Marshall v Colonial Bank of Australasia Ltd [1904] HCA 31; (1904) 1 CLR 632 (27 October 1904)

HIGH COURT OF AUSTRALIA

W. L. Marshall and Another Plaintiffs, Appellants; and The Colonial Bank of Australasia Ltd. Defendant. Respondent.

H C of A

On appeal from the Supreme Court of Victoria.

27 October 1904

Griffith, C.J., Barton and O'Connor, JJ.

Coldham and Starke for the plaintiffs, appellants.

Bryant and Schutt, for the defendant bank respondent.

Starke in reply.

CJ Griffith read the judgment of the Court:—

27th Oct., 1904

Griffith, C.J.

This is an appeal from an order of the Full Court dismissing a motion for a new trial or judgment for the plaintiff after a trial before Madden, C.J., and a jury, when judgment was given for the defendants. The plaintiffs, who are two of three executors, the third being joined as a defendant, brought the action to recover a balance to the credit of the executors in the hands of the defendants, who were their bankers. The defence, so far as it is now necessary to consider it, was that there was no balance, the plaintiffs and their co-executor having drawn cheques for the full amount to their credit, which the defendants had duly paid. The account was opened in the names of all three executors, and on the express stipulation that cheques drawn on the account were to be signed by all of them. The question arises in respect of five cheques, which, when paid, appeared to be for the sums of £110, £32 6s. 4d., £150, £110, and £110 respectively. The plaintiffs, who were respectively a dairy farmer and a watchmaker, were not familiar with accounts, and left the clerical work connected with the testator's estate to their co-executor Myers, who, so far as they knew, was a man of probity. The cheques in question were, in accordance with their usual practice, filled up by Myers in his own handwriting, and taken or sent by him to the plaintiffs for signature. The cheques were then for the respective sums of £10, £2 6s. 4d., £50, £10, and £10. The amount of each was stated in words and figures, the writing being in each case about the middle of the line, and beginning with a capital letter, while the figures representing the pounds were placed at a short distance from the symbol £. After the cheques so filled in had been signed by the plaintiffs, Myers fraudulently altered them to the larger amounts in his own writing, and obtained the full amounts from the defendants. The plaintiffs claimed to recover the difference, £430. The learned Chief Justice, at the trial, directed the jury that, if a customer draws or signs or issues cheques on his banker in a manner which a jury thinks so negligent that it induced or caused opportunity, or was a temptation to a person desirous of effecting a forgery to effect that forgery, so that the banker is exposed to the payment of a larger sum than the customer intended, then the customer is precluded and estopped from complaining and showing that the banker paid a forged and altered cheque; and, further, that if a cheque is so unreasonably and carelessly drawn by a customer on his banker as to invite fraud and give a chance or opportunity for the committing of fraud, the banker ought not to be made liable for paying a forged or altered cheque.

The substantial question for our determination is whether this direction, which was founded upon the doctrine supposed to be established by the case of Young v. Grote, [1838] EngR 388; 4 Bing., N.C., 253; 12 Moore C.P., 484; 29 R.R., 552, was right. In the Full Court, a'Beckett, J., thought that if Young v. Grote is good law it would govern the present case, and that, in that view, the direction of the learned Chief Justice was correct. He further thought that Young v. Grote had not been over-ruled, and was still law. Hodges, J., while admitting that it is difficult to say on what ground Young v. Grote ought to have been decided, or to define accurately upon what grounds the present case should be decided, thought that that case was not over-ruled. He further thought that the relation between banker and customer being one of contract, the customer undertakes that he will not, by his mode of drawing his cheques, give facilities for their alteration, or, putting the obligation in other words, that he undertakes that, if the banker is misled by the fault of the customer in the manner of filling up the cheques, the loss must fall upon the customer. In the present case, he thought it clear that the method of drawing up the cheques did give facilities for a fraudulent alteration, and that loss resulted from the facilities so given, and, consequently, the loss should fall upon the customer, and not upon the bank. Hood, J., preferred to state the doctrine thus—that the duty of the customer towards his banker is not to draw his cheques in such an inaccurate way as to afford facilities for fraud.

Upon the argument of the appeal, it was contended for the appellants that the supposed doctrine of Young v. Grote must be taken to be over-ruled, and is no longer law. We say "supposed doctrine," because the rule as laid down by the learned Chief Justice is not to be found in that case in express words. It was further contended that there is no such rule of law as that the drawer of a cheque is bound to anticipate and take precautions against forgery; that in the present case, even if there is such a doctrine, there was no evidence of any breach of that duty; and that in any case, the payment of the increased amounts was not the natural consequence of the breach of duty. For the respondents it was contended that it is the duty of a customer to his banker not to prejudice the latter by omitting any precaution in drawing a cheque which a reasonable man would take in a matter affecting his own interests, and that this obligation included an obligation to take precautions against forgery.

Before proceeding to examine the case of Young v. Grote in detail, it may be well to refer to some principles of law which are quite free from doubt, and which will afford useful guidance in arriving at the true principle which should govern cases such as the present. The relation of customer and banker is, no doubt, a contractual relation. It is not, however, the ordinary relation of principal and agent (Foley v. Hill, [1848] EngR 837; 2 H.L.C., 28), but the relation of creditor and debtor, with the superadded obligation to honour the creditor's orders with respect to payment of the money which constitutes the debt. Now, all contractual relations impose upon the parties a mutual obligation that neither shall do anything which is calculated to hamper the other in the performance of the contract on his part. This rule was recently expressed by Vaughan-Williams, L.J., as follows:—"In this contract, as in every other, there is an implied contract by each party that he will not do anything to prevent the other party from performing the contract or to delay him in performing it. I agree that generally such a term is by law imported into every contract." (Barque Quilpué Ltd. v. Brown (1904), 2 K.B., 264, at p. 271.) A banker cannot, however, discharge himself of his debt by alleging payment otherwise than upon the order of his customer. If the order is ambiguous in form, he would, no doubt, be entitled to the benefit of the rule of which Ireland v. Livingston, L.R. 5 H.L., 395, affords a good example. But a forged order gives no protection to the banker. Again, if one party to a contract has himself occasioned a breach of it by the other party, he cannot effectively complain of the breach. This inability is sometimes based on estoppel, and sometimes on avoidance of circuity of action.

The case of Young v. Grote was decided by the Court of Common Pleas in 1827. It has been often cited and commented on; seldom, if ever, followed; many different explanations of it have been given; and in Scholfield v. Earl of Londesborough (1896), A.C., 514, Lord Halsbury, L.C., invited the House of Lords to formally over-rule it. Young v. Grote came before the Court upon a special case stated by an arbitrator in an action by a customer against his banker for the balance of his account. The special case stated, amongst other things, that the plaintiff, being about to leave home for several days, signed and left with his wife five blank cheques, desiring her to have them filled up for such sums as the purposes of his business might require. His wife, requiring £50 2s. 3d. to pay wages, delivered one of the blank cheques to one Worcester, a clerk of the plaintiff, desiring him to fill it up for that sum, which he did, and showed it to her so filled up, whereupon she asked him to get it cashed. He afterwards fraudulently wrote the words "three hundred and" before the word "fifty" in the body of the cheque, and the figure "3" before the figures "50," making the alteration in the same writing as the rest of the cheque, "and in such a manner that no person using due and ordinary diligence, could have discovered that it had been made improperly after the draft had been once filled up for another sum, and signed by the drawer." The defendants paid the amount of the altered cheque to Worcester. The arbitrator thought that it was plaintiff's draft for the £50 2s. 3d. only, but he thought also "that he had been guilty of gross negligence by causing his draft to be delivered to Worcester (in whose handwriting the body of it had been filled up) in such a state that the latter could and did, by the mere insertion of other words, make it appear to be the plaintiff's draft for the larger sum, and that as he, partly by his negligence, had caused the bankers to pay the larger sum, he was bound to make good to them the loss which by reason of his negligence they had sustained by paying that sum. If the Court should think that opinion wrong, he awarded that the plaintiff should recover £300 from the defendants." It will be observed that amongst the facts found by the arbitrator was the inference of fact that the plaintiff had been guilty of gross negligence. And it does not appear that the Court could review this finding. The arbitrator did not seem to think that the bank could set up that they had paid the money in accordance with the plaintiff's order, but he thought that they were entitled to an indemnity, i.e., to maintain an action against him for the same amount. According to the report in 4 Bing., Best C.J., after pointing out that a banker who pays a forged cheque is in general bound to pay the amount again to his customer, because in the first instance he pays without authority, added that though that rule is perfectly well established, yet "if it be the fault of the customer that the banker pays more than he ought, he cannot be called on to pay again." According to the report in 9 Moore, he said:—"If a banker, through the fault of his customer, pays more than he ought to pay, the loss must be borne by him through whose default the erroneous payment has been made." According to both reports, he then proceeded to quote from Pothier (Traité du Contrat de Change, Part I., c. 4, sec. 99, p. 59), who lays down the doctrine that if a banker has been led into error by the fault of the drawer of a bill of exchange, the drawer not having taken care to write his draft in such a manner as to prevent falsifications—for instance, if he wrote the sum drawn for by the draft in figures, and someone added a cypher—the drawer would, in that case be bound to indemnify the banker for the loss he had sustained by the falsification of the draft, for which the drawer by his fault had afforded opportunity. So far, the only doctrine asserted by Best, C.J., is that if the loss occurs through the fault or default of the customer, it must fall on him, which doctrine is, he says, in accordance with Pothier's view. It may be remarked, in passing, that in Scholfield's Case Lord Halsbury denied that Pothier's doctrine is, or ever was, part of the commercial law of England (p. 531); and further, that the illustration given by Pothier is very different from the case of a cheque in which the amount is written in words at length, although his language is large enough to cover any case in which the drawer has not taken such care as to prevent falsification.

The Chief Justice, having stated the rule, proceeded to apply it to the facts of the case as found by the arbitrator. According to the report in Bingham, he rested his decision mainly on the facts that the plaintiff had left blank cheques in the care of his wife, who was not conversant with business, as such an agent ought to have been, and that she had, in turn, trusted a person with whose character she was not perfectly acquainted, to receive the amount of the cheque. He went on, according to that report, to point out that a competent man of business would have guarded against fraud in the mode of filling it up, and would have placed the word "fifty" at the beginning of the line, and would have begun it with a capital letter, and would have placed the figure 5 so near the printed £ as to prevent the possibility of interpolation, adding—"It was by the neglect of these ordinary precautions that Grote and Co. were induced to pay," and concluded by saying: "We decide here on the ground that the banker had been misled by want of proper caution on the part of his customer." According to the report in Moore, he said that the plaintiff had left five blank cheques in the hands of his wife, who was therefore his agent; that a person who leaves blank cheques to be filled up ought to entrust them to a person conversant with business, and who would take due care that they were properly filled up; that the plaintiff's wife had acted indiscreetly in entrusting the cheques to a person with whose character she was not perfectly acquainted, and who turned out to be untrustworthy; that the word "fifty," having been commenced in the middle of the line, and with a small instead of a capital letter, too much opportunity was given to the clerk to effect the alteration, and that the whole being in the same handwriting, it was not possible for the bankers to discover that there was any fraud. And he added—"Under the circumstances, I think that gross negligence may fairly be imputed to Young, or his agent, and that the bankers, who have been misled by the want of caution, and thus induced to pay the money, are not liable to be called upon to make good the loss." J. A. Park, J., according to the report in Bingham, after pointing out that if a banker pays moneys upon an order which is not genuine he must bear the loss, went on to say—"Can anyone say that the cheque signed by Young is not a genuine order? I say it is. The cheques left by him to be filled up by his wife, when filled up by her became his genuine orders. However, the arbitrator finds expressly that he was guilty of negligence, and I concur in that opinion." According to the report in Moore, he said—"Here the order appeared, upon the face of it, to be genuine. The maker left it with his wife to be filled up at her pleasure, and to any amount. It was, therefore, his draft to the extent of the property he had in the hands of his bankers. The arbitrator has found that he was guilty of gross negligence. I think he was guilty of gross negligence in leaving blank cheques in the hands of a person so ignorant of business as to give rise to such a gross fraud." Burrough, J., according to both reports, said that the arbitrator had found that no blame attached to the bankers, and that the whole blame legally attached to the plaintiff. According to the report in Bingham, he described the blame as consisting, first, in leaving a blank cheque with his wife, and then in her causing it to be filled up in an unusual way. According to Moore's report, the blame consisted in the plaintiff's improvidently leaving blank cheques in the hands of his wife, who saw the cheque in question filled up in an unusual manner, both as to the figures and in the body, and then gave it in that state to her husband's clerk to get changed, thus affording him an opportunity to effect the fraud; and he added—"The drawer of the cheque, being the sole cause of the fraud, must bear the loss." Gaselee, J., according to Moore's report, said:—The arbitrator "has expressly found that the drawer was guilty of gross negligence. The authority was not confined to the wife, as it appears by the award that she was to have the cheques filled up as circumstances required." According to Bingham's report, he merely said that there was certainly great negligence on the part of Young, and therefore the rule to pay the £300 must be discharged.

It is impossible to regard this judgment as anything more than a decision upon the facts of the particular case. Each of the learned Judges seemed to have assented to the rule of law formulated by Chief Justice Best, that if it is the fault of the customer that the banker pays more than he ought, he cannot be called on to pay again. And they all thought that the facts of the case warranted the inference of fact drawn by the arbitrator that the loss had arisen from the customer's fault. No other rule of law can be deduced from the decision than that so formulated. The case has, however, been treated as laying down in its widest sense the doctrine of Pothier, that if the banker is led into error by the fault of the drawer, the drawer not having taken care to write the draft in such a manner as to prevent falsification, the drawer must indemnify the banker. So far from the judgments supporting this view, it will be seen that each of the Judges relied on other circumstances as establishing the default of the drawer. In Scholfield's Case, Lord Halsbury is reported to have said (p. 523), that the time had come when it would be desirable to examine how far the case of Young v. Grote ought to be quoted as on authority for anything. In our opinion, it is an authority for this and no more—that the drawer of a cheque may, by his negligence in connection with drawing it, disentitle himself to complain that the banker has paid a larger sum upon it than the drawer intended. Other authorities for the same principle are the comment of Lord Cranworth, L.C., on Young v. Grote in Orr v. Bank of Scotland, 1 Macq. H.L. Cas., 513, at p. 523:—"The principle is a sound one, that, where the customer's neglect of due caution has caused his bankers to make a payment on a forged order, he shall not set up against them the invalidity of a document which he has induced them to act upon as genuine;" and the observation of Lord Watson in Scholfield's Case (at p. 536):—"If on the other hand the decision in Young v. Grote was based upon the ratio that the customer, in filling up the cheque through his wife, whom he had constituted his agent for that purpose, had failed in the duty which he owed to his banker by giving facilities for its fraudulent alteration, I am not prepared to affirm that it cannot be supported by authority." This rule is, indeed, an instance of the wider rule already referred to, which imposes upon all persons between whom contractual relations exist, a mutual obligation that neither party shall hamper the other in the performance of his contractual duty. But the rule so stated leaves entirely open the question of what conduct will amount to such negligence as to disentitle the drawer to complain of a subsequent fraud. And it is a very long step from this rule to the direction given by the learned Chief Justice to the jury in the present case. It is necessary, therefore, to inquire whether that direction can be supported upon any other authority, or upon principle. If it is correct, then in every case where a cheque has been fraudulently altered, it is a question at large for the Court or jury to say whether in their opinion the banker or the customer should bear the loss. The inconvenience of such a rule is manifest.

The case of Guardians of Halifax Union v. Wheelwright, L.R., 10 Ex., 183, in which Young v. Grote is said to have been followed, was also a special case stated by an arbitrator. In that case, the defendant was the plaintiffs' treasurer, and was the manager of a bank in which the plaintiffs' account was kept. Orders signed by the plaintiffs were cashed at the bank. Several orders signed by the guardians were fraudulently altered after signature, and the question was whether the defendant was liable to make good the amounts by which they had been fraudulently increased. The arbitrator found as a fact that "the payment by the treasurer's clerks of the excess" in these instances was "due solely to the fact that they were misled by want of proper caution on the part of the guardians and their clerk in signing the orders fraudulently prepared by him for their signature." Counsel for the defendant relied expressly upon this finding, which was conclusive upon the question of fact. In that case, as in Young v. Grote, the person who committed the fraud was in the service of the plaintiffs, and the fraud was effected while the orders were still in the possession of their servant. Cleasby, B., who delivered the judgment of the Court of Exchequer, after quoting the passage above recited from the award, said:—"The question therefore which arises upon this item" (there was another point in the case) "is, whether the negligent drawing of the drafts disentitles them" (the plaintiffs) "to complain of the cashing those drafts. Upon this question we had before us the principal case of Young v. Grote, followed by several other cases, among others, Robarts v. Tucker, 16 Q.B., 560; 20 L.J. Q.B., 270, and Swan v. North British Australasian Co., [1863] EngR 560; 2 H. & C., 175; 32 L.J. (Ex.), 273. We think the position taken by the defendant is made good by those authorities." An examination, however, of the two last-mentioned cases shows that the learned Baron was in error in supposing that they followed Young v. Grote, as in both of them that case was distinguished. We have not been able to find any of the "several other cases" referred to by the learned Baron. He added that "it is, perhaps, only an application of one of those general principles which do not belong to the municipal law of any country, but which we cannot help giving effect to in the administration of justice, viz., that a man cannot take advantage of his own wrong; a man cannot complain of the consequences of his own default against a person who was misled by that default without any fault of his own." This case does not carry the matter any further. The only reported case cited to us in which the question of the negligence of the drawer of a cheque has been left to a jury is Marcussen v. Birkbeck Bank, 5 T.L.R., 179, 463, 646, in which a cheque drawn for £8 5s. had been fraudulently altered to £80 5s., a wide space having been left between the words "eight" and "pounds." At the first trial the jury thought that the alteration was easily noticeable, and should have been detected by the bank. A new trial was ordered on the ground that the question of the plaintiff's negligence should have been left to the jury, and this order was affirmed by the Court of Appeal. Cotton, L.J., who delivered the judgment of the Court of Appeal, merely said that the defence of the alleged negligence of the plaintiff had not been put to the jury, and that the case had not been satisfactorily dealt with at the trial, and that the proper course was to let it go back for a new trial. Fry and Lopes, L.JJ., concurred. Of this case it may be remarked that it does not appear that the Court of Appeal seriously considered the supposed doctrine of Young v. Grote, which had been cited at the trial, but not, apparently, in the Divisional Court. If, however, the Court did consider the question, it would seem from the concurrence of Lopes, L.J., that they agreed with his view of Young v. Grote, (see Scholfield v. Earl of Londesborough (1895), 1 Q.B., 536, at p. 544), as a binding authority for that doctrine. We are told that Marcussen's Case was again tried before Mathew, J., when the defendants had a verdict, and that the summing up of that learned Judge was in accordance with that of Madden, C.J. But we do not think that this case can be regarded as adding any authority to the case of Young v. Grote.

The substantial question for our decision is whether the mere failure to take precautions against forgery is a breach of the implied duty owed by the customer to his banker. If it is, it would appear primâ facie that a similar duty must be implied in the case of all contracts in which the duties of one party arise upon written communications from the other. Before considering whether such a duty is implied by the law of England, it will be convenient to say a few words as to the real nature of the defence founded upon the supposed breach of the implied contract. It has sometimes been based on the ground of avoidance of circuity of action, the damages sustained by the banker by reason of the customer's breach of contract being exactly equal to the amount which he has paid without the latter's authority. It has more often been put on the ground of estoppel, arising from disregard of duty, and the argument for the respondents was mainly based on this view of the case. The doctrine of estoppel in pais was not, however, formulated in England in 1827, when Young v. Grote was decided, nor until the case of Pickard v. Sears, [1837] EngR 195; 6 A. & E., 469, which was decided in 1837. The case of Young v. Grote was clearly not formally based upon any such doctrine. And if it is sought to apply the doctrine a further difficulty arises. The fact which the customer is to be estopped from denying is that the cheque is his cheque. Now, as ex concessis, the writing is not his own, it must be the writing of his agent. He is, therefore, to be taken to be precluded from denying that the forger, i.e., any person into whose hands the cheque may come, is his agent to alter it, subject, however, to this singular proviso, that the forgery must be done with such skill as not to be apparent. Such an authority is not lightly to be implied. It seems, therefore, more in accordance with the reason of the thing to regard the defence as being a claim for damages for a breach of the implied contract. The result will not be affected whichever view is taken. Is there then any such doctrine as that a person, who, being under contractual relations with another, imposes some duty upon the other by a written communication sent to him for the purposes of the contract, is bound to take precautions against forgery? Or, if there is no such general doctrine, is there such a doctrine with regard to cheques? There is no doubt that, as a general rule, the loss arising from a forgery must fall upon the victim, and not upon the person whose writing is forged. A contrary rule has never been suggested, except in the case of negotiable instruments.

Scholfield v. Earl of Londesborough (1896), A.C., 514, was an action by the indorsee against the acceptor of a bill of exchange for £500, which, after acceptance, had been altered by fraudulently inserting the words "three thousand" before the words "five hundred," and the figure 3 before the figures 500, the bill having been drawn in such a form that the alteration was easy The questions were—(1) Whether there was a duty incumbent on the acceptor with respect to subsequent holders for value, and apart from contract with the drawer, to see that the bill is not in such a form as to invite or facilitate such fraudulent operations as would mislead a holder? (2) Whether there was a breach of that duty? (3) If so, whether the breach was the proximate cause of the plaintiff being misled? In that case the argument for the plaintiff was necessarily based upon estoppel, there being no contractual relations between the acceptor and subsequent indorsee at the moment of acceptance. On the first point, Lord Halsbury, L.C., said (p. 532):—"My Lords, this very case has in almost precisely similar circumstances been already decided in the Adelphi Bank v. Edwards, and I regret very much that that case has not been reported. I entirely concur with what Lindley, L.J., said in that case, that it was wrong to contend that it is negligence to sign a negotiable instrument so that somebody can tamper with it; and in the wider proposition of Bovill, C.J., in a former case, Société Générale v. Metropolitan Bank, 27 L.T.N.S., 849, 856, that people are not supposed to commit forgery, and that the protection against forgery is not the vigilance of parties excluding the possibility of committing forgery, but the law of the land."

Lord Watson also referred to the case of Société Generale v. Metropolitan Bank (supra), in which the time of payment of a bill of exchange having been fraudulently altered after acceptance from eight to eighty days, it was sought to make the acceptor liable, on the ground of negligence, in accepting the bill in such a form that alteration of it was easy, and added (p. 540):—"None of the learned Judges affirmed that there was any duty incumbent upon the indorser to take precautions against forgery; but, on that assumption, they all held that there had been no negligence. Two of them used language whith does not appear to me to be consistent with the existence of such a duty. The Chief Justice observed: Persons are not to be supposed to commit forgery, and the protection against such a crime is the law of the land, not the vigilance of parties in excluding all possibility of committing it. The present Master of the Rolls said: I not only protest that there was no negligence, but say that no Judge ought to leave to a jury the fact as evidence of negligence. But there is no duty on anyone to suppose that those against whose character there is no imputation will commit forgery whenever the opportunity occurs."

He then referred to the unreported case Adelphi Bank v. Edwards, decided in 1882, in which a bill of exchange for £22 10s. had been fraudulently altered to £222 10s., and in which the Court of Appeal negatived the existence of any rule or principle requiring the acceptor of a bill to exclude facilities for its alteration, and quoted with approval the language of Lindley, L.J., who, after referring to Young v. Grote, "and that class of cases," proceeded thus:—"We cannot say there was negligence here, unless we go to the whole length of saying that it is negligence to sign a negotiable instrument so that somebody else can tamper with it I cannot go that length. I think it would be wrong. There is no authority which compels us to do anything of the sort." Lord Macnaghten said (p. 544):—"I cannot think that, there is any rule which forbids you to give a person with whom you are acquainted, and whom you believe to be honest, some little credit for honesty, even when he comes for your promised acceptance to a bill of exchange. I cannot think that, even on such an occasion, you are bound to scan his handiwork with the eye of a detective, as the production of a would-be forger. The prevention of crime is perhaps better left to the operation of the criminal law." Lord Shand said (p. 549):—"As to the form of the document, I think an acceptor, while himself acting in bonâ fide, who has the sum for which he has agreed to grant his acceptance expressed in the body of the bill, is not called upon to anticipate and provide against forgery." Lord Davey expressed his entire concurrence in the reasons and conclusions of Lord Watson.

Scholfield's Case was the case of the acceptor of a bill of exchange, between whom and subsequent holders there is, as already pointed out, no existing contractual obligation at the time of acceptance. But the arguments used by the learned Lords in their speeches as to the supposed duty to guard against forgery are primâ facie applicable to all written documents. In Union Credit Bank v. Mersey Docks Board (1899), 2 Q.B., 205, Bigham, J., had to deal with two delivery orders used for the purposes of the delivery and transfer of goods in a warehouse, both of which had been fraudulently altered. In one case, the order had been signed by the plaintiffs in blank under a fraudulent representation made to them by one Nicholls, and the description of certain goods was afterwards inserted by him. In the other case, the goods intended to be dealt with were described before signature, but the description of other goods was afterwards added by Nicholls. Bigham, J., was of opinion that in the first case the plaintiffs, who had signed the order in blank, were estopped from denying that they had conferred on Nicholls a delegated authority to fill up the blank, and that they must bear the loss for an excessive and improper exercise of that delegated authority. In the second case, he held that the plaintiffs were not bound by the fraudulent alteration. He said (p. 214):—"It is not necessary for me to say anything upon the question, which was much discussed in argument, as to whether the plaintiffs owed any duty at all to the defendants, but I will express my opinion upon it. It seems to me that the only duty which the plaintiffs owed to the defendants was a duty to express in unambiguous language on the face of the transfer order, what the goods were which they desired the defendants to transfer. There was no duty to communicate in any way that they desired no other goods to be transferred. It was said that the case in its facts resembled that of Young v. Grote, and that the conclusion arrived at there ought to be adopted here. I am, however, of opinion that Young v. Grote can no longer be regarded as good law if the judgment in it is to be read as proceeding on the supposed negligence of the plaintiffs; and I think it therefore has no application to the present case. I find that there was no carelessness in signing the transfer order as filled up, and that there was no duty on the plaintiffs to see that it was filled up differently; and, further, that if there was such a duty, the loss of the goods did not result from the breach thereof." He also found as a fact that a failure to anticipate fraud and to provide against it by filling up all blank spaces so as to prevent insertion of other words does not of itself constitute negligence.

It seems impossible to distinguish in principle the case last cited from the present. In the one case the defendants were the plaintiff's debtors, in the other the custodians of their goods, and in each they were bound by contract to dispose of property in accordance with the plaintiffs' written orders. No other instance was cited to us in which it has been attempted to extend the supposed doctrine of a duty to anticipate and provide against fraud to any case other than that of a cheque or negotiable instrument.

If, however, the doctrine applies to the case of a cheque, it must also apply to the case of the acceptor of a bill of exchange as between him and the drawer, and it should, in principle, apply to every case in which one man, by a written communication, requires or requests the performance of some act or duty by another. There is no trace of any such doctrine to be found in the English law, but the contrary rule—that a forgery is a nullity—is well established. A fraudulent exercise of an actual and apparently unlimited authority, however created, is of course not a forgery in the sense in which that term is here used.

Sec. 65 of the Instruments Act 1890 (Victoria), which corresponds with sec. 64 of the English Bills of Exchange Act, provides that where a bill or acceptance is materially altered, but the alteration is not apparent, and the bill is in the hands of a holder in due course, the bill is avoided except as against a party who has himself made, authorized, or assented to the alteration.

In this section, which applies as well to cheques as to other bills of exchange, no distinction is drawn between drawers and acceptors as between themselves and a holder in due course. Assuming, in accordance with Lord Watson's opinion (1896) A.C., p. 543, that authority to alter a bill of exchange or cheque can be proved by evidence of facts raising an estoppel, it is clear that failure to take precautions to prevent forgery would not establish such authority as between the acceptor and the holder (Scholfield's Case), nor upon the same reasoning, as between the drawer (or maker of a cheque) and the holder. It is not easy to see why the same facts which are no evidence of negligence or breach of duty as between the acceptor and the holder, or as between the drawer and the holder, should be held to establish authority or estoppel as between the drawer and the drawee. We can see no reason for such a distinction, and we have looked in vain for any authority which would support it.

It appears, then, that the only foundation for the proposition relied on by the respondents is the dictum of Pothier cited, but without any express assent, by Best, C.J. This dictum, according to Lord Halsbury, "is not, and never has been, the law of England," (1896) A.C., p. 535. In our judgment, when a person signs a writing which is on the face of it a complete document, and issues it to another, he is not bound by any subsequent alteration of it made without his authority, and such authority cannot be inferred merely from the existence of blank spaces in the document. It may well be that the existence of blank spaces, combined with other circumstances, either intrinsic to the document or extrinsic, may be evidence of delegated authority to fill them up. But the mere existence of a blank is not sufficient. It follows that the dictum of the learned Chief Justice, so far as it laid down that, if a cheque is so drawn as to invite or afford opportunity for or temptation to forgery, the customer is estopped from complaining of the forgery, cannot be supported. The learned Chief Justice treated the matter as being entirely a question for the jury, whether they thought the manner of drawing the cheques "so negligent" that it induced or caused opportunity, or was a temptation to, forgery. If this rule were adopted, it would, as already pointed out, depend upon the caprice of the particular jury in each case whether the customer or banker should bear the loss.

It is manifest that a rule of law must be capable of being stated with sufficient precision to enable an ordinary person to know what are his duties under it. A rule that the drawer of a cheque must use such care to avoid forgery as a future jury may think he ought to have used would not afford any definite assistance to drawers. If the rule is put in the form that he must use reasonable care to prevent forgery, the question arises, what is meant by "reasonable care"? Usually, in considering whether a thing is reasonable or not, all the circumstances must be taken into consideration. In this view, what would be reasonable care in an illiterate farmer might not be reasonable care in a skilled accountant. A rule which would make the question depend upon the capacity or education of the drawer of the cheque can hardly form part of the mercantile law. In the present day in Australia banking accounts are kept by all sorts and conditions of men and women, who must equally be bound by the mercantile law. If bankers think that an intending customer is so unskilled as to be likely, from his carelessness in drawing cheques, to give opportunities for forgery, they can decline to accept him as a customer. Or they can stipulate, by a note printed in the cheque book or otherwise, that certain precautions shall be taken in drawing cheques. There is, therefore, no inconvenience in applying to cheques the general rule which applies to other cases of forgery.

It remains to consider whether there was in the present case any evidence to be left to a jury with a proper direction as to what constitutes negligence or breach of duty. The cheques, as already said, were on their face complete documents; the words denoting the amounts began with a capital letter; and the person by whom they were filled up was a person with whom the plaintiffs had had dealings for many years, and whose honesty they had no reason to suspect. The cheques were, however, capable of fraudulent alteration. Under these circumstances there was, in our opinion, no evidence to go to the jury of any breach of duty such as would give rise to estoppel or to a claim for damages.

In Scholfield's Case, Lord Esher, M.R., and Rigby, L.J., were of opinion that, even if there was a breach of duty on the part of the defendant, the intervening felonious act, and not the breach of duty, was the cause of the loss. It is not necessary for us to express any opinion on this point. But for the reasons above stated, we are of opinion that the appeal must be allowed. The judgment and order of the Supreme Court must be discharged, and judgment entered for the appellants for £430, with costs of action, including the costs of the appeal to the Full Court. The respondents must also pay the costs of the appeal.

Appeal allowed with costs. Judgment for appellants, with costs.

Solicitor, for appellants, C. J. McFarlane, Melbourne.

Solicitors, for respondent, Moule, Hamilton & Kiddle, Melbourne.