[HOUSE OF LORDS.]

AND

Banker - Pledge - Deposit by Money-Dealer of his Customers' Securities - Estoppel - Foreign Bonds payable to Bearer - Negotiable Securities - Purchaser for Value without Notice - Notice of Infirmity of Title in Pledgor.

S. gave to E. certificates of railway stock with transfers thereof executed by him in blank, and bonds of foreign companies (alleged to be negotiable securities), for the purpose of raising £26,000. E. gave these securities to M. a money-dealer in London to secure £26,000 advanced by M. to E. M. deposited the transfers and securities, together with other securities of his customers, with various banks, as security for large loan accounts running between him and them, the blanks in the transfers of stock being filled up with the names of nominees of the banks. The banks in so dealing either actually knew, or had reason to believe, that the securities did or might belong not to M. but to his customers. M. having become bankrupt, the banks sold some of S.'s securities, and claimed to hold the proceeds and the unsold remainder as security for all the debt due from M. to them:-

Held, reversing the decision of the Court of Appeal (34 Ch. D. 95), that though the banks had the legal title to the securities they were not purchasers for value without notice but ought to have inquired into the extent of M.'s authority, and this whether the securities were negotiable or not; and that upon payment to the banks of the money advanced by M. to E., S. was entitled to the value of such of the securities as had been sold by the banks, and to redeem the remainder.

APPEAL from a decision of the Court of Appeal, reported as Easton v. London Joint Stock Bank (1). The facts are set out at length in that report and are also discussed in the judgments in this House. For the present purpose the following brief statement of the evidence given at the trial before Pearson J. will suffice.

(1) 34 Ch. D. 95.

The appellant gave Edward Easton authority to borrow, first £20,000 and afterwards £6000, upon the security of stocks in the Grand Trunk Railway Company of Canada and foreign railway and canal bonds belonging to the appellant. To raise these sums the appellant gave Easton the bonds, and the stock certificates together with transfers of the stocks executed by the appellant, blanks being left for the names of the transferees. These stocks, transfers and bonds were deposited by Easton with Lewin Mozley, a money-dealer in the city of London, who lent Easton first £20,000, and afterwards £6000 upon their security. Some of these stocks, transfers and bonds were deposited by Mozley with the London Joint Stock Bank, some with the Capital and Counties Bank, and some with the Royal Bank of Scotland, together with other securities belonging to Mozley's customers, as security for large loan accounts running between Mozley and the banks. The transfers were filled in with the names of officials or nominees of the banks and registered with the Grand Trunk Company. The Court of Appeal on the authority of Goodwin v. Robarts (1) held that the bonds were to be treated as negotiable securities between the parties.

Evidence was given of the nature of Mozley's business and of his dealings with the banks, and the banks endeavoured (without success) to prove a custom in the City that money-dealers were at liberty to deposit their customers' securities en bloc as security for their own debts to the banks. Of the effect of this evidence the Court of Appeal and this House took different views. The Lords Justices held that the banks, though they had reason to believe that the securities belonged to Mozley's customers, yet having the legal title to the securities, and believing that Mozley had authority to deal with them as his own, were in the position of purchasers for value without notice. In this House, as will be seen from the judgments, their Lordships, being of opinion that the banks either actually knew, or had reason to believe, that the securities did or might belong not to Mozley but to his customers, held that the banks were bound to inquire into the extent of Mozley's authority to pledge the securities.

Early in May 1883 Mozley went into liquidation. At that

(1) 1 App. Cas. 476.

date the London and Joint Stock Bank held some of the stocks, and some unsaleable bonds; the Capital and Counties Bank held some of the bonds; and the Royal Bank of Scotland held both stocks and bonds. Some of the appellant's securities were sold by the banks to repay themselves.

On the 28th of May 1883 Easton and the appellant applied to the banks and to John Young, the trustee in Mozley's liquidation, offering to redeem the appellant's securities upon payment of the amount due to Mozley in respect of his loans to Easton, but this offer was refused.

Easton and the appellant afterwards brought an action against the banks and Young, claiming first a declaration that they were on the 28th of May 1883 entitled to redeem the stocks and bonds on payment of the sums then due from Easton to Young as Mozley's trustee in liquidation; secondly damages against the banks for selling securities belonging to the appellant; and thirdly redemption of such securities as might remain unsold.

Pearson J. dismissed the action for reasons stated in the report of the decision below (1). The Court of Appeal (Cotton, Bowen and Fry L.JJ.) affirmed that decision for other reasons stated in that report. Against these decisions the Earl of Sheffield alone appealed, Easton being made a respondent, but taking no part in this appeal.

1887. Nov. 25, 28; Dec. 5, 7. Rigby Q.C. and Grosvenor Woodsfor the appellant:-

The Court of Appeal held in our favour that the appellant only authorized Easton to pledge his securities for the two sums of £20,000 and £6000, and the question is whether that Court was right in holding that the respondent banks were purchasers for value without notice. The result of the evidence is that the banks knew, or at least had good reason to believe, that the securities were not Mozley's own. Having acted without "due caution" they took the securities at their peril, and cannot retain them, whether negotiable or not, against the true owner: Haynes v. Foster (2); Foster v. Pearson (3). The banks were bound to shew

(1) 34 Ch. D. 95, 101.

(2) 2 Cr. & M. 237.

(3) 1 Cr. M. & R. 849.

that they believed the securities were Mozley's, and were induced by that belief to lend their money: Cooke v. Eshelby (1). This they entirely failed to shew. Their knowledge of Mozley's business and the whole tenour of his transactions with them put the banks on inquiry as to what his authority really was. The judgments below go the length of saying that any representation of an agent as to his authority binds the principal.

Cookson Q.C. (Rawlins with him) for the London Joint Stock Bank, respondents:-

This bank held registered stock and bonds payable to bearer and transferable by delivery which were and are of no value, and no question as to negotiability arises in their case. The real state of the facts is, as Pearson J. found, that Easton, and not Lord Sheffield, was the principal in the transaction. Lord Sheffield authorized Easton to borrow £26,000 in any way that he could: Easton applied through Mozley to the banks, which Lord Sheffield knew of and authorized: Mozley's course of dealing was to pledge all his securities en masse to the bank, as securities for his own indebtedness, and Easton was aware of his course of dealing, and knew that he was pledging Lord Sheffield's securities for his own full indebtedness. The Court of Appeal took an incorrect view of the facts. It was essential to Lord Sheffield to have the £26,000 and he gave Easton carte blanche to raise it how he could. Easton and Lord Sheffield were co-plaintiffs below, and Lord Sheffield did not repudiate Easton till the middle of the action. The bank had the legal estate in the inscribed securities, and Lord Sheffield has no equity as against it. The bank knew that the securities might not be Mozley's own, but had no notice of a title in Lord Sheffield inconsistent with Mozley's dealings in pledging them as security for his own account. He had the jus disponendi. The legal title being in the bank the onus is upon the appellant to shew how he can undo his own act. It is not enough to say that its securities were known not to be Mozley's own, for Lord Sheffield had put him in a position to pledge them for his own debt; he had notice of what was being done, and knew the risk that he was running, but, as appears

(1) 12 App. Cas. 271.

from the evidence and correspondence, left the matter entirely in the hands of Easton, who was acquainted with Mozley's course of business. This was the view taken by Pearson J. If Easton were sole plaintiff his case would have been a hopeless one, and Lord Sheffield cannot be in a better position. Cooke v. Eshelby (1) is quite a different case. No knowledge that the limit was being exceeded was or could be brought home to the bank; but the bank having the legal title need not shew that they acted with due caution:" see Foster v. Pearson (2) per Parke B. See also Perry Herrick v. Attwood (3), Briggs v. Jones (4), and Roffe v. Roscoe (5), in the Court of Appeal in 1879, cited in France v. Clark (6).

Napier Higgins Q.C. (F. Thompson with him) for the Capital and Counties Bank, respondents:-

The bonds held by this bank were transferable by manual delivery, and were therefore negotiable securities. The doctrine of notice does not apply to negotiable securities: Goodwin v. Robarts (7) in the Exchequer Chamber, per Cockburn C.J., and in the House of Lords, per Lord Hatherley. Gill v. Cubitt (8) is no longer considered as law. To get rid of the title of the bank the appellant must shew mala fides or such gross negligence as in the eye of the Court is tantamount to mala fides, and of this there is no evidence. The securities being negotiable the bank does not lose its rights even by negligence, apart from mala fides, and there is no duty to inquire: Byles on Bills, p. 123 (12th Ed.); Goodman v. Harvey (9); Crook v. Jadis (10).

Cozens-Hardy Q.C. (P. S. Stokes with him), for the Royal Bank of Scotland, respondents, with whom had been deposited both stock and bonds, relied on similar arguments, and also on the fact that they had dealt not with Lewin Mozley, but with his relative Frederick Mozley in the ordinary course of business.

G. Cave for the respondent Young.

(1) 12 App. Cas. 271.

(2) 1 Cr. M. & R. 849, 855.

(3) 25 Beav. 205; 2 De G. & J. 21.

(4) Law Rep. 10 Eq. 92.

(5) Not reported.

(6) 26 Ch. D. 257, 264.

(7) Law Rep. 10 Ex. 337; 1 App. Cas. 467, 492-3.

(8) 3 B. & C. 466.

(9) 4 A. & E. 870.

(10) 5 B. & Ad. 909.

Rigby Q.C. in reply.

The House took time for consideration.

1888. March 12. LORD HALSBURY, L.C.:-

My Lords, this is an appeal from an order of the Court of Appeal affirming the judgment of Pearson J. The action was substantially brought to redeem certain securities deposited with the respondents by a Mr. Mozley. Mozley had deposited them with the respondents as security for his, Mozley's, indebtedness to them, and no question arises as between Mozley himself and the banks; but Mozley had received them from one Easton, who had received them from Lord Sheffield, to whom they belonged, and the first question in debate is the extent of authority conferred upon Easton by Lord Sheffield. Pearson J. was of opinion that the authority conferred was such as to make Easton complete master of them, and enabled him to dispose of them as he might think fit. My Lords, I think Lord Sheffield neither intended to give nor did give any such authority. He limited Mr. Easton's authority to obtaining an advance by what may roughly be called a pledge of these securities to the extent of £20,000.

The nature of the transaction as between Lord Sheffield and Mr. Easton is, I think, clearly disclosed by Mr. Easton's letter of the 27th November 1882. That letter is as follows:- "Gravetye, East Grinstead, 27th November 1882. - Dear Lord Sheffield, - In accordance with our conversation on Saturday last I now beg to write you particulars of the way in which I propose you should enable me to raise the £20,000 you so kindly and generously said you would let me have if you could manage it. Mr. Lewin Mozley, of 31, Lombard Street (whose business it is to carry out such transactions on a very large scale, in conjunction with some of the principal joint stock banks) will advance me that sum for six months on the deposit of Grand Trunk Preference Stock (2nd and 3rd) of the present value of £26,000, or £27,000, and will pay the dividends as they fall due into your account at Coutts'. He will require blank transfers of the stock signed by you, and an order on Coutts' to deliver to the holder of the transfer the stock certificates."

For the carrying out of this transaction, which was a loan secured by what in form was a transfer of the legal estate, but in substance and according to the intention of the parties was a pledge, it was necessary that blank transfers of the several securities should be executed, and Lord Sheffield accordingly executed these blank transfers.

Now, as to the authority conferred upon Easton, it appears, to me that Easton himself, on the 28th of November, accurately described his own authority. "I am authorized," he says, "to pledge for six months, and I undertake that the stock shall be re-transferred at the end of that time."

My Lords, I entirely agree with the Court of Appeal upon this question, and without minutely going through the correspondence, it is enough to say that no part of it seems to alter the arrangement made by the letters to which I have referred. So much for the actual authority. Now, the question really argued before your Lordships was, whether, assuming the authority of Easton to be thus limited, the circumstance shews a right in the banks to retain these securities, not only for the £20,000 or £26,000 thus advanced, but as security for the whole of Mozley's indebtedness to them. The banks clearly and rightly had the legal estate, they were purchasers for value, and the whole question resolves itself into a very simple question of fact: had the banks notice of the infirmity of Mozley's title to pledge the securities of his customers for the whole of his own indebtedness?

I think the effort of the banks to prove a custom (which failed) is conclusive against them to shew that they knew the nature of Mozley's business. I do not draw the most unfavourable inference which might be drawn from the answer of one of the witnesses, that he made a point never to inquire, when he dealt with money-brokers or lenders, where the securities came from. I think it was only a somewhat infelicitous phrase by which the gentleman in question sought to express his meaning that it was no business of his to inquire about Mozley's authority. I have no doubt he and his bank and all the other banks bonâ fide believed that as a matter of law they were entitled to deal with Mozley in taking from him these securities as security for his, Mozley's, debt, although they had been deposited with

Mozley by his own customers as security for the different sums which they had borrowed from him.

I must say I can entertain no doubt that as a matter of fact the banks did know the nature of Mozley's business, and, singularly enough, each of the learned judges in the Court of Appeal came to that conclusion, although, with all respect, they do not accurately represent what the course of business was. Cotton L.J. says in terms: "Now I come to the conclusion, and I think we all did at the hearing, and so stated, that the banks must be taken to have known that the securities on pledge with them were, or the greater part of them were, securities taken by Mozley in the ordinary course of his business; that, I think, was the result." The Lord Justice then goes on to describe what was the course of Mozley's business in a way to which I cannot assent.

Mozley himself describes, in answer to Pearson J., what was his course of business. "Supposing," says Pearson J., "that £14,000 worth of securities were deposited by the gentleman who borrowed that £14,000, they were deposited by him simply as security for £14,000?" Mozley, in his answer, says:- "Upon his repayment of that £14,000 I was bound to return him any securities which he had deposited." He adds, "I lent money upon them, and up to the extent I lent upon them I could use them again." If this was the course of business which the banks knew, how can it be said that it would not be contrary to good faith for the banks to retain the securities, not only for the amounts borrowed upon them by the owners, but for what Mozley owed to them?

There is a phrase in the judgment of Fry L.J. in dealing with this part of the case which is ambiguous, but which, understood in one sense, I should assent to. He says: "The result of that course of business is equivalent to a notice to this effect, that the securities were not the property of Mozley, but that he had power to dispose of them so as to raise from the bank the entire sum it was intended to raise." It is obvious to ask "intended by whom?" Not certainly by Mozley's customers, if Mozley told the truth about the mode in which his business was conducted, and I think his account is confirmed by the acknowledged

practice of the bank to release particular securities in pursuance of the demands of his (Mozley's) customers. But I do not believe Mozley's business could have lasted a month if the banks had not allowed this system to continue by exchanging securities. Mozley was, as he says himself, entitled to pledge them to the extent to which he had advanced money upon them, and the conclusion I draw from the facts proved is that the banks knew very well the system of money-lending pursued by Mozley, and trusted to him that he would not over-pledge, so to speak, the securities of his customers. Otherwise the very first security refused to Mozley's customer upon his tendering the amount advanced upon it would have brought the whole business to a very speedy end.

My Lords, if this is the true view of the facts it is impossible to contend that the bank is entitled to the position of purchasers for value without notice. I think they had actual knowledge, but if they had reason to think that the securities might be Mozley's own, or might belong to somebody else, I think they were bound to inquire.

My Lords, I have said nothing upon the different character of the securities, since I think it is quite immaterial whether they were negotiable or not; the principles applicable to this case are equally applicable, and if the facts are as I have suggested the banks, as holders of a negotiable security, would be in no better position by reason of the negotiability of a security as to which they had knowledge or notice that it belonged to somebody else.

For these reasons I move your Lordships that the judgment of the Court of Appeal and that of Pearson J. be reversed, and that the plaintiff is entitled to the declaration he asks and the redemption of such bonds and securities as remain unsold, and an inquiry as to the value of the stocks and bonds sold, such value to be ascertained as at the time when the plaintiff demanded their redemption upon his tendering the amount of the debt and interest due upon them.

LORD WATSON:-

My Lords, Lewin Mozley, a professional money-dealer in the City, lent to one Easton, first the sum of £20,000, and then an

additional sum of £6000, upon the security of stocks of the Grand Trunk Railway of Canada, and foreign railway and canal bonds. These securities belonged to the appellant, Lord Sheffield, who gave Easton no authority to use them except for the purpose of securing these two sums. Mozley obtained an advance from each of the three respondent banks upon a running mass of securities, which included part of the appellant's property. The appellant signed transfers of the railway stocks to persons who were in reality the nominees of the banks, on their being sent to him for execution by Easton; and these transfers, with the certificates of the stock and the railway and canal bonds, were delivered to the banks by Mozley. The bonds have been held by the Court of Appeal, upon the authority of Goodwin v. Robarts (1), to be negotiable instruments, and I see no reason to differ from that conclusion. The banks had thus the full legal title to the securities, and Mozley having become insolvent, they asserted their right to hold them, not merely against the sums for which they were impledged by Easton, but against the several balances due to them in account with Mozley. Hence the present litigation. It is conceded that the respondents are purchasers for value, and the only question in this appeal is whether they are also purchasers without notice of the appellant's interest.

The evidence discloses that it is customary for persons in Mozley's position to get large advances from banks in the city of London, by transferring their customers' securities in mass, to cover the whole advance; they engaging to keep the securities up to a certain limit of value; the bank, on the other hand, stipulating for the right to realise, at any time, for its own protection. It is, moreover, an essential condition of these transactions that the money-lenders shall be permitted to withdraw, from time to time, such securities as may be required in the course of their business, upon the footing of immediately restoring them, or substituting other equivalent securities for them. In fact, great part of their business consists in lending, at a higher rate of interest, moneys which they borrow from the banks, at a lower rate, upon the securities which they take from their own borrowers; and it is necessary to the continuance of

(1) 1 App. Cas. 476.

such a course of dealing that they shall be able to get back a customer's securities from the bank, whenever he has the right, and is prepared, to release them. It was held by the Court of Appeal (in my opinion rightly) that the practice thus prevailing between money-lenders and the banks has not grown into a proper commercial custom. In the language of Cotton L.J. (1), there is "no such general custom proved as would bind any one dealing with a money-dealer, unless it was shewn that he had notice of the practice, and he was proved to have dealt with him on the footing of that practice."

The evidence also establishes that, in the case of the advances for which the appellant's property was pledged to them, the respondents recognised and dealt with Mozley as a member of the money-lending class, and that he was permitted to exercise the usual privilege of withdrawing securities, and replacing them with others. But it is proved, and not disputed, that the appellant had no knowledge of the practice, and that he was not aware, before Mozley became bankrupt, that his property had been pledged for any greater amount than he had authorized Easton to borrow on its security.

Mozley, accordingly, stood in this position. In a question with the appellant he had a perfect right to use his own interest in the securities as a source of credit; and he had no authority and no right to deal with the appellant's interest by way of pledge or otherwise. At the same time the appellant, by his own acts, had invested Mozley with an apparent dominion and authority which would have enabled him effectually to dispose of the securities to persons who had no occasion to suspect his limited title.

In my opinion the character of the transactions between the respondents and Mozley was, of itself, sufficient to notify to them that his interest was limited. The bank officials, when examined before the judge of first instance, substantially admitted that they knew that the bulk of the securities lodged by Mozley were those of his customers; and, apart from the admission, it is matter of plain inference that they must have had that knowledge. Yet none of the respondents made any inquiry, either as

(1) 34 Ch. D. 106.

to where the securities came from, as to the interest of Mozley in such of them as belonged to his customers, or as to his authority, from the original pledgors, to deal with their interests as well as his own. In these circumstances the case appears to me to be narrowed to this issue: Were the respondents justified in assuming, without inquiry, that Mozley had the appellant's authority to pledge the securities for their full value against the advances which they made to him?

Had it not been that the learned judges of the Court of Appeal were of a different opinion I should have entertained no doubt that the respondents were not entitled to rely upon Mozley's having authority to pledge the securities to their full extent. That appears to me to be a necessary inference from the principles regarding notice which were applied by the Court of Exchequer in Foster v. Pearson (1), and, more recently, by this House, in Cooke v. Eshelby (2). The Lords Justices seem to have accepted, as sufficient, the explanation given by the bank officials, that they believed Mozley had full power to deal with all the securities which he brought to them; although they assign no reason for their belief except the fact that they took the securities from him in the ordinary course of business; or, in other words, in the ordinary course of their dealing with a money-lender. Cotton L.J. said (3): "It is true that they knew, and that was at first my doubt, that they (i.e. the securities) were not to a very great extent the property of Mozley, but they knew it was the practice of Mozley and similar money-lenders to deal with their customers on the footing of mortgaging en bloc, to secure their own debt, that on which they advanced their money to their customers." That reasoning is logical, and might have been conclusive, if it had been shewn that it was customary for money-lenders to deal with their borrowers on the terms stated by his Lordship. But I can find no trace of such a custom in the evidence. What the respondents actually knew, was, that Mozley, in common with the rest of his class, was in use so to deal not with his customers, but with their securities, which is a very different matter. The course of dealing proved

(1) 1 C. M. & R. 849.

(2) 12 App. Cas. 271.

(3) 34 Ch. D. 111.

is between the money-lender and the bank, and not between him and his customer, a practice which cannot affect the latter, unless he is aware of its existence.

It appears to me that the effect of the judgment appealed from is to deprive the appellant of his interest in these securities by virtue of a practice which admittedly ought not to affect him; and I therefore concur in the judgment which has been moved by the Lord Chancellor.

LORD BRAMWELL:-

My Lords, I will state what appear to me to be the facts and conclusions of fact in this case. The appellant authorized Mr. Easton, on two separate occasions, to pledge his - the appellant's - property for two separate sums of £20,000 and £6000. He did not authorize him to pledge them for any other or different debt. They were pledged for other and different debts, and, consequently, were pledged without the authority of the appellant. It is therefore unnecessary to consider what Mr. Easton or Mozley knew or did. I think there is no ground for imputing fraud to anyone, but unless the appellant authorized what was done he is not bound by it. Nor is it any use speculating as to whether he would have authorized it had it been explained to him that what was done was the usual and best way of raising money. He might or might not have authorized it. But he did not. What he did, however, as to his shares was to execute a transfer of them, which was duly registered; the legal estate in them became vested in some of the respondents, who, being purchasers for value, acquired a title which could not be set aside unless they had notice of the infirmity of the title of those from whom they claimed. So of the other property. Treating it as passing from hand to hand by delivery, the appellant can make good no claim to it except by proof of such notice. The only question then is, was there proof of or evidence on which we ought to find such notice?

I have used the expression "notice of the infirmity of the title," but I wish to guard against the notion that I think it precise and accurate; nor would it be right to say "notice that possibly the pledgor had no power to pledge as he did,"

because that is always possible. The expression should be something like this: "Notice of the infirmity of the pledgor's title, or of such facts and matters as made it reasonable that inquiry should be made into such title." I daresay that this, like most definitions of such a character, is incomplete, but I think it correct for the present case. Now I cannot doubt that the pledgees had such notice. They must have known - I might say, certainly have believed - that the property was not Mozley's. I daresay they thought that in point of law he could validly do what he did. But he could not. It seems to me, then, that they cannot hold this property except for what the appellant authorized it to be pledged, and that the judgment should be reversed. It is remarkable that the respondents relied on neither of the judgments below. The Court of Appeal overruled Pearson J., I think rightly. There is no evidence that the appellant knew of any such practice as Mozley adopted. With respect to the judgment of the Court of Appeal, it seems to me wrong, and founded on the Court's forgetting that at the same time that the bankers lent their money they had the notice I have mentioned.

LORD MACNAGHTEN:-

My Lords, in this case Lord Sheffield seeks to redeem securities in the hands of the three banks who are respondents to the appeal. In order to raise a certain sum of money, and on certain terms defined in writing, Lord Sheffield placed the securities in question at the disposal of one Easton, with whom he was associated in some Egyptian speculation. Easton procured the required advance from Mozley a money-dealer. Mozley divided the securities and deposited them in three lots, together with securities belonging to other customers of his, in order to cover his accounts with the several banks. Lord Sheffield now appeals after two adverse decisions. Pearson J. who tried the case and the Court of Appeal have both rejected his claim. Their decisions are based on different and independent grounds. The Court of Appeal has held that the banks were purchasers for value without notice, and that they are therefore entitled to rely upon the legal title which they unquestionably obtained.

Pearson J.'s view was that Lord Sheffield entrusted his securities to Easton to deal with them as if they were his own; that Easton was aware of Mozley's way of raising money; that he therefore could not complain of what Mozley did; and that Lord Sheffield has no better right than Easton to question the title of the banks. Both these views have been presented to your Lordships, though Pearson J.'s view was somewhat modified at the bar.

The learned counsel for the appellant did not dispute the fact that the banks obtained the legal title, nor did they draw any distinction between the different classes of securities which were the subject of this action. They relied entirely on the knowledge which in their view of the evidence was brought home to the banks. The managers of the several banks were examined. Their evidence varies slightly in detail. The admissions in one case may seem to be more candid or more complete - that comes probably from the way in which the questions were put. The effect of the evidence in the three cases is practically the same. Mozley's business was well known. He was a money-dealer. He lent money to his customers on securities which they deposited with him. He pledged those securities to the banks who supplied him with the money. He got money as cheaply as he could and disposed of it on the best terms he could make. His profit was derived from the difference or margin between the rate at which he lent money and the rate at which it was procured. The banks knew that in most cases, if not in all, the securities which he deposited with them were not his own absolute property. That information was conveyed by the nature and extent of his business. And moreover his customers for the most part were persons on the Stock Exchange, and it was the usual practice for the banks on settling-days to deliver out to him the securities which he required to be released for the convenience of his customers on an undertaking to redeposit securities of equal value in the course of the day. On the other hand the letters of deposit which the banks took from Mozley purported to charge not merely Mozley's interest in the securities but the securities themselves, and to make the whole mass in deposit liable for Mozley's indebtedness. That, as one of the managers says, was "the general banking practice." Beyond that the bank officials

did not care to inquire. One of them with equal candour and simplicity says, "We make a point never to inquire when we deal with money-brokers and money-dealers." It would not be fair to scan that answer too closely. Whatever it means - whether it implies absolute faith in the scrupulous regularity of the whole class of money-dealers, or the shadow of a suspicion of a possible alternative, or whether it be merely an off hand and perhaps injudicious disclaimer of curiosity in a matter which the witness took to be no concern of his - there is no difference in the result. The banks knew that the person who dealt with them as owner was not acting by right of ownership. They took for granted that he had authority, but for some reason or other they did not choose to inquire what that authority was. They relied either on some assumed custom or general usage of bankers or on Mozley's representations. If they relied on a custom the answer is, no such custom is proved. The Court of Appeal has held, and held rightly, that the evidence falls far short of anything of the kind. If they relied on Mozley's representations it turns out now that in this case his representations were not well founded, and as loss has occurred the loss must fall on those who trusted without inquiry to the representations which he made.

The learned judges of the Court of Appeal have come to the conclusion that the banks had notice that the securities in question did not or might not belong to Mozley, but they held that the effect of that notice was neutralized by Mozley's representation that he had power to deal with them as his own on the ground that the notice and the representation must be taken together. No authority was cited in favour of that proposition. It is difficult to see how it can be supported on principle. It is obvious that in every case where a person deals as owner with property which is not his to the knowledge of the person who deals with him there must be a simultaneous and concurrent representation of authority honestly believed in or else there must be actual fraud and dishonesty.

Feeling the difficulty of supporting the view of the Court of Appeal the learned counsel for the respondents fell back on Pearson J.'s view of the case. That view, as submitted to your Lordships, was somewhat disguised or modified, but in substance

the argument came round to Pearson J.'s view. In fact when once the alleged custom was out of the way there was no alternative. There is no room for a middle course between Pearson J.'s view and the view of the Court of Appeal. On this part of the case it is sufficient to say that the respondents are met by the correspondence between Lord Sheffield and Easton, which so far from authorizing Easton to deal with the securities as his own or to allow Mozley to raise money on them in what was termed "his own way," expressly limited and defined the object for which they were placed in his hands.

For these reasons I agree in the motion proposed by the Lord Chancellor.

[A discussion took place as to the form of the order, and the order set out below was eventually drawn up.]

Solicitors for the appellant: West, King, Adams & Co.

Solicitors for the London Joint Stock Bank: Clarke, Rawlins & Co.

Solicitors for the Capital and Counties Banks: Robins, Cameron & Kemm.

Solicitors for the Royal Bank of Scotland: Gordon & Son.

Solicitor for John Young: R. S. Gregson.