Scottish Court of Session Decisions

David Fergusson, farmer, Goosehill, Sanquhar, had an account-current with the British Linen Company at their bank at Sanquhar. On the 30th October 1881 he purchased from John Fergusson, Tobermory, a number of sheep, which were duly delivered to him, and in payment for which he on 30th December 1881 granted a cheque for £161. This cheque was drawn on the British Linen Company at their Sanquhar branch, and John Fergusson paid it into his own bank account. It was presented for payment at the British Linen Bank at Sanquhar, through his banker, on 5th January 1882, but payment was refused on the ground of insufficient funds. It was again presented on 25th January 1882, but payment was for the same reason a second time refused. The amount at the credit of David Fergusson at this time was £135, 13s. 10d. It was afterwards increased by him to £156, 8s.

David Fergusson's estates were sequestrated on 22d April 1882, and Joseph Carruthers, solicitor, Sanquhar, who was also agent for the bank, was appointed trustee.

On the 30th June 1882 an action of multiplepoinding was raised in the Sheriff Court at Dumfries in name of the British Linen Company, concluding that the bank should be found liable in once and single payment only of the said sum of £156, 8s. The real raiser of the action was Joseph Carruthers, as trustee on the sequestrated estate of David Fergusson. He claimed the whole fund for behoof of creditors, and pleaded that the cheque for £161 was ineffectual as an assignation of the amount at the credit of the account on which it was drawn, in respect that at the dates of presentation the amount at the credit of the drawer was insufficient

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to meet it, and further, that a banker was not bound to make a partial payment on account of a cheque presented to him.

A claim was also put in by John Fergusson, who claimed to be ranked and preferred to the fund in medio to the extent of £135, 13s. 10d., the amount discovered to be at David Fergusson's (the bankrupt's) credit at the time when the cheque for £161 was presented for payment. He pleaded that the said cheque having been delivered for value, and duly presented for payment, such presentation operated as an assignation to him of the amount of funds then at David Fergusson's credit in the bank not exceeding the amount of the cheque.

On 19th October 1882 the Sheriff-Substitute pronounced the following interlocutor:—“The Sheriff-Substitute having considered the claims and the whole process, after a debate thereon, Finds in fact (1) that on 30th December 1881 the claimant John Fergusson received from David Fergusson, farmer, Goosehill, Sanquhar, a cheque on the British Linen Company's Bank at Sanquhar, dated the same day, for £161, in payment of some sheep sold and delivered by him to the latter; (2) that said claimant paid said cheque into his account with the Commercial Bank of Scotland, by whom it was presented for payment at said branch of the British Linen Company on 5th January 1882; (3) that payment was refused on the ground of ‘insufficient funds,’ and was again refused on the same ground when the cheque was presented a second time on 25th January, and that the cheque is still unpaid; (4) that at the dates of the presentations of the said cheque there was at the credit of the said David Fergusson, on his account with the British Linen Company at Sanquhar, the sum of £135, 13s. 10d.; (5) that the estates of the said David Fergusson were sequestrated on 22d April 1882, and the claimant Joseph Carruthers was appointed trustee thereon; (6) that the sum at the credit of the said David Fergusson with the British Linen Company at the date of the raising of this action was £156, 8s., which forms the fund in medio; (7) that the said John Fergusson claims to be ranked on the fund to the extent of £135, 13s. 10d., being the amount at the credit of the said David Fergusson when the cheque granted by him was presented for payment, and that the said Joseph Carruthers claims the whole of the fund in medio as belonging to David Fergusson's sequestrated estate: Finds in law (1) that the delivery to John Fergusson and presentation by him of the cheque in question did not operate as an assignation of the sum then at the credit of David Fergusson with the bank; and (2) that the bank agent was not bound or entitled to make a partial payment to account of said cheque: Therefore repels the plea-in-law and claim for John Fergusson, sustains the first and third pleas-in-law and the claim for Joseph Carruthers, and ranks and prefers him on the fund in medio in terms of his claim, with any interest that has accrued thereon since the raising of the action, and grants warrant to the consignee to pay the same to said claimant: Finds the said John Fergusson liable in expenses; allows an account, &c.

“ Note.—Judged merely from the practice of banking, this is a simple case. Collins on the ‘Law and Practice of Banking’ says (page 167)—‘A banker is not empowered to make a part ‘payment on a cheque. For instance, if A draws a cheque for £50, and his balance at the drawee's is but £30, the drawee is not entitled to pay £30 on account …. there is no middle course between compliance and non-compliance. Neither is a banker empowered to disclose to the presenter the balance at the credit of the drawee's account in his hands, thereby to enable the presenter to lodge to the drawer's credit the amount deficient, and so provide sufficient funds to meet the cheque, and so obtain payment. Making a part payment on a cheque, as above, would be a disclosure of the customer's account, and on no occasion or under no circumstances—except as a witness in some of Her Majesty's courts of law or equity—can a banker disclose the state of his customer's account.’ Again, Robertson in his ‘Handbook of Bankers’ Law’ (page 56) says—‘When a cheque is presented to a banker, and the banker has not sufficient funds to answer the demand, the proper reply to give to the presenter of the cheque is “insufficient funds;” and should the holder of the cheque inquire how much stands at the drawer's credit, with a view to paying in the difference, and so getting payment of the cheque, such payment, it is understood, would be reducible, as being in prejudice of the other creditors of the maker of the cheque. It follows accordingly that in such cases a bank is not bound to pay a cheque in part.’

The Sheriff-Substitute cannot see how, if the presenter of the cheque has no right to demand part payment, the granting and presentation of the cheque can operate as an assignation in his favour of whatever sum may be at the credit of the granter. Arguments were adduced that at common law a cheque was the same as a bill of exchange, and operated as an assignation. The authorities on this point are conflicting, and some of them are far from clear; but in the case of Waterston v. City of Glasgow Bank (February 6, 1874, 1 R. 470) the Judges were unanimous in holding that a cheque, even when presented, did not operate as an assignation.

The curious thing is that in no institutional writer, and in no report of any decision that the Sheriff-Substitute has seen, has the question of a right to partial payment been dealt with. It seems, therefore, to him that the matter must be dealt with, at all events, in a court of first instance, like the Sheriff Court, according to the rules and practice of banking. The Sheriff-Substitute at first had some doubts whether the law was not altered by the Bills of Exchange Act, passed in the last session of Parliament, which by section 73 provides as follows:—‘A cheque is a bill of exchange drawn on a banker, payable on demand. Except as otherwise provided in this part, the provisions of this Act applicable to a bill of exchange payable on demand apply to a cheque.’ And in sub-section (2) of section 53 it is provided that, ‘In Scotland, where the drawee of a bill has in his hands funds available for the payment thereof, the bill operates as an assignment of the sum for which it is drawn in favour of the holder, from the time when the bill is presented to the drawee.' But it will be noticed that this provision is limited to the case where

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the drawee has ‘funds available’ for the payment of the bill. It does not say ‘or part of the bill;’ and seeing that neither statutes nor decisions go contrary to the practice of bankers, the Sheriff-Substitute feels bound to uphold it.

John Fergusson appealed to the Sheriff, who on 9th Nov. 1882 pronounced the following interlocutor:—“The Sheriff having resumed consideration of the appeal against the interlocutor of 19th October 1882, with the argument of parties and whole process, adheres to the findings in fact of said interlocutor: Quoad ultra sustains the appeal and recals the said interlocutor; and in lieu thereof finds in law that the delivery to John Fergusson and presentment by him of the cheque in question operated as an assignation of the sum then at the credit of David Fergusson with the bank: Therefore sustains the claim of the said John Fergusson, and repels the claim for Joseph Carruthers, and ranks and prefers the said John Fergusson on the fund in medio to the extent of £135, 13s. 10d. in terms of his claim, and grants warrant to the consignee to pay the same to the said claimant: Finds the said Joseph Carruthers, as trustee on the sequestrated estate of the said David Fergusson, liable to the said John Fergusson in expenses, and decerns; allows an account, &c.

Note.—The sole question here is whether a bank cheque granted in payment of a debt, duly presented, operates assignation of the funds of the drawer in the hands of the bank on which it is drawn, as against the drawer and his creditors.

In this case the bank had funds belonging to the drawer, but not sufficient to pay in full when the cheque was presented, and on that ground they refused to pay. But no question arises with the bank; the fund is still in their hands. The drawer David Fergusson, however, has been sequestrated, and his trustee claims the money at the bankrupt's credit.

Had the drawer, instead of a cheque, given a bill, and it had been duly intimated (not necessarily protested, which is not necessary except for diligence), it would beyond doubt have assigned the funds at the drawer's credit. Why should not a cheque have the same effect? According to many, a cheque is a bill of exchange; yet those who have said so qualify the statement by expressions which seem to go to this, that it may be a bill if parties so intend it, but that it does not carry about with it as drawn, nor even after endorsation, the same presumptions as to onerosity which arise on bills. But it is indicated that when onerosity is proved then the document has the qualities of a bill.

Here the onerosity is admitted—so also is the due intimation to the bank; whether in such circumstances a cheque operates assignation seems never to have been judicially determined. But there are obiter dicta from which the inference is that it is equivalent to assignation. Reference may be made to M'Donald v. Union Bank, 1864, 2 Macph. 963; Watt and Others v. Pinkney, 1853, 16 D. 279; and Waterston v. City of Glasgow Bank, 1874, 1 R. 470; and specially to the judgment of the Lord Justice-Clerk in the case of Waterston, bearing in mind that the question there was a different one, namely, whether on receiving a countermand a banker was entitled to refuse to pay a cheque although he had funds. It was in considering whether a cheque was a bill of exchange that the following observations were made: ‘In a question with the drawer and his creditors I do not doubt that the cheque is equivalent to an assignation, but it would not be so without proof of consideration. It would not ex facie imply onerosity.’ Lord Neaves, too, seems to have thought that all that was required to give the cheque the effect of a bill was to prove that it was in the payee's hands for value.

An argument was founded on the Bills of Exchange Act 1882, sections 73 and 53, subsection 2; and if it be retrospective or declaratory, which it probably is not, there would be no question as to the cheque being equivalent to a bill of exchange; and, for the reasons above given, the Sheriff holds that in the circumstances which have arisen it is so by the old law.

If the view taken be correct, there is no necessity to make any remarks on the practice of bankers to decline paying cheques though they have funds of the drawer, if they are not sufficient to meet the cheque.”

The trustee appealed to the Court of Session, and argued—When a cheque was presented for a larger sum than was at the credit of the drawer, the bank was not bound to honour the cheque even to the amount held by them. A banker was not bound to disclose the state of his customer's account—See Byles on Bills, p. 22,13th ed., and Robertson's Handbook of Banker's Law, p. 60. There was a substantial difference between bills of exchange and cheques, for in the former there was always a presumption of onerosity which did not exist in the latter— Watt v. Pinkney, December 21, 1853, 16 D. 279. A cheque was not an assignation which could be intimated— Hopkinson v. Foster, L.R., 1 9 Eq. 74. The criterion of the assignee's right was the validity of the intimation to the bank as completing a transfer. The mere granting of a cheque and the presentment of it could not make a completed assignation. A cheque was a revocable document— Crockat v. Brown, Elchies' voce Assignation, Append. ii. No. 5; Haldane v. Spiers, March 7, 1872, 10 Macph. 537; Waterston v. City of Glasgow Bank, February 6, 1874, 1 R. 470; Bryce v. Young's Trustee, January 20, 1866, 4 Macph, 312; Bill of Exchange Act 1882, secs. 53 and 73.

Argued for respondent—As regarded the question of assignation, there was no difference between a bill of exchange and a cheque even although there was an insufficiency of funds— M'Leod v. Creichton, 1779, M. 16, 469; Carter v. M'Intosh, March 20, 1862, 24 D. 925. The whole question came to be whether a cheque was an assignation. A cheque and an unaccepted bill were in the same position; if so, this case was ruled by that of Carter—see also Sutherland v. Commercial Bank, February 21, 1882, 20 Scot. Law Rep. 139; Stewart v. Ewing, 1744, M. 1493. The assignation might be good and effectual although the bank refused to pay— Falkener v. Campbell, January 22, 1824, 2 S. 535. A cheque according to Scotch law was just a bill, although no summary diligence could be done on it, nor could it be protested— Hopkins v. Ware, L.R., 4 Ex. 268; Bell's Comm. ii., pp. 18 and 19. The cheque here was an irrevocable order for money, because it was for value. It appropriated the money in the drawee's hand for the benefit of the drawer. The question was really one between the granter and the grantee, and not with the banker at all. On the analogy of arrestments—An arrestmen

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for £200 would competently attach £50, and why should not a cheque operate by assignation in the same way?

At advising—