Seneviratne v. Seneviratne
1931Present: Drieberg and Akbar JJ.SENEVIRATNE v. SENEVIRATNE.
361—D. C. Colombo, 32,685.
Principal and agent—Agent's authority to bind principal by bond—Payment of debt due toagent—Conflict of interest.
An agent is not entitled, under the authority given to him by a power of attorney, loenter into a mortgage bond for the purpose of paying himself a debt due to him fromthe principal.
N this action the plaintiff sued the defendant, alleging three causesof action. As a first cause of action' it was stated that the
defendant went to England” to prosecute his studies in 1919, havingappointed plaintiff his attorney and that the defendant requested himto advance such sums of moneys which may be necessary for him. Theplaintiff accordingly advanced to the defendant a sum of' Rs. 14,393^94till 1924. To liquidate this sum, the plaintiff as attorney of the defendantborrowed a sum of Rs. 15,000 from a Chet.tiar. The mortgagee put thebond in suit against the plaintiff and the defendant. At the trial thedefendant pleaded that he was not bound on .the bond. By agreement,judgment' was entered against the plaintiff alone on the bond, and hisright to sue the defendant on this liability reserved. The plaintiff pleadedas a first cause'of action that he was compelled to pay the creditor a.sum of Rs. 20,316, which he claimed from the defendant. As a second
AXBAR J.—Scneviiatne «. Seneviratne.
cause of action, that he was entitled to recover the said sum ofBs. 14,893.94. On the third cause of action, the plaintiff claimed afurther sum of Bs. 2,723.95. The defendant traversed the avermentsin the first and second causes of action and counterclaimed a sum ofBs. 5,300 on the third cause of action. The learned District Judge heldin favour of the plaintiff on the first and third causes of action.
H. V. Perera, for defendant, appellant.—An agent can only act in theinterest and for the benefit of the principal and should not place himselfin such a position that his duty and interest clash. This is an action bythe agent for an indemnity. A right of indemnity arises only in respectof matters within the scope of the agent's authority and contracts whichthe agent enters into on behalf of, and for the benefit of, the principal:(Storey on Agency, § 341; Boustead on Agency, p. 134, Art 48;Bentley v. Craven1; Westrop v. Solomon2).
Keuneman (with him Croos Dabrera) for plaintiff, respondent.—Anindemnity could be claimed by the agent if the transaction to bind theprincipal with a third party was within the power of attorney.
The plaintiff had a right to mortgage both from the power ofattorney and the actual relationship that existed between the plaintiffand defendant.
A creditor who is also the agent of the debtor can exercise all thevigilance that an ordinary creditor could exercise.
H. V. Perera, in reply.—The power of attorney did not entitle theplaintiff to mortgage defendant's property for the purpose of raising aloan in order to pay himself a debt due from the defendant. An agenthas no right to substitute another creditor for himself on more onerousterms without the sanction of the principal.
The agent's authority is only to bring the principal into contractualrelations with third parties (Hinson on Contracts, pp. 385, 391).
An agent in his personal capacity cannot contract with the principalunder cover of the power of attorney. Such a contract would be outsidethe contract of agency and would require, the usual elements of anordinary contract (Offer and Acceptance V., 1, 2; 1 Halsbury 147, 148;Tetley v. Shand3; Solomons v. Pender*).
October 14, 1931. Aebar J.—
The plaintiff and defendant are brothers. In his plaint the plaintiffalleged three causes of action. As the first cause of action he statedthat the defendant went to England to prosecute his studies in the year1919 having appointed the plaintiff as his attorney and that the defendantrequested him to advance him such sums of money which may be found •necessary .foV the purposes of his stay in England. In compliance withthis request, plaintiff advanced the defendant a sum of Bs. 14,393.94till October 17, 1924. To liquidate this sum, the plaintiff, as attorneyof the defendant, borrowed a sum of Rs. 15,000 by mortgage bond datedOctober 17, 1924, from a Chettiar which the plaintiff himself signed asprincipal. The mortgagee put this bond in suit against the plaintiff
1 (1853) 18 Beav. 75.* 19 L. J. C. P. 1.
9 25 L. T. $58.
(1865) L. J. Exchequer 95.
AKBAB J.—Semviralne o. Seneviratne.
and the defendant, but at the trial the defendant pleaded that he wasnot bound on the bond. By agreement judgment was entered againstthe plaintiff alone on this bond, but the plaintiff's right was reserved tosue the defendant on this liability and the judgment was not to operateas re$ judicata between the plaintiff and the defendant. The plaintiffpleaded as a first cause of action that he was compelled to pay thecreditor a sum of Rs. 20,310 which he said was a debt really due from thedefendant. As a second cause of m.-hon, the plaintiff stated, in the-alternative, that he was entitled to recover from the defendant the abme-mentioned sum of Rs. 14,393.94. On the third cause of action theplaintiff stated that from September, 192a. to December, 1920, theplaintiff advanced sums of money to the defendant and that after settingoff the income received from the lands of the defendant, there was duea futher sum of Rs. 2,723.95. The defendant in his answer merelytraversed the averments on the first and second causes of action allegedin the plaint and he counterclaimed for a sum of Rs. 5,300 as being dueto him on account of the estate managed by the plaintiff on his behalf.
Various issues were framed, of which I need mention only the firstsix, which are as follows: —
Did the defendant request the plaintiff to make advances to
him during his stay in England ?
If so, did the plaintiff make any advances to defendant '?
If so, to what extent ?
If money was advanced by plaintiff, as alleged, is his claim in
respect thereof barred by prescription in whole or in part- ?
Was the money raised on the mortgage bond 3,837 utilized to
pay off the amount of the advances referred -to in the aboveissues ?
If so, is the plaintiff entitled to repayment* by. the defendant
of the amount which he was compelled to pay to the mortgageeby the decree of Court ?
The' District Judge held in favour of the plaintiff on the first andthird causes of action. He held that the remittances were sent by*theplaintiff at the request of the defendant and that the plaintiff hadmortgaged defendant's property because plaintiff was entitled to repayhimself the amount due on the remittances. He further held that theplaintiff had the power to enter into such a bond on the power of attorney.On those findings no question of prescription could arise in the Judge'sopinion. He also gave judgment in favour of the plaintiff on the thirdcause of action. The appeal is from this judgment. This case wasfully argued by Counsel on both sides and we are very much indebted tothem for their assistance. It will be remembered that the plaintiff-alleged in his plaint that he had advanced the money himself at therequest of the defendant. The defendant while admitting that theseremittances were sent to him denied that they were sent at his requestand further that they were sent by the plaintiff. The evidence of theplaintiff. shows that these remittances were sent from the funds of aCompany, called the Britannia Oil Mills, which business belonged to apartnership composed, at the time material to this case, of the plaintiff
AKBAR J.—Seneviratne v. Seneviratne.
and his brother Eddie Seneviratne who were trading as Arthur F.Seneviratne & Co. The plaintiff himself admitted as follows:—"Itis my case that the money remitted to my brother was my money. Itwas the money of Arthur F. Seneviratne & Co., and it was remittedthrough the National Bank. That Bank remitted the value of theremittance against the account of A. F. Seneviratne & Co. At the timeof the remitting the money was the money of the Company. In theledgers P 6 and P 7 the defendant appears as the debtor of the partner-ship • and he still so appears. On August 1, 1923, the debit wasRs. 14,393.94. The debit has not been increased since. In the partner-ship ledger there is my private account. That personal account ofmine was never debited with the amount of -these remittances. Theaccount that I received from the Chettiar was not brought into the partner-ship account, the reason being that the books had already been closed.In the books my brother is still a debtor to the partnership for theamount." So that it will be seen that the facts are quite differentto those alleged in the plaint. The remittances were not sent.by theplaintiff but by the firm of A. F. Seneviratne & Co*, and they are shownin the books of the Company as a debt due by the defendant to thefirm.
It appears that there was a dispute between the two partners, whichled to a case between them, namely, case No. 1,011, D. C. Negombo,instituted by the plaintiff against his brother Eddie Seneviratne. Thedecree in this case is dated January 19, 1927, and refers to a balancesheet filed by an auditor bringing the accounts up to August 2, 1924.‘This, balance sheet contains two statements, one statement marked Ashowing the debts due by the Company to various creditors, one ofwhom is the plaintiff. Another statement B gives a list of debtors whoowe money to the Company and the name of the defendant is given asowing Rs. 14,393.94 to the Company. So that it is clear that when theaccounts were balanced on August 2, 1924, the defendant’s name appearedas a debtor to the Company and the fact that the plaintiff’s name alsoappears as one of the creditors of the Company shows that remittanceswere made from the funds of the Company and not from those of theplaintiff.
It* is only necessary to mention that in the decree Eddie Seneviratnewas declared the owner of the Britannia Oil 'Mills, but the plaintiff wasdeclared entitled to recover debts due to the Britannia Oil Mills, accordingto the report of the above-mentioned auditor up to the extent of Rs. 15,000but exclusive of any sums already recovered up to date by the plaintiff.It will be remembered that the date of the decree was January 19, 1927.The plaintiff contends that as the decree recognized his right to recoverdebts due to the firm, he liquidated the sum due by the defendant byborrowing Rs. 15,000 from a Chettiar on October 17, 1924, on the mortgagebond mentioned in the first cause of action. Mr. Perera contended inthe first place that the power of attorney given by the defendant to theplaintiff did not entitle him to mortgage the defendant’s property forthe purpose of .raising a loan in order to pay himself the debt due fromhis principal. He argued that, although the power of attorney would
AKBAR J.—Seneviratne 9. Seneviratne.
bind the defendant on any contract entered into on his behalf by theplaintiff with a third party, yet the defendant was entitled to plead inlaw that an agent had no authority to utilize his powers under the agencyfor the purpose of enriching himself of paying a debt due to the agentby his principal. He argued that the effect of the plaintiff utilizing thepower of attorney for this purpose was to substitute a new creditor inplace of the old creditor, and that he had thus deprived him of the rightof pleading against his new creditor any defence he may have againstthe old creditor.
It will, be convenient, I think, at this stage to examine the facts alittle further. The remittances were sent in monthly instalments of£18 from 1919 to August, 1923, and being money sent by his two brothers,there was no understanding as to the levying of an interest, if they arein fact to be regarded as loans. As a matter of fact, in the creditor'sbalance sheet attached to the decree there is no interest charged. Thedefendant stated (and he is corroborated to some extent by the corre-spondence produced between this defendant and his two brothers, viz.,plaintiff and Eddie) that he opened an office in London to carry onbusiness as a Commission Agent and that he was of material help inputting through much business of the firm of Messrs. A. F. Seneviratne& Co., and that he regarded the £18 monthly allowance as a remunerationOr as a contribution towards the expenses of his office in London. Eventhough these sums may not be remuneration, defendant contends thathe was entitled to set off a claim for services rendered against any possibleclaim by the Britannia Oil Mills in respect of these remittances. Hetherefore contends that by the plaintiff's- action in pretending that themoney was lent by him, he has deprived the defendant of the right ofclaiming this set off. Whatever one may think of these pleas, thereare some facts which are proved beyond any doubt and which must betaken into account. The remittances were made from the funds of theBritannia Oil Mills and when the plaintiff purported to raise the loan ofBs. 15,000 on October 17, 1924, from the Chettiar the terms included anagreement to pay interest at 18 per cent. So, hot only was a newcreditor substituted without the consent o*f the defendant, but thelatter was subjected to more onerous terms. There was no urgency inthe repayment of the remittances, because no demand was made tothe defendant. Further, the letter D 3 shows that the first intimationthe defendant received of the mortgage was on September 11, 1925,a most a year' after the mortgage bond, and defendant repudiated thisloan by his letter D 4 of October 8, 1925. The decree entered intobetween the plaintiff and his brother Eddie adjusting their differenceswith'regard to the Britannia Oil Mills is dated January 19, 1927, andshows that so far as the firm was concerned the debts due to the firmwere to be collected as from that date. All these facts and the furtherfact that plaintiff mortgaged some of his own property to raise the loanof Bs. 15,000 in addition to the defendant's property indicate that theplaintiff raised the loan to secure the money for his own urgent pressingnecessities. The authorities quoted by Mr. Perera, which I shall indicatelater, show that an agent's act will be closely scrutinized when his dutycomes into conflict with his interest. The reason why the plaintiff has
AKBAB J.—Seneviratne t>. Seneviratne.
included the first cause of action in his plaint is obvious and was forthe purpose of meeting a defence of prescription on the second cause ofaction. Plaintiff in this first cause of action pleads that he was obliged,to pay the Ch'ettiar the sum of Rs. 20,316 which was really the debt of thedefendant and that the defendant was liable to indemnify the plaiutifffor this payment. But can he base his claim on this ground in view ofwhat happened in the Chettiar’s mortgage action ? Of consent theChettiar expressed his willingness to recover the full sum on the bondfrom the plaintiff and to absolve the defendant entirely from liabilityon the bond. It is true that any question or right between the plaintiffand the defendant. This can only mean that the plaintiff’s right toby the bond was reserved to be tried in another case between the plaintiffand the defenfant. This can only mean that the plaintiff’s right torecover money said to have been advanced to the defendant in Englandwas reserved to the plaintiff to be decided in another case, i.e., the claimon the second cause of action. As regards the second cause of action,it is prescribed, the period of prescription bding three years, and theaction having been brought by the plaintiff more than three years afterthe return of the defendant from England (see letters P 32 and P 33).It seems to me that the judgment of the District Judge on the firstcause of action is wrong and that the plaintiff’s action should have beendismissed on this canse of action. I have stated the facts fully dealingwith the whole case and it will be seen from these facts that the moneyswere remitted not by the plaintiff out of his own funds but from thoseof the Britannia Oil Mills. Mr. Perera argues that the power of attorneywas given by the defendant in favour of the plaintiff so as to bring thedefendant into relationship with third parties, but so far as transactionsbetween the defendant and the plaintiff were concerned that could onlybe the subject-matter of contract. Therefore before binding the defendantas regards payment of the debts due by him in respect of the remittancesplaintiff should have asked for defendant’s prior consent. The factsindicate something further, namely, that the plaintiff purported tomortgage the defendant’s property under the power of attorney to raisea loan not so much to repay the debt due on the remittances, but morefor his own purpose as he was badly in want of money at the time. Anagent on behalf of an absent principal appears to be clothed with certainrestrictions as regards the manner in which he should deal with hisprincipal’s property when his action is involved to some extent withhis own interest. Lord Halsbury in the Laws of England, Vol. 1.,p. 148, states as follows:—“An agent is employed for the purpose ofplacing the principal in contractual or other relations with a third party,and it is therefore essential to the relation of agency that a third party ■should be in existence or contemplation. The essence of the agent’sposition is that he shall be but a conduit pipe connecting two otherparties. Thus an agent for* sale or purchase is debarred from being' himself either buyer or seller-' without full disclosure to the principal.
If a person who holds himself out to be an agent is in fact seeking tosell his own property or buy that of his principal, he violates the firstcondition of his employment.
AKBAR J.—Seneviratne v. Sencviratne.
In the cage of Tetley v. Shand1, the defendant employed the plaintiffsas hist agent to buy cbtton. It was held by the Court of Common Pleasthat a contract whereby the plaintiffs purported to sell their own cottonwas no contract. As Keating J. pointed out “ This case, I think, suppliesan illustration of the rule, that an agent employed to buy ought not tobe allowed to make himself-the seller, nor an agent employed to sell tobe himself the tuyer….To conclude, theonly question for
our decision is, whether the defendant authorized the plaintiff to makefor him the contract on which they now sue. I do not think he didSimilarly Bret J. pointed out “ It is not pretended that the plaintiffshad any express authority to bind the defendant on such a contract;on the contrary. It remains then to be seen, whether the plaintiffshad any implied authority. So far from that-, the law, for good reasons,declares that relationbetweenthe partieswasinconsistent with
such an implication. When a man is employed by another as agent,he cannot make himself the principal. That is stated not only in thepassage in Smith’s Mercantile Law, referred to by my brother Willes,but it is also laid down in equallyclear termsby Storey in his work on
Agency, p. 9:—* Butthough allpersons suijurisare in general (as
we have seen) capable of becoming agents, yet we are to understandthat they cannot at the same time take upon themselves incompatibleduties and characters; or become agents in a transaction, where they •have an adverse interest or employment. Thus a person cannot act asagent in buying for another goods belonging to himself; and at a salemade for his principal, he cannot become the buyer/ The same principleis also laid down in Storey's Equity Jurisprudence, and in all the textbooks on the law of principal and agent."
In the case of Salomons v. Pender2, the plaintiff was only a shareholderin a Company which bought a piece of land through the plaintiff fromthe defendant. The defendant accepted the contract and an action. was brought by the plaintiff to recover commission on the sale. Itwas there held that although the defendant had accepted the contractand although the plaintiff -had only a small interest in the purchasingcompany, yet the defendant was not bound to pay a commission for thesale to the defendant which was virtually a sale by the plaintiff.
B ram well B. stated a? follows:—*' I think my brother Martin’s viewwas quite correct. It certainly may be a little hard upon the plaintiff, •whose interest in the land may be very much smaller than the commissionhe would have got if he had sold it to third parties; but we must lookto the case on principle', and it appears to me that Mr. Bovill has madea fatal concession. He concedes that the defendant might have' rejectedthe bargain if the defendant had known that the plaintiff was one of theprincipals. Why ? It must be because the plaintiff had no authority. to make such a contract on his employer's behalf; if the plaintiff hadno authority to make the contract, he was not employed to enter into it,1and therefore he has earned no commission. It is almost a matter ofdemonstration. It is quite true that the defendant gets the benefit,if benefit it be; but he may say, 4 If.you choose, to bring about a contractfor my benefit which I did not employ you to do, I will not pay you as1 25 L. T. 658.* (1865) L J. 95.
Forsyth v. Walker and Clark Spence.
if I had employed you—it is the act of a volunteer, and 1 will take advantageof it/ But there is-another view. He might say, * I did not employyou to make this contract, but you have made it, and you have alteredmy position by what you have done, and I am not under' the obligationto reject it/ It seems to me that the case is against Mr. Bovill evenin his own way of putting it, and that there should be no rule/'
If we are to apply this principle to this case, defendant can pleadthat, even assuming that the plaintiff lent the money to him, that wasa contract outside the agency and that therefore the plaintiff had noauthority to substitute a new creditor and to impose more onerousterms on him in * paying off the debt due by the defendant without hisapproval. The Conclusion to which 1 have come is as follows: —TheDistrict Judge's judgment on the first cause of action was wrong andshould be set aside; the plaintiff's action on the sefeond cause of actionis prescribed. As regards the third cause-of-action, all items shown inthe schedule A attached to the plaint as interest paid by the plaintiffon the bond should be deleted and judgment should be entered in favourof the defendant for the balance as shown in that account, i.a.fBs. 1,569.80, and the plaintiff's action will be dismissed with costs ii>both Courts.
Drieberg J.—I agree.
SENEVIRATNE v. SENEVIRATNE