Accidental defacement of a banknote, such as the loss of its number, does not constitute a 'material alteration' under the Bills of Exchange Ordinance. If the note's identity and essential terms are provable via fragments and evidence, the issuer remains liable.

Lord Buckmaster. -

Their Lordships notice with approval that this case has been brought before them for consideration within 12 months of its first hearing before the Puisne Judge in Hongkong. They wish that this example of expedition was widely known and imitated. The point that arises for decision is singularly free from authority, but fortunately the facts are beyond dispute. The appellants are the Hongkong and Shanghai Banking Corporation, who carry on the business of banking in Hongkong. In the course of their business they issue banknotes for various sums ; such notes are not legal currency, but, owing to the high credit of the appellants, they are used as if they were. The bank is under liability to the Government of Hongkong to deposit dollars as against all notes issued over a certain amount and a tax is payable at the rate of 1 percent, per annum on the value of notes in circulation. Apart from these conditions, which it may be assumed would apply to every bank in Hongkong, the appellants have no special relationship with the Government at all. The notes they issue are in the ordinary form of a bank-note. The same of the bank is at the head, the amount of the note is written in figures in the right and left-hand corners. In the middle of the document the number of the note appears in two places on the same line, one on each side ; below this there comes the promise to pay the bearer on demand at the office of the bank the amount of dollars, stated in words, for which the note is issued. Underneath this promise the value of the note appears again in large light letters, over which is written "Hongkong" followed by a date, and then "by order of the Board of Directors" with the signatures of the chief accountant and the chief manager.

Lo Lee Shi, who is the respondent in this appeal, was given by her husband two of such notes, each for five hundred dollars. She placed them in the pocket of some garment, and then, having forgotten their hiding-place, she washed, dried and starched the garment and was proceeding to iron it when she found a wad of paper in the pocket ; this upon extraction proved to be the remains of the two bank notes which, together with the coat, had been subjected to all the above processes. Considerable effort was made, with the help of the bank, to restore these agglutinated fragments to their original shape and, as to one note, this met with complete success and the note was accordingly paid. The full restoration of the other was more difficult ; with the utmost skill the number could not be recovered. Apart from this, a very considerable portion of the note was replaced and its most critical characteristics were made plain : the name of the bank, the amount of the note, the definite promise to pay the "Bearer" on demand at the appellants' office, and the signatures by the chief accountant and the chief manager, were all clearly and definitely evidenced. The bank, however, refused payment mainly upon, the ground that the number was missing and Lo Lee Shi accordingly brought an action against them upon the note. The Judge on the trial of the action found in favour of the plaintiff. On appeal to the full Court the Judges were divided, the Chief Justice being in favour of the defence and the trial Judge who formed the other member of the Court affirmed his own judgment. The bank, anxious to know their true legal position with regard to a note whose number was defaced, brought this appeal, but the respondent, deterred no doubt by fear of cost, has not appeared. The case has, however, been fully and carefully placed before the Board who see no reason to think that any relevant matter escaped their attention.

The real point of controversy is this : in the circumstances above stated, are the appellants liable on a note whose number has been accidentally defaced? The case to which most consideration was given both in the earlier Courts and in argument on the appeal was the case of Suffell v. the Bank of Engl