The following memorandum has been submitted to me for advice:

In connection with the new system of payment of accounts which it is hoped will be introduced on the 1st July next, provision is made that Paymasters shall pay all accounts by cheques crossed, made payable to order, and marked 'Not negotiable'. The amended Regulations provide:

The indorsement of the cheque will constitute the receipt for the payment of the account within the meaning of section 34 (6) of the Audit Act 1901-1917.⁽¹⁾

Section 34 (6) of the Audit Act provides inter alia:

... at the time of paying any account every Accounting Officer shall obtain a receipt under the hand of the person to whom the same is payable or under the hand of some person or banker authorized in writing by such first-mentioned person

for the amount so paid.

Under the arrangements made, per pro signatures will be accepted, in accordance with the ordinary commercial usage (as defined by section 65 of the Bills of Exchange Act 1909) as a proper endorsement of the cheque. The question now arises as to whether this in itself is a sufficient discharge to the Treasurer for the payment of the account.

I suggest, therefore, that the Attorney-General's Department be requested to advise in the following case:

Supposing a cheque to be drawn in favour of John Smith or order, crossed, and marked 'Not negotiable', and such cheque were endorsed 'John Smith p.p. J. Brown'-

1. would the Treasurer be fully discharged in respect of the payment under section 34 (6) of the Audit Act without satisfying himself that J. Brown had been authorised, in writing, by John Smith to collect such money on his behalf;
2. would the Auditor-General be required to satisfy himself that J. Brown had been authorised, in writing, by John Smith to collect such money on his behalf.

In my opinion the questions asked should be answered as follows:

1. The Treasurer would be discharged, in respect of the payment, only if the person signing on behalf of the payee had in fact authority to sign; and
2. It would be within the province of the Auditor-General to require, if he thought fit, evidence that Brown had been authorised by Smith to collect the money.

If the bank to which the cheque was presented paid the amount of the cheque upon an endorsement which was not authorised by the creditor of the Commonwealth, the Commonwealth would be liable to recoup the creditor, but might possibly be able to recover the money from the bank.

[Vol. 16, p. 180]

(1)Treasury Regulations 1919, reg. 104 (first paragraph).