SECOND READING. (Hansard, 29 February 1876)

THE LORD CHANCELLOR

, in moving that the Bill be now read the second time, said: My Lords, when I brought this Bill before your Lordships' House, I postponed any explanation of it in order that it might be in your Lordships' hands in the first instance. I am now about to give a short explanation of the objects of the Bill, and of the reasons which render a measure on the subject necessary. Your Lordships are aware that crossed cheques have been for a very long time in use in this country; but it was not until 1856 that any notice was taken of them by the Legislature. Up to that time the crossing of cheques and the effect of it remained a matter of convention, or courtesy, between the banks; but in 1856 an attempt was made by the Legislature to give a statutory security to cheques which were crossed. A Bill was brought into the other House by a private Member, which became law; 1107 and I am sorry to say that it is not a very happy specimen of legislation. It enacted nothing but this only—that any cheque crossed either generally "and Co.," or specially to some banker, should be paid only, in the one case through a banker, and in the other through the banker to whom it was crossed. My Lords, I think it is obvious that the framers of that measure overlooked one peculiar characteristic of a cheque—that no one can bring an action against the banker on a cheque but the person who draws it. This is because a cheque is simply a direction by the drawer to pay money of his which is in the banker's hands. Well, what happened after the passing of the Act of 1856 was this—some cheques from which the crossing had been obliterated were presented for payment. Bankers paid thorn, saying—"These are not crossed cheques, and there is nothing in the Act which tells us not to pay them." The consequence was that in 1858 another act was passed to remedy this defect. It provided that the crossing of a cheque should be taken to be a material part of the cheque itself, and that no banker should pay it if the crossing was removed, obliterated, or erased. That has been, then, the state of the law since 1858: But a case has occurred lately which has given rise to a great deal of apprehension and excitement in the commercial world. There was a cheque drawn on a particular bank—the Union Bank of London. The person who first received that cheque crossed it with the name of his own bankers, the London and County Bank. A servant took it to pay it into his master's bank, but lost it on the way. Some person found it, and subsequently it was passed for full value to a person who had no notice that the cheque had been found. The person to whom it was passed in the way I have just mentioned took it and paid it into his own banker, the London and Westminster Bank. This bank passed it through the Clearing House; and the Union Bank, not observing the name of the London and County Bank crossed on the cheque, paid it. That, of course, was an oversight, and such a peculiar case is not likely to occur again. But the person to whom the cheque was originally given, and who had lost it, Mr. Smith, brought an action against the Union Bank of London for the amount. The Court in which the action 1108 was brought—the Queen's Bench Division of the High Court of Justice—and afterwards the Court of Appeal, held that the action could not be maintained, and for these two reasons:—First, the Courts held that the cheque was a negotiable instrument to pass from buyer to buyer, and that the person who had taken it for full value without notice of infirmity of title had acquired a good title to it, and that Mr. Smith had lost his property in the cheque; secondly, that no person could bring an action on a cheque but the drawer, and that the drawer in this case had lost his property in the cheque, and consequently had lost his right to bring an action on it. This, my Lords, exhibited a new phase in the crossed cheque system, and, as I have said, it has given rise to no small amount of anxiety, and it was desired that a remedy should be provided. In the Bill now before your Lordships I have taken the opportunity of repealing the two Acts to which I have referred—the Acts of 1856 and 1858—but I re-enact the important and material provisions of both in a better form, so that the whole of the law of crossed cheques may be found in one enactment. Your Lord-ships will find in the Bill before you that the first eight sections do not contain any new law, but a simple re-enactment of the existing law. The 9th clause, on which I shall make some further observation, provides that— A person taking a cheque crossed specially shall not have, and shall not be capable of giving, a better title to the cheque than the person from whom he took it had. But a banker to whom a cheque is crossed specially, and who has in good faith and without negligence received payment of such cheque for a customer, shall not, in case the title to the cheque prove defective, incur any liability to the true owner of the cheque by reason only of his having received such payment. Now, as to the particular form a provision of this kind should assume, there is no doubt that the question has been raised that, as to whether you should impart this infirmity of title to cheques, crossed generally, or confine it to cheques crossed specially. Many persons advocate that you should legislate in this way for all crossed cheques. My Lords, it appears to me that would be a very dangerous course, and that it would be found so irksome in practice that there would be soon a demand for its repeal. Your Lordships 1109 will readily understand this if you consider for a moment one or two matters. A very great many persons in business will take in the course of a forenoon 20 or 30 cheques crossed simply "and Co." They receive and collect money due to them in that way, and send all those cheques to their bankers, who in the ordinary course pass them through the Clearing House. If, in the case of such cheques, an infirmity in the title of any one person through whoso hands one of those cheques had passed were to prevent the ultimate holder from recovering the amount, the consequences would be very serious. A person who takes, perhaps, 20 or 30 of those cheques in a forenoon might find, not in weeks even, but in months after he had received a certain number of them, that one of that number had been stolen, and had passed through the hands of a thief, or some other person who had no title; but to require that the payment ultimately made for that cheque to a holder for value must be handed back would be so monstrous that such a practice could not be tolerated. I will give a further illustration of how unwise such a law would be. I dare say your Lordships have heard of a bank established in very recent times, and called the Cheque Bank. I do not know much of its details, but I have heard that it has proved a great convenience. Well, every cheque of that bank bears the printed crossing "and Co." The object of the cheques of this bank is that they should pass over a counter and from hand to hand like money, until they ultimately come back to the bank itself. Of course you would defeat that object if you were to enact that an infirmity in the title of any of the hands through which one of those cheques passed should prevent the ultimate holder from receiving payment of the money for which it was drawn. Take the case of a bank-note; what would become of the negotiability of a bank-note if it was enacted that an infirmity in the title of any holder was to prevent the ultimate holder from receiving payment? When any of your Lordships cross a cheque, generally, all you mean is that the cheque ought to be paid through some banker, in order that there may be some mode of tracing the hand which ultimately receives the money; but you do not wish to attach the property in the cheque to any particular 1110 person. It is, however, quite different if you cross the cheque with the name of a particular bank. The moment you do that you intimate by the crossing that the cheque must be regarded as the property of the person who has that particular bank, and not as an instrument which may pass from hand to hand. For these reasons I propose that Parliament should confine itself to enacting that no person taking a cheque crossed specially shall have or shall be able to give a better title to the cheque than the person from whom he took it had—that persons must take such cheques subject to any infirmity of title in previous holders. But I think it right that there should be a protection for the banker to whom a cheque is crossed specially. Accordingly, if, for instance, a cheque is crossed specially to the London and Westminster Bank and it receives payment of it for a customer, that bank shall not, in case the title to the cheque prove defective, incur any liability to the true owner by reason only of that act of the bank. Those are the two provisions of a Bill which, if adopted by Parliament, will be an addition to the existing law on the subject of crossed cheques.