HEARNE J.—Denis and Warren.
1943Present: Hearne and de Kretser JJ.
DENIS, et al., Appellants, and WARREN, et al., Respondents.
201—D. C. Colombo, 14,426
Principal and agent—Obligation of agent to pay over moneys to principalV
Absence of express or implied authority to the contrary—Liability forinterest.
An agent is under an obligation, in the absence of an express or impliedauthority to the contrary, to pay over to his principal on request, moneysreceived in the course of the agency to the use of the principal.
An agent who improperly refuses to- pay over money on request ischargeable with interest from the date of the request.
PPEAL from a judgment of the District Judge of Colombo. Thefacts appear from the judgment.
H. V. Perera, K.C. (with him Ananda Pereira), for defendants, appellants.E. F. N. Gratiaen (with him I. Misso), for plaintiffs, respondents.^
Cur. adv. vult.
September 16, 1943. Hearne J.—
The plaintiffs are the owners of Nagrak estate in Ceylon. John K.Gilliat & Co., Ltd., hereinafter called Gilliats, are the mortgagees of theproperty. The plaintiffs had executed four mortgage bonds in theirfavour—(1) Bond No. 1,230 dated November 20, 1936, (2) Bond No. 2,202dated July 5, 1937, (3) Bond No. 1,265 dated February 28, 1938, and
Bond No. 2,329 dated December 7, 1939. Action was filed on bondNo. 1,265 and judgment obtained.
The property charged in the four bonds included the plantation andpremises, the buildings thereon and all the crops and produce thereof.
In all the bonds the plaintiffs undertook “ so long as any monies aredue by them” to ship or cause to be shipped to the mortgagees for saleby the latter the whole of the crops and produce.
They also agreed “ that they shall and will at the direction of themortgagees but at the expense'of the mortgagors appoint such person,firm -or company as the mortgagees may from time to time nominate
1 (1940) A. C. 190.
HE ARNE J.—Denis and Warren.
to act as agents of the mortgagors with respect to the mortgaged premisesand shall and will also at the direction of the mortgagees remove andcancel the appointment of such agents and appoint another or othersin their place
The plaintiffs appointed the defendants as their agents by a writing(P 1) dated November 20, 1936. The latter were authorised (P 1 reads“ You shall have the powers ”) to manage and control the working,cultivation and maintenance of the estate and the gathering and curingof the crops and produce and “ to ship the whole of the crops and produceto John K. Gilliat & Co., Ltd., for sale or to such person or persons asthey may from time to time direct ”. This seems to imply that it wasin the contemplation of Gilliats, so far as the plaintiffs were aware,to require the whole of the crops and produce to be shipped to themor to a nominee of theirs. Para 2 (c) of P 1, however, reads “ we shallpay you (the defendants) a commission of one per cent, on the grossproceeds of sales of all crops and produce if effected in Ceylon
The primary mortgage was dated November 20, 1936, and the secondarymortgage July 5, 1937. Prior to the execution of the latter, viz.,on March 1, 1937, the plaintiffs wrote to Gilliats a letter marked P 4 :“In consideration of your providing, up to the maximum limit of £2,000(including interest) at any one time outstanding and the necessaryfinance for (a) running the estate, (b) carrying out such of the recommenda-tions contained in Mr. Irvine Stewart’s report of the 18th January, 1937, asyou think proper, (c) paying the first mortgage interest, (d) paying to theundersigned Mr. E. Warren the sum of £300 down and £60 monthlyfrom the 1st March, 1937, we agree as follows : —
To leave the management of the estate in your hands as long as
any money is owing to you hereunder ;
To authorise you to retain the proceeds of sales of tea towards
the above purposes or in reduction of any sums that may beowing to you hereunder ;
To repay you any sum that may be owing to you hereunder im-
mediately upon the first mortgage being discharged or becomingpayable or enforceable ;
To take forthwith the necessary steps to give you by way of
security for any sums that may be owing to you hereunder asecond mortgage on the Nagrak estate for £2,000 or alternativelyto increase your shares under the first mortgage from £5,000to £7,000.”
It is to be noted that the plaintiffs were to receive in addition to £300down a sum of £60 per month from March 1, 1937. It is not stated forwhat period the monthly payment of £60 was to run.
In D 9 which was written by the plaintiffs to Gilliats prior to theexecution of the fourth mortgage, viz., on August 18, 1939, they say,.“ We hereby agree to grant you a further mortgage on our Nagrak estatefor the sum of £ 2,000 to cover, up to the limit of that sum, such furtheradvances as you have made or may make to Us or, to either of us and anyother expenses on upkeep or improvement of the estate as may not becovered by the existing mortgages already executed in your favour.
490HEARNE J.—Denis and 'Warren.
We authorise you to arrange for this further mortgage to be drawn upaccordingly and we undertake to instruct our attorney in Ceylon to signon our behalf. In consideration of the execution of this further mortgageyou undertake, subject to the limit mentioned above, to pay to Barclay’sBank for Mr. D. E. Warren’s account the lump sum of £200 and a monthlyallowance to Mr. D. E. Warren of £50 for twenty months.”
Two days later, i.e., on August 20, 1939, they write : “ It is of courseunderstood that should money be available after the expiration of the20 months you will continue to credit my a/c with a monthly £60 as hasbeen done up to the present.” This is D 10. In D 11 dated August 22,1939, Gilliats wrote: “ We are in agreement with the last paragraph of yourletter of the 20th instant and will request Messrs. Cumberbatch & Co.to cable us upon completion of the business.”
The plaintiffs are resident in England and were not available to giveevidence. It would, however, appear from the evidence of Mr. Beaumont,a partner of Cumberbatch & Co., the defendants, that from March,1942, Gilliats had discontinued monthly payments to the plaintiffs.Giving evidence in April, 1943, he agreed that the payments had beenstopped “ last March ”, but it is dear, from the history of the case,that he meant March, 1942, and not March, 1943.
In November, 1942, eight months after Gilliats had stopped paymentsto the plaintiffs, they filed the present suit against the defendants. It wasclaimed that the defendants who are their agents had refused to complywith their request for payment' of Rs. 2,000 and a sum of Rs. 666.67per month 'from November 15, 1942, out of the income of the estate.They prayed (a) for a declaration that the defendants are liable to carryout all instructions which the plaintiffs may give them in regard to thedisposal of the nett income of Nagrak estate, (b) that the defendants beordered to pay to the plaintiffs out of the income, of the estate a sum ofRs. 2,000 and Rs. 666.67 monthly and to pay to John Gilliat & Co.the remainder of the nett income in reduction of the amount due underbond No. 1,265 sued upon in action 680/MB of the District Court ofColombo.
They obtained judgment as prayed and the defendants have appealed.
One point is clear. Although the defendants claim to be able to runNagrak estate for the sole benefit of Gilliats, they do not claim to bemortgagees in possession on behalf of Gilliats. They admit they are theagents of the plaintiffs and the questions for decision are whether theyare liable, as agents, to Carry out all the instructions which the plaintiffsmay give, them in. regard to the disposal of the nett income of Nagrakestate and, in particular, whether they are bound to pay the plaintiffsRs. 666.67 per mensem out of such income.
Authority is hardly necessary for the proposition that an agent isUnder an obligation to, pay over to his principal, on request, moneyreceived in the course of the agency to the use of his principal. Indeed anagent who improperly refuses to pay over money on request is chargeablewith interest from the date of the request.
On what grounds* if any, are the defendants entitled to resist the ordersof their principals, the plaintiffs? At the hearing of the appeal theirCounsel put the matter in this way. The plaintiffs had authorised the
HEARNE J.—Denis and Warren. –
defendants to ship to Gilliats the whole of the crops and produce (P 1),they had authorised Gilliats “ to retain the proceeds of sales of tea ” (P 4)and they had thus placed at the disposal of Gilliats full control over thewhole of the proceeds of sales of tea of Nagrak estate. They had arrangedwith Gilliats to pay them certain sums of money out of the proceedscoming to their (Gilliats’) hands and in particular had authorised them torecover their interest therefrom, In pursuance of the plaintiffs’ authori-sation the defendants had sent all crops of tea to Gilliats and, when theycould no longer do so after 1939, they had remitted to Gilliats the proceedsof sales of tea effected in Ceylon. They had impliedly contracted withGilliats to do the latter and the plaintiffs had not objected. If theycomplied with the plaintiffs’ demand they would become personallyliable to Gilliats. If the arrangement between the plaintiffs and Gilliats,provided for by P 4, in regard to the payments by the latter to the former■of a monthly allowance had broken down, that is a matter over whichthey had no control. They were hot bound to pay any part of theproceeds of sales of tea in their hands to the plaintiffs as, by so doing,they would be liable to be sued by Gilliats for damages.
This argument cannot be founded on P 1 alone Or on P 1 in combinationwith any of the provisions contained in the mortgage bonds. Neither P 1nor any of the mortgage bonds contains any stipulations regarding themanner of payment of interest, or the manner in which interest was recover-,.able by Gilliats. P 1 provides for the shipment of all crops and produceto Gilliats. In addition to being mortgagees they were to act as theselling agents of the plaintiffs for which they received a commission. Inorder to earn the maximum commission they could require the defendants'to ship all the tea to them for sale. But P 1 did not confer on Gilliats theright to appropriate the proceeds of sales towards interest due to them asmortgagees. In P 3 the plaintiffs required Gilliats “ to hold the balance(after deducting their commission and paying the defendants’ charges) atour (the plaintiffs) disposal to be accounted- for half yearly ”. There isnothing in the mortgage bonds or P 1 inconsistent with P 3. It appears,however, that while matters were working smoothly the proceeds of salesof tea in Gilliats’ hand were appropriated towards interest by arrangementbetween Gilliats and the plaintiffs. The former had no right to makethese appropriations and could, only have done so with the acquiescenceof the plaintiffs.
Now this informal arrangement became legally binding on the plaintiffsin March, 1937, when they wrote P 4. By P 4 they agreed “ to leave themanagement of the estate in your- (Gilliats) hands” and authorised them“to retain the proceeds of sales of tea towards the.above purposes (theseinclude the payment of interest on 1st mortgage) or in reduction of anysums that may be due to you hereunder ”. It is not very clear from theevidence of Mr. Beaumont whether his firm received a copy of P 4 fromGilliats or the plaintiffs. But even if it was received from Gilliats andnot the plaintiffs, the latter, who must have known that Gilliats wouldapprise the defendants of the contents of P 4, cannot be heard to say thatthe defendants had no authority from them to give effect to P 4 so far asthey were capable of doing so, and. it would appear that after 1939 whenshipment became impossible (it became legally impossible in 1942) the,
HEARNE J.—Dents and Warren.
defendants impliedly contracted to remit the proceeds of local sales oftea to Gilliats, that they did so, and that the plaintiffs took no objectionto what they did.
It must be remembered, however, that the defendants’ contract, orrather implied contract, had reference to and was conditional upon thecontinuance of the state of affairs brought into being by P 4, and ifGilliats have committed a breach of the conditions imposed on them byP 4, the defendants would not be bound to implement an agreementbetween their principals and Gilliats which the latter had repudiated,at any rate, in one particular which, from the point of view of the plaintiffs,is of the utmost importance. I refer to the cessation of the monthlypayments to them.
In P 4 the plaintiffs, as I have said, authorised Gilliats “ to retain theproceeds of sales of tea ”. This was in consideration of Gilliats, inter alia,paying them £60 per mensem from March 1, 1937. No limit was set to thenumber of payments and it must be taken that they would continue so longas Gilliats were getting into their hands all the proceeds of sales of tea.The defendants are sending Gilliats all the proceeds of sales of tea inCeylon, they even claim the right—it is put as high as that—to continueto do so, and yet the plaintiffs’ monthly payments ceased as'long ago asMarch, 1942. The agreement to pay £ 60 per mensem was modified by D 9.The plaintiffs received £200 down and it was arranged that this sum wasto be liquidated by the reduction for a period of 20 months of the monthlypayments from £60 to £50. In D 10, however, with which Gilliats agreed,the plaintiffs made it clear that, after the 20 months, payments were not"to stop altogether, (They had mortgaged their estate. They had notsold it.) On the contrary they ask that “ should money be available ”Gilliats should revert to the original rate of £60 per mensem. The paymentsof £.5(3 per mensem, were duly made, but it is not known whether, at theconclusion of the 20 months from August, 1939, the date of D 9, i.e., April
Gilliats paid £60 Or £50 per mensem. All that is known—it is in theevidence of Mr. Beaumont—is that payments ceased altogether in March
It is clear to my mind, whatever explanation may be forthcomingfrom Gilliats of P 4, D 9, D 10 and D 11, that the defendants cannot inthis suit, and in the absence of any explanation, maintain the positionthey have' taken up on the basis of P 4.
Their position can only be determined now by reference to P 1. If theycan ship tea to Gilliats they may do so and indeed Gilliats may requirethem to do so. If they cannot, the plaintiffs have a right to give theminstructions in regard to the disposal of the proceeds of sales effectedlocally less their charges and all necessary disbursements in the running ofNagrak estate.
One further point requires to be considered. The defendants wereinstructed to send “ all crops and produce to Gilliats for sale or to suchperson or persons as they may from time to time appoint ”. Is it to beimplied from that—and it is so claimed—that when shipments becameimpossible, the defendants were authorised, on realising the tea locally,to send all the proceeds to Gilliats? I am aware that “ Where an expressauthority is given, there is an implied authority combined with it to do allacts which may be. necessary for the purpose of effecting the object for
HEARNE J.—Denis and Warren.
which the express authority is given But I cannot construe P 1 inthe way that has been suggested. The purpose of P 1 was to enableGilliats to reap the advantage of obtaining commissions on sales made bythem. It was not to give them full control over all proceeds of sale,Again at the time P 1 was written the state of affairs that obtained from1939 onwards was not contemplated by anybody. It is, in my view,impossible to hold that P 1 by itself can be construed as an impliedauthority, on the happening of an unforeseen contingency, to act in theway they claim to have the right to act.
The plaintiffs are entitled to a declaration in terms of (a) of the prayer.They are also entitled to the payment of Rs. 2,000 for which they asked.It appears from D 19 that this sum is immediately 'available. In regardto monthly payments of Rs. 666.67 the defendants are, for the reasons Ihave given, under a legal obligation to make these payments, assuming ofcourse the money is available. It is possible, of course, that even ifmoney is available, e.g., at the beginning of a month, part of it may havebeen earmarked for necessary expenses in connection with the runningof the estate during the course of the month. Practical difficulties mayarise and Counsel for the plaintiffs-respondents recognized this. But Ido not anticipate that the plaintiffs will be unreasonable. In their owninterests they would not desire to bring work on the estate to a standstill,because of a lack of funds in the hands of their agents. Further, it is clearthat if Rs. 666.67 are not available in respect of any month, the Court’sorder to the effect that the money is payable out of nett income cannotbe enforced. The plaintiffs have not been adjudged entitled to thedefendants’ money but only to their own.
Having regard to these considerations the 3rd paragraph of the decreeis amended to read as follows:—»
“ It is further ordered and decreed that the defendants do pay to theplaintiffs out of the nett income of the said Nagrak estate a sum of Rs. 2,000forthwith, that they do also out of the said nett income make monthlypayments to the plaintiffs at the rate of Rs. 666.67 per mensem (the saidRs. 666.67 or part thereof, if not available in respect of any month beingcarried forward and remaining due and payable to the plaintiffs accordingto the tenor of this decree) and that they do pay to John K. Gilliat & Co.,Ltd., the remainder of the nett income in reduction of the amount dueunder bond 1,265 dated February 28, T938; attested by D. E. Martensz ofColombo, Notary Public, and sued upon in action No. 680/MB of thisCourt.”
In the interests of the plaintiffs and the defendants and in order toavoid misunderstanding and possible friction it seems to be highlydesirable that the former should be kept up to date, which of coursethey are entitled, in regard to Nagrak estate accounts in the books of thedefendants as agents of the plaintiffs.
Subject to the variation of the decree indicated above the appeal isdismissed with costs.
de Kketser J.—I agree.