( 206 )
Present: Viscount Haldane, .Lord Shaw, and Sir WalterPhilliipore, Bart.
DODWELL & CO.* LTD., v. JOHN et al.
D. C. Colombo, 35,626,
. Manager paying his personal debts by cheque# drawn upon his master’saccount without authority—Is master entitled to recover the valueof cheques from payee t—Prescription—Discoveryof manager’s
fraudbymasterseveral yearsafter the commissionof fraud—When
registered office in England and carrying on business in Colombo bya local manager—Absence beyond (he seas—Concealed fraud.
Tlie. manager of plaintiff company drew upon the plaintiff com-pany’s banking account two cheques in. June and October, 1909,and two cheques in May, 1910, and delivered the same to defend-ants in payment of his personal liabilities. The manager, thoughhe had authority to draw cheques in the name of the plaintiff■ company, * had no authority to draw cheques for his private trans-actions. The plaintiffcompany discoveredthe fraudinOctober,
1911, and broughtthisaction inJanuary,1918,torecover / the
value of the cheques from defendants.
Held, (1) that the defendants had acquired’ no right to the moneyrepresentedby thecheques,andwere liablefor theamountof them
to plaintiff company.
(2) That the claims in respect of the 1909 cheques were barredby prescription, andthatthe claimsin respect ofthe1910cheques
were not barred.
. When an agent iB entrusted by his principal with property to beapplied.forthe purposes ofthelatter, andto beaccountedfor on
that footing, he isina iiuociary,n:.,>*on,andanythirdperson
( 207 )
taking from the agent a transfer of the property with knowledge ofa breach of duty committed by him in making the transfer, holdswhat hasbeen transferredto himundera transmitted fiduciary
obligation to account for it to the principal. That there is noprivity ofcontract betweenhim andthe principaldoes not make
any difference, for the title does not rest on contract.
A claimfor conversion falls undersection10 ofthe Prescription
Ordinance, 1871, and is barred in two years. As the claim in thepresent case is not merely for conversion, but alternatively torecover what is in effect a trust fund, it falls within section 8 (threeyears), or else within section 11 (three years). It cannot be said inthis case that the cause of action had not arisen, in respect of theclaims until the fraud was discovered by the plaintiff company.
To enable a plea of concealed fraud to be relied on as jp’ing anew cause of action, the hand must be shown to be fraud eitherof the defendant himself, or of some one for whose action iu thematter in question he has assumed responsibility.
A jointstock companyregistered inEnglandand carrying
cm business in Ceylon under the management of a local manager isnot a person absent beyond the seas within the meaning of thePrescription Ordinance.
Dodwttt dsCo. Ltd., v.John
HE facts are set out in the judgment of the Privy Council. Thejudgment of the Supreme Court is reported in 18 N. L. B. 183.
February 11, 1918. Delivered by Viscount Haldanb:—
This is an appeal from a judgment of the Supreme Court of Ceylon.The question is whether the respondents were entitled to recoverfrom the appellants the whole or part of a Bum of-Rs. 145,860, beingthe aggregate of the amount of four cheques, drawn by one Williams,
. as the respondents’ manager, in favour of the appellants.
The facts of the case are shortly these. The appellants are part-ners in the firm of E. John & Co., carrying on business as shareand produce brokers in Colombo. The’respondents area a companyincorporated and registered in England, and canying on business asimport and export merchants at various places, including Colombo,through branch offices. Williams had acted as their manager ofthat branch since 1905. He held a power of attorney, which enabledhim to conduct the business of the respondents at Colombo, and forthat purpose conferred on him wide powers, including the drawingof cheques on their bankers. The respondents had transactedbusiness with the appellants, relating in the main to the purchaseand sale of produce. The latter had in their books an account withthe respondents, and (hey had also opened a separate account withWilliams, who employed them in the purchase and sale of shares. ~With Williams the appellants thus came into business relationsin two capacities: in general business he dealt with them asthe respondents’ agent; but so far as his dealings in shares wereconcerned, these were private transactions on his own account asprincipal, and not as agent. He was reputed to have made a good
( 208 )
Co. Ltd., v.John
deal of money by dealings of this kind, and he owned shares, onwhich the appellants were able to procure advances’ for him when
he needed’ them.
Williams had bought and sold shares largely in both of what wereknown as the rubber booms of 1905 to 1906 and 1909 to 1010.He had employed the appellants and other brokers in these trans-actions. In tiie period of the second boom his dealings through theappellants were large, and in the course of these dealings he paid tothem large sums for purchases, and was credited with large sums forsales. Among the sums he paid to them were the amounts, of thecheques in question. These were drawn as follows:—
June 16, 1909 …October 12, 1909May 3, 1910…
May 6, 1910…
… 11,617 6020,102 50… 67,600 0… 46,740 0
Total … 145360 0
These cheques were drawn by .Williams under his power ofattorney in the name of the respondents and on their bankers, butthey were in fact drawn, not in the conduct or for the purposes ofthe business of the respondents, but in the private interest of Williamshimself to be used in his own transactions. The employment ofthe funds of the respondents for this object was plainly outside thegeneral authority entrusted to Williams. In so using them he wasguilty of fraud, and when the respondents, his principals, discoveredwhat he had done, they not only claimed against him and proved inhis subsequent insolvency, but took criminal proceedings againsthim, which ended jn a conviction.
At the trial before the District Judge of Colombo it was foundthat the appellants were neither in fact dealing with Williams as therespondents,* agent, nor believed themselves to be so. The DistrictJudge held, however, equally clearly, that the appellants wore notpersonally aware that they had received -among the items paid overto them for the purchase money of the shares which they boughtfor Williams, as his brokers, cheques fraudulently drawn on the re-spondents* funds, and that they took the cheques honestly, withoutnoticing the names of the drawers, and without thinking of them asin a different position from the other cheques received in tbs courseof their transactions with him. But it is obvious that the appellants’clerks, who brought the cheques to the partners for endorsement,must have, seen that the name of the drawers was that of the re-spondents. However little the clerks may have known of Williams’sreal transactions, and however innocently the cheques were broughtand endorsed, the knowledge of the names on the part of the clerSswas the knowledge of the appellants. That the cheques so tenderedby Williams should have been accepted by the appellants and paid
( 209 )
into their own account to enable them to provide the prices due to thesellers of the shares is not strange, for Williams was reputed to be arich man, and he occupied a position of trust under the respondents,whose representative he was in Colombo. With Williams theappellants, like other brokers, had had many transactions, and noneof them had resulted in any difficulty. What he was doing mighthave been loose practice, and not in the ordinary course of business,but it was not uncommon for employers to allow considerable.latitude, as regards drawing cheques to their confidential agents.However, it is none the less clear that, innocent of fraud as theappellants were found to be, they, by the action of their clerks, tookan unmistakable and grave risk in the transactions in question. Onthe face of these, Williams was, without showing authority to do so,drawing cheques for his own purposes on the respondents funds attheir bankers. If it turned out that the respondents had not allowedhim to do so, and would not ratify his action, the notice which theappellants had got through the agency of their daks of what wasprimd facie a breach of duty on his put would deprive than of alltitle to hold the cheques as against tire respondents, if the lattershould challenge the transaction. For when an agent is entrustedby his principal with property to be applied for the purposes of. thelatter, and to be accounted for on that footing, he is, by virtue ofdoctrines which apply under the law of Ceylon, as they do under thelaw of this and other countries, in a fiduciary position, and anythird person taking from the agent a transfer of the property withknowledge of a breach of duty committed by him in making thetransfer, holds what has been transferred to him under a trans-mitted fiduciary obligation to account for it to the principal. Thatthere is no privity of contract between him and the principal doesnot make any difference, for the title does not rest on contract.The property belongs to the latter in the contemplation of Courtswhich administer equity, whether in the form in which the Court ofChancery in this country applied it to trusts, or in the form which-later developments of the Roman law have recognized. It is,therefore, clear that, excepting in so far as the lapse of time or someother special circumstance afforded them a defence, the appellantscould not withhold the money in question from the respondents ifthey chose to claim it.
The respondents did claim it, and commenced an action onJanuary 10, 1913, to enforce their claim. The claim as formulatedin their plaint was alternative. In the first alternative, theyexpressed it as for money had and received; in the second, as for aconversion; in the third, as for cheques received with notice ofWilliams’s fraud. In the judgment in the Courts below it was thefirst and second of these alternative forms of claim which receivedattention. Their Lordships are of opinion that the course so takenwas unnecessary. It would have been, in their opinion, sufficient to
Doduxtt ACo., Xdd.,’v.John
( 210 )
DodwefhkGo. Ltd; v.JoKn
have disposed of the case on the footing that the money was, in thecircumstances, what may properly be called trust money, consist-ently with principles of jurisprudence based in part, though notwholly, on a foundation of Bomna law. If the appellants receivedsuch money with notice of the trust .affecting it, they would bebound to account for it to the respondents. It is on this footingthat their Lordships propose to deal with the question. The casewas not disposed of in this way in the judgments below, but thefacts proved and the pleadings admit of its being thus dealt with.
It may well be true that the principles of the English common lawhave been io far recognized in the jurisprudence of Ceylon as toadmit of the same question being treated as one of a conversionhaving taken place. If so, undoubtedly there was a conversionaccording to these principles. But in that view difficulties mightarise as .to the time limited for bringing the action for conversionunder the Prescription Ordinance, to which reference will be madelater on. If the case is regarded, on the other hand, as similarly itmay be, from the point of view of money had and received to therespondents’ use by the appellants, the difficulty is less, for theperiod of limitation prescribed by the Ordinance is three yearsinstead of two, as in the alternative of conversion, and this wouldhave rendered the transaction still actionable in the case of the twocheques latest in date. But a point would arise, if the claim weretreated, as it was in the argument at the Bar, as one for money hadand received, which is not unattended with difficulty. The chequeswere paid by Williams to the appellants , with instructions to applythem in payment of the price of the shares. This the appeUantsactually had done before receiving from the respondents notice notto do so. The action for money had and received is, according tothe law of England, in its nature one of assumpsit, founded onimplied or imputed contract, and depends on a waiver of any tortcommitted, and on the correlative affirmance of a contractualrelation. But what is the effect and extent of such affirmance?In a simple case, such as that of a wrongdoer having taken propertyof the plaintiff and sold it at a price beyond its ordinary marketvalue, there is no difficulty. The question of affirmance here con-cerns only the relation between two persons the owner and thetortfeasor, and, by waiving the tort and treating the latter as hisagent in selling, the owner secures the advantage of the high pricereceived. But what if between the owner and the tortfeasor therehas intervened an agent for whom alone the tortfeasor has acted,and whose directions he has carried out, say, by paying over theprice to him before he received notice from the true owner not to doso? Does the waiver of the tort ratify the action of the agent ingiving instructions to the person who would, apart from ratification,have been a wrongdoer, so as to justify what would otherwise havebeen the wrongful act of paying over the price in accordance with
( 211 )
the direction given by the agent ? Can the contractual relation besplit up and only part ol it be approbated while the rest is repro-bated, and can any obligation based on his contract be imputedto the person whose tort is waived inconsistent with the actualcontract which he, in point of fact, made with the intermediary?Can the agent’s intervention be eliminated if ratification of a con-tract is implied when a claim for money had and received is made?Beferenoe was made at the Bar, and also in the judgment of thelearned Judge who tried the case, to the dictum of Sir Walter Philli-more at the end of his judgment delivered by him when a LordJustice of Appeal in. Morison v. London County and WestminsterBank, Limited,1 to the effect that in action for money had andreceived it is assumed that there was no wrongful act in receivingthe money, and that, therefore, the plaintiff cannot complain if it isproperly paid over before a license to do so is revoked. It is, in theview their Lordships take, unnecessary to consider how far theprinciple of this dictum would extend in circumstances such asthose of the present case, or what is the true view of the scope of theratification which this action implies by the English common law.For under principles which have always obtained in Ceylon, law andequity have been administered by the same Courts as aspects of asingle system, and it could never have been difficult to treat anaction analogous to that for money had and received as maintainablein all oases “ where the defendant has received money which exesquo et bom he ought to refund.” If, as in Ceylon, there is nonecessity to find an actual contract or to impute the fiction of acontract, inasmuch as every Court can treat the question as one notmerely of contract, but of trust* fund where necessary, there is nodifficulty in extending the remedy to all the cases covered by thewords just quoted. Lord Mansfield, who used them in his judgmentin Moses v. Macferlan,a went far in this direction, so far as appear-ances are concerned. But, as has been pointed out by Lord Sumnerin his judgment in Sinclair v. Brougham,a it is by no means clear towhat extent he really can be taken to have intended to importequitable principles into the jurisdiction of the Courts of commonlaw in entertaining this action. Undoubtedly it is one based oncontract, for the common law could take no notice of any trust; butthe contract imputed may conceivably have become so much thecreature of legal fiction that it can be imputed without reference toall the circumstances of the whole of the relations of the parties, andaccordingly in such a fashion as to exclude the effect of the directionsof the intervening agent in a case like the present. The learnedJudge who tried the case did not adopt this view, but apparentlythought that the entirety of the actual contract must be treated asaffirmed. But the point is one which their Lordships are reluctant
1 (1914) 3 K. B. 3ci.
» (1914) A. C., at page 4S4.
DodweU <kGo. Ltd., o.John
* 2 Burr. 100S.
( 212 )
to deal with unnecessarily in an appeal from a Court which wae notconfined to administering the common law of England, and as theyare of opinion that the present appeal can be disposed of on theother principle referred to, they abstain from expressing any viewof the result of the argument addressed to them about the scope ofthe alternative claim for money had and received. ,
The next question to be dealt with is that which was raised underthe Prescription Ordinance (No. 22 of 1871). Section 10 of thisOrdinance, like sections 8 and 11, contains provision for limitation ofthe time within which the actions that fall within it may be brought,and does not purport to extinguish the obligation as in the caseOf prescription properly so called. It provides that no action is tobe maintainable for any loss, injury, or damage, unless within twoyears from the time when the cause of action has arisen. TheirLordships think that the words used are to be interpreted as cover-ing a conversion, and not as in their meaning restricted to personalloss, injury, or damage, and that an action for a conversion wouldtherefore be barred after two years from its cause. Section 8 givesa three-year period for limitation of the actions falling under it. Itextends, inter alia, to actions for the recovery of any movableproperty, or for money received by a defendant for the use of aplaintiff, or for money due on an unwritten promise or contract. Asih?> claim in the present case is not merely for conversion, butalternatively to recover what is in effect a trust fund, it falls withinthis section, or else within section 11, which allows a three-yearperiod in cases not expressly provided for. The present action was,therefore, brought in time so far as concerns the two cheques latestin dale, but it was out of time as regards the two earlier cheques,unless a fresh cause of action arose later than the dates on which.appellants dealt with them.
It was argued that the fraud committed and * concealed byWilliams was such a cause of action, and that where a Court isproceeding in accordance with equitable principles, the cause ofactum can be treated as not having arisen until the fraud wasdiscovered, and the plaintiff was able to elect as to the course whichhe should adopt. In such a case the concealment of the fraudwould be itself a fraud, giving rise to a new cause of action. This istrue, unless there is some statute of limitation which binds the Courtof equity to treat the cause of action as arising when the actualfraud takes place. If there is such a statute, It must receive effect.Under the law of England the statute of limitations did not applyto any ^prisdiction of Courts of equity which was not strictlyconcurrent with the jurisdiction of the Courts of common law over<&mes of action which were within it.
-$&$tute did not apply to jurisdiction which was concurrentanalogy, although equity in such cases followed the ana-log -el the statute, and even this second analogy was not applied
( 218 )
wh< a the jurisdiction was really exclusive. Courts of equity inthir> country ignored the analogy of the statute in oases of trust towhich it did not apply- The Prescription Ordinance of Ceylongoverns the whole of a jurisdiction which is general, including lawand equity in one system, and therefore the Ordinance is operativein the present oeje to bar the claim to the extent of the two earliercheques, unless the cause of action can be shown to have arisen laterthan their datea because of discovery for the first time of a concealedfraud. Now, no doubt Williams himself concealed a fraud. Butthe appellants were innocent, excepting in so far .as they must betaken to have had notice to the extent already referred to. Wherethe cause of action, is for concealed fraud, must the fraud be that ofthe defendant personally, or of some person for whose action indoing so he is directly responsible? No authority from Ceylon wascited at the Bar on this question, but their Lordships think that onprinciple the answer must be in the affirmative. Mere notice ofwant of title is not enough, unless there is such notice of actualfraud as extends to the defendant a fiduciary obligation to disclosewhat it becomes fraudulent on his part to conceal. This appears tohave been the view held by the Boman lawyers, on whose systemthe law of Ceylon-is founded. In book 44, title 4, of the Digest,there are collected the opinions of Ulpian and other jurists on the“ Exceptio Doli Mali.” Among these opinions and the illustrationswhich their authors offer are the following:—
JDodsosU AOo. Ltd., v.Jehu
Section 2 (2).—*’ Non in rem ‘ si in ea re nihil dolo’ mob factum csl,’ tedtie ‘ si in ea re nihil dob malo actorit factum est. ‘ Doeere igitur debetit, gat obidt exceptionem, dob malo actorit factum, nec sufficiet ei ostenderein re esse dohtm”
Section 4 (17).—” In’ hoe exceptions et de dyb serci vel alterius persona/im nostro subjects excipere ponumut et de eorum dolo, qtUbns adquirilnr,ted de eereoram et fiiiorvm dolo, ei qtiidcm ex peculiars eorum negotw actiomtendatur, in infinitum exceptio obiciertda est; si autem non ex peculiarscausa, turn de eo dumtaxat extipi oportet, qui odmisssu eit in ipso negotiaquod gerttur, non etiom si postea aliquit dolut intereenisset; neque enimesse aquuns semi dohtm omplius domino noeere, qtiam in quo opera ejusesset ustss.”
Mr. Upjohn, in arguing the case of the respondents, with con-spicuous fairness, drew their Lordships’ attention to these passagesin the Digest. They think that they illustrate a general principle,applicable in Ceylon or in England, that to enable the defence- ofconcealed fraud to be relied on as giving a new cause of action, thefraud must be shown to be the fraud either of the defendant himself,or of some one for whose action in the matter in question he hesassumed responsibility. In the Boman law,, where the doctrine ofagency was never fully developed, illustrations taken from therelations of master and slave or father and Bon are often, as here, ofmuch value as iHusiraticsss of a principle which in later systemsbecame widely applied. The passage quoted shows that thedoctrine of imputed fraud was closely confined in its application by ;
( 214 )
DodweU <bOo. Ltd., v.John
the Boman jurists to the defendant either actually guilty of orlegally responsible for flip fraud. Their Lordships are, therefore, ofopinion that, according to the law of Ceylon, the cause of actionaccrued, under the circumstances of this case, at the dates when thecheques were received and dealt with by the appellants, and that therespondents are accordingly entitled to succeed as regards the lasttwo cheques, those of May 3 and 5, 1910, but not as regards the twoearlier cheques dated in 1909.
The learned District Judge of Colombo, Mr. Garvin, in his verycareful judgment, held that sections 14 and 15 of the PrescriptionOrdinance, which enact that, if the person entitled to sue is beyondthe seas, time is not to run until this disability is removed in casesfalling within sections 6, 7, 8, 9, and 11 of the Ordinance, did notapply to a corporation having its registered office outside Ceylon, ifit had a residence and, carried on business inside the Island. Withthis view, which was also that adopted in the Court of Appeal, theirLordships concur.
The learned District Judge held that the claim was in reality onefor money had and received, and that on this footing the respondentshad, by waiving their right to proceed on the footing of tort, ratifiedthe payments made to the sellers of the shares by the appellantsbefore they had notice not to make these payments. As the resulthe held that the liability of the appellants was limited to Bs. 14,751,part of the amount of the two later cheques, which had not beenpaid over to the sellers, but had been applied in liquidation ofWilliams’s indebtedness to the appellants. But then* Lordshipshave already intimated the opinion that the liability extends tothe entire amount of the two latest cheques, and this liability canbe diminished only by the amount which the respondents havealready received by proving in Williams’s insolvency. With whatthe learned Judge said in refusing to accept the argument for theappellants as to estoppel by the proof of the respondents in the insol-vency, and by their dilatoriness, their Lordships are in agreement.
The Supreme Court varied the decision of the District Judge. Bya majority they held that the cause of action arose when Williams’sfrauds were discovered in October, 1911, that the PrescriptionOrdinance therefore did not bar the claim, and that the respondentswere entitled to the entire amount of the four cheques, a total ofBs. 145,860, with interest up to the date of the plaint, and with furtherinterest until payment, minus only the amount recovered by proofin the insolvency. They thought that, in order to prevent thecause of action being held to have arisen when the cheques weredealt with, it was sufficient to show that the appellants had obtainedthem from a person who had committed a fraud and concealed it,although the appellants themselves had not been guilty of fraud.They were influenced in coming to this conclusion by decisions of theEnglish Court of Chancery, such as that of Lord Eldon in Huguenin
( 216 )
v. Baseley,1 who said, in his judgment, that he should ” regret thatany doubt oould be entertained whether it is not competent to’ aCourt of equity to take away from third parties the benefit whichthey have derived from the fraud, imposition, or undue influence ofothers.” But their Lordships have to point out that Lord Eldonwas not there speaking of any new cause of aotion arising from aconcealed fraud. No such question had arisen. Be was simplyillustrating the view taken by Courts of equity in England whenordering the restitution of what they treated as< a trust fund, andso exercising a jurisdiction which was exclusive, and to which nostatute of limitation had any application. In the present case thereis a statute of limitation, and in order to escape from its applicationit is necessary to show that there is a subsequent and independentcause of action, which arises from the concealment of the fraud.Such a separate cause of aotion arises, as Their Lordships havealready said, only out of the conduct of a person who is held tohave been responsible for the fraud, and has in breach of his dutyconcealed it. Such cases are very different from what Lord Eldonwas dealing with in Huguenin v. Baseley,1 where, in applying theexclusive jurisdiction of the Court of Chancery to decree restitutionof property affected by a fiduciary obligation, he quotes withapproval an expression of Lord Chief Justice Wilmot defining theonly doctrine he was himself affirming: “Let the hand receivingit be ever so chaste, yet, if it comes through a polluted channel, theobligation of restitution will follow it.”
Tn the result Their Lordships think that the respondents were not.entitled to recover from the appellants more than the amounts ofthe two later cheques, with interest at the usual rate until the dateof the action, and from that date at the rate of 9 per cent, untilOctober 2, 1914 (the date, of the decree of the District Court), andinterest on the aggregate sum at the rate of 9 per cent, until pay-ment, less the sum of Rs. 3,804.15, being the dividend recovered bythe respondents from William’s estate in the insolvency proceed-ings, as on the date when it was actually received by the respondents.The District Judge made no order as to costs, and on this point hisjudgment should be restored. The respondents succeeded rightly,to a limited extent, in the Supreme Court, and the appellants havesucceeded to a substantial extent in this appeal. Their Lordshipsthink that justice will be done if they leave the respondents entitledto the costs of the appeal to the Supreme Court, which the judg-ment of that Court gave them, but order them to pay the appellants’costs of the present appeal. The costs of an application to postponethe hearing of the appeal, which were ordered jfco be .borne by theappellants in any event, will be set off against the latter costs.
They will humbly advise His Majesty in accordance with thisopinion.
Dodwdl isOo. Ltd., v. ■John
114 Ves. 273.