The Canadian

Law Times and Review.

VOL. XXVIII. OCTOBER, 1908.

THREE CHEQUE CASES.

No. 10.

In the usual course of business, one bank takes a forged cheque drawn upon another bank, presents it for payment, and receives the money. Upon discovery of the forgery, can the paying bank enforce repayment? Yes, and no. Observe the three following points:

1. The forgery may have consisted in the alteration of the body of the cheque.

2. The forgery may have been in the signature.

3. The receiving bank may or may not have changed its position after it received the money and before any request for repayment.

The Dominion Bank v. The Imperial Bank, 31 Can. S. C., 344; 1903 A. C. 49.-The Dominion marked good a cheque for $5.00; afterwards the maker raised the amount to $500.00 and received the cash from the Imperial. The Dominion without observing the fraud paid the Imperial, and afterwards sued for repayment and recovered.

Rex v. Bank of Montreal, 38 Can. S. C. 258:-Martineau forged the signatures of the officers of a government department to various cheques upon the Bank of Montreal; cashed them at other banks; the Montreal Bank without cbserving the fraud paid the amounts to the other banks, and afterwards sued for repayment and failed.

The cases are similar, with the exception that the forgery in the one case consisted in altering the body of the cheque, and in the other in affixing an unauthorized signature. Why should this variation produce the difference in the results?

One of two innocent banks having to lose, the first question naturally is: Are they equally blameless? Or can the

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A further

loss be properly attributed to one of them? question may arise, but let us deal with this one first.

For non-discovery of alteration in the body of the note, neither bank can allege negligence against the other. They had both the same opportunity to detect the forgery, and they were both deceived.

It is said to be otherwise in the case of a forged signature. The paying bank is presumed to know the signatures of its own customers and to be able to distinguish between the true and the false. Sometimes, indeed, the simulation may be so skilfully executed as to defy detection; but the legal assumption still remains, an assumption that finds expression in the 129th section of the Bills of Exchange Act, as follows:

"The acceptor of a bill, by accepting it, is precluded from denying to a holder in due course, the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the bill."

We thus arrive at the substantial difference between the two cases. When the forgery is in the body of the cheque, the banks are equally blameless; but when the forgery is in the signature, one bank is assumed to be capable of detecting the fraud, while the other is not. These points thus settled, what bearing have they upon the decision of the two cases?

The first case (forgery in the body of the cheque) is clearly one of payment of money without consideration, both banks being equally mistaken as to a material matter cf fact.

The second case (a forged signature) is also one of payment without consideration. But if the paying bank was aware of the fact when it paid the money, it cannot complain or demand repayment. And the law says (reasonably or unreasonably) that the paying bank did know the fact, or at least is estopped from saying that it did not. Successful demand of repayment is therefore impossible.

The Union Bank v. The Dominion Bank (Can. S. C., not yet reported):-A cheque on the Union with a true signature, but a raised amount, was deposited with the Dominion; the Dominion received payment from the Union and afterwards paid the money to the depositor; the Union sued for repayment and succeeded.

The case is the same as the first of our three, with the exception that in this one the receiving bank can allege that after it got the money and before demand of repayment it changed its position by disposing of the funds. Consider this contention.

The Dominion says that upon the faith of the action of the Union in paying the cheque, it (the Dominion) changed its position by parting with the money, and that therefore repayment of the money cannot be required. We are all very familiar with this language. The law of estoppel is founded very largely upon it. Why should not effect be given to it in such a case as this?

Suppose that I take a forged transfer of shares to the company and receive in exchange for it a certificate that i own the shares; suppose that upon the faith of that certificate I hand over the purchase money of the shares to my vendor, and suppose that the company, discovering the forgery, refuses to recognize me as a shareholder, is the company estopped by its certificate? Can I successfully say to the company that upon the faith of its certificate I changed my position? Of course I can, because I am saying nothing but the truth. But the further question remains, ought I to have relief upon the certificate? If it had been issued to some one else and passed on to me, no doubt I would be justified in depending upon it. But when it was I who induced the company to issue it, by the presentation of a forgery, can I, with any sort of grace, assert that the company ought to be responsible to me for what I afterwards did upon the faith of the certificate?

If the company was supposed to know that the signature to the transfer was a forgery (as a bank is presumed in the case of a cheque) then I would be justified in depending upon the certificate. But if the company is not supposed to know any more than I do, why should the company be estopped against me? Why, indeed, should I not be estopped against the company? I have induced it, upon the faith of my presentation of the transfer, to change its positionnamely to issue the cetificate-why, then, should I not be estopped to deny the validity of the signature?

And so in the case in hand, the Dominion induced the Union to pay out money by presenting to it a forged cheque (forged by alterations in the body of it), and then the Dominion, with little reason, asserted that the Union ought

to be estopped because the Dominion afterwards paid out the money, which it (the Dominion) wrongfully obtained. If the Union was supposed to know that the cheque had not been altered, the case would, of course, have been very different. But there is no such assumption.

The cases then were decided in accordance with the law, but is one feature of the law quite reasonable?

Money paid without consideration and under a mutual mistake of fact can be recovered again. Very well. Now, supposing the case to be one of a forged signature, and supposing that the drawee bank, notwithstanding the exercise of all proper precaution, is deceived and pays the money, why should it not be entitled to demand repayment? The case is within the general rule-one person by mistake has got something for nothing-why should the rule not apply?

All that can be said in reply is that the bank is presumed to have known that the signature was a forgery. But the law is in a very unsatisfactory condition when for its application to some particular case you must alter the facts -when you must say that the facts being as they really are, the decision ought to go to the plaintiff, but that the facts as changed by the Court warrant a judgment in favour of the defendant. There is always some better solution of a legal problem than by alteration of one of its factors. The new German codes (for lack of knowledge of the principles of estoppel) frequently declare that certain facts are to be substituted for other facts-that although a man actually did one thing he is "to be taken" as having done something else. Either the legal result aimed at by all such subterfuges-all assumptions of sham facts-is wrong, or that the rule of law to which appeal is being made is improperly framed. There must be somewhere some better way of deciding a case correctly than by changing the facts of it.

Suppose I have taken a cheque with a forged signature; that I present it to the drawee bank, receive payment, and immediately afterwards (before I leave the building if you like) the teller discovers the error and demands repayment, what ought the law to be?

The general rule covers the case. Having received by mistake something for nothing I must repay. But the result is otherwise; and the general rule is saved, and I am permitted to keep the money by saying that although

the bank did not know the facts yet that it is presumed to have known them. Is it the law-the legal effect aimed at (permitting me to keep the money) that is erroneous; or is it the general rule that is wrongly framed? We must in some way do better than change the facts.

In support of it (that I may keep the money) it is urged that a man is entitled to know immediately upon presentation of the cheque whether he is to get the money or not; that for the sake of expedition and security in business affairs it is necessary to throw the responsibility upon the bank; that if after payment of the cheque repayment might be demanded, nobody would ever be safe, and so on.

But all such arguments are equally applicable to many other payments made under mistake of fact; and in no other case are they thought to be entitled to any weight. Under all other circumstances, money paid without consideration and in mistake can be recovered. Take the case we have been considering of a cheque altered in its amount. In such a case all that you can say about the holder of the cheque being entitled to know about the necessities of business, and so on, has no effect whatever; for everybody sees very clearly that the holder of the cheque by mistake has received something for nothing and ought to give it back.

Why should this rule apply when the rascal has forged in one way, and not when he has forged in another way? Because, it is said, the banker is assumed to have known that the signature was not genuine-because, that is, he is assumed to have known that he was paying a forged cheque. That is not a particularly satisfying sort of an answer.

I am not referring to a cheque in which the signature is so badly forged that a Judge might reasonably say that the bank has its own negligence to blame. That case may be disposed of satisfactorily without having recourse to a palpably untrue assumption. I take the case of a signature so skilfully forged that assertion of negligence is impossible, and in which, therefore, if the bank is to lose, it must be purely upon the ground that the law assumes that to be true which is admittedly untrue.

Ottawa.

JOHN S. EWART.