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BINTAI KINDENKO PTE LTD V SANWA BANK LTD & ANOR

Singapore Law Reports


BINTAI KINDENKO PTE LTD V SANWA BANK LTD & ANOR


[1994] 3 SLR 459


SUIT NO 463 OF 1991


HIGH COURT


DECIDED-DATE-1: 24 JUNE 1994


GOH JOON SENG J


CATCHWORDS:
Banking – Customer’s duty – Duty of customer not to facilitate fraud in drawing cheques – Whether duty breached – Material and apparent alterations in cheque drawn by customer – Whether customer estopped from claiming against bank even if fraud could have been discovered with reasonable care by bank

Banking – Cheques – Material alterations to crossed cheque – Payment by bank to the wrong person because of alterations – Bank not entitled to protection under s 80 of the Bills of Exchange Act – Bills of Exchange Act (Cap 23) ss 64 & 80

Banking – Collecting bank – Liability to owner of materially altered cheque – Not liable for money had and received when proceeds of cheque had been paid over to drawee – Only liable in conversion – Section 85 of Bills of Exchange Act does not apply – Bills of Exchange Act (Cap 23) s 85

Contract – Construction – Exclusion clause – Proper approach to be taken – Whether defendant bank excluded from liability in negligence

HEADNOTES:
The plaintiffs issued a cheque for $ 260 in favour of GDS and drawn on the first defendant bank. The cheque was altered by a third party to a cheque in favour of X for $ 126,260. X subsequently paid the cheque into her account with the second defendant bank. The first defendants then paid the second defendants the full amount and debited the plaintiffs’ account with it. The plaintiffs brought this action against the first defendants for a declaration that the debit was without authority and of no effect, alternatively for payment of $ 126,260. The plaintiffs also sued the second defendants for conversion of $ 126,260, alternatively for payment of the same as money had and received.

Held, allowing the plaintiffs’ claims against both defendants:
 (1)   The cheque had been materially altered and was a null and void
document by virtue of s 64 of the Bills of Exchange Act (Cap 23) (the Act).
Accordingly, the first defendants was not entitled to rely on s 80 of the Act
to avoid liability.
 (2)   A customer owes a duty to his banker to exercise reasonable care and
take reasonable precaution against fraud in drawing a cheque. Whether he has
done this is a question of fact taking into account the course of dealings
between the customer and the bank. On the evidence, the plaintiffs had
exercised reasonable care and taken reasonable precaution in drawing up the
said cheque, and had not acted in breach of its duty to its banker, the first
defendants. It was therefore not estopped from claiming against the first
defendants.
 (3)   Even if the said cheque had been drawn up leaving spaces facilitating
fraud, the alterations were apparent. Where the alterations are apparent,
 [*460]  the bank is not relieved from liability by virtue of the
customer’s breach of duty.
 (4)   To exclude liability for negligence, the clause relied on must clearly
say this without ambiguity. The first defendants could not rely on the
exclusion clause in its contract with the plaintiff because the clause was
not sufficiently clear to exclude the first defendants’ liability for
negligent failure to detect material alterations.
 (5)   The second defendants were liable to the plaintiff in conversion for
the full amount of the cheque for disposing of the cheque even though the
cheque had been materially altered.
 (6)   The second defendants were not entitled to rely on s 85 of the Act as
the section does not apply to a materially altered cheque which is null and
void.
 (7)   An agent who in good faith has paid over to his principal money to
which it is subsequently discovered that the principal has no right cannot be
required to return the money to the payor. This doctrine applies to a
collecting bank that has received the proceeds of cheques collected by it on
behalf of a customer. Once the money is paid to the customer, the bank has
changed its position and, being a mere agent, is no longer answerable in an
action in money had and received. The second defendants were therefore not
liable for money had and received as they had, as collecting bank for X,
received and paid over the proceeds of the cheque to X.
 (8)   As both defendants were liable for the same loss and they were both
equally to blame, liability would be apportioned equally between them.

Cases referred to

Hall v Fuller [1826] 5 B & C 750

Slingsby v District Bank [1932] 1 KB 544

London Joint Stock Bank v Macmillan & Arthur [1918] AC 777

Leeds and County Bank v Walker (1883) 11 QBD 84

Moran v Lipscombe [1929] VLR 10

Marfani & Co v Midland Bank [1968] 2 All ER 573

Slingsby v Westminster Bank [1931] 2 KB 583

Midland Bank v Reckitt [1932] 48 TLR 271

Bank of Ceylon v Kulatilleke [1957] NLK 188

Legislation referred to

Bills of Exchange Act (Cap 23) ss 64, 80, 85

Low Chai Chong and Tan Joo Thye (Rodyk & Davidson) for the plaintiffs.

NM Mahtani and L Kuppanchetti (Arthur Loke & Pnrs) for the first defendants.

Chee Wei Lin (PK Wong & Advani) for the second defendants.

JUDGMENTBY: GOH JOON SENG J

The plaintiffs are a trading company. On 4 September 1979 they applied to the first defendants for the opening of a current account. By the  [*461]  said application which was accepted, the plaintiffs agreed ‘to observe the clauses of the agreement on the back hereof and undertake to hold your bank free from any loss whatsoever resulting through my/our failure to abide by such clauses’ (the opening clause). Among the clauses on the reverse side are:
      (i)   Clause 2(a): ‘I/we am/are to comply with the requests printed on
            the cover of the cheque book.’
      (ii)  Clause 13: ‘I/we will not hold the bank liable in any way for any
            loss whatsoever incurred by me/us as a result of the operation of
            any account opened by me/us with the bank save where such loss is
            directly attributable to the bank acting otherwise than in good
            faith.’

The requests so far as relevant and referred to as ‘caution’ on the cover of the cheque book (AB14) read:
      All cheques to be filled up in ink. Any alteration to be confirmed by
      the full signature of the drawer in filling up a cheque the amount to
      be written in words, commencing on the left hand side close to the word
      ‘Dollars’ without any space between the words, and the figures made
      close to the ‘$’ and as plainly as possible.

For your security in sending cheques through the post, or otherwise paying them away, you should ‘cross’ them thus:
      & Co
      They can then only be paid through some bank, and when you are
      acquainted with the name of the bank of the person to whom you send or
      pay a cheque, you should write the name of that bank in the crossing
      before the words ‘& Co’ and the cheque will then be paid only to that
      particular bank.
      This book to be kept in a place of security, and when a new book is
      required the printed request form to be filled up and signed and
      presented or sent to the bank.
      Do not write anything in the 5/8″ band at the bottom-edge of the check
      [sic]. Do not mutilate your checks [sic]. It is also advisable not
      to fold your checks [sic]. Do not leave staples or pins attached to
      your checks [sic].

On or about 10 May 1990, the plaintiffs issued a cheque crossed ‘Not Negotiable. A/C Payee Only’ No 391542 (the said cheque) in the sum of $ 260 payable to GD Printing Services. The said cheque drawn on the first defendants was handed to the receptionist for posting to GD Printing Services on 11 May 1990. It never arrived. The amount was eventually altered to $ 126,260 and the payee to one ‘Chong Sau Kam IC No 7494646′.

On or about 14 May 1990, a female purporting to be ‘Chong Sau Kam’ opened a savings account at the Bukit Timah branch of the second defendants.

On 15 May 1990, the said cheque was deposited into the account of ‘Chong Sau Kam’ at the second defendants’ Robinson Road branch for collection. The second defendants as collecting bank cleared the cheque for collection. On 16 May 1990 the first defendants paid over to the second defendants the sum of $ 126,260 and debited the plaintiffs accordingly.

On 17 May 1990 ‘Chong Sau Kam’ made a withdrawal of $ 900 at the second defendants’ Bukit Panjang branch followed by a further withdrawal of $ 95,000 at the second defendants’ Bukit Timah branch, thus leaving a balance of $ 30,360 in that account.

 [*462] 

Upon receiving from the first defendants the statement of account for the relevant period, this matter came to light and the plaintiff notified the first defendants that they did not authorize the debit. A report was then made to the police. Pending direction of the court or disposal enquiry, the$ 30,360, under an order of seizure by the police, now remains ‘frozen’ in the account of ‘Chong Sau Kam’.

On 7 March 1991, the plaintiffs commenced these proceedings claiming:
      (i)   against the first defendants, a declaration that the purported
            debit to the plaintiffs’ account of$ 126,260 and interest
            thereon was without authority and of no effect and,
            alternatively, payment of the sum of $ 126,260, interest and
            costs;
      (ii)  against the second defendants, damages for conversion in the said
            sum of $ 126,260 and alternatively payment of the same as money
            had and received. The plaintiffs also claimed interest and costs.

As against the first defendants, the plaintiffs’ case is that a banker who pays on a materially altered cheque does so without the customer’s mandate. In Hall & Anor v Fuller & Ors, [1826] 5 B & C 750 a cheque for £3 was altered by the holder to £200 in such a way that no one in the ordinary course of business could have observed it. It was held that the bank could not charge the customer anything beyond the sum for which the cheque was originally drawn. In giving his judgment, Bayley J said at p 757:
      The banker, as the depository of the customer’s money, is bound to pay
      from time to time such sums as the latter may order. If, unfortunately,
      he pays money belonging to the customer upon an order which is not
      genuine, he must suffer, and to justify the payment he must show that
      the order is genuine, not in signature only, but in every respect. This
      was not a genuine order for the customer never ordered the payment of
      the money mentioned in the cheque.

In the present case, not only was the amount altered, the payee’s name was also altered. The first defendants, however, denied liability contending that:
      (i)   having acted in good faith and without negligence, they are
            protected by s 80 of the Bills of Exchange Act (Cap 23) (the Act);
      (ii)  the plaintiffs themselves were in breach of their duty to
            exercise reasonable care in drawing up the said cheque, thereby
            facilitating the alterations, and the plaintiffs are therefore
            estopped;
      (iii)  they are excluded from liability by the exclusion clauses.

On (i), s 80 of the Act reads:
      Where the banker, on whom a crossed cheque is drawn, in good faith and
      without negligence pays it, if crossed generally, to a banker, and if
      crossed specially, to the banker to whom it is crossed, or his agent
      for collection, being a banker, the banker paying the cheque, and, if
      the cheque has come into the hands of the payee, the drawer, shall
      respectively be entitled to the same rights and be placed in the same
      position as if payment of the cheque had been made to the true owner
      thereof.

The alterations to the said cheque were clearly material alterations in the light of s 64(2) of the Act. The said cheque was thus avoided by s 64(1) of the Act.

 [*463] 

Section 64 of the Act reads:
      (1)   Where a bill or acceptance is materially altered without the
            assent of all parties liable on the bill, the bill is avoided
            except as against a party who has himself made, authorized or
            assented to the alteration, and subsequent indorsers:
      Provided that where a bill has been materially altered, but the
      alteration is not apparent, and the bill is in the hands of a holder in
      due course, such holder may avail himself of the bill as if it had not
      been altered, and may enforce payment of it according to its original
      tenor.
      (2)   In particular the following alterations are material, namely, any
            alteration of the date, the sum payable, the time of payment, the
            place of payment, and, where a bill has been accepted generally,
            the addition of a place of payment without the acceptor’s assent.

In Slingsby & Ors v District Bank Ltd, [1932] 1 KB 544 the plaintiffs, executors of a will, kept an executors’ account with the defendants, and retained a firm of solicitors, Cumberbirch & Potts, who used to assist them in matters connected with their testator’s estate. The acting member of the firm was one James Cumberbirch. The plaintiffs, in conference with James Cumberbirch, decided to invest through John Prust & Co, stockbrokers, a sum of 5000 l, part of the estate lodged on deposit with the defendants. James Cumberbirch accordingly drew out a form of cheque for signature by the plaintiffs. It was in the form ‘Pay John Prust & Co or order’ and was drawn on the plaintiffs’ deposit account with the defendants. The cheque was signed by the plaintiffs and left with James Cumberbirch to be posted to John Prust & Co with instructions to invest the money. James Cumberbirch instead of posting the cheque to John Prust & Co fraudulently inserted the words ‘per Cumberbirch & Potts’ in the blank space between the payees’ name and the words ‘or order'; he then indorsed the document with the names ‘Cumberbirch & Potts’ and paid it so altered and indorsed into the Westminster Bank to the credit of a company in which he was interested and which had an account at that bank. The document was accepted without question by the Westminster Bank and passed through the clearing house, and the account of the plaintiffs with the defendants was debited, and that of the company with the Westminster Bank was credited, with the amount on the face of the document. In an action by the plaintiffs against the defendants for conversion, negligence and breach of duty, the Court of Appeal in dismissing the appeal by the defendants held, inter alia, that the cheque had been ‘materially altered’ within the meaning of s 64 of the Bills of Exchange Act 1882, (the English Act) and was avoided as between the plaintiffs and defendants by that section, and that, therefore, the defendants could not rely upon ss 60 and 80 thereof as excusing them for paying the cheque and that, in leaving a blank space between the name of the payee and the words ‘or order’, the plaintiffs were not guilty of any breach of duty towards the defendants.

In the course of his judgment, Scrutton LJ said, at p 559:
      This cheque, having been signed by the executors in a form which gave
      Cumberbirch no rights, was fraudulently altered by Cumberbirch before
      it was issued and, it was not disputed, altered in a material
      particular, by the addition of the words ‘per Cumberbirch & Potts’. The
      cheque was thereby avoided under s 64 of the Bills of Exchange Act …

The protection given by ss 80 and 82 is excluded in my opinion by the fact that the alteration has made the paper a null and void document, no longer a cheque.

 [*464] 

Another member of the court, Greer LJ, said at p 562:
      I think, in the first place, that s 80 only applies to a case where the
      true owner is somebody other than the drawer, and, in the second place,
      I think that it does not apply to a cheque which has been avoided by a
      material alteration before its issue.

Sections 64 and 80 of the English Act are in pari materia with the corresponding sections of the Act.

Accordingly, I hold that the first defendants are not entitled to rely on s 80 of the Act.

On (ii), the customer owes a duty to his banker to exercise reasonable care and take reasonable precaution against fraud. The duty has been stated by Lord Finlay LC in London Joint Stock Bank Ltd v Macmillan & Arthur, [1918] AC 777 at p 789, as follows:
      The relation between banker and customer is that of debtor and
      creditor, with a superadded obligation on the part of the banker to
      honour the customer’s cheques if the account is in credit. A cheque
      drawn by a customer is in point of law a mandate to the banker to pay
      the amount according to the tenor of the cheque. It is beyond dispute
      that the customer is bound to exercise reasonable care in drawing the
      cheque to prevent the banker being misled. If he draws the cheque in a
      manner which facilitates fraud, he is guilty of a breach of duty as
      between himself and the banker, and he will be responsible to the
      banker for any loss sustained by the banker as a natural and direct
      consequence of this breach of duty.

At p 810 he said:
      The question whether there was negligence as between banker and
      customer is a question of fact in each particular case, and can be
      decided only on a view of the cheque as issued by the drawer, with the
      help of any evidence available as to the course of dealings between the
      parties or otherwise.

Thus whether the plaintiffs had exercised reasonable care and taken reasonable precaution against fraud in drawing the said cheque is one of fact taking into account the course of dealings between them and the first defendants.

From the evidence, following the plaintiffs’ standard procedures, a payment voucher in favour of GD Printing Services was prepared by the assistant accounts officer, Miss Lo Hee Hoon. The voucher was then checked by the accounts manager, Madam Koh Chye Ngoh, then certified by the assistant vice-president, Mr Shiomi, and finally approved by Mr Haw Thar Heong, the senior vice-president. The approved voucher then went back to Madam Koh Chye Ngoh who made out the said cheque in favour of GD Printing Services. For the amount to be written in words she used a cheque printer to print after the word ‘Dollars’ of ‘Singapore Dollars’ the words ‘the sum of 260 DOLS 00 cts’. She then wrote in figures ‘260.00’ in the box after the ‘S$’ sign. The said cheque attached to the payment voucher and approved invoice was then signed by Mr Shiomi and Mr Haw Thar Heong. It was then handed to the receptionist for posting to the payee. The main criticism by the first defendants is that there were spaces between the word ‘Dollars’ and the printed amount and between ‘$’ sign and the written amount in figures. But this is not even supported by the evidence of their own manager, bank office, Mr Lim Wee Hian (1DW1) on their course of dealings with the plaintiffs and with other customers.
 [*465] 
      Q: So you do not insist on each and every caution?
      A: It is for the protection of the customer.
      Q: You said you yourself must have some regard to the caution?
      A: We will honour the cheques even if they do not comply with the
      caution.
      Q: Except for cheques written in pencil or blank paper?
      A: Yes.
      Q: You said in those two cases because they are abnormal and suspicious?
      A: Yes.
      Q: Would you accept the cheque if I do not use any figures in the box?
      A: We will accept.
      Q: It is not extraordinary or suspicious?
      A: No.
      Q: Most banks will accept cheques with no figures in the box?
      A: I do not know about [other] banks but we accept.
      Q: So strictly your customer can expect the cheque without the figures,
      that cheques will be honoured?
      A: Yes.
      Q: Cheques without the figure do not comply with your caution?
      A: It is for the protection of the customer.
      Q: But it does not comply with the caution?
      A: Correct.
      Q: A lot of cheques do not comply with the caution ‘do not write
      anything in the 5/8 band’?
      A: Yes.
      Q: If you see AB20-69, the right signature crosses this 5/8 band all
      the time?
      A: Yes.
      Q: So notwithstanding the caution, this customer will come to expect
      you to honour this cheque although he signs beyond the 5/8 band?
      A: Yes, crossing this line is not material.
      Q: It is common to see cheques stapled with paper?
      A: Yes.
      Q: You don’t reject them because they are stapled, notwithstanding
      AB14, the last line?
      A: Correct.
      Q: Would you accept a cheque written with a ball point?
      A: Yes.
      Q: Ball point ink is also written in ink?
      A: Yes.
      Q: You have never rejected a cheque written with a ball point?
      A: I cannot remember having rejected one.
      Q: If all the technicalities are in order, you will not reject a cheque
      because it is written with ball point pen?
      A: Correct.

Cheque printing machine
      Q: You agree that it is common practice by customers to use cheque
      printing machine in Singapore?
      A: Yes.
      Q: Most banks use cheque printing machines in writing out cashier’s
      order?
      A: I don’t know about other banks’ practice. We use cheque printing
      machine.
      Q: Your bank would not reject a cheque because it was written with a
      cheque printing machine?
 [*466] 
      A: Yes.
      Q: AB93, what is this?
      A: This is first defendants’ cashier order. A cheque printing machine
      was used.
      Q: As far as you know no cashier’s order of first defendants has been
      rejected because a cheque printing machine was used?
      A: Correct.
      …
      Q: Would you personally agree that a cheque printing machine can be
      considered a writing or printing in ink?
      A: Yes.
      Q: So this is different from the situation when the cheque is written
      in pencil?
      A: Yes.
      Q: See AB98. What is that?
      A: It is a cashier order of Amex where a cheque printing machine was
      used.
      Q: You will not reject AB98 because it used a cheque printing machine?
      A: Yes.
      Q: AB14 says all cheques to be filled in ink?
      A: Yes.
      Q: As a reasonable bank officer, do you agree that cheques in which a
      cheque printing machine is used sufficiently comply with this
      requirement?
      A: Yes.
      Q: See AB94-124, they are all printed with cheque printing machine?
      A: Yes.
      Q: You agree when a cheque printing machine is used, the amount is
      expressed in figures not in words?
      A: Yes.
      Q: See AB93, your cashier order, the amount is also stated in figure?
      A: Yes.
      Q: This method using a cheque printing machine does not strictly comply
      with the caution because the amount is not expressed in words?
      A: Yes.
      Q: Notwithstanding what is stated in the caution your customers will
      expect their cheques using a printing machine to be honoured?
      A: Yes.

Failing to write the amount in figures in the box and leaving too wide a gap
      Q: See AB118, the box is left blank, you would accept this cheque?
      A: Yes.
      Q: Also AB116 and 117, 113, 121, 124, 104, 103, 102, 99, you will
      accept these cheques although the box is left blank with no figures?
      A: Yes.
      Q: You will accept them notwithstanding they are not in compliance with
      the caution in that no figures were filled in opposite the ‘$’ sign?
      A: Yes.

If the first defendants were prepared to accept cheques with the amount in the box after the ‘S$’ sign left blank, it is surprising that they should be heard to complain that the amount in figures in the box in the said cheque was not written close enough to the ‘S$’ sign. On the complaint that the words ‘The sum of …’ were not printed close enough to the word ‘Dollars’, an examination of the said cheque will show these words as originally written were close to the word ‘Dollars’ but had been erased and rewritten well past the word ‘Dollars’.

 [*467] 

Accordingly, it is my view that the plaintiffs, following the previous course of dealings between them and first defendants, had exercised reasonable care and had taken reasonable precaution in drawing up the said cheque.

Even if the said cheque had been drawn up leaving spaces facilitating the alterations, the alterations were apparent. This is the evidence of Ms Jean Tham Mun Yee (1DW2), the first defendants’ assistant officer in the payment and receipt department in charge of clearing of cheques.
      Q: Now, having scrutinized the cheque in court, is there anything in P1
      that will evoke an enquiry or raised your level of alertness?
      A: There is erasure on the name, the IC number. I am not talking about
      the ink. I am talking about the paper surface having been erased before.
      Q: These erasures appear below the name and the IC number?
      A: Yes.
      Q: Anything else?
      A: The amount ‘the sum of 126,260 dols 00 cts’, the background is not
      as clear as the rest.
      Q: What about the word ‘the’, is it smaller than the other words?
      A: Yes.
      Q: 1DW1 said the words ‘the sum of’ are larger than ‘dols’ and ‘cts’.
      Do you agree?
      A: Yes.
      Q: So there are erasures on the paper and some words are not of the
      same size, would that not put you on enquiry, if you have the chance to
      see all these in the course of your duty?
      A: Yes.
      Q: See the figure in the box. You said because the customer uses the
      cheque printer you would honour the cheque even if the box is not
      filled?
      A: Yes.
      Q: See the figure ‘$ 126,260.00′, the full stop is out of alignment
      with the rest?
      A: Yes.
      Q: The ‘6’ in ‘126’ is straight while the ‘6’ in ‘260’ is slanting?
      A: Yes.
      Q: The ‘2’ in ‘260’ has a wider loop at the bottom compared to ‘2’ in
      ‘126’?
      A: Yes.
      Q: The ‘1’ in ‘126’ is larger than the rest?
      A: Yes.
      Q: The ‘2’ of ‘260’ is larger than the ‘2’ of ‘126’?
      A: Yes.
      Q: If you have noticed all these additional features, it would
      definitely put you on enquiry?
      A: Yes.
      Q: If all these had been pointed out to an officer in your bank,
      someone in your bank would have called the customer?
      A: Yes.
      Q: 1DW1 said putting IC numbers in cheques is more common in uncrossed
      cheques than in crossed cheques. You agree?
      A: Yes.
      Q: He said the reason for putting the IC number on an uncrossed cheque
      is so that the bank will know it is paying to the right person when
      paying over the counter?
      A: Yes.
      Q: 1DW1 said since crossed cheques cannot be encashed over the counter,
      it would be pointless to put in IC number, you agree?
 [*468] 
      A: Yes.
      Q: P1, a crossed cheque, has an IC number?
      A: Yes.

1DW1 upon his attention being drawn by counsel for plaintiffs to the discrepancies on the said cheque also agreed as follows:
      Q: Having looked at the amount in words and figures, would you as a
      reasonable bank officer noting these discrepancies agree that they give
      rise to suspicion?
      A: Yes.
      Q: These discrepancies were apparent to you now that you have some time
      to examine it?
      A: Yes.
      Q: The discrepancies do not require the use of microscope to discover
      them?
      A: Yes [agreeing].

In Leeds and County Bank Ltd v Walker, (1883) 11 QBD 84 the defendant, in satisfaction of a debt, gave the plaintiffs two Bank of England notes, for £100 each. The date and number on one of the notes had been altered but the plaintiffs and defendants were not aware of the alterations. Payment on the note was refused by the Bank of England, and the plaintiffs sought to recover the amount of the note from the defendants. The defendants relied on, inter alia, s 64 of the English Act. In rejecting the defence, Denman J said at pp 90-91:
      I think there are several answers to this ground of defence. In the
      first place the statute in question, by s 2, contains a definition of
      the words ‘bill’ and ‘note’. The former means ‘bill of exchange’, the
      latter ‘promissory note’. The [English] Act there contains several
      provisions relating wholly to ‘bills’, ss 3 to 72 inclusive. These
      constitute Pt II of the [English] Act. Then follow ten clauses wholly
      relating to cheques on bankers. These constitute Pt III of the
      [English] Act. Then follow the provisions of Pt IV (ss 83, 89) headed
      ‘promissory notes’, and, by s 89, it is provided that the provisions of
      the [English] Act relating to bills apply with the necessary
      modifications to promissory notes. It appears to me that this clause
      was never intended to cover, and has not the effect of covering, such a
      document as a Bank of England note, altered fraudulently so as to fall
      within the decision of Suffell v Bank of England (1882) 9 QBD 555.
      Bank of England notes differ in many respects from ordinary promissory
      notes. They are payable without indorsement to any holder who may
      present them. They are a legal tender for the amounts represented by
      them. I think that one ‘necessary modification’ in applying s 64 of the
      [English] Act to promissory notes is a modification amounting to an
      exclusion of Bank of England notes altogether from the operation of s
      64 of the [English] Act. But, even if this be not so, s 64 only
      applies where the alteration is ‘not apparent’. In the present case I
      think it was apparent. By the word ‘apparent’ I do not think it is
      meant that the holder only should not have had the means of detecting
      the alterations. If the party sought to be bound can at once discern by
      some incongruity on the face of the note and point out to the holder
      that it is not what it was, that is to say, that it has been materially
      and fraudulently altered, I think the alteration is an ‘apparent’ one,
      even if it is not an obvious one to all mankind.

Where the alterations are apparent, the Macmillan [1918] AC 777 case does not apply to relieve the bank from liability — Paget’s Law of Banking (10th Ed), pp 222-223:
      Where the alteration is obvious or discoverable by the exercise of
      reasonable care, or where the state of the cheque raises suspicion of
      its having been tampered with and payment is made without inquiry, the
      Macmillan case offers no relief.

 [*469] 

Accordingly, I hold that the first defendants are not entitled to rely on the plea of estoppel against the plaintiffs.

On (iii), the first defendants relied on the exclusion clauses in the opening clause and cl 13 supra.

On the construction of exclusion clauses, Chitty on Contracts, General Principles

(26th Ed), para 945 states:
      Exemption clauses must be expressed clearly and without ambiguity or
      they will be ineffective. The clause must clearly express what its
      intention is. In Alison (J Gordon) & Co Ltd v Wallsend Shipway and
      Engineering Co Ltd
(1927) 4 TLR 323, a cylinder was sold by the
      defendants to the plaintiffs ‘subject to our usual guarantee clause’.
      The clause usual in the trade ‘guaranteed’ the purchaser against
      defects discovered within six months of delivery, but excluded
      liability for consequential damage. It was held that the defendants
      were not protected, for ‘if a person was under a legal liability and
      wished to get rid of it, he could only do so by using clear words.’
      Exemption clauses will therefore be construed strictly, and the degree
      of strictness appropriate to their construction may properly depend
      upon the extent to which they involve departure from the implied
      obligations ordinarily accepted by the parties in entering into a
      contract of a particular kind …

On the opening clause read with cl 2(a), it is my view that the plaintiffs had exercised reasonable care and had taken reasonable precaution in drawing up the said cheque. The loss could not be attributed to the plaintiffs’ failure to abide by the clauses on the reverse side of the agreement because these clauses had been disregarded by the first defendants in their course of dealings with the plaintiffs and their other customers.

On cl 13, to exclude liability including liability for negligence in failing to detect the said alterations, the clause must clearly say so without ambiguity. Thus, in Moran v Lipscombe, [1929] VLR 10 the plaintiff left his car at the defendant’s garage and instructed him to adjust the headlights of the car. In the garage was exhibited a notice, seen by the plaintiff, reading ‘Cars garaged and driven at owner’s risk — Every care but no responsibility’. The defendant drove the car on the road to test the headlights when a collision caused by the defendant’s negligence damaged the car. In an action by the plaintiff for damages, it was held that the notice did not amount to an unequivocal and unambiguous notification to the plaintiff that the car was being accepted by the defendant on terms that the defendant was not to be liable for the consequences of his own negligence in driving and therefore the defendant was liable. At p 15 Macfarlan J said:
      It is argued that the words of the present notice, ‘at owner’s risk’
      and ‘no responsibility’ would, in a contract of carriage, have ample
      room to operate without excluding negligence, in as much as the common
      carrier is at common law an insurer; that a bailee is at common law
      liable only for negligence; and therefore the notice is inoperative
      unless it be construed to exclude negligence. This argument written out
      means not that the notice did convey to the bailor, or would convey to
      the average intelligent layman that the garage proprietor was exempt
      from negligence, but that, if the plaintiff knew the law as to
      bailments, he would know that the garage proprietor was not liable in
      any event except for negligence, and, if he argued correctly, and if he
      assumed that the notice was intended to cut down the common law
      liability, he would conclude that the notice was intended to exempt
      from liability for negligence; and that he must be taken to know the
      law, and so must be taken to have agreed to exempt the garage
      proprietor  [*470]  from liability for negligence. Applied to a
      notice of this kind, such an argument appears to us to be little less
      than grotesque.

Clause 13 was not sufficiently clear to exclude liability for failure to detect the alterations. I therefore hold that the first defendants are liable to the plaintiffs in the amount of the claim.

I now turn to the plaintiffs’ claim against the second defendants. It is based on conversion of the said cheque and money had and received in the sum of $ 126,260. In Marfani & Co Ltd v Midland Bank Ltd, [1968] 2 All ER 573 at p 578, Diplock LJ said:
      A banker’s business, of its very nature, exposes him daily to this
      peril. His contract with his customer requires him to accept possession
      of cheques delivered to him by his customer, to present them for
      payment to the banks on which the cheques are drawn, to receive payment
      of them and to credit the amount thereof to his own customer’s account
      either on receipt of the cheques themselves from the customer or on
      receipt of actual payment of the cheques from the banks on which they
      are drawn. If the customer is not entitled to the cheque which he
      delivers to his banker for collection, the banker, however, innocent
      and careful he might have been, would at common law be liable to the
      true owner of the cheque for the amount of which he receives payment
      either as damages for conversion or under the cognate cause of action,
      based historically on assumpsit for money had and received.

The second defendants, however, contended that since the said cheque had been avoided by virtue of s 64 of the Act by the material alterations, it was a valueless piece of paper and there could be no conversion of the same; alternatively, any conversion must be of the original value of the said cheque, that is, $ 260. The second defendants relied on the judgment of Finlay J in Slingsby & Others v Westminster Bank Ltd. [1931] 2 KB 583 In that case, Finlay J held that the plaintiffs could not recover against the defendants who were the collecting bank. He said at pp 585-586:
      Whatever may be the rights, so it was argued, of the plaintiffs against
      their own bank, who have debited them, they can have no right to
      recover against the defendants — not in conversion of the cheque
      because the cheque was by reason of the alteration a mere valueless
      piece of paper, not in conversion for 5000 l because there was no
      conversion of any money of the plaintiffs, not for money had and
      received because the money was not the money of the plaintiffs.

I have come to the conclusion that this submission is right and ought to prevail. It seems clear that the document, when it came into the hands of the defendant bank, was not a valid cheque at all. It had been avoided by the material alteration made in it. This being so, it seems to me that no action can be brought upon it against the defendants. They have not dealt either with a cheque or the money of the plaintiffs, and on this short ground I think this action must fail.

It was after having failed against the collecting bank, that Slingsby brought an action against his paying bank on the same cheque in Slingsby v District Bank Ltd. [1932] 1 KB 544 Wright J gave judgment for the plaintiff and his judgment was upheld on appeal by the Court of Appeal. At p 558, Scrutton LJ expressly overruled Finlay J:
      [referring to Finlay J’s judgment supra] … I cannot understand
      this. There are, of course, difficulties as to how in law you should
      deal with money claimed by a customer from a bank because the bank has
      collected it from the customer’s bank on a document which does not
      authorise such collection, but I thought that all those difficulties
      had been settled by the decision in Morison’s case [1914] 3 KB
      356, followed by this court  [*471]  in Underwood‘s case
      [1924] 1 KB 755; in the Lloyds Bank case [1929] 1 KB 40; and in
      Reckitt v Midland Bank, lately affirmed in the House of Lords
      (1932) 48 TLR 271. Slingsby v Westminster Bank is, in my opinion,
      wrongly decided and should not be followed by any court in preference
      to these decisions of the Court of Appeal.

In Midland Bank Ltd v Reckitt & Ors, [1932] 48 TLR 271 Lord Terrington, a solicitor, had from a client a power of attorney entitling him to draw cheques on the clients’ banking account and to apply the moneys for the purposes of his client. Lord Terrington for his own purposes fraudulently drew 15 cheques on his client’s account with the Barclays Bank, signing the cheques by using a rubber stamp which had on the upper line the name of the client and on the lower line ‘his attorney’ and by placing his own signature between the lines. Lord Terrington paid the cheques into his own account with the Midland Bank, the defendants, with whom he had an overdraft. On discovering the facts, the client brought an action against the defendants for damages for conversion of the cheques, and the defendants relied on s 82 of the English Act [in pari materia with s 85 of the Act], alleging that the cheques were crossed cheques and that they had received payment of them in good faith and without negligence. It was admitted that the defendants had acted in good faith.

It was held that, except in the case of two of the cheques, the defendants, in presenting and receiving payment for the cheques, had converted them, and that, as the defendants had, from the form of the cheques, notice as to the money not being Lord Terrington’s money, they were negligent in making no inquiry as to Lord Terrington’s authority to make these payments into his own account, and, therefore, the action succeeded.

Lord Atkins, with whom the other Law Lords concurred, in delivering his judgment said, at pp 273-274:
      In these circumstances, I have no doubt that the bank, in presenting
      and receiving payment for the cheques converted them. I venture to
      quote words of my own used in Underwood‘s case (40 TLR 302;
      [1924] 1 KB 774, at p 795) merely because they seem to me applicable
      and I cannot express the idea in simpler language:
      ‘The bank so disposed of the chattels, the cheques, as to deprive both
      themselves and the true owners of the dominion over them, and, in
      exchange for the pieces of paper, constituted themselves the debtors of
      the customer. I cannot imagine a plainer case of conversion.’
      It is quite irrelevant to the issue of conversion that, after payment,
      the pieces of paper came into possession of the paying bank to be held
      as vouchers on account of the true owner, Sir Harold Reckitt. This
      position existed in the case of Morison v London County and
      Westminster Bank Ltd
(30 TLR 481; [1914] 3 KB 356), where the
      collecting bank were held to have converted the cheques.

In the light of these authorities, I hold that the second defendants are liable to the plaintiffs in conversion for the amount of $ 126,260.

Against the claim for conversion, the second defendants also claimed statutory protection under s 85 of the Act. Section 85 reads:
      (1)   Where a banker, in good faith and without negligence –
            (a)   receives payment for a customer of an instrument to which
                  this section applies; or
 [*472] 
            (b)   having credited a customer’s account with the amount of
                  such an instrument, receives payment thereof for himself;
      and the customer has no title, or a defective title, to the instrument,
      the banker does not incur any liability to the true owner of the
      instrument by reason only of having received payment thereof.
      (2)   This section applies to the following instruments, namely:
            (a)   cheques;

In Bank of Ceylon v Kulatilleke, [1957] NLK 188 the amount of a cheque crossed ‘not negotiable’ was subsequently altered fraudulently by a third party. In a suit by the drawer, the collecting banker’s reliance on s 82 of the Bills of Exchange Ordinance of Ceylon [also in pari materia with our s 85] was rejected. Basnayake CJ, delivering his judgment, said at p 189:
      In the instant case, the defendant claims the benefit of s 82 of our
      Bills of Exchange Ordinance. The learned district judge has held that
      the defendant is not entitled to the benefit of that section on the
      ground that a cheque the amount of which is fraudulently raised is not
      a ‘cheque’ within the meaning of the expression in that section. It
      speaks of a cheque to which the customer ‘has no title or a defective
      title’. Those words presuppose that the cheque is a good and valid
      cheque and that the only question is one of title to it. The section
      applies to cheques which do not have the taint of forgery or fraudulent
      alteration, a cheque which is the drawer’s cheque in all respects and
      which carries the authority of the drawer. A cheque which has been
      altered fraudulently, as in this case by raising the amount, is
      invalid. I agree with the learned trial judge that, in the instant
      case, the defendant is not entitled to the benefit of s 82.

This decision is consistent with English authorities dealing with statutory protection given to a paying banker. See Slingsby v District Bank Ltd, [1932] 1 KB 544 where Scrutton LJ said (at p 559):
      I agree with the view on this point expressed by Sir John Paget at p
      225 of his work. The protection given by ss 80 and 82 is excluded in my
      opinion by the fact that the alteration has made the paper a null and
      void document, no longer a cheque.

Accordingly, I hold that the second defendants are not entitled to statutory protection under s 85 of the Act.

Against the plaintiffs’ claim for money had and received, the second defendants contended that, as collecting bank for $ 126,260 on behalf of their customer ‘Chong Sau Kam’, they had paid over $ 95,900 to her with the balance being ‘frozen’ on an order of seizure by the police in the account of ‘Chong Sau Kam’. Accordingly, they are not liable.

In his Modern Banking Law (1987 Ed), Prof EP Ellinger states (pp 412-413):
      A bank that collects a cheque for a person who has no title to it, or
      whose title is defective, faces the hazard of an action by the true
      owner of the instrument. Two causes of action are available to
      substantiate such an action. The first is an action in conversion, for
      the purposes of which the cheque is treated as a chattel. The bank
      converts it by receiving it for the collection and by presenting it for
      payment. The second cause of action is based on the waiver of the tort
      involved. In Morison v London County and Westminster Bank Ltd, in
      which an agent misused his authority by drawing on his principal’s
      account cheques payable to his own order and by arranging for their
      collection for the credit of his personal account, Reading CJ explained
      the basis of this  [*473]  second cause of action as follows: The
      plaintiff is entitled to waive the tort and sue for the same amount as
      money had and received to his use.

From a practical point of view, the cause of action in conversion is to be preferred to the quasi-contractual action based on waiver of tort. The reason for this is that the collecting bank receives the funds as its customer’s agent. It is established that an agent who in good faith has paid over to his principal money to which it is subsequently discovered that the principal has no right cannot be required to return the money to the payor. This doctrine applies to a collecting bank that has received the proceeds of cheques collected by it on behalf of a customer. Once the money is paid to the customer, the bank has changed its position and, being a mere agent, is no longer answerable in an action in money had and received. However, the doctrine in question applies only where the action is brought under this heading and is thus based on the wrongful receipt of the funds.

Having considered the statement, I accept it as a correct statement of the law. Accordingly, I hold that the second defendants are not liable for money had and received but they are liable in conversion.

There will thus be judgment for the plaintiffs in the sum of $ 126,260 plus interest wrongly debited against them thereon calculated to date of judgment and costs. As both defendants are liable for the same loss and both are equally to blame in that they failed to detect the alterations, I apportion liability between them equally. As between the defendants there will be no order as to costs.
Plaintiffs’ claims allowed.

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