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Present : Bertram C.J. and Schneider J.
GARVIN t>. ABAYAWARDENE.487—D. C. Matara, 421.
Sum of money hypothecated by bond by toddy-renter as security—Moneydeposited by Government at a bank at request of renter—Failure ofbank—Is Government responsible for loss ?—Is Government boundto take steps to recover sum from the bank ?—Trust.
A toddy renter deposited with the Government Agent a sumequivalent to two months* instalments of the purchase money andexecuted a bond purporting to hypothecate this sum as securityfor the discharge of his obligations under the contract. TheGovernment Agent at the renter's request deposited the amount inthe Bank of Colombo on fixed deposit. The bank failed.
Heldt that the Government was not responsible for the loss, andthat the Government Agent was not under any obligation to takesteps to get back what he could from the bank.
Any person acting at the request of another in this way wouldbe entitled to refuse to bring an action of the nature suggested,unless he were indemnified against all possible expenses.
HE Attorney-General, plaintiff, appellant, sued the defendant,respondent, to recover the sum of Bs. 1,341.66, being the
balance due to the appellant on the purchase by the respondent ofthe privilege of selling toddy by retail in the village of Weligamafor one year from October 1, 1920. The respondent pleaded, interalia, that at the time he bought the said privilege he deposited asum equal to the amount claimed by the appellant as a securitydeposit, and that the deposit was available to the appellant.
It was found at the trial that the respondent has in fact depositedcertain money with the Assistant Government Agent, Matara, andthat soon afterwards he had requested the Assistant GovernmentAgent to deposit the money in the Colombo Bank so as to enablethe respondent to earn interest on the money. The money was inaccordance with this request deposited in the said bank on May 20,1920, and on July 7, 1920, the respondent by his bond purportedto hypothecate the sum so deposited and dealt with as security. Itwas further proved that the bank stopped payment in June, 1921,and the deposit ceased thereupon to be available to the Crown assecurity for the said privilege.
The learned District Judge (E. Rodrigo, Esq.) dismissed theplaintiff’s action with costs, holding, inter alia, that in the circum-stances the appellant must bear the loss of the money deposited inthe Colombo Bank.
The Attorney-General appealed.
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ElpkiuHtoue, K.C., Solicitor-General (with him Ahbar. C.C., amilUangakoonr C.C.), for plaintiff, appellant.
Samarawickreme (with him H. V. Pereni). for the defendant,respondent.
July 23, 1024. Bertram C.J.—
This rcase raises a question of law on which unfortunately thereappears to be no authority, and we must accordingly decide it upona first impression according to principles which seems to us 'to beapplicable to the case. The facts briefly stated are these: Thedefendant was a toddv renter, and in pursuance of the usual systemof obtaining .the rent he deposited with the Government Agent asum equivalent to two months’ instalments of the purchase money,and, again, in pursuance of the usual system, he subsequentlyexecuted a bond purporting to hypothecate this sum in .the handsof the Government Agent as security for the discharge of hisobligations under this contract. Before the bond was actuallyexecuted, the defendant on April 30, 1920. by a letter to the Govern-ment Agent, requested him to deposit the amount above referred toin the Bank of Colombo on fixed deposit, where it would earn onhis account interest at 6 per cent. This was accordingly done.Before the expiration of the rent, the Bank of Colombo stoppedpayment. The learned District Judge says: “ After a few monthsthe bank became insolvent and failed to pay its creditors anydividend whatever on their claims.” The amount thus deposited bythe Government Agent at the request of the defendant with the Bankof Colombo thus disappeared. And the real question is who is tobe responsible for the loss of this sum, the Government or thedefendant ?
The case set up on behalf of the defendant and adopted by thelearned District Judge was that, on the deposit of this sum withthe Government, all that happened Was that the relation of debtorand creditor arose between the defendant and the Crown. Itappears to ,be conceded that the defendant was liable to the Govern-ment Agent upon the contract. The contract is explicit and certainspecific sums were due. It also appears to be admitted that thefact that the Government had taken security for the due performanceof the defendant’s obligations did not make it necessary for theGovernment to resort to that security unless it was so disposed.But it was contended that, nevertheless, the defendant was entitledto claim in reconvention the return of the sum which he haddeposited as security for the performance of his contract, and it isurged that nothing has happened to discharge the Government fromits obligations to refund that money.
It is very singular that there is complete dearth of authority bothin the Boman-Dutch and in the English law on the point we haveto determine. It is not possible to find in the Bomaii-Dutch
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authorities, which have been cited to us, any reference to what is acommon< every-day occurrence in Ceylon, viz., the hypothecationof a sum of money or a fund. A fund of course is an abstraction.The word does not represent any tangible thing, but, nevertheless,in all commercial transactions funds of money are daily treated asif they were entities, and we must deal with this question accordingto the realities of the situation. In effect we have here a pledge orhypothecation of a fund, and it would surely be reasonable to dealwith it upon the analogy of a pledge or a tangible article or ahypothecation of any other property which can be made the subjectof hypothecation. If this was a case in which an article, either ofplate or jewellery, had been deposited by the debtor with thecreditor, and if while this plate or jewellery was in the hands of thecreditor, the debtor had approached him and said: " Kindly handover my plate or my jewellery for the time being to such and such aperson with whom I have made an arrangement/* and if the creditor,in pursuance of the request of the debtor, did so hand over the pro-perty, and if that person thereupon absconded, it would be perfectlyclear that the creditor could not be held responsible for the loss. Sohere, if we consider the realities of the situation, what has happened inthis case is that a fund had been hypothecated with the Govern-ment Agent. The Government Agent had, at the request of therenter, deposited .that fund with the bank, and owing to the failureof the bank the fund had disappeared. That this does representthe reality of the situation may be gathered by a reference toa letter written to the Government Agent (P 4), where the defendantsays: " We expected Government to look after our money, althoughwe wanted the money to be placed in the bank.” He reallyregarded this sum of money as a fund in the hands of the Govern-ment, held by it as security for the due performance of his contract.It seems to me, therefore, that on the analogy of the pledge of atangible chattel, the Government Agent ought not to be heldresponsible for the disappearance of the fund deposited at thedefendant's request in the Bank of Colombo.
The transaction may be looked at in another way. This moneywas deposited with the Government Agent. The . GovernmentAgent held this fund as a trust fund on behalf of the toddy renter,subject to his rights in connection with it. While he was so holdingit, at the request of the person, in trust for whom he held it, hedeposited the fund in a particular bank for the benefit of that person.It surely follows on all principles of equity that a trustee in thatposition ought not to be held responsible for the loss which occurredthrough his acting upon the special request.
As has been already indicated, however, Mr. Samarawickretneinsists that the real position according to the strict principles of thelaw is this: tbat a sum of money had been paid to the Government,that the Government has taken this money and dealt with it as part
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of the ordinary revenue and remains the creditor of the toddy renterto the extent of this amount. Even if we take this view of thecase, it seems to me that the result is the same. By the letter towhich I referred, the toddy renter wrote to the Government, and ineffect made this request: That a sum of money should be set asideto represent the amount of his deposit and should be deposited forhis benefit in the Bank of Colombo. This being done, is it equitablypossible that when this sum of money disappeared, the toddy rentershould be entitled to claim it back from the Government ?
There remains the further question to which the learned DistrictJudge attributes some importance:Whether the Government
Agent was under any obligation to undertake salvage operations toget back what he could out of the wreck. As a matter of fact thereis no express authority on this point, but it seems clear that anyperson acting at the request of another in this way, and particularlyany trustee acting in pursuance of an express request by a ce*tuique trust, competent to make such a request, would be entitled torefuse to bring an. action of the nature suggested, unless he wereindemnified against all possible expenses.
For these reasons I am of opinion that the appeal must be allowed,with costs.
GAVIN v. ABAYAWARDENE