Lord Dunedin :-

On 6th June 1917, Mr. A. Friend, York Street, Sydney, put a cheque drawn by himself on the Australian Bank of Commerce for £786. 18s. 3d. into an envelope along with some other cheques drawn by other members of his family, and addressed the envelope to the Commissioners of Taxation, George Street North, Sydney. He gave the envelope to a clerk to deliver, and the envelope was duly delivered by being placed in a box put for the purpose of receiving such letters in the Taxation Department. The cheque was in payment of an assessment for income tax and was in the following terms:- "pay 053 or bearer the sum of £786 18s. 3d". It was crossed with the word "Bank" that is to say, generally not specially. The figures "053" correspond with the final figures on the number of the cheque and this method of filling up a bearer cheque seems to be a common habit in Sydney. Attached to the assessment notice sent to Mr. Friend there is the following instruction :-

"Collectors will not call for payment of taxes, but the taxpayer should (a) pay the tax at the Taxation Office, George Street North, Sydney, in cash or bank notes, cheques or postal notes, payable in New South Wales; or (b) remit the same to the Commissioners at Sydney, by bank draft payable on demand or cheque crossed and marked Commissioners of Taxation-not negotiable-payable in N. 5. W. or by Post Office money order, or by postal note, marked "Commissioners of Taxation-not negotiable."

It is, therefore, to be observed that in making his payment by means of a bearer cheque delivered at the Office Mr. Friend was acting in strict accordance with the instructions issued. The cheque in question was stolen by some person unknown and was never cashed by the Commissioners of Taxation.

On 7th June, a man who gave his name as Stewart Thallon entered the head office of the respondents' bank at Sydney and stated that he wished to open an account. He was received by the accountant of the Bank who went through the usual procedure of taking his nama and address which he gave at certain well-known residential chambers in Sydney and making him sign the signature-book. Being asked how much he wished to bank, he replied "£20." and handed that sum in bank notes to the accountant. The accountant filled up a "paid-in" slip and handed it and the money to the teller. Thallon said he would take a cheque-book and was given one, the charge being debited to his account. He then told the accountant that every cheque he signed for cash would be accompanied by an order to pay and the accountant added a note to that effect to be entered in the ledger account. A ledger account was opened in the ordinary form but no inquiry was instituted to check the authenticity of the address.

On 8th June, the cheque in question was handed in with a pay-in slip to be credited to Thallon's account which was done. Later in the same day the cheque was cleared in the ordinary manner and was paid by the Australian Bank of Commerce. On 9th, 11th and 12th June, three cheques for £483 16s. 6d., £ 260. 10s. od. and £ 50. 12s. 6d. respectively drawn by Thallon were presented for payment by persons each accompanied with an order signed by Thallon to pay. No more was ever seen of Thallon; no person of that name lived at the address given and it may be taken as certain that the name of Thallon was an assumed one.

The present action was raised by the Commissioners of Taxation against the English, Scottish and Australian Bank, the ground of liability being conversion of the cheque. The defence was Sec. 88 of the Bills of Exchange Act 1909 (Commonwealth of Australia) Federal which enacts as follows :-

"(1) Where a banker in good faith and without negligence receives payment for a customer of ft cheque crossed generally or specially to himself and the customer has no title or defective title thereto, the banker shall not incur any liability to the true owner of the cheque by reason only of having received such payment (2) A banker receiv