Midland Bank v. Brown Shipley & Co. Ltd.

The only too familiar problem of which of two innocent parties must suffer for the fraud of a third has again been posed in a new context in Midland Bank v. Brown Shipley & Co. Ltd.1 The essential facts were that on three occasions a person telephoned the defendant bank, Brown Shipley, asking them to arrange to buy for the caller large sums of marks and dollars to be paid for by bankers’ draft. The plaintiff banks, Citibank and Midland Bank, were then on each occasion telephoned by a dishonest caller purporting to speak for a company with an account held in the bank, asking that a banker’s draft payable to Brown Shipley be prepared and debited to the relevant company’s account. In each case drafts were prepared and handed to a caller who presented letters carrying in two cases the forged signatures of authorized signatories and in the third case the forged signatures of customers who were not authorized signatories of the relevant account. In no case did the purported authorization conform with the mandate given by the customer company to the bank, no checks being carried out which might have revealed this. The drafts were then taken to the defendants, Brown Shipley, who, after checking by telephone with the issuing bank that the drafts were genuine and issued in the ordinary course of business, paid them in cash to the fraudulent person who presented them and then disappeared. The drafts were presented to the issuing banks by Brown Shipley and paid. When the frauds were discovered, the issuing banks sued for conversion.

The plaintiffs contended that no title had passed to the defendants because of mistake of identity but this was rejected by Waller, J., who found that, so far as the contracts embodied in the drafts were concerned, there had been no confusion of one person with another within the principle in Cundy v. Lindsay.2 The drafts were meant for Brown Shipley and had reached them. The bailments to the dishonest callers did, however, require fuller examination since under s. 21 of the Bills of Exchange Act 1882 the drafts were inchoate and revocable until delivery, which to be effective had to be made either by or under the authority of the party drawing them, a valid and unconditional delivery being presumed until the contrary was proved.