Wilson & Meeson (a Firm) v Pickering

 Wilson & Meeson (a Firm) v Pickering

BANKING AND FINANCE: EQUITY

COURT OF APPEAL

LORD GREENE MR AND MORTON LJJ

22 JANUARY, 7 FEBRUARY 1946

Bills of Exchange – Signed blank crossed “not negotiable” cheque – Blanks fraudulently filed in by agent – Drawer not estopped – Payee a “person” within

Bills of Exchange Act 1882 (c 61) s 81.

Estoppel – Estoppel in pais – “Estoppel by negligence” – Signed blank crossed “not negotiable” cheque – Blanks fraudulently filled in by agent – Drawer not

estopped from denying authority.

A partner in the appellant firm signed, on behalf of the firm, a blank crossed cheque form with the words “not negotiable” printed on it and the words “clients’

a/c” stamped below the signature. The cheque form was then handed to a secretary with instructions to fill it up for £2 and to insert the name of the

Commissioners of Inland Revenue as payees. The secretary, who was indebted to the respondent in the sum of £54 4s, fraudulently filled in the cheque for

that amount and inserted the name of the respondent as payee. The respondent, through her bankers, obtained payment of the cheque thus forged and in the

county court successfully resisted the claim of the appellants to recover the amount of it from her as damages for conversion or as money had and received for

the use of the appellants.

It was contended on behalf of the appellants that the respondent obtained no title to the cheque by reason of the Bills of Exchange Act 1882, s 81. On

behalf of the respondent it was contended (i) sect 81 of the Act had no application where the person taking a cheque marked “not negotiable” was himself the

payee named on the cheque; (ii) alternatively, the appellants were estopped from denying the authority of the secretary to fill in the blanks in favour of the

respondent, or the authority of the appellant’s bankers to pay the amount of the cheque to the respondent:—

Held – (i) there was no reason for excluding this case from the operation of sect 81 of the Act; both the secretary and the respondent were “persons” within the

meaning of the section; the secretary had no title to the cheque and the respondent did not have a better title than the secretary.

(ii) the application of the principle of estoppel to instruments handed to an agent in blank in order that they might be filled in was confined to the case of

negotiable instruments; the instrument in this case was not, and was never intended to be, negotiable and the estoppel relied upon could not be admitted.

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(iii) the type of estoppel known as “estoppel by negligence” could not arise because the appellant was under no duty to the respondent, neither had she

been prejudiced, and the real cause which led to the receipt of the money by the respondent was the forgery committed by the secretary.

Lloyds Bank Ltd v Cooke distinguished.

Notes

The defence of estoppel fails in this case where it is raised by the payee of a cheque in an action to recover the money by the plaintiff, whose signature had

been forged. In the circumstances the payee had suffered no loss within the principle of Lickbarrow v Mason and as the cheque was marked “Not negotiable”

the payee had no better title than the forger. “Person” in sect 81 of the Bills of Exchange Act includes the payee of a cheque who takes it from a forger.

As to Liability on Blank and Incomplete Instruments, see Halsbury, Hailsham Edn, Vol 2, p 630, para 867; and for Cases, see Digest, Vol 6, pp 73–75,

Nos 585–589.

Cases referred to in judgments

Mercantile Bank of India Ltd v Central Bank of India Ltd [1938] 1 All ER 52, [1938] AC 287, Digest Supp, 107 LJPC 25, 158 LT 269.

Lickbarrow v Mason (1787), 2 Term Rep 63, 6 Digest 456, 2911, 6 East 20n, revsd sub nom Mason v Lickbarrow (1790), 1 Hy B1 357 Ex Ch; revsd and

venire de novo awarded sub nom Lickbarrow v Mason (1793), 4 Bro Parl Cas 57 HL, subsequent proceedings (1795) 5 Term Rep 683, 6 Term Rep 131.

R E Jones Ltd v Waring and Gillow Ltd [1926] AC 670, Digest Supp, 95 LJKB 913, 135 LT 548.

Swan v North British Australasian Co (1863), 2 H and C 175, 6 Digest 73, 585, 2 New Rep 521, 32 LJ Ex 273.

Lloyds Bank Ltd v Cooke [1907] 1 KB 794, 6 Digest 74, 587, 76 LJKB 666, 96 LT 715.

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Carr v London and North Western Ry Co (1875), LR 10 CP 307, 21 Digest 288, 1020, 44 LJCP 109, 31 LT 785.

Brocklesby v Temperance Building Society [1895] AC 173, 1 Digest 317, 379, 64 LJCh 433, 72 LT 477.

Freeman v Cooke (1848), 2 Exch 654, 21 Digest 287, 1019, 6 Dow and L 187, 18 LJ Ex 114, 12 LTOS 66.

Smith v Prosser [1907] 2 KB 735, 6 Digest 73, 584, 77 LJKB 71, 97 LT 155.

Paine v Bevan and Bevan (1914), 110 LT 933, 6 Digest 74, 588.

Great Western Ry v London and County Banking Co [1901] AC 414, 6 Digest 442, 2842, 70 LJKB 915, 85 LT 152.

France v Clark (1884), 26 Ch D 257, 6 Digest 75, 589, 53 LJ Ch 585, 50 LT 1.

Appeal

Appeal by the plaintiffs from an order of His Honour Judge Hancock, made at Wandsworth County Court and dated 12 November 1945. The facts are fully

set out in the judgments.

C E Garland for the appellants.

J L Poole for the respondent.

Cur adv vult.

7 February 1946. The following judgments were delivered.

LORD GREENE MR. A partner in the appellant firm signed on behalf of the firm a blank crossed cheque form with the words “not negotiable” printed on it.

The firm had two accounts at their bank, one of which was a clients’ account, and the words “clients’ a/c” were stamped below the signature. The cheque

form was then handed to a Mrs Paice, who was an employee of the firm, with instructions to fill it up for £2 and to insert the name of the Commissioners of

Inland Revenue as payees. Mrs Paice was indebted to the respondent in a sum of £54 4s; she fraudulently filled in the cheque for that amount and inserted the

name of the respondent as payee. The respondent, through her bankers, obtained payment of the cheque thus forged and in the county court she successfully

resisted the claim of the appellants to recover the amount of it from her as damages for conversion or as money had and received. It was conceded that the

respondent acted in good faith, notwithstanding the curious nature of the instrument, particularly the words “clients’ a/c” stamped upon it. She was not called.

The respondent relies on what is described as a common law estoppel the effect of which is said to be that the appellants are, as against the respondent,

precluded from denying the authority of Mrs Paice to fill in the blanks in the cheque in favour of the respondent or the authority of the appellants’ bankers to

pay the amount of the cheque to the respondent. No reliance is placed on any special provision in the Bills of Exchange Act and it is not suggested that sect 20

of that Act has any bearing on the case. The respondent merely says “I have received money from your bankers on your cheque and you the appellants are

precluded from alleging that I had no title to the cheque or that the bankers paid me the money without your authority.” The defence in the circumstances is

singularly devoid of merits and in my opinion it fails on more than one ground.

In order to clear the ground it is worth pointing out that this is not a case where a customer is suing his bankers for having honoured a cheque filled in

without his authority. To such a case very different considerations apply since there is a duty in the customer to take care which arises from the relationship of

banker and customer (see, for example, Mercantile Bank of India v Central Bank of India [1938] 1 All ER 52 at p 60, per Lord Wright delivering the judgment

of the Privy Council). No similar duty exists in the present case as between the appellants and the respondent. The circumstance, therefore, that the bank, if it

had been sued by the appellants, might have successfully defended the action cannot avail the respondent. The only party who can rely upon an estoppel is the

party who has been misled.

Counsel for the respondent, as one branch of his argument, endeavoured to establish a case of what is generally called “estoppel by negligence” and the

well-known observation of Ashurst J in Lickbarrow v Mason (2 Term Rep 63, at p 70) was cited, namely:

‘Wherever one of two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it.’

I doubt whether there is any general proposition in the books which requires so much qualification as this saying of Ashurst J. It is perhaps singularly

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􀂭 395􀀉 inappropriate in the present case if only for the reason that the respondent, who is claiming for herself an enrichment to which she had no right, can

scarcely be described as a person who “must suffer” when all that she is asked to do is to repay the money to the person from whom she obtained it. But it is

sufficient for present purposes to say that this type of estoppel can only arise where there is some duty toward the person who seeks to rely upon it: see R E

Jones Ltd v Waring & Gillow Ltd [1926] AC 670, per Lord Sumner at p 693; cited by Lord Wright in the Mercantile Bank of India case ([1938] 1 All ER 52,

at p 58). There is a further reason why this type of estoppel cannot be relied on in the present case since the real cause which led to the receipt of the money

by the respondent was the forgery committed by Mrs Paice (see the judgments of the Exchequer Chamber in Swan v North British Australasian Co (1863) 2 H

& C 175, passim and particularly the passage from the judgment of Blackburn J cited by Lord Wright in the Mercantile Bank of India case ([1938] 1 All ER

52, at p 59). These matters are treated so fully by Lord Wright in the Mercantile Bank of India case that I make no apology for referring to them here in a

rather summary manner.

But the principal argument on behalf of the respondent was based on the decision of this court in Lloyds Bank Ltd v Cooke which the county court judge

held to be conclusive of the case. The facts in that case were as follows. Cooke had applied to Lloyds Bank for an overdraft of £1,000 which the bank agreed

to allow him on the security of a promissory note to be signed by (among others) one Sanbrook. Cooke then went to Sanbrook and asked him to join in giving

promissory notes to the bank as security for an advance which he falsely said would be £500. On Sanbrook’s agreeing, Cooke induced him to sign two blank

stamped pieces of paper on the understanding that Cooke would fill up each of them as a promissory note for £250 payable to the bank. Cooke filled up one of

these pieces of paper as a promissory note for £1,000, the stamp being sufficient to cover that amount, signed it and handed it to the bank who made the

promised advance. In an action by the bank against Sanbrook, Lawrence J gave judgment for Sanbrook which was reversed on appeal. The case was not

covered by the Bills of Exchange Act s 20, and it was argued on behalf of Sanbrook that the subject of signature on blank paper was exhaustively covered by

that section, and that accordingly there was now no room for the operation of any estoppel at common law. This argument was rejected and the case was

decided on the basis of a common law estoppel whereby Sanbrook was precluded as against the bank from denying the validity of the note which was, of

course, a forgery.

One distinction between that case and the present leaps to the eye. There the bank had acted upon the representation to its prejudice in that it made the

advance of £1,000 to Cooke. In the present case there is no allegation in the defence that the respondent acted upon the representation to her prejudice. Nor is

there any other material in the case to suggest that she in fact did so. I do not see how it could be suggested that by accepting the cheque from Mrs Paice she

had in some way prejudiced her position vis-a-vis Mrs Paice. It could not possibly be suggested that the debt owing by Mrs Paice to the respondent was

extinguished by the acceptance of the cheque since the cheque was a forged instrument and the respondent’s acceptance of it was procured by the fraud of Mrs

Paice. If it had been shown that in reliance on the cheque the respondent had refrained from suing Mrs Paice or given her further credit, the position might

well have been different. But there is no suggestion of the kind. These considerations are, in my opinion, sufficient to dispose of the case. It is a fundamental

rule with regard to estoppel in pais that a party is only entitled to rely on such an estoppel if he can show that on the faith of the representation he has acted to

his prejudice, and it is perhaps sufficient to refer in support of this proposition to the principles enunciated by Brett J in Carr v London & North Western Ry Co

(LR 10 CP 307, at pp 316, 317).

Quite apart from this I am of opinion that Lloyds Bank Ltd v Cooke does not govern the present case. Collins MR in that case thought that the case was

governed by the authority of Brocklesby v Temperance Permanent Building Society, which, if I may respectfully say so, appears to me to have been a very

different class of case. But in any event the authority of Cooke’s case cannot in my opinion be extended beyond the particular facts there in 􀂭 396􀀉 question.

The application of the principle of estoppel to instruments handed to an agent in blank in order that they may be filled in by him has been much debated in the

past. The view which so far as my researches go appears to me to have the weight of judicial opinion behind it is that, apart of course from some specific

representation of authority or some holding out or some special character of the agent from which his authority would naturally be inferred, the rule that a

person who signs an instrument in blank cannot be heard, as against a person who has changed his position of the faith of it, to assert that the instrument as

filled in is a forgery or that it was filled in in excess of the agent’s authority, is confined to the case of negotiable instruments. I may refer in particular to

Swan v The North British Australasian Co Ltd. The instrument in Cooke’s case was such a negotiable instrument. There appear to me to be good reasons why

such an estoppel, which seems to result in an exception to the accepted notions that a forged document can convey no title, should be recognised in the case of

negotiable instruments. As Blackburn J said in Swan’s case (2 H & C 175, at p 183):

‘It is sufficient to point out that a party signing in blank a cheque or bill or other negotiable instrument does intend that it shall be filled up and

delivered to a series of holders and therefore he stands to all those holders in the position indicated in the first branch of the judgment in Freeman v.

Cooke.’

At pp 184, 185, Byles J said this:

‘The object of the law merchant, as to bills and notes made or become payable to bearer, is to secure their circulation as money; therefore honest

acquisition confers title. To this despotic but necessary principle the ordinary rules of the common law are made to bend. The misapplication of a

genuine signature written across a slip or stamped paper (which transaction being a forgery would in ordinary cases convey no title) may give a good

title to any sum fraudulently inscribed within the limits of the stamp, and in America, where there are no stamp laws, to any sum whatsoever.

Negligence, in the maker of an instrument payable to bearer, makes no difference in his liability to an honest holder for value; the instrument may be

lost by the maker without his negligence or stolen from him, still he must pay. The negligence of the holder, on the other hand, makes no difference in

his title. However gross the holder’s negligence, if it stops short of fraud he has a title. So that the argument from negotiable instruments if it were

applicable might be retorted, for there, as here, a plaintiff who has been guilty of negligence may prevail against a defendant who has been defrauded

without any negligence of his own at all. The truth is that in the case of a bill of exchange or promissory note, as well as in the case of a deed, the law

respects the nature and uses of the instrument more than its own ordinary rules.’

To take a more recent case, decided subsequently to Lloyds Bank v Cooke, I find in the judgments of this court in Smith v Prosser what appears to me to

be a clear indication that in the opinion of all the members of the court this class of estoppel is confined to the case of negotiable instruments. In the present

case the cheque was on its face expressed to be “not negotiable,” the result of which was that it was deprived of the peculiar characteristic that makes it

possible for a transferor of a negotiable instrument to confer a better title than he has himself. The consequences of marking the cheque “not negotiable” are to

be found in the Bills of Exchange Act 1882, s 81, which provides as follows:

‘Where a person takes a crossed cheque which bears on it the words “not negotiable,” he shall not have and shall not be capable of giving a better

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title to the cheque than that which the person from whom he took it had.’

Now it is understandable that there should be a special rule of estoppel in the case of negotiable instruments which, broadly speaking, pass like currency

from hand to hand. They are in a sense dangerous things since if a doubt exists as to the right of a holder in due course to rely on their apparent authenticity

consequences will follow highly prejudicial to the confidence which is required for the due conduct of commercial affairs. It seems natural, therefore, that,

broadly speaking, a person who puts an inchoate instrument of that nature into circulation must be taken to have authorised whatever is subsequently inserted

in it in order to make it a complete instrument. I think therefore that as this was not and was never intended to be a negotiable instrument the estoppel relied

upon could not in any event be admitted.

As Bailhache J held in Paine v Bevan, even in the case of negotiable instruments the estoppel does not operate in favour of a holder who has not 􀂭 397􀀉

given value. This is, I think, another way of stating the application of the rule that a person can only set up an estoppel where he has acted on the faith of the

alleged representation to his detriment. The defendants in Paine v Bevan were in no better position than that of donees of the cheque, which is precisely the

case with the respondent here.

The last argument to which I need refer was that advanced on behalf of the appellants, namely, that in any event the respondent obtained no title to the

cheque by reason of the Bills of Exchange Act s 81. On behalf of the respondent it was said that the section has no application where the person taking a

cheque marked “not negotiable” is himself the payee named on the cheque. I can see no justification for writing into the section a qualification of this kind

since the words appear to me to be clear and unambiguous. In the present case the respondent “took” such a cheque and she was undoubtedly a “person.” She

took the cheque from Mrs Paice who, again, was undoubtedly a “person.” Mrs Paice had no title to the cheque and accordingly in the very words of the

section the respondent did not have a better title than Mrs Paice.

The appeal is allowed with costs.

MORTON LJ. The facts in this case were agreed before the county court judge, and are as follows.

The appellants are estate agents and they employed a Mrs Paice as a confidential secretary. The appellants had two banking accounts with the National

Provincial Bank Ltd, their own account and their clients’ account. In October 1944, Mr Wilson, a member of the appellant firm, signed a cheque on behalf of

the firm and handed it to Mrs Paice, instructing her to fill in the Commissioners of Inland Revenue as payees and £2 as the amount of the cheque. The cheque

was crossed in print “not negotiable” and was stamped “clients’ account.” It was intended to be used in payment of a debt due to the Inland Revenue from a

client of the firm. Mrs Paice, being indebted to the respondent, Mrs Pickering, to the amount of £54 4s for a personal debt, filled in the name of Mrs.

Pickering as the payee and inserted the amount of £54 4s. Mrs Pickering was not a creditor of the appellants or of any of their clients. It was admitted that it

was Mrs Paice’s duty to complete the cheque by filling in the name of the payee and the amount, in accordance with the instructions given to her, and it was

also admitted that there was no bad faith on the part of Mrs Pickering. Apart from this last admission, I should have thought the behaviour of Mrs Pickering

was open to considerable suspicion; a person acting in good faith might have found it hard to believe that the appellant firm really intended to pay, with

moneys taken out of their clients’ account, a debt owing from Mrs Paice to Mrs Pickering. Mrs Pickering paid the cheque into her own banking account and

collected the money from her bank. The appellants now claim the sum of £54 4s as damages for conversion of the cheque or alternatively as money received

by the respondent for the use of the appellants. The judgment of the county court judge is recorded in his notes as follows:

‘Principle of Lloyds case applies. Estopped by giving authority to Mrs. Paice. Judgment for defendant with costs.’

The case referred to is Lloyds Bank Ltd v Cooke.

From that decision the plaintiffs appeal, and counsel for the appellants contends, on their behalf, that this matter is concluded by the Bills of Exchange

Act 1882, s 81, which is in the following terms:

‘Where a person takes a crossed cheque which bears on it the words “not negotiable” he shall not have and shall not be capable of giving a better

title to the cheque than that which the person from whom he took it had.’

It is conceded by counsel for the respondent that the cheque was a forged document, and that Mrs Paice must be regarded as having stolen it before she handed

it to the defendant. He contends, however (1) that sect 81 has no application to the payee of a cheque, and that the words “a person” in the section cannot

include the payee; (2) alternatively, that the appellants are estopped from alleging that Mrs Paice had no title to the cheque.

As to the first point, it is no doubt true that when the drawer puts the words “not negotiable” on a cheque his object is, as a rule, to ensure that it is not

cashed by anyone except the payee (see Great Western Railway v London and 􀂭 398􀀉 County Banking Co [1901] AC 414, at p 422). In my view, however,

there is no good reason for excluding from the operation of the section a case such as the present, where the name of the payee has been fraudulently inserted

by a forger, and the forger, having stolen the cheque, hands it to the payee. I see no reason why, in such a case, the payee should have a title to the cheque

better than the title of the person from whom he took it. The present case comes exactly within the terms of sect 81, unless we accept the invitation of counsel

for the respondent to construe the very wide words “a person” as excluding the payee, and I cannot so construe them, in the absence of any compelling reason.

The result is that, unless the appellants are in some way estopped from giving the true facts in evidence in this case, they must succeed.

As I have already said, the facts were agreed, but counsel for the appellants does not contend that this point prevents the respondent from relying upon an

estoppel, if she would otherwise be able to rely thereon. For my part, however, I cannot see that any estoppel arises in the present case. In the case of Lloyds

Bank Ltd v Cooke already cited, the document signed by the defendant (to quote Collins MR [1907] 1 KB 794, at p 803),

‘… was intended to have all the properties of a negotiable instrument and as such to be capable of passing from hand to hand as part of the

currency, … ’

Each member of the court laid stress upon the negotiable character of the document, and Fletcher Moulton LJ quoted ([1907] 1 KB 794 at pp 806, 807)

the judgment of Lord Selborne LC in France v Clark (26 Ch D 257, at p 262):

‘The person who has signed a negotiable instrument in blank, or with blank spaces, is (on account of the negotiable character of that instrument)

estopped by the law merchant from disputing any alteration made in the document, after it has left his hands by filling up blanks (or otherwise in a way

not ex facie fraudulent) as against a bona fide holder for value without notice; … ’

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The present case stands on a very different footing. Having regard to sect 81 of the Act, the words “not negotiable” amounted to an express statement, to

any person taking the cheque, that he would get no better title than that possessed by the person from whom he took it. The respondent took the risk of Mrs

Paice having no title to the cheque, and Mrs Paice in fact had no title. I would add that in the present case I can draw no distinction between the title to the

cheque itself and the title to the money obtained or represented by it (see per Lord Halsbury LC in Great Western Railway Co v London and Counties Banking

Co Ltd [1901] AC 414, at p 418).

For these reasons I am of opinion that the defence to this action fails. It is therefore unnecessary for me to consider certain further contentions put

forward on behalf of the appellants.

In my judgment the appeal should be allowed, and judgment entered for the appellants for £54 4s, with costs here and below.

Since writing this judgment, I have had the privilege of reading the judgment of Lord Greene MR wherein he gives additional reasons why the respondent

in this case cannot rely on any estoppel. With these reasons, and with his judgment as a whole, I respectfully agree.

Appeal allowed with costs.

Solicitors: Philip Conway, Thomas & Co (for the appellants); H N Robbins (for the respondent).

F Guttman Esq Barrister.

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[1946] 1 All ER 400