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London Joint Stock Bank Ltd. v. Macmillan (1918-19) All ER Rep 30

London Joint Stock Bank Ltd. v. Macmillan (1918-19) All ER Rep 30

FACTS-

  • A clerk of Macmillan & Arthur drew a cheque payable to the firm or bearer for £2 but left space between the symbol "£" and the figure "2".
  • The clerk then fraudulently altered the cheque by adding the figures "1" and "0" on either side of the "2", making it read £120.
  • The altered cheque was presented, payment was received, and the clerk absconded with the money.
  • Hence, the present case before the court.

ISSUE-

  • The fundamental question is the extent of responsibility each party bears regarding the validity and security of the cheque.

RULE-

  • The duty of the customer to the banker arises from their contractual relationship, not akin to relationships in bills of exchange. (i.e., Dissenting Scholfield v. Earl of Londesborough [(1894) 2 Q.B. 660])
  • The customer must ensure their cheque is unambiguous and does not raise reasonable suspicion. The responsibility for the cheque and its alterations rests with the customer until its presentation.

HELD-

  • Lord Finlay L.C. held that the customer (Macmillan & Arthur) is obligated to exercise reasonable care in drawing cheques to prevent the bank from being misled.
  • If the customer's negligence facilitates fraud, they are in breach of duty to the bank and are responsible for any resulting loss suffered by the bank.
  • In this case, the customer neglected all precautions by signing a cheque with blank spaces for the amount, allowing for easy alteration.
  • The court concluded that there was a clear breach of duty by the customer, absolving the bank of liability and entitling it to debit Macmillan & Arthur's account with the full amount of the altered cheque (£120).

 

COMMENTARIES NOTE/ RATIO-

 

  • 18.2 PRECAUTIONS
  • 18.2.14 Raised amounts

 

In Canara Bank v Canara Sales Corp,. the Supreme Court held that whenever a cheque purporting to be drawn by a customer is presented before the bank, it carries a mandate to the bank to pay. In a forged cheque there is no mandate. The bank can escape liability only if it can establish knowledge of the customer to the forgery of the cheque. In Bihta Co-op v Bank of Bihar,. the Supreme Court further held that where one of the signature in joint account is forged, there is no mandate on the bank to pay and the question of any negligence on the customer’s part such as leaving the cheque book carelessly, so that a third party could get hold of it, would offer no defence to the bank.

 

In Mahabir Prasad Bubna v United Bank of India,. the Court held that if the bank has not paid the cheque in accordance with the contractual mandate, the bank is liable on contract notwithstanding the issue of negligence or carelessness. If owing to the neglect or precautions not taken by a customer of a banker, the dishonest person is permitted to temper with a cheque, then the customer must bear the loss as between himself and the banker. However, if a cheque book is carelessly left by a customer and the third party utilised it for obtaining payment from the bank, the bank could not put this in a defence to an action for a liquidated claim whereby the bank was called upon to return the money paid out upon cheques, which did not contain the true mandate of the customer. Thus a banker is bound to honour the cheque duly signed by its customer. The bank is bound, according to the strict terms of the law of contract, not to honour any cheque, which is not signed by its customer. It would be no defence for the bank to say that the cheque leaf was negligently allowed to be used by the customer and as such the money was paid out. If the cheque leaf has not been signed by the customer with an intention of charging the bank to pay or sending a mandate to the bank to pay, then the bank has no authority to pay.