Scottish Court of Session Decisions

This was an appeal from the Sheriff of Lanarkshire. From the summons in the Sheriff-court it appeared that the pursuer, Waterston, horse dealer in Beith, had sold a horse to William Anderson, farmer, Gillespie, Glenluce, who gave in payment a cheque for £34, dated 28th June 1872, drawn upon the branch of the City of Glasgow Bank at Stranraer, and payable to bearer.

This cheque the pursuer endorsed and delivered for value to the Union Bank of Scotland, who presented it for payment to the branch of the City of Glasgow Bank at Stranraer on 1st July. The agent of the said bank at Stranraer, however, refused payment of the cheque, although there was in the bank at the time funds belonging to the drawer sufficient for that purpose.

In consequence of this refusal of payment by the defenders' bank at Stranraer, the pursuer was compelled to retire the cheque in the hands of the Union Bank, and he now brought this action against the City of Glasgow Bank for the value of the cheque, and the commission charged by the Union Bank for presenting the said cheque for payment.

The City of Glasgow Bank defended the action, and stated their defence “to be a denial of resting-owing or liability for the sums sued for, or any part thereof. The said William Anderson, the granter of the draft or cheque libelled, having stopped payment thereof before it was presented to the defenders for payment as libelled, and instructed them not to pay the same. The defenders are entitled to absolvitor, with costs.”

Anderson, the drawer of the cheque, not having been called as a party, the Sheriff-Substitute ( Dickson) ordered the process to be intimated to him, and pronounced the following interlocutor:—

“ Glasgow, 24 th May 1873.—Having resumed consideration of the case, parties' procurators dispensing with further debate, and no appearance being made for William Anderson referred to in the last preceding interlocutor, notwithstanding intimation of the process to him—Finds that on 28th June 1872 the said William Anderson granted and delivered to the pursuer, for value received, a bank-cheque in the following terms:—‘ Stranraer, 28 th June 1872. To the Agent of the City of Glasgow Bank. Pay Mr John Waterston, or bearer, thirty-four pounds stg. Signed Wm. Anderson—£34 stg.:’ Finds that the pursuer received the said cheque from Anderson for value received, but that the cheque did not set that forth, and it is not proved that the defenders were aware of the fact till this action was raised: Finds that the pursuers having endorsed and delivered the cheque to the Union Bank at its branch at Beith, the same was presented at the defenders' branch at Stranraer for payment on or about 1st and 4th July 1872, but payment thereof was refused on both occasions, and in consequence the pursuer had to retire the cheque from the Union Bank by repaying it the amount thereof, with 1s. 8d. of bank charges: Finds that at the time of the said refusal the said William Anderson had in the defenders' branch at Stranraer funds sufficient for payment of the cheque, and that the non-payment was occasioned by his having countermanded payment before it was presented: Finds, in point of law, that the said countermand was a sufficient reason for the said refusal: Therefore, and for the reasons stated in the note, sustains the defences, and assoilzies the defenders: Finds

Page: 237↓

the pursuer liable in expenses; allows an account thereof to be given in, and remits the same when lodged to the Auditor of Court to tax and report, and decerns.

Note.—There is no dispute now as to the facts in this case. The question of law which it raises is important, namely, whether the onerous payee and holder of a bank cheque has a good ground of action against the bank on which it is drawn, and which, having funds of the drawer sufficient to honour it, has refused to do so on presentment, on account of the drawer having countermanded it. There is no direct precedent or authority upon this question, which must therefore be decided upon principle.

The pursuer's case (which was argued most elaborately) is laid on the grounds—(1) that the cheque being a mandate in rem suam of the pursuer as grantee, was irrevocable by the granter, and (2) that being analogous in this respect to a bill of exchange, it operated on presentment as a transfer of the amount in the hands of the defenders, being the drawees.

A number of authorities were adduced to show (what is undoubted) that an assignation is in origin, form, and principle a mandate of the granter, and that it is irrevocable in consequence of being in rem suam of the grantee.

A cheque (it was contended) is the same in form and substance, and should receive the same effect.

That view receives some support from the following cases cited for the pursuer. In Carter v. M'Intosh, 1862, 24 D. B. M. 925, where a bill at three months for value received having been presented to, but not accepted by, the drawee, was held to operate as an assignation, and to be sufficiently intimated by being produced in a multiplepoinding for distributing the drawer's funds in the hands of the drawee. The Lord Justice-Clerk ( Inglis) observed:—‘Not being accepted, what is its effect? In the first place, it subsisted unrecalled, because, as a mandate or precept given for value it was not a document that the granter had power to recal except with consent of the payee.’ … ‘It had this further effect, that being unrecalled and irrevocable, it was a standing and subsisting order on the drawees to pay the amount out of the money in their hands belonging to the drawer.’ … ‘An order to pay, or a precept to pay, is one of the best known forms of assignation in the law of Scotland. It imports an authority to the one party to pay, and to the other to receive the money.’

Again, in the case of Muir v. Ross, 1866, 4 Macph. 820, where a deceased payee in a deposit-receipt from a bank left it blank endorsed in the hands of another, it was held after a proof that that other was entitled to the contents as a donation, the Court considering that delivery of the document operated as a mandate to the holder in rem suam, which did not fall by the death of the mandant. Lord Curriehill, in speaking of the analogy between an endorsation and an assignation, observed, ‘What is an assignation? It is nothing else than a mandate in rem suam.’

In Bryce v. Young's Trustees, 1866, 4 Macph. 312, where a bank cheque had been given to the payee by the granter on deathbed, but had not been presented till after the drawer's death, in a competition between the holder and the deceased's executor, the former was preferred, his possession having been proved to be partly in payment of a debt and partly as a donation.

The last two decisions are thought to have little, if any, bearing on the present question, for they were in cases of competition, where the real question was, What were the deceased's intentions in making the document payable to the holder?—not, as here, What was the exact legal effect of the document as against the party holding the fund? In Paul and Thain v. The Royal Bank, 1869, 7 Macph. 361, where the bank were held not entitled to retention of money in their hands belonging to the drawer of a cheque, the question also arose in a competition, and was decided upon the rules as to retention as against the drawer of the cheque or any one holding it.

In the case of Carter v. M'Intosh, also, the question arose in a multiplepoinding, the party preferred being the holder of a bill in which value and onerosity were not only presumed, but were expressed, and which was therefore presumed to be, and was held by the payee, in rem suam.

But no such presumption exists in regard to bank cheques, for, as was observed by Lord President ( Inglis) and Lord Deas in Bryce v. Young's Trustees, above cited, they are often used for getting money from the bank for the drawer's own purposes.

Indeed, it is the constant daily practice of persons keeping bank accounts to draw money therefrom for their own use on cheques in the name of their employees or members of their family; and there are many people who never draw cheques in any other way, or for any other purpose. The terms of such cheques, and of those for the use of the payee, are precisely the same.

Undoubtedly the drawer may countermand payment of one of the former, and after he has done so the banker would pay it at his peril. But according to the pursuer's contention he must pay the latter at once, notwithstanding a countermand, although he has no knowledge and no means of ascertaining to which class the cheque belongs; and if he does not see that he can do so with safety, he must incur the trouble, cost, and perils of a litigation, the result of which will depend on a proof perhaps conflicting and dubious.

It is thought that the legal character and effect as regards third parties of an important class of documents in constant and general use must depend on their terms, not on the result of inquiries, judicial or extrajudicial, as to the latent purpose for which they have been made.

That is the law in the case of bills, which the drawee, relying on the presumption of onerosity in the holder, may safely pay out of the drawer's funds in his hands, leaving the drawer and payee to fight out the question as to their latent arrangements.

It is the drawee's own fault if, by refusing to accept and pay any bill on account of a countermand by the drawer, he exposes himself to an action by the payee. As he incurs no risk in paying, he is bound in law to pay.

It is quite otherwise in regard to bank cheques, which the drawee could not pay after countermand without risk of a claim from the drawer.

Farther, the main as well as the most usual purpose of bills is to enable the seller of commodities to draw on the buyer for the price, where not payable in cash, owing to distance between the parties, or to credit being allowed; while that of bank cheques is to enable the drawer to get his

Page: 238↓

own money at once out of the bank (usually close at hand), in which he has temporarily deposited it. This distinction is seen in the form of the document, the one being to the payee ‘ or order,’ the other usually (like the one sued on) to the payee ‘ or bearer,’ the one bearing, while the other does not, a term of payment, and usually ‘value received,’ and the drawee's acceptance being required for completion of the one, not of the other; and it pervades the common and statute law regarding them—as in the presumption already noticed, the necessity for protest and all the rules as to recourse, the procedure for recovery, and the different amounts of stamps required for bills compared with cheques. Material distinctions between the two classes of documents also appear in the sexennial prescription applying only to bills, and the protection of bankers paying on forged indorsations only to cheques.

The pursuer's argument—founded on a cheque being like a bill—a request of the drawer to pay money to the holder—ignores these important differences, which are thought to be fatal to the analogy between them as regards the present question.

The dicta on which he relied, where cheques are said to be similar to bills (cases of Carter v. M'Intosh and Muir v. Ross above cited, Thomson, Bills, 224) were not expressed with reference to the present question, and it would be straining their meaning to regard them as authorities upon it.

On the other hand, it is more consistent with the character, object, and general use of bank cheques that the granter should have power to stop payment of them than the reverse.

Further, supposing the pursuer's arguments were right, that the cheque in question was equivalent to an assignation, he must fail, for it was not followed by intimation or anything corresponding to that, until this action was raised—mere presentation for payment not being sufficient even on the analogy of bills (see the case of Carter v. M'Intosh above cited).

The raising of the present action would have sufficed for the purpose. But the pursuer only avers that the defenders held funds of the drawer when the cheque was presented, not when the action was raised, which would have been necessary for that line of argument.

There is nothing on record, or on the proof, to show that Anderson did not withdraw all his funds from the bank between these dates; and the Sheriff-Substitute could not therefore find, in point of fact, that the defenders had funds in their hands when the action was raised.

The view of the law thus explained is supported by the fact, that no authority has been found recognising a direct right of action in the payee of a cheque against the banker, except where the latter had marked it, or otherwise indicating his undertaking to pay (see Byles on Bills, 10th ed., pp. 18, 21, also Shaw's Treatise on Bankers, p. 71).

The Sheriff-Substitute is not moved by the argument that mercantile expediency is in the pursuer's favour. If true, it would be a consideration rather for the Legislature than for a Court of Law. But at least as good a case of expediency might be pleaded on the other side, for the pursuer's argument would deprive the customer of a bank of legitimate control over cheques he had placed in the hands of a fraudulent employee, and cheques which had been lost or stolen; while the onerous holder of a cheque has himself to blame if he accepted it in payment of a debt, seeing it was not a legal tender. Payment of it would have been rightly refused if the granter had withdrawn all the money at his credit before it was presented, and the holder's position is not materially altered by the granter having prevented payment by a countermand instead of such withdrawal.

Before closing, the Sheriff-Substitute must notice the terms of the pursuer's intimation, No. 13 of Process, in which he protests that he holds the interlocutor which he was ordered to intimate ‘incompetent,’ and ‘that he will object to Mr William Anderson appearing in the case should that be attempted, and will oppose any motion that may be made by him, or on his behalf, and also any attempt to state pleas other than or in addition to those stated in the record. and to any other course being adopted by the Sheriff-Substitute, or the Sheriff, except their disposing at once of the case stated in the record, as between the present pursuer and defender.’

It is irregular and unbecoming in a litigant to comment thus on the interlocutor which he is ordered to intimate, and to make the intimation in terms calculated (although perhaps not intended) to defeat the object for which it was ordered. The Sheriff-Substitute has considerable doubt whether he should not order the paper to be withdrawn from process, and the intimation to be made anew.”

The pursuers appealed to the Sheriff-Principal ( Bell), who affirmed his Substitute's judgment.

The pursuer then appealed to this Court and argued—This was a cheque for value received by the drawer; it was a mandate in rem suam, and operated as a transfer of so much of the drawer's funds in the bank as he was necessary to meet it; it was, further, of the nature of an intimated assignation, and irrevocable.

The defenders argued—A cheque does not in all cases operate as a transfer of funds; it is merely a mandate to the bank as holder of the drawer's funds at his order, which mandate may be recalled or countermanded. The bank is bound to obey the latest order of their customer, and has nothing to do with questions between the holder of the cheque and the drawer.

At advising—