74DIAS J.—B(»>k of Ceylon v. Kohnnawa Urban Council
The only question which .arises in this case is whether or not the chequesin question or any one or more of them were signed by both the Chairmanand the Secretary. For the defendant to succeed in respect of any ofthese cheques both signatures on such cheque must be genuine. Theinitial burden to prove that signatures on these cheques are genuine ison the bank. See Bennetv. fjondon and Counfy Bank'. Mere negligenceon the part of a customer is no defence to a bank to deny liability withrespect to money paid out on forged cheques. Sec Kepitigala RubberEstates Limited v. National Bank of India Limited2.
A careful analysis of the evidence shows that there is no reliable evi-dence at all to prove that any signature on any of these cheques is genuine.The finding of the trial j udge with respect to D1 and D2 is based on theoriesnot founded ou evidence. The plaintiff should have been given judgmentfor Rs. 27,000 and costs.
N. K. Weerasoorm, K.C., with S. Xadesan and S. Sharvananda, for thedefendant, respondent in 422 and appellant in 421.—That the negligenceof a customer is no defence to a bank to escape liability is too wide aproposition to be accepted generally. On the other hand, cases anilauthorities seem to show that it is a question of fact in each particularcose whether the bank should be held liable or not liable. See LondonJoint Stock Bank Ltd. i Macmillan and. Arthur3 . The Governor andCompany of Bank of England v. Vagliano Brothers ‘. There can be nodoubt that there is a duty on the customer to take reasonable care in hisdealings with his bank. The evidence in this ease shows clearly thatthere has been a complete absence of office routine and a lack of elementarybusiness precautions in keeping cheque books and drawing out cheques.Under such circumstances it would be impossible to say that the chequeswere not signed by the Chairman and the Secretary. The learned judgehas misdirected himself with regard to D3. lie seems to have ignored the,fact that, as against the bare denials of the Chairman and tho Secretary,three responsible bank officials have testified to the genuineness of bothsignatures in each cheque. The plaintiff’s case must fail altogether.
ndv. volt.
November 4, 1941b Dias J.—
7'he Kolonnawa Urban Council instituted this action against The Bankof Ceylon to recover three sums of Its. 0,000, Its. 4,000, and Rs. 20,000said to have been wrongly paid out. by the Bank on three forged cheques,Dl, D2, and D3 bearing the forged signatures of the Secretary and theChairman of the Urban Council. The plaintiff’s case is that the Bankunlawfully paid this money, and unlawfully debited the plaintiff Council'saccount at the Bank with those sums. The case for the Bank is thatthe signatures of the three cheques are genuine, and the cheques havingbeen honoured and honestly paid in tho ordinary course of business,the money so paid out was correctly debited to tho plaintiff's account.Tho defendant also raised a pica of estoppel against the Council. Thisplea was abandoned in tho course of the trial.
– l. n. //?/<■? a. o.
* L. R. 1891 A. C. 107.
1 (MS.5-0) 2 T. L. It. rtf-5.
» {1909) L. R. 2 K. D. I!) l>K
i)lAS .T.—B'li'k' iij Crylou-Kolo>n>n>aa tlrb'i". Council
Th« law relating to a hanker who pays out a customers money on aforged cheque is clear. Section 24 of the Bilb of Kxchangc Ordinance(Chap. 68) declares that where the signature on a bill (which includes acheque) is forged or placed thereon without the authority of the personwhose signature it purports to be, the forged or unauthorised signaturei3 wholly inoperative. A banker who pays out money on a chequebearing the forged signature of a customer cannot charge the amount sopaid out to the account of the customer, unless facts or circumstancesexist which in law preclude or estop the customer from pleading that hissignature was forged—sec Imperial Bank of India Ltd. v. Sir S. D. Bandar a-■nailer.1, Grant’s Law of Banking (7th ed.) pages 21-22, Paget’s Law ofBanking (3rd ed.), pages 368 el seq.
The plea of estoppel having l>een abandoned, the only issue which arosebetween the parties to this action is a question of fact—Are the cheques1)1, D2, and DU forgeries or not? If the former—the defendant,admittedly, would be liable to bear the loss. If the latter—the plaintiff,admittedly, would have to bear the loss, and the defendant would belegally entitled to debit the plaintiff’s account with the value of the throecheques.
When a banker sets up the genuineness of a signature which is allegedby the customer to be forged, on whom docs the initial onus lie ? Inthis case, at the commencement of the trial, the District Judge hasrecorded : “ On the question of the onus of proof, Mr. Chclvanayagara(Counsel for the plaintiff) is willing to take on the burden himself in thefirst instance, leaving it open to him to lead evidence in rebuttal of anyfacts which the defendant might prove. Mr. Gratiaen (Counsel for thedefendant) agrees, and states he is satisfied with the undertaking, as he hasalways maintained that on the pleadings the burden is on the plaintiff1 may, however, point out that in circumstances such as these, the initialburden of proof was on the defendant. Watson in The Law of Cheques(4th ed.) p. 107 says—“ Where a banker sets up the genuineness of asignature alleged by the customer to be forged, the onus of provinghis cruse beyond all reasonable doubt lies, it is said, on the banker—perDenman J. in Bennett v. Ijondon d; County Bank ” 'l.
The District .Judge holds on the facts that the cheques D1 and J)2are not forgeries. He takes the view that the Secretary who was on aholiday in Anuradhapuru between May 10 and May 23 had signed hisname on several blank cheques, including DX and D2, in the chequebook before he left Colombo, so that should need arise during lus absencefor any cheques to be issued, such blank forms could be ut ilised, which,after being signed by a complaisant Chairman, could be issued to thepayees. The District Judge, therefore, holds that D1 and D2 bear thegenuine signatures of the two persons who by law were authorized andempowered to sign the Council’s cheques. 'Therefore, when D1 and D2were presented for payment at the defendant bank and honoured, theloss should fall on the plaint iff Council and not on the bank. The DistrictJudge held that the case of cheque D3 stood on a different footing. Heheld that the defendant bank had not proved by any sort of evidence to
» 75 l). C., Colombo 45,270 (.S’. C. M. April 10, 1935).
■ (?M$) 2 T. L. R. 705.
DIAS J.—Bonk of Ceylon r. Kolonnawa Urban Council
his satisfaction that J)3 was signed by the Chairman or the Secretary.In other words, he held that D3 was a forgery, and that the loss resultingfrom the payment of such a forged cheque, there boing no estoppelagainst the plaintiff, must fall on the defendant, lie, therefore, enteredjudgment in plaintiff’s favour for the snm of Its. 20,000 i D.‘{) and in favourof the defendant for the two sums of Rs. 3,000 and Rs. 4.000(D) and 1>2).
The evidence discloses an amazing state of affairs, which savoursmore of comic opera than actual fact, as to the manner in winch thebusiness of the Kolonnawa Urban Council was managed during theyear 1045. In fact, the impression created by the evidence is that thosewho were responsible for the Kolonnawa rate-payers’ money in the year1945 did everything they ought not to have done, and did not do what,they ought to have done, and there was no “ health ” in them !The Chairman, who is the chief executive officer, had no “ businessexperience ” at all. His educational qualifications, admittedly, are poor.He did not know what his duties and responsibilities were. In mastmatters he was guided solely by the Secretary who “ ran the showProvided a cheque bore the signature of the Secretary, the Chairmanblindly appended his signature to it. In addition to his other short-comings, the Chairman was an invalid who often could not go to theCouncil’s office in order to attend to his duties. Therefore, the Council’scheque book and other important papers were conveyed without anycover or wrapper to the Chairman’s residence. No proper office routinewas observed. The evidence demonstrates that subordinate officers,including peons, had free access to the cheque book. Various officerswere |>ermitted to write out the body of cheques, and there is evidencethat even peons had been allowed to do so. In fact, this fraud was firstdetected, not by a staff officer of the Council, but by a peon ! In orderto minimise the possibility of fraud a rubber stamp had been providedwbich had to be affixed to each cheque before it was submitted tothe Secretary and the Chairman for their signatures. This stamp readsas follows:
“ Urban District Council, Kolonnawa
Chairman ’’
The evidence shows that this rubber stamp was kept in the office, and wasindiscriminately affixed to each blank cheque no sooner did a new chequebook reach the office from the bank. Therefore, this safeguard againstthe unauthorised issue of cheques was frustrated. For the mutualsafety of banker and customer, the defendant used to send statementsregarding the state of the Council’s bank account to the plaintiff everyten days. These statements were expected to bo scrutinized and checkedby the Secretary, who deputed that duty to a subordinate officer, with theresult that no checking w»» ever done. If those statements when receivedhad been checked with the counterfoils of the cheques issued, any fraudor mistake would at- once become apparent. The defendant sent thestatement Po covering the jx?riod May 15, 1945, to May 21. This wasreceived in the Council on May 25, 1945. One of the cheques debitedagainst the Council is Cheque No. 746 for Rs. 4,000 (Dl) which was cashed
!>SA$ J.—Ko:.t)tir,<ii>n Urban Ciwnoi!77
on May 9.1. 'Jfr.c Chsitwn stata! in cvilencc that it v« tlio dutycjf ifct Secretary to cVcck 2v. Tho Socrrti».ry stntvd that it vm the dutyof the Chief Ck-A to (to »o. Anyway nothing wne done, and tlie fraudpassed undetected. Tin: :w*t statement fi-mn tho hank—Pb—w;wroc» iv«0 o» Jsuv- ;i, Ititfi. Ttys statoraviit covers the jioriod M<«.y 22,!&}■>, io May :*>. Kad s-nyono takou the trouble to check Use entriesi:i PO with the choqno counterfoil, It wanid h?iv« b*«n '.-loorcsrcd thatV-fjJii J>! for Its. 3,000 and D3 for 20.000 hud boon -rushed un Hn-y 2-3e.*«i *tf»y 30, ve^iteth'v.iy* None of the stab* officer* diticovercri that.*:-3V:?wnjr tr«.< v.,o^.-r. ’t wax lef. to a peon o'J Otiuc 7 to discover that- acheque for 'U. 20,000 had .'fished. A cheque for sych a sum hudnever been by tho Ou;.-v:i. Eron then, the oheniuw Dl uid D2wero not- <i:*eovwed. Too Scv-yciirv and the Chairman then wontti» the bank, cm! f^ti&ihiod about 03 to the bank oftigiala, anil the matterwas reported to the 0.1.1>. It eai after «hat—<».; Jiilj* 17,1340. whena *: reeomdtmtiou .stateovtitf' was iM&ig$Yvpa&d, that cheque* Dl awlJ>2 and the fact that- the <HHinfcvfo& of those twohad been
ftlwtrscted, were r-Kicovvred for the first time. “ An between h bankand its customers, Itavwvct, there is no haplbsl agreement hy tho latterto take precaution!) hi the genera! oo»uv.; of carrying on hi* btttdncasAgbJi^t forgcr!<«. on the part of hie Ktrvuni*. Such citoppeb wiii arise if,after ItnowkvM:: of a forgery, the customer does anything to misleadthe bunk and the position of tho br.nk is thereby prejudiced; bat tmestoppel will result iron) more siiV.w; niru period during which tlao positionof the bank Is not altered for the worse -C/mat's I*t:v »j Badbis;,pages 21-22. " More cawlessnasa in kcqifcg fchy cheque tiuok K *fcourse, no uso. In fact, it is generally adduced as the redirttfo adabuvrdum of the ooutotition as to estoppel by nogUgonae. The entrustingof the occasional drawing of choouos to an agent, who subsequentlydraws oti.rvs without authority, would oomo rathe.- under tho bead of“ bolding out" Mian of estoppel by breach of doty. Tho lack of super-vision over an agent who might have access to tiia cheque book andopportunities! ftw concealing forgeri*: coinmiUcd by him is, probably,too remote in this connexion ftiyce os the {asp of flanking, yuge* 368el sag.
Both the Chairman and tho Soovtary have denied on oath that thesignatures on DI-D3 are theirs. Tho cvidtfice of the hamlwritin;experta did not carry tbo proof very far. Mr. Nag^dmn who wesculled by the plaintiff stated that in his opinion tho ?;gn»t:-:ir<t:s oi. Dlto 1W were leig.-wh'u. Mr. Lawric Mr.ttukrishna who was eaHed by thedcfon<:e incprasaed tlic view that Dl to 1)3 wow “ pra-Ktblj,s stipiwi bythe Scvrotaiy, while with regard to tho yignuturos of tlic Chairman howas of the view that “ tho probabilities were evenly balanced, t h^ru beingdo obvious feature of forgery ”. Taking all. the cirournsvAticos Mr.Muttuiaisima was of the view that tho signatures wore <( more probablygenuine than spurious Dealing with the expert evidence, the DistrictJudge said ” 2 do not fed justified in aix-optiiig entirely either tho opinionof Mr. Xngswdram or the opinion of Mr. Muttukrislmn. Each of tbe»eexperts holds a diDercnt opinion and gives Jus reasons for it Thesereasons fade whon tented by crose-osnninatioa and when oUkw signatiireeore pointed to^ whadi beer the samo features emphasised as reasons for
!♦—«J. X. A 9Mtt (I0/«W
'*>BIAS J.—Bank of Ceylon V. Koloiinnua Urban Council
the Opinions expressed At the argument in appeal, neither counselstressed the opinions of the experts. The question must, thereforo,be decided without tlte aid of export ovklcnco. The officials of the bank,who from their experience and training rouy U- as good witnesses onquestions of handwriting as any handwriting expert, are unanimousin their view that the .signat ures on D1-D3 nro genuine. These persons,however, are interested witnesses so far as the question at issue isconcerned. The Chairman and the Secretary of the plaintiff Councilare equally interested witnesses. Furthermore, there is evidence thatSince this action was instituted, the Audit- has surcharged both of themwith the value of these cheques—and that matter is a waiting the decisionof this ease before any further action is taken.
1 he authorities which I have cited show that however negligent tlwbanker's customer may have been, such facts would not avail r» bankerwho honours a forged cheque unless the customer is estopped from)Ming the forgery. The question of estop|*.i docs not arts*' in thiscase. ’Die only question for decision therefore is whether the chequesHI to B3 were or were not signed by the Secretary mid the Chairmanof the plaintiff Council 1
The plaintiff’s cheque book for the relevant ]wriod h the exhibit FI.This contains two hundred cheque leaves, there being two cheques andtwo counterfoils to each page.
1)1 is cheque No. C 374740. It bears the date May 10, 1343, and hasbeen made out in favour of an admittedly non-existent jxirson calledD. J. Perera for the sura of Tis. 4,300. T>1 bears tho Couneirs rnbberstamp, and purports to have been signed by the Secretary and theChairman. 1)1 was presented at the defendant bank for payment byan unidentified person on May 21, 1943, and was honoured, the allegedfoigery passing undetected. The ovidence conclusively shows that nosum was owing to a j>crson called 0.,!. T'ervra from the Council. Thereis r.o supporting voucher or receipt for it. This payment of Ks. 4,000does not- appear in any ledger o>* cash. book of tlie Council. Obviously,some person who was thoroughly familiar with the negligent- practicalof the plaintiff Council, has taken advantage of the situation and perpetra-ted a frond on the plaintiff. The Council gained no advantage by theissuing «r tho cashing of 1)1. There t3 no evidence to show that citherthe Chairman or the Secretary or any' other official of* l he Council gainedanything either.
Cheque T)1 (0 3747 IGj n::d cheque D2 (C 37-174')) formed one singh:page in the cheque honk FI. Not- only were both the cheque leavesused to commit fraud, but both the counterfoils of !>1 and D2 havebeen .skilfully removed from the cheque hook, thereby preventing anyone-from delecting the abstraction, unless he scrutinized the numbers of thevarious cheque counterfoils with care. In fuel, neither 1)1 nor .1)2 weivdiscovered until the C. fr !). commenced their investigation.
Cheque 1)2 (C 374743) is dated May 21, 1943. and is payable to anadmittedly non-existent jK?r*on named Thomas Perora for tho sum ofRs. 3.000. 1)2 bears tho Council’s rubber stamp, and purports to bearthe signatures of the Secretary and the Chairman. The Council had nodealings with a person called Thomas Pcrera, nor was a sum of Rs. 3,000or any sum due from the Council for any work done or service rendered
OJAS J.—Bank of Ceylon v. Kolomxiwa Urban Council
by a Thomas Pcrera. There is no supporting voucher or any documentor entry for this payment in any of the Council’s books. Cheque "Dllwas presented by some unidentified person at the bank on May 23, 1045.He was paid the sum of its. 3.000.
The burden of proof lay on the defendant to prove eifcnor by director circumstantial evidence that the cheques D1 and D2 were signed bythe Secretary or the Chairman of tho plaintiff Council. There being nodirect evidence, this fact had to be established by circumstantial evidence.
On May 22, L945, the following admitted cheques were written and
signed by the Score ary and the Chairman : Snlnj in
No. of Cheque ■‘mount Supporting Date of votes'
voucher ■payment ledger
Its. c. C37473D—PIT .. 23 35 . , No. (17—P44 . . 22.5.45 .. P33
740—PI 8 .. 198 72 .. No. 08—P45 . . 22.5.45 .. P33
741—PI 9 .. 90 72 . . No. 69—P40 . . 22.5.45 .. P33
742—P20 .. 53 10 . . No. 70—P47 . . 22.5.45 .. P35
743—P21 .. 50 70 . . No. 71—P4S . . 22.5.45 .. P33
714—P22 .. 448 95 , . No. 72—P49 . . 22.5.45 .. P33
745—D2 (abstracted.) D2 is dated 21.5.45. Paid by the bank 23.5
746—ID1 (abstracted.) D1 is dated 19.5.45, Paid by the bank 21.5
747—P23 .. 25 00 .. No. 73—P50 . . 22.5.45 .. P33
748—P24 .. 424 03 ., No. 74—P51 . . 22.5.45 ?
749—P25 .. 264 10 .. No. 75—? ?
It is a curious fact that although cheques had been written out andsigned by the Secretary and the Chairman on May 18, 1945, there is nosingle cheque—other than I>1—which bears the date May 19, 1945. Thedefence suggests that the reason for tliis lies in the fact that the Secretarywas absent on leave from Kolor.nav/a between May 19 (a Saturday) andMay 23 (a Wednesday), he having proceeded to Anuradhupura on aholiday. The defence points to the fact that on May 22 (Tuesday) theSecretary, although absent on leave, has signed no less than nineadmittedly genuine cheques—PI7 to P25. The evidence of the Secretaryas to where he was on May 22 i3 extremely unsatisfactory. He madeseveral contradictory statements on this point before the trial of thecivil action. At the trial he swore that he curtailed ids holiday, andreturned from Anuradhapura by the night train reaching Colombo on themorning of May 22 (Tuesday) “ because he did not like to leave his wi(eand children alone in Colombo”. This i3 a singularly unconvincingreason, and L cannot w'onder at the learned District Judge disbelievinghim on the point. Not only was there no reason why his wife andchildren, who had managed to exist without him until the 22nd May,could not safely wait another twenty-four hours for his return, but ifhis story is true, there should also be available documentary evidencein the office of the Council to corroborate him. If he had attendedoffice on -day 22, there must exist the attendance register and otherdocuments written or signed by him on that day w'hich would provethat his story is true. Furthermore, an officer who curtails his leave,would take steps to sec that the unexpired portion of his leave would bo
DJAS J.—-Unnk of Csrlon v. KoJov.nauj'i Urban Gowcit
noted ia ii<s personal file, or the leave register, to that should Ho at anyfuture time desire to avail himself of moro leave, hq would be able toutiii^o this unexpived leave. No evidence on tbit point was forthcoming.
T1>o ftimtatttion of tu« defence which tho District- ifudgo 1ms acceptedis that the &.‘vr«liary hus given untrue evidence on this point, ami that hewas neither in Colombo nor did he sign the cheques PJ7-P2B or anycheques at ah on May 22. 1015.
Why, then, is the Secretary stating what is untrue ? The defencesubmits that lus w doing so in order to covernpa;s i'rn.*»!swity he wm guiltyof lus left the office or. .oavo on May IS*. They maintain that beforethe Soercteiy -ell the office on kg**, h-y signed a number of blank chequeleave* (Pi7-1*25, 1>1 and 1>2), r 3 that should the seed arise during hisabsence fov tlic Council to make |sayrvrnv •, signed cheque leaves wouldbe rvj.ih.bk 1*.. ->e hik'd in for iiia pr.»jjcr amounts and to l»c submittedto He Cbs£ntu?n who, as tho evidence abundantly dcmousr-rfttca, wouldhave sig^^d any cheque provided it bore the signature of the Seerftvsry.During k*«i absence the cheque hook would be in the charge of anotherofficer. The suggestion is that seine dishonest ftersot* took advantageof this opportunity aud utilised the two blank cheques X>1 and D2 topcrpetiv.te ibis frr.ad. When tl»e cheque book was tokoft or .tent to :heCffmtvmaii on May 22 in order v> sign genuine choqaes, bo !>.»««* awaitinglus sigm;:t:re no lex* th-un eleven cheque* (l;l l-VSo, T)S arid .1)2;, at! ofwhich he blindly sigr.uti Recording to his wonted custom. The guiltyperron then, undetected, abstracted DS and D2 un*l removed tlieumnU.'vfoils in order Co make' detection diffiewp.. *
This Is un attractive theory, but, unfortunately, it docs wi aeaotmttor one Important fact, 'fhe cheque 1) 1 bears the dak May JO (Saturday^and wus actually cashed al the benk on May 21 {Monday), beforePJ7-P2& ww written ou‘. .Assuming that the contention fo? the defenoeis sound, oiul that the ffoorvury before he left Colombo signed a numberOf blank cheque forr;:* including 3)1, then clearly someone had submitted.1)1 to (he Chairman for his signature either on or prior to May 21, because7)L was in fXei c.’.^iivd on May 21. May 20 was a Sunday, and one canassume tint the Council oljioo would not be open for work on a Sunday.Therefore, the cheque 1)1 nmat Slave been submitted to t-h* Chairmaneither on fcJ:o Saturday (May 10) or on tho Monday (May 'll). There artno less than seven cheques in the eK*qne book earlier Ikon P1, namely,P17-P2* i U'td D2. Ther'.-ferc, if t he cheque book had been submittedto the Chairman for .j-g*latere on tlic Saturday or the Monday, even thisnegligent Cnaimjan eoukl not have failed to detect the unusual circum-aUmcc;- that he T.a biting as!i<d to sign cheque ffn. 0 3747-16 (!)!) whenseven cheques. C374?v;9foC.174745 uvrr* not In. r’~ if u.**«! in. ».o:etho dale May 22 in regard to siv of fcrn* *i and iho date May 21 <o. 02,w-rleDI itself bare the-date May 10.
It seems to mo, therefore, that the chain of eiroumstantic! ovHlc?*cerelied on by (he defence is incomplete. They rely on tins chain of circum*stances in order to establish fluvt the sigratnrrs of the Secretory mid theChairman on piiequcs D! c.ivi 02 f.re gennuw. The o*!i« is on the bank.Tho evidence however docs not establish the defence contention beyondreasonable doubt. Tfce abstraction of 1)1 and D2 took place notnecessarily after the Secretory had rigned PI7-P25. Therefore it does
nut iwoemriiy iuUow that l)1 wul j>2 bear tho g^unina eiguattuv of theSecretary. At least there i* a reasonable doubt on that point. Thereforetko nuun—If not tho only ground—upon which. the loomed i>l<iriot•Fudge riillbrentiuCcd Clio case* of 7)1 and D? from the ftaU wtotln* totho eUeqv.a T)3 fMVi to tin: ground, Tim flndinj of tho DUferle'j Jutl~o Inregard vo TU ml Oil, that Mu,*;;* hear tho genuine rjgintfcanw of thoSoowtAvy cmrt tho Chairman, wumoh, thoreforfli bn -aiponi*u,i oi thoevidence whon fairly ronA;:i?r<>tl. In the abionou nf uny cwtoppui whichprecludes tho plaintiff iVom alleging that Dl and .0:7 are forgerl-.), thofinding of tho lvtvrnod Judge mi thi« part of tho oruo nannob in my vie*be junfiifiod on tho evidence, and must bo fljkh*,
With rogftvrt to Lho ahoque Od fur R.J. 20,000,1 agree with tho Hiding*of tho Bletrloi Judge and they must be affirmed,
Ti)i.i deoreu entered hi tho ruso will thevd'ore bn varied a? follows:The i.hiftmknto must pay to tho plaintiff Counoil tiiu sum of Rs. 27,000with logAl Interest tliorvon from Kovinnher 2, KlJ.'i, till payment in full.
Oil the quwstkm of cost*, those should a? a ruin follow the ovont. Inthin on«P| however, tho conduct of the phuuMfT Counoil im been sonegligent, that I feel that each party should be ordered to bnnr theirown QQK'lii both bore ami balow.
WtndxaM J.™I agree,
Dtcru varUd.