DODWELL & CO. v. JOHN et al

042-NLR-NLR-V-18-DODWELL-&-CO.-v.-JOHN-et-al.pdf


( m )
[Full Bench.]
Present : Pereira J., Ennis J., and Shaw J.DODWELL & CO. u. JOHN et al.
461—D. C. Colombo, 35,62$.
Manager paying his personal debts by cheques drawn upon his master'saccount without authority—Is master entitled to recover the valueof chequesfrompayee1—Prescription—Discovery of manager's
fraudbymaster several years afterthe commissionoffraud—
When does prescription begin to runt—Joint stock company havingregistered officein England—Managercarryingonbusiness in
Ceylon—Is company a "person" “ absent beyond the seas "t—Concealed fraud.
The manager of plaintiff company drew upon the plaintiff com-pany's banking account, without their authority, two cheques inJune and October, 1909, and two cheques in May, 1910, anddelivered the same to defendants in payment of his personalliabilities. The plaintiff company discovered the fraud > in October,1911, and brought this action to recover the value of the chequesfrom defendants within two years from that date.
Held,(1)Thatthedefendants hadacquiredno rightto the
money represented by the cheques, and were liable for the amountof them to plaintiff company.
Held, (2) per Pebbiba J. and Shaw J. (dissentiente Ennis J.).That plaintiffs’claim was notprescribed in the circumstances ofthis
case.
Per EnnisJ.andShaw J.—Theplaintiffs’claimfallsunder
section 10 of the Prescription Ordinance.
Per PereiraJ.—The presentclaim does not fallunder section10.
It can only be brought under section 11.
Per Pereira J. and Shaw J.—A personseeking relieffrom
prescription on the ground of concealed fraud is entitled to availhimself in allcases (and notonly in cases relatingto real property)
of thefraud,notonlyof the defendanthimself,but ofanyperson
through whom he claims.
A jointStock companyregistered inEngland and carrying
on business in Ceylon under the management of a local manager is.not a personabsent beyondthe seas within themeaning ofthe
v Prescription Ordinance.
A
PPEAL from the judgment of the Acting Additional.. DistrictJudge of Colombo (T. F. Garvin, Esq.).
The plaintiff company was a joint stock company registered in# London and having its chief office there. Their business in Ceylon
1916.
( J34 )
1915.
Dodwell ds
Co* v* John
was carried on by R. H. Williams, who was appointed managerunder a power of attorney. It. H. Williams bought rubber sharesfor himself from the defendants, who were share brokers, and foreertain of these shares he paid the defendants cheques drawn by himon the plaintiff company’s banking account at the Hong Kong andShanghai Bank. Two of these cheques were dated -June andOctober, 1909, and two May, 1910. They were signed: (1st and:2nd) ” Dodwell & Co., Ltd., R. H. Williams, Acting Manager, ”and (8rd and 4th) “ Dodwell & Co., Ltd., R. H. Williams, Manager.”In October, 1911, *tlie plaintiff company discovered these frauds.’Williams was promptly prosecuted thereafter. Williams was alsodeclared an insolvent, and the plaintiff company proved their claimsagainst him and obtained a dividend of 2£ per cent. In January,1918, tlie plaintiff company brought the present action against the•defendants for the recovery of the amount of the cheques.
Bawa, K.C. (with him F. J. dc Satam and Gahekeraine). for theplaintiffs, appellants.—Williams had no authority to draw chequesxipon the plaintiff conipanv's banking account for paying hispersonal debts. On the' face of the cheques it was clear thatWilliams was paying plaintiff company's money and not his own.The defendants cannot retain plaintiffs* money, which had beenunlawfully paid to them. The London Joint Stock BanUv. Simmons1Morison v. The Jjondony ('aunty, and Westminster Bank, Ltd.z
The plaintiffs’ claim is not prescribed. The plaintiff company isa joint stock company having its registered office in London. Theplaintiff company is therefore a person who is ” absent beyond theseas,” and can therefore claim the bar against prescription undersection 15 of the Prescription Ordinance. The term ** person ”includes a corporation: see Ordinance No. 22 of 1901, section 3 (5).'Hie registered office of a company is the place where it resides:(Dicey, Conflict of Laira. 154-156.) The appointment of an agentin Ceylon does not put an end to the disability. (9 AT. L. R. 36$,11 N. L. R. 95, 5 Moore's Indian Appeals 234.)
The plaintiffs’ claim does not fall under section 10 of the Pre-scription Ordinance. Section 10 refers only to actions for persona!injuries—” injury, loss, or damage.” If it were intended to includeall actions for tort, the word “ damages ” would have been used.Williams v. Bakers ought not to be followed. An action forwrongful conversion falls within section 11.
The plaintiff company discovered the fraud in October, 1911, andprescription did not therefore commence to run .till then. Hal8huTyfsLaws of England, vol. XIX., p. 172; Gibbs v. GuildA The plaintiff mayseek relief, not only against the person who has himself perpetratedthe fraud, bu.t against, those who claim under him. See Huguenin
1 am) a. c. 2oi.
– (MU) 3 K. B. s:,6.
3 s $. c. c. m.
1 (1882) 0 Q. B. D: .00.
I 135 )
t*. Baseley,l McGullum v. McCullumi2 * Thorne v. Heard,' Boicen v. 1915,Feans,4 Shofield v. Templar.5. To constitute concealed fraud it isnot necessary that .there should be active concealment, Oelkers v. Co. r. JohnKltis5 Bull Goal Mining Co.7
Elliott (with him Drieberg and Hayley). for defendants, respond-ents.—The action is prescribed. The plaintiff company had amanager here who had full powers. The plaintiff company cannotbe said to have been absent beyond the seas. *
In any case section 15 of the Prescription Ordinance cannot applyto a corporation or a joint stock company. The context shows thatthe word 11 person ” in sections 14 and 15 refers to a natural personor human being; the disabilities referred to are w infancy, idiotcy.unsoundness of miud. lunacy, or absence beyond the seas. *' The-section also speaks of the " death of the person. The claim fallsunder section 10, and is prescribed. See Williams v. Baker.5• An action for money had and received would not lie, ns thedefendants merely received the money as agents and paid it overto the vendors. . In an action for money bad and received theplaintiffs must acknowledge that .the receipt of the money waslawful; and if the receiver paid it over, he is not accountable to fheowner of the money.
Fraud to operate as a bar to prescription should be the fraud ofthe person who pleads the statute as a bar. See Pollock on Tort's*ftth edp. 213; Kerr on Fraud, 4th ed., p. 346.
Plaintiffs had knowledge of the transaction before 1911. Theplaintiffs have already got judgment against Williams in the insol-vency proceedings, and they cannot therefore sue the defendants now.
The judgment in the insolvency proceedings is a bar to this action.
There is evidence in this0 case to prove the custom that the managerof a business may draw cheques on his master’s account to pay hispersonal debts.
Bawa, in reply.—Payment is a defence to an action for moDev hadand received only when the principal pays money to a person for thepurpose of being paid over to another. If Williams brought anaction against the defendants such a plea may be good. Moreover,the defendants were not agents. Williams owed them money, andt-hey sent the cheque to their own account..
Proof in insolvency proceedings of the claim is not a bar to pro-ceedings against the defendants. Plaintiffs got a very small dividend,,and they are entitled to get the balance from the defendants,
4 Maasdorp 13, 14:Suspicion is not a sufficient ground to take away
the right to equitable relief on the ground of fraud. 17 Bombay 341
Cur. ailt>. vult.
114 Jes. Jun. 273,
2(190B 1 CU. 143. .
2 {1896} A. C. m.
s 1 Johns. 155.
• (1914) $ K. B. m.7 (2899) A. C. 351.
4 a S. C. C. 166.
< (1846) 2 H. L. C. &>7.
( 136 )
1915.
DodweU db
Co. v. John
March 8, 1915. Pereira J.—
The plaintiff company sue the defendants to recover from themthe amounts of four cheques drawn on the Hong Kong and ShanghaiBanking Corporation, Colombo, by one R. H. Williams as managerof the plaintiffs' business in Colombo.
The dates and amounts of .the cheques respectively are asfollow:—15th June, 1009, Rs. 11,517.50; 12th October, 1909,Rs. 20,102.50; 3rd May, 1910, Rs. 67,500; 5th May, 1910,Rs. 46,740.
The first question in the case is whether Williams had theauthority to sign .the cheques on behalf of the plaintiffs. Thecheques are signed ns follows:—(The 1st and 2nd) “ Dodwell & Co..Ltd., R. H. Williams, Acting Manager, ” and (the 3rd and 4th)“ Dodwell & Co., Ltd.. R. H. Williams, Manager. "
The plaintiffs are a joint stock company registered in Englandunder .the Joint Stock Companies Acts, having its registered officein London.^
Williams was the manager of the plaintiffs* business in Colombounder (from and since 1905) the authority of a power of attorneydated the 28th December, 1905.
The first issue framed in the case appears to me to be the mostimportant, namely, whether .the cheques were drawn or deliveredby Williams wrongfully and unlawfully and without authority fromthe plaintiff company.
As regards this main issue, if it is to be answered in the negative,the law (and here there appears to me to be no difference betweenthe English law and the Roman-Dutch) is that embodied in therule set forth by Lord Herschell in tbe case of The London JointStock Bank v. Simmon*,1 which is cited by the District Judge in hisjudgment, that is to say, when a person has obtained the propertyof another from one who is dealing with it without tbe authorityof the true owner, no title is acquired as against the owner, thoughfull value be given, and the property be taken in the belief that anunquestionable title thereto is being obtained, unless .the persontaking it can show~th&t the true owner has so acted as to misleadhim into the belief that the person dealing with the property hadauthority to do so. The exception to the general rule in the caseof negotiable instruments mentioned by Lord Herschell has noapplication to the present case. It refers to the negotiation ofnegotiable instruments in which the party liable appears withcertainty on the instrument itself. True, as held in the case ofLloyd's Bank Co. v. Cooke* according to the definition given insection 31, sub-section (1), of the Bills of Exchange Act, the expres-sion " negotiation ” would apply even to the original operation oftransferring a bill to the payee; but the liability of any persondepends on the fact that there is no doubt as to the execution by1 (ISW) 4. C. m2 (1907) X K. B. 794.
( 137 )
that person of some part of the instrument. In the present case <915.the plaintiffs do not adnr.t having issued the cheques in question; pEBBmA. j.
and if Williams had no authority to bind them in the matter of
these cheques, it is clear that, subject to the conditions mentionedin the rule laid down above, they would on no account becomeliable to any holder into whose hands the cheques might come in thecourse of negotiation.
The question, then, is whether Williams had authority, actual orostensible, to issue the cheques in question in the plaintiffs* namefor the payment of his own debts, and if he had no such authority,whether there is, as contended by the defendants’ counsel, a tradeusage that justified the use of these cheques.
As regards a trade usage, the evidence is of .the flimsiest possiblecharacter. The evidence of Mr. Wardrop on the point does notprove the existence of any such usage. He says that in the caseof his own company, in order to encourage thrift, European officersare allowed to open deposit accounts with the company, on whichthey are allowed 6 per cent, interest, and that he is not aware ofany extensive practice of the payment of their private debts bymanagers with Arm cheques, except when there is such a depositsystem. As regards the other evidence on this head, I need onlyrefer to the observations of the District Judge. It is clear that theso-called usage pleaded is not notorious, certain, or reasonable.
Moreover, usage can only apply to admitted contractual relations,but there was no such relation between the plaintiffs and thedefendants. The defendants might have taken advantage of acustom similar to the alleged usage, but no such custom has beenproved or pleaded.
Then, as regards actual authority, I am quite at one with theDistrict Judge in thinking that within the four corners of the powerof attorney P 2 there is no power given to Williams to apply theplantiffs’ funds towards the payment of his own private debts, noris. there any evidence at all that the plaintiffs held Williams out asan agent having such power, or that they ratified his action inissuing the cheques in question; and on these points I agree withthe District Judge in the conclusions arrived at by him.
The cheques on the face of .them showed that the money thatwas being transferred by their means was money of the plaintiffs.
It is, I think, beyond question, as, indeed, the District Judge hasheld, that it was well within the knowledge of the defendants thatthe debts, in payment of which (he cheques were tendered, weredebts of Williams and not of the plaintiffs, and the most cursoryexamination of the cheques would have shown the defendants thatWilliams was giving them the plaintiffs’ xnonfey in payment of hisown debts. That being so, if Williams had no authority from theplaintiffs to issue those cheques, the defendants acquired no rightto the money represented by them. The District Judge observes
( 188 )
t
teisrw J,
DttJwoH diCo.v. John
■#iaA all the defendants say that they were not conscious thatWilliams had sent .them cheques drawn on the funds of Do dwell- &Co., Ltd., in settlement of bis personal cheque account. It is in vainto say this after Mr. John’s statement in evidence:“ If I bad been
aware at the time these cheques reached us, I should have made noinquiries. We looked upon Williams as a fully accredited manager■enjoying the confidence of Dodwell & Co., and it would not hove■dawned on me to question his authority.” This statement narrowsthe issue down .to one, of authority, actual or ostensible, and, in theface of it, pleas such as the unconscious receipt of the cheques canhe of no avail. – In this Connection I may say that the learnedDistrict Judge has taken an early opportunity of placing on recordhis opinion that there is not in the case ” one line of evidence orone single circumstance which reflects in the slightest degree uponthe integrity of the defendants, either individually or as a firm.”
I put the question direct to the appellants' counsel whether hecharged the defendants with participation in the fraud of Williams.The answer was:“ I do so and I do not do, so. It was participation
by negligence.” I can well understand counsel's embarrassment.Whatever may be said on the question as to intentional participation,it is, I think, beyond doubt that the action of the defendants was, tosay the least, calculated to help and encourage Williams in the heart-less and unblushing perpetration of a series of frauds (involvingaltogether, as the evidence shows, a sum of about ninety thousandpounds sterling) that is almost without parallel in the criminal annalsof the Colony. This fact has a bearing on the question as to the com-mencement, as against the defendants, of the term of prescriptionto be discussed later.
Practically the only question of importance that remains to bedecided is whether the plaintiffs' claim is wholly or partiallyprescribed. What is the term of prescription applicable to thecase? Is it two years or three? And has section 15 of thePrescription Ordinance any application? The answer to* this last•question is dependent on the question whether the plaintiffs' claimfalls under section 10 of the Ordinance, or under either of the sections8 and 11. If it falls under section 10, section 15 cannot apply. Itwould be otherwise if it fall under section 8 or section 11. The•defendants contend that this is an action <c for loss, injury, or■damage” falling under section 10. The plaintiffs, on .the otherhand, say that 'they are entitled to make their choice betweentreating the action as one for the recovery of money had andreceived falling under section 8, and treating it as an action forwrongful conversion falling under section 11. The difficulty inconnection with this question arises from the fact of mention beingmade in our Prescription Ordinance of certain particular forms ofaction in use in England before the Judicature Acts, and even herebeforo the passing of the Civil Procedure Codq, but which have been
(130 )
completely wiped out by the Code. It is not necessary that weshould .now classify an action as belonging to a particular class, oras equ :'ng & particular, form and name. It is sufficient nowmes dy to iorth facts in the plaint which under the law applicablegirt rise :n , cause of action. In view of my decision to be givenlater on the -bastion of the applicability to this case of section 15of fbe> Pres or fcion Ordinance, it is not necessary that I shoulddecide w-aefc^ this action is one for wrongful conversion, or forthe recovery of money had and received by the defendants for theuse of the plaintiffs; but I should like io ^ay n word on the questionwhether an action for wrongful conversion falls within the purviewof section 10 of .the Prescription Ordinance. In my own opinionit does not. Sec ion 1ft provides for the period of prescription inthe case of an action “ for any loss, injury, or damage." I cannothelp thinking that what is contemplated here is an action for, orrather in respect of, some physical injury or damage caused, or forloss accruing from such cause, and that is, perhaps, the reason whythe section is excluded from the operation of section 15. Possiblyit was thought that it would be inexpedient to allow delay in theinstitution of such an action. 44 Damages " as distinguished from“ damage, M which is the word used in .the section, means, of course,,the pecuniary compensation given by process of law to a person fora wrong that another has done him, and if section 10 were intendedto cover all cases of tort or delict, why either of these words wasnot used in it appears to me to be inexplicable. The present claimdoes not in my opinion, fall under it. It can only be brought Under'section 11, and that being so, if the plaintiffs can be said to havebeen under the disability of 44 absence beyond the seas '* the periodof prescription cannot be said to have commenced to run agains*them at all. I would, however, if it were necessary, consider xnyseL'bound by the decision in the case of Williams v. Baker,1 hut, as*explained above, the question is immaterial in view of my decisionon the question of the applicablity to.this case of section 15.
It has been strenuously argued- that section 15 does not apply tocorporations, because the disabilities of infancy, idiotcy, unsoundnessof mind. &c.t are inappropriate with reference to corporations.That may be so, but if any one of the disabilities mentioned is
appropriate wjth reference to corporations, I see no reason why the.
provision so far as regards that disability should not be allowedoperation. Now, the plaintiffs* corporation is registered in England.,and it has its registered office in London. The domicil of .a tradingcorporation is said to be its principal place of business, that is tosay, the place where the administrative business of the company isconducted. That being so, it may well be argued that the plaintiffcompany is absent beyond /the seas; but in the circumstances ofthis case:. that contention can hardly be upheld in view of the
1915.
Pebeira J„
Dodwtt ACo. v. John
i $$. C. C. 165.
1915.
Pebkika. J.
DodweU <kCo. v, John
( 140 )
opinion expressed by the Earl of Halsbury L.C. in the case of LaCompagnie Generate Tfamsatlantique v. Thomas Law & Co.,1 as towhere a corporation may be said to reside; and I hold that, in theface of the evidence led in the case, the plaintiff company cannotbe said to be “ absent beyond the seas.’*
But the more important question is, at what point of time in acase like this can the period of prescription be said to commence* to run? Is it from the date of the commission of the fraud, or fromthe date of its detection by the victim of the fraud? Our Ordinanceenacts (section 11) that the action ** shall be commenced withinthree years from the time when the cause of action shall haveaccrued.” In cases of concealed frauds Courts in England havealways given a plaintiff equitable relief against the Statutes ofLimitation when he remained ignorant of the fraud (Gibbs 0. Guild.*See The- Laws of England, vol. XIX., p. 172, and cases there cited).Similar relief was given even where the defendant had taken nosteps to conceal the fraud, so long as the plaintiff was not guilty oflaches or other default in discovering the fraud (Oelkers v. EUis9),The question has in this connection been raised whether the reliefis not,confined to cases in which the actual prepetrator of the fraudis the defendant. In some cases, e.g., Gibbs v. Guild,* it was notnecessary to* discuss the question whether a person claiming throughthe perpetrator of the fraud is equally affected by the fraud, andtherefore the findings therein have reference to the fraud of thedefendant only; but there are numerous cases in which it has beenaffirmed that in cases of fraud the plaintiff is entitled to the equitablerelief referred to above, not only against the immediate perpetratorof the fraud, but against those who claim under him. No doubtsome of these cases are cases under section 26 of 3 and 4 William IV.,eh. 27. But that section, while it gives a plaintiff relief in a caseof fraud committed on him or any person through whom he claims,does not expressly provide that he is entitled to relief, as against anyperson claiming through the perpetrator of the fraud; and yet theCourts have held that such a person is in no better position, except, ofcourse, in the case expressly provided for in the concluding part ofthe section. In Bowen v. Evans4 the Lord Chancellor (Lord Cotfcen-ham) observed: “ Upon fraud clearly established no lapse of timewill protect the parties to it or those who claim through themagainst the jurisdiction of equity depriving them of the effects oftheir plunder and in the case of Huguenin v. Baseley5 the LordChancellor (Lord Eldon) observed: ” I should regret that any doubtcould be entertained whether it is not competent to a Court ofEquity to take away from third parties the benefit which they havederived from the fraud, imposition, or undue influence of others.” 1 * *
1 (1899),A. C. 431, 433.* (1914) 2 K. B. 139.
* (28M) 9 Q. B. D. 69.* (1848) 2 H. L. C. 257.
« 14 Ves. Jw. 273.
( 141 )
True there .are later cases in which the Judges in enunciatingprinciples similar to the above speak only of the actual perpetratorof the fraud, but that apparently was done because in those casesit was not necessary to cany the principle further, the parties suedbeing the actual perpetrators of the fraud and not any person orpersons claiming through them.
Similar relief was given even where the defendant had taken nosteps to conceal the fraud, so long as the plaintiff was not guilty oflaches or other default in discovering the fraud (Oelkera v. EUis').
In the present case the evidence shows thr.t in the books ofthe defendants there was a separate account between them andWilliams showing a large debit against him. That was a debtpayable to them by Williams, and in liquidation of that debt theyreceived the cheques in question. The defendants had every reasonto know that the money that was being paid .them was money ofthe plaintiffs, and they had no reason to suppose that Williams hadany authority to give them the plaintiffs' money in payment of hisown debt. That being so, the plaintiffs were, to sfty the least,guilty of such gross negligence and carelessness in making noinquiry as to the authority of Williams that perfect bona fides oafthardly be attributed to them in law, and the authorities cited atoveshow that they can be in no better position than Williams as regardsthe equitable relief that the plaintiffs are entitled to with referenceto the commencement of the period of prescription.
This Court has often pointed out that our Courts (in Ceylon) areCourts of Law and Equity, and it would be quite in order .to givehere the same relief as is given in England in cases of fraud. Thepoint has hardly been contested, but the District Judge appearsto have thought that' the plaintiffs had forfeited the right to thisrelief by reason of laches or other default to discover the fraud.I do not think that the evidence shows that the plaintiffs have beenguilty of any laches whatsoever. It has been said that .the plaintiffsshould have had their books audited periodically by local auditorsrather than by auditors in England. Mr. Dodwell, the first witnesscalled by the plaintiffs, says on this point that he preferred auditin England to local audit, and he gives his reasons for his preference.Whether they are sound or not, the plaintiffs cannot be blamed foradopting methods of audit that seemed to them to be preferable, solong as the audit was earned out by competent accountants. Thereis no evidence of any act of the plaintiff company indicative oflaches in the detection of the fraud. Adopting the language oftheir Lordships of the Privy Council in the case of Habibhoy v.Turner,2 I may say that the mere fact that “ some xfiues and hints ”reached Mr. Dodwell which, perhaps, if “ vigorously and acutelyfollowed up might have led to a complete knowledge of the fraud,Mis insufficient to render the plaintiffs guilty of laches, in the absent:) 1
1 11914) 2 K. B. 1S9.2 17 I. L. B. Bom. 341.
1915.
Peledia J.
Dodwell 4sCo. v. John
( 142 )
1915.
PjCREIBA J.
D<xUodl&Co. *. John
of some disclosure that informed the mind of the corporation thatit had been defrauded by Williams. In my opinion, the term ofprescription should be deemed to have commenced in this case atthe time of the actual detection of the fraud, .that is to say, in October1911. In that view the claim in respect of none of the cheques isprescribed, whether the term be taken to be three years or twoyears.
There is one other point that I should touch upon, namely, thecontention that has found favour with the District Judge, that anaction for money had and received does not lie at the suit of a thirdperson against an agent who has accounted to his principal for themoney received by him for the principal’s use from such third personbefore notice not to part with it. This contention is, no doubt,justified by the authority cited by the District Judge from TheLaws of England, vol. VII., p. 479; but, the principle involved hasno application whatever to the present ease. The “ principal "referred to by the District Judge was the seller of the shares, inrespect of which money became due from Williams to the defendants;but no money was ever paid by the plaintiffs to the defendants for
the use of the seller.. The principle might well apply to the relationbetween Williams and the defendants; but, as regards the chequesin question, there was no privity of contract between the plaintiffsand the defendants, and there was no understanding between themthat the amounts of the cheques were to-be handed by the defendantsto.anybody at all. The money was Held by the defendants (if foranybody's use) for the use of the plaintiffs and the plaintiffs alone.
I should like to say a word here with reference to the contentionthat the defendants could not in fact be said to have received anymoney from Williams, but that they were no' more than a mereconduit pipe to convey to the sellers of the shares whatever wasgiven by Williams. This idea of a conduit pipe would, at its best,have the merit of plausibility had the defendants simply endorsedthe cheques and passed t them over to the sellers. In that case thesellers would have received the cheques at their risk; but- what thedefendants did was to reduce the proceeds of the cheques in thefirst instance into their own possession, and then, so to say, to handthe money over to the sellers without any intimation to them thatit was the money of the plaintiffs that Williams was paying indischarge of liabilities arising from his own private speculations.
On the minor questions in the case I agree with the DistrictJudge.
For the reasons given above. I think that the judgment appealedfrom should be set aside, and judgment entered for the plaintiffsas claimed, that is to say, for the sums of Bs. 145,360 andBs. 37,216.09, with interest on Rs. 145,860 at 9 per cent, per annumfrom tbs date of action until date of decree, and then on the aggre-gate at the same rate from the date of decree until payment, minus
( 143 )
ihe sum of Bs. 11,804.15, being the dividend decreed m the plaintiffs’favour in the insolvency proceedings against Williams.
The plaintiffs should, I think, have their costs in both Courts.
1915.
Pebeiha J.
Dodurel! <£rCo. v. John
Ennis J.—
I agree with my learned brother Pereira and with the learnedDistrict Judge that the cheques were wrongfully drawn and deliveredby Williams without authority from the plaintiff company; thatthe way in which the cheques were drawn should have put thedefendants on their guard; that the defendants knew that theywere being used by Williams for his personal account, and that thedefendants were primd facie liable for the full amount of the chequeswhich they cashed. In these matters the case is very similar tothe case of Morison v. The London, County, and Westminster Bank,Ltd.1
In my opinion, however, the action is entirely barred byprescription.
The rule that time runs from the discovery of the fraud, in actionsbased on fraud, undoubtedly applies where the defendant is theperson who perpetrated the fraud and where the defendant hasobtained a benefit from the perpetrator of the fraud. Gibbs v.Guild,2 Charter v. Trevelyan,3 Huguedin v. Basely * *0ethers v. Ellis.5In such cases the Courts have decreed restitution of .the “ benefit ”or “ plunder " received, but no case has been cited to us to showthat the rule applies where the defendant is free from participationin the fraud and has obtained no benefit from it. It is conceivablethat the principle may be extended in certain cases where theplaintiff is entirely free from laches so as to rebut any presumptionthat the fraud could have been discovered earlier, but, in my .opinion, the principle cannot be extended to such a case as this.The defendants, admittedly, bad acted throughout- in good faith.They accepted the cheques in the ordinary course of business, theywere passed through their office and paid into the bank withoutany of the defendants personally seeing them, and the proceedswere applied for the benefit of Williams, from whom they werereceived.
It is instructive .to compare the facts in the. present case withthe facts in Morison v. The London, County, and Westminster Bank,Ltd.1 In that ease the defendant bank acted in good faith, andhad not retained any of the plunder. The question of prescriptiondid not arise, but certain circumstance were held to be a ratificationby the plaintiff of the defendant’s acts. The plaintiff had discovereda shortage in the accounts. He instructed accountants to go intothem, suggesting that the losses should be proved by cheques that
1 (1914) 1 K. B. 356.3 11 Clark & Finnely 714.
2 (1882) 9 Q. B. B. 59.4 14 Vesey 273.
* (1914) 2 K. B. .139.
( 144 )
1015.
Ennis J.
Dodwell <£?Os. t>. John
must have been drawn. Tbe accountants failed to find out that theplaintiff's manager, Abbott, had been paying cheques to his ownprivate account, and the shortage wgs debited partly to the managerand partly to the plaintiff. On this the Chief Justice (Lord Beading)observes: “The plaintiff-at that time knew of the dishonesty ofhis servant, but thought, in his own words, that Abbott was notdishonest at heart, and would go straight after a severe lesson andwould retrieve his position. If the plaintiff did not know all thedetails of .the dishonesty, it was because he was content to leave itto the accountants/' Phillimore L.J. says:“ As to knowledge it
is unnecessary to decide what inference should be drawn when aprincipal knows so much that it is the policy of an ostrich to know nomore. " Buckley L.J. says:“ The fact is that after these proceedings
Morison, whose fault or misfortune it is that he employed a dis-honest- agent, is seeking to throw the consequences of his dishonestyupon the persons who are not in any way responsible for thatdishonesty, persons who dealt with the cheques in the ordinarycourse of business and, it is admitted, in perfect good faith."
In' the present case Mr. Dodwell observed in the 1909 accountsthat Williams was drawing from the bank against goods in excessof the invoice price, and wrote D 11 on the 18th October, 1910:
" I must say I' do not like this; if the banks knew .that you weredrawing for more than you were paying for the goods, there wouldbe some very strong.talking."
In his evidence Mr. Dodwell explains: “I meant by ‘ strongtalking 1 that the bank would have called it fraud," and he adds, -" I think I was justified in keeping Williams on, despite his drawingin excess of the invoice value, because I do not think he intendedio defraud." The articles of association of the plaintiff companyprovide for an annual audit of the accounts, and lay down that theauditors should examine the balance sheet “ with the accounts andvouchers relating thereto," and I entirely agree with the finding ofthe learned District Judge, which has not- been challenged on appeal,that if this had been done " the audits for 1909 should have dis-covered the breach of trust in regard to the earlier cheques."
The position, then, is this. At the end of 1910 Mr. Dodwell knewthat Williams had been making misrepresentations .to the bank,which would ordinarily be called fraudulent, and had there been anaudit such as was required by the articles of association the fullextent of William's fraud would have been discovered. There isvery little between the position of the plaintiffs and defendants inthis case and the plaintiff and defendant in Morison v. The London.Countyt and Westminster Bank, Ltd.1
1 am not convinced that there has not been a ratification of the1909 cheques in this case, notwithstanding that it may be ^rguedIt was ultra'vires for a company to give such a ratification; but, in
i {1914) 1 K. B. $00.
( 145 )
ray opinion, Mr. Dod well's means of knowledge and inaction infailing to take investigation and in retaining the services of andpromoting Williams after he was aware of Williams’s misrepresen-tations, which “ the bank could have called fraud, ” is the actionof the company, and bars them from asking, to use the words of thelearned District Judge, “ for equitable relief from the provisions ofan Ordinance which bar their right to recover. As to whether thecase falls within section 10 of the Prescription Ordinance, I considermydelf bound by the decision in Williams v. Baker.1 ”
In my opinion the appellants fail, and the respondents are entitledto have the plaintiffs’ action dismissed.
Shaw J.—
I entirely agree with the finding of the District Judge that thefour cheques were drawn and delivered to the defendants wrongfullyand unlawfully and without authority from the plaintiff company.Williams’s authority on behalf of the company is contained in hispower of attorney of the 28th December, 1905. That documentgives him no authority to draw cheques upon the company’s bankingaccount, or otherwise to use the company's money in payment ofhis personal liabilities. The trade usage that the defendant haveattempted to prove, authorizing managers to draw cheques ontheir principals' banking accounts in discharge of their privatedebts, cannot extend the specific authority given by the power ofattorney, and I agree with the District Judge that the evidence isinsufficient to establish any such universal usage, and that such ausage, even if proved, would not be one such as the Courts wouldrecognize. I also agree with the findings that the defendants knew,or had reason to believe, that ‘Williams had no authority to drawthe cheques, and .that they received the same and appropriated theproceeds thereof wrongfully and unlawfully. The evidence, in myopinion, clearly shows that they knew that the purchases of sharesin respect of which the cheques were given were private speculationsof Williams, and had they looked at the face of the cheques .theyTOuld have at once seen that he was giving the company’s chequesfor his personal debts. The fact that owing to press of businessnone of the partners in the defendant firm actually examined thecheques or noticed on what account they were drawn does not seem,to me to better their position.
The general rule of law applicable to the facts of this case isstated by Lord Herschell in his judgment in the case of The LondonJoint Stock Bank v. Simmons.2 It is that when a person hasobtained the property of another from one who is dealing with itwithout the authority of the true owner, no* property is acquiredagainst the owner, unless the person taking it can show that the
8 8. C. C. 365.* (1898) d.’C. 201.
1916.
Ennis J.
DodweU <fcCo. v. John
.(!«)•
1915.
Shaw J.
DodioeU tbCo* v* John
true owner has so acted as to mislead him into the belief that theperson dealing with the property had authority to do so.
In the present case I do not think that the plaintiffs can be heldto have so acted as to -mislead .the defendants into the belief thatWilliams had their authority to draw the cheques. In fact theydid not discover that he had drawn cheques on the company'sbanking account in payment of his private liabilities until October,1911, and although a better system of audit might perhaps havediscovered the fraud in respect of the drat two cheques at the endof the year 1909 and before the l&at two cheques were drawn, andalthough, as the facts have burned out, they-were unwise in placingso much confidence in their manager without a better system ofsupervision, I do not think that such negligence on their part isshown as. should estop them from showing what Williams’s authorityin fact was. I "also do not think that the facte of this case bringit within the exception, referred to by Lord Herschell in the casecited, relating to negotiable instruments, and the defendants cannotsay that they were bona fide holders of the cheques, they havingreceived them from Williams under such circumstances that theymust be taken to have known that they were drawn and given inrespect of his personal liabilities unlawfully and without authorityfrom the company.
The defendants having received .the cheques in the circumstancesmentioned above, and having paid them into their banking account,1 am of opinion that the cases of The London Joint Stock Bank v.Simmonstl Morison v. The London, County, and Westminster Bank,2and the cases cited by Lord Beading in his judgment in the lattercase show that they are primd facie, and, except in so far as theymay establish any other defence, liable at the suit of the plaintiffsfor wrongful conversion.
A further defence set up by the defendants is that the action, inso far as it is a claim in respect of wrongful conversion, is prescribedas to all four cheques, and in so far as the plaintiffs can claim inrespect of money had and received, it is prescribed as to the firsttwo cheques.
The first two cheques were given by Williams to the defendantsin June and October, 1909, more than three years before the actionwas commenced, and the last two in May, 1910, more than two yearsbefore the action.
By section 8 of the Prescription Ordinance, 1871, .the period oflimitation in respect of actions for money had and received is threeyears. By section 10 "no action shall be maintainable for anyloss, injury, or damage unless the same shall be commenced withintwo years from .the time when the cause of action shall ha*7© arisen.* ”In my opinion this section is intended to apply to actions in respeGtof torts generally, and includes an action for wrongful conversion,* (1892) A. C. 202*2 (1914) 1 K. B. 880.
1915.
( 147 )
i*
as has been already decided in this Court in the ease of Williams v.Baker,1 the cause of action in such a case being for the loss anddamage sustained by the plaintiff in consequence of the wrongfulact of the defendant.
In answer to the defence of prescription two contentions are raisedby the plaintiffs. First, it is said that a company is & “ person ’*within the meaning of section 10 of the Ordinance which deals withthe extension of time on account of disabilities, and that the plaintiffcompany being registered in England is and always must be 11 absentbeyond the seas ” within the meaning of the section, and accordinglyprescription cau never run aganst it in this Colony, except wherethe cause'of action falls within section 10 of the Ordinance.
In consequence of my opinion .that an action for wrongful conver-sion falls within section 10, and of the view that I take of theplaintiffs* second contention in answer to the Prescription Ordinance,which I shall refer to later, it is, perhaps, unnecessary to say anythingon this point, but it seems to me to be a startling proposition thatthe suits of a company owning property and carrying on businessin the Colony under the management of a local manager can neverbe prescribed, and I think the contention is one we should not bedriven to accept unless it is absolutely necessary. It is contendedthat by reason of section 3 (b) of .the Interpretation Ordinance, 1901,the expression “ person '* in section 14 of the Prescription Ordi-nance must be read to include a company. It seems to me to beat- least doubtful whether .this contention is correct. Section 3 (5)of the Interpretation Ordinance says “ unless a contrary intentionappeals/1 and there seems to me to be considerable force in theargument that a contrary intention does appear in section 34 ofthe Prescription Ordinance, that section being inapplicable to bodiescorporate, and all the disabilities mentioned in it being such as areeventually terminable by the death of the '* person, ” an event thatcannot occur in the case of a corporate body. But, however thismay be, I do not think that the plaintiff company was “ absentbeyond the seas ’* within the meaning of the section. It is truethat it is registered in England, but it has a permanent office here,where it carries on an extensive business under a manager, whoholds almost unlimited powers of conducting its local affairs, andI think the same principles apply to .the present case as were appliedin the case of Gompagnie Generale Tramatlantique v. Thomas Law& Co.,3 where it was held that a company carrying on business undersimilar circumstances was resident in the country where it carriedon that business for the purpose of being served with process.Lord Halsbury in his judgment in that ease says: “ It appears tome that as a consequence they are resident here in the only sensein which a corporation can be resident; they are here, and as theyare here they may be served here. ” To apply this language to the
* S S. C. C. Mo.2 0809) .4. C. M.
Shaw J.
Dodutell 4sCo. v. John
15
1915,
Shaw J.
Dodwdl <6Co. v. John
( 148 )
present case the plaintiff company is here, and therefore cannot be“ absent beyond the seas. *' To the same effect as this case seeD’uuZop v. Guidon.l
The second point raised by the plaintiffs in answer to Hie defence-of prescription is that the cause of action was concealed from themby the fraud of Williams and not discovered until October, 1911,less than* two years before action brought, and the defendants are,therefore, not entitled to avail themselves of the PrescriptionOrdinance, their only claim to the proceeds of the cheques beingthrough Williams, who was responsible for the fraud.
In answer to this it was contended on behalf of the defendantsthat the equitable doctrine of concealed fraud preventing therunning of a Statute of Limitation applies only where the fraud isthat of the person himself who desires to avail himself of the pro-tection of the Statute, and that the only cases where the fraud ofanother person can be set up are those relating to real property,where the fraud is that of some predecessor in title of the defendant,and where the defendant is seeking to retain the property acquiredby such fraud. It was further contended that the protection givento, the plaintiff extended only up to the time when the fraudmight by the exercise of reasonable diligence have been discovered,and that in the present case the plaintiff company ought to havediscovered the frauds long prior to October, 1911.
I have felt considerable difficulty with regard to the first of thesecontentions. The text books cited on behalf of the defendants,Polioch on Torts, 8th sd.f p. 213, and Kerr on Fraud, 4th ed., p. 346,appear to lay down the general rule that the fraud must bethe fraud of the person himself who seeks to avail himself of theprotection of the Statute, and the judgments of Lord Coleridge andBrett J. in the case of Gibbs v. Guild,2 and of Lord Herschell inThome v. Heard2 appear to support that proposition. Tn view,however, of the cases of Hnguenin v. Baseley,4 Bowen v. Evans,&McGullum v. McCullum,6 and the judgment of Lindeley L.J. inThome v. Heard, in the Court of Appeal,7 I think .that the propositionhas been stated too narrowly, and that the person seeking relieffrom prescription on the ground of concealed fraud is entitled toavail himself in all cases, and not only in cases relating to realproperty, of the fraud, nof only of the defendant himself, but of anyperson through whom he claims; and I think the law is correctlystated by Lindeley L.J. in the last-mentioned case, when, referringto the case of Willis v. Earl Howe,* he says “ that case has animportant bearing on the present, for the statutory enactment onwhich the case turned is a legislative recognition and expression
* (1903) 1 K. B. 342.
4 (1882) 9 Q. B. D., dl pp. 65 and 69.*(1896) A. C. 493.
« 14 Vee. Jnr. 288.
*3 H. L. C. 383.
(1901) l Ch. 143.
(1894) 1 Ch., at p. 605.
2 Ch. 545.
( 149 )
of previously well-settled principles in equity, and those principleswere and are applicable to all kinds of property and not to realproperty alone. ”
> With regard to the question whether the plaintiffs should havediscovered the frauds earlier than they did, I have already partlydiscussed the matter when dealing with the question of estoppel.The law on the subject is set out in the judgment of the PrivyCouncil in the case of Bahimbhoy Habibhoy v. Turner1:“Their
Lordships consider that when a man has committed ,a fraud andhas got property thereby, it is for him to shbw that the personinjured by the fraud and suing to recover the -property has a clearand definite knowledge of those facts which constitute the fraudat a time which is too remote to allow him to bring the suit. Thatis attempted in the present case. But their Lordships consider,and in this they agree with both Courts below, that all thatHahimbhov has done is to show that some clues and hints reached,the assignee in the year 1881, which, perhaps, if vigorously andacutely followed up might have led to a complete knowledge of thefraud, but that there was no disclosure made which informed themind of the assignee that the insolvency estate had been defraudedby Bahimbhoy of these assets in the year 1867.
In the present case the plaintiffs might, had they had a bettersystem of audit, have possibly discovered Williams's frauds earlier,hut it by no means follows that this would have been the case, forWilliams would probably not have hesitated to forge the necessaryvouchers; they might also very probably have discovered the fraudsearlier had they made a full investigation of his management of thebusiness when they found he was late with his accounts, and whenthey discovered that he was largely overdrawing the company'sbanking account; but I do not think that the evidence showsanything that can be considered as constructive knowledge on ifchepart of the plaintiff company that he was using their money for hisprivate purposes before the time they actually discovered the fraudsin October, 1911.
In my opinion, therefore, the defence of the Prescription Ordinancecannot be sustained, and the plaintiffs’ claim in respect of thewrongful conversion is not barred by lapse of time.
A long argument has been addressed to us for the purpose ofshowing that, under the circumstances of the case, the plaintiffscannot recover on the claim for money had and received. In viewof my opinion that the claim in respect of the wrongful conversionis not prescribed, it is unnecessary to consider what the plaintiffs'rights might have been had they been driven to this alternativeclaim.
The plaintiffs having recovered in Williams’s insolvency a dividendof 2£ per cent, on the amount of his defalcation, the damages that
i 17 L L. B. Bom. 841.
1915.
Shaw J.
DodweU dsCo. v. John
( 150 )
1916.
Shaw J.
Dodwell drCo. v. John
they have suffered from the wrongful conversion is reduced by thatperoehtage of the amount of Hie cheques.
In my view the appeal should be allowed with costs, and thejudgment of the District Judge should be set aside, and judgmententered for the plaintiffs with costs for the amount of the fourcheques, les3 the amount received in respect of them in the insolvencyproceedings.
Varied.