110-NLR-NLR-V-31-ADICAPPA-CHETTY-v.-THOS.-COOK-&-SON.pdf
( 386 )
Present: Fisher C.J. and Drieberg 0.
ADAICAPPA CHETTY v. THOS. COOK & SON.
64—D. C. Colombo, 27,296.
Cheque—Loan transaction—Payment guaranteed by agent of bank—Liability of bank—Authority of agent—rPotoer of attorney—Moneyhad and received—Stamp Ordinance, No. 22 of 1909, s. 37 (I)—Document filed toith plaint—Registration of Business NamesOrdinance, No. 6 of 1919—Trading in partnership.
The plaintiff, in pursuance of an agreement to lend money to P,gave him certain cheques drawn in favour of the defendant bank,the proceeds of which were placed to P’s , credit at the bank.At the same time P drew four cheques in favour of the plaintiff,which were endorsed by D, an agent of the bank, as follows:“ Payment of cheque guaranteed—Per . pro Thos. Cook & Son(Bankbbs). (Signed) D.”
Held (in an action on the cheques brought by the plaintiffagainst the bank), that the cheques were converted into bills ofexchange by the endorsement of D, but that the bank was notliable as D had no authority to bind the bank.
Held alsot that the plaintiff had no cause of action to recoverthe amount of the cheques from the bank as for money had andreceived or money paid under a mistake.
Held further (on a construction of the power of attorney givento D by the bank), that the power to draw and endorse .bills ofexchange did not include authority to accept a bill.
Where a document which has been filed with the plaint isreferred to in the course of the evidence and considered by theJudge, it must be deemed to have been admitted in evidence, andno objection can afterwards be raised against its reception on theground that it has not been properly stamped.
Where a Chett-y managed the business of his father acting as hisagent, the father and son did not constitute a “ firm ,f as definedin the Registration of Business Names Ordinance, No. 6 of 1918.
T
HIS was an action brought by the plaintiff to recover fromthe defendant hank a sum of Bs. 170,000 on four cheques
drawn by a person trading as Phillip & Co., on the bank in favourof the plaintiff and endorsed by an agent of the bank as follows: —
“ Payment of this cheque on March 5, 1928, guaranteed—per proThomas Cook & Son. (Bankers), Ltd. (Signed) J. M.Davis.”
The claim was based upon four causes of action. In the firstcause of action, the plaintiff stated that in consideration of a sumof Bs. 170,000 paid to the bank by the plaintiff the bank agreedto pay him the amount of the cheques.
The first alternative cause of action treated the endorsement onthe cheques as an acceptance of bills of exchange and claimedthe money on that basis.
The second alternative cause of action was a claim based upona promise by the bank to repay the money.
13J. N. B 11394 (10/51)
1980
( 386 )
,1930 The third alternative cause of action was for money had andAd^ppa reoeive<i by the bank.
Chuty v. The fourth alternative cause of action alleged that under them^s^a^en belief that the bank had accepted the cheques and agreedto pay the sums due on them, the plaintiff paid the said sum ofmoney of Rs. 170,000 to the bank. The learned District Judgefound against the defendant on the grounds of money had andreceived and money paid under a mistake and gave judgment infavour of the plaintiff for a sum of Rs. 155,000.
A. Hayleyy K.C. (with him Keuneman and Ferdinands), fqrdefendant, appellant.—The fact that certain of the cheques whichcomprised the total sum of Rs. 170,000 in dispute were drawn infavour of the defendant bank does not alter the real nature of thetransaction, which was a loan to Peiris by the plaintiff, who was underthe impression that Davis’ guarantee bound the defendant bank.Davis had in fact no power, express or implied, to bind the defendantbank by his acts on January 3, 1928. His power of attorney onbehalf of the bank had been cancelled on December 30, 1927, andthe. fact that the plaintiff had no notice of this cancellation doesnot alter the case. Davis’ endorsements were per procurationand, under section 25 of the Bills of Exchange Act, No. 18 of 1882,an endorsement per procuration puts a person on his noticewith regard to any defects in an agent’s power to bind his principal.
The learned District Judge has held that Davis’ guarantee of pay-ment on the face of Peiris’ cheques constituted an acceptance byDavis of those cheques, each of which was thus converted into abill of exchange payable at a future date. If that be so,the plaintiff's action on the ° bills of exchange ” is not maintain-able, as they were not properly stamped in accordance with therequire'lnents of the Stamp Ordinance, No. 22 of' 1909 (Schedule A,item 13).
The terms of Davis’ power of attorney gave him authority only* to M draw, endorse, retir'e, pay, or satisfy ” bills of exchange, sothat even if his power of attorney had been in force on January 3,1928, he would have had no authority under its terms to 44 accept ”bills of exchange on behalf of the bank. This is made clear whenDavis’ power of attorney is compared with that given to his superiorofficer Humphreys, who is specifically given authority to “ acceptbills of exchange in addition to the restricted powers conferred onDavis.
The alternative cause of action for money had and received bythe bank is not available to the plaintiff. Such a cause of actionpresupposes an agreement which, if properly fulfilled, would havecreated good consideration (Aitken v. Short1. In this case the bankreceived no consideration whatever. Nor can the plaintiff plead
» 52 J. L. Exch. 321.
( 387 )
payment by mistake. The mistake should be one which led the 1980plaintiff to suppose that he was under a legal obligation to pay the Adaicappamoney to the bank {In re Bodaga Go., Ltd. 1 and Chambers v.
Miller a). The proper test to be applied where payment by mistake is 4.pleaded is the purpose for which the money was given to the defendant.
In this case, the plaintiff gave money to the bank for the specificpurpose of paying it into Peiris’ account. As soon as this wasdone, the bank’s obligations were discharged. This circumstancedifferentiates the present case from Jones v. Waring & Gillow, 3where the plaintiffs had paid the defendants money for what theythought was a car contract which, if it had existed in fact, created,a legal obligation to pay {vide also East India Co. v. Tritton* Kerrisonv. Glyn, Mills, Carry & Co., Ltd.*). The bank would not be liableunder the present circumstances unless the money was still in itspossession.
H. V. Perera, for plaintiff, respondent,—Assuming for themoment that' Davis had authority to bind the bank, it is submittedthat the bank’s obligation is a primary one, inasmuch as privityof contract was established between the plaintiff and bank.
Davis’ guarantee of payment in the face of Peiris’ cheques entitledthe plaintiff to look to the bank for payment in the first instance.
The learned Judge was right in holding that Davis’ endorsementconverted Peiris’ cheques into bills of exchange. The acceptanceof a cheque, though unusual, is legal {Keene v. Bmid* Bellamy v.Marjoribank,'' Robinson v. Bennet,* and Paget on Banking {3rd ed.),p. 192). The objection to the contravention of the requirementsof the Stamp Ordinance, No. 22 of 1909, comes too late. Undersection 37, once a document is “ in evidence ” the objection thatit has been improperly stamped is deemed to have been waived.
Even if Davis had no authority, the evidence shows that hissuperior officers acquiesced in his conduct. Davis acted for the bank’sbenefit, and the bank did in fact benefit with regard to the chequestotalling Rs. 155,000 which were drawn in its favour. The bankhad discretion to use the money which went to its own account asit liked- So long as the money went in the first instance to the bankfor whom it was intended, it was a matter of no concern to theplaintiff what the bank did subsequently with the money. Theevidence shows that each cheque which was paid to the bankwas used to pay off Peiris’ overdrafts to the bank, which receivedbenefit from the transaction to that extent.
With regard to the question whether Davis did in fact haveexpress authority to bind the bank, I submit that his power ofattorney should be construed per se, and not with reference to the
1 (1904) 1 Ch. 276.
* (1862) 13 C. B. (N. S.) 125. –
(1926) A. C. 670.
3 B. and C. 280.
31/28-
(1911) 81 L. j: K. B. 465.
(1900) 8 C. B. (N. S.) 372, at p. 380.’ (1852) 7 Ex. 389.
2 Tounton 388.
1980
AdqicappaOhetty v.Thos. CookA'Son
(.388 )
force of other powers of attorney: Davis was given authorityto “ pay cheques.” He therefore had authority to undertake topay a customer’s cheque at a future date, irrespective of thecondition of that customer’s account at the future date.
■ In any case, an agent can have implied authority to bind hisprincipal in addition to the express powers conferred upon' him.Davis was de facto manager of the bank, which honoured previousguarantees made by him, and which therefore held him out as com-petent to act as he did. Where a principal knows that his agent isacting beyond his authority, and closes his eyes to it, the principalcannot plead that his agent has exceeded his powers (Thompsons v.Bell'). A bank is bound by the fraudulent misrepresentations ofits manager acting in the ordinary course of business (Berwickv. Joint Stock Co. Bank,3 Sawyer v. Francis ■").
The transaction which is the subject-matter of this suit was oneof a series of similar transactions, the earlier ones of which had beenadopted by the bank. The revocation of Davis’ authority on .January.3, 1928, being a secret act of the bank which had not beenbrought to the plaintiff’s notice is therefore of no avail to the bank.
A principal is bound by his agent’s acts after the termination ofthe agency, unless he gives notice to outsiders to whom the agent .has been held out as such in previous transactions of a similarnature (Willis v. Joyse, 4 Bowstead on Agency (7th ed.), article 143).
The bank’s position is that it received the money from the plaintiffto be used in a particular way. 1 therefore contend that even ifDavis had no authority to bind the bank, the bank cannot adopta part of the plaintiff’s contract with Davis and repudiate the rest(Hovil v. Pack,5 Bristotoe v. Whitman5).
The plaintiff is entitled to rely on his plea of payment by mistake.His payment was not a voluntary, one. The payment was, at thelowest estimate, based on a supposed contract creating a supposedobligation. The principal of Jones v. Waring & Gillow (supra)therefore applies.
[Fisher C.-J.—What is the plaintiff’s position if we hold thatthe bank’s obligation is not primary, but secondary ?]
A surety can be sued in the first instance unless he claims hisbenefit (Maasdorp 3359).
Hayley, K.C., in reply.
January 27, 1930. Fisher C.J.—
The claim of the plaintiff in this case is primarily founded oncertain transactions which took place on January 3, 1928. Onthat day, which was a bank holiday, one Peiris, who carried on
' (1911) 104 L. T. 576.
5 (1806) 7 East.166.
1(1861) 9 H. L.[399.
1 (1854) L. J. 23 Ex. 321.* (1867) L. R. 2 Ex. 259.
3 (1877) 3 A. C. 106.
( 389 )
business under the name of Don Phillip & Co. and had an accountat the defendant bank under the name, one John Davis, who up toDecember 30, 1927, had held a power of attorney on behalf of thedefendant bank, and Somasunderam, the agent of the plaintiff,who was then away in India, met in a godown belonging to DonPhillip & Co.
Since December 29, 1925, the plaintiff had been lending moneyfrom time to time to Peiris on cheques drawn on the defendant bank,Davis facilitating the loans; and the evidence of David and Soma-sunderam (Peiris having died before the hearing of the action)shows that the object of the meeting on January 3.was that Peirismight obtain a loan of Es. 170,000. On this occasion five chequesfor a total amount of Bs. 170,000 were drawn by Somasunderam—four cheques in favour of the defendant bank for a tot:al amountof Bs. 155,000 and one in favour of Peiris for Bs. 15,000 whichPeiris forthwith cashed at the plaintiff’s office. Four other chequesfor a total sum of Bs. 170,000 were drawn on the same occasion byPeiris on the defendant bank in favour of the plaintiff, each ofv#hich was endorsed by Davis “ Payment of this cheque (on March
6, 7, and 8, respectively) guaranteed. Per pro Thomas Cook& Son (Bankers). (Signed) John Davis.” On the presentationof these cheques the defendant bank refused to cash them, DonPhillip & Co.’s account having been closed on January 27, and onthis refusal the first claim of the plaintiff is founded. One of thealternative claims put forward by the plaintiff, the second alter-native claim, was that the Bs. 170,000 comprised in the five chequesdrawn by Somasunderam was a loan to the bank, and the learnedJudge apparently formed the opinion that such was the .case (seelast part of the answer to issue 15). It is not easy to understandthe reason for such a transaction, from which the defendant bankgot no benefit under the circumstances, and the evidence pointsto the conclusion that the loan was by the plaintiff’s agent toPeiris. It is clear that Bs. 15,000 of the Bs. 170,000 was paid incash to Peiris. It is clear too that he paid interest to the plaintiffto the amount of Bs. 5,997.09. It is also clear that after the bankreopened Bs. 155,000 was credited to Don Phillip & Co.’s account,the four cheques comprising that amount having been presumablytaken to the bank by Peiris. It is also clear that in so crediting theamount of the cheques the bank acted in accordance with Soma-sunderam’s intention when he drew the cheques and in accordance• with the practice which had prevailed for several months withregard to' cheques similarly drawn. It is furthermore clear thatPeiris operated on the proceeds of these cheques, very largely infavour of the plaintiff, and" the learned District Judge has so found(see answer to issues 13 and 14), and when Don Phillip & Co.’saccount was closed the whole of that credit, except Bs. 825.21
1980
FishebCJ.
AdaiatppaChettyo.Thos. Coot<fc Son
( 390 )
1930
Fisher C.J.
Adaicappa •Ohetty v.Tkos. Cookdt Son
which was then, paid out to Peiris, had been dealt with by Peiris forhis own purposes or for the purposes of Don Phillip & Co. It seemsto be clearly established therefore that the Rs. 170,000 comprisedin the five cheques drawn by Somasunderam was a loan toPeiris.
That being so, the question' of the endorsements on the chequesdrawn by Peiris becomes material. As to the effect of the endorse-ments, it would seem to be clear that the endorsements constitutedacceptances of bills of exchange and that the four cheques, from beingmerely cheques under, section 73 of the Bills of Exchange Act,1882, which is the enactment applicable to the case, became billsof exchange under section 3 (1) of the Act, and on that footing .the plaintiff claimed that the liability of the defendant bank is aprimary liability notwithstanding the use of the word ** guaranteed.,rThe appellant's Counsel contended that these four documents beingbills of exchange, no action could be brought on them inasmuch asthey were not stamped in accordance with the requirements ofthe Stamp Ordinance, No. 22 of 1909 (see Schedule A, item 13).
I think, however, that this contention is met by section 37 (1) of theOrdinance. These documents were put to two witnesses withoutany objection having been taken; they have been considered anddealt with by the learned District Judge for the purposes of hisjudgment, and they were therefore in my opinion “ admitted inevidence ” within the meaning of the sub-section last referred to.The point, however, is immaterial, if the view I take of this case iscorrect.
The substantial objection raised to the claim of the plaintiffon these documents is that the endorsements do not bind thedefendant bank because Davis was not their agent for the purposeof making them. On this .part of the case the important questionis whether on January 3 Davis had authority to bind the defendantbank by the endorsements which he made. He certainly had noactual or express authority to bind the defendant bank. OnDecember 30, owing to the discovery of Mr. Humphreys that hehad given a guarantee to another bank in respect of some shippingdocuments, he had been summarily suspended, his power of attorneyhad been cancelled, and although after that date he occasionallydrew pay, probably in the nature of a subsistence allowance, andattended the bank occasionally when his attendance was essentialin connection with business in which he had a hand, on January 3he had, in the words of the learned District Judge, “ for all practicalpurposes been dismissed."
As against this it is contended that Davis was acting within thepowers which had been vested in him by the power of attorney and .that inasmuch as the plaintiff had no notice on January 3 of the „cancellation he is entitled to hold the bank responsible on Davis
( 391 )
endorsements. The authority of Davis depends upon the con*struction of the power of attorney, the terms of which were known Fisheb C J.to the plaintiff, who relied upon them in his dealings with Davis.
That is clearly established by the evidence. On three occasions Chettyv.the plaintiff had inspected the power of attorney, and on one occasion'he took a legal opinion upon it, though it does not appear that hespecifically asked his legal adviser whether endorsements in theterms of those under consideration would bind the bank. He,moreover, inspected the power of attorney of Mr. Humphreys, whohad given the power of attorney to Davis. He said in his evidence“ I saw the power of attorney (Davis*) myself and I explained toSomasunderam that I had seen'it and told him that Davis had thepower to act for the bank.*’
Clause 4 of the power of attorney is the material clause to beconsidered. It gives power to “ draw, endorse, negotiate, retire,pay, or satisfy any bills of exchange, &c.’!; the power to accept,which figures in the corresponding clause of Humphreys* power ofattorney (clause 7), is not included in clause 4 of that of DavisIt was argued that the two final clauses of Davis* power of attorney,which are in general terms, supply the omission. These two* clauses must in my opinion be read subject to the specific provisionsin clause 4 and cannot be construed as making good the omissionof the word “accept” in that clause. In my opinion, therefore,the power to accept bills of exchange on behalf of the bank was notvested in Davis by his power of attorney. As to the plaintiffnot having received notice of the cancellation of the power ofattorney, the point seems in the circumstances to be immaterial.
No question of holding out or estoppel is involved, and absence ofnotice. would at the most merely entitle the plaintiff to assumethat the power of attorney was still in force.
Apart from the plaintiff having had express notice of the limitation ofDavis* authority, an argument was addressed to us by the appellant'sCounsel that section 25 of the Bills of Exchange Act, 1882, wouldbe an obstacle to the case of the plaintiff. It was contended inreply by the respondent’s Counsel that, having regard to the factthat section 97 (3) (b) of that Act provides that the Act shall notaffect the provisions of the Companies Act, 1862, and amendingActs, section 77 of the Companies (Consolidation) Act, 1908, wasan answer to the appellant’s argument. That section, however,merely shows what signatures on promissory notes or bills ofexchange which purport to have been made, accepted, or endorsedon behalf of a Company will bind a Company. It does not affectthe operation of section 25, and cannot, in my opinion, prevent aCompany from availing itself of the protection of section 25 where,as in this case, the signature is by procuration. But it is notnecessary to pursue this question. There was a further contention
1980
Fisjnm C.J.
AdaicappaCheity v.Thos. Cook& Son
( 392 )
that the bank was bound by Davis' endorsement on the groundthat he was the de facto manager of the bank. There was no specificissue on this point, nor does the evidence support it. In any casethe position taken up by the plaintiff was, as pointed out by thelearned District Judge, that he relied on Davis’ authority underhis power of attorney. In my opinion plaintiff’s contention thatthe bank is bound by the endorsements pannot prevail.
But there were further alternative grounds, which admittedlycanndt support the claim to recover the Bs. 15,000 received byPeiris, upon which the plaintiff sought to impose liability on thedefendant bank. They are the third and fourth alternative groundsof claim in the plaint. The third ground is that “ on the saidJanuary 3, 1928, a sum of Rs. 170,000 belonging to the plaintiffpassed into the possession of the defendant company withoutany consideration proceeding from the defendant company to theplaintiff and the defendant Company became liable to repay thesaid sum ■ of money to the plaintiff . . . . " The answer tothis claim lies, in my opinion, in the fact that the Rs. 170,000 was aloan to Peiris. The Rs. 155,000 was impressed with an obligationon the bank to place that amount at the , disposal of Peiris, andthat obligation was discharged.
The fourth ground is that 11 the plaintiff in a mistaken beliefthat the defendant had accepted the said cheques …. had
agreed to pay to the plaintiff or his order the said several sums…. paid to the defendant company a sum of Rs. 170,000,"
and the plaintiff claims that he is therefore entitled “ to claimrepayment from the defendant company of the said several sums ofmoney aggregating the sum ot: Rs. 170,000 as money had andreceived by the defendant company for the use of the plaintiff oras money paid for a consideration which has failed or as moneypaid under a mistake of fact.*' To this claim also, in my opinion,the fact that the money was a loan to Peiris is an answer. It isno doubt true to say that had the plaintiff’s agent not been underthe impression that he was secure in making the loan by reason ofthe endorsements made by Davis he would not have lent the moneyto Peiris. But there was no evidence to show that the money wasadvanced to Peiris under a mistaken belief that there was a legalobligation on the plaintiff to make the advance. ‘ It was a case ofthe plaintiff doing a thing which he was not bound to do by reasonof the fact that he thought himself secure in doing it. It is clearthat no part of the Rs. .155,000 was applied by the bank to adjustany liability of Peiris to the bank, and the complete answer to thisclaim seems to be that the whole of the’ Rs. 155,000 was dealt withby the bank in accordance with the intention with which Soma-sunderam drew the cheques and was used by Peiris for hisown benefit or the benefit of Don Phillip & Co. The bank therefore
( 393 )
was in the position of an agent to whom money is paid for a specificpurpose and who has applied the money in accordance with that jpjsbeb C.J.purpose.~—
There remains the point based on the Registration of BusinessNames Ordinance which was in the nature of a preliminary objection &ho*.Goohand was reluctantly argued by the appellants Counsel. In thecourse of the hearing we indicated our view that it could not prevail.
In my opinion the learned Judge is right when he says that “ Theplaintiff is merely managing his father’s business, and in accordancewith well-known and recognized custom when he acts for hisfather he prefixes the vilasam to his own name, thus indicating thathe is acting in a fiduciary capacity. ”
I would therefore set aside the decree of the learned DistrictJudge and order that the plaintiff’s action be dismissed with costsin this Court and in the District Court.
Drieberg J.—
The claim of the respondent, so far a's it is based on the avermentof the direct liability of the appellant on the cheques A, B, C, andD, is stated in the first and first alternative causes of action.
In the first cause of action the respondent pleads that inconsideration of Rs. 170,000 paid to the appellant by the respondentthe appellant agreed to pay the respondent the amount of thesecheques.^
The first alternative cause of action treats the endorsement onthese cheques as an acceptance of bills of exchange, and the moneyis claimed on that basis.
The second alternative cause of action is merely a claim on apromise by the appellant to repay Rs. 170,000 received from therespondent and has no reference to the cheques.
On the back of cheque A is this endorsement: “ Payment ofthis cheque on the 5th March 1928 guaranteed. Per pro ThomasCook & Son (Bankers), Ltd.—J. M. Davis.” Similar endorse-ments appear on cheques B, C, and D, payment being guaranteedfor March 6, 7, and 8, respectively.
The account which stood in the name of Phillip & Co. was Peiris'account, and I shall refer to it as such.
So far as the first and first alternative causes of action areconcerned, the questions which arise for consideration are the natureof the cheques A, B, C, and D after the endorsements of Davis,whether Davis had authority to endorse them in this.manner, andwhether the bank received the consideration of Rs. 170,000.
The manager of the bank was H. B. Smith, who was also head ofthe local branch of the tourist, agency business oi Thomas Cook &
Son, Limited. Both businesses were carried on on the samepremises. All the banking business was done by Davis, and thoughhe was Smith's assistant, the latter does not appear to have exercised
( 394 j
1930
Dbiebekg J.
AdaicappaChetty v.Titos. Cook<0 So n
much supervision over him. Both Smith and Davis acted underpowers of attorney from Humphreys, the manager of ThomasCook & Son (Bankers), Ltd., for India and Ceylon. I shall referlater to these powers of attorney.
1 might first deal with the question of consideration. Thepractice, of cashing cheques is nothing more than an ordinarytransaction of loan, the borrower receiving from the lender a chequeon an account in funds and giving him a cheque bearing the samedate-but payable on a future date agreed on, interest for the period'being either deducted at the time or paid by the borrower byanother cheque.'
On this occasion Somasunderam, who was representing therespondent’s business, on January 3 drew four cheques forRs. 50,000, Rs. 50,000, Rs. 35,000, and Rs. 20,000, respectively(P 148 to P 151), amounting to Rs. 155,000, and gave, as he says,at Davis* request, Rs. 15,000 in cash to Peiris. The cheques weredrawn by Somasunderam in the name of the respondent on theNational Bank of India in favour of the appellant and were crossed
Payee's a/c only. *’ Somasunderam says that when three chequeswere drawn the request was made for cash. Davis then gaveSomasunderam the taemo. (P 152), which refers to one chequefor Rs. 20,000 and the Rs. 15,000 cash.
These cheques (P 148 to P 151) were given to Davis, who handedthem to Peiris, into whose account they were passed on January 4and 5 and with the sum of Rs. 15,000 constitute the considerationreferred to.
At the same time the cheques A, B, C, and D, amounting toRs. 170,000, were given by .Peiris to the respondent. Peiris alsogave the respondent a cheque for Rs. 5,977.09 for which therespondent got payment on January 6.
The trial Judge was not prepared to hold that the respondentintended that the money should be placed to Peiris’ credit or thatthe respondent’s knowledge that it was so place amounted toinstructions so to use the cheques. I think this finding is wrong.He had previously found that the respondent was artificial andinaccurate when he alleged that he lent the money to the. bank,and this is undoubtedly so when the respondent’s account ofhow these transactions began is examined.
Davis says that before July 29 and 30, 1925, he allowed Peirissmall overdrafts. Though they were at first small, on June 18his account was overdrawn to the extent of Rs. 5,930.68. Hebrought the account up to a credit of Rs. 3,032.38 on June 22, hutby the 29th it was again overdrawn to the extent of Rs. 6,505.32.On June 30 his account showed a credit of Rs. 494.68 as the resultof the bank crediting him with two sums of Rs. 3,500. Davis sayshe did this on his own responsibility and took two promissory notes
( 395 )
for the amount. The account thereafter showed a credit, thoughPeiris was in fact indebted to the bank. On July 15 the accountshowed a credit of Es. 6.24, but this was raised to Bs. 7,632.08by beiDg credited with the Es. 14,625.84 advanced on the shipmentof tea and by being debited with the Es. 7,000 which had beencredited on June 30. Between July 15 and October 9 Peiris’account was at times in credit, but it was also overdrawn, thegreatest debt being Es. 2,295.39.
On October 9 Peiris was debited with Es. 14,625.84 as the resultof the consignees at Port Said having refused to take the tea.This overdraft continued until October 17, when the account wasat credit as the result of Eamachandra’s cheque for Es. 16,500.
Whether Smith expressly authorized these overdrafts is no.t clear.He says that Davis was not entitled to give overdrafts without hissanction, but that in fact he allowed him to do so without expresssanction for small amounts. He does not say whether he .regardedthe overdrafts before October, 1925, as small. It is clear, however,that after October, 1925, Davis was forbidden to allow overdraftsto Peiris and that Davis concealed from Smith the fact of Peiris’indebtedness to. the bank by falsifying the till book. After thisdate Smith says he took care to look into the account. There wereoverdrafts appearing in the account, but these were usuallyliquidated within the day or on the following day. This was dueto the account getting credit against cheques which had beenpresented but not credited in the account. Where the overdraftsdid extend for a few days they were for very small amounts. Whenthe account was overdrawn by B.:. 14,625.84 Smith insisted on itsbeing cleared, and on October 17 Davis induced Smith to believethat it was cleared by showing him a cheque for Es. 16,500 byBamachandra which Peiris sent to be credited to his account.This was the first of the loans by which Peiris was financed.
Mr. Bamachandra, who is a Proctor, says that Peiris asked himto cash a cheque of Don Phillip & Co. He does no.t expresslysay so, but it is clear that it was a cheque payable on a future date,there would be no purpose in Peiris going to a Proctor in Colomboto cash a cheque for a large amount when he could have as easilygone, to the bank if his account could meet it. Bamachandra,who knew Peiris’ past history—for he had appeared for him in hisinsolvency proceedings—said that he would not do so unless thebank guaranteed payment of the cheque. Peiris accordinglybrought him a cheque for Es. 17,000 on the back of which Davishad written guaranteeing payment. This cheque has not beenproduced; it was to be presented on December 17, and Bamachandra,gave Peiris his cheque for Es. 16,500 which was passed to Peiris’account on October 17. The difference of Es. 500 was taken byBamachandra as interest.
1930
Driebkkq J.
AdaicappaChetty v. ■Thos. Cook<9 Son
1930
Dmebero J.
AdaicappaChetty v.Thos. CookA Son
( 396 )
Davis showed this cheque to Smith, who was satisfied1*that, theoverdraft had been met.
On December 17, 1925, when the cheque in favour of Rama-chandra was due, Peiris had in his account only Rs. 4.12. Davismet this difficulty by crediting the account with Rs. 17,000 underthe heading “ Cash ex selves, ” and to keep the balance in the: tillbook right, he there entered Rs. 17,000 as being in the safe. Thisentry in the till book continued until December 29, when therespondent’s first loan to Peiris, Rs. 20,000, was made. Peiris’account was then credited with Rs. 3,000 and the entry in the tillbook omitted.
Whether Smith had or should have had knowledge of this hassome bearing on some issues in the case. It was Smith’s duty tocheck the till book periodically, but unless he examined it on a daywhen such entry appeared he could find out nothing. Though infact Rs. .17,000 was being lent to Peiris, there was nothing to showthat his account was overdrawn, and no interest was charged onthe account.
The respondent was seen on December 15 by Peiris, whoinquired whether he would cash a cheque of his firm for Rs. 20,000.This was merely a request for Rs. 20,000 against a cheque to bepresented on a future date. The trial Judge has explained thismethod of lending which is due to the idea that the lender would bein a better position if he held a cheque than a promissory note.The respondent would not agree, and Peiris later asked him whetherhe would give the money if the manager of the bank guaranteedthat the cheque would be paid on the due date. Peiris took therespondent to Davis, who agreed to guarantee payment. Therespondent says that he asked Davis why the bank should do soand was told that it was because Peiris had for a long time beendoing a big business with the bank. Peiris then wrote out thecheque for Rs, 20,000, on the back of which Davis wrote “.Goodfor payment, 12th January, 1926, ” and signed it- per pro ThomasCook & Son (Bankers), Ltd. The respondent then wrote out hisown cheque (P 1) in favour of Peiris, and when he was about to giveit to Peiris, Davis said the cheque should be given to him as thebank was responsible for the payment of the money. Davis tookthe cheque and gave the respondent the receipt (P 2) acknowledgingreceipt of the cheque for the credit of Don Phillip & Co. .
On .January 12, 1926, Peiris’ account had a credit of Rs. 1,417.94,and in order to meet the respondent’s cheque Davis credited theaccount with Rs. 19,000, making an entry in the till book thatRs. 19,000 was in the safe. Peiris continued to obtain loans fromthe respondent on this footing, though the falsification of the tillbook was not resorted to when Peiris’ account was in funds. There
( 897 )
was no falsifying of the till book after September 20, 1927.was about this time that the auditor, Mr. Teesdale, arrived.
It 1980
Dbiebbrg «T.
In May, 1927, when Somasunderam was in charge of therespondent’s business a change was effected.. The cheques weredrawn, not in favour of Don Phillip & Go., but in favour of thebank and crossed “ Payee’s a/c only ” or " Payee’s credit only..”The manager of the Colombo Stores, a limited liability Company,was said to have borrowed money without authority, and the ideacurrent in Sea street, where the Chetty money lenders live, was thatthe Company would be liable on any cheque drawn in its favour andcrossed ” Payee’s credit only. ”
AdaicappaChetty v.Tho8. Cookd> Son
Somasunderam says that he told Davis that in future he woulddraw cheques in this form, but he does not say he gave him a reason.He ■ was certain, however, that he did this only for the purpose ofbetter binding the bank and that he was canning on the samebusiness as before but on a safer footing. Davis says that he didnot notice the change. The respondent, however, who was nothere at the time—he returned in August—suggests that this effecteda complete change in the nature of the transactions and that thebank could thereafter use the cheques in any way it liked; butthis is not true, and is only said to support his contention that thesums sued for were loans to the bank and not to Peiris.
Somasunderam and the respondent say that, thereafter Davisgave no receipts for the cheques, but Davis says that he' continuedgiving receipts as before. The trial Judge has expressed astrong belief of the respondent’s evidence on this point, but I amnot very sure that he is right. It seems to me very probable thatthis is merely an endeavour of the respondent to support the casethat the loans, at any rate after May 28, 1927, were to the bank.It is in the respondent’s favqpr, however, that one receipt produced(P 152), which is for part of the Es. 170,000, is not in the sameform as (P 2), but states that the money was received for the creditof the bank. This matter, however, is not of much importance inview of the evidence of Somasunderam, who was responsible forthe change, that it did not alter the real nature of the transactions.
In August, 1927, another change was made. On the 26th aguaranteed cheque for Es. 50,000 had to be presented by -therespondent. Peiris saw the respondent in the morning and askedhim not to present it but to present an ordinary cheque of his ofthat date for that amount (P 5); he said that this would save himthe paying of commission. The respondent says that Davisconfirmed Peiris’ statement and thereafter, with the exception ofthe cheques A, B, C, and D, no guaranteed cheques were presented.The respondent had been previously told that the bank was chargingcommission for guaranteeing these cheques, which amountedultimately to two and a half million rupees. I find it difficult to
( 398 )
1980believe that the respondent accepted this statement that the
Dbieberq j Payment commission to the bank could be avoided f>y the simple
_.’ device of presenting another cheque in lieu of the guaranteed one.
ArhMPpa ^e conduct of the respondent in this connection and in theThos. Cook examination of Davis’ power of attorney leaves a strong impression* Son that he was disposed to assist in keeping these transactions secret.
The respondent saw Davis’ power of attorney in 1926, but inOctober, 1927, he took his Proctor, Mr. Kandiah, to the bank toexamine it. It is not very clear why he did this. He had alteredthe system, as he says, to ensure the liability of the bank by makingthe cheques payable to the bank and Peiris’ substituted chequeswere all being met. He says that he wished Mr. Kandiah to knowthe facts. He did not, however, show the cheques or describe themto Mr. Kandiah, but asked him whether Davis could pay or endorsecheques which he accepted and whether he could accept chequesfor payment. The word “ accepted ” had never been used in theendorsements. The . trial Judge says the respondent has a fairbut not adequate knowledge of English. One would imaginethat the respondent would have shown or described one of theseguaranteed cheques to Mr. Kandiah and inquired whether Daviscould bind the bank by his signature.
I understand that the trial Judge had no doubt that up to May23, 1927, it was agreed between Peiris, the respondent, and Davisthat the respondent’s cheques should go to Peiris’ account, for thereceipts up to the date given by Davis state that he received themfor that purpose. But the Judge says that after that date, asthe result of the new system, .the respondent changed the legalaspect of the transaction and that the respondent’s position fromthat time was that he was giving the money to the bank and thatthe hank could do what it liked with it; and though the respondentbelieved that the bank would give it to Peiris, the bank would bedoing so on its own authority and not as the result of a mandatefrom the respondent. If this is so, the cheques given to Daviswere nothing more than loans to the bank, which the Judge hasheld they were not.
But it was not the respondent but Somasunderam who affectedthis change, and it is clear from Somasunderam’s evidence that thiswas not intended to alter the nature of the transactions but wasadopted only to make more certain the liability of the bank to paywhat were, as before, the loans to Peiris.
So far from leaving it to the bank to' do what it liked with thecheques, 1 think the respondent, who was receiving substantialinterest from Peiri6 for these sums, would have regarded it as. agross breach of faith on the part of the bank if it did not creditPeiris with them. Fot this sum of Rs. 170,000 Peiris gaverespondent his cheque for Rs. 5,977.09, being interest.from January
( 399 )
3 to the. date on which the guaran,teed cheques, A, B, C, and D 1980were payable. This cheque was debited to Perns’ account onJanuary 6. We do not know the date of the cheque, but Soma-——
sunderam, speaking of the usual course of this business, said thatPeiris drew his cheque for interest at the same time as the Thoa, Cookrespondent’s cheques and the guaranteed cheques were drawn. *SonIt seems to me that this interest would not have been so paid unlessthere was a definite arrangement between Davis, the respondent,and Peiris that Davis should pass these cheques to Peiris' account.
There is one matter which the trial Judge has not dealt with butwhich was argued befQre us. That is, that in the course of thesetransactions Peiris had not, in some cases, the full benefit of therespondent’s cheques and that the bank had used these chequeswholly or partly for its own benefit. This charge, of course, isnot brought as regards the cheque of January 3, 1928.
There is, however, no foundation for this. In some cases wherePeiris’ account had not been credited with the full amount of therespondent’s cheques, this was due to his being credited only withthe difference between the amount of the cheque and the amountpreviously credited by the false till book entry. An instance ofthis occurs on December 29, 1925, in Peiris’ account (P 9).
It was said that the full amount of the cheques (P 10), (P 12), (P 13),and (P 14), amounting to Es. 155,000 was not passed to Peiris*account, but this can be explained in the same way. For example,in the- case of (P 10) of July 28, 1927, for Es. 20,000 only Es. 9,500was credited, for the reason that the balance Es. 10,500 went torestore a till book entry for that amount. Davis gave a similarexplanation regarding (P 13) of August 18, 1927, and (P 14) ofSeptember 6, 1927.
It was also contended that in some cases the bank met thedemand on the guaranteed cheques by issuing its own cheque inpayment. An instance of this is the case of the cheques (P 105) and(D 85). (D 85) was a cheque of Peiris’ for Es. 60,000 dated September
1927, and was presented in lieu of ;a guaranteed cheque for thatamount. It is crossed “ not negotiable, ” but Peiris cancelled thatand wrote “ pay cash.” In payment of this. Davis. and Eobsondrew a cheque (P 105) for the same amount, payable cash, on thebanks account in the Hong Kong and Shanghai Bank and gaveit to the respondent. But Davis explained that this was donebecause the respondent wanted payment in notes of denominationswhich were not available at the. appellant bank. This explanationreceives support from the fact that (D 85) shows that it was drawnwith a view to obtaining cash. But Peiris* account was debitedwith the amount of (D 85).
The appellant derived no benefit from the respondent’s cheques,though Davis was able, when it was necessary, to avoid the continued
( 400 j
1980 falsifying of the till book. When the false entries were made in theDjubbbbg J ^ book the bank derived no benefit from the credit given to Peiris
. for these- sums. The only time- he was charged with interest on
overdrafts was on October 31, 1925, when he was debited withTho$, Cook Rs, 63.59 as interest for the half year. Before this date the account<9 Sonsjj0W that it was over drawn, for when Peiris was debited with
the advance on the tea shipment on October 9, and until therespondent's cheque for Rs. 16,500 was paid in on October 17,the account was overdrawn to the extent of Rs. 16,144.23. AfterOctober, 1925, no charge for overdrafts was made, for so far as theaccount showed there were none except those I have referred to,and all that was done was to charge Peiris a bank fee, slightlyhigher than usual, of Rs. 10.
It is clear that while these were loans by the respondent to Peiris,the respondent made them on the assurance of repayment givenby the bank. He did not set himself to consider whether the bank sliability was a primary or secondary one, and the steps which hetook to emphasize or place beyond question the bank's liability tohim in no way affected the undoubted arrangement that these were,loans to Peiris.
So far as the cheques for Rs. 155,000 are concerned, the appellantgot no direct benefit from them. At this time Peiris' account wasnot overdrawn, and the Rs. 155,000 did not go to reduce any'liability of Peiris to the bank. It did, however, serve one purpose.On January 3 the respondent held three similarly guaranteedcheques, one for Rs. 35,000 drawn on December 17, 1927, andpayable on January 16, 1928, and two cheques for Rs. 50,000each, drawn on December 27, 1927, and payable on January 7and January 21, 1928, respectively. Peiris' account on January4, 1928, opened with a credit of only Rs. 652.26, but on the same dayit was brought up to Rs. 70,000.26 by two of the respondent'scheques of January 3 for Rs. 50,000 and Rs. 20,000 being paid in.This enabled the respondent to obtain payment on January 5, whichthe account (P 9) shows he could not otherwise have done, for oneof the guaranteed cheques of December 27 for Rs. 50,000. Similarlythe respondent obtained payment of the other cheque for Rs. 50,000of the same date on January 6, and this would not have been possibleexcept for Peiris having sent, in on January 5, two of the respondent’scheques for Rs. 35,000 and Rs. 50,000 of January 3.
'The same observation applies to Peiris’ cheques for interest onthe leans of January 3, and to the cheque for Rs. 25,000 of January6, which it is admitted, went to the respondent. The respondentmakes no claim in respect of Rs. 135,000 cheques of December,1927, and it is admitted that he received the balance, Rs. 10,000from Peiris.
( 401 )
It should be noted, however, that the guaranteed cheques ofRs. 50,000 and Rs. 50,000 were not presented for payment, butfresh cheques from Peiris for the same amounts and bearing noendorsement by Davis were presented. This fact is important inconnection with another aspect of the case.
The appellant, therefore, derived no benefit from the Rs. 155,000placed to Peiris' credit unless it is to be regarded as then being undera liability to meet the respondent's claims on the guaranteed chequeshe held for Rs. 135,000. For reasons I shall give I am of opinionthat the bank was not liable on those guaranteed cheques, butapart from this, the guaranteed cheques themselves were neverpresented for payment; in lieu of them, ordinary cheques, on whichthe bank was under no obligation to the respondent, were presentedby the respondent and payment obtained on January 5 and 6 fromPeiris, and before the liability, if any, of the bank accrued, whichwould have been on January 7 and 21.
The cheques A, B, C, and D, after Davis' endorsement, ceasedto be cheques. All cheques are bills of exchange, but all bills ofexchange are not, cheques. If Davis had authority to do what hedid, their whole- character as cheques was lost; they ceased to bepayable on demand, their acceptance gave the holder a right ofaction against the appellant, and the bank would have been obligedto pay on its acceptance though the drawer countermanded payment.While it is hot usual for a cheque to be used, it is not possibleto regard these cheques as other than accepted bills of exchange.They conform in character and form in . eveiy respect to suchbills, and whether the appellant it liable on them must dependon'whether Davis had authority to accept bills.
Now, while Davis under his power of attorney had authorityto draw arid endorse bills, he had no authority to accept them,whereas Smith, the manager, who with Davis derives his appoint-ment from Humphreys, the manager of the appellant bank forthe whole of India and Ceylon, had this power. The trial Judgethought that the omission was not intended—a “ typist's error "—and did not believe Humphrey's statement that this power wasadvisedly omitted from Davis' power of attorney. Mr. Hayley,for the appellant, moved to submit an affidavit from Humphreysthat special instructions in writing had been given to the solicitor inBombay who prepared Davis' power to omit this and asked to beallowed to submit this letter. He said that this letter, which wasin Bombay, was not available to Humphreys when he gave evidencein Colombo. It was not necessary to admit this evidence, forDavis’ power of attorney must be taken as it appears, and if thepower to accept bills was omitted, it must be taken that it was notexpressly given* Mr. Perera, for the respondent, agreed that the
1980
DbXEBKRO J;
AdaicappaCheUy v.Thee. Cook<fc Son
( 402 )
1930
Drieberg J.
AdaicappaChetty v.Thoa. CookSon
power must be so read. The point is of importance, however,for in another connection Humphreys conduct fell -under suspicion,as I think, wrongly.
The power to accept a bill is different from the power to drawone. It is true that the drawer is liable to the holder and indorser,but the nature of the liability is not the same, the drawer being onlyin the position of a surety to the acceptor. Further, the drawerof a bill can do so negativing or limiting his liability to the holder,and I imagine that in drawing bills for the purpose merely ofarranging payments a banker would do so. The same considerationapplies to the power to indorse, in which case too the liability canbe negatived. The power to accept bills and the liability followingon acceptance stand on a different footing.
Under section 25 of the Bills of Exchange Act, Davis havingsigned per procuration, the appellant would be bound only if hewas acting within the actual limits of his authority, and the powerof accepting bills was not given to him. Nor can the power to paybills, where acceptance is not authorized, imply the power to accept,for payment by a bank of a bill can be made otherwise than asacceptor.
It was argued that if Davis had the power to pay cheques he hadthe power to agree to pay them on a future date and to mark themfor such payment. What was done here was very different fromthe marking of the cheques tendered by Peiris in payment of Customsdues a large number of which have been put in evidence.These were for comparatively small amounts and were, endorsedby Davis M approved for payment.” All these cheques were dealtwith in the ordinary course of business and presented for payment-within a day or two of issue, and they must have been intended tobe so presented.
No special practice has arisen in Ceylon regarding the markingof cheques, and such marking will not give the holder a right ofaction against the bank, unless there was an undertaking to payhim, or an admission that the money was held for his use (Princev. Oriental Bank Corporation1). The bank, however, would beentitled to retain funds to meet the cheques marked for payment,dishonouring, if necessary, other cheques for .the purpose. Whetherthe customer could countermand payment would depend on whetherit was marked , at his instance or of the holder (Paget on Banking{3rd ed.)t chapter XI), Even if the marking for payment inthis manner of the cheques to the Collector of Customs was an actwithin the power given to Davis to pay cheques, the guaranteeingof Peiris* cheques to the respondent is an act of an entirely differentnature.
1 (1878) 3 A. C., atp. 331.
( 403 )
Regarding the undertaking to pay Feins’ cheques out of the bank 1980funds when Peiris could not meet them, it should be noted that Driebero jDavis’ power did not authorize his giving overdrafts, though it——
is agreed that Smith could do so under his power as manager.
I do not think the power to invest moneys given in clause 3 would • That. Cookallow Davis to give overdrafts. The power to pay cheques must*Son
mean payment of them in the ordinary course of business out ofcustomers’ funds, and cannot extend to the payment of the chequesA, B, C, and D, which lost their character of cheques. '
It was contended that the respondent was entitled to presumethat Davis had authority to accept bills, and in this connectionthe case of Dey. v. Pullinger Engineering Company 1 was referredto. In that case one of the objects, according to the memorandumof association under which the Company was established, was “ todraw, accept, endorse, and negotiate …. bills of exchange,
Sic., ” and in the articles of association power was givento the directors to appoint a managing director to exercise anyduties which the directors could have exercised, and the directorsthemselves were able to exercise all such powers and do all suchacts on behalf of the Company as might be exercised and done by•the Company. There were certain exceptions to this power whichdid not affect the case. The managing director drew a billof exchange on behalf of the Company, and this was accepted bythe secretary of the Company on behalf of the Company. Thebill was endorsed by the drawer to the plaintiff. The managingdirector had been duly appointed in accordance with the articles,but it did not appear from the minute books of the Company thatany resolution had been passed by the directors authorizing themanaging director to draw bills of exchange on b'ehalf of the •Company.
It was held that anyone looking at the memorandum and articlesof association would see that the managing director might havethe power to draw and endorse the bill and that such person couldnot be expected to know what went on in the Company’s boardroom and whether the directors had or had not authorized thedrawing or endorsing of that bill; that a person dealing with themanaging director in these circumstances must look to the articled,and if he sees that the managing director might have power to dowhat he purports to do, that is enough for a person dealing withhim bona fide.
It is not possible to regard section 77 of the Companies’ Actas entirely taking away the effect of the provisions of section 25of the* Bills of Exchange Act. In the present case the respondentwas obliged to examine, and did in fact examine, the writtenauthority w'hich Davis had, and I cannot see that the case of Dey
1 (1921) 1 K. S. 77.
31/29-1980
Driebero J.
AdaicappaChetty v.That. CookA) Sin
(404 )
v. PuUinger Engineering Company (supra) is any authority for theproposition that he is not bound by the limitation of the agent’sauthority to be gathered from that instrument.
For these reasons I am of opinion that the respondent’s actionon the first and first and second alternative causes of action mustfail.
At the argument before us objection was taken that the chequesA, B, C, and D were not duly stamped and that the action foundedon the acceptance of them could not be maintained. Under theStamps Ordinance, No- 22 of 1909, as bills of exchange payableotherwise than on demand they would have to bear a stamp offifty cents for the first thousand rupees and fifty cents for eachfurther thousand rupees or part thereof. They are in factunstamped, though as cheques they have paid duty through thebank as provided by section 5 (1) (b) of the Ordinance; this is sixcents, which is the stamp duty on bills of exchange payable ondemand. If the objection had been taken in the District Courtbefore the documents had been admitted in evidence, it would nothave been possible for the respondent to have supplied the deficiencyof duty and the Court would have been obliged to reject them—section 86. Under section 87 such an objection cannot be taken afterthe documents, are admitted in evidence. The respondent contendsthat they were never admitted in evidence. These documentswere not produced for the first time in the course of the trial, butas documents on which the action was founded they were producedand filed with the plaint as required by section 50 of the CivilProcedure Code; they were shown to Somasunderam and identifiedby him without objection by the appellant, they have beenconsidered by the Judge, and it cannot be said that they were notadmitted in evidence.
There is another point on which the right of the respondent tobring this action was questioned. The respondent, AdaicappaChetty, is the only son of Arunasalem Chetty. Arunasalem Chettycarries on business as a money lender and ripe and general merchantunder the vilasam or trade name of 0. A. P. R. M. A. R., whichcorresponds to the Tamil letters Oona Ana Peyna Reena MoonaAna Roona. As this was a business carried on by him not in hisown name he had it registered as required by the Registrationof Business Names Ordinance, No. 6 of 1918, describing himselfa£ sole owner under his full name Muttiah Chetty ArunasalemChetty, i.e., Arunasalem Chetty, son of Muttiah Chetty. Certainstatements of the respondent as to his interests in the businessof O. A. P. R. M. A. R. and his relations with his fatherled to the objections that the requirement of the Ordinancehad net been complied with, that the respondent was carryingon business under a name other than his own, that there
( 405 )
was a partnership between himself and his father and that the 1080respondent was not registered as the owner of the business. Underj.
section 9 of the Ordinance a default of this nature renders .any rights -7-^of the defaulter arising out of any contract made by him in relationto the business unenforceable.Thae. Cook
The respondent said that the business belonged to him and his **Sonfather; that they were the proprietors of it, but he denied that theywere partners. They are Hindus from South India, among whomjoint family system prevails. It was no doubt difficult for the ■respondent to state his position more definitely, but it is clear thathe and his father do not constitute a firm as it is defined in theOrdinance, that is to say, .two or more individuals who have enteredinto partnership with one another with a view to carrying onbusiness for profit. Such interest in the business as the respondenthas was acquired at birth (Annamaly Chetty v. Thornhill*). Itcannot be said that he and his father entered into partnership.
The respondent according to the well established custom amongChetties is carrying on the business of O. A. P. B. M. A. B. as itsagent by prefixing that vilasam to his own name, and under thatname he can enter into contracts and can sue or be sued.
It was contended that the agreement' of the bank to pay theguaranteed cheques was a collateral one, and that the action couldnot be maintained unless the legal representative of Peiris. theprincipal debtor, was made a party. An objection of this natureshould have been taken specifically. “ The creditor is not obligedto excuss the principal debtor as a matter of course; he is onlyobliged to do so if the surety avails himself of the benefit by wayof. exception or dilatory plea M (Ma'asdorp, Institutes of Cape Law,vol. Ill. p. 359). This was not done in .the answer, which contained ageneral plea that Peiris was necessary as a party to the action “ forthe determination of the various issues involved/* Eegarded as billsof exchange, it must be taken that the appellant was the principaldebtor and Peiris stood in the position of surety.
But even if they be not regarded as accepted bills of exchange,.
I do not think the- undertaking of the bank can rightly be regarded •as a secondary liability. It was a promise to pay out of the debtor'saccount, and presumably with the debtor's money—at any rateout of an account which it lay within the power of the bank tokeep in funds. The principle on which the cases of Andrews v.
Smith and Cuild & Company v. Conrad3 were decided appearsapplicable to such a case.
The other causes of action are based on an obligation to pay theEs. 170,000 arising from the circumstances apart frpm the expresspromise of payment by Davis, and are, therefore, not affected by
1 (1927) 29 N. L. R., at p. 229.8 (1835) 2C.M.& R. 627.
8 {2894) 2 Q. B.t 885.
1030
Dkieberg J.
AdaicappaChetty v.Tkos. (JoSon
( 406 )
the question of Davis' authority. They are the third alternativecause of action, which is for money had and received, and thefourth * alternative cause of action, in which it is alleged that underthe mistaken belief that the appellant had accepted the cheques A,B, C, and D, and agreed to pay the sums due on them, the respondentpaid to the appellant the sum of Rs. 170,000. He claims paymentof this amount as money had and received for his use or as moneypaid for a consideration which has failed or as money paid under amistake of fact.
An issue, No. 9 of the paper marked X," was also admitted,namely, whether the transaction of January 3, 1928, was one of asimilar series of transactions adopted by the appellant in connectionwith which endorsements similar to those on the cheques, A, B, C,and D were made. This issue was intended to raise the questionof ratification on which the trial Judge has held.against the appellant.
Issues Nos. 10 and 11 and No. 12 (3) are additional issues proposedby the respondent which were intended to raise the question ofestoppel by negligence. These were not allowed as this had notbeen pleaded, and this question does not arise.
The trial Judge has found on the grounds of money had andreceived and mistake against the appellant, and that the respondentis entitled to the sum of Rs. 155,000. He excludes the sum ofRs. 15,000 paid in cash by Somasunderam to Peiris. He holdsthat these cheques were given to Davis, that the respondent didnot intend that they should be placed to Peiris' credit, that it couldnot be said, in view of the special crossing of them, that the appellantwas instructed so to deal with the. cheques; that if this was otherwise,then by repudiating the agency the whole transaction failed andwhat remained was^the money in possession of the appellant whichthe respondent had a right to demand to be given back to him.
This involves findings of fact which I think are wrong, and I havestated reasons for holding that these sums were loans by therespondent to peiris and regarded as such by Peiris, who paidinterest on them direct to the respondent, and who for a long timeprior to January, 1928, repaid them, by his own chequesindependently of the bank's guarantee, and in some cases beforethe liability of the bank to pay arose.
In the case of this sum of Rs. 170,000, Somasunderam says thatit was Peiris who asked him to cash him cheques for that amountand he agreed. What he did say in effect was, “ Will you give meRs. 170,000, and I will give you my cheques for that sum payableon March 6, 7, and 8, payment of which the bank will guarantee,and I will pay you interest for that period." Davis was present
and approved and took the cheques. It must follow that therespondent's intention, and his implied direction, if he did notexpressly say so, was that the money should be placed to peiris'
( 407 )
account. The real nature of the transaction cannot be affected by 1930the fact that in giving respondent the receipt (P 152) for one Es. 20.000 Tfamiwn j.cheque and Es. 15,000 cash, Davis wrote “ received to our credit, ”——
nor can it be affected by the form in which the cheques were drawn. Chettyv.
The Es. 15,000 noted in (P 152) as cash was paid to Peiris by Soma- Th^'s^°ksunderam by a separate cheque. Peiris received the benefit ofthe Es. 155,000 as well as the Es. 15,000. If the appellant’sresponsibility is to be decided by the form of (P 152) it should extendto the Es. -15,000 as well. Davis says that he handed the chequesfor Es. 155,000 to Peiris, and it must be taken that they were pre-sented by Peiris—the paying-in slips (D91) to (D94). are produced—
Davis’ power of attorney had then been cancelled, but though undersuspension he was being paid his salary and was assisting in settlingpast work. There is no proof that Davis gave instructions thatthese cheques were to be paid to Peiris’ account, and no proof•• that any responsible officer of the bank gave such instructions.
The manager of the Hong Kong and Shanghai Bank said that ifa reliable customer were to bring a cheque payable to the bankand ask that it be placed to his account this would be done withoutthe drawer’s authority being asked. In view of the frequencywith which similar cheques were so paid into Peiris’ account sinceMay, 1927, without question, it may be that the cashier so dealtwith them without asking for special instructions. But howeverthis was done, the bank must take responsibility for the paymentof these cheques to Peiris.
For the purposes of those causes of action, other than that ofadoption or ratification, the facts are that, following on a directcontract of loan with Peiris, in consider a tion-^of substantialinterest to be paid thereon to him by Peiris, the respondent gaveto Davis cheques which the appellant placed to Peiris’ account;that the respondent intended that the cheques should be so placedin fulfilment of his agreement with Peiris; that interest on thisloan was paid direct by Peiris to the respondent—the rate on whichsum to March 8 is about 19$ per cent.; that the respondent wouldnot have entered into this contract with Peiris but for the mistakenbelief that Davis had authority to bind the bank to meet Peiris’cheques on March 6, 7, and 8—I mean by this the lack of authorityunder his power of attorney and not the entire absence of authorityfollowing on the revocation of his power; no publicity whateverwas given to that revocation and it cannot affect old customers ofthe bank, who were entitled in the circumstances to assume that Ihepower of attorney was in force; that this mistaken belief was notinduced by any representation made by the appellant, who derivedno benefit from these cheques or from the Es. 15,000 paid directto Peiris. The respondent’s case does not get support from theauthorities cited. In Jones v. Waring & Gillow 1 it was intended
1 (!$?£' A O. 670.
( 408 )
1930 that plaintiff’s money, should be held by the defendants for Inter-Drieberq J. national Motors, from whom plaintiffs believed that they were—■—buying the ears, on the misrepresentations of Bodenham. Believing
that the cheque for £5,000 was paid by Bodenham for the furnitureThat. Cook bought by him, the defendants accepted the cheque in payment ofSon jjjg (jgbf; an(j released his furniture which was upder seizure.
In the present case the bank carried out the intention andobligation of the respondent in paying the money to Peiris, but therespondent’s position is that he would not have entered into anagreement to pay Peiris except for his mistake as to Davis’ authority.The payment was the result of no mistake as to whom it was to bepaid or for what purposes it was to be paid, but a mistake whichled to his entering into an obligation to give Peiris the money.
It is possible to regard the appellant as an agent of the respondentfor the purpose of paying over these, cheques to Peiris. Therespondent intended that these cheques should go to Peiris, notthat they should remain with the appellant, whereas in Jones v.Waring & Gillow (supra) the plaintiffs believed that the paymentto the defendants was in fact payment to the International Motors.
Nor does the case of Baylis v. The Bishop of London, 1 which isreiied on by the trial Judge, afford any help. There a sequestratorwas appointed by the bishop for the collection of the tithes andother emoluments of a rector who was adjudged bankrupt. Aperson, whose trustees were the plaintiffs, had to pay tithe rentcharge for his freehold land and another land of which he had alease. One payment was made for both, but by mistake paymentwas recovered by the sequestrator .for the leased land after thelease had expired. These, moneys were paid to the defendant andwere held to be recoverable. A point was made of the fact that“ the money reached its destination when it came to the hands ofthe bishop through his agent the sequestrator. ” It was held thatit was no defence that the money had been duly applied by thebishop in accordance with his duty, unless he could establish thathe received the money, as an agent and paid it over to his principal.
The money in the present case reached its destination when itpassed into Peiris’ account. If my view of the facts is correct,what the respondent says to the appellant is this, “ I gaveRs. 170,000 to you to be given to Peiris and you have carried outmy instructions, but' I would not have given it to you for this' purpose had I not made a mistake as to Davis’ authority. ” Apartfrom considerations of the mistake having been induced bymisrepresentations by the bank, it is not easy to. see how recoverycan be claimed from it on the ground of money had and receivedfor the use of the respondent or as money paid for a considerationwhich had failed or as money paid under a mistake of fact.
1 (1913) C. A. Oh. 127.
( 409 )
In receiving these cheques drawn in its favour the bank was not 1980acting as a principal but as agent of. the respondent and Peiris as dmbbbbc J.well. If the bank acted as agent it could not be made liable on . ,T—the ground of payment by mistake if before the mistake was dis- Oheuyv.covered it paid over the money to the principal.—Lord Atkinson inKleinwort Sons & Company v. Dunlop Rubber Gompawy.1
There is a suggestion in the judgment that Smith and Humphreysmay have known before January 5, 1928, of the guaranteed chequesof that month and authorized the crediting of the respondent’scheques to Peiris’ account. But I do not think there is foundationfor this suggestion.
Davis was suspended as soon as it was known that he wasguaranteeing for Peiris to the National Bank of India the completion,of Peiris* shipping documents. It was not necessary for any purposeof the appellant, if Smith knew the facts, to allow a repetition ofa loan transaction on January 3, and to permit the respondent’scheques to be passed to Peiris*- account, for they were not neededto reduce any indebtedness to the appellant. It must be takenthat when the appellant credited the respondent’s cheques ofJanuary 3 to Peiris* account neither Smith nor Humphreysknew of the circumstances in which they were given.
The trial Judge has found in favour of the respondent on issueNo. 9 on the paper 14 X. ” He says that he accepts the statementthat Smith did not know what was being done and that Davis didhis best to keep the irregularities from him. Except for the .tillbook entries Smith could not have known what was going on, andeven as regards these entries, the: statements that certain sums ofmoney were in the safe would have meant nothing unless a checkwas made of the bank’s cash on the very day on which an entrywag made. Peiris’ ledger account, manipulated as it was by Davis,would have disclosed nothing. Smith admits that when he was inEngland he received an anonymous letter that Davis was guarantee-ing cheques and that he mentioned it to the Head Office. He doesnot appear to have questioned Davis about it, but this is notunusual conduct when a senior officer receives anonymous letterscomplaining against his own assistants. In any case this cannotconstitute adoption and ratification, which can be done only withfull knowledge of facts.
The question of estoppel by negligence does not arise forconsideration.
In my opinion the respondent’s action cannot succeed. I agreewith the order made by my Lord the Chief Justice^.
Appeal allowed.
1 (1907) 97 L. T., at p. 265.