Supreme Court
of Canada
Imperial Bank of
Canada v. Bank of Hamilton, (1901) 31 S.C.R. 344
Date: 1901-05-21
Imperial Bank of
Canada (Defendant) Appellant;
and
The Bank of Hamilton (Plaintiff)
Respondent.
1901: March 26, 27; 1901: May 21.
Present: Sir Henry Strong C.J. and
Gwynne, Sedgewick and Girouard JJ.(King J. was present at the hearing but died
before judgment was delivered.)
ON APPEAL FROM THE COURT OF APPEAL FOR
ONTARIO.
Marked cheque—Fraudulent alteration—Payment
by third party—Liability for loss—Negligence.
A. man dealing
with others is under no duty to take precautions to prevent loss to the latter
by the criminal acts of third persons, and the omission to do so is not, in
itself, negligence in law.
B. having an
account for a small amount in the Bank of Hamilton had a cheque for five
dollars marked good, and altering it so as to make it a cheque for $500, had it
cashed by the Imperial Bank. The same day it went through the clearing house
and was paid by the Bank of Hamilton to the Imperial Bank. The error was
discovered next day by the former, and re‑payment demanded from the
Imperial Bank and refused. The Bank of Hamilton then brought an action to
recover from the Imperial Bank $495, the sum overpaid on the cheque. The
defendant contended that the note as presented to be marked good was so drawn
as to make the subsequent alteration an easy matter, and the plaintiff’s act in marking it in that form was negligence which
prevented recovery.
Held, affirming the judgment of the Court
of Appeal (27 Ont. App. R. 590), which affirmed that at the trial (31 O.R.
100), that there was nothing in the circumstances to take the case out of the
rule that money paid by mistake can be recovered back, and the Bank of Hamilton
was therefore entitled to judgment.
[Page 345]
APPEAL from a
decision of the Court of Appeal for Ontario
affirming the judgment at the trial
in favour of the plaintiff.
The facts are
sufficiently set out in the above head-note, and more fully in the judgments
published herewith.
Lash K.C. and Bicknell
for the appellant referred to Chambers v. Miller; London and River Plate Bank v. Bank
of Liverpool;
Pollard v. Bank of England; Boyd
v. Nasmith.
Douglas K.C. and
Stewart for the respondent cited Kelly v. Solari; Brownlie v. Campbell
approving of Bell v. Gardiner;
Clark v. Eckroyd.
THE CHIEF JUSTICE.—This is an appeal by leave from an order of the Court of
Appeal affirming a judgment pronounced by Mr. Justice MacMahon at the trial of
the action without a jury. There is no dispute as to the facts, and the
questions we have to decide are entirely matters of law. The learned Chief
Justice of Ontario dissented from the judgment of the court which was in favour
of the present respondent who was also the respondent below and the plaintiff
in the action.
It was proved at
the trial that one Carl Bauer had an account with the defendants at their
agency in Toronto, and that on the 25th of January, 1897, he drew a cheque in
the following form:
[Page 346]
No. 136. TORONTO,
ONT., January, 25th, 1897.
TO THE BANK OF HAMILTON.
Pay
to Cash...........................or bearer $
Five...................................................
/100 Dollars.
(Signed)CARL BAUER.
This cheque Bauer
on the same day presented to the ledger-keeper of the respondents who wrote the
folio number of the account in the ledger on the cheque and stamped it with the
words “Bank of Hamilton, Toronto, entered
January 25th, 1897,” and handed it back to Bauer who did
not present the cheque to be cashed but took it away with him.
On the following
day, January 26th, 1897, Bauer entered the figures “500” in the space after the $ mark and
wrote the word “hundred”
in the blank space after the word “five”
in the body of the cheque and deposited it to his credit in an account with the
appellants at their agency in Toronto, and immediately drew out nearly the
whole sum. Bauer never had any greater sum to his credit with the respondents
than the sum of $10.22. On the morning of the 27th January the appellants sent
the cheque for $500 in the usual course through the clearing house to the
respondents who paid it and stamped it with the words “Bank of Hamilton, Toronto, paid January 27th, 1897.”
On the following
day (January 28th), the respondents discovered the fraud and demanded repayment
from the appellants who declined to restore the money. In the mean time Bauer
had drawn a cheque for the full amount of the balance to the credit of his
account with the appellants. At the time of the payment of the cheque by the
respondents Bauer had to the credit of his account with them but twenty-two
cents, and this appeared from the respondents’
ledger.
The cheque as
altered by Bauer and paid by the respondents was as follows:
[Page 347]
No. 136. TORONTO,
ONT., January 25th, 1897.
TO THE BANK OF HAMILTON.
Pay
to Cash...................................or bearer $500.00.
Five
hundred and........................... xx/100 Dollars.
(Signed)CARL BAUER.
Some evidence was
given as to the usages of the clearing house and the practice of the
respondents and other banks in making payments through it. I do not refer to
this evidence, for in the view I take it is immaterial.
It is clear that
the payment by the respondents was made under a mistake of fact, in reliance on
what appeared on the face of the cheque which after the forgery presented the
appearance of a marked cheque for $500.
The rule of law
that money paid by mistake can primâ facie be recovered from the person who
receives it must therefore apply unless the case can upon the facts stated come
within some exception to that rule.
It was contended
in the court below on behalf of the appellants that the judgment of
Mr. Justice MacMahon was wrong and that the rule mentioned was improperly
applied, and that for two reasons. First, it was said that the case of Young v.
Grote
applied, and that the respondents were debarred from recovering by reason of
their negligence in certifying a cheque which from its form was susceptible of
alteration on account of the blank spaces left in it. In other words they set
up the defence of estoppel by negligence. The majority of the Court of Appeal repelled
this defence, and the Chief Justice in his judgment did not deal with this
question. Secondly, it was insisted that the cheque having been paid on the
27th of January, and the amount paid not having been reclaimed until the
morning of the 28th, there
[Page 348]
was such
negligence in making the demand for repayment that the respondents were for
that reason precluded from recovering.
The majority of
the court overruled this defence also which was upheld, however, by the Chief
Justice in his dissenting judgment in which he relied upon the authority of
Cocks v. Masterman
and other cases following that authority.
Young v. Grote
was a case between a banker and his customer. The facts were that the latter
having occasion to leave home had left some cheques signed by himself in blank
for the purpose of his business with his wife which she was to hand over to the
plaintiff’s clerk for such amounts and on such
occasions as she should in her discretion think fit. The clerk applied to her
for a cheque which she gave him to be filled up for an amount and to be used
for a purpose to be approved of by her. The clerk showed her the cheque filled
up for the proper amount, but she omitted to notice that space was left which
enabled the clerk, as he did, to commit a fraud similar to that perpetrated by
Bauer in the present instance. The Court of Common Pleas held that the loss
must fall upon the customer and not on the banker who had cashed the forged
cheque.
It is not easy to
ascertain from the report the exact ratio decidendi of the several judgments
but in his judgment in the case of Schofield v. Lord Londesborough,
Lord Watson seems to consider it attributable to one or the other or both of
two principles, namely: first that one who signs a negotiable instrument in
blank impliedly as regards third persons authorises it to be filled up for any
amount for which the stamp is sufficient. The second ground was he thought that
as between banker and customer it is
[Page 349]
by virtue of some
rule of law or some implied agreement the duty of the latter to take reasonable
care that cheques are so drawn as to present no opportunity for frauds on the
former. Lord Watson does not say whether these grounds or either of them are
sound, but he considers them to be reasons for distinguishing the older case
from Schofield v. Lord Londesborough—the case before the House of Lords—in which the acceptor of a bill had enabled the drawer
feloniously to convert an acceptance for £500 into one for £3,500 by means of blank spaces left in the bill when he
accepted. It was held that this did not meet the defence of forgery set up by
the acceptor against a bonâ fide holder for value of the altered acceptance.
This decision proceeded on principles which have been applied in a variety of
cases, and which are familiar to all for as the Lord Chancellor says in
Schofield v. Lord Londesborough:
A man for
instance does not lose his right to his property if he has unnecessarily
exposed his goods or allowed his pocket handkerchief to hang out of his pocket,
but could recover against a bonâ fide purchaser of any article so lost
notwithstanding the fact that his conduct had to some extent assisted the
thief. It is true that stolen goods sold in market overt could be retained by a
bonâ fide purchaser for value notwithstanding that they had been previously
stolen; but the same result would follow equally whether the owner had been
careful or careless in the custody of his goods.
In other words it
would seem that there is no duty obliging a man who is dealing with others to
take precautions to prevent loss to them by the criminal acts of third persons,
and the omission to do so does not in the absence of some special and
exceptional relationship amount to negligence in law. This is the law as I
understand the judgment laid down by the House of Lords in Schofield v. Lord
Londesborough.
[Page 350]
Then if this is so
and we are I think bound by the authority of that case, can there be any
distinction between the case of a certified cheque like the present and an
acceptance? I can see none and I entirely agree with Mr. Justice Osler and Mr.
Justice Moss in the reasons given in their judgments. I would also refer to the
case of the National Bank of Commerce v. The National Mechanics Banking Association
in which the Court of Appeals of the State of New York in an able and well
reasoned judgment reaches the same conclusion in the case of a certified cheque
raised in amount under circumstances precisely similar to those before us. I
may also refer to that case as assigning the true reason for the decision in
Mather v. Lord Maidstone,
namely, that one who pays an acceptance to which his name has been forged is
estopped from recovering back the money upon the ground that he is bound to
know his own signature.
As I have said the
learned Chief Justice did not in his judgment deal with the present case in the
aspect in which it has just been looked at, but founded his opinion on another
point. That point was this—it was said that the respondents
having paid the cheque on the 27th were too late to recall the payment when on
the morning of the 28th they discovered the fraud and consequent mistake in
payment since the appellants might have been prejudiced and their position
altered by the delay. For this not only Cocks v. Masterman
was relied on but other cases also, the principal of which was a decision of
Mathew J. in London & River Plate Bank v. Bank of Liverpool.
In all these cases however it will be found that they were mistaken payments by
parties behind whom were others secondarily liable, recourse against whom
[Page 351]
might have been
lost by delay and the holder thus prejudiced. In some of them also the
principle of Mather v. Lord Maidstone
was applicable. I deny that there is any abstract rule of law which requires
that the money paid shall be demanded on the day of the erroneous payment
without regard to any question of prejudice to the holder. Each case must
depend on the facts. If however there is any such rule of law it must be
confined to the case of acceptances.
In the present
case it is impossible that the delay could in the least degree have caused
detriment to the appellants. This point also arose in the case before cited in
the New York Court of Appeals,
and was there held to be no defence, and I am convinced it has been properly
decided against the appellants in the present case.
The appeal must be
dismissed with costs.
GWYNNE J.
(dissenting.)—The appeal must, in my opinion, be
decided upon a wholly different principle from that upon which either Young v.
Grote,
or Schofield v. The Earl of Londesborough,
was decided. Neither of these cases has really any application in the present
case. The only negligence which it is all necessary to refer to, is the
negligence of the respondents causing injury to themselves alone in paying a
cheque drawn upon them by a customer of which the appellant was the bonâ fide
holder for value and which, under the circumstances, as asserted by the
respondents in their action and as proved by them, they were under no
obligation to pay but which they did pay in due course upon presentment,
notwithstanding that they possessed, and they alone possessed, the fullest
possible means, of which they did not avail themselves, of
[Page 352]
knowing that by
reason of the fraud of their customer, the drawer of the cheque, they were
under no obligation to pay it, and the only question is whether or not they can
recover from the appellants the amount so paid to them.
It now appears by
the evidence in the action that on the twenty-fifth of January, 1897, one
Bauer, (whom we must regard as having then been a customer of the respondents,
(his bankers), drew a cheque upon them for the sum of five dollars payable to “cash, or bearer.” On the same day he procured the
respondents to mark it “good”
with their stamp impressed thereon containing the words “Bank of Hamilton, Toronto, entered, January 25th, 1897.” He then altered the sum “five” to “five hundred” in such a manner as not to create any, the slightest,
suspicion that any alteration of or tampering with the cheque had taken place.
It was to all appearances a perfectly valid cheque for five hundred dollars,
marked by the respondents as good for that amount.
So altered he
transferred the cheque on the twenty-sixth of January, for value to the
appellants, who caused it to be presented for payment to the respondents
through the Toronto Clearing House and, on the twenty-seventh of January, the
respondents paid the cheque and stamped it on that day with their stamp as “paid.”
Doubtless they
assumed that, having stamped the cheque upon the 25th of January, as “entered,” they had funds to meet it, and that,
therefore, they paid it upon presentment.
In this it appears
the respondents were mistaken, but the mistake was one in respect to which they
had in their possession the fullest possible means to avoid making. It was a
mistake having its origin solely in their own default or negligence, for, if
they had
[Page 353]
referred to their
own books, before paying the cheque, they would have seen, as they did see on
the twenty-eighth of January, that the drawer of the cheque had no such sum to
his credit in their hands.
It was thus that
then, for the first time, the respondents discovered that the alteration from “five” to “five
hundred” dollars had been made.
Having thus made
discovery of the fact of forgery, the respondents demanded re-payment of the
amount paid on the twenty-seventh of January, in excess of the “five” dollars for which amount they had
marked the cheque before it was altered, the excess being claimed to be
recoverable as money paid by mistake of fact. The mistake of fact, under the
influence of which the cheque was paid, was, I think, as already observed, no
other than a mistake in concluding from seeing the respondents’ stamp of the 25th January on the cheque, that there were
funds of the drawer’s to pay it. That mistake led to the discovery,
(on the twenty-eighth of January, when first they referred to the books), of
the fact of alteration of the sum of five dollars for which the cheque had been
marked to “five hundred.” But the mistake under the influence of which the cheque
had already been paid, at a time when no forgery was suspected or could have
been discovered, save by a reference to the respondents’ books, remained unaltered and if that mistake did
consist, as I think it did, in ignorance of the fact that the respondents had
no funds of the drawer’s in their hands sufficient to pay the
cheque, or in a mistaken belief that they had, then Chambers v. Miller
is an unquestioned authority that money paid by reason of such a mistake of
fact cannot be recovered back.
Then it is to be
borne in mind that the forged alteration was made by the drawer of the cheque
him-
[Page 354]
self and it
affected only the liability the respondents had incurred by affixing their
stamp to it on the twenty-fifth of January. In all other respects the cheque
was perfectly good and was as binding upon the drawer, in the interests of and
for the benefit of the respondents, for the full amount of the five hundred
dollars after they paid the cheque and received it from the appellants as it
had been in the hands of the appellants in the interest of and for the benefit
of the appellants until payment, so that it cannot be said that the respondents
paid the money, which is now sought to be recovered back from the appellants
without having received any value or consideration for such payment, as could
have been said if the forgery committed had been of the drawer’s signature. The language of Erle C.J. in the above case
of Chambers v. Miller
is precisely applicable in the present case, as imputing the respondents’ loss occasioned by having paid the cheque to their own
fault and negligence disqualifying them from recovering back the amount paid,
rather than to what the law regards as a mistake of fact entitling the
respondents to recover back the money paid.
He there says at
page 182:
With regard
to cheques, the well known coure of business is this: When a cheque is
presented at the counter of a bank, the banker has authority on the part of his
customer to pay the amount therein specified on his account. The money in the
banker’s hands is his own money. On the
presentment of the cheque it is for the banker to consider whether the state of
the account between him and his customer will justify him in passing the
property in the money to the holder of the cheque.
The presentment of
the cheque to the bank of the respondents through the clearing house gave to
the respondents full opportunity of determining by reference to their books
whether or not they should pay the cheque. Of this opportunity they did not
avail
[Page 355]
themselves. If
they had availed themselves of the opportunity so given they would have
discovered, as they did discover on the day after they had paid the cheque
immediately upon referring to the books, that the cheque which had been marked
on the 25th of January was for $5, and not for $500.
Surely it is to
their own fault and negligence and not to any mistake of fact that, under the
circumstances, the respondents’ payment of the cheque must be
imputed; it was so held by Lord Mansfield in Price v. Neal.
In Cocks v.
Masterman,
a bill purporting to be accepted by A., payable at his banker’s, was paid by the bankers on presentment, they believing
the acceptance to be in the handwriting of A., a client of theirs. The next day
discovering that the acceptance was a forgery, they notified the holders to
whom they had paid the amount of the bill, and brought an action to recover it
back. It was contended upon two grounds that the plaintiffs could not recover.
First, that the bankers should have satisfied themselves of the genuineness of
the acceptance before paying, and; secondly (and upon this the court
unanimously proceeded expressly guarding itself from being understood as giving
any opinion upon the first point), that the holder of the bill is entitled to
know on the day when it becomes due, whether it is a honoured or a 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.
Now, as to the
first point taken in that case, in respect of which the court guarded itself
from being understood to express an opinion, there cannot, I think, be
entertained a doubt that where, as in the present case, a cheque having a bank’s stamp thereon
[Page 356]
certifying to its
genuineness, which must be taken to be the purpose of affixing the stamp so as
to give it transferable value, and the amount of the cheque has been altered,
after being so stamped and before being used by the drawer, in such a perfectly
deceptive manner that the alteration was incapable of detection by any means
whatever save by reference to the bank’s own books, by the use of which means
the alteration immediately becomes plainly patent to the bank, and the bank
without the use of such means, being satisfied apparently upon seeing its own
stamp, pays the amount to a bonâ fide holder for value, such a payment must be
regarded as in the bank’s own wrong and must be attributed to
its own default and neglect and cannot be recovered back upon a suggestion that
the payment was made under the influence of what the law regards as a mistake
of fact. And the language of the court as above extracted from Chambers v.
Miller,
is, I think, in support of this view.
The second ground
in Cocks v. Masterman,
upon which the court unanimously proceeded, is however precisely in point in
the present case.
In Mather v. Lord Maidstone,
the principle upon which Cocks v. Masterman29 was decided, was in
1856 affirmed in the following language by Jervis C.J.
As a general
rule the holder of a bill of exchange has a right to know whether or not it has
been duly honoured by the acceptor at maturity, and when the bill is presented,
if the acceptor pays it, the money cannot be recovered back if the acceptor has
the means of satisfying himself of his liability to pay it, though it should
turn out that the acceptance was a forgery.
And by Cresswell
J.:
A man accepts
a bill of exchange purporting to be drawn by one Thompson, and pays it, and if
it afterwards turned out to be a forgery, he ‘cannot
afterwards be permitted to say that he paid the money under a mistake,
[Page 357]
and in The London
and River Platte Bank v. The Bank of Liverpool,
Cocks v. Masterman, as approved and affirmed in Mather v. Lord Maidstone, is
again recognised as having established
a clear
unimpeachable rule which ought not to be tampered with.
The Court of
Appeal of Toronto seems to have been of opinion that the respondents had a
superior equity to the appellants which entitled them to recover back the money
from the appellants.
In what does that
superior equity consist?
No blame, default
or negligence of any description in the transaction is attributable or
attributed to the appellants. The alteration was so well made as to give no
ground of suspicion, and the appellants could not by any means have discovered
the forgery. They were holders for full value of the cheque as altered. On the
other hand, the respondents had, and they alone had ample means of discovering
the forgery by simple reference to their own books. Surely the default,
omission or neglect to avail themselves of so ready a method in their
possession to have detected the forgery of their own acceptance and so to
protect themselves cannot be said to give to them an equity superior to the
right of the innocent holder for value to retain the money paid to them by the
respondents in satisfaction of a cheque which, upon such payment, the
appellants transferred to the respondents, who became as entitled to recover
the amount from the drawer, equally as the appellants themselves would have
been if the respondents had not paid the cheque.
There is no case
in the books to support the respondents’ claim to recover back the money paid
by them to the appellants, but, on the contrary, the judgment in their favour
in the present action is in direct contra-
[Page 358]
diction of a
principle well established by the cases above referred to, all tampering with
which is to be deprecated.
I am of opinion,
therefore, that the appeal should be allowed with costs, and the action
dismissed with costs.
SEDGEWICK J.
concurred in the judgment of Mr. Justice Girouard.
GIROUARD J.—I do not see that we can decide this case otherwise than
the learned judges of the two courts below have done, although I fear that the
conclusion arrived at will be injurious to our commercial intercourse, not only
at home, but also abroad, and more particularly in the neighbouring States of
the American Union, where a different principle generally prevails.
I quite agree with
them that there was no negligence on the part of the Bank of Hamilton in not
discovering and giving notice of the raising of the cheque until the morning
after it went through the Clearing House. In fact, according to the custom
among bankers, the verification with the books of the bank is not made, and
cannot be made, before that time. At all events, the Imperial Bank was not
prejudiced by the delay.
But can we say as
much about its conduct in accepting or marking the cheque in the incomplete
form in which it was presented?
From the beginning
of the argument I felt that Young v. Grole,
which had been the standard authority for more than half a century, had been
well decided and expressed the law of England; even as late as 1891, we find it
quoted as a binding authority
[Page 359]
by the House of
Lords in The Bank of England v. Vagliano.
I can see however
that a distinction should be made between that case and the present one, the
former arising out of the relation of mandant and mandatory, which does not
exist in that of the acceptor or certifyer and holder of a cheque. But is not
negligence to affect the latter case as the former one? Is not the acceptor or
certifyer under some obligation or duty to the public when dealing with an
instrument transferable by mere delivery?
I never supposed
that there is a duty on his part to guard against crime; that evidently
concerns the lawmaker; but I certainly thought that he should not facilitate
its commission by others and that, at least, he should be prudent, and that
having occasioned damage by not filling the blanks which were the immediate cause
of the fraud upon the holder in due course, he, and not the latter, ought to
suffer. Negligence by the bank on which a cheque is drawn, is especially
recognised by secs. 78, 79 and 81 of the Bills of Exchange Act, as an important
element of responsibility to the holder in the negotiation of crossed cheques.
Why not apply the same principle to the action of the bank negligently
certifying a cheque, especially if we consider that there is no obligation on
its part to accept or certify, but merely to pay. The principle of negligence
seems to rule over all the operations of business men, whether under the common
law the law merchant, or any other law. A decision holding the bank so acting
responsible to the holder would be more in accord with the notions of right and
wrong I have learned from the writings of that great jurist, Pothier, which led
to the ruling in Young v. Grote, and also in a case still more in point decided
[Page 360]
unanimously by the
Court of Appeal of the Province of Quebec; I refer to Dorwin v. Thomson.
In my humble opinion, that ruling is the mere application of the elementary
principle that every person is responsible for the damage caused by his fault
to another, whether by positive act, imprudence, neglect or want of skill. I
have always been under the impression that this principle was held good in
every country, in England as well as everywhere else, in commercial as well as
in civil matters. But after much conflict of opinion, the House of Lords in
Schofield v. The Earl of Londesborough,
has held that it did not apply to a case where a drawer of a bill of exchange
availed himself of spaces, which he had purposely left, to raise the amount of
an acceptance from five hundred pounds to three thousand five hundred pounds,
and that the acceptor, who had not filled the spaces, was not liable to a
holder in due course. Rightly or wrongly, the highest tribunal of the Empire
has overruled Young v. Grote, in so far as the general principle of negligence
can be applied, because, observe their Lordships, it was founded upon the civil
law and the authority of Pothier, which, they add, form no part of the
mercantile law of England.
Already this
decision has undergone an unusual amount of adverse criticism which will be
found summarised in Am. & Eng. Encycl. of Law (2 ed.) vo. “Bills and Notes,” page 332; La revue Legale, 1890, p.
436, and in a valuable book on the principles of Estoppel, just published by
Mr. Ewart, K.C. of the Winnipeg Bar.
We are bound by
the decision of the House of Lords, till set aside by an Act of the Canadian
Parliament. I cannot distinguish this case from Schofield v. Londesborough,
because in the latter case the instrument was
[Page 361]
a bill of exchange
and not a cheque. The Bills of Exchange Act, 1890, sec. 72, declares that a
cheque is a bill of exchange drawn on a bank, payable on demand.
The appeal should
be dismissed with costs.
Appeal
dismissed with costs.
Solicitors for the appellant: Laidlaw,
Kappele & Bicknell.
Solicitors for the respondent:
McCarthy, Osler, Hoskin & Creelman.
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