Scottish Court of Session Decisions

This was the sequel of an action brought by the Clydesdale Bank against the present defenders and the Royal Bank (reported March 11, 187G, vol. xiii., 367, and 3 Rettie 586) in the following circumstances:—Martin, who was a clerk of Paul, presented a crossed cheque at the Royal Bank, purporting to be drawn in Paul's favour by Dixon Brothers on the Clydesdale Bank, and endorsed by Paul. Paul was a customer of the Royal Bank; Dixon Brothers were not. The Royal Bank cashed the cheque, and thereafter presented it to the Clydesdale, who paid the money. Ten days afterwards the Clydesdale discovered that the signatures of Dixon Brothers and Paul were forgeries. This was an action at the instance of the Clydesdale Bank against the Royal Bank and Paul and his trustee for £4800, the amount of the cheque. At the previous stage of the case the Royal Bank were assoilzied, and proof allowed as regarded the case between the pursuers and Paul.

The proof was accordingly taken, and the result appears from the following note of the Lord Ordinary, who decerned against the defender Paul in terms of the conclusions of the libel:—

“ Note.—The facts in this case are not disputed.

Mr Paul carried on business in Glasgow as a stockbroker, and was a member of the Stock Exchange. It is proved that no person can transact business on the Exchange except a member, or a person representing a member. The brokers deal with each other as principals.

For some years Mr Paul had in his employment a clerk named Martin. In consequence of age and infirmity Mr Paul became less able to conduct his business personally, and from April 1875 Martin was allowed to represent him on the Stock Exchange. He entered into many transactions which his employer had not authorised. Though they were regularly entered in what is called the Exchange-book, they were not carried to the contract-book, in which the names of the customer or client of the broker appear. The reason was that they were speculative transactions carried on by Martin, for which he had no order. It is plain enough that Mr Paul had no knowledge of these irregular transactions, though at one time he had suspicions of Martin's fidelity, and might have ascertained the truth by examining his Exchange-book.

At the settling-day, on 30th November 1875, the balance due by Paul on all the transactions made in his name was upwards of £7000. But apart from the irregular transactions the balance was only a little more than £2000. The money was payable at one o'clock, and Paul provided his clerks with a sum sufficient or nearly sufficient to meet the smaller balance.

In order to enable him to meet the actual sum which was due on all the transactions, Martin passed a forged cheque on the Clydesdale Bank. It bore to be a cheque drawn by Dixon Brothers in favour of Paul, and endorsed by the latter. Both signatures were forged. Being a crossed cheque it was presented to the Royal Bank, who were the bankers of Paul. It was cashed, and the money, along with that which Paul had himself furnished, was handed to the secretary of the Stock Exchange to meet the debt appearing on Paul's fortnightly balance-sheet. The Royal Bank, in settling with the pursuers, received credit for the contents of the cheque.

The forgery was discovered on the 9th or 10th of December. Martin then absconded, and has not since been heard of.

The pursuers maintain, in the first place, that as the cheque was paid on the request of Martin, who held a confidential place in Paul's employment, Paul is liable to repay them. The Lord Ordinary is of opinion that this plea is not well founded.

But they urge, in the second place, that as Paul received the benefit of the cheque, inasmuch as the money was applied in discharging his liabilities, they are entitled to recover from him.

The answer of the defenders is this—They admit that Paul was liable for the balance arising on all the transactions; but they say that in a question between him and Martin, the latter was the true debtor on the balance arising on the irregular transactions, that he discharged that debt, and that they have no concern with the source from which the money came, or the means by which it was obtained. They urge that they are in the same position as if Martin had borrowed the money and had applied it in payment of his own debt.

In the opinion of the Lord Ordinary the pursuers are entitled to decree. The money was raised by Martin as the representative of Paul. It is true that this was done without his authority; and still more that he did not authorise the means which were employed. But the advance was not the less an advance on his account, and if he receives benefit from it he must, it is thought, be dealt with as if he had given previous authority to obtain it. The Lord Ordinary therefore thinks that the pursuers are entitled to decree.”

The defenders reclaimed, and argued—Martin, although Paul's agent, was not authorised to commit this fraud; it was no part of his business to do so, nor was Paul a party to the fraud or lucratus by it. Nor was it the case that the money thus

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fraudulently obtained was applied for Paul's benefit. The transactions which it was employed to pay for were Martin's own, not Paul's, nor authorised by him. Even if the money was applied to extinguish Paul's liabilities, it was so applied by one who was Paul's debtor to a large amount in consequence of his successful embezzlements, and therefore the payment must be looked on as haying been made for onerous considerations; if that be so, Paul is not liable.

Authorities— Union Bank v. Makin, March 7, 1873, 11 Macph. 499; Wardlaw v. Mackenzie, June 10, 1859, 21 D. 910; Scholefield v. Templer, 4 De Gex and Jones 429; Byre v. Burmestre, 4 De Gex, Jones, and Smith, 435; Colvin v. Dickson, March 15, 1867, 5 Macph. 603; Allan v. London and South-Western Railway Co., Law Reps., 2 Q. B. 65.

The pursuers argued—Paul made the fraudulent act of Martin his own by having got benefit from it; he was liable for the balance due to the Exchange, for Martin had no position of his own there, and therefore the money was spent in discharging Paul's debts. In all the authorities it was held that an agent made his principal liable for his fraud if the principal thereby received benefit to the extent of that fraud.

Authorities— Traill v. Smith's Trustees, June 3, 1876, 3 Rettie 770; Barwick, 2 Law Reps., Exch. 259; Mackay v. Commercial Bank of New Brunswick, 5 L. R., Privy Council App. 394.

Lord Deas, in respect that he was a shareholder of the Royal Bank, proposed a declinature. It was unanimously repelled, on the ground that the Royal Bank was not and never could be a party to this branch of the action.

At advising—