HC Deb 14 August 1876 vol 231 cc1207-21

Order for Third Reading read.

Motion made, and Question proposed, "That the Bill be now read the third time."—(Mr. Attorney General.)


said: Sir, the object of this Bill is to protect the community against the dangers affecting crossed cheques, arising from dishonesty in thieves and carelessness in bankers; and it has been introduced in response to the dissatisfaction occasioned by the decision in the case of "Smith v. the Union Bank of London." In that case a cheque of £21 9s. was drawn by Mills and Co. upon the Union Bank of London, payable to Smith or his order. Smith received the cheque, endorsed it, and crossed it "London and County Bank." The cheque was stolen by a thief, whose transferee paid it into the London and Westminster Bank to his own credit. The London and Westminster Bank improperly presented the cheque, and the Union Bank improperly paid it, and returned it to Mills, to whose debit it was placed. Mills, possessing a genuine acquittance from Smith, is satisfied; but Smith, not having received the amount, claims it from the Union Bank, who paid it wrongfully. The Court of Common Pleas negatived Smith's claim, and that decision was upon appeal confirmed by the Supreme Court upon these grounds:—1st, that the negotiability of the cheque was not restrained by the crossing; 2ndly, that the customer of the London and Westminster Bank was the lawful owner of the cheque; 3rdly, that Smith had no property in the cheque; and, 4thly, that Mills and Co., as drawers, were alone qualified to bring an action upon it. To amend the law as thus expounded, the Bill before the House was introduced; its earlier clauses define the terms used, and in the 7th clause it recites the law as already expressed in the Statute Book; but it adds, in the 10th clause, the needful enforcement of the law in the following terms:— Any banker paying a cheque crossed generally otherwise than to a banker, or a cheque crossed specially otherwise than to the banker, to whom the same shall be crossed, or his agent for collection, being a banker, shall be liable to the true owner of the cheque for any loss he may sustain, owing to the cheque having been so paid. Up to that point I think the Bill is perfectly clear and satisfactory, and at that point I should have been satisfied to stop. I had introduced a Bill at the commencement of the Session to provide that bankers should not with impunity neglect the instructions upon a cheque; but I withdrew my own Bill in consequence of a measure having been introduced in the House of Lords which had the advantage of summing up the whole law in to one statute, and of making a clear exposition as to what was hereafter to be a guide to commercial men and bankers. The author of the Bill in the House of Lords did not think it sufficient to leave the declaration of the law in that particular shape. It appears to have been thought necessary to define who was the "true owner" of a cheque; and that attempt no doubt may have been rendered necessary by the circumstance that in the judgment delivered in the case of "Smith v. the Union Bank," the Court declared that Smith, the plaintiff, could not maintain an action for the cheque stolen from him, and it had recognized in the person who received it from the thief the "true and lawful owner." Therefore, if that view were accepted, it would become necessary to define the "true owner" referred to in the 10th clause. I should have thought that the true owner would have been admitted to be the person from whom the cheque was stolen; but the decision in the case of "Smith v. the Union Bank," seems to have been based upon the one assumption, that, however clear the instructions given to the banker by the crossing, "they could not restrain the negotiability of the cheque," a phrase which recognized the title of the actual possessor, and I anxiously call the attention of the House to the grounds on which the negotiability of cheques is assumed, because—if, as I think it can be shown—there is no antecedent necessity for ascribing the especial negotiability to crossed cheques, then the difficulty felt by the Court in the case to which I have referred, need not have existed, and the true ownership in the cheque might easily have been settled. The cases cited in the Court of Appeal, as establishing the negotiability of crossed cheques were "Bellamy v. Majoribanks," "Carlyon v. Ireland," and "Simmonds v. Taylor." I have referred to the Law Reports, and I find that the case of "Bellamy v. Majoribanks" was tried as far back as 1852; its purport was to recover from Coutts & Co. the value of a crossed cheque paid over the counter, and in the judgment it was laid down by Baron Parke— That the crossing of a cheque payable to bearer with the name of a banker does not restrain the negotiability of the cheque to that banker. In the case of "Carlyon v. Ireland," tried in January, 1856, the Judges in the Queen's Bench agreed "that a cheque payable to 'bearer' was negotiable, and that the crossing left it negotiable." But in 1856 the statute 19 & 20 Vict. c. 25, was passed for the purpose of correcting the effect of those particular decisions, and it enacted— That a cheque which was crossed either '&Co.' or with the name of a particular bank should only be paid to or through some banker." Subsequently to the passing of that Act in May, 1857, the case of "Simmonds v. Taylor" was brought before the Exche- quer Courts, and in that case it was declared that—"a crossed cheque presented with the crossing obliterated might be justifiably paid to a stranger." The judgment was unimpeachable as to the point of law which it decided, but the language of the judgment went far beyond the particular necessity of the case, and the learned Judge (Baron Bramwell) enunciated a dictum of a most important character. He stated on that occasion—"The negotiability of the cheque is not and never was affected by crossing;" and he added—"It is impossible to make the crossing a part of the instrument and yet preserve its negotiability." Baron Bramwell could not reconcile the negotiability of a cheque with the operative power of the crossing, but what was the action taken by the mercantile community after that ruling had been laid down? The obiter dictum of Baron Bramwell led to the immediate introduction of a Bill into this House—a Bill that was passed into law in the same year, 1858. This Act, 20 & 21 Vict. c. 79, was perfectly clear and most stringent in its terms with regard to the efficacy of crossing. The Act declared— That the crossing should be deemed a material part of the cheque, and that no banker should pay a cheque crossed '& Co.' except to a banker; or should pay a cheque crossed to a particular banker except to that banker. As between the assumed negotiability of a crossed cheque and the efficacy of the crossing, the commercial community decided in favour of the efficacy of the crossing. One might have thought that the fact of two separate Acts having been passed in order to negative the particular attribute of negotiability judicially assigned to crossed cheques would have been sufficient; but the judgment in the case of "Smith v. The Union Bank of London" has exhibited the strength and tenacity of the force of legal traditions, and has shown that lawyers have attached an almost superstitious veneration to what they call the "negotiability of cheques." And upon what authority is this quality of negotiability in crossed cheques affirmed in the judgment delivered by Baron Bramwell in "Smith v. The Union Bank of London?" The cases "Bellamy v. Majoribanks," "Carlyon v. Ireland," and "Simmonds v. Taylor," are cited as "clearly showing that, whatever may have been the effect of a crossing, the negotiability of the cheque was not thereby restrained"—that is to say, the decisions delivered in 1852 and in 1856, and corrected by legislation in 1856 and 1858, and a dictum enunciated in 1858, and specifically corrected by legislation in the same year, are cited in 1876 in support of a theory which has been repudiated by the mercantile community, and again and again discountenanced by statute law. And what is the force and meaning of the term? When cheques are called "negotiable," we must remember that the word is one of very doubtful import as applied to such documents. There are cheques, there are bank notes, and there are bills of exchange, and they have all been called "negotiable," but they are severally documents of entirely different characters. A bank note is as paper money a part of the circulating medium, of which the title passes with possession from hand to hand, a bill of exchange may with perfect accuracy be described as a "negotiable" document, for its transfer is matter of bargain, in which interest of money and period of maturity are elements in the negotiation; but a cheque stands between the two. It does not, like a bank note, circulate from hand to hand upon its intrinsic security, nor is it like a bill of exchange, negotiable at a discount—it is a document which only passes at its value from the drawer to the payee, the transfer of its amount being its sole purpose. That being the case, it is gravely inaccurate to say that a cheque ought of course to be negotiable like a bill of exchange, or to circulate like a bank note, when in its nature and its office it is essentially different from both the one and the other. The judgment in "Smith v. the Union Bank of London" concludes with the remark that— If the statute had meant to prevent any person from becoming lawful holder of a crossed cheque, unless he derived title through lawful holders—this ought to have been expressed; and a learned writer (B), in a letter to The Economist of 1st January last, suggested these words— Any person taking a cheque crossed with a banker's name or & Co. in transverse lines, shall have no better title to it than the person of whom he took it had. Assuming the necessity for some definition of the "true owner," this clause seems well fitted for its purpose, and it appeared in the Lord Chancellor's Bill, but with the substitution of the words "crossed specially" for the word "crossed." The word "specially" struck out when the clause first came under the consideration of the Committee, was re-inserted when the Bill came again unexpectedly under revision in a thin House. Not one crossed cheque out of 100 is crossed "specially." The cheques used in payment of the dividends of the public funds, of the dividends of railway companies and others, are cheques payable to "order" and crossed "& Co."—it cannot be otherwise. The Bank of England and the various public companies know the names of their payees, but they do not the bankers of those payees—many of whom indeed have no banker—but the system pursued has been found convenient, and has been thought to be secure. The insecurity disclosed by the judgment in Smith's case, it has been professedly the object of the present Bill to remove; but by the insertion of the word "specially" in the 12th clause the great mass of crossed cheques are deprived even of the protection which earlier statutes were supposed to give them, for in accordance with the legal axiom "expressio unius est exclusio alterius" the thief barred from a title through possession of a cheque crossed specially, is recognized as acquiring a title through possession of a cheque crossed generally. This result seems a remarkable and highly unsatisfactory achievement of a Bill introduced for the purpose of protecting crossed cheques from loss arising in the carelessness of bankers and the dishonesty of thieves. Apprehensions have been expressed that the business effected through the medium of crossed cheques, passing from hand to hand, against which, when once paid, value is freely given without the fear of ulterior risk, would be materially obstructed if invalidity of title to a cheque, or, in other words, the discovery that it had been stolen, were to be the occasion of a call for restitution from the receiver of the amount. That transactions adjusted through such a medium take place, may be admitted, but I contend that it is neither necessary, expedient, nor just, that a circulating medium of crossed cheques should be substituted for the legal currency of coin or bank notes in small transactions or for the use of cheques drawn for the occasion in larger ones. A qualified purchaser can have no difficulty in providing a legitimate means of payment. No public advantage is attained by prolonging the circulation of a cheque, while every days' delay in its presentation is injurious to the drawer, since the failure of the banker on whom he draws would leave the intended payment unaccomplished. The payee whose definitive acquisition of its amount is thus postponed is also injuriously affected by the deferred satisfaction of a cheque, and no one, in truth, benefits by its circulation except the banker, who retains its amount for his own benefit, contrary to the interest and intention of his depositor. This benefit is no legitimate banking profit. In "another place" an eminent lawyer expounding the Lord Chancellor's Bill, remarked— That the object of the Cheque Bank was, that its cheques crossed generally should pass over the counter and from hand to hand like money, and he deprecated any interference with that practice; but, Sir, I venture to assert that this practice is a distinct evasion of the Currency Laws, which prohibit the creation of a spurious paper currency for private advantage, and claim the right of issuing credit notes for the Crown alone in the interest of the community. I commend the doctrine of the Lord Chancellor on this subject to the serious consideration of the Chancellor of the Exchequer. There may, I will admit, be inconvenience in a sudden change of system, even though it be a manifest improvement, and I have already intimated that I should be satisfied if the 12th clause commenced thus—"A person taking a crossed cheque 'payable to order' shall not have," &c.—the effect of this discrimination would be to leave cheques payable to "bearer" subject to the free handling and consequent risks which now affect them, but it would secure to the drawer of the cheque to "order" the power of effectually indicating that the order for the transfer of a given sum from himself to the payee should be consummated at the earliest moment. This, surely, is no unreasonable demand. A crossed cheque to "order" need not be stamped with the words "not negotiable," its construction ought to suffice to indicate its proper treatment. It may, and must in some cases, as heretofore, find persons ready to assist the payee, and become the medium through whom it would be realized, but it would be taken by each intermediary, including the receiving banker in dependence upon the giver, whose indorsement should furnish a ready resort for redress in case of theft if such occurred, but thefts which could not be utilized would quickly cease. My proposal has not, however, been accepted by the Government, and therefore to return to this Bill, I have to say that Clause 12 is at variance with the earlier part of the Bill and with itself. The 7th and 10thclauses protect all crossed cheques; the 12th clause limits its protection to cheques crossed specially. The same individual who, as the "person" taking from the thief the stolen cheque, is in the first paragraph of the 12th clause declared to have no title to the cheque, is in the second paragraph, as a "banker," absolved from all liability to the true owner of the cheque, of which he (the banker) has received the amount. I think, therefore, that the proper course would be this—either to let the whole Bill stand over (as the matter is one of great moment), or to let the first 11 clauses, which are perfectly unimpeachable, stand by themselves and become law; and in another year, if it be necessary, the measure that is now passed could be supplemented. On these grounds I have to move that this Bill be re-committed, and if is re-committed, I shall move the ex-elusion of the 12th clause. I will only add one word in conclusion. I hope I shall not be supposed to be arguing this question with a feeling adverse to the bankers. It would be absurd for me to do that. I have for many years myself been connected with a banking institution quite as important as any represented in this House, I mean the Bank of England, of which I was Governor in 1854, when the Bill passed which originated the use of "cheques to order," and it was upon my suggestion that the 19th section was inserted, giving a protection to bankers, without which they could not have accepted the working of such cheques at all. But deeply as I am interested in the Bank of England, I do not hesitate to say that even if it incurred any risk through the provisions which I advocate, such a consideration would never induce me to take a course which I did not think would be for the advantage of the whole community. I have, Sir, only now to move that the Bill be re-committed.


seconded the Amendment.

Amendment proposed, to leave out the words "now read the third time," in order to insert the word "re-committed."—(Mr. J. G. Hubbard.)


in opposing the Amendment, said, he had a compromise to propose which he hoped would meet with general acceptance. The necessity for that Bill, as the right hon. Gentleman the Member for the City of London (Mr. J. G. Hubbard) stated, had been occasioned by reason of the decision in Smith against the Union Bank of London. A cheque in that case was given by Mill to Smith, or rather was made payable to the order of Smith, and was crossed to a particular banker. It was drawn upon the Union Bank of London. When it got into the hands of Smith, the payee, he endorsed it, and it became payable to bearer and a negotiable instrument. It was then stolen and passed through various hands until it came into the hands of a person who gave value for it and took it without notice, and who was, therefore, entitled to it. It was presented, not to the Bank to which it was crossed, but to the London and Westminster Bank, and by an error on the part of the Union Bank of London, it was paid to the London and Westminster Bank. Smith then brought his action against the Union Bank of London because it had disobeyed the injunction of the Act of Parliament by paying the cheque to the London and Westminster Bank instead of to the Bank to which it was crossed. The Court of Queen's Bench, and afterwards the Court of Appeal, decided that Smith, who had lost his cheque, could not recover against the Union Bank of London, because if that Bank had not paid the cheque to the London and Westminster Bank the cheque would have been in the hands of a person who had a title to it; that Smith, therefore, could not have got it; and that thus, though the provisions of the Act had been disobeyed, Smith had not been damnified. That decision, which seemed to him in strict accordance with law, gave rise to much alarm among the commercial community, which desired that some mode should be invented by which a cheque should be made safe, and a remedy given to the person from whom it had been stolen if the paying bank chose to disregard the provisions of the statute. To accomplish that object this Bill had been introduced. But it was also desirable, as far as possible, to avoid interfering with the negotiability of cheques. It would be most disastrous to trade if within six years somebody could come down on a firm which had received a cheque as so much money, and had applied it to the benefit of a customer, and require them to refund. What they wanted was a means by which a cheque should be secure from the depredation of thieves and from the carelessness of bankers. He therefore proposed to re-commit the Bill, in order so to frame the 12th clause as that the person taking a cheque should not have a better title in it, or be capable of giving to another person a better title to it than the man from whom he took it, and to make that provision applicable to a cheque crossed generally or specially, and bearing in either case as part of the crossing the words "not negotiable." He would in such cases exempt them from liability, unless they should be proved to have acted with negligence. He thought that what he proposed would meet the views of his right hon. Friend and of those who desired that the provisions of the Bill should not unnecessarily restrain the negotiability of a cheque. Cheques crossed generally or specially he would leave as they were now. If that proposal would meet the views of the right hon. Gentleman, the re-committal of the Bill would be assented to.

Question, "That the words 'now read the third time,' stand part of the Question," put, and negatived.

Question proposed, "That the word 're-committed' be there inserted."


said, he was opposed to undue restrictions on cheques generally crossed, which constituted the large bulk of cheques. He therefore thought that Clause 12 should be restored to its original form by leaving out the words "specially crossed." It would be an injury to the public to prevent the circulation of such cheques and to compel them to resort to bank-notes and gold in lieu of them. He believed the words suggested would remove all difficulty, and he therefore trusted they would he accepted, and the omission of the 12th clause resisted. It gave what we did not now possess—a form of cheque which was absolutely protected; for at present a cheque specially crossed was not so protected. We should then have four kinds of cheques—open, payable to bearer; open, payable to order, which could not be cashed by the wrong person without his committing forgery; generally crossed, payable to order, which must be paid by banker to banker; and crossed specially, in which the holders would have no more right than the persons from whom they received them, and which would facilitate the payment of large sums direct to the bankers of the persons entitled to the money.


thought that they were under very great obligation to his right hon. Friend the Member for the City of London (Mr. J. G. Hubbard) for bringing the subject forward, and he trusted his right hon. Friend would accept the Amendment suggested by the hon. and learned Attorney General, for it would, at all events, meet the greater part, if not all, of his objection.

THE LORD MAYOR (Mr. Alderman Cotton)

said, the Bill ought to be more truthfully described as a Bankers' Bill, its main object being their protection; indeed, Clause 12 was the only clause which could be said to protect the public. The argument had been that unless the word "specially" were in Clause 12 it would prevent the due circulation of cheques crossed "and Co.," but that would not be so, because there was the facility of crossing cheques paying to bearer. Cheques crossed "and Co" ought not to be taken over the counter except from a person who was well known. He did not exactly know what was meant by the words "not negotiable," for crossed cheques ought to be negotiable. They ought to be content to have the word "specially" taken out of the clause, and if the hon. and learned Attorney General consented to the omission of that word he, and those who concurred with his right hon. Friend the Member for the City of London, would be perfectly content with the Bill. If not, however, they would prefer that the Bill should stand over until next Session.


thought the hon. and learned Attorney General's words were rather too restrictive, and suggested the words, "not otherwise negotiable." He entirely agreed in the opinions expressed by the right hon. Gentleman opposite (Mr. J. G. Hubbard).


thought the proposed Amendment of the hon. and learned Attorney General would meet the object in view, which was to protect cheques against thieves. As to the general question of negotiability of cheques, he had communicated with several persons of experience in the country, and they agreed in thinking that as to many parts of the country it would be most unadvisable that the negotiability of cheques should be interfered with, except by some such process as that proposed by the hon. and learned Gentleman.


said, he was willing to agree that the Bill should be re-committed for the purpose of making alterations in Clauses 4, 5, and 12, and would move accordingly.

Amendment proposed to the said proposed Amendment to add, at the end, the words "in respect of Clauses 4, 5, and 12."—(Mr. Attorney General.)


said, he should have preferred the re-commitment of the Bill generally.

Question, "That those words be there added," put, and agreed to.

Amendment, as amended, put, and agreed to.

Main Question, as amended, put, and agreed to.

Bill re-committed in respect of Clauses 4, 5, and 12.

Bill considered in Committee.

(In the Committee.)

Clause 4 (General and special crossings).


moved, as an Amendment, in page 1, line 24, to insert after the word "banker" the words "and either with or without the words" 'not negotiable.' "

THE LORD MAYOR (Mr. Alderman Cotton)

wished to know how the Amendment would affect Clause 12?


said, that he wanted Clause 12 to apply only to cheques crossed specially or generally, but bearing the words "not negotiable."

Amendment agreed to.

Clause, as amended, agreed to.

Clause 5 (Crossing after issue).


moved, as an Amendment, in page 2, after "collection," to insert as a separate paragraph, "where a cheque is crossed generally or specially the lawful owner may add the words 'not negotiable.' "

Amendment agreed to.

Clause, as amended, agreed to.

Clause 12 (Title of holder of cheque crossed specially).


moved, as an Amendment, in page 3, line 10, after the word "cheque," to insert the words "crossed generally or specially, and bearing in either case the words 'not negotiable,'" in lieu of the words "crossed generally or specially to himself."


observed, that the effect of the Amendment would be to exempt from liability a careless banker, who, receiving a cheque from a person who had stolen it, collected the amount and handed it over to the thief.


said, that the banker would rely upon the respectability of his customer. He would only collect a cheque for a person whom he knew, and that person would be liable, as he ought to be, in the case suggested by his hon. and learned Friend.


said, that if the banker accounted to the wrong person he ought to be held responsible.


said, that if he had two cheques, one not crossed and the other crossed in the manner contemplated by the Amendment, and that he brought them as he would do to his bankers, they would in due course collect the amounts and hand them over or place them to his credit, and, having done all that they could be reasonably called upon to do, they ought not to be held responsible.


observed, that if one of the two cheques had been stolen and came into the hands of the hon. and learned Gentleman, and through him to his banker, such banker ought to be primarily liable to be the true owner for the amount of the stolen cheque.


said, in the case suggested, the true owner would have his remedy as against him (the Attorney General), and if he had received the stolen cheque from his right hon. Friend, then the remedy would lie against both of them, even if he had received the cheque bonâ fide from his right hon. Friend.


said, that the banker would know his customer, and they could not suppose he would not give up the name.

THE LORD MAYOR (Mr. Alderman Cotton)

said, the banker would have no right to present a cheque from a disreputable person, and if the cheque were stolen the owner could fall back upon the customer from whom the banker had collected the amount.

Amendment agreed to.

On Question, "That the clause, as amended, be agreed to?"


suggested the propriety of omitting the last five lines of the clause. He said that the clause provided that a person who took a cheque marked "not negotiable," should not have or be capable of giving a better title than that which the person from whom he took it had; but there was a further provision, which he thought it would be desirable to omit. It was to this effect—that a banker who had in good faith and without negligence received payment for a customer of such a cheque should not, in case the title to the cheque should prove defective, incur any liability to the true owner of the cheque by reason only of having received such payment.


advised that legislation on the subject should be suspended until next Session, and moved to report Progress.


said, that the House was quite competent to deal with the matter at once.


said, he must remind the Committee that there was no Amendment before them.

Question put, and agreed to.

House resumed.

Bill reported.

Motion made, and Question, "That the Bill, as amended, be considered,"—(Mr. Attorney General,)—put, and agreed to.


said, that he did not see why, if they made every other person who took a cheque marked "not negotiable" answer for the channel from which it had come, they should stop at the banker, and place him in a position of non-responsibility in negotiating cheques which had been crossed. He would therefore move that the last paragraph of the clause be omitted.

Amendment proposed, in page 3, line 8, to leave out from the word "had" to the word "payment," in line 13, inclusive.—(Mr. Butt.)

Question proposed, "That the words proposed to be left out stand part of the Bill."


said, the banker received the money on a cheque for a customer, and therefore the customer ought to be held liable.


said, that the matter had been argued at considerable length, and was ripe for decision. The point was that the banker stood in a different position from the customers inasmuch as he merely received the money for his customer, who certainly ought to bear the responsibility in the event of the cheque having been improperly obtained.

Question put.

The House divided:—Ayes 61; Noes 16: Majority 45.

Bill read the third time, and passed, with Amendments.