Scottish Court of Session Decisions

An action was raised in the Sheriff Court of Lanarkshire by Mr John Miller King, grain merchant, Glasgow, against the British Linen Company, craving that the defender should be ordained to pay to the pursuer the sum of £161, 4s. 10d., being the amount standing at the credit of the pursuer's current account on 21st October 1896. There were further conclusions for delivery to the pursuer of certain bills, and for payment of £500, this last sum being claimed as damages in respect of the defenders having dishonoured a cheque drawn by the pursuer. The pursuer had kept an account-current with the defenders for a number of years prior to 21st October 1896, at which date there was a balance in his favour of the amount claimed in the first conclusion of the summons.

On 21st October 1896 the pursuer issued a cheque for £38, 18s. drawn by him in favour of Mr James Whiteford, Baillieston.

On the 22nd October the pursuer received from the defenders' agent at their Union Street branch a letter stating that the defenders were raising an action against the pursuer in respect of a bill for £180 alleged to be lying unpaid at their Hutchesontown branch, and also intimating that pending a settlement of this matter he had been instructed to retain any money at the credit of the pursuer's current account, and requesting him to refrain from passing any further cheques. On receipt of this letter the pursuer intimated that prior to it he had issued the cheque in question, and that if it were dishonoured it would injure his credit. He also demanded delivery of certain bills which the defenders held for collection.

On 27th October the defenders raised an action in the Court of Session against the pursuer and his brother concluding for payment of the amount in the bill, but in respect of an extrajudicial settlement the defenders consented to the pursuer being assoilzied.

The cheque which the pursuer had drawn in favour of Mr James Whiteford was endorsed by him to his brother, who paid it into the Union Bank. When presented through the clearing-house to the defenders they refused to honour it and returned it dishonoured to the holders marked “Effects to be retained. Refer to drawer.” The pursuer in consequence raised the present action.

The pursuer maintained that the defenders' action in refusing to honour the cheque when they had sufficient funds to meet it had injured his business credit with Mr Whiteford and his other customers, the damage caused thereby amounting to the sum concluded for.

The defenders maintained that they were entitled to retain the balance at the pursuer's credit in respect of his indebtedness to them, and were not bound to honour his cheque pending the settlement.

The Sheriff-Substitute ( Strachan) on 28th December 1897 repelled certain of the defenders' preliminary pleas and allowed a proof.

The defenders appealed to the Sheriff ( Berry), who on 9th March 1898 adhered to the interlocutor appealed against.

The Sheriff-Substitute on 30th June pronounced an interlocutor, by which he found, inter alia, “that the defenders acted wrongfully and unwarrantably in retaining the funds at the credit of the pursuer's current account with them, and the foresaid bills belonging to him, and that their action in dishonouring the said cheque while they had funds at his credit sufficient to pay the same constitutes a breach of the

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contract implied in the relationship of banker and customer which subsisted between the parties when the said cheque was dishonoured: Finds that the defenders are liable to the pursuer for the loss and damage sustained by him through the foresaid proceedings on their part: Assesses the amount at £100, and decerns against the defenders for payment to him of that sum.”

Note.—“Since this action was last before the Court, the defenders have delivered to the pursuer the bills specified in the petition, and have also paid him the balance at the credit of the bank account, with 5 per cent. interest thereon. The question of damages alone now remains to be disposed of.

It must now he taken as finally settled that the defenders had no legal claim against the pursuer for the bill in respect of which they retained both his money and his bills. That was judicially settled by the compromise in the action in the Court of Session, and the defenders have now given effect to it by the delivery of the bills and the payment of the balance due to the pursuer.

The defenders, however, contend that at the time the cheque was dishonoured they had reasonable grounds for believing that the pursuer was liable to them for the bill in question, and that this is sufficient to exclude any liability for damages on their part. The bill, they say, was accepted in his name by his brother, who had power to sign cheques for him, and had admittedly a general management of his pecuniary affairs; the money got for the bill had been applied for his benefit, in extinction of an obligation for which he was undoubtedly liable, and he himself had signed a number of previous bills, of which the one in question was only a renewal. All these circumstances in their view entitled them to assume that the bill had been signed by his brother with the authority of the pursuer, and in that case under the Bills of Exchange Act it would be as binding on him as if it had been signed by himself. It has, however, in my opinion, been clearly established by the evidence that the bill was signed by the pursuer's brother without his knowledge or authority, that he knew nothing of its existence until a demand was made for payment, and that down to that time he was under the belief that the previous bill had been retired by Kennedy, for whose accommodation it had been granted. The money had no doubt been applied in extinction of an obligation for which he was liable, but he says that, for reasons explained by him, and which I regard as quite satisfactory, he had made up his mind not to renew the last bill when it fell due at the time the bill in question was granted, and that if he had been obliged to retire it he could have obtained payment from Kennedy, who was then in good credit, although he became bankrupt by the time the bill signed by the brother became due, so that the acceptance of that bill by his brother was in reality of no benefit to him.

But the circumstances relied on by the defenders as affording reasonable ground for their belief in the pursuer's liability for the bill, although they might be of importance in enabling them to establish that liability, did not in my opinion justify them in closing the pursuer's bank account and dishonouring his cheque. At the most they only raised the presumption of liability on the part of the pursuer; and I am not aware of any principle or authority for holding that a banker is entitled to retain his customer's money in security of a claim in regard to which there is nothing more than a presumption of liability. The defenders do not maintain that the bill in question was a claim instantly prestable against the pursuer, and of which they were then entitled to demand payment. In the letter to the pursuer intimating the closing of the account, the defender's agent, by whom it was written, stated, ‘I am instructed by the head office to intimate to you that the bank are raising an action against you in respect of the bill for £180 lying unpaid at the Hutchesontown Branch. I have also to intimate that pending a settlement of that matter I am instructed to retain any money at the credit of your account here.’ Now, I am clearly of opinion that the defenders are not entitled to retain money belonging to a customer in security of a disputed claim. So long as there are funds at the credit of his account the banker is bound to honour the customer's cheques. He is no doubt entitled to apply these funds in payment of a debt due to himself, but that can only be done where the debt is duly constituted and can at once be placed to the debit of the account. I cannot conceive of anything more inconsistent with the relationship of banker and customer than the retention of the customer's funds in security of a claim which is repudiated by him, which is about to form the subject of an action, and which, as happened in the present case, might turn out to be entirely unfounded.

It was further maintained by the defenders that the person exercising the right of retention bona fide has no greater responsibility than the person arresting on the dependence of an action. This contention is based on a passage in Moir's Lectures, vol. i. p. 402, where, in dealing with the nature and origin of the doctrine of retention, he represents it to be the counterpart of an arrestment in security. It would,’ he says, ‘be a strange anomaly if third parties could by arrestment compel the holder of any fund or article which belonged to the common debtor to retain it for his behoof in security for his debt while the holder himself could not retain it for his own behoof in security of a similar debt which was due to himself before the arrestment was used.’ But there is nothing in this which gives the slightest sanction to the contention that the person using the right of retention has the same privilege as a person using an arrestment on the dependence of an action. Beyond the fact that they have to some extent the same effect there is very little in common between

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retention and arrestment. They are regulated by entirely different rules and principles. An arrestment on the dependence of an action is one of the most privileged proceedings known to our law. The person using it is not liable in damages unless it can be shown that he acted maliciously and from an improper motive. The right of retention carries with it no such privilege. The person exercising it does so without any judicial warrant or authority. He is acting entirely at his own hand and at his own risk, and he is responsible for the consequences if he acts wrongfully or in a manner which is not justified by the circumstances. More especially is this the case in regard to the banker's right of retention of the balance at the credit of a customer on his current account. The banker is acting under a very special contract, and his right of retention (when he has any) is confined within very narrow limits. Any violation of the obligation incumbent on him under the contract between him and his customer carries along with it a liability for damages.

I have no difficulty in holding that defenders were not warranted in closing the pursuer's bank account and dishonouring his cheque in respect of the bill in question, and that having done so they are liable in damages for the loss thereby sustained by the pursuer.

With regard to the retention of the bills, there was nothing, and, so far as I can see, nothing could be said in its justification. It was beyond question a wrongful and illegal retention of the property of the pursuer which rendered the defenders liable to him in damages.

The question then comes to be, what is the amount of the damage to which the pursuer is entitled. He has not instructed any special damage, nor was it necessary that he should have done so. That the defenders' proceedings were calculated to injure the pursuer's credit is beyond question, but there are no means of ascertaining the nature or extent of that injury. Commercial credit is notoriously a delicate plant and easily injured, and I am not aware of anything more calculated to have that effect than the retaining a customer's bills and dishonouring his cheques. If the defenders had really intended to destroy the pursuer's credit, they could not have adopted more effectual means for that purpose, and I have no doubt but that would have been the result had not the pursuer been in a position to withstand the strain to which he was subjected. The rule of English law with regard to the damages to which a person is entitled for non-payment of a cheque by a banker is thus clearly and distinctly stated by Addison on Contracts—‘If a banker refuses to pay a cheque drawn on him by a trader who keeps an account with him and who has sufficient assets in the hands of the banker to meet the cheque at the time it was presented, such trader is entitled to recover substantial damages without proof of any actual damage, since the dishonouring of cheques is likely to be very injurious to the credit of persons in trade.’ I am not aware of anything in the law of Scotland that in any way conflicts with this doctrine, and I see no reason why there should be any distinction on this subject in the laws of the two countries. Having regard therefore to the dishonouring of the cheque, and the retention of the bills, I have no hesitation in awarding the pursuer the sum of £100 of damages.”

The defenders appealed to the Court of Session, and argued—If the pursuer were really liable under the bill, there was no balance at his account-current, and the defenders were entitled to dishonour his cheque. But in any case the customer under the contract between him and the bank was not entitled to damages— Clydesdale Bank v. M'Lean, March 2, 1883, 10 R. 719; Waterston v. City of Glasgow Bank, February 6, 1874, 1 R. 470, at 479; Paul and Thain v. Royal Bank, January 14, 1869, 7 M. 361; Devaynes v. Noble, July 30, 1816, 3 Ross' L.C. (Commercial Law), p. 613, at 651. The relations of banker and customer were closed by the defenders' letter to the pursuer of 22nd October, and so he had no right to more than a claim for his balance with 5 per cent. interest. His claim for damages in addition to that was inconsistent. Even, however, assuming that the pursuer was entitled to damages, it was only for slander of his credit by a wrongous act of the defenders— Halsey v. Brotherhood [1881], L.R., 19 Ch. Div. 386; Wren v. Weild [ 1869, L.R., 4 Q.B. 730. Looking at the circumstances there was no ground for holding damage had been proved, and in law there was no ground for holding damages due even though not proved.

Argued for respondent—The terms of the letter of 22nd October could not alter the relations of the parties prior to that date when the dishonoured cheque had been drawn, when indisputably the relation between the parties was that of banker and customer. But there was a contract between a banker and his customer that the former would honour the latter's cheques as long as there were funds to his credit, and if it were broken by the banker he would be liable in damages for a loss which was certain to result to the customer—Byles on Bills (15th ed.), p. 19; Marzetti v. Williams, 1 B. & A. 4l5. Nor was it necessary to prove special damage— Rolin v. Steward, 1854, 33 L.J. (C.P.) 148.