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Paboodan Goolabchand Vs. M.J. Miller and anr. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtChennai
Decided On
Reported inAIR1938Mad966; (1938)2MLJ688
AppellantPaboodan Goolabchand
RespondentM.J. Miller and anr.
Cases ReferredFirm of R.M.K.R.M. v. Firm of M.R.M. V. L.
Excerpt:
.....the rule itself is now well established that, where by any wrongful or unauthorised act of an agent the money or property of a third person comes to the hands of the principal or is applied for his benefit, the principal is liable jointly and severally with the agent to restore the amount or the value of such money or property see bowstead, article 103. in some cases, the plaintiff's right was based on the count for money fiad and received or the theory of failure of consideration, and sometimes on the analogy of the count for money paid to the use of the defendant. we are not satisfied that there is any warrant in the evidence for the theory of misappropriation. if, on the other hand, the agent borrowed even when the principal's moneys were available, the borrowed money, if paid..........unnecessary to consider the evidence on the plaintiff's side as to the actual application of his money for estate purposes, because, 'admitting that it is so, it does not follow that plaintiff has got a right of claim against the first defendant' unless it is 'shown further that there was need to borrow for this purpose and that the estate had not sufficient funds from which these calls could be met'. this part of the judgment has been criticised by the appellant's learned counsel as vitiated by error of law and as resting on an assumption of possible misappropriation by the second defendant for which there was no warrant. it was also contended that the commissioner's report contained all the necessary information required for this part of the case and that if the lower court was not.....
Judgment:
ORDER

Varadachariar, J.

1. The appellant, a marwari banker at Coonoor, sued for recovery of a sum of money representing the balance due under a running account of advances and dealings between himself and the second defendant, when the latter was in management of an estate known as the 'High Field Estate' near Coonoor. The plaint prayed for a decree not only against the second defendant but also against defendants 1 and 3 and against the estate of W.M. Miller, the deceased father of the first defendant and the husband of the third. It is difficult to understand the ground on which the third defendant was sought to be made liable, and as the lower Court exonerated her and that part of the decision has not been appealed against, it is unnecessary to refer to that part of the claim any further. The suit was decreed as against the second defendant, but dismissed as against the first. The second defendant has allowed the decree against him to become final. The plaintiff has appealed against so much of the lower Court's decree as dismissed the claim against the first defendant.

2. W.M. Miller was the last owner of the High Field Estate and he bequeathed it to the first defendant and certain others, subject to a life interest in favour of the third defendant. The first defendant was one of the executors under his father's will and he alone took out Probate. Under Ex. B (11th April, 1927) the first defendant appointed the second defendant his agent for the management of the High Field Estate and though the third defendant was also appointed agent, she was away from India during part of the material period and even during the period of her stay at Coonoor (January to December, 1928) she left the management in the second defendant's hands. It is the plaintiff's case that between August, 1927 and October, 1929, the second defendant 'in a usual and regular conduct, management and superintendence of the High Field Estate' drew moneys from the plaintiff from time to time, 'for the payment of the staff and labour of the estate and its working expenses, taxes and public dues'. Repayments ued to be made by the second defendant by cash or by cheque and sometimes by the supply of tea grown on the estate. In October, 1929, the balance due to the plaintiff was found to be Rs. 15,000 and by an agreement (Ex. TT) dated 28th October, 1929, between the plaintiff and the second defendant, it was arranged that this amount should be treated as an advance for the supply of tea from the estate for a period of three years. As the third defendant repudiated this agreement, the plaintiff claims payment of the amount of Rs. 15,000 treated as advance under that agreement.

3. The first defendant was sought to be made liable on two grounds: (i) that the second defendant acted within the limits of his authority in borrowing moneys from the plaintiff and (ii) that the first defendant and the estate have benefited by the moneys paid by the plaintiff from time to time, 'the same having been spent for the business of the estate, the maintenance of the staff and payment of its taxes and dues'. The first defendant contended that Ex. B the power of attorney did not authorise the second defendant to borrow, that there was no necessity for him to borrow for estate purposes and that the second defendant must, if at all, have borrowed from the plaintiff for other businesses of his own. He denied that any money borrowed from the plaintiff was used for or on the estate. The agreement of October, 1929 (Ex. TT) he denounced as the result of a conspiracy between the second defendant and the plaintiff, got up apparently with a view to render the plaintiff's position stronger, at the expense of the estate.

4. Though an issue was raised in respect of the agreement of 28th October, 1929, it is not necessary for the purposes of this case to deal with it. An issue was also raised as to the truth of the dealings between the plaintiff and the second defendant; the lower Court recorded a finding in. plaintiff's favour on this question and the correctness of that finding has not been challenged before us, on behalf of the first defendant. The only point for determination in the appeal is whether the first defendant can be held liable for the plaint claim and if so to what extent.

5. At the time when the issues were framed and when the defendants' witnesses were examined, the possible grounds on which the first defendant could be made liable do not seem to have been very clearly realised. The investigation seems to have been practically confined to the question whether the second defendant was authorised to borrow and whether there was necessity for him to borrow for the purpose of the estate. On this part of the case, the trial Court has upheld the first defendant's contention and found that the second defendant had no authority to borrow and that there was no necessity for borrowing. This finding against the second defendant's authority and the need for borrowing has been challenged before us by the appellant's learned Counsel.

6. Before the suit came on for argument, it seems to have been realised that it was also necessary to decide how much, if any, of the money advanced by the plaintiff to the second defendant was used by him for the purposes of the High Field Estate. To facilitate the investigation of this question, a Commissioner was appointed on 6th, October, 1934, and it appears from his repprt (Ex. OOO) that four questions were referred to him, to report upon after an examination of the accounts and connected records filed by the parties. Oral evidence was also adduced, through some of the witnesses examined on the plaintiff's side, to show that the amounts advanced by the plaintiffs were sometimes utilised for estate purposes, such as payment of wages to coolies, payment of taxes and other dues, etc. In this connection, the lower Court observed that it is

difficult to judge from the second defendant's account books alone how much money was actually received on behalf of the estate as income from the estate and how much money had to be spent on account of that estate.... If the second defendant had sufficient funds from the income of the estate itself to meet all those expenses but misappropriated those moneys and borrowed money from the plaintiff to meet necessary expenses, it would not follow that the principal would be thereby bound.

7. In another part of the judgment, the learned Subordinate Judge said that it was unnecessary to consider the evidence on the plaintiff's side as to the actual application of his money for estate purposes, because, 'admitting that it is so, it does not follow that plaintiff has got a right of claim against the first defendant' unless it is 'shown further that there was need to borrow for this purpose and that the estate had not sufficient funds from which these calls could be met'. This part of the judgment has been criticised by the appellant's learned Counsel as vitiated by error of law and as resting on an assumption of possible misappropriation by the second defendant for which there was no warrant. It was also contended that the Commissioner's report contained all the necessary information required for this part of the case and that if the lower Court was not satisfied with that report, it should have considered the evidence and come to its own conclusion as to the extent to which moneys advanced by the plaintiff have been applied by the second defendant for the benefit of the first defendant or of the estate.

8. In para. 16 of the judgment, the learned Subordinate Judge remarks that plaintiff must have thought that the moneys were lent to the second defendant himself and not to the agent of the first defendant. It is difficult to reconcile this observation with the opening sentence in para. 15 where he rejects the first defendant's suggestion that plaintiff must have originally opened his accounts in the name of the second defendant personally and, not in the name of the manager of the High Field Estate and proceeds to say that 'plaintiff might have believed that second defendant had authority to borrow'. We have little doubt that the plaintiff advanced the moneys referred to in the plaint to the second defendant only in his capacity as agent of the first defendant. The respondent's learned Counsel urged before us that the way in which plaintiff's accounts in respect of his dealings with the second defendant have been kept-as explained by the Commissioner in explanatory note No. 1 of his report Ex. OOO - suggested that the larger advances must have been made to the second defendant in his personal capacity. We are unable to agree with this contention. As pointed out in the objections filed on behalf of the plaintiff to that report, some of the entries are only paper entries and the actual advances and repayments must, according to the plaintiff's accounts, be taken to amount only to Rs. 70,000 and odd and Rs. 61,000 and odd respectively.

9. Dealing with the question of the 2nd.defendant's authority to borrow, the learned Counsel for the appellant conceded that the 2nd defendant had no express authority to do so, in view of the terms of Ex. B, but he contended that such power must be implied in the case of a person who is entrusted with the conduct of a business, especially where the principal is away from the country. He relied on Section 187 of the Contract Act and criticised the proposition founded on Hawtayne v. Bourne (1841) 7 M & W. 595 : 151 E.R. 905 as not consistent with later authorities, like Ricketts v. Bennett (1847) 4 C.B. 686 : 136.E.R. 678. See also Heramba Chandra Pal Chowdhury v. Kasi Nath Sukul (1905) 1 C.L.J. 199 . He also took exception to the criticism of Messrs. Pollock and Mulla on Dhanpat Rae v. Allahabad Bank, Ltd., Lucknow (1926) I.L.J. 2 Luck. 253. and relied on the wide observations in Withington v. Herring (1829) 5 Bing. 442 : 130 E.R. 1132 and Montaignac v. Shitta (1890) 15 A.C. 357. It does not seem to us necessary, in this case, to deal with the general question of the borrowing powers of a person placed in charge of a business. The Indian Legislature appears to have solved the conflict of authority in England by a specific provision in the second part of Section 188 of the Contract Act (cf. Article 37 and the illustrations thereto in Bowstead on Agency). Where, as here, the agent's authority is defined in writing, we doubt if Section. 187 of the Contract Act can be relied on, for it is well-settled that

Where an act purporting to be done under a power of attorney is challenged as being in excess of the authority conferred by the power, it is necessary to show that on a fair construction of the whole instrument, the authority in question is to be found within the four corners of the instrument, either in express terms or by necessary implication.' Bank of Bengal v.Ramanathan Chetty (1915) 30 M.L.J. 232 : L.R. 43 IndAp 48 : I.L.R. 43 Cal. 527 (P.C.) .

10. The limits of 'necessary implication' are indicated by Section 188 of the Contract Act. See Palaniappa Chettiar v. Arunachalla Chettiar : (1912)23MLJ595 and Ferguson v. Um Chand Boid I.L.R.(1905) Cal. 343. As no attempt was made to justify the borrowing in this case on the ground of 'necessity' or with reference to the 'usual course of business', we must confirm the finding of the Court below that the 1st defendant cannot be held liable in this case on the footing that in borrowing from the plaintiff the 2nd defendant acted within the limits of his authority. The observations in Montaignac v. Shitta (1890) 15 A.C. 357 cannot be relied on here, because it was conceded in that case that the agent did have power to borrow and the only question was whether the nature and terms of the particular loan were justified.

11. As regards the alternative basis on which the appellant's claim is sought to be supported, namely, the utilisation of the plaintiff's moneys for the benefit of the 1st defendant or the estate, it must be conceded that the appellant's criticism against that part of the lower Court's judgment which deals with it is in the main justified. The learned Subordinate Judge fell into an error in mixing up the question of necessity with the question of benefit. If necessity for the loan is made out, the creditor holds the principal liable on the contract itself, because, by the terms of Section 188 of the Contract Act, the agent's authority to bind the principal is recognised whenever what the agent does is necessary for the business. It is only when the contract as such cannot be enforced against the principal, that the lender has to fall back on the equitable rule founded on the theory of 'unjust enrichment'. Though the authorities have not been uniform as to the precise basis of the rule, the rule itself is now well established that, where by any wrongful or unauthorised act of an agent the money or property of a third person comes to the hands of the principal or is applied for his benefit, the principal is liable jointly and severally with the agent to restore the amount or the value of such money or property see Bowstead, Article 103. In some cases, the plaintiff's right was based on the count for money fiad and received or the theory of failure of consideration, and sometimes on the analogy of the count for money paid to the use of the defendant. Again, the theory of subrogation was at one time suggested as the analogy but it was later on pointed out that the analogy was not true. In re Wrexham, Mold and Connah's Quay Railway Co (1899) 1 Ch. 440 It was also suggested that in such cases, there was really no borrowing at all, because there was no addition to the principal's total liability, but merely a substitution of liability to one person (the lender) in place of the pre-existing liability to another (the person paid off). Other cases have supported the claim only on grounds of equity; and in In re Wrexham, Mold and Connah's Quay Railway Co.(1899) 1 Ch. 440 two of the Lords Justices observed that the effect of the rule was to make the borrowing valid to the extent to which the principal has received the money or the benefit of its application. For a discussion of the theoretical basis, see Keener on QuasiContracts, pages 329 et seq.

12. On behalf of the 1st defendant, Mr. Panchapagesa Sastri relied on the circumstance that in Bannatyne v. Maclver (1906) 1 K.B. 103 reference has been made in the judgments to the fact that when the unauthorised loan was borrowed by the agent, he had no funds of the principal in his bank account; and he contended that the principle recognised in this class of cases should not be applied here, unless it was shown that at the time when the 2nd defendant borrowed moneys from the plaintiff, he did not have in his hands sufficient moneys of his principal to meet the then existing demands. Mr. Srinivasa Aiyangar asserted that the 2nd defendant must have borrowed only on account of necessity and he maintained that the observations of the lower Court about misappropriation by the 2nd defendant are absolutely tiaseless. He further contended on the authority of Reid v. Rigby & Co.(1894) 2 Q.B. 40 that if and in so far as it is shown that the plaintiff's moneys have been utilised by the 2nd defendant for the benefit of the 1st defendant, the plaintiffs right to recover such amount from the 1st defendant cannot be affected by the fact, even if it be a fact, that the 2nd defendant had misappropriated moneys belonging to the 1st defendant, unless it was proved that the plaintiff Was aware of and was a party to the 2nd defendant's misconduct. We are not satisfied that there is any warrant in the evidence for the theory of misappropriation. Though the agent's cash-book (Ex. II is said to be incomplete, the 1st defendant's learned Counsel admits that the 2nd defendant has brought into one or other of the various books of account kept by him all his receipts from the estate. We are not concerned to know whether or not he informed his principal of his lack of funds or left him to remain under the impression that he had sufficient funds in his hands to carry on the administration of the estate. The suggestion that part of the moneys received from the plaintiff might have been used for 2nd defendant's personal concerns is immaterial to the present discussion, because, under this head, plaintiff seeks to hold the 1st defendant liable only for what is shown to have been applied for his benefit. Whether the accounts of the 2nd defendant are complete or not, it has not been suggested or shown that the entries, so far as they go, are false; and the plaintiff is entitled to rely on them to the extent to which they go. We agree with Mr. Srinivasa Aiyangar's contention based on Reid v. Rigby & Co (1894) 2 Q.B. 40 and we also think that the reference in Bannatyne v. Maclver (1906) 1 K.B. 103 to the absence of other funds in the hands of the agent at the time of the borrowing, must not be understood as intended to import a necessary condition in respect of the creditor's right to relief against the principal in such cases. If the agent had already misappropriated the principal's moneys and thus created a necessity for the borrowing, the lender cannot suffer for the dishonesty of the agent and the borrowing would have been at a time when there were in fact no funds of the principal available. If, on the other hand, the agent borrowed even when the principal's moneys were available, the borrowed money, if paid into the principal's account or applied for his benefit will clearly be money, which the principal was not entitled to retain, and the fact or possibility of a subsequent misappropriation by the agent cannot affect the lender's remedies; Bannatyne v. Maclver (1906) 1 K.B. 103 . On p. 334 of his book on Quasi-Contracts, Mr. Keener refers to one case in which misappropriation by the agent may afford a defence to the principal against the lender's claim, that is, where the agent pays the borrowed money into the principal's account and then draws it out and misappropriates it, without utilising it for the principal's benefit. That observation has no application to a claim which is founded on the actual application of the plaintiff's moneys to the principal's benefit.

13. Mr. Sastri next contended that in India the creditor's right against the principal must be limited to the cases provided for in the Contract Act; but the equitable rule was recognised and followed in this country in Suppayya Pattar v. Hajee Ahmed Sait(1915) M.W.N. 761 Heramba Chandra Pal Chowdhury v. Kasi Nath Sukul (1905) 1 C.L.J. 199 Ghasiram v. Raja Mohan Bikram Sha (1907) 6 C.L.J 639 and T.R. Pratt, Ltd. v. E.D. Sassoon & Co. I.L.R.(1935) 60 Bom. 326 : A.I.R. 11 All 47 (P.C.) There is no justification for the contention that equitable claims are excluded by the Contract Act. If necessary, the creditor's claim in a case of this kind may be rested on Section 64 or Section 70 of the Contract Act.

14. It was next contended on behalf of the first defendant that a claim on this alternative footing must be held to be barred by limitation, as plaintiff should be deemed to have had a separate cause of action each time the moneys advanced by him were utilised for the first defendant's benefit and the suit was instituted more than 3 years after the last of such advances. It is not necessary for the purposes of this case to decide whether a claim of this kind will be governed by the 3 years rule of limitation or will be governed by Article 120 and what will be the starting point of limitation. Even according to the principle suggested by first defendant's learned Counsel, the plaintiff had a subsisting claim against the first defendant on 28th October, 1929, and on that date the amount so due was treated as advance under Ex. TT. An agreement like that for the sale of tea was within the second defendant's power and from the date of Ex. TT. Plaintiff was not, on the principle of Bassu Kuar v. Dhum Singh entitled to recover the money till the consideration failed by reason of the third defendant's repudiation of Ex. TT. The suit has been filed within 3 years of the date of this repudiation.

15. Lastly Mr. Sastri contended that as the plaintiff had obtained a decree against the agent, he could not seek to hold the principal jointly liable. Firm of R.M. K.R. M. v. Firm of M.R. M.V.L. (1926) A.C. 761 relied on by him in this connection has no application here; because, that decision related to the maintainability of a subsequent suit against the principal after a decree had been obtained against the agent in a previous suit. Notwithstanding theopinion expressed by Coutts-Trotter, C.J., in Kutti-krishnan Nair v. Appa Nair : (1926)51MLJ311 , it seems to us also open to question whether in the face of the clear language of Section 233 of the Indian Contract Act, we can apply the English rule of alternative liability in this country. Further, even in England, the principle of Kendall v. Hamilton (1879) 4 A.C. 504 on which Firm of R.M.K.R.M. v. Firm of M.R.M. V. L.(1926) A.C. 761 is based will apply only when the principal is subsequently sued on the contract of the agent. Where, as here, the principal is sought to be held liable on equitable grounds, even the rule in England, as stated by Bowstead (Art. 103) seems to be one of joint and several liability of both principal and agent.

16. It remains to determine the amount which, on this alternative ground, the plaintiff will be entitled to recover from the first defendant. The lower Court has not given any finding on this point, in the view that it took of the law. The oral evidence adduced on the plaintiff's side only proves in a general way that moneys borrowed from the plaintiff used to be applied by the second defendant or under his directions for the benefit of the first defendant. The amount thus applied must be fixed only with reference to the accounts produced on both sides. The Commissioner who examined the accounts states (in Table D of Ex. OOO) that out of the plaintiff's advances to the second defendant, Rs. 21,199-6-1 could be traced in the accounts kept by the second defendant and Rs. 8,956-2-0 could be 'doubtfully traced'. In Table E, he shows that from the second defendant's books only Rs. 17,874-8-3 could be traced to have been repaid to the plaintiff. In Table F the Commissioner shows that the Rs. 21,199-6-1 have been used for the purposes of the estate; and he adds that the sum of Rs. 8,956-2-0 'may be presumed to have been spent on the estate'. It is conceded on behalf of the appellant that in so far as the claim against the first defendant is not on the contract itself but only for the restoration of the benefit enjoyed by him, plaintiff is not entitled to discount or interest as per terms of the contract between him and the second defendant. Whether he will be entitled to interest on grounds of equity and if so, at what rate and for what period, may be left to be determined after the return of the finding we propose to call for.

17. Both parties also agree that the plaintiff must give credit to the first defendant for all sums that he has received from the second defendant in repayment of the advances comprised in the present claim (see Keener, p. 281). Mr. Sastri contends that as the plaintiff admits receipt of about Rs. 61,000 there is nothing more that he could claim from the first defendant if (as per the Commissioner's report) only about Rs. 30,000 (Rs. 21,199 plus Rs. 8,956) could at best have been spent on his estate. Mr. Srinivasa Aiyangar rightly points out that the plaintiff's admission was made on the footing that more than Rs. 70,000 had been advanced and if, on the strength of the second defendant's accounts, only a smaller sum is to be held to have been applied for first defendant's benefit, the first defendant cannot ignore those accounts when it comes to the question of repayment and contend that all the Rs. 61,000 repaid by the second defendant to the plaintiff should be deemed to have been paid out of the first defendant's funds. The first defendant must either rely on the plaintiff's accounts and admissions as a whole or prove the extentof repayment by other evidence.

18. At one stage, we were inclined to adopt the figures given in the Commissioner's Tables D, E and F and pass a decree hereon their basis, particularly in view of the fact that in the objections filed on behalf of the first defendant to that report no specific objection has been taken to these figures or to the Commissioner's remarks relating to them; but the objection statement does in a way question the correctness of the Commissioner's method and of his figures. As the Commissioner's report has left a large sum as 'doubtful' and his view as to its application is stated only as a matter of presumption, we have thought it more satisfactory to ask the lower Court to examine the accounts and the other evidence in the case and submit a finding as to (1) How much of the amounts advanced by the plaintiff to the second defendant between August, 1927, and October, 1929, was paid by the latter into the first defendant's account or applied for the benefit of the first defendant or of the estate of which the first defendant was executor. (2) What amounts have been repaid by the second defendant to the plaintiff out of the funds of the first defendant or of the estate. We may add that though, as we have already held, the mere possession by the second defendant of funds of the first defendant or of the estate at the time of any borrowing from the plaintiff will not as a matter of law affect the plaintiff's right of recovery, such possession of funds will be a relevant fact to be taken into consideration in deciding whether any particular item of expenditure was in fact met out of the plaintiff's advances or out of moneys belonging to the first defendant or to the estate. We leave it to the lower Court to determine whether it is necessary to obtain a fresh report from the same or from another Commissioner. Finding to be submitted before the 31st July, 1937. Ten days for objections.

19. [In pursuance of the above order, the lower Court submitted a finding that out of plaintiff's advances Rs. 31,907 had been applied for the benefit of the estate and that plaintiff had been repaid Rs. 18,996 from the first defendant's estate. Objections were filed to this finding by the respondent that the value of tea supplied by the estate to the plaintiff should also be treated as having been repaid by the estate to the plaintiff. Their Lordships accepted this contention and in the end found that the plaintiff had been repaid from out of the estate funds and tea, more than Rs. 31,907 advanced by him and spent on the estate and accordingly dismissed the appeal.-Reporter's note.

20. The judgment on return of finding is omitted from this report.]


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