Tort

Conversion - bills of exchange - cheque and bankers' draft materially altered and paid into third party's account - banks not liable to original payee on face valueSmith and Another v Lloyds TSB Bank Plc and Harvey Jones Ltd v Woolwich Plc: CA (Pill and Potter LJJ and Sir Murray Stuart-Smith): 27 July 2000

In each case the claimants were the holders and payees of a non-negotiable cheque or bankers' draft which was stolen from them and materially altered by deleting the payee's name and inserting that of a third party.

Each instrument was presented to a collecting bank, paid into the third party's account and cleared.

In the first action the claimants sued the collecting bank for the face value of the cheque.

In the second action the claimant sued the paying bank for the face value of the draft.

The banks conceded that they had converted the pieces of paper, but submitted that by s.64(1) of the Bills of Exchange Act 1882 the materially altered cheque or draft, being 'avoided', was worthless.

In the first action the judge (Smith v Lloyds TSB Group Plc [2000] 1 WLR 1225) gave judgment for the collecting bank.

The judge in the second action gave judgment for the claimant.

The unsuccessful parties appealed.

In the first appeal: Marion Simmons QC and Sonia Tolaney (instructed by Berrymans Lace Mawer) for the claimants; Mark Hapgood QC and Alexander Pelling (instructed by Dibb Lupton Alsop) for the collecting bank.

In the second appeal: David Wolfson (instructed by Thomas Eggar Church Adams) for the paying bank; Richard Slade (instructed by Gersten & Nixon) for the claimant.

Held, dismissing the first and allowing the second appeal, that on a true construction of s.64 a cheque or bankers' draft materially altered by the fraud of a third party was a worthless piece of paper and no action for damages in conversion for the face value of the instrument could be brought by a party who, but for the material alteration, would have had contractual rights based on the instrument because it no longer represented a chose in action for that amount.