BURNETT v. WESTMINSTER BANK, LTD.
BURNETT v. WESTMINSTER BANK, LTD.
QUEEN’S BENCH DIVISION
[1966] 1 QB 742, [1965] 3 All ER 81, [1965] 3 WLR 863, [1965] 2 Lloyd’s Rep 218, 8 Legal Decisions Affecting Bankers 424
HEARING-DATES: 31 May, 1, 25 June 1965
25 June 1965
CATCHWORDS:
Bank — Cheque — Condition restricting use — New cheque book on bank’s change to computer mechanisation — Cheque book bearing on cover notice that it was only to be used for account for which issued — Cheque altered by customer for use for account with another branch, which was later instructed by customer not to pay cheque — Ink alterations not capable of being read by computer — Cheque met by branch issuing cheque book — Whether notice on cover and used of cheque book by customer varied pre-existing contract between bank and customer.
HEADNOTE:
The plaintiff had, and for some years had had, accounts at the Borough branch and at the Bromley branch of the defendant bank. In January, 1964, the Borough branch issued to the plaintiff a cheque book which had printed on the front a notice that “the cheques… in this book will be applied to the account for which they have been prepared”. This notice had not appeared on his previous cheque books, and was introduced because the cheques were specially designed for use in a computer system, making use of magnetised ink which the central computer could read. The plaintiff knew of the existence of words on the cheque book cover, but was not proved to have read this notice. In January, 1965, the plaintiff drew a cheque on one of the forms from this cheque book, but crossed out the word “Borough” at the top, and inserted “Bromley”, and altered the address accordingly, initialling the alterations. The computer would be unable to read the ink in which the plaintiff wrote. He decided to stop the cheque; he telephoned and wrote to the Bromley branch to tell them not to pay the cheque, informing them of the fact that it was on an altered form. The cheque, having been paid in, reached the London clearing house and thence the defendants and their central computer. During a period while the cheque was held in suspense, its information being stored by the computer, the cheque itself was sent to the Borough branch, where employees of the defendant bank examined it. They took no action on the plaintiff’s alterations. The Borough branch had no knowledge of the plaintiff’s instructions not to pay the cheque. On expiration of the suspense period the amount of the cheque was debited by the central computer to the plaintiff’s account at the Borough branch. On a claim by the plaintiff that the defendant bank had acted without authority in debiting his Borough account, the bank contended that he had by conduct agreed to the restriction, notified on his cheque book, that the cheque should be applied to his Borough account.
Held: the cheque book cover fell within a class of documents which recipients would reasonably assume did not contain conditions varying existing contractual arrangements between themselves and their bankers, and accordingly, having regard to the fact that the plaintiff had long had accounts with the defendant bank, the notice on the cheque book cover did not bind him to the new restricted use of the cheques for only one account, and the bank’s defence failed (see p. 87, letters G and I, post).
Parker v. South Eastern Ry. Co. ([1874-80] All E.R. Rep. 166) and Chapelton v. Barry Urban District Council ([1940] 1 All E.R. 356) applied.
Underwood (A.L.), Ltd. v. Bank of Liverpool ([1965] 1 All E.R. 1023) distinguished.
Per DURIAM: I would be prepared to accept the signature of a customer on a cheque as equivalent to his signature to a document agreeing to a condition of restricted use of the cheque, if the cheque form itself (not merely the cover of the book) bore words limiting its use (see p. 87, letter I, to p. 88, letter A, post).
NOTES:
It should be emphasised that the plaintiff had been a customer of the branch for some time before the computer was installed. The position would not necessarily be the same if a new customer obtained his first cheque book with the notice of the restricted use of cheques on it; particularly if his attention were drawn to the notice and he then accepted it by conduct or expressly.
As to cheques paid by a banker in contravention of his customer’s order, see 2 HALSBURY’S LAWS (3rd Edn.) 193, para. 361; and for cases on the subject, see 3 DIGEST (Repl.) 234-263, 601-610.
As to importing printed conditions into contracts, see 8 HALSBURY’S LAWS (3rd Edn.) 74, para. 127.
CASES-REF-TO:
Chapelton v. Barry Urban District Council, [1940] 1 All E.R. 356; [1940] 1 K.B 532; 109 L.J.K.B. 213; 162 L.T. 169; 104 J.P. 165; 3 Digest (Repl.) 96, 240.
Parker v. South Eastern Ry. Co., Gabell v. Same, [1874-80] All E.R. Rep. 166; (1877) 2 C.P.D. 416; 46 L.J.Q.B. 768; 36 L.T. 540; 41 J.P. 644; 3 Digest (Repl.) 92, 223.
Underwood (A.L.), Ltd. v. Bank of Liverpool and Martins, Same v. Barclays Bank, [1924] All E.R. Rep. 230; [1924] 1 K.B. 775; 93 L.J.K.B. 690; 131 L.T. 271; 29 Com. Cas. 182; 3 Digest (Repl.) 205, 435.
Westminster Bank, Ltd. v. Zang, [1965] 1 All E.R. 1023; [1965] 2 W.L.R. 824.
INTRODUCTION:
Action. This was an action in which the plaintiff, Joseph Burnett, claimed £ 2,300 from the defendants, Westminster Bank, Ltd., whose customer he was, on the grounds that they had acted without his authority in debiting his account at their Borough branch with that sum. The facts are set out in the judgment.
COUNSEL:
M. H. Megraph for the plaintiff. R. M. Yorke for the defendants.
JUDGMENT-READ:
Cur. adv. vult. June 25.
PANEL: Mocatta, J.
JUDGMENTBY-1: MOCATTA, J.
JUDGMENT-1:
MOCATTA, J., read the following judgment: The problems that have arisen in this action are due to the use of computers by the defendant bank and the issue by the bank to its customers of cheque forms bearing magnetic ink characters (MICR) capable of being read by the computer or associated machines.
The primary facts in the case are not in dispute and are either contained in the pleadings or in the agreed statement of facts, or were agreed in argument before me between counsel. The plaintiff, who is a bookmaker, had for some considerable time before January, 19658 been a customer of the defendants on current accounts at the defendants’ Borough and Bromley branches. On Friday, Jan. 22, 1965, he, together with two others, was gaming on the terms that they would equally share their winnings or losses. In fact they lost £ 3,000. The plaintiff’s two partners in gaming could not then pay. The plaintiff accordingly paid the winner £ 700 in cash and gave him a crossed cheque made out to cash for the balance of £ 2,300. The printed heading at the top of the cheque showed it to be drawn on the Borough branch of the defendants, but for some reason the plaintiff wished the cheque to be drawn on his account at the Bromley branch. He accordingly in ink deleted “Borough” and substituted “Bromley”; he also altered in ink the printed address of the Borough branch, which had read “34 Borough High Street, London, S.E.1”, so that it read “High Street, S.E.1”. To have been correct he should have also deleted “S.E.1”. He initialled his alterations on both sides of the printed heading. The next morning, having been let down by his partners in gaming, he decided to stop the cheque. He accordingly telephoned the defendants’ Bromley branch, told them the correct number and date of the cheque and its amount and also that it was a Borough cheque altered to Bromley and instructed the Bromley branch not to pay the cheque. He confirmed these instructions by letter to the Bromley branch dated Jan. 25. Nevertheless the cheque having been put through the clearing house by Coutts, found its way to the defendants’ Borough branch and was there paid on or about Jan. 27, and the plaintiff’s account at that branch was debited with £ 2,300.
In this action the plaintiff claimed that the defendants, in so debiting his account at the Borough branch, acted without his authority. He accordingly claimed £ 2,300 in a variety of alternative ways, but it was agreed between counsel that if the plaintiff was entitled to succeed the correct, or at any rate the most convenient, remedy was a declaration that the plaintiff was entitled to have his Borough current account with the defendants credited with £ 2,300. Somewhat paradoxically the plaintiff indicated through his counsel that he would be prepared to return £ 300 to the defendants, since he had always recognised his personal liability for £ 1,000 out of the £ 3,000 lost at gaming. It was added that should he recover any part of the £ 2,000 from his gaming partners he would pay this over to the defendants. These matters clearly cannot affect the legal issues in this action.
The defendants denied that they had acted without the plaintiff’s authority in paying the cheque and debiting the plaintiff’s account at the Borough branch. They pleaded that it was an express term of the relationship of banker and customer prevailing between them and the plaintiff at the time, that cheque forms issued by the Borough branch would be applied to the account for which they had been prepared and that the plaintiff would not use or permit their use on any other account. These terms were derived from the notice printed on the front cover of the cheque book, first issued to the plaintiff in or about January, 1964, by the Borough branch and containing the cheque in question, and the use by the plaintiff of the cheque book without objection. The front cover of the cheque book, which was orange in colour, read as follows: “Westminster Bank, Ltd. Borough Branch, 34 Borough High Street, London, S.E.1.” There then followed a small printof the arms of the defendants below which were printed, in clear an easily legible black type: “J. Burnett. The cheques and credit slips in this book will be applied to the account for which they have been prepared. Customers must not, therefore, permit their use on any other account.” Relying on these two sentences, particularly the first, as having contractual effect, the defendants pleaded and argued that notwithstanding the pen and ink alterations on the cheque substituting Bromley for Borough, the cheque must be read as a mandate to the Borough branch with which they had complied. The defendants further pleaded in the alternative that by altering the cheque as he did the plaintiff was in breach of contract. There was, however, no counterclaim and this part of the defence was not relied on in argument.
I gave the plaintiff leave, at his expense, to put in a reply in which he raised the point (inter alia) that there was no consideration given by the defendants for the agreement, if any, relied on by the defendants as having been constituted by the use by the plaintiff of one or more cheques out of the cheque book bearing on its cover the two sentences which I have set out.
It is necessary that I should now explain the relevance of the use of computers made by the cheques supplied by them to the plaintiff. In the agreed statement of facts reference was made to the operation of computers in banking, as set out in an article in the “New Scientist” dated Apr. 1, 1965. That article was agreed in so far as it contained statements of historical or present fact and, as regards the future, it was agreed to represent probable lines of development. I need only summarise the facts, so far as I understand them, in relation to this case.
The defendants maintain a central computer to which their Borough branch is connected. Originally computers were used in banks in this country to keep the accounts of groups of branch banks. Information had to be fed into the computers so that it might be stored by them on magnetic tapes. This was initially done by punched cards or paper tape. A major advance came about through a technique called magnetic ink character recognition (MICR), which made advailable to the banks machines capable of reading characters printed on cheques in “magnetisable” ink. These machines could both automatically sort the cheques as between branches and accounts and read details of the cheque serial number, account number, etc., into the computer at speeds of up to sixteen hundred cheques a minute. Accordingly it became possible to use cheques themselves as direct input to the computer and eliminate much of the punched-card or paper-tape input. In 1961 the banks in Britain agreed on a common code of magnetic information to be recorded on cheques. The first bank to use the direct cheque input for the posting of current accounts was the Westminster Bank, which opened the first MICR centre in Europe in 1962. The use of computers and MICR cheques clearly results in considerable economies in operating the banking system. The article from which I have quoted contemplates an increasingly all-embracing use of computers and MICR cheques so that ultimately normal writing or typing on cheques may be almost if not completely eliminated and there will be a greatly reduced handling of cheques within the banking system. There is, however, still a long way to go before that stage is reached. Nevertheless the Westminster Bank in general and its Borough branch in particular seem to have gone much father by January, 1964, than many other banks.
The cheque in question in this action, like the twenty-nine other cheque forms in the book of cheques from which it was taken, bore from left to right along its bottom edge three groups of MICR figures. The first was the number of the cheque, the second contained figures indicating the Westminster Bank and the Borough branch thereof, whilst the third group of figures indicated the plaintiff’s account at that branch. After the cheque had found its way to the London clearing house via Coutts it was sorted to the defendants by hand. It then went to the defendants’ central computer where it was read by an employee and a fourth group of MICR figures was put on it corresponding with £ 2,300, the amount for which the cheque was drawn. Simultaneously and automatically all four MICR groups of figures were fed into the magnetic tape in the central computer and stored by it for application to the plaintiff’s account at the borough branch. The computer was, of course, quite unable to read the pen and ink alterations to the Bromley branch. The computer apparently stores the information during a period of suspense before actually applying it to the particular account by way of debit or credit. During that period of suspense the cheque was physically sent to the Borough branch where it was checked for date and signature and as to whether the account was sufficiently in credit to meet the cheque. In an appropriate case the branch manager would decide whether to allow an overdraft. If the computer is not stopped, after the expiry of the period of suspense the account in question is automatically debited or credited as the case may be. In the present case the period of suspense passed and the plaintiff’s Borough account was debited.
It will be seen from the above that the whole system is as yet by no means automatic and from the explanation given by counsel for the defendants I conclude that the defendants’ employees at the Borough branch could, on their examination of the cheque for date, signature and amount, have taken appropriate steps pursuant to the pen and ink alterations to the Bromley branch, to have prevented the cheque being debited to the Borough branch. They did not so do and counsel for the defendants argued that they were under no obligation so to do, since on the defendants’ case the plaintiff, by accepting the notice on the front of the cheque book, agreed that any cheque from that book, however altered in pen and ink, could only constitute a mandate to the defendants to apply the cheque to the plaintiff’s account at the Borough branch.
As to the plaintiff’s own knowledge it was agreed that he had seen that the front cover of the cheque book bore printed words in fact constituting the notice relied on by the defendants, but it was further agreed that the case had to be decided on the basis that he had not read them. It was agreed that he had not orally or in writing objected to the notice. It appears from the detailed instructions he gave by telephone and letter to the Bromley branch that he could read the MICR figures at the bottom of the cheque, which is not altogether easy at first acquaintance, and knew which group contained the cheque number, since he correctly gave the number to the Bromley branch. It was also agreed that the cheque book containing the cheque in question was the first of its kind issued to him by the Borough branch. No facts were proved as to the cheques issued to him by the Bromley branch, and I therefore think it fair to assume that in January, 1965, when the plaintiff altered the branch on this particular cheque, they were in the same form as those which had been issued to him by the Borough branch before January, 1964.
It is of some importance that I should explain the difference between the cheque books and cheques previously issued to the plaintiff by the Borough and (I am assuming) the Bromley branches and this particular cheque book (which I will call the new book) and its cheques which was issued to the plaintiff in or about January, 1964. The previous cheque books were of more or less the same orange colour but were somewhat thinner and over an inch longer. Each cheque in the previous books was attached to a counterfoil and there were no credit or paying-in slips in the books. In the new book the cheques were of the same size, but had no individual counterfoils. Instead of counterfoils there were three pages ruled in lines and columns on both sides immediately inside the front cover and before the first cheque on which the customer could enter, if he wished, the number, date, amount and payee of each cheque and other details. At the end of the new book were four paying-in or credit slips and two pages with provision for the cashier’s stamp to be attached as a receipt for sums paid in. The credit slips had MICR figures along their bottom edges indicating the Westminster Bank, the branch and the account. The old cheques differed from the new in that they only bore the first two groups of MICR figures, that is the cheque number, and bank and branch.
For the purposes of the legal arguments raised perhaps the most important differences are to be found on the front covers. The old cheque books merely had the defendants’ name at the top, with no branch name or account name. The front cover went on, in italics, “attention is particularly drawn to the following”. There then followed below on the front of the cover four clearly printed paragraphs, occupying the rest of the space, of an admonitory or advisory character indicating, inter alia, that cheques should be drawn on the forms supplied by the bank, how they should be filled in, etc. Five further paragraphs followed overleaf, advertising various services of the bank. It was not argued that any of these nine paragraphs was of contractual effect.
The front of the new cheque book was as I earlier described. Its two sentences were said to be of contractual effect once the customer used a cheque from the book. The nine paragraphs from the face and overleaf of the front cover of the old books are now to be found in two columns on the overleaf of the front cover of the new book.
Since there was no disagreement between counsel on the general principles applicable to the legal relationship between banker and customer so far as relevant to this case, I can state in summary form a number of points of importance by way of background in approaching the problem to be decided. First, in the ordinary case of banker and customer their relations depend either entirely or mainly on an implied contract. Secondly, the banker undertakes to repay money received by him on behalf of his customer against the written order of the customer. That promise is to repay at the branch of the bank where the account is kept and similarly when the customer has accounts at more than one branch. Thirdly, unless otherwise agreed, the customer’s written order need not be on any particular form. though no doubt in the vast majority of cases the customer today uses cheque forms supplied by his banker. Nevertheless other forms are used, such as “house” cheques, forms prepared by charities to further their appeals and, on rare occasions, a customer may write his mandate to his banker on some handly piece of paper or on some even more informal material. In addition cheque forms issued by one branch or one bank may be altered so as to constitute mandates to another branch or another bank. Fourthly, the customer undertakes to exercise reasonable care in executing his written orders so as not to mislead the banker by ambiguities or to facilitate forgery. Fifthly, the banker must not pay if the customer has countermanded his mandate in time, but notice to stop payment given to one branch of a bank does not per se constitute notice to any other branch of the same bank. As regards these last two points the altered cheque there, if the magnetised ink be ignored, was in no sense ambiguous, whilst the Bromley branch received the plaintiff’s instructions not to pay a matter of days before the cheque found its way via the clearing house to the defendants. The Borough branch had no knowledge of the plaintiff’s instructions to the Bromley branch not to pay the cheque.
It was not argued for the defendants that the introduction by them of the new cheques, bearing magnetised ink characters to the extent present on the plaintiff’s cheque here, in any way altered the position between themselves and their customers in regard to the above points, save only as to one limit on the use of the new cheques. Thus, provided they received unambiguous mandates from their customers, the defendants would continue to deal with these as before even if written, for example, on the cheque forms of other banks or on no forms at all. It was, however, added that if this happened at all frequently in the case of mandates addressed to branches which had gone over to the new system, the customers in question would be likely to be charged heavily and might be asked to take their accounts elsewhere. In the case of these new cheques issued to the plaintiff, however, the defendants argued that by agreement the position had been altered to this extent that if the plaintiff used such a cheque, he could not by anything he wrote on its face validly instruct them to pay out of any account or branch other than those referred to in print on the front of the cover of the cheque book and repeated in print on each cheque contained in it.
It is plain from what I have said that the defendants could not unilaterally so restrict the plaintiff’s rights and the contrary was not contended. The restriction could only be made effective by agreement between the plaintiff and the defendants. In some cases, no doubt, express agreement on a similar restriction may be reached between banker and customer, such as, for example, by exchange of letters or the signature on some form by the customer. The defendants were not here in a position to rely on any such express written agreement evidence by any document signed by the plaintiff. They argued, however, that the plaintiff had, by his conduct in using a cheque or cheques taken from the new cheque book containing on the front of its cover the two sentences which I have set out, agreed to the restriction in question.
I was referred by both counsel to the well-known case of Parker v. South Eastern Ry. Co., Gabell v. Same n(1), and it was suggested, particularly by counsel for the defendants, that the three general rules therein laid down in relation to ticket cases, were applicable here. Counsel for the defendants based himself on the rules as stated in ANSON’S LAW OF CONTRACT (22nd Edn.) at pp. 143 and 144:
n(1) [1874-80] All E.R. Rep. 166; (1877), 2 C.P.D. 416.
“1. If the person receiving the ticket did not see or know that there was any writing on the ticket, then he is not bound by the conditions.
“2. If he knew there was writing, and knew or believed that the writing contained conditions, then he is bound by the conditions, even though he did not read them and did not know what they were.
“3. If he knew that there was writing on the ticket, but did not know or believe that the writing contained conditions, neverthleless he will be bound if the party delivering the ticket has done all that can reasonably be considered necessary to give notice of the term to persons of the class to which he belongs.”
On the facts here counsel submitted that as the plaintiff had seen that the front cover of the new cheque book bore printed words, it did not matter that he had not read them and did not know or believe that they contained conditions affecting the use he was entitled to make of the cheques in the book, provided that the defendants had done all that could reasonably be considered necessary to give him notice of the conditions. Counsel for the defendants submitted that the two sentences on the new cheque book cover constituted in the circumstances such reasonable notice. They were easily legible, the new cheque book both in its cover and contents was noticeably different from the old one previously issued and it was next to impossible for the defendants by writing letters or issuing forms for signature to secure that the customers read the letters or signed the forms. The defendants had therefore given the plaintiff reasonable notice. He also relied on Underwood (A.L.), Ltd. v. Bank of Liverpool and Martins, Same v. Barclays Bank, per SCRUTTON and ATKIN, L.JJ. n(2), and the recent case of Westminster Bank, Ltd. v. Zang n(3), as showing how readily the courts will conclude that the legal relationship between customer and banker had ben varied by the filling in by the customer of a paying-in slip containing a sentence as to the banker’s rights. I do not think that these two cases are of much assistance here, since the customer in both filled in the slips containing the terms relied on by the banks. There were no terms on the cheque form used by the plaintiff.
n(2) [1924] All E.R. Rep. i30 at pp. 240, 241; [1924] 1 K.B. 775 at pp. 804, 806.
n(3) [1965] 1 All E.R. 1023.
I do not consider that the ticket cases afford exact parallels with the circumstances here, since those cases relate to printed documents being handed contemporaneously with the making of the relevant contract. Here the plaintiff and defendants had been in contractual relationship, since the plaintiff first opened his account with the defendants at their Borough branch. If two sentences on the face of the cheque book are to have contractual effect that must be by way of variation of the already existing contract between the parties. The effect of this distinction, however, is in my judgment merely to emphasise the importance of the notice to be given by the defendants to their customer before they can be in a position to plead successfully that he has accepted the proposed variation by using a cheque from the new book.
Despite counsel for the defendants’ able argument I am unable to treat the two sentences on the cheque book cover as adequate notice. Whilst it is true that the new cheque book differed materially from previous ones in format, the differences were not very marked. Cheque book covers had never previously been used for the purpose of containing contractual tems and I think that they fell into the category of documents which the recipients could reasonably assume contained no conditions; see, for example, per MELLISH, L.J., in Parker v. South Eastern Ry. Co. n(4) and Chapelton v. Barry Urban District Council n(5). The position might have been different had the new cheque book been the first issued to the plaintiff on his opening the account. But in the case of a customer like the plaintiff who has had an account for some time under the system prevailing down to the issue of the new cheque book, I am of the opinion that the mere presence of the two sentences on the new cheque book cover is inadequate to affect the pre-existing contractual relationship. In such circumstances I do not consider that the defendants could establish that they had given adequate notice to their customer to bind him to the new restricted use of the cheques unless they could show that he had read the sentences in question, or had signed some document indicating his agreement to their effect. I would be prepared to accept as the equivalent of the latter the signature of the customer on a cheque provided that the cheque form itself bore words limiting its use to the bank, brach and account shown in print on it. The present cheque bore no such words.
n(4) [1874-80] All E.R. Rep. at p. 169; (1877), 2 C.P.D. at p. 422.
n(5) [1940] 1 All E.R. 356; [1940] 1 K.B. 532.
Since I have reached the conclusion that on the facts here the defendants cannot bring themselves whithin the third of the rules which I have cited from ANSON, the defence in this action must fail. It is not necessary for me, therefore, to express reasoned views on three further points taken for the plaintiff by his counsel, namely (i) that the two sentences were not sufficiently explicit in their language to have affected the contractual relationship even had it been proved the plaintiff had read them; (ii) that there was no consideration for the alleged variation of the contractual relationship, and (iii) that, even if the plaintiff must be taken as being contractually bound by the two sentences, the altered cheque constituted no mandate from the plaintiff to the defendants to debit his account at the Borough branch. I can, however, briefly say that, as at present advised, I do not think that any of these points would have availed the plaintiff had the defendants succeeded on the point as to notice.
I accordingly declare that the laintiff is entitled to have his Borough account with the defendants credited by them with £ 2,300.
DISPOSITION:
Judgment for the plaintiff.
SOLICITORS:
W. R. Millar & Sons (for the plaintiff); Bright & Co. (for the defendants).
BURNETT v WESTMINSTER BANK LTD.
[1965 B. No. 1353.]
[QUEEN’S BENCH DIVISION.]
[1966] 1 QB 742
HEARING-DATES: 31: May 1, 25 June 1965
25 June 1965
CATCHWORDS:
Bill of Exchange – Cheque – Form – Cheque with magnetic signs for use by computer intended by banker to be applied to particular account at particular branch – Customer’s pen and ink alterations to different account and branch – Payment countermanded by communication addressed to that different branch – Whether duty on banker not to pay at branch for which cheque originally intended – Whether printed words on cheque book constitute adequate notice of proposed variation in banking contract. Banking – Current account – Contract – Crossed cheque with magnetic signs for use by computer intended by banker to be applied to particular account at particular branch – Customer’s pen and ink alterations to different branch and account – Payment countermanded by communication addressed to that different branch – Whether duty on banker not to debit current account – Whether printed words on cheque book constitute adequate notice of proposed variation in banking contract.
HEADNOTE:
The plaintiff was a customer of the defendant bank and had for a considerable time before January, 1965, maintained two current accounts, one at the defendants’ Borough branch and the other at their Bromley branch. On January 22, 1965, the plaintiff together with two friends was gaming on terms that they would share equally their winnings or losses. Having in fact lost oe3,000, and his two partners in gaming being unable then to pay, the plaintiff paid the winner oe700 in cash, and also gave him a crossed cheque made out to cash for the balance of oe2,300. The cheque was taken from a cheque book containing cheques intended by the defendants for use in connection with the Borough account, and bearing along the bottom three groups of figures in magnetic ink representing the cheque number, the bank and branch and the account number for use in the defendant bank’s computer system. It was the first cheque book of this new type to be issued to the plaintiff and differed in several ways from his previous books, which had been thinner and longer; and whereas the front covers of the previous books had merely contained four paragraphs of admonitory advice, on the cover of the new cheque book there appeared, in easily legible black type, the words “J. Burnett. The cheques and credit slips in this book will be applied to the account for which they have been prepared. Customers must not therefore permit their use on any other account.” The plaintiff, however, wishing to draw the cheque on his Bromley account, deleted with pen and ink the word “Borough” printed at the top of the cheque, and substituted therefor the word “Bromley,” altering the address accordingly and initialling the alterations. On the following morning the plaintiff’s partners in gaming having failed to pay
their shares, the plaintiff telephoned to the Bromley branch instructing the bank not to pay, and informing them of the correct number of the cheque, its date and amount, and also the fact that it was a Borough cheque that he had altered to Bromley. On January 25 he confirmed these instructions by letter to the Bromley branch, but nevertheless the cheque found its way being magnetically sorted to the Borough branch where on January 27 it was paid and debited to the plaintiff’s account.
The plaintiff brought an action against the defendants claiming that in so debiting his account the defendants had acted without his authority, and he claimed oe2,300 either (i) as damages for breach of contract; (ii) as money had and received by the defendants to the plaintiff’s use; or (iii) as money lent to the defendants. By their defence the bank alleged, inter alia, that the words on the cover of the plaintiff’s cheque book contained an express term in the relationship of banker and customer existing between the parties, namely, that the cheque would be applied to the branch for which it had been prepared by the defendants and that the plaintiff would not use it on any other account; the cheque in question, they alleged, was a mandate addressed to the Borough branch and in paying it the defendants had not acted in breach of duty, but the plaintiff, having used the cheque without objection, was himself in breach of contract and was not entitled to countermand the cheque:-
Held, that the two sentences on the cheque book cover, assuming that the plaintiff had not read them, were not adequate notice to the plaintiff of any proposed variation in the already existing contract between the parties; and that, although the plaintiff had seen that the cover contained printed words, since the covers of cheque books had never previously been used for the purpose of containing contractual terms, the plaintiff could reasonably assume that the cover contained no conditions. As the defendants had failed to prove that the plaintiff had either read the words on the cover or signed any acceptance of the proposed variation, the plaintiff was entitled to succeed; and, accordingly, there would be a declaration that he was entitled to have his Borough account credited by the defendants with oe2,300 (post pp. 762F – 764A).
Parker v. South Eastern Railway Co. (1877) 2 C.P.D. 416, C.A., and Underwood (A. L.) Ltd. v. Barclays Bank Ltd.[1924] 1 K.B. 775, 799-806; 40 T.L.R. 302, C.A. applied.
Westminster Bank Ltd. v. Zang [1966] A.C. 182; [1965] 2 W.L.R. 824; [1965] 1 All E.R. 1023, C.A. distinguished.
INTRODUCTION:
ACTION.
The plaintiff, Joseph Burnett, was a bookmaker who for some considerable time before January, 1965, had been a customer of the defendants, the Westminster Bank Ltd., with current accounts at their Borough and Bromley branches. On Friday, January 22, 1965, he and two others were gaming on the terms that they would
equally share their winnings or losses. In fact they lost oe3,000. The plaintiff’s two partners in gaming could not then pay, and the plaintiff accordingly paid the winner oe700 in cash and gave him a crossed cheque made out to cash for the balance of oe2,300. The printed heading on the cheque showed it to be drawn on the Borough branch, but wishing for some reason to draw the cheque upon his Bromley account the plaintiff deleted in ink the word “Borough” and substituted “Bromley,” also altering the address which had read “34 Borough High Street, London, “S.E.1,” so that it read “High Street, S.E.1.” The plaintiff then initialled these alterations on both sides of the printed heading. To have been absolutely correct he should also have deleted “S.E.1.”
Next morning, Saturday, January 23, having been let down by his partners in gaming, the plaintiff decided to stop the cheque, and accordingly he telephoned to the defendants’ Bromley branch and told them the correct number of the cheque, its date, its amount, and also the fact that it was a Borough cheque which he had altered to Bromley, and he instructed the Bromley branch not to pay the cheque. The plaintiff confirmed those instructions by letter to the Bromley branch dated Monday, January 25. Nevertheless, the cheque, having been put through the clearing house by Coutts & Co. Ltd., found its way to the defendants’ Borough branch and was there paid on or about January 27, the plaintiff’s account at that branch being debited with oe2,300. It was agreed that the payment of the cheque operated to discharge a liability of the plaintiff which was unenforceable by reason of the Gaming Acts.
The cheque, like the 29 other cheque forms in the book of cheques from which it was taken, bore from left to right along its bottom edge three groups of figures in magnetic ink, the first representing the number of the cheque, the second indicating the defendant bank and the Borough branch thereof, and the third indicating the plaintiff’s account at that branch. On the cover of the cheque book, which was orange in colour, appeared the words “Westminster Bank Ltd., Borough Branch, 34 High Street, London, S.E.1.” There then followed a small print of the arms of the defendants, below which were printed in clear and easily legible black type the words ‘J. Burnett. The cheques “and credit slips in this book will be applied to the account for which they have been prepared. Customers must not, therefore, permit their use on any other account.”
The defendants maintained a central computer to which the
Borough branch was connected. The operation of the computer system in banking was discussed in an article in the New Scientist dated April 1, 1965, which, in the agreed statement of facts, was agreed in so far as it contained statements of historical or present fact; and which, in so far as it contained predictions as to the future, was agreed to represent probable lines of development. From this article it appeared that computers were originally used in banks in this country to keep the accounts of groups of branch banks, information being fed into the computers on punched cards or paper tape so that it might be stored by them on magnetic tapes. A major advance in the system came about through a technique called magnetic ink character recognition (M.I.C.R.), which made available to banks machines capable of reading characters printed on cheques in “magnetisable” ink. Those machines were capable of sorting the cheques as between branches and accounts and of reading the details of the cheque serial number, the account number, etc., for storing on the magnetic tape at speeds of up to 1,600 cheques a minute. Accordingly, it became possible to use the cheques themselves as direct input to the computer and eliminate much of the punched-card or paper-tape input. In 1961 the banks in Great Britain agreed on a common code of magnetic information to be recorded on cheques. The first bank to use the direct cheque input for the posting of current accounts was the Westminster Bank Ltd., which opened the first M.I.C.R. centre in Europe in 1962. The use of computers and of M.I.C.R. cheques, therefore, clearly resulted in considerable economies in operating the banking system, and an increasingly all-embracing use of computers and M.I.C.R. cheques was contemplated, so that ultimately normal writing or typing on cheques might be almost if not completely eliminated, and there would be a greatly reduced handling of cheques within the banking system. Although that stage had not been reached at the material time the defendant bank in general and its Borough branch in particular seemed to have gone much further, by January, 1964, when the cheque book from which the cheque came was first issued to the plaintiff, than many other banks.
After the cheque had found its way to the London Clearing House via Coutts & Co. Ltd. it was sorted to the defendants by hand; it then went to the defendants’ central computer where it was read by an employee and a fourth group of M.I.C.R. figures was put upon it representing the amount for which the cheque was drawn, namely, oe2,300. Simultaneously and automatically all four groups of M.I.C.R. figures were fed into the magnetic tape
and stored by it for later application to the plaintiff’s account at the Borough branch. The computer, of course, was quite unable to read the pen and ink alterations to the Bromley branch. In fact it stored the information and allowed a period of suspense before actually applying it to the particular account by way of debit or credit. During that period of suspense the cheque was physically sent to the Borough branch, where it was checked for date, signature, and as to whether the account was sufficiently in credit to meet the cheque. In an appropriate case, therefore, the branch manager could decide whether or not to allow an overdraft. If, however, the computer were not stopped it would, after this period of suspense, automatically debit or credit the account, as the case might be. In the present case the period of suspense passed without the cheque being so stopped, and accordingly it was automatically debited to the plaintiff’s account.
The cheque book containing the cheque in question was the first of its kind issued to the plaintiff by the Borough branch. No facts were proved as to the type of cheques issued to the plaintiff by the Bromley branch, but Mocatta J. thought it fair to assume that in January, 1965, when the plaintiff altered the branch on the particular cheque in question, such cheques were in the same form as those which had been issued to the plaintiff by the Borough branch before January, 1964.
As to the plaintiff’s own knowledge it was agreed that he had seen that the front cover bore the printed words set out above, but it was further agreed that the case must be decided on the basis that he had not in fact read them. It was agreed that he had not orally or in writing objected to the notice which was contained in those words.
The previous cheque books issued to the plaintiff were of more or less the same orange colour as the cheque book from which the cheque came, but were somewhat thinner and over an inch longer. Each cheque in the previous books was attached to a counterfoil and there were no paying-in slips in the books, whereas in the new cheque book the cheques were of the same size but there were no individual counterfoils, and instead three pages, ruled in lines and columns on both sides, were provided immediately inside the front cover on which the customer could enter, if he wished, the number, date, amount, and payee and other details of each cheque. After the cheques, which followed these pages, there were four paying-in or credit slips, and two pages where provision was made for the cashier’s stamp to be attached as a receipt for sums paid in. The credit slips also had M.I.C.R. figures along
their bottom edges, indicating the defendants’ bank, the branch, and the account number. The old cheque books differed from the new in that they only bore the first two groups of M.I.C.R. figures, i.e., the cheque number, and the bank and branch and their front covers merely bore the defendants’ name on top, and bore no branch name or account name. Beneath the defendants’ name there appeared in italics the words “attention is particularly drawn to the following,” and there followed four clearly printed paragraphs, occupying the rest of the space, of an admonitory or advisory character indicating, inter alia, that cheques should be drawn on the forms supplied by the bank, how they should be filled in, etc. Five further paragraphs followed overleaf which advertised various services provided by the defendants’ bank. Those nine paragraphs were to be found overleaf on the inside of the front cover of the new books.
On March 26, 1965, the plaintiff issued a specially indorsed writ against the defendants claiming, inter alia, that on January 22, 1965, he had issued a mandate to the defendants at their Bromley branch to pay oe2,300 on presentation of the mandate, which he had countermanded by a telephone call to the Bromley branch on January 23, and had confirmed such countermand in writing on the same day; that in the premises it was the duty of the defendants not to pay against the mandate but that, the mandate having in due course been presented to the Borough branch, in breach of duty and without authority the defendants debited the sum of oe2,300 to the plaintiff’s account at that branch. The plaintiff accordingly claimed oe2,300 either (i) as damages for breach of contract, (ii) as money had and received by the defendants to the use of the plaintiff, or (iii) as money lent to the defendants. On objection by counsel for the defendants it was agreed between counsel that, if the plaintiff were entitled to succeed, the correct, or at any rate the most convenient, remedy was a declaration that the plaintiff was entitled to have his Borough account with the defendants credited with oe2,300, and the action proceeded as if that were the relief claimed.
The defence alleged that it was an express term of the relationship of banker and customer existing between the parties that the cheque would be applied to the branch for which it was prepared by the defendant bank, and that the plaintiff would not permit its use on any other account, such express terms being contained in a letter alleged to have been sent to the plaintiff on or about September 10, 1963; and the defendants relied also on the notice printed on the cheque book cover and the fact that the plaintiff
had used the cheque without objection. It was denied that the mandate was addressed to the Bromley branch, but alternatively it was alleged that if the cheque were in fact a mandate to the Bromley branch the plaintiff had so addressed it in breach of the alleged express term. The defence admitted that the plaintiff had telephoned to the Bromley branch, purporting to countermand payment, but denied that the countermand related to the mandate, which was, they alleged, addressed to the Borough branch. Alternatively, if the mandate was addressed to the Bromley branch they alleged that the plaintiff, being already in breach of contract, was not entitled to countermand. The defendants denied that they acted in breach of duty in paying the mandate. At the hearing Mocatta J. gave the plaintiff leave, subject to paying the costs involved, to put in a reply alleging, inter alia, that if there were indeed an express term as alleged by the defendants the defendants gave no consideration therefor.
COUNSEL:
Maurice Megrah for the plaintiff. The contract of banking is basically an implied one; it is not the practice to enter into a written contract when an account is opened. It was decided in Joachimson v. Swiss Bank Corporation n1 that in the absence of any special agreement it is necessary for the customer entitled to the money standing to his credit on a current account, to make a demand before he can claim repayment. The principles are clearly stated by Atkin L.J. in that case. n2 The moneys placed by the customer with the bank and the moneys received by the bank for its customer’s account are not held in trust for the customer, but are borrowed by the bank which undertakes to repay them. There may be cases where the contract of banking is put into writing, if for instance the customer wants travellers’ cheques, but it is not normally in writing. Three important principles emerge: (1) the bank will honour its customer’s cheques to the extent of his credit balance or to the limit of a permitted overdraft; (2) the bank will not pay without a mandate; (3) the customer will not mislead the bank when issuing his mandate. It is the duty of the bank to honour its customers’ cheques if it has in its possession sufficient funds to meet them and if the cheques are properly drawn; equally it is the bank’s duty not to pay if the mandate has been properly countermanded and if the order to stop payment has been received in time: see
n1 [1921] 3 K.B. 110; 37 T.L.R. 534, C.A.
n2 [1921] 3 K.B. 110, 127.
per Lord Shaw of Dunfermline in Westminter Bank Ltd. v. Hilton. n3 The mandate must be clear and unambiguous and not calculated to mislead.
The question which arises is: how may that relationship of banker and customer be changed? First, by express agreement, e.g., by superimposition of a special agreement, as when the issue of a documentary credit is applied for by the customer; it is normal in such circumstances to get the customer’s signature to the form of application.
Where there is such a new arrangement and the customer has signed the application, then obviously he is bound, but when the bank wishes for its own reasons to impose a new term on the banker-customer contract, it must do so in such a way as to leave no possible doubt, and it cannot do so unilaterally. The bank’s duty in this regard is fourfold: (i) to advise the customer of the new term; (ii) to ensure that that advice is received by the customer; (iii) to ensure that the customer understands it; and (iv) to ensure that the customer understands the consequences of failure bo comply with whatever he is asked to do and that the bank will not be responsible if he fails to comply. The variation of the contract thus requires knowledge and consent on the part of the customer, and possibly also consideration. It is doubtful whether the mere continuance of the banker-customer relationship constitutes such consideration.
Both before and after the introduction of the computer system with its use of electronic lettering it has been the practice of banks to scrutinise cheques before paying them to make sure that they are not post-dated, that the signature is correct and that there are funds to meet it. Previously such a scrutiny was made when the cheque came through the clearing at the paying branch; but it still has to be made. A cashier, who had such a cheque as the one in the present case presented to him for scrutiny, would not normally have occasion to look at the electronic figures at the foot of the cheque. The form of the customer’s mandate is his own concern and no one else’s, provided of course that it is clear and unambiguous. It may be written in pencil or ink, on paper or on cloth, or on a cheque form from another bank. If the mandate is ambiguous the bank has two alternatives; to pay and take the risk, or not to pay. In the case of ambiguity the bank may do the best it can in the circumstances, as any agent is always entitled to do if he has to choose.
n3 (1926) 43 T.L.R. 124, H.L.
If the bank acts reasonably it is entitled to be indemnified: [the Cheques Act, 1957, s. 1, was here referred to.]
In the present case the mandate was clear and unambiguous; the electronic lettering at the foot of the cheque was no part of the plaintiff’s mandate. That was put upon the cheque for the convenience of the bank and not for the plaintiff’s convenience at all. The plaintiff was not asked to agree to any variation of the contract. The presence of the wording on the cheque book cover does not amount to an acceptance by the plaintiff of a binding obligation. The word “permit” in the phrase “customers must not therefore permit their use on any other account” are not appropriate to the case. In normal parlance, a person “permits” someone else, he does not need to “permit” himself.
Much stronger language than that which appeared on the cheque book cover would be necessary even to put the customer upon inquiry. The alterations in pen and ink can only be disregarded if (a) they are ambiguous or (b) the electronic lettering at the foot of the cheque constitutes a binding instruction from the customer to ignore any alteration he might choose to make in pen and ink. The only ground upon which the customer might be bound to have regard to the electronic lettering at the foot of the cheque would be if there were a contractual duty upon him so to do by reason of the wording on the cheque book cover, but that wording is a unilateral communication from the bank which the customer must be made fully to understand and to accept before it becomes binding upon him. Here the mandate was clearly addressed to the Bromley branch, the countermand was properly received by that branch and was received in time, and therefore the cheque should not have been honoured and the Borough account should therefore be recredited.
The first submission for the plaintiff is therefore that the cheque was properly drawn and the mandate was properly countermanded. Alternatively, if that submission be wrong and if the cheque was altered from Borough to Bromley in breach of the plaintiff’s contract with the bank, it still makes no difference to the plaintiff’s right to have his account recredited. The plaintiff might then be liable in damages for breach of contract, but not in this action since there is no counterclaim. If there is a breach of contract by the plaintiff, it must be of an express term that has come in subsequently; it could not be an implied one for it is not an essential term of the normal contract banker-customer: see
per Jenkins L.J. in Sethia (K. C.) 1944 Ltd. v. Partabmull Rameshwar. n4
[MOCATTA J. It is not pleaded as an implied term, but as an express one, so it is not necessary to consider it. I do not see how the defence of breach of contract can prevent the plaintiff succeeding.]
It cannot do so even if the words could be regarded as binding, without any acceptance by the plaintiff, upon pain of the consequences not to use the cheques for any other account, or allow others so to do. But it is submitted that the plaintiff was not bound to read the wording on the cheque book cover. Similarly, a customer is not bound to read his passbook; a passbook does not represent an account stated, though it is similar thereto: see Chatterton v. London County Bank Ltd. n5 Even if the plaintiff saw the notice on the cheque book cover, which was the first cheque book he had received under the new system, he was not bound to read it; and even if he had read it, it would not carry the kind of responsibility which would enable the bank to say that there was a breach of contract on his part. Though the present case is not like the ticket cases, attention is drawn to Parker v. South Eastern Railway Co., n6 per Mellish L.J. n7 and perBramwell L.J. n8 That case was different from the present for the following reasons: (1) in the present case there was no “exceptional ignorance or stupidity” on the part of the plaintiff; (2) the writing on the cheque book covers did not contain conditions; at best the words hardly amounted to a warning.
A case, where the facts seem to be the same as those in the present case, with the sole exception of the electronic lettering, is Reade v. Royal Bank of Ireland, n9 a decision of the Supreme Court of Ireland, before Southern Ireland became independent, and which therefore is a decision of considerable weight though not binding on this court (see per Harman J. in Whiteside v. Whiteside n10 . The plaintiff therefore claims that he is entitled to have his account recredited because the bank disobeyed him by paying on a mandate which had clearly been countermanded, a mandate which was clearly addressed to the Bromley branch and on which the electronic lettering was irrelevant, there being
n4 [1950] 1 All E.R. 51, C.A.
n5 (1891) The Times, January 21, 1891; Paget’s Law of Banking, 6th ed. p. 85.
n6 (1877) 2 C.P.D. 416, C.A.
n7 Ibid. 422, 423.
n8 Ibid. 428.
n9 [1922] 2 I.R. 22.
n10 [1950] Ch. 65; 66 T.L.R. (Pt. 1) 126; [1949] 2 All E.R. 913, C.A. affirming [1949] Ch. 448; 65 T.L.R. 438; [1949] 1 All E.R. 755.
no contract in relation thereto between the plaintiff and the bank. [Reference was also made to Foley v. Hill n11 and Brown v. Westminster Bank Ltd. n12 ]
Richard Yorke for the defendants. The introduction of computer accounting does not prevent the continued use of the older methods side by side with it. The customer may, in theory at least, write his order to the bank on any substance that he chooses. He may even write it on a hard-boiled egg. The bank is not obliged to issue its customer with cheque forms at all, and equally the customer is not obliged to use any that are issued. In the present case the bank offered the plaintiff, as its customer, a particular form of cheque, pointing out that, if the cheques in the cheque book were used, they would be applied to the particular account for which they had been prepared, and that they must not be used for any other account. It was an offer by the bank to vary the normal banking contract which was accepted by the plaintiff by using one of the cheques. The standard of proof required for a variation of contract can be no higher than that required for the formation of the contract in the first place; and the wording on the cheque book cover would have been good enough to create a term, when a new contract was being entered into. The notice here was on the outside cover of the cheque book and was clearly visible, where it must inevitably be seen by the customer. The ticket cases are in point: see Parker v. South Eastern Railway Co. n13 and Hood v. Anchor Line (Henderson Bros.) Ltd., n14 in the latter case n14 a notice on the envelope was sufficient to draw attention to the terms which were inside, and the buyer of the tickets was held bound by those terms: Underwood (A. L.) Ltd. v. Bank of Liverpool;Underwood (A. L.) Ltd. v. Barclays Bank n15 applies this principle to banking and that decision is supported by the Court of Appeal in Westminster Bank v. Zang. n16 The combined effect of these decisions is that the relationship of banker and customer can be varied by wording on the “container,” i.e., the cheque book cover in this case. If that be right the only question is whether in this case the contract has been so varied. The rules laid down in Parker v. South Eastern Railway Co. n17 are applicable here: see Anson on Contract, 22nd ed. (1964), at pp. 143 and 144.
n11 (1848) 2 H.L.Cas. 28, H.L.
n12 [1964] 2 Lloyd’s Rep. 187.
n13 (1877) 2 C.P.D. 416, C.A.
n14 [1918] A.C. 837; 34 T.L.R. 550, H.L.(Sc.).
n15 [1924] 1 K.B. 775; 40 T.L.R. 302, C.A.
n16 [1966] A.C. 182; [1965] 2 W.L.R. 824; [1965] 1 All E.R. 1023, C.A.
n17 (1877) 2 C.P.D. 416, C.A.
If, as here, the plaintiff knew there was writing on the cheque book cover, though he had not read it, and therefore did not know or believe that it contained conditions, the test is whether the defendants did what was necessary to give him reasonably sufficient notice of the proposed variation. The plaintiff here must have known that the wording was not just an invitation to a football match and that it must have been to do with banking in some form or another. It is reasonable to assume that the customers are literate and will realise that the wording on the cover must relate to the cheques which the book contains; Hood’scase n18 decides that it is sufficient if the notice tells one to look elsewhere for the conditions. The plaintiff must have known that he should read the notice, and he cannot be put in a better position because he refuses to read it: see per Bramwell L.J. in Parker v. South Eastern Railway Co. n19 upon whose words reliance is placed. It matters not that the plaintiff did not read the notice. It might be different if the notice was stuck in the middle of a mass of other wording: see Richardson, Spence & Co. v. Rowntree. n20
If the wording on the cheque book cover in this case did not give reasonably sufficient notice to the plaintiff, then nothing ever would do so. The words were in what was previously a blank space. They were in what was not only the best but the only place where such a notice could be placed, on a cheque book which the plaintiff was bound to use. The plaintiff was fixed with notice of the terms and having used one of the cheques from the book, he became bound by those terms. The wording on the cover is mandatory, it does not need to be minatory or prohibitive. If the customer uses one of the cheques from a book of cheques such as that issued to the plaintiff, the only things over which he has control are the date, the payee, and the amount. He cannot vary the account to which the cheque will be directed, or the branch or bank. Any variation will be disregarded because the account direction is contained in the M.I.C.R. lettering at the foot. The word “permit” in the phrase “customers must not therefore permit” the use of the cheque for another account is apt to include use by the customer himself: compare Baker v. Chapman. n21 It is said for the plaintiff that the bank is under an obligation to scrutinise the cheque, but that is an attempt to impose a duty upon the bank which is
n18 [1918] 1 K.B. 775, C.A.
n19 (1877) 2 C.P.D. 416, 428, C.A.
n20 [1894] A.C. 217; 10 T.L.R. 335, H.L.
n21 (1963) 61 L.G.R. 527, D.C.
quite inconsistent with the express terms of the contract. If it is correct that the only thing the customer has control over and can alter are the date, the payee, and the amount, those are the only things which the bank is bound to scrutinise. As to the suggestion that consideration is required for the variation, if that be so, then, consideration can be found in the giving to the plaintiff of a free cheque book.
[MOCATTA J. Is that not past consideration?]
The customer asks for and is given a cheque book. Consideration can also be found in the bank’s willingness to continue the account, which they are under no obligation to do. Consideration must therefore be implied from the continuance of the relationship. In any case the alleged lack of consideration was not pleaded in the statement of claim as it should have been. An amendment ought not now to be allowed: see Busch v. Stevens. n22 The form of variation of a continuing executory contract does not seem to have been considered in the authorities: see Chitty on Contracts, 22nd ed. (1961), Vol. 1, para. 1644 et seq. It is submitted, however, that the whole consideration for the contract is imported into the agreement to vary it.
The new type of cheque book is completely different from the previous one. The lettering on the cover is easily legible, being in black on an orange background which provides even greater contrast than black and white. They can reasonably be read. It is a case of Occam’s razor – anyone can read and understand the words. It is conceded that if the mandate is in fact directed to the Bromley branch, then the defendants would have no defence, but if, as is contended, the mandate is directed to the Borough branch, then it has been complied with. The plaintiff waived his right under the original contract to address his mandate to any other branch. [Reference was made to Anson on Contracts, 22nd ed. (1964), pp. 422-425; Cheshire & Fifoot on Contract, 6th ed. (1964), pp. 472-474; Wallis v. Semark n23 perSomervell L.J. n24 and per Denning L.J. n25 ; Rickards (Charles) Ltd. v. Oppenheim n26 ; A/S Tankexpress v. Compagnie Financiere Belge de Petroles S.A. n27 ; Paget on the Law of Banking, 6th ed. (1961), p. 48; Brewer v. Westminster Bank Ltd. n28 ; British &
n22 [1963] 1 Q.B. 1; [1962] 2 W.L.R. 511; [1962] 1 All E.R. 412.
n23 [1951] 2 T.L.R. 222, C.A.
n24 Ibid. 225.
n25 Ibid. 226.
n26 [1950] 1 K.B. 616, 622; 66 T.L.R. (Pt. 1) 435; [1950] 1 All E.R. 420, C.A.
n27 [1949] A.C. 76; [1948] 2 All E.R. 939, H.L.
n28 [1952] 2 T.L.R. 568; [1952] 2 All E.R. 650.
Beningtons Ltd. v. North Western Cachar Tea Co. Ltd. n29 ; Panoutsos v. Raymond Hadley Corporation of New York n30 ; Cape Asbestos Co. Ltd. v. Lloyds Bank Ltd. n31 and London, Provincial & South Western Bank Ltd. v. Buszard. n32 ]
Maurice Megrah in reply. It is not alleged that the bank was under a duty to scrutinise the cheque; what was said was that it was the bank’s practice both before and after the introduction of the new system to do so. What the bank does, it does to protect itself. The slightest scrutiny would have revealed the fact that this cheque was obviously drawn on the plaintiff’s Bromley account, and not on the Borough account. The plaintiff can only be bound by the words on the cover if the bank has done what is reasonably necessary to bring the proposed variation to the plaintiff’s notice. Any ambiguity in the wording must be construed in the plaintiff’s favour. The ticket cases are not a true analogy, since they do indicate that there are conditions attaching to the contract; the words on the cheque book cover do not. There is no reference in them either to conditions or to consequences. Furthermore in the ticket cases there is no pre-existing contractual relationship between the parties. The onus rests upon the bank to show that the presence of conditions was made clear to the plaintiff: see Parker v. South Eastern Railway Co. n33 per Baggallay L.J. n34 and Mellish L.J. n35
Again there is no analogy with the paying-in slip in Zang’scase. n36 The bank had in any case a right to postpone payment of cheques drawn against uncleared effects. There was no need to put it in the notice at the foot of the paying-in slip expressly. The customer has no such right but the bank may give it to him by conduct or expressly. The notice did not affect his legal rights.
It is alleged that the consideration for the alleged variation of contract is the continuance of the banking account with the plaintiff. That might be so if the wording on the cheque book cover were indeed an attempt to vary the contract. The banking contract is a continuing one and not an executory one. It is a relationship complete at any moment of time, save in so far as there are any outstanding cheques, and as regards those, the consideration for their payment has already been given. Nothing
n29 [1923] A.C. 48, H.L.(E.).
n30 [1917] 2 K.B. 473; 33 T.L.R. 436, C.A.
n31 [1921] W.N. 274.
n32 (1918) 35 T.L.R. 142.
n33 (1877) 2 C.P.D. 416, C.A.
n34 Ibid. 424, 425.
n35 Ibid. 422.
n36 [1966] A.C. 182.
further is necessary to support the banker-customer relationship and so long as it subsists the customer is entitled to whatever benefits it offers. Here the bank are trying to impose a new express term on the pre-existing implied contract; it is a term about which the customer knows nothing and it is alleged that the consideration is the willingness to continue the old friendly relationship. But the words on the cheque book cover contain no conditions telling the plaintiff that unless he complies with the new term the bank will not continue to have the plaintiff as a customer. It is hard to see how the consideration which was implied in the basic and fundamental agreement between the parties can possibly suffice as consideration for the new term even if the words did indeed contain such a new term.
There was a notice on the inside of the cheque book cover which read “cheques should be drawn on forms provided by the bank. Material alterations must be confirmed by signature.” This proves that material alterations were visualised by the bank. It may be argued that the plaintiff should have signed the alteration in full, but it is a well-known practice that banks accept initials instead. The important point is that alterations were envisaged. At the time when the cheque reaches the bank on which it is drawn there is a scrutiny; and that scrutiny must take account of any such drastic alteration as an alteration of the branch upon which it purports to be drawn. It seems impossible to argue that the words on the cover have any binding effect at all upon the plaintiff. Had they been on the cheque itself the bank’s position might have been stronger.
The word “permit” in Baker v. Chapman n37 was used in a very special context, that of the Road Traffic Act, 1960; it was not in a commercial contract and Lord Parker C.J. was construing it in its statutory context.
The mandate in this case, as in any other case, must be considered as it appears, by itself at the time it is presented for payment. If the customer did something to the mandate which was a breach of contract, the bank would be entitled to refuse payment, but that is not this case. The customer may be in breach of contract but the mandate must still be considered by itself at the time it is presented. [Reference was made to Curtice v. London City & Midland Bank Ltd. n33 ; London Joint
n37 (1963) 61 L.G.R. 527, D.C.
n38 [1908] 1 K.B. 293; 24 T.L.R. 176, C.A.
Stock Bank Ltd. v. Macmillan and Arthur n39 ; Lewes Sanitary Steam Laundry Co. Ltd. v. Barclay & Co. Ltd. n40 ]
Cur. adv. vult.
June 25.
PANEL: Mocatta J
JUDGMENTBY-1: MOCATTA J
JUDGMENT-1:
MOCATTA J: The problems that have arisen in this action are due to the use of computers by the defendant bank and the issue by the bank to its customers of cheque forms bearing magnetic ink characters (M.I.C.R.) capable of being read by the computers or associated machines.
The primary facts in the case are not in dispute and are either contained in the pleadings or in the agreed statement of facts, or were agreed in argument before me between counsel. [His Lordship stated the primary facts and continued:] In this action the plaintiff claimed that the defendants, in so debiting his account at the Borough branch, acted without his authority. He accordingly claimed oe2,300 in a variety of alternative ways, but it was agreed between counsel that, if the plaintiff was entitled to succeed, the correct, or at any rate the most convenient, remedy was a declaration that the plaintiff was entitled to have his Borough current account with the defendants credited with oe2,300. Somewhat paradoxically the plaintiff indicated through his counsel that he would be prepared to return oe300 to the defendants, since he had always recognised his personal liability for oe1,000 out of the oe3,000 lost at gaming. It was added that should he recover any part of the oe2,000 from his gaming partners he would pay this over to the defendants. These matters clearly cannot affect the legal issues in this action.
The defendants denied that they had acted without the plaintiff’s authority in paying the cheque and debiting the plaintiff’s account at the Borough branch. They pleaded that it was an express term of the relationship of banker and customer prevailing between them and the plaintiff at the time, that cheque forms issued by the Borough branch would be applied to the account for which they had been prepared, and that the plaintiff would not use or permit their use on any other account. These terms were derived from the notice printed on the front cover of the cheque book, first issued to the plaintiff in or about January, 1964, by the Borough branch and containing the cheque in question, and the use by the plaintiff of the cheque book without objection. The front cover of the cheque book, which was orange in colour, read
n39 [1918] A.C. 777; 34 T.L.R. 509, H.L.
n40 (1906) 22 T.L.R. 737; 11 Com. Cas. 255.
as follows: “Westminster Bank Limited. Borough Branch, 34 Borough High Street, London, S.E.1.” There followed a small print of the arms of the defendants, below which were printed, in clear and easily legible black type: “J. Burnett. The cheques and credit slips in this book will be applied to the account for which they have been prepared. Customers must not, therefore, permit their use on any other account.” Relying upon these two sentences, particularly the first, as having contractual effect, the defendants pleaded and argued that notwithstanding the pen and ink alterations on the cheque substituting Bromley for Borough, the cheque must be read as a mandate to the Borough branch with which they had complied.
The defendants further pleaded in the alternative that by altering the cheque as he did the plaintiff was in breach of contract There was, however, no counterclaim and this part of the defence was not relied upon in argument.
I gave the plaintiff leave, at his expense, to put in a reply in which he raised the point, inter alia, that there was no consideration given by the defendants for the agreement, if any, relied upon by the defendants as having been constituted by the use by the plaintiff of one or more cheques out of the cheque book bearing on its cover the two sentences I have set out.
It is necessary that I should now explain the relevance of the use of computers made by the defendants and the employment by them of M.I.C.R. characters on the cheques supplied by them to the plaintiff. [His Lordship summarised the contents of the article in the “New Scientist” dated April 1, 1965 (supra), and stated in detail the facts relating to the M.I.C.R. system and their application to the present case and continued:] It will be seen from the above that the whole system is as yet by no means automatic and from the explanation given by Mr. Yorke I conclude that the defendants’ employees at the Borough branch could, on their examination of the cheque for date, signature and amount, have taken appropriate steps, pursuant to the pen and ink alterations to the Bromley branch, to have prevented the cheque being debited to the Borough branch. They did not do so and Mr. Yorke argued that they were under no obligation so to do, since on the defendants’ case the plaintiff, by accepting the notice on the front of the cheque book, agreed that any cheque from that book, however altered in pen and ink, could only constitute a mandate to the defendants to apply the cheque to the plaintiff’s account at the Borough branch.
As to the plaintiff’s own knowledge it was agreed that he had
seen that the front cover of the cheque book bore printed words in fact constituting the notice relied upon by the defendants, but it was further agreed that the case had to be decided on the basis that he had not read them. It was agreed that he had not orally or in writing objected to the notice. It appears from the detailed instructions which he gave by telephone and letter to the Bromley branch that he could read the M.I.C.R. figures at the bottom of the cheque, which is not altogether easy at first acquaintance, and knew which group contained the cheque number, since he correctly gave the number to the Bromley branch. It was also agreed that the cheque book containing the cheque in question was the first of its kind issued to him by the Borough branch. No facts were proved as to the cheques issued to him by the Bromley branch and I therefore think it fair to assume that in January, 1965, when the plaintiff altered the branch on this particular cheque, they were in the same form as those which had been issued to him by the Borough branch before January, 1964.
It is of some importance that I should explain the differences between the cheque books and cheques previously issued to the plaintiff by the Borough and (I am assuming) the Bromley branches and this particular cheque book (which I will call the new book) and its cheques, which was issued to the plaintiff in or about January, 1964.
[His Lordship described the differences between the old cheque books and the new, and continued:] For the purposes of the legal arguments raised, perhaps the most important differences are to be found on the front covers. The old cheque books merely had the defendants’ name at the top, with no branch name or account name. The front cover went on, in italics, “attention is particularly drawn to the following.” There followed below on the front of the cover four clearly printed paragraphs, occupying the rest of the space, of an admonitory or advisory character indicating, inter alia, that cheques should be drawn on the forms supplied by the bank, how they should be filled in, etc. Five further paragraphs followed overleaf, advertising various services of the bank. It was not argued that any of these nine paragraphs was of contractual effect.
The front of the new cheque book was as I earlier described. Its two sentences were said to be of contractual effect once the customer used a cheque from the book. The nine paragraphs from the face and overleaf of the front cover of the old books are now to be found in two columns on the overleaf of the front cover of the new book.
Since there was no disagreement between counsel on the general principles applicable to the legal relationship between banker and customer so far as relevant to this case, I can state in summary form a number of points of importance by way of background in approaching the problem to be decided. First, in the ordinary case of banker and customer their relations depend either entirely or mainly upon an implied contract. Secondly, the banker undertakes to repay money received by him on behalf of his customer against the written order of the customer. That promise is to repay at the branch of the bank where the account is kept and similarly when the customer has accounts at more than one branch. Thirdly, unless otherwise agreed, the customer’s written order need not be on any particular form, though no doubt in the vast majority of cases the customer today uses cheque forms supplied by his banker. Nevertheless other forms are used, such as “house” cheques, forms prepared by charities to further their appeals and, on rare occasions, a customer may write his mandate to his banker on some handy piece of paper or on some even more informal material. In addition cheque forms issued by one branch or one bank may be altered so as to constitute mandates to another branch or another bank. Fourthly, the customer undertakes to exercise reasonable care in executing his written orders so as not to mislead the banker by ambiguities or to facilitate forgery. Fifthly, the banker must not pay if the customer has countermanded his mandate in time, but notice to stop payment given to one branch of a bank does not per se constitute notice to any other branch of the same bank. As regards these last two points the altered cheque here, if the magnetised ink be ignored, was in no sense ambiguous, whilst the Bromley branch received the plaintiff’s instructions not to pay a matter of days before the cheque found its way via the clearing house to the defendants. The Borough branch had no knowledge of the plaintiff’s instructions to the Bromley branch not to pay the cheque.
It was not argued for the defendants that the introduction by them of the new cheques, bearing magnetised ink characters to the extent present on the plaintiff’s cheque here, in any way altered the position between themselves and their customers in regard to the above points, save only as to one limit on the use of the new cheques. Thus, provided that they received unambiguous mandates from their customers, the defendants would continue to deal with these as before even if written, for example, on the
cheque forms of other banks or on no forms at all. It was, however, added that if this happened at all frequently in the case of mandates addressed to branches which had gone over to the new system, the customers in question would be likely to be charged heavily and might be asked to take their accounts elsewhere. In the case of these new cheques issued to the plaintiff, however, the defendants argued that by agreement the position had been altered to this extent, that if the plaintiff used such a cheque he could not by anything he wrote on its face validly instruct them to pay out of any account or branch other than those referred’ to in print on the front of the cover of the cheque book and repeated in print on each cheque contained in it.
It is plain from what I have said that the defendants could not unilaterally so restrict the plaintiff’s rights and the contrary was not contended. The restriction could only be made effective by agreement between the plaintiff and the defendants. In some cases, no doubt, express agreement on a similar restriction may be reached between banker and customer, such as, for example, by exchange of letters or the signature on some form by the customer. The defendants were not here in a position to rely upon any such express written agreement evidence by any document signed by the plaintiff. They argued, however, that the plaintiff had, by his conduct in using a cheque or cheques taken from the new cheque book containing on the front of its cover the two sentences I have set out, agreed to the restriction in question.
I was referred by both counsel to the well-known case of Parker v. South Eastern Railway Co., n1 and it was suggested, particularly by Mr. Yorke for the defendants, that the three general rules therein laid down in relation to ticket cases were applicable here. Mr. Yorke based himself on the rules as stated in Anson, 22nd ed. (1964), at pp. 143 and 144: “1. If the person receiving the ticket did not see or know that there was any writing on the ticket, then he is not bound by the conditions. 2. If he knew there was writing, and he knew or believed that the writing contained conditions, then he is bound by the conditions, even though he did not read them and did not know what they were. 3. If he knew that there was writing on the ticket, but did not know or believe that the writing contained conditions, nevertheless he will be bound if the party delivering the ticket has done all that can reasonably be considered necessary
n1 (1877) 2 C.P.D. 416, C.A.
to give notice of the term to persons of the class to which he belongs.”
On the facts here he submitted that as the plaintiff had seen that the front cover of the new cheque book bore printed words, it did not matter that he had not read them and did not know or believe that they contained conditions affecting the use he was entitled to make of the cheques in the book, provided that the defendants had done all that could reasonably be considered necessary to give him notice of the conditions. Mr. Yorke submitted that the two sentences on the new cheque book cover constituted in the circumstances such reasonable notice. They were easily legible, the new cheque book both in its cover and contents was noticeably different from the old one previously issued and it was next to impossible for the defendants by writing letters or issuing forms for signature to secure that the customers read the letters or signed the forms; the defendants had therefore given the plaintiff reasonable notice. He also relied upon A. L. Underwood Ltd. v. Barclays Bank Ltd., n2 per Scrutton and Atkin L.JJ., and the recent case of Westminster Bank Ltd. v. Zang, n3 as showing how readily the courts will conclude that the legal relationship between customer and banker had been varied by the filling in by the customer of a paying-in slip containing a sentence as to the banker’s rights. I do not think these two cases of much assistance here since the customer in both filled in the slips containing the terms relied upon by the banks. There were no terms on the cheque form used by the plaintiff.
I do not consider the ticket cases to afford exact parallels with the circumstances here, since those cases relate to printed documents being handed contemporaneously with the making of the relevant contract. Here the plaintiff and defendants had been in contractual relationship since the plaintiff first opened his account with the defendants at their Borough branch. If two sentences on the face of the cheque book are to have contractual effect that must be by way of variation of the already existing contract between the parties. The effect of this distinction, however, is in my judgment merely to emphasise the importance of the notice to be given by the defendants to their customer before they can be in a position to plead successfully that he has accepted the proposed variation by using a cheque from the new book.
Despite Mr. Yorke’s able argument I am unable to treat the
n2 [1924] 1 K.B. 775, 799-806; 40 T.L.R. 302, C.A.
n3 [1966] A.C. 182; [1965] 2 W.L.R. 824; [1965] 1 All E.R. 1023, C.A.
two sentences on the cheque book cover as adequate notice. Whilst it is true that the new cheque book differed materially from previous ones in format, the differences were not very marked. Cheque book covers had never previously been used for the purpose of containing contractual terms and I think they fell into the category of documents which the recipients could reasonably assume contained no conditions: see, for example, per Mellish L.J. in Parker v. South Eastern Railway Co. n4 and Chapelton v. Barry Urban District Council. n5 The position might have been different had the new cheque book been the first issued to the plaintiff on his opening the account. But in the case of a customer like the plaintiff who has had an account for some time under the system prevailing down to the issue of the new cheque book, I am of the opinion that the mere presence of the two sentences on the new cheque book cover is inadequate to affects the pre-existing contractual relationship. In such circumstances I do not consider the defendants could establish that they had given adequate notice to their customer so as to bind him to the new restricted use of the cheques unless they could show that he had read the sentences in question, or had signed some document indicating his agreement to their effect. I would be prepared to accept as the equivalent of the latter the signature of the customer on a cheque, provided that the cheque form itself bore words limiting its use to the bank, branch and account shown in print upon it. The present cheque bore no such words.
Since I have reached the conclusion that on the facts here the defendants cannot bring themselves within the third of the rules I have cited from Anson, the defence in this action must fail. It is not necessary for me, therefore, to express reasoned views upon three further points taken for the plaintiff by Mr. Megrah, namely (i) that the two sentences were not sufficiently explicit in their language to have affected the contractual relationship even had it been proved that the plaintiff had read them; (ii) that there was no consideration for the alleged variation of the contractual relationship, and (iii) that even if the plaintiff must be taken as being contractually bound by the two sentences, the altered cheque constituted no mandate from the plaintiff to the defendants to debit his account at the Borough branch. I can, however, briefly say that, as at present advised, I do not think that any of these points would have availed the plaintiff had the defendants succeeded on the point as to notice.
n4 2 C.P.D. 416, 422.
n5 [1940] 1 K.B. 532; 56 T.L.R. 331; [1940] 1 All E.R. 356, C.A.
I accordingly declare that the plaintiff is entitled to have his Borough account with the defendants credited by them with oe2,300.
DISPOSITION:
Judgment for the plaintiff for declaration as asked, with costs; oe2 in court to be paid out to the plaintiff.
SOLICITORS:
Solicitors: W. R. Millar & Sons; Waltons, Bright & Co.
T. C. C. B.
Islamicbanker's Weblog 
Comments»
No comments yet — be the first.