PRIVY COUNCIL

O.A.P.R.M.A.R. Adaikappa Chettiar

Vs.

Thomas Cook and Son (Bankers) Ltd.

P.C.A.No.106 of 1930

(Lords Atkin, Tomlin and Macmillan. JJ.)

25.11.1932

JUDGMENT

LORD ATKIN J.

1. This is an appeal from the Supreme Court of the Island of Ceylon in an action in which the plaintiff sought to recover from the defendants the sum of Rs. 1,70,000 on four cheques or alternatively as money had and received. The action was tried in the District Court of Colombo, where the plaintiff recovered judgment. On appeal to the Supreme Court the judgment of the District Judge was reversed and the action dismissed with costs. The plaintiff is a money-lender carrying on business at Colombo, and the dispute arises out of a series of transactions in which the plaintiff, one M S. Peiris, now deceased, carrying on business as Don Philip and Co., and, as is alleged, the defendants, acting through John Davis, their acting manager, were engaged. Peiris was a trader who before the events in issue had become insolvent; his certificate had been suspended for seven years, but he continued to trade through a former servant in the name of Don Philip and Co. In 1924 the defendant Bank was registered. It took over the banking business of the well-known tourist agency. The agency business and the banking business were conducted in the same building. Mr. Smith controlled both businesses; but the banking business under Smith's general control was managed by Mr. John Davis. In 1925 Mr. Davis was given a power of attorney by the company's general representative in the East, Mr. S. E. Humphreys. One of the questions in dispute is whether the terms of the power of attorney authorized Davis to bind the bank to perform the obligations which the plaintiff seeks to enforce. Mr. Peiris, as Don Philip and Co., appears to have had dealings with the defendant Bank before Davis came on the scene. He appeared to be doing an active business as a produce broker, and Davis allowed him a small overdraft.

2. In June 1925 Davis made Peiris an advance against shipping documents of tea. The consignees refused to take up the documents, and the result of the transaction was that Peiris' account was overdrawn to the extent of over Rupees 16,000. Mr. Smith appears throughout to have disapproved of advances being made to Peiris, and he instructed Davis to take steps to have the overdraft paid off. In October Peiris borrowed the money from one Ramachandra, who was only willing to advance on the terms that the Bank guaranteed payment. On 17th October 1925, Peiris drew a cheque on the defendant bank for Rs. 17,000 in favour of Ramachandra, and Davis wrote on the back of the cheque "Good for payment on 17th December 1925,"or words to that effect, and signed it per pro Thos. Cook and Sons (Bankers), Ltd. John Davis. In exchange for this document Ramachandra made the agreed advance of Rs. 16,500 by his cheque of 17th October. On 17th December Peiris' account was only in credit Rs. 4. Davis could not ordinarily allow the cheque to be paid without debiting Peiris' account and thus re-establishing the overdraft which he had been directed to end. Accordingly, when the cheque was met, Davis directed a transfer to Peiris' account of a credit entry "Cash ex selves, 17,000,"and made a fictitious entry in the Bank's Till book "Safe, 17,000,"which served to avoid discovery of what had taken place.

3. This was obviously but a temporary device and measures had to be taken to give a better appearance of regularity to the transaction. On 29th December 1925, Peiris entered into the first of a series of transactions with the appellant which culminated in January 1928, in the negotiation of the documents in suit. Peiris asked the appellant to cash a cheque of Don Philip and Co. drawn on the bank; the appellant refused, but on being told on a later occasion that the bank would agree to pay the cheque on a future date lie agreed. Accordingly Peiris gave the appellant a cheque, dated 29th December 1925, for Rs. 20,000, drawn in the name of Don Philip and Co. on the bank, endorsed :

"Good for payment on 12th January 1926, per pro Thos. Cook and Son (Bankers), Ltd., John Davis."

4. In return the appellant gave to Peiris a cheque of even date in favour of Don Philip and Co., which was cleared through the Bank. Davis gave to the appellant at the same time a memorandum, "Received for credit of Don Philip and Co. cheque on National Bank of India for Rs. 20,000,"with the same signature as to the indorsement. Rupees 3,000 was placed to the credit of Don Philip; the balance was used to put the Bank books in order by cancelling the fictitious entry of "17,000 in safe."On 12th January the Don Philip account was not in sufficient credit to meet the guaranteed cheque. Another fictitious entry had to be made, until 21st January 1926, when another similar cheque transaction was entered into for Rs. 37,500, with a bank guarantee for payment on 4th February. This was further met by a third cheque transaction on 4th February for Rs. 18,000, payable on 5th March.

5. So the transactions went on month by months sometimes the cheques being plainly renewals in whole or in part : sometimes constituting fresh advances; in all cases where there was not immediate renewal the account of Don Philip was kept in credit by a fictitious entry until the necessary cheque arrived of the appellant. Some of the apparent increase in advances no doubt represented interest; in other cases the interest charges were paid by separate cheques of Don Philip and Co. Between 29th December 1925 and 3d January 1928, 75 cheques had been exchanged, varying in amount from Rs. 5,000 to Rs. 75,000. In May 1927, the appellant changed the system and thenceforth drew his cheques in favour of Thos. Cook and Son; crossing them "account payee only."This seems to have been the result of a local case in which a person who received cheques drawn in favour of his employers and so crossed was held to be unable to negotiate them so as to make the drawer liable. The effect, if any, of this change of procedure will be considered later. In September 1927 Peiris come to the appellant with a request that ho would not present the cheques indorsed by Davis, but would take in substitution a cheque drawn by Don Philip bearing the due date, and on payment of such cheque would return the indorsed cheque. The story told by Peiris was that in this manner he would escape paying commission to the bank. Davis, on being applied to, confirmed this remarkable explanation, and the appellant acceded to the request. We now come to the final stage of these transactions.

6. On 3rd January 1928, there were outstanding in the appellant's possession three cheques of Don Philip indorsed by the bank for payment on various days; (1) 17th December 1927, for R. 35,000, payable by the bank on 16th January 1928. (2) 23rd December1927, for Rs. 50,000, payable by the bank on 7th January 1928. (3) 23rd December 1927, for Rs. 50,000, payable by the bank on 21st January 1928. But Davis had ceased to enjoy the bank's confidence. Some inquiry into the alleged practice of giving guarantees on behalf of the bank had been made in October though nothing bad been done. But on 29th December 1927 Mr. Humphreys learned that Davis had written a letter to another bank guaranteeing the production of certain shipping documents (apparently a completely genuine transaction). He suspended Davis and there and then revoked his power of attorney marking it as cancelled.

7. On 3rd January the balance of Don Philip's account was only Rs. 652. The outstanding cheques would have to be met. The appellant was willing to renew and even to make a fresh advance on receiving the usual bank guarantee 3rd January was a bank holiday. The appellant's manager, Somasundaram, met Peiris and Davis at Peiris' warehouse. Somasundaram received four cheques drawn by Don Philip in favour of the appellant and dated 3rd January 1928, for Rs. 35,000, Rs. 50,000, Rs. 35,000 and Rs. 50,000, each endorsed respectively,

"payment of this cheque on 5th (6th, 7th, 8th) March 1928, guaranteed, per pro Thos. Cook and Son (Bankers), Ltd., John Davis "

8. In return Somasundaram gave to Davis or Peiris cheques dated 3rd January 1928, for Rs. 35,000, Rs. 50,000 Rupees 50,000 and Rs. 20,000 drawn in favour of Thomos Cook and Son (Bankers), Ltd., or order, crossed not negotiable, payee's account only,"and a fifth cheque drawn as open cheque to Don Philip and Co. for Rs. 15,000, as Peiris said he desired that amount of cash. In respect of the cheque for Rs. 20,000 and the open cheque for Rs. 15,000, Davis at Somasundaram's request gave a receipt:

"Received to our credit the sum of Rs. 35,000 as per reverse, per pro Thomas Cook and Son (Bankers), Ltd., John Davis, and on the reverse :

"Rs. 15,000 cash

"20,000 cheque balance

         "Rs. 35,000."

9. On 4th January 1928, Peiris or someone on his behalf paid in to Don Philip's account with the bank the four cheques making Rs. 1,55,000. No one seems to have thought it unusual that he should be paying in cheques drawn to the order of the hank. The cheques were stamped on the face with Thomas Cook's stamp, apparently at the Clearing House or for Clearing House purposes, and were credited to Don Philip's account and served to meet the outstanding cheques falling due in January, for which as before, the unendorsed cheques of Don Philip were substituted. In March the cheques for Rs. 1,55,000 were presented, but were returned "account closed."On 27th January 1928 the bank had closed Don Philip's account and had paid over the then credit balance of Rs. 825. In proceeding to discuss the liability of the bank, it has to be remembered that the Courts have negatived any lack of good faith on the part of the appellants, and that Davis was not cross-examined to suggest that he derived any personal advantage from his proceedings. A specific issue as to whether the plaintiff or his agents had knowledge of a conspiracy by Davis and Peiris to defraud the bank was negatived by the trial Judge.

10. The case against the bank was made under two heads :

(1) The bank were liable on the contract contained in the cheques because Davis had actual authority to make such a contract. (2) If no such contract was in fact made, then the bank were liable in the amount of the cheques for money had and received either as money paid for no consideration, or on a consideration which had wholly failed, or for money paid under a mistake of fact.

11. The first question to determine is what was the contract made between the parties. The plaintiff alleged that he lent the money to the bank. In support of this view he relied on the fact that his later cheques, including those that he gave on the transaction in question, were drawn in favor of the bank, marked "Not negotiable “and "Payee's account only."Their Lordships however are clearly of opinion that the money throughout was lent to Peiris. He drew the cheque in repayment, and he paid the interest. The plain business was that the money was lent to Peiris and purported to be guaranteed by the bank. Had then Davis actual authority to guarantee payment of these loans by Peiris? This depends primarily upon the construction of the power of attorney, though it is also possible that beyond the express powers of the attorney there might be actual implied authority necessarily arising from the service of Davis as acting manager of the bank. The plaintiff faintly suggested such an authority, but mainly relied on the express words of the power of attorney. Oddly enough, both parties contended that the words on the cheque were an acceptance of the cheque. The plaintiffs ought to read the word "accept"into Clause 4 of the power of attorney, suggesting that it had been omitted by a copyist's error in copying, the clause from the power of attorney given to Mr. Humphreys on 1st August 1924. Though this construction found favor with the District Judge, it appears to their Lordships quite inadmissible.

12. There is no principle of construction which permits a document contrary to its actual wording to be read as though it followed a proposed precedent unless between the parties it has been rectified or at least is such as would by the Court be rectified. In the present case however there seems to be little doubt that the omission was intentional. The defendants, relying upon the omission, seek to make the promise an acceptance in order to place it outside the authority given by the document. They say that the writing was in the terms of Section 17(1), Bills of Exchange Act, the signification by the drawee of his assent to the order of the drawer, and that as by Section 19 an acceptance may be qualified as to time, all the requirements of a valid acceptance are present. So far as is relevant to this point the statutory provisions in force in Ceylon at the material dates were equivalent to those of the Bills of Exchange Act, 1882. No doubt as between the immediate parties to a bill an acceptance may express only a contract of guarantee, which in reality, as has been said, this was, no doubt also a cheque may be accepted, however unusual such a transaction is. Anything, less like the ordinary business conception of an acceptance in form and intention than this contract it would perhaps be difficult to find. Their Lordships find it unnecessary to decide whether this was an acceptance or not, for whatever it be called it appears to them not to be within any of the express powers given by the power of attorney. It was said to be an exercise of the power to endorse."In their Lordships' view, this power of attorney should not be construed as giving Davis the power to sign otherwise than as drawer or acceptor or holder so as to cause the bank to "incur the liabilities of an endorser “under section 56, Bills of Exchange Act.

13. It never was intended that the bank Servant should "back"bills on behalf of the bank. Equally unwarranted is the suggestion that the power to "pay"cheques, etc., involves the power to promise to pay. The general words in Clauses 9 and 10 must be read with the special powers given in the earlier clauses, and cannot be construed so as to enlarge the restricted powers there mentioned. It follows that Davis had no actual authority given him by the power of attorney to guarantee payment of these loans by Peiris. Their Lordships are also quite satisfied that his position in the bank was not such as to make it necessary to imply the power to enter into these transactions on the part of the bank. They appear on the evidence and according to ordinary banking usage to-be quite outside a manager's general authority. This last consideration would dispose of any question of ostensible authority : but as the plaintiff twice examined the power of attorney and plainly relied only on the evidence of actual authority, any reliance on ostensible authority was properly negatived in the Courts below, and was not pressed before their Lordships.

14. It remains therefore to consider the question of the plaintiff's rights, if any, an the footing that no contract was in fact made between him and the bank. If, as the plaintiff contended, the apparent contract was that the money had been lent to the bank, or that the bank otherwise was to have the disposition of the money, there could be no doubt as to the plaintiff's right. He would have performed his part of the contract, relying upon a supposed effective promise of the bank to repay. On proof that such promise was not made he could recover the money as having been paid without consideration.

15. Whether he could recover it as money paid under a mistake of fact is not so clear. It is necessary to establish this cause of action that the mistake should be as to some fact causing a liability to pay. Cash handed over under a voluntary contract hardly comes within that description. It was ingeniously contended by counsel for the plaintiff that while plaintiff's cheque, may not have been handed over under any mistaken belief that he was bound to part with it, payment of his cheque was made under the mistaken belief that he was bound to honour it under a binding contract with the bank. It seems unnecessary to discuss this refinement, for if the bank received the money at their own disposal under a mistake by the plaintiff as to the supposed agent's authority, they would have to return it. But, in fact, the bank received the money on the terms that it should be placed to Peiris' credit. The transaction was one by which the supposed contract as between the three parties required that the money represented by the cheque drawn in favour of the bank should be made available to Peiris in his account kept with the bank. In no other way in the circumstances could Peiris fairly become indebted to the plaintiff so as to be liable on the cheque which Peiris drew and the bank guaranteed, or become liable to pay interest, as in fact he did. In no other way could the cheques of the plaintiff serve to effect a renewal (as undoubtedly was intended) of the outstanding cheques for Rs. 1,35,000 replaced in accordance with the practice of the parties by the cheques of Peiris alone.

16. The bank dealt with the plaintiff's cheques precisely as they were intended to deal with them under the supposed contract. They collected them for Peiris' account, placed the entire proceeds to Peiris' credit, and out of the proceeds the outstanding cheques in favour of the plaintiff were met. The bank are in the position of a mandatory who has fully performed his mandate, before any mistake has been discovered. In these circumstances the bank are not liable to repay money to the plaintiff which they have disposed of according to the plaintiff's wishes in accordance with the supposed contract.

17. As a final bit of salvage, counsel for the plaintiff contended that at any rate as the result of the series of transactions the bank received from the plaintiff's money payment of the original Rs. 17,000 which in December 1925, they had paid to Ramachandra. The answer to this is that advance had long before been repaid to the bank by Peiris by the numerous credit payments which he had made since that date in accordance with the ordinary principles applicable to appropriation of payments. The simple result is that the plaintiff is found to have advanced money to Peiris on an invalid security, and that he and not the bank must bear the loss. Their Lordships will humbly advice his Majesty that this appeal should be dismissed. The appellant must pay the costs.

Appeal dismissed.