Union Government v National Bank of South Africa Ltd

• Jurisdiction: South Africa
• Judge: Innes CJ, Solomon JA, CG Maasdorp JA, Juta JA and JER De Villiers AJA
• Judgment Date: 19 February 1921
• Hearing Date: 02 December 1920
• Court: Appellate Division

Innes, C.J.:

The point at issue in this case is whether the sum of £357 18s. 6d. paid by the Transvaal postal authorities to the respondent bank upon certain postal orders can be reclaimed. The orders in question were not genuine but false.' They formed portion of unissued order forms stolen in April, 1914, from the Roodepoort office. They were then blank, in the sense that though

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each bore some face value, they had not been signed or initialled by any postmaster; nor had they been stamped with the mark and date of issue of any post office. Such official date stamp is regarded as essential to the validity of postal orders. Portion of the stolen notes found their way into the hands of one Schmulian, who in 1918 was convicted of receiving them with guilty knowledge. Early in 1917 Schmulian obtained access to the office occupied by one Israelstam, the Rietfontein postmaster., The office stamp, contrary to regulations, was on the counter, instead of under lock and key; he was thus enabled to stamp a number of the stolen notes. In some cases he added fictitious initials, purporting to be those of an issuing postmaster. The instruments thus falsified he disposed of; and at various dates during the period March to June, 1917, forged orders bearing a total face value of £357 18s. 6d. were presented for payment by the bank, which had acquired them from its customers, and were cashed. The Transvaal Provincial Division decided that the money thus disbursed could not be recovered by the Government, and the matter comes before us on appeal from that decision.

The grounds of action were two, of which one may be summarily dismissed. It related to certain written communications which passed between the parties. Under date 31st March, 1909, the Postmaster-General informed the respondent that the practice which then prevailed of cashing postal orders when presented for payment through a bank, without the payee's receipt or the name of the remitter, could not be continued without a definite undertaking by the bank "to accept responsibility in the event of wrong payment." The respondents in reply undertook to accept such responsibility. I do not think that the present claim can be effectively based upon that correspondence. The indemnity therein given was for loss caused by wrong payments made without the payee's receipt or the remitter's name, that is for wrong payments of genuine orders. The parties were not dealing with lost due to wrong payments of false orders and the present dispute is not affected by what then passed between them.

The second and more important ground remains. The claim was framed as a condictio indebiti; so that it became necessary to prove that under an error of fact there had been a payment of money not owing. The money paid was of course not owing; but

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it was suggested that the error of 'the postal authorities who honoured the orders was not such as would justify a demand for repayment, because they could have chocked the notes when presented and ascertained that they were not genuine. The point is discoursed by Voet (12.6, Sec. 7); the ignorance relied upon as justifying a condictio must, he says, be neither heedless nor far-fetched (nec supina nec affectata). At another place (22.6.7) he explains the meaning of that expression. Ignorance is supina aut affectata when it relates to a fact connected with the affairs of others, which is common knowledge; or speaking generally when it relates to a fact connected with one's own affairs. But he adds that there are many instances when ignorance of one's own affairs will satisfy the requirements of a condictio, especially when the matters concerned are remote and involved (antiqua aut valde intricata). The ignorance under which the present payments were made, was in my opinion quite excusable; the postal officials concerned could hardly have been expected to keep in mind the numbers of orders which had been circularised as stolen some three, years before. That being so the necessary elements - solutio indebiti and justus error - were present and a prima facie case for a condictio was made out. But a defence of estoppel by negligence was set up the negligence relied 'upon being that of Israelstam, the postal agent at Rietfontein. Schmulian was enabled thereby, it, was said, to give to the stolen orders the semblance of validity, which had the effect of misleading the bank, and the Government could not now maintain that the orders were false. This defence was upheld by the trial court. "The Government," said WESSELS, J.P., "can only claim back the money by proving that it was through the gross negligence of its own agent that it came to pay that money and this I do not think the Court can allow the Government to do." MASON, J., was substantially of the same opinion; though he also applied the principle that "whenever one of two innocent persons suffers by the act of a third person, he who has enabled such person to occasion the loss must sustain it." Obviously the whole matter turns upon the conduct of Israelstam: that he was careless or negligent in the popular sense may be taken for granted; the question' is whether he* was negligent in the legal sense.

The doctrine of estoppel is in accordance with the principles

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of our law and is constantly applied by South African Courts. It was historically examined by CURLEWIS, J., in Waterval Coy. v New Bullion Coy. (1905, T.S p. 717), and his reasons were approved by this Division in Baumann v Thomas (1920 AD p. 428), where SIR WILLIAM SOLOMON, in delivering the judgment of the Court, said this: "The subject, however, has been much more fully developed by the decisions of the English Courts than it has been in our own authorities, so that in practice we usually look for guidance to the former rather than to the latter." (lb p. 435). Turning to these decisions, there can be no doubt that under certain circumstances negligence may found an estoppel in pats, or, as it is sometimes called, an equitable estoppel. The Transvaal Court in the case above referred to adopted the propositions formulated by BRETT, J., in Carr v London and North Western Railway Company (L.R. 10 C.P pp. 316-318), one of which was as follows: "If, in the transaction itself which is in dispute, one has led another into the belief of a certain state of facts by conduct of culpable negligence calculated to have that result, and such culpable negligence has been the proximate cause of leading, and has led, the other to act by mistake upon, such belief to his prejudice, the first cannot be heard afterwards, as against the other, to show that the state of things referred to did not exist." That is a proposition of high authority and great practical value, but in applying it to our own practice we would do well to bear in mind the warning of LORD McNAGHTEN (quoted by SOLOMON, J., in Baumann v Thomas) against clinging to rules rather than attending to principles. Indeed, the learned author of the proposition himself modified it in a later case (Seton v Lafone (19 Q.B.D. p. 71)) by substituting the word "real" for the word "proximate." But, however that may be, it is clear to me that the negligence referred to (I discard the adjective) as sufficient to establish estoppel, must be negligence which would found an action at the suit of the person misled. In short, that it must be actionable, not merely abstract negligence. The distinction between the two will be developed later, but I fail to see how negligence unassociated with any duty to another can affect the legal relation to that other of the party who is negligent. That was evidently the view of PARKE, B., in Bank of Ireland v Evans' Trustees (5 H.L.C p. 410) and

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apparently also of LORD FINLAY (London Joint Stock Bank v MacMillan (1918, A.C at p. 793)), and it seems to me the, correct view, though there have been differences of opinion upon it. In the present instance the bank claimed in reconvention for damages (calculated at the full total of the notes in suit) on the ground of negligence. The terms of the claim were very wide, but the negligence relied upon in support of it at the trial was the same as that upon which the defence of estoppel was based. Mr. Tindall, during the argument incautiously admitted that if the bank could succeed in estoppel, then it ought to have, succeeded in an action on the orders. But that is not so. A plaintiff cannot invoke estoppel to create a cause of action where none existed before. A hasty admission in argument, however, cannot affect the legal position with which we are concerned, and I proceed to consider the point upon which, in my opinion, this dispute turns, and that is whether the conduct of Israelstam amounted to negligence in the legal sense.

Legal negligence consists in a failure to exercise that degree of care which, under the circumstances, it was the duty of the person concerned to use towards another. It involves therefore the existence of a duty to take care owed to the complainant. Such a duty may arise in various ways. It may be specially imposed, as by statute; but, speaking generally, it either springs from a privity of relationship (contractual or other) between the parties concerned, or it is created by the circumstances of the case. Young v Grote, that much debated decision, deeply submerged by hostile criticism, but finally rescued and revived- by the House of Lords, affords an example of the breach of a duty based on relationship. The customer owed to the banker a duty to draw his cheques with reasonable care; and a disregard of that duty was negligence. (London Joint Stock Bank v MacMillan (1918, A.C at p. 793-794)). That was the principle of Young v Grote, as interpreted by LORD FINLAY; and it was, he thought, in full, harmony with Pothier (Contrat de Change, sec. 100).

That the circumstances alone, without the contractual...