Scottish Court of Session Decisions

Richard Reid, writer, Kirkintilloch, was agent for the National Bank of Scotland (Limited) in that town. Upon 31st July 1876 he was appointed law-agent and factor upon a trust under the trust-disposition and settlement of the deceased Archibald Couper, manufacturer in Kirkintilloch, and as such was authorised to uplift

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the interest upon the various securities held by the trust, and to operate upon the trust bank account. Reid acted in these capacities until about the end of October 1887, when he absconded from Kirkintilloch.

The trustees obtained possession of the bank pass-books which Reid had formerly kept in his own possession, and found that the balance due to the trust according to these books, as at 1st June 1887, was £218, 19s. 11d. The bank, however, declined to accept that balance as the correct state of account between the parties, and indeed claimed that the trust was in debt to them.

The trustees Mrs Helen Dollar or Couper, widow of the said Archibald Couper, and others, therefore brought an action to recover the sum of £86, 2s. 6d., which after examination of the whole transactions they claimed to be the balance due to them as disclosed by the pass-books.

The pursuers averred—“Up to the 1st of June 1887 the sums paid into the bank are regularly and formally entered in the pass-books, and are initialed by the bank agent. Such entries are the recognised acknowledgments by bankers for moneys paid into bank. From an examination of the pass-books, bank interest does not appear to have been allowed, nor charged on the sums standing at the credit or debit of the trust from 1st November 1883. The defenders having declined to complete the pursuers' pass-books, the pursuers have had the interest calculated otherwise to the best of their ability, and giving effect to their calculations they find that, as at 1st November 1887 (the date of the defenders' last annual balance), there is only a balance due to them of £86, 2s. 2d., which is the principal sum sued for. It was from the defenders the pursuers obtained possession of the pass-books, and any docquets made in the bank's ledger were not made by Richard Reid as factor for the pursuers. They were false and fraudulent, and at variance with the pass-books and the facts, and were made by him solely to conceal the manipulations on the-account and his defalcations as bank agent. Richard Reid could not, as factor for the trustees, manipulate the bank's ledger so as to render it different from the pass-books. The docquet formed part of the manipulations of the bank's ledger by the said Richard Reid as bank agent.”

The defenders averred — “Explained that Richard Reid, as is customary where factors operate on a bank account, had the custody of the pursuers' pass-book. Such a pass-book is not one of the books of the bank, and is never held by the bank, but always by the customer or some-one on his behalf. The entries in a passbook are made by the customer, and not by the bank. Explained that on 1st June 1887 there was standing at the credit of the account kept for the pursuers in the bank books a sum of £19, 8s. 1d. If the pursuers' pass-book showed a different total at their credit such total was arrived at by means of false, fraudulent, or mistaken entries made by the said Richard Reid to conceal his defalcations as factor for the pursuers. The pass-books do not set forth the true state of the account; it is not the custom for such entries to be initialed by the bank agent. It is unusual for him to initial such entries, which are usually initialed by the teller or the ledger clerk, and sometimes by both. Explained further, that after crediting pursuers with all money paid into the bank, and with all sums drawn out, the balance at their credit on 1st June 1887 was £19, 8s. 1d. As factor for the pursuers, Reid from time to time docqueted the said account in the defenders' Kirkintilloch ledgers. On 1st November 1886 the said Richard Reid docqueted the said bank ledger in the following terms, viz.:—‘The above account examined and found correct, the vouchers delivered up, and the balance, carried to credit in a new account, amounts to £1, 17s — Richard Reid, factor.’ The sum of £1, 17s. was carried to the credit of the new account, which was operated on by Reid as factor for the pursuers, with the result that on 1st November 1887 there was a sum of £98, 9s. 5d. at the debit of the account, for which the defenders reserve their claim.”

The pursuers pleaded—“(2) The pursuers having paid into the defenders' branch at Kirkintilloch the sums entered in their pass-books, and said payments having been duly acknowledged by the initials of their agent, the defenders are liable for the balance due upon the entries in said pass-books, and the pursuers are entitled to decree as craved, with expenses. (4) The docquets founded on by the defenders not having been made by the said Richard Reid in his capacity of factor, but as part of a series of false and fraudulent manipulations by him, as bank agent, to deceive the defenders, the pursuers are not bound thereby. (5) The entries in the pass-books being the usual acknowledgments given by the banks for moneys paid to their officials, the defenders are bound thereby.”

The defenders pleaded—“(2) Any loss the pursuers may have sustained having been caused by the malversations of the said Richard Reid in his character of factor to the pursuers, the defenders should be assoilzied. (4) In any view, the said Richard Reid having docqueted the pursuers' bank account on 1st November 1886, they are bound by the terms of that docquet.”

At a proof before the Sheriff-Substitute ( Lees) it appeared that it was the practice in all banks to require a paid-in slip along with money lodged. In large banks the receipt of money was acknowledged by the initials of the teller and the cheque clerk; in smaller banks by the initials of the official who acted as teller. Reid kept the passbook of the trust in his own possession. The other bank officials, of whom there were five, were unaware of its existence. All the entries in it were initialed by him, although he seldom acted as teller, and there were no paid-in slips corresponding with these entries. Against two of the entries in the pass-book Reid had forged the initials of the ledger clerk of the bank. He had also from time to time docqueted the bank ledger in terms to those of the docquet mentioned above, in each case showing a different and smaller amount at the credit of the trustees than was shown by the entries in the pass-book.

Upon 30th October 1888 the Sheriff-Substitute pronounced this interlocutor, after finding the facts above narrated—“… Finds that the bank did not receive the sums claimed by the pursuers which go to make the balance claimed by them: Finds in law (1) that in the circumstances above set forth the initialing of the bank pass-books by the said Richard Reid was not habile to constitute

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a claim in the pursuers' favour in terms of the pass-books; and (2) that the sums claimed by the pursuers not having been paid to the defenders, or to anyone on their behalf, and the defenders not having received the same, they are not liable to make payment to the pursuers of the sums claimed: Therefore assoilzies the defenders from the conclusions of the action, and decerns: Finds the pursuers liable to them in expenses, &c.

Note.—The parties are agreed that the sum in dispute between them is approximately represented by four cheques, which do not appear in the defenders' books. As regards the first few entries the pass-books are correct, and have been properly kept. The sums paid in and the dates of payment are correct, and have been initialed by the accountant of the bank. Thereafter the initialing was by Reid, and it is urged that it was improper for Reid to vouch payments by his initials. I should, however, have been quite prepared to hold that Reid's initials constituted a prima facie case against the bank. And if the question had turned solely upon the four inaccurate or false entries by Reid, not improbably the decision must have gone against the defenders. But the result of examination is to show that the pass-books after 1876 ceased to represent with even approximate accuracy the transactions that were being made on behalf of the pursuers. And I am afraid that there is really no room even for doubt that the defenders are right in asserting that after 1876 the pass-books were concocted by Reid merely as a blind to the pursuers in regard to what he was doing, and that his object was not to cheat the bank, but the pursuers. It was his position as the defenders' servant that enabled him to perpetrate the fraud, but if the fraud had been perpetrated on the defenders it would of course have been speedily found out. Now, the pass-books are the only case for the pursuers. It was as their servant, and in virtue of their mandate, that Reid received the moneys, but the mere passage of the moneys into his hands could not constitute responsibility for them against the defenders. I do not for a moment say that if it could be shown that the moneys passed into the coffers of the bank, or into the hands of anyone acting on its behalf, and authorised to do so, it would be materially adverse to the pursuers' case that the payments had not entered the bank ledger and were not accompanied with pay-slips. The ledger and pay-slips exist for the purposes of the bank, and though entries in it or payment made with them might constitute liability against the bank, their absence could not invalidate a claim otherwise good. But where that claim depends solely on manufactured entries in pass-books which were not held by the pursuers, I think they cannot succeed without fortifying these entries by proof of payment of the moneys to the bank. No doubt there were sums received on behalf of the pursuers of approximately the amount specified in the passbooks. But as I have already said, these sums did not pass into the hands of the bank in a manner even resembling the statements made in the pass-books, and I therefore cannot hold that these entries bind, or were even when made intended to bind, the bank in a question with the pursuers. The very fact that Reid forged the initials of the bank accountant shows that he regarded his own entries as not being made by him on the bank's behalf or as binding it. It is not everything that a bank agent writes that will bind his bank. There must be some basis for what he is doing, and this of course is only the more true in the case of a running account as compared with a fitted account or a formal receipt. I therefore come to think with some regret that in this question as to where the loss is to fall the pursuers must bear it. And it is more satisfactory to place the decision of the case, I think, on the grounds above stated than on the docquet signed by Reid in the bank ledger as if for the pursuers; probably that docquet would not protect the defenders if it was their only defence, but the pursuers' case seems to me to fail otherwise.”

The pursuers appealed, and argued—(1) The question is, was the money of the trust duly received by the bank? The evidence showed that the usual course was followed in this case; the pass-book was initialed by the agent, who on these occasions acted as the teller; that was prima facie evidence that the money was paid into the bank, and embezzled by their agent, and therefore the bank was liable for the loss occasioned by the fraud— Craw v. The Commercial Bank, December 9, 1840, 3 D. 193; Rhind v. The Commercial Bank, February 24, 1857, 19 D. 519, and February 10, 1860, 22 D. (H. of L.) 2. The docquet founded on by the defenders could not bind the trustees in any way in their dealings with the bank. It was a gratuitous discharge by Reid of money which was owing to them as shown by the pass-book. Reid had no mandate from the trustees to sign such a docquet; it was a private matter between him and the bank— Fell v. Rattray, January 28, 1869, 41 Jur. 236.

Counsel for the defenders was not called upon.

At advising—