1st. In every case where a draft on any banker, made payable to bearer or to order on demand, bears across its face an addition in written or stamped letters of the name of any banker, or of the words "and company" in full or abbreviated, either of such additions shall have the force of a direction to the bankers upon whom such draft is made, that the same is to be paid only to or through some banker, and the same shall be payable only to or through some banker.

2nd. In the construction of this Act the word "banker" shall include any person, or persons, or corporation, or joint-stock or other company acting as a banker or bankers. But a difficulty almost immediately arose. The crossing was held (Simmons v. Taylor) not to be an integral part of the cheque; and the banker upon whom it was drawn was not made responsible for having paid a cheque of which the crossing had been fraudulently erased.

To remedy this state of things another Act was passed, 21 & 22 Vict., cap. 79, by which, whenever a cheque or draft on any banker, payable to bearer or order on demand, shall be issued, crossed with the name of a banker, or with two transverse lines with the words " and company/' or any abbreviation thereof, such crossing shall be deemed a material part of the cheque or draft, and except as hereafter mentioned, shall not be obliterated or added to, or altered by any person whomsoever after the issuing thereof, and the banker upon whom such cheque or draft shall be drawn shall not pay such check or draft to any other than the banker with whose name such cheque or draft shall be so crossed, or if the same be crossed as aforesaid without a banker's name, to any other than a banker.

Then it is provided that the lawful holder of an uncrossed cheque, or one crossed "and company" may cross it, or insert a banker's name.

It was made a felony to obliterate, alter, or add to a crossing, or to utter a cheque with the crossing so tampered with. But bankers were exonerated from responsibility for payment of cheques that did not plainly appear to have been crossed, unless they had acted mala fide, or were guilty of negligence.

Such was the state of the law up to the year 1876, and very satisfactorily it has worked from the time of the passing of the above-named Act until the trial of the famous case, Smith v. the Union Bank of London, the decision in which created such a ferment in the minds of commercial men, appearing, as it did, to do away to a certain extent with the protection supposed to be afforded by the crossing of cheques.

The case as stated by consent was as follows : This was an action for the recovery of £21 9s., the amount of a cheque drawn by Richard Mills and others upon the defendants, payable to the plaintiff's order; which cheque, on the 9th January, 1874, the Civil Service Co-operative Association (of whom the drawers were the trustees) delivered to the plaintiff in payment of a debt of £21 9s. from them to him. The plaintiff accepted the cheque in payment, conditionally on its being honoured, and gave the Association a receipt for the amount.

The plaintiff banked with the London and County Bank, and having endorsed his name on the cheque crossed it with the name of the London and County Bank. While the plaintiff's servant was taking the cheque to the plaintiff's bankers it was stolen from him, and sold by the thief to Robert Thurger for £8 10s., who passed it for full value to C, a customer of the London and Westminster Bank, and C soon afterwards paid it into the London and Westminster Bank. They presented it to the defendants for payment, and the defendants paid the money to the London and Westminster Bank, and returned the cheque to the drawers.

At the time the defendants paid the cheque it was crossed with the name of the plaintiff's bankers, the London and County Bank, and with two transverse lines, and such crossing was made and placed on the cheque by the plaintiff in such manner as to form and be a material part of the cheque within 21 & 22 Vict., c. 79.

The name of the London and Westminster Bank was not written across the cheque when it was paid by the defendants.

The question for the opinion of the Court was, whether the plaintiff was entitled to recover from the defendants for so paying the cheque or for converting the same.

On this statement of facts, and it having been assumed by the Court that C took the cheque bona fide, judgment was given by the Court of Queen's Bench in favour of the defendants, and this decision was afterwards affirmed on appeal.

The grounds for this judgment appear to be that. although the Union Bank were guilty of negligence in paying the cheque when presented by one banker in spite of the crossing to another, yet that no one was injured thereby. C, as a bona fide holder, was entitled to his money, and if the Union Bank had refused payment, he could have recovered from the drawer, in either case the result to the payee being identical.

It was expressly laid down that had the Union Bank paid the cheque to the banker of a person who was not a bona fide holder they would have been compelled to pay over again.

The real point for consideration was that which all parties agreed to take for granted, viz. was C a bona fide holder ? His conduct in taking the cheque so crossed was, to say the least, very suspicious, and without explanation would go far to warrant the assumption of wilful negligence.

But after all, did the decision really necessitate a change in the law of crossed cheques ? It was palpably an error of the Union Bank to pay this cheque, and the trial, by showing clearly the danger they had by a mere chance escaped, would naturally have acted as a warning for the future.

Be this as it may, the result was the passing of the Crossed Cheques Act 1876 (39 & 40 Vict., cap. 81) which repeals the previous Acts on the subject.

It is as follows :

Chapter 81.