[HOUSE OF LORDS.]

AND

ET E CONTRA.

Banker - Principal and Agent - Power of Attorney - Excess of Authority - Authority to draw Cheques - Cheques drawn by Attorney and paid into his own Banking Account for his private Purposes - Notice of Breach of Trust - Conversion - Liability of Bankers for Conversion and Money had and received - Negligence - Ratification Clause in Power of Attorney - Bills of Exchange Act, 1882 (45 & 46 Vict. c. 61), s. 82.

T., a solicitor, was authorized by a power of attorney given him by a client to draw cheques on the client's banking account and to apply the moneys for the purposes of his client. T. for his own purposes fraudulently drew fifteen cheques on his client's account with the B. bank, signing the cheques by using a rubber stamp which had on the upper line the name of the client and the word "by" and on the lower line "his attorney" and by placing his own signature between the lines. T. then paid the

cheques into his own account with the M. bank, the defendants, with whom he had an overdraft. On discovering the facts the client brought an action against the defendants for damages for conversion of the cheques. The defendants relied on s. 82 of the Bills of Exchange Act, 1882, alleging that the cheques were crossed cheques and that they had received payment of them in good faith and without negligence. During the proceedings T.'s client died, and the proceedings were continued by the client's executors as plaintiffs. It was admitted that the defendants had acted in good faith:-

Held, as to all the cheques except two, which depended on special circumstances, affirming the decision of the Court of Appeal, that the defendants, in presenting and receiving payment for the cheques, had converted them, and that, as the defendants had from the form of the cheques notice as to the money not being T.'s money, they were negligent in making no inquiry as to T.'s authority to make these payments into his own account, and therefore failed to bring themselves within s. 82 of the Bills of Exchange Act, 1882.

Reckitt v. Barnett, Pembroke & Slater, Ld. [1929] A. C. 176 applied.

Held, further, that a ratification clause in the power of attorney whereby the principal agreed to ratify and confirm whatsoever the attorney should do or purported to do by virtue of the power did not affect the plaintiff's right to maintain the action.

APPEAL from an order of the Court of Appeal reversing a judgment of Rowlatt J. in favour of the appellants in an action in which Sir Harold Reckitt was plaintiff and the appellants were defendants, and ordering that judgment be entered therein for the plaintiff for 13,490l. with costs.

The respondents were the executors of Sir Harold Reckitt, who died after the decision of the Court of Appeal, and by order of the Court the proceedings in the action were continued between the respondents and the appellants.

There was also a cross-appeal from the order of the Court of Appeal asking that the amount for which judgment should be given for the respondents against the appellants might be increased by 4400l.

The action was brought by the plaintiff to recover 17,890l., being the proceeds of fifteen cheques wrongfully and fraudulently drawn by one Lord Terrington as the plaintiff's attorney upon the plaintiff's banking account with Barclays Bank, Ld., at Hull, and wrongfully and fraudulently paid by him into his account with the defendants, the Midland Bank, Ld., in the name of H. J. S. Woodhouse & Co.

Lord Terrington, formerly Harold James Selborne Woodhouse, carried on business as a solicitor in London as H. J. S. Woodhouse & Co.

By his statement of claim the plaintiff alleged that the said fifteen cheques were drawn fraudulently and wrongfully and without his authority, knowledge or sanction by Lord Terrington, and were paid by Lord Terrington for his own private purposes into his account with the appellants, and that the appellants, who received the cheques signed by Lord Terrington in his own name as attorney for Sir Harold, were guilty of (a) conversion of the cheques, and (b) negligence in the collection of the cheques, and were liable to the plaintiff in the amounts thereof either as damages for conversion or as money had and received to his use.

By their defence the appellants denied any conversion or negligence, and they alleged that they received payment of the cheques, which were crossed, for their customer in good faith and without negligence and were protected by s. 82 of the Bills of Exchange Act, 1882.

Rowlatt J. came to the conclusion that there was no knowledge or notice on the part of the appellants of a prima facie breach of duty by Lord Terrington, and he dismissed the action.

The Court of Appeal (Scrutton, Greer and Slesser L.JJ.) held that, with the exception of the first two cheques, the appellants were liable for the amounts of the cheques as damages for conversion; that the appellants were put upon inquiry and had notice of the limited authority of Lord Terrington to deal with such cheques, except the first two, as he did, and that having made no inquiry were liable to the plaintiff in the amounts thereof as money had and received to his use; and that, although the appellants acted in good faith, which was not in question, they were not protected by s. 82 of the Bills of Exchange Act, 1882, in the collection of the cheques other than the first two, because they were negligent in not making any inquiry. The Court further held as to two of the cheques, as to which the appellants claimed to be holders for value to the extent to

which Lord Terrington's account was in debit when they were respectively paid in, that, having notice of Lord Terrington's authority, they were not holders in due course, and that a ratification clause in the power of attorney did not extend to Lord Terrington's acts in paying his principal's cheques into his own account.

The facts relating to the several cheques sufficiently appear from the opinion of Lord Atkin. The provisions of the extended power of attorney, to which Lord Atkin refers in his opinion, and which was in force during the relevant period, are set out below so far as material to the present appeal.

By this power the plaintiff (thereinafter called "the principal") appointed Lord Terrington (thereinafter called "the attorney") to be the attorney of the principal in the name and on behalf of the principal to do all or any of the following things:-

"13. To apply any moneys which shall come to the hands of the attorney by virtue of the powers herein contained in such manner and order as the attorney shall think fit in paying and discharging the costs and expenses of and incidental to these presents and all other costs charges damages and expenses which the attorney shall pay sustain incur or become liable for in or about the execution of the powers vested in or given to the attorney by these presents or in any wise relating thereunto and any .... moneys interest or costs which may now or hereafter be owing from the principal to the attorney or any other person or persons and in keeping down and discharging the interest due and to accrue due on any securities already existing or to be given by the attorney on behalf of the principal by virtue of these presents and in paying and discharging all moneys and costs payable and incurred in or about the exercise of this power of attorney or in otherwise disposing of the same for the use and benefit of the principal as the attorney shall think proper.

14. To deposit any moneys received by the attorney under or by virtue of these presents with any banker broker solicitor

or other person in the name of the principal or of the attorney and to withdraw such moneys or any other moneys which are now deposited on behalf of the principal with any banker broker solicitor or other person and to employ or apply all or any such moneys in such manner or for such purposes as may be thought fit. ....

17. To draw accept endorse negotiate retire pay or satisfy any bills of exchange promissory notes cheques drafts dividend or interest warrants orders for payment or delivery of money securities goods or effects bills of lading or other negotiable or mercantile instruments or securities which may be deemed necessary or proper in relation to the business or affairs of the principal and to give renew or withdraw authorities or directions to any bankers or other persons or corporations which the principal would himself give renew or withdraw.

And the principal hereby for himself his heirs executors and administrators ratifies and confirms and agrees to ratify and confirm whatsoever the attorney or any such person as aforesaid acting as the agent of or substitute for or in place of the attorney shall do or purports to do by virtue of these presents including in any such confirmation whatsoever shall be done between the time of the death of the principal or the revocation by any other means of this power of attorney and the time of such death or revocation becoming known to the attorney or any such person as aforesaid."

1932. Jan. 26, 28, 29; Feb. 1. Rayner Goddard K.C. and D. B. Somervell K.C. for the appellants. There was here no conversion. Lord Terrington in drawing the cheques in question was acting within the terms of the authority conferred upon him by the plaintiff, and the appellants obtained a good title to the proceeds. A third party acting bona fide is not in a transaction with an attorney affected by the fact that the attorney is abusing his authority and using it for his own purposes: Bank of Bengal v. Macleod (1); Bank of Bengal v. Fagan. (2) This view is supported by the reasoning in Reckitt v. Barnett,

(1) (1849) 7 Moo. P. C. 35.

(2) (1849) 7 Moo. P. C. 61.

Pembroke & Slater, Ld. (1), which proceeded not on conversion but on the fact that the defendants had prima facie notice of the breach of trust. There was nothing in the circumstances of this case to put the appellants on inquiry. The question whether a third party should be put on inquiry by an act of an attorney must depend on whether the act would be in any way unusual or excite comment if done by the principal himself. In the present case there is nothing unusual in a wealthy man in the course of four years paying some 18,000l. to his solicitor and attorney, nor in the fact that as regards certain of the cheques the account was at the time overdrawn. Regarded as a solicitor's account the natural inference was that Lord Terrington was being paid large sums by his clients and was making large payments on their behalf. Further, a collecting bank is primarily concerned with the description of the payee and the correctness of the indorsement. The genuineness or regularity of the drawer's signature is a matter for the bank on which the cheque is drawn. It would be unreasonable to hold a collecting bank's officials guilty of negligence because they had not scrutinized that part of the cheque - namely, the drawer's signature - with which they had no reason to believe themselves to be concerned. Barclays Bank, Hull, was the plaintiff's agent to pay or refuse cheques drawn on his account there. The fact that all these cheques from May 15, 1922, to February 20, 1926, were met without any question being raised precludes the plaintiff from disputing Lord Terrington's authority and from relying on the failure of the appellants to make further inquiries. On these grounds the appellants are entitled to the protection of s. 82 of the Bills of Exchange Act, 1882. Further, the appellants cannot be held liable as having prima facie notice of a breach of trust on the principle laid down in John v. Dodwell & Co. (2) and applied in Reckitt v. Barnett, Pembroke & Slater, Ld. (1) The appellants were dealing with Lord Terrington as a solicitor. A solicitor attorney in the ordinary discharge of his duties would from time to time be paying money of his clients into his own account. A

(1) [1929] A. C. 176.

(2) [1918] A. C. 563.

transaction which would in the ordinary course be expected and regular, cannot amount to prima facie notice of a breach of trust. Further, if necessary, the appellants rely on the ratification clause in the power of attorney whereby the plaintiff ratifies and confirms whatsoever the attorney shall do or purports to do by virtue of the power. The effect of that is to absolve a bona fide third party from making inquiries whether an act of the attorney purporting to be done under the power is being done on the principal's behalf or not: Hambro v. Burnand. (1) Further, as to certain of the cheques the appellants claim that they were holders for value to the amount by which Lord Terrington's account was in debit at the dates when the cheques were paid in without notice of any defect in title. To preclude a person from being a holder in due course actual notice is necessary. Constructive notice has no application to the Bills of Exchange Act, 1882: Raphael v. Bank of England (2); Jones v. Gordon (3); London Joint Stock Bank v. Simmons (4); Corporation Agencies, Ld. v. Home Bank of Canada. (5)

F. P. M. Schiller K.C. and H. G. Robertson for the respondents. The appellants received the plaintiff's fifteen cheques with notice on the face thereof that they were drawn by Lord Terrington as the plaintiff's attorney; they had notice that Lord Terrington's authority was limited, and were put upon inquiry as to the extent of such authority and they in fact made no inquiry. As Lord Terrington's bankers they knew that Lord Terrington was paying the cheques into his account and operated that account for his personal purposes, including the repayment of his indebtedness to the appellants. The power of attorney given by the plaintiff to Lord Terrington did not authorize or entitle Lord Terrington to deal with the cheques as he did. In these circumstances the appellants converted the cheques and are liable to him in the amount thereof as damages for conversion: Morison v. London County and

(1) [1904] 2 K. B. 10.

(2) (1855) 17 C. B. 161, 174.

(3) (1877) 2 App. Cas. 616, 629.

(4) [1892] A. C. 201, 221.

(5) [1927] A. C. 318, 323, 324.

Westminster Bank (1); A. L. Underwood, Ld. v. Bank of Liverpool and Martins (2); Lloyds Bank v. Chartered Bank of India, Australia and China (3); Bank of Montreal v. Dominion Gresham Guarantee and Casualty Co. (4) Where a person signs a cheque per pro and pays it into his own account and the bank makes no inquiry as to the drawer's authority, that is enough to show that the bank is not acting without negligence. Sect. 25 of the Bills of Exchange Act, 1882, provides that "a signature by procuration operates as notice that the agent has but a limited authority to sign, and the principal is only bound by such signature if the agent in so signing was acting within the actual limits of his authority." That merely expresses the common law. In making no inquiries the appellants fail to prove that they acted without negligence so as to become entitled to the protection of s. 82. Here Lord Terrington, at the repeated request of the bank, was applying these cheques in the reduction of the overdraft although the bank had notice from the form of the cheque that the money was not Lord Terrington's and it could not be suggested that the money was being applied in discharge of any possible liability of the principal. In omitting to make any inquiry as to the extent of the customer's authority the bank became liable to the plaintiff on the principle of Reckitt v. Barnett, Pembroke & Slater, Ld. (5) As to the ratification clause, the bank never saw the power of attorney and never acted upon it, but, apart from that, it did not affect the right of the plaintiff to maintain this action. As to the cheques in respect of which the appellants claimed to be holders for value in due course they were not holders in due course by reason of the notice they had received by the form of the cheque. The Court of Appeal were right, in so far as they ordered judgment to be entered for the plaintiff, but were wrong in holding that the bank had disproved negligence in regard to the first two

(1) [1914] 3 K. B. 356.

(2) [1924] 1 K. B. 775.

(3) [1929] 1 K. B. 40.

(4) [1930] A. C. 659.

(5) [1929] A. C. 176.

cheques, and the plaintiff was entitled to judgment in respect of all the fifteen cheques.

[The bank were not called upon on the cross-appeal.]

Rayner Goddard K.C. replied.

The House took time for consideration.

1932. Feb. 29. LORD ATKIN. My Lords, this case arises out of the fraudulent acts of Lord Terrington, who, in 1922 and during the relevant period, was practising as a solicitor in Clarges Street in the name of H. J. S. Woodhouse & Co. He had as a client Sir Harold Reckitt, now deceased, whose legal representatives are the respondents to the present appeal. Sir Harold Reckitt appears to have been a wealthy man in the habit of spending part of his time abroad. He employed Lord Terrington as his solicitor. In 1915 Sir Harold, being engaged in Red Cross work in France, gave Lord Terrington, then Mr. Woodhouse, a power of attorney in limited form which did not include a power to draw cheques on his account. It was considered desirable that Lord Terrington should possess this particular power; and it was given by a letter dated August 17, 1915, written by Sir Harold to his bankers, Barclays Bank, at Hull, empowering Lord Terrington to draw cheques upon the account at Hull "without restriction." In 1922 the original form of power of attorney which had been renewed from time to time was superseded by an extended form which expressly gave power to the attorney to draw cheques on the principal's banking account and to apply moneys for the purposes of the principal; but it does not appear that the general terms of the letter of August 17, 1915, were in any way modified or that Barclays Bank were even informed of the extended power of attorney. The power df attorney of 1922 was renewed from time to time and was in force during all times relevant to this action. Lord Terrington to Sir Harold Reckitt's knowledge acted under the power of attorney at all times, whether Sir Harold Reckitt was in the country or not. Both principal and attorney, therefore,

drew upon Barclays account at Hull, a great number of cheques being drawn in the ordinary course by each of them. Lord Terrington drew cheques on cheque books supplied by Barclays Bank at the cost of the principal, signing the cheques on an impression made by a rubber stamp containing in the upper line "Harold G. Reckitt by" and on the lower line "his attorney" and placing his own signature between the lines, so that the completed signature on each cheque ran "Harold G. Reckitt by Terrington, his attorney."

In 1926 it was discovered that Lord Terrington had been in the habit of fraudulently drawing cheques for his own purposes on Sir Harold Reckitt's account. Twenty such cheques had been paid into Lord Terrington's account with the appellant bank. In respect of fifteen of these cheques, amounting in all to 17,890l., dated at different periods between May 15, 1922, and February 20, 1926, Sir Harold Reckitt brought the present action claiming the amount mentioned as damages for the conversion of the cheques. The bank, denying the conversion, relied upon s. 82 of the Bills of Exchange Act, 1882, alleging that the cheques were crossed cheques and that they had received payment of them for a customer in good faith and without negligence. As to two of the cheques, they also said that they were holders in due course. Rowlatt J. decided in favour of the bank on the issue of negligence; the Court of Appeal decided against the bank in respect of all the cheques except the first two and gave judgment against the bank for 13,490l. The bank appeal from the judgment of the Court of Appeal and the respondents cross-appeal seeking to have judgment for the whole 17,890l. For the purpose of determining the issues so raised, it is necessary to state the circumstances in which the cheques came into existence.

Since 1899 Lord Terrington and his predecessors had had a banking account with the Cornhill branch of the appellant bank. In 1922, the first of the material years, Lord Terrington had two accounts, No. 1 and No. 2. They were both in the firm name, Lord Terrington being at this time the sole member of the firm. No. 1 account appears to have

been used almost exclusively for meeting private expenditure; No. 2 seems to have been the business account. No. 1 account was, except for a short interval, always overdrawn. No. 2 account was throughout, except for a short interval, in credit. The net balance from time to time varied, at times being a credit, at others a debit. It is clear that the manager was never completely satisfied with the position of the account. It gave him "a certain amount of anxious care." The overdraft on No. 1 account was, at one time at any rate, considered by the bank not to be protected by the credit of No. 2. A solicitor's No. 2 account they thought was generally made up of clients' money: and, though Lord Terrington gave them assurances as to this, with which they said at the trial they were satisfied, it is obvious that the uneasiness never ceased. In January, 1923, acting it is said on legal advice, they took what they call an hypothecation form in which the customer charged any moneys standing in his name to the credit of any account with the repayment of the moneys owing on any account. How this increased their rights if the money was the customer's money, or gave them any rights if the money was clients' money, it is perhaps not necessary to discuss. A reference to some of the earlier communications between the bank and Lord Terrington will suffice. In January, 1922, the bank record that at an interview Lord Terrington arranged that he would keep his overdraft on No. 1 account much smaller in the future and that they were to advise him in writing before the figures got large. On February 17 Lord Terrington is informed that No. 1 account stands overdrawn 1129l., which perhaps he would arrange to cover. On February 24 it is 1274l. and his kind attention would greatly oblige. On April 4, 1922, at an interview the bank pointed out that they did not care about No. 1 being consistently overdrawn against No. 2, "the reason being that it is commonly understood that a solicitor's No. 2 account is commonly made up of clients' money. Lord Terrington did not agree to this, but after some conversation said that he would place his No. 1 account in credit." On May 9, 1922, the bank write that No. 1 was

1905l. overdrawn and would he kindly let them have a transfer from No. 2 to put No. 1 in credit. On May 15, 1922, the bank write a stiff letter: "We would again draw your attention to the accounts of Messrs. Woodhouse & Co., No. 1 account overdrawn 2168l. ... As we mentioned to you recently, our Head Office insist that these accounts should be kept in credit and we would ask you to be good enough to see that the present overdrafts are covered without delay and that the accounts are kept in credit in future." Nevertheless No. 1 account continued to be overdrawn, and from time to time the net balance on both accounts was in debit. In January, 1923, as I have said, the bank took an hypothecation form over No. 2, though with some doubts as to what their position would be in the event of bankruptcy. For the remainder of 1923 the account appears to have been kept to the satisfaction of the bank. In January, 1924, the bank were a little uneasy at being asked to pay some 600l. worth of cheques, making the total of the two accounts overdrawn to that extent, on the strength of the promise of a cheque of 1000l. due on a completion. The cheque, however, duly arrived a day late. In February comes the first of the transactions in which the bank have been found to be liable. On February 23 the bank write to their customer that with reference to their telephone conversation of the previous afternoon the net overdraft on his accounts amounted to some 250l. and they would be obliged for his attention early on Monday morning. On February 23, a Saturday, Lord Terrington drew a cheque for 500l. on Sir Harold Reckitt's account, dated February 25, in favour of Messrs. H. J. S. Woodhouse & Co. or order, drawn as attorney in the form above described, and he enclosed it duly endorsed in a letter to the bank on February 23 with another cheque of 23l. "for credit No. 2 account, H. J. S. Woodhouse & Co."

The drawing of this cheque was a fraud on Sir Harold Reckitt. It was not drawn to put the attorney in funds in respect of any past or future expenditure on behalf of his principal. In simple language the attorney stole the money and applied it to his own purposes - in fact to pay his debt

to the bank. On March 11 the bank wrote that the firm's account frequently goes into debit, for which there is no arrangement, and at the present time is overdrawn some 88l., and they would be glad of his attention, and think it very desirable they should have an interview. On March 13 Lord Terrington sent a cheque for 400l. drawn as the last; the accounts on the evening before were on balance overdrawn 240l. On March 14 the bank wrote: "Having regard to the circumstances last evening we must ask you in future to be good enough to see that we are provided with funds to meet any cheques that are presented in your firm's account, as we cannot undertake to overpay the account, nor can we accept the responsibility of notifying you that funds are insufficient to meet your drawings." On March 21 there was an important interview. The bank asked Lord Terrington to transfer sufficient funds from No. 2 account to wipe out the debit balance on No. 1 account. They asked what was the cause of the account being constantly overdrawn and asked that arrangements should be made to keep it in credit. Lord Terrington replied that he had some 15,000l. owing to him by clients. Such debts were all good, but he was unable, owing to pressure of business, to send out the necessary accounts. He does not appear to have suggested to the bank, nor would it have been the fact, that he had made any disbursements from his own account on behalf of Sir Harold Reckitt, which he could as attorney repay himself. There is no evidence that at any time the bank knew that Lord Terrington acted on any occasion as Sir Harold Reckitt's solicitor. The same day he sent the bank a cheque for 450l. drawn on Sir Harold Reckitt's account as before. At the end of the day before the interview No. 1 account was in debit 5190l.; there was a credit balance on the two accounts combined of 197l. On March 28 there was another somewhat acrimonious interview when the combined overdraft was about 300l., and on March 31 Lord Terrington sent another Reckitt cheque for 400l. On April 8, the combined overdraft being 1253l., Lord Terrington, after another reminder from the bank, sent another Reckitt cheque for 250l.

It is convenient, I think, to pause here and survey the legal relations of the parties in respect of this group of five cheques, amounting to 2000l., which in the course of forty-three days were paid in to his account by Lord Terrington. The Court of Appeal, rightly as I think, came to the conclusion that the rights of the parties would be determined by the view taken as to these particular transactions. In the first place Lord Terrington had no actual authority to draw these cheques at all or to receive the proceeds. His only actual authority was to draw cheques for his principal's purposes. Accordingly, if it can be supposed that Sir Harold Reckitt found Lord Terrington standing at the counter of the bank waiting to pay in one of the cheques he could, if he knew the true facts, have demanded the immediate delivery of the cheque to him. It was his property, and Lord Terrington had no title to it. In these circumstances I have no doubt that the bank in presenting and receiving payment for the cheques converted them. I venture to quote words of my own used in Underwood's case (1) merely because they seem to me applicable and I cannot express the idea in simpler language: "The bank so disposed of the chattels, the cheques, as to deprive both themselves and the true owners of the dominion over them, and in exchange for the pieces of paper constituted themselves the debtors of the customer. I cannot imagine a plainer case of conversion." It is quite irrelevant to the issue of conversion that after payment the pieces of paper came into possession of the paying bank to be held as vouchers on account of the true owner, Sir Harold Reckitt. This position existed in the case of Morison v. London County and Westminster Bank, Ld. (2), where the collecting bank were held to have converted the cheques.

The only question therefore is whether the bank have established that they received payment in good faith and without negligence and so brought themselves within s. 82 of the Bills of Exchange Act, 1882. Their good faith is not challenged. The issue therefore is confined to negligence, and the onus of proving the absence of negligence is plainly

(1) [1924] 1 K. B. 775, 795.

(2) [1914] 3 K. B. 356.

cast upon the bank. But for the section they are liable for conversion, and it is for them to bring themselves within the statutory protection. My Lords, it appears to me, when the facts are examined, that this case differs not in principle from Reckitt v. Barnett, Pembroke & Slater, Ld. (1), where Lord Terrington drew a cheque as attorney on Sir Harold Reckitt's account in payment of a motor-car supplied to himself. It was held that the vendors were liable to Sir Harold for the amount of the cheque. Lord Carson shortly states the conclusion of all the members of the House when he says: "It is clear (1.) that the cheque was used to liquidate the private debt of Lord Terrington, (2.) that the defendants knew it was so used, and (3.) that the form of the cheque gave them notice that the money was not the money of Lord Terrington. In that state of circumstances there is no evidence or any possible inference which can be drawn that the agent was applying his principal's money in discharge of any possible liability of his principal." Precisely the same state of things exists here. Lord Terrington was applying these cheques in part payment of his overdraft - i.e., of money lent to him by the bank. The bank knew that he was doing so; indeed it was at their repeated request that he made the payments. They had the same notice in the form of the cheque that the money was not the money of Lord Terrington. There is in the same way no evidence and no possible inference that he was applying this money in discharge of any possible liability of his principal. It seems to me clear that in an omission of an ordinary business precaution, in breach of a plain duty imposed upon a creditor to take reasonable care to see that a known agent paying his own debt to his creditor out of his principal's money is acting within his authority, the bank were negligent in making no inquiry as to their customer's authority to make these payments. I doubt whether he could have satisfied such inquiries however superficially made. Even if he had answered the first inquiry the mere fact that the bank showed themselves to be on their guard would probably

(1) [1929] A. C. 176, 191.

have stopped the frauds. But, be this as it may, no inquiry in fact was made and the bank fail to show that they acted without negligence. The form of the cheque, as has been pointed out, necessarily points to the money being Sir Harold Reckitt's money. But to make the matter clearer s. 25 of the Bills of Exchange Act, 1882, expressly provides that "A signature by procuration operates as notice that the agent has but a limited authority to sign, and the principal is only bound by such signature if the agent in so signing was acting within the actual limits of his authority." It seems to be suggested in the judgment of Lord Reading C.J. in Morison's case (1) that the operation of this section was limited to the time before the instrument was honoured, but that after a bill so signed in excess of authority has been honoured s. 25 did not confer a right to recover the proceeds. If the words used meant to mark off a definite period within which alone the section affects legal rights, I see no ground for such a distinction. The effect of the statute is to give notice of limited authority on the face of the document, and this operates as and when the document is negotiated or delivered. The legal consequence of such notice may be to prevent the holder who obtains payment from supporting his right to have received payment. The case of Reckitt v. Barnett, Pembroke & Slater, Ld. (2), is a good instance. The rights in respect of a bill after payment are no doubt matters of special consideration; but whether before or after payment the fact that the bill contains on the face of it notice of limited authority to place on it the particular signature continues to be a fact affecting pro tanto the rights of the parties both before and after payment. What effect, if any, such notice has on an intermediate holder for value it is unnecessary to discuss.

As to the remainder of the cheques in respect of which the plaintiff succeeded in the Court of Appeal, I find it unnecessary to discuss the facts in detail. In most cases the account was overdrawn, but not in all. In some cases only had there been pressure by the bank. But I agree with

(1) [1914] 3 K. B. 356.

(2) [1929] A. C. 176.

the view taken in the judgments below, that the bank's position was affected by the transactions in 1924, and the notice and negligence then found to have existed must be taken into account when considering the subsequent transactions. When all the relevant facts are so considered, I think the Court of Appeal were right in concluding that, in respect of these cheques also, the bank had not discharged the onus of disproving negligence.

With regard to the first two cheques complained of, in respect of which the Court of Appeal decided in favour of the bank, I have, after some doubt, come to the conclusion that the decision should not be altered. There was the same lack of actual authority as in the other cheques and the same notice, but the cheques were not specifically drawn to meet claims of the bank. They were drawn in one case to fictitious payees, Pearson & Co.; in the other case to Woodhouse & Co.; but in both cases a cheque of equivalent amount was drawn out practically simultaneously - in the first to Pearson & Co., in the second to one Buxton, with whom Lord Terrington seems to have had some joint adventure. They appear to have been the first cheques drawn fraudulently by the solicitor, and upon the whole I see no ground for differing from a decision that in these two cases the bank acquitted themselves of negligence.

It remains to deal with contentions of the bank based upon the terms of the power of attorney. The bank never in fact asked for or saw the terms of the document; and, for my part, I venture to doubt whether in such circumstances they could ever rely on any other than an actual authority. Ostensible authority appears to be excluded when the party averring it cannot show that any appearance of authority other than the actual authority was ever displayed to him by the principal. He neither shows a representation nor that he relied on it. But in this case, as the members of the Court of Appeal have pointed out, the notice found to exist defeats reliance on ostensible equally with actual authority. Neither in the one case nor in the other can the agent be assumed to have authority to pay his own

debts with his principal's money. It was said, however, that the clause of the power of attorney whereby the principal "ratifies and confirms and agrees to ratify and confirm whatsoever the attorney shall do or purports to do by virtue of these presents" protects the bank. The clause in some such form is of long standing. It does not appear to be happily worded; for a ratification in advance seems to contradict the essential attributes of ratification as generally understood. It cannot, I think, be construed as extending the actual authority given by the power of attorney; it may amount to a promise to adopt acts done within the ostensible authority; and this strengthens the position of those who rely on the ostensible authority by an express promise as well as by an estoppel. If this be so it is difficult to see how the promise could be available except to some one who was aware of it and who acted on the strength of it. But in any case it would appear to be a highly improbable construction to suppose that a principal using this form has precluded himself from objecting to a dealing with his property by a person who had notice in ordinary circumstances that the agent was exceeding his authority actual and ostensible. It would mean that the principal was saying either "I give you actual authority within defined limits but ostensible authority to do what you like with my property so long as you pretend ('purport') to be doing it under this document"; or "I give you similar actual authority." Such a construction would make powers of attorney a danger instead of a business facility and would certainly defeat the intention of any reasonable principal. I think, therefore, that the notice in this case defeats this defence.

The cheques on which the bank have been held liable were crossed and marked not negotiable, except two - March 13, 1925, Lloyds or bearer, 1000l., and February 20, 1926, Woodhouse & Co., 390l. As to these two, the bank claim to be holders in due course to the extent of the overdraft existing when they were paid in. That they were holders for value to that extent is, I think, true whether

the value is said to be the payment of the antecedent debt (the overdraft), or to be the lien to the extent of the overdraft (Bills of Exchange Act, 1882, s. 27, sub-s. 3). But the notice already referred to defeats their right to be considered holders in due course. In other respects it was not suggested that there would be any difference between these and the other cheques following the group which I have discussed in detail.

For the above reasons I think that the appeal and cross-appeal should be dismissed, with costs.

My Lords, I am asked to say that my noble and learned friend, Viscount Dunedin, and my noble and learned friend, Lord Thankerton, concur in the judgment which has been delivered.

LORD WARRINGTON OF CLYFFE. My Lords, I have had the advantage of reading the opinion of my noble and learned friend, Lord Atkin, and I concur in it.

LORD MACMILLAN. My Lords, I also concur.

Solicitors for the appellants in the appeal and respondents in the cross-appeal: Coward, Chance & Co.

Solicitors for the respondents in the appeal and appellants in the cross-appeal: Nicholl, Manisty & Co.