask the return of money the banker has
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paid away in accordance with a duty that every circumstance that was apparent to him rendered imperative. People have every day to discharge that duty which apparent facts render a duty when all that can be reasonably required has been done to know the facts.
The Privy Council, in The Imperial Bank Case, had under consideration the view presented by the late Chief Justice Armour of Cocks v. Masterman, holding that it exemplified, if it did not establish a rule of law 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 receives the money and is suffered to retain it during the whole of that day, the parties who paid it cannot recover it back.
The court, in considering that, treats it not as if there were absolutely nothing in the law to support the decision of Cocks v. Masterman or as if that particular case had been wrongly decided,. but as if it were a proper thing to inquire in such a case as to. whether or not and how the defendant may have been prejudiced by reason of want of notice of dishonour. The court says in doing so that
the bank (meaning the Imperial Bank) was not deprived of any of its rights against him (i.e. Bauer, the drawer) nor was its position altered by reason of notice of the forgery not being given until the day after the bill was paid.
Then, as to the particular case then in hand, the court found that the stringent rule referred to did not really apply to the case, and proceeded to shew that Bauer, who was the drawer was not entitled to notice of dishonour and said:
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There were no indorsers to whom notice of dishonour had to be given.
What does all this mean, if it does not imply that there may be cases where the party called upon to return the money may have a right to answer by shewing that he has, by reason of lapse of time, been prevented from giving notice of dishonour to those to whom he might otherwise have been entitled to look but for want of notice is no longer so entitled?
I think to that extent it is a recognition, not of the hard and fast rule as laid down in Cocks v. Master-man as if of universal application, but of the principle that underlies that and many other decisions— that is, that, if the party receiving be prejudiced by reason of the drawee's payment and the consequent delay, a countervailing equity, as it were, might arise furnishing him a complete answer to the demand for a return of the money.
I do not attempt to define the limits of this possible answer to a plaintiff's equity to a return of the money.
It is made clear by the Imperial Bank Case that they are not co-incident with those of the rules as to notice of dishonour. On the other hand it being clear that, if being deprived by reason of the delay of the right to have recourse over against another is a sufficient answer, surely the loss of the right to retain the money which has awaited the drawee's answer to presentation is equally cogent as an answer to the claim.
It is on this ground that much of the judicial opinion
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rested in the Bank of Montreal Case for refusing to that bank a discovery over against the other banks.
I submit we should, so long as Cocks v. Master-man has not been overruled but, in the way I have indicated, recognized and the mass of judicial opinion I refer to seemingly upheld by refusal of leave to appeal in the Bank of Montreal Case, adopt and follow the principle that the Privy Council indicates, at least until some better indication of a departure therefrom by the court above than the refusal of leave in The Bank of Montreal Case indicates.
As to the distinction between the Bank of Montreal Case and this arising out of the nature of the forgery, I repeat that both in that case and this it was found that negligence could not be imputed to the drawees.
So long as that is the case, I fail to understand why there should be any distinction.
I think the law of chance, so called, probably makes it of little consequence which way the matter be decided if it can only be so decided as to be permanent and recognized by all concerned as the binding rule.
In other cases than agency or those akin to it where the party receives money by mistake he generally has it or its substance permanently on hand. No hardship exists there on being ordered to return it.
I think the appeal should be allowed with costs.
Maclennan J.—The question in this appeal is whether or not the appellant is entitled to retain money obtained from the respondent upon a cheque
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drawn upon the respondent bank bearing the genuine signature of the proper officers of the Government of the Province of Manitoba, but, in all other respects, a skilful forgery.
The cheque, in its genuine form, had been for six dollars and payable to a stationery company or order, and had been raised by one Jones to $1,000, and made payable to Willam Johnson, or order. The forger indorsed the name "Willam Johnson" thereof and presented it for payment at the respondent's bank, at which the Government had an account, professing to be Willam Johnson, the payee and indorser. Being asked for identification, and none being produced, payment was refused. The forger then went to the appellant's bank and presented the cheque there, asking for a small advance in cash and a deposit for the remainder in a savings account. Being unknown to the appellant, he was asked a few questions and he said he was the payee, Willam Johnson, that he was a private detective, and resided at No 465 Jarvis Street, Winnipeg. He also wrote his name as "Willam Johnson" on a card presented to him for that purpose.
Without further inquiry the appellant complied with the forger's request, cashed the cheque, paid him $25, part thereof, and borrowed the remainder, $975, from him at interest.
This occurred on the 26th of January, 1905. The cheque had originally borne the date of 13th December, 1904, but that date had been changed by the forger to 6th January, 1905. The appellant, therefore, without further inquiry, cashed a Government cheque for $1,000, twenty days old, presented by a person unknown to it pretending to be the payee, and who
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professed to be a private detective residing at a certain house in the city. Having thus cashed the cheque, the appellant stamped it with the name of the bank and sent it to the Clearing House for payment.
I think that in doing all this without further inquiry the appellant acted with unusual want of care, and, unintentionally, set a trap for the respondent into which it fell. For I suppose that, almost invariably, when a cheque with a genuine signature comes for payment to the bank on which it is drawn, after passing through the Clearing House and having the stamp of another bank upon it, it is paid without further question, and that is what happened in this case. The respondent paid it on the 27th of January.
According to the usual course of banking business, the forgery of this cheque would not be discovered until the beginning of the following month, when it would be returned as a paid cheque to the Government. Accordingly, the discovery was not made until the 3rd of February, when it was notified to the respondent, who promptly informed the appellant and demanded a return of the money.
In the meantime, on the 1st February, the forger had drawn a cheque for $800 on his savings account, which the appellant had cashed, leaving the sum of $175 still in its hands when it was notified.
The question is: Which of the parties ought, under the circumstances to bear the loss? And I have no hesitation in coming to the conclusion that the appellant ought to do so.
The respondent exercised due care. It refused, when applied to by the forger, to pay the cheque without his being identified. If the appellant had done that no loss would have occurred.
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I think the equities of the case are entirely with the respondent. The appellant was not a mere agent. It had cashed the cheque and become the owner of it. It had, in effect, paid the money to the forger and borrowed it from him again at interest. When it presented the cheque for payment, it did so as owner of it and vouched for its genuineness by its stamp, as provided by rule 6 of the Clearing House respecting indorsements.
I think the loss was due solely to the want of care of the appellant, and that there was no negligence whatever on the part of the respondent.
It is not unimportant either that the appellant has a clear right of action to recover this money from the forger, while the respondent, unless it recovers from the appellant, has no recourse against any one.
The appeal, in my judgment, should be dismissed.
Duff J.—The action for money had and received is an equitable action; "the gist of it" in
Lord Mansfield's phrase, Moses v. Macferlan, at page 1012
is that the defendant is obliged by the ties of natural justice and equity to refund the money.
Tregoning v. Attenborough; Phillips v. School Board for London, at pages 452-3; Jacobs v. Morris; In re The Bodega Co.; Lodge v. National Union Investment Co., at pages 311, 312. Accordingly in an action for money paid under mistake of fact, or for a purpose or consideration which has failed, the defendant may meet the plaintiff's claim by shewing that there is something in the conduct of the payer or in the transaction itself, or its legal incidents
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making it inequitable that the defendant should be compelled to restore what he has received. Bank of Montreal v. The King; Phillips v. School Board for London.
But is the mere fact that the receiver, while ignorant of the mistake, has changed his position by paying the money over to a third person to whose orders it was subject, a sufficient answer in itself (within this principle) to the demand of the payer?
I think the effect of the decisions is that that circumstance alone is not an answer, unless the receiver can bring himself within the rule applicable to moneys paid to an agent in his character of agent who has paid it over or accounted for it to his principal. Continental Caoutchouc & Gutta Percha Co. v. Klein-wort, Sons & Co., at page 405; Kleinwort, Sons & Co. v. Dunlop Rubber Co., at page 697, per Lord Atkinson; Durrani v. Ecclesiastical Commissioners for England and Wales. That rule does not, I think, govern this case, for two reasons; first, the appellants dealt with the respondents in their character of holders of the cheque simpliciter and not in the character of agents of their depositor: Kleinwort, Sons & Co. v. Dunlop Rubber Co., at page 697; and, secondly, the appellants were not in point of the fact intermediaries merely, but had an interest in the cheque in respect of the advance made by them to the depositor: Newall v. Tomlinson.
In this view the case seems distinguishable from
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Bank of Montreal v. The King. There the judgments of the majority of this court shew that they proceeded upon the ground that the receiving banks, being entitled to assume that the paying bank knew the handwriting of their customer (whose pretended signatures as the drawers of the cheques in question in that action were forgeries), might reasonably rely upon the payment of the cheque by the latter bank, as evidencing the genuineness of the signatures; and that since they had acted upon that evidence, by honouring the cheques of the depositor, drawn upon the proceeds of the forged cheques, the loss thus occasioned could not equitably be cast upon them. It is plainly implied in these judgments that the principle on which they are based would have no application to the case of the payment of a forged cheque where the forgery consists in the alteration of the body of a real cheque actually signed by the drawer; because the payment of such a cheque implies no sort of representation as to its genuineness, except in respect of the signature of the drawer: per Girouard J. at page 267, with whom Maclennan J. concurred (page 283); and per Davies J. at page 278. It was on this ground that those learned judges distinguished that case from Imperial Bank of Canada v. Bank of Hamilton. I would, therefore, dismiss the appeal with costs.
Appeal dismissed with costs.
Solicitors for the appellant: Munson, Allan, Laird & Davis.
Solicitors for the respondent: Fisher, Wilson, Battram & Hamilton.
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