DRAWING OF CHEQUES

Greymouth Evening Star, 3 October 1931, Page 3

DRAWING OF CHEQUES

RISKS to BE AVOIDED.

The defence put forward by the District Bank in its action with the executors of one, Harry Turner, deceased, will have brought home to all readers of the law reports in the newspapers the latent field for trouble in the ordinary operations of drawing cheques (writes Maurice H. Megrah, in the “Spectator”). That case arose out ot the fraudulent alteration of a cheque, and, whilst the point is outside the purpose of these notes, it serves to show that a simple operation may have unpleasant results, altogether beyond the imagination of those responsible for it. The bank in this case tried to persuade the Court that the leaving of a blank space after the name of the payee was a breach of the duty to draw cheques so as not to mislead the banker or to cause him loss, such a duty having been confirmed by the well-known case of “London Joint Stock Bank v. Macmillan.” Their plea was not, however, upheld. It is, perhaps, not generally realised that the simple drawing of a cheque may result in loss to the drawer himself, to his banker, to the payee, or even the payee’s hanker. No one wishes to look for trouble, and all business is better conducted in an atmosphere of trust than of distrust, but a little care combined with knowledge of a few elementary points will lessen, if not avoid, the riskThe losses which may ensue in this connection can be due either to loss of the cheque in the post and to its finding its way into the hands of someone who is not entitled to it, or to its reaching the hands of some such person by other means; the loss may, secondly, arise from fraudulent alteration on the part of a wrongful possessor, from his obtaining payment to which he is not entitled, or from his passing the cheque on to a transferee who is innocent of the knowledge of the transferor’s wrongful possession, when the innocent transferee obtains a good title.

SOME EXAMPLES. These points may best be indicated by examples. You are forwarding a cheque by post in settlement of an account. It is stolen in the post or ficin your creditor’s letter box, the thief presenting it for payment over the counter —assuming that the cheque is not crossed —before the loss is discovered. Who is to bear the loss? Neither you nor your payee nor your banker has done anything negligent; your banker is entitled to debit your account, and so the matter rests between you and the payee. The general rule of law is that the loss, if in the pest, must, fall on him who authorised the use of the Post Office, thereby constituting the Post Office his agent. But, so far as you are aware, neither gave such authorisation; in fact, in ninety-nine cases out of a hundred, the creditor is held to have done so, as it is customary to pay one’s bills through the post.

It will be appreciated that sending an open cheque means giving a thief a greater opportunity, for if the cheque had been crossed your banker would not have paid it over the counter; but would have insisted upon its presentation to him by another banker. This would have entailed one of two courses on the art of the thief, each taking longer than direct presentation. He would have had either to pay it into a banking account of his own or of an accomplice, thus leaving traces’ of the transaction, or would have had to obtain the value of the cheque from scmecne else. The crossing, then, reduces the chance of any unfortunate happening of the nature described, but it does not remove it. Your thief may ■ succeed in passing the cheque through his account, and he may he able to draw the proceeds before he is found out- He may also succeed in finding a transferee who will acquire a good title even against yourself.

If the cheque is not irregular in any way, if the transferee takes it in good faith and it cannot be shown that he bad or ought to have had knowledge cf the theft, and if he gives value, you will have no right of action against him; so that a simple crossing will not entirely protect you. With regard to your banker, provided he is not negligent (which word is used in its general sense, and which would have to be strictly construed in an action), be also is protected, even though the payees endorsement on the cheque has been forged by the thief. But the thief may have been clever enough to “raise” the amount of the cheque and obtain a larger sum; nevertheless, the banker may debit the original sum only to your account, provided that the alteration is not apparent. It is true that if you have drawn your cheque loosely and given opportunity for alteration —having, for example, drawn for six pounds and left a space between the “six” and the word; “pounds” for the insertion of the letters “ty"—-then the banker can hold: you responsible, but he will not find

recovery pleasant, or, necessarily practicable.

“NOT NEGOTIABLE.”

Ahere your thief has passed the cheque on to a bona fide transferee who acquires a good title, the cheque in this case having been drawn payable to “bearer,” or having become so payable by the endorsement in blank of the payee (meaning that it must have been stolen after reaching the payee), you could have covered yourself against the possibility of anyone’s acquiring a perfect title by crossing the cheque ‘‘not negotiable,” which words, though not affecting the position of the banker, prevent any transferee from being able in any circumstances to place himself before you, so as to deprive you or your payee of the right to the cheque. These words do neft restrict the transfer of the cheque, but merely issue a warning to anyone who takes a cheque bearing them. Yet they convey nothing if written across a cheque which is not crossed. Briefly, conversion is the wrongful intermeddling, innocent or deliberate, with somebody else’s property without the owner’s consent. An action for conversion in such circumstances might easily be an expensive business and not necessarily successful, and one has, therefore, to look further for a means of avoiding the difficulty. This means is partly to be found in another addition to the cheque in the form of the words “Account Payee,” “a/c payee,” or “a/c payee only.” 'This places on the banker who collects the cheque the onus of collecting only for the payee you have designated. It is an anomaly —your possession of the right to require a banker whom probably you do not know*, and who ordinarily owes you no duty, to collect the cheque for no other than your payee. Yet such is the law, and, if it is not followed, you again have the right to bring an action for conversion, and one, moreover, carrying little doubt as to the outcome.

' FURTHER PROTECTION. It such words are used without the expression “not negotiable,” you will protect yourself against a banker who is unwise enough to collect for someone other than the payee, but you will still not be safeguarded against a bona fide transferee. He will probably have difficulty in., persuading his banker to collect for him, but. that does net affect his title. If he should present the cheque direct to your banker, who will naturally refuse to pay it, as it is crossed, he may then be entitled to proceed against you. It is clear, therefore, that fairly complete protection can he obtained by crossing cheques and adding both the phrases “not negotiable” and “a/c payee.” A. banker will not object to a customer’s covering himself in this wayIt is to his advantage. But he will expect that cheques be drawn with some regard for the possibility of fraudulent alteration; whatever his legal right, he would much rather not enter into unpleasant argument with a customer —he naturally prefers to retain his custom.

Moreover, you will lie acting decently by keeping your cheque book in a safe place, and by advising your banker immediately of its loss. You may place him in difficulty by giving one of your blank cheques to someone who has temporarily run short, of them- You may place him in even greater difficulty by using blank paper or a “club” form, because by doing so you deprive him of the protection afforded by prepared paper and fugitive ink. This is not to say that these things must never be done, for there are occasions when compliance with these last simple rules is not possible. One should, nevertheless, bear in mind.—what is entiicly true —that your banker is being constantly “shot” at; that there it; always someone ready to take advantage of the smallest chance to score, and it is one’s moral duty, at least, to render no assistance.