London Joint Stock Bank v. Macmillan & Arthur

Facts

• A clerk of Macmillan & Arthur was authorised to fill in cheques for small amounts
• The clerk drew a cheque for "2 pounds" (in figures: "2-0-0") leaving blank space before the figure
• The clerk then fraudulently altered the figure to "120-0-0" (one hundred and twenty pounds) by inserting "1" and "0" in the spaces
• The bank paid 120 pounds
• Macmillan & Arthur sued the bank to recover the excess (118 pounds)

Issue

1. Whether a customer who draws a cheque negligently (leaving spaces facilitating alteration) can recover from the bank when the bank pays the altered amount.

Held

• The House of Lords held that the customer owed an implied contractual duty to the bank to exercise reasonable care in drawing cheques so as not to facilitate fraud. Macmillan & Arthur drew the cheque negligently by leaving spaces that enabled the alteration. The customer's breach of duty caused the loss. The bank was not liable; the customer bore the loss of the excess amount.

Ratio Decidendi

The customer owes an implied duty to the bank to draw cheques with reasonable care. If the customer's negligence in drawing the cheque facilitates alteration, the customer (not the bank) bears the resulting loss. This is the "Macmillan duty."