035-SLLR-SLLR-1985-V2-WRIGHT-AND-THREE-OTHERS-v.-PEOPLES-BANK.pdf
292
Sri Lanka Law Reports
[1985] 2 Sri LR.
WRIGHT AND THREE OTHERS
v.
PEOPLE'S BANK
COURT OF APPEAL.
G. P. S. DE SILVA. J. AND MOONEMALLE. J.
C A. 424/74 (F) – D. C. COLOMBO 11387/MB.
May 21. 27. 28. 30. 31 AND JUNE 3 AND 4. 1985
Pledge – Authority to pledge client's goods – Broker – Mercantile Agent- Contract – Essentials of pledge – Delivery – Constructive delivery – Applicabilityof English Law – Section 3 of the Civil Law Ordinance – Factors Act of1889 of England {sections 1(1). 1(2), 1(5) and 2(1)) – Auctioneers and BrokersOrdinance – Section 17 of the Registration of Documents Ordinance – Tea ControlAct. No. 51 of 1957 (section 15 (1)) and Rubber Control Act (Cap. 436) (section 10).
The People's Bank (plaintiff) sued Quentin Nicholas Wright and three others(defendants) who were'earrying on business in partnership under the name. Style andfirm of 'Muller Wright and de Mel" for the recovery of Rs. 437,500 and interest beingthe total of loans given to the defendants for which they had pledged with theplaintiff-bank the goods consisting of Ceylon produce including the goods referred toin the Schedule to the plaint. Among the questions that arose were the following :Whether English law applied, whether the defendants were, brokers or mercantileagents and/or agents for sale with authority to pledge their clients' produce, whetherthere was a valid pledge created, whether the plaintiff-bank could lawfully takepossession of tea and rubber as it had no dealer's licence under the Tea Control Act andRubber Control Act.
The plaintiff-bank had padlocked the stores holding the goods pledged to them and thedefendants complaining of loss and damage as a result claimed Rs. 1.2 million inreconvention.
Held-
English law applied because under s. 3 of the Civil Law Ordinance suits in respectof principals and agents had to be decided according to the English law applicable to alike cause at the corresponding period. The English Factors Act of 1889 applied.
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Wright v. People's Bank
293
In the terms of the contract of loan they had entered into, the defendants hadauthority as mercantile agents and/or agents for sale in the customary course of theirbusiness to sell the goods of their clients and /or to raise money on the security of thesaid goods.
On the evidence the defendants had validly pledged the goods in the stores to theplaintiff-bank as the requirements of a valid pledge had been complied with :
/a) The defendants as mercantile agents anchor agents for sale had authority topledge the goods.
There was constructive delivery of the goods to the plaintiff. It was not necessarythat the delivery and advance of the money be contemporaneous. It wassufficient if the goods were delivered in pursuance of a contract to deliver thegoods.
the plaintiff was in actual, ostensible and bona fide possession.of the goods in therelevant stores.
Failure to register the documents of pledge and obtain a dealer's licence underthe provisions of the Tea Control Act and Rubber Control Act read with s. 17 ofthe Registration of Documents Ordinance does not taint the pledge with illegalitybecause the plaintiff never held itself out as a dealer in tea or rubber and it ispossession of the tea or rubber qua dealer without a licence that is prohibited.The possession of tea and rubber by the bank was incidental to the contract ofpledge.
Cases referred to:
Usman v. Rahim (1930) 32 NLR 259
Hilton v. Tucker 39 Ch. Div. 669.
St. John Shipping Corporation v. Joseph Rank Ltd. [1956) 3AHE.R. 683.
APPEAL from a judgment of the District Court of Colombo.
G F. Sethukavalar: P.C. with Mark Fernando. P.C., S. Mitrakrishnan and ShemUPererafor defendant-appellants.
H. L. de Silva, P C. with S. J Jayasundera and E. D. Wickremanayake forplaintiff-respondent.
Cur. adv. vult.
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So Lanka Law Reports
[1985] 2 Sri LB.
September 6. 1985.
G. P. S. DE SILVA, J.
The People's Bank instituted this action against the defendants whowere carrying on business in partnership under the name, style andfirm of “Muller Wright and de Mel" for the recovery of a sum of Rs.
and interest due on three writings marked P 23, P 25 andP 31. It is the case for the Bank that in pursuance of these writings thedefendants pledged with the Bank goods consisting of Ceylon produceincluding the goods referred to in the Schedule to the plaint. Theplaintiff-bank averred inter alia in its plaint
that the defendants carried on m partnership the business ofmercantile agents and/or agents for sale having in thecustomary course of their business as such agents authority tosell Ceylon produce ;
{iil that the defendants acting in the course of their business, inpursuance of the said writings (P23, P25 and P31) pledgedgoods consisting of Ceylon produce to the plaintiff and actuallydelivered the said goods into the possession and custody of theplaintiff in order to secure the repayment of the loans advancesby the plaintiff to the defendants on a Cash Credit Account ;
that in pursuance of the said agreements the defendants fromtime to time delivered to and pledged goods including thegoods referred to in the Schedule to the plaint and the plaintiffreceived and accepted the said goods as security for therepayment of the loans granted to the defendants by theplaintiff.
that the said goods have been at all times material, actually,ostensibly and bona fide in the possession and custody of theplaintiff and held as security for the said loans ;
(v ) that on or about the 22nd of March 1968 the plaintiffdiscovered that some of the goods delivered and pledged bythe defendants to the plaintiff were of a nature inferior to thatwhich was agreed upon and that the plaintiff thereupon refusedpermission to the defendants to withdraw the goods and thegoods now continue to remain pledged to the plaintiff andunder jhe possession, custody and control of the plaintiff.
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Wright v. People's Bank (6.P.S. De Silva. J.)
295
The plaintiff sought to recover the said sum of Rs. 437,500 andprayed for a hypothecary decree declaring the said goods to be boundand executable for the recovery of the said sum of money on thefooting of the said pledge.
The defendants in their answer pleaded –
that they were brokers of Ceylon produce and denied that theywere mercantile agents and/or agents for sale ;
that the writings P23, P25 and P31 did not in law create orconstitute a valid pledge of the goods referred to in the plaint orany other goods ;
that the defendants have at no time actually delivered anygoods into the exclusive custody and possession of the plaintiffand that the plaintiff had at no time taken delivery of any suchgoods into their exclusive possession or custody and thereforethe said writi do not constitute a valid pledge of the goods ;
(cf) that in any event the said agreements were not intended to beacted upon and in fact the parties never acted on the basis ofthe said agreements ;
that the goods referred to in the plaint at all times belonged tothe owners of the said goods and the defendants had noauthority to pledge the said goods for any purpose whatsoever;
that the defendants carried on business of brokers of Ceylon,produce without let or hindrance or any control by the plaintiff till20th March 1968 ;
that' the plaintiff was not at any time in actual ostensible andbona fide possession and custody of any goods whatsoever inthe stores of the defendants ;
that the plaintiff on or about the 20th of March 1968unlawfully, wrongfully and without just cause locked up thestores of the defendants and thereby prevented the defendantsfrom carrying on their business to the defendants' loss anddamage estimated at 1.5 million rupees.
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(1985]2SriLR.
The defendants prayed for a dismissal of the action and for judgmentagainst the plaintiff in the said sum of 1.5 million rupees.
Issues Nos. 1 to 5 raised on behalf of the plaintiff-bank relate to theauthority of the defendants as mercantile agents and/or agents forsale in the customary course of their business to sell the goods and/ortq raise money on the security of the said goods. The other materialissues raised on behalf of the plaintiff-bank were
fa) Were the goods described in the Schedule to the plaint
pledged by the defendants to the plaintiff ?
(b) Was such pledge made to secure the loans advanced by theplaintiff to the defendants on a Cash Credit Account ?
(a) Were the said goods actually delivered to the plaintiff by the
defendants ?
Were the said goods so delivered into the possession andcustody of the plaintiff ?
Did the said goods at all times material to this action continueto remain actually and ostensibly and bona fide in thepossession and custody of the plaintiff ?
16. (a) On or about the 22nd of March 1968 did the plaintiff discoverthat some goods delivered and pledged by the defendantswere of a nature and quality inferior to that which was agreedupon by the plaintiff and the defendants ?
ib) Did the plaintiff thereupon refuse, as it lawfully may, to grantpermission to the defendants to withdraw the said goods ?
Did the said goods continue to remain mortgaged and pledgedto the plaintiff and under the possession and custodyand control of the plaintiff ?
■ On behalf of the defendants the following among other issues wereraised .
Did the plaintiff on or about the 22nd March wrongfully andunlawfully lock up the stores and prevent the defendants fromhaving access to their stores and carrying on their normal businessat the said stores ?
The District Judge, after trial, answered the issues in favour of theplaintiff-bank and entered judgment as prayed for in the plaint. Thedefendants have npw appealed against this judgment and decree.
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Wright v. People's Bank (G P S. De Silva. J.)
297
The first submission of Mr. Sethukavalar. Counsel for thedefendants-appellants, was that the parties did not intend to create apledge by the documents P 23, P 25 and P 31. On a reading of P 23,P 25 and P 31, however, it seems clear that the Bank agreed to grantthe defendants credit facilities on security of goods pledged to theBank. All three documents are in very similar terms. Each of thedocuments has the heading ‘Agreement to secure a cash credit ongoods deposited'. In the introductory part it is stated 'The People'sBank having at request of Messrs. Muller Wright and de Mel(hereinafter called the borrower) opened or agreed to open in thebooks of the Bank …. a Cash Credit Account to the extent of Rs. . . .
with the borrowersand to be secured by goods to be pledged
with the Bank. The material part of clause (1) provides ‘that the goodsdescribed in general terms in the schedule hereto which have beenalready delivered to and the goods which shall be hereafter deliveredto the Bank under this agreement…. are hereby pledged to the Bankor are to be deemed to be so pledged as security with the Bank for thepayment by the borrowers of the balance due to the Bank at any time
or ultimately on the losing of the said Cash Credit Account'.
Clause 4 provides 'that the borrowers shall with the previous consentof the Bank be at liberty from .time to time to withdraw from the Bankany of the goods for the time being pledged to the Bank and formingpart of the securities the subject of this agreement provided theadvanced value of the said goods is paid into the said Account orgoods of similar natiire to those mentioned in the schedule hereto orany of the same or at least equal value are substituted for the goods so
withdrawn'. Clause 18 states that “the Bank shall not be in
any way liable or responsible for any damage or depreciation thegoods for the time being pledged to the Bank and forming part of the
security the subject of this agreementmay suffer or sustain
on any account whatsoever while same are in possession of the Bank
during the continuance of this agreement or thereafter*.
At the end of each agreement there is a schedule of securities.
P 24 is the application made by the defendants to the Bank fbr theloan which was subsequently granted on P 23. The openingparagraph in P 24 reads thus
"We shall be grateful if you would grant us further over-draftfacilities of a sum of Rs. 3 Lakhs on the securities of the producelying in our stores’.
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[1985} 2 SriL.R.
P 26 is the application made by the defendants for the loan whichwas thereafter granted on P 25 Once again the opening paragraph issignificant, "We would be grateful if you would grant us over-draftfacilities tor a sum of Rs. 10 Lakhs m the securities of produce lying inour stores. The produce in question is mainly tea and rubber We havein our stores at any one time produce to the value of approximatelytwo million rupees. The value of the immovable security and the valueof goods in our stores at any one time making a total far in excess ofthe present facilities, viz., pledge loan of Rs. 275.000 on stocks underthe Bank's physical control. .. "Another letter in almost the
same terms as P 26 is the document 0 27. Both in P 26 and in D 27the transaction in P 23 is referred to as "a pledge /oanof-Rs 275.000on stocks under Bank's physical control” and the request is foradditional credit facilities "on security of goods lying in the stores'. ByP 22 dated 22nd July. 1965, the defendants sought further creditfacilities in a sum of Rs. 250,000. In P 22 the defendants havereferred to the credit facilities in a sum of Rs. 475.000 granted onP 23 and P 25 " as pledge loan against the produce of the stores'. It issignificant that the defendants in their correspondence have usedsuch expressions as "on the security of the produce lying in our stores"and "pledge loans against produce in stores". Moreover, none of thesignatories to these agreements have chosen to give evidence andcontradict the plain meaning of the words used in the agreements andthe correspondence The finding of the District Judge that when thedefendants signed P 23. P 25 and P 31, they knew they were signingdocuments for the purpose of securing a cash credit on the security ofthe produce in their stores, is clearly supported not only by the expressterms in the agreements themselves but also by the correspondencewith the Bank. The expression "pledge loan" could refer only to theloan granted on the security of the goods in the stores. I therefore findmyself unable to accept the first submission made by Mr.Sethukavalar.
The next submission of Mr. Sethukavalar was that no valid pledge ofthe produce in the stores of the defendants was created by P 23.
P 25 and P 31 inasmuch as –
the defendants had no authority from their clients, theproducers of the goods, to pledge the goods to the Bank ;
there was no delivery of the pledged goods to the Bank as,required by section 17 (a) of the Registration of DocumentsOrdinance (Chap. 117);
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Wright v. People's Bank (o.. Oe Silva. J )
299
that the Bank had no capacity in law to enter into a contractof pledge in respect of tea and rubber for the reason that the Bankdid not hold the required dealer's licence in terms of the Tea ControlAct and the Rubber Control Act.
The defendants admittedly were not the owners of the goods. Mr.Sethukavalar submitted that the defendants were only brokers andwere not mercantile agents and/or agents for sale. They had authorityto sell the goods of their clients, but certainly no authority to pledgethe goods, for they were never the owners of the goods. Counselurged that the defendants were not authorised to pledge the goodsbelonging to their clients in order to secure loans taken from the Bankto run the defendants' own business. As brokers they merely carriedon business on the authority of the licences issued to them under theAuctioneers and Brokers Ordinance (Chap. 109). Their right to carryon business was derived from these licences and they had neitherexpress nor implied authority to pledge goods belonging to theirclients. Mr. Sethukavalar emphasised the fact that there is noevidence to show that the defendants pledge goods in the ordinaryand customary course of their business. Counsel therefore maintainedthat the District Judge was in error when he answered issues .1 to 5 inthe plaintiffs favour, for the defendants were neither mercantileagents nor agents for sale.
On a consideration of the submissions made by Mr. Sethukavalar. itwould appear that the question of an agent's authority to bind hisprincipal arises for consideration The law relating to principal andagent governs the question whether the defendants had the authorityto pledge goods of their clients. The provisions of the Civil LawOrdinance (Chap. 79) would therefore be very relevant. The materialpart of section 3 of that Ordinance reads thus :
"In all questions or issues which may hereafter arise or which mayhave to be decided in Ceylon with respect to the law
ofprincipals and agentsthe law to be administered
shall be same as would be administered in England in the likecase, at the corresponding period, if such question or issue hadarisen or had to be decided in England, unless in any case otherprovision is or shall be made by' any enactment now in force mCeylon or hereafter to be enacted”
Having regard to the wide language used, namely "the law to beadministered shall be the same as would be administered in England inthe like case, in the corresponding period, if such qtiestion or issue
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had arisen or had to be decided in England', it is not only the EnglishCommon Law but also the statute law of England that is madeapplicable, As observed by Dalton, J. in Usman v. Rahim (1) :
"Ordinance No. 5 of 1852 directs that in maritime matters thelaw to be administered in Ceylon shall be the same as thatadministered in England 'in the like case at the corresponding
period’Ordinance No, 22 of 1866 provides that in certain
commercial matters set out the law to be administered shall besame as would be administered in England 'at the correspondingperiod' if the question or issue arising had arisen or had to be
decided in EnglandAll these cases show the Legislature
has provided in express terms for the application in Ceylon of EnglishLaw that may only come to be enacted in England after the localenactment was passed.'
Thus what is applicable is not only the English law in force at thetime of the enactment but also any subsequent statute.
Mr. H. L, de Silva, on behalf of the plaintiff-bank, contended that thedefendants were ‘mercantile agents' within the meaning of theFactors Act of England (52 and 53 Vic 45} and therefore had theauthority to pledge the goods of their clients. Thus it is necessary toconsider the provisions of the Factors Act of 1989 :
'(1) For the purposes of this Act-
the expression 'mercantile agents' shall mean amercantile agent having in the customary course of hisbusiness as such agent authority either to sell goods or toconsign goods for the purpose of sale, or to buy goods,or to raise money on the security of goods ;
a person shall be deemed to be in possession of goods orof the documents of title to the goods, where the .goodsor the documents are in his actual custody or are held byany other person subject to his control or for him or on his
behalf 5
(5)The expression pledge shall include any contract pledgingor giving a lien or security on goods, whether inconsideration of an original advance or of any further orcontinuing advance or of any pecuniary liability.'
CA
Wright v. People's Bank fo .. . Je SHva, J.)
301
It seems to me that the defendants fall within .the definition insection 1 inasmuch as in the customary course of their business theyhave the authority to sell the goods. As regards section 1 (2) it is notin dispute that the defendants were in possession of the goods.
The other sections of the Factors Act which are relevant aresections 2(1) and 2 (4).
"2 0) Where a mercantile agent is, with-the consent of the owner,
in possession of goodsany sale, pledge or other
disposition of the goods, made by him when acting in theordinary course of business of a mercantile agent, shall,subject to the provisions of this Act, be as valid as if he wereexpressly authorized by the owner of the goods to make thesaiine ; provided that the person taking under the dispositionacts in good faith, and has not at the time of the dispositionnotice that the person making the disposition has not theauthority to make the same.
2 (4) For the purposes of this Act the consent of the owner shall bepresumed in the absence of evidence to the contrary."
It is to be noted that section 2(1) contains a deeming
provision – "pledge.made by him when acting in the ordinary
course of business of a mercantile agent shallbe as valid as if
he were expressly authorised by the owner of the goods'.
The evidence clearly shows that the defendants were in possession ofthe goods with the consent of the owner. Witness Samaranayakecalled by the defendants spoke to the need for credit facilities from theBank :
"Q. Why does your firm require credit facilities from the Bank ?
A. To give advances to the clients.
Q.It is the practice for all broker firms to give advances to theirclients against the produce which the clients entrust to the firmto sell ?
A. Yes, and the loans as well.
Q. You are aware that other firms also give advances and loans totheir clients ?
A. Yes.
302Sri Lanka Law Reports[ 1985) 2 Sri L. ft.
Q. Does your firm give loans and advances to your clients ?
A. Yes.
. Q. That is to ensure that they will sell the produce to you ?
A. Yes.Q. That is the practice that has been prevailing among brokers aslong as you know ?
A. Yes.
Q. Do you say that every cent that had been borrowed from theBank was utilised for the purpose of making advances to yourcustomers ?
A. Yes."Diandas, the Accountant, who examined the books was questionedthus
'Q. The business of the defendants is entirely dependant on thecredit facilities available to them from the Bank ?
A. Yes, during this period it appears to be so."
Thus thf evidence reveals that the defendants needed the loans fromthe Bank to make advances to their clients – a normal incident of thebusiness of a broker. In P 36 dated 17.1.1968 the defendants havestated that they "advance money on tea as well as on stocks of rubberand all other produce received by them " Again, the defendants inP 34 dated 12th September. 1966 have stated that they "have largestocks of tea in their stores and for every pound of tea we haveadvanced money. In some cases our advances have been at a low rateof 25 cents per pound, since our clients are unable to carry on unlesswe help them with these advances". In P 26 of 28th April, 1964 thedefendants have stated that the reason for their asking an extension ofcredit facilities is that their firm handles mostly bought leaf factory teasand that their clients "are mostly of the small producer class who are inneed of regular^dvances against the produce sent to our stores."
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Wright v. People's Bank (G.P.S. De Silva, J.j
303
On a consideration of the provisions of sections 1 (1), 1 (2), 1 (5)and 2 {1) of the Factors Act, the oral and documentary evidence, I amof the view that the defendants had the requisite legal capacity andauthority to enter into the agreements P 23, P 25 and P31. Thefinding of the District Judge that "the plaintiff had in entering into thesetransactions acted bona fide and on the basis that the defendants didhave authority to pledge the goods of their clients' is amply supportedby the evidence. I might add that the correctness of the statement inthe judgment that 'the Factors Consolidated Act of 1889 is part ofour law" was not challenged by Mr. Sethukavalar.
Mr. Sethukavalar further contended that the only authority thedefendant had was the authority conferred on them by the licencesissued under the Auctioneers and Brokers Ordinance {Chap. 109) andtherefore they had no authority to pledge goods which do not belongto them. But on a reading of that Ordinance it would appear that itdoes not seek to regulate the rights and duties of a broker. It is rather astatute which makes provision to license the practice of the trade orbusiness of a broker. There is nothing in the Ordinance which prohibitsthe pledging of goods if such power exists under another statute. TheOrdinance is certainly not exhaustive of the rights of a broker andappears to be more in the nature of a revenue statute as submitted byMr. de Silva.
I now turn to the question whether there was delivery of the pledgedgoods to the Bank as required by the provisions of section 17 of theRegistration of Documents Ordinance. At one stage of the argumentMr. H. L. de Silva strongly urged that "delivery" of the pledged goodswas not essential to constitute a valid pledge as between the debtor(defendants) and the creditor (the Bank). The submission was that theagreement between the parties is sufficient without "delivery" of thegoods to the Bank and the question of a valid delivery would havearisen only if the Bank sought to exercise its statutory right to sell thegoods without recourse to court under the provisions of the MortgageAct. Mr. de Silva referred us to the following passage in Mortgage andPledge in South Africa by Wille, 1920 Ed. page 95 :
"As between the parties, a movable article may be pledged bymere agreement without delivery of the articles or any otherformality and the pledge will be valid to this extent that it is bindingon the debtor".
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However, on his attention being drawn by us to the provisions ofsection 17 of the Registration of Documents Ordinance Mr. de Silvaconceded that delivery of the goods is essential to constitute a validpledge under our law since it is common ground that P 23, P 25 andP 31 have not been registered in terms of the Ordinance. The trueposition under our law therefore would be that although P 23, P 25and P 31 show that there was an agreement to create a pledge, thisalone will not suffice to create a valid pledge, unless the agreement isaccompanied by the delivery of the goods as well. Admittedly the Banklocked up the stores on 20th March, 1968 and denied the defendantsaccess to the goods in the stores. The Bank could have lawfully actedin this way only if there was delivery, actual or constructive, of thegoods themselves to the Bank.
The crucial question then is whether there was 'delivery' of theproduce in the stores to the Bank. The goods in question were placedin the stores marked “A* and "B* in plan P27. Mr. Sethukavalarstrongly contended that the evidence in the case was totallyinsufficient to establish actual or constructive delivery of the goods inthe stores to the Bank. Counsel submitted that the only evidence reliedon by the plaintiff was the fact that a padlock was placed by the Bankon the door on each of the stores "A" and "B' and the boards with thewords "People's Bank stores' were put up inside the stores. On theother hand, cdunsel urged that it was the defendants who had takenon lease the premises in which the goods were stored , that the keysof the padlock of the main gate which provided access to the premiseswere with the defendants ; that the defendants had their own padlockon stores 'A' and 'B' ; that it was the defendants' store-keepers andclerks who maintained a record of the inflow and outflow of goods ;that it was the defendants' watcher who looked after the premises. Inshort counsel maintained that the Bank never had exclusivepossession of the goods and that the plaintiff's case at its best wasthat the Bank had 'some degree of control over, some of the goods"(to use counsel's own words). Mr. Mark Fernando for thedefendants-appellants stressed that section 17 of the Registration ofDocuments Ordinance requires that the Bank must establish actualphysical custody of the goods and the evidence at most established"joint possession' which is in law totally insufficient.
It seems to me that on the question of the degree of controlexercised by the Bank over the produce in the stores A and B. thecorrespondence is revealing. The defendants in their letter to the Bank
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Wright v. People's Bank (G.P.S. Da Silva, J )
305
dated 28.4.64 (P26) referred to the loan obtained on P23 as a'pledge loan of Rs. 275,000 on the stocks under the Bank’s physicalcontrol' In P28 of 22.12.65 addressed bv the Bank to thedefendants the security for the pledge loan is referred to as 'goodsunder Bank's control". The defendants in their letter of 1.2.68 (P40)addressed to the Bank refer to the daily stocks in the stores being'from the inception under your control". Since January 1968 the Bankhad doubts as to whether the stocks in stores A and B were sufficientto cover the loans and also complained that some of the nroducecovered by the pledge was not stored in stores A and B. The Banktherefore wrote P35 of 10.1.68 and in the course of that letterreferred to stores A and B as "stores under our control" and also as"the Bank's stores'. It is significant that in P36 dated 17.1.68 which isa reply to P35 the defendants did not dispute the assertion of theBank that stores A and B are the Bank's stores. On the other hand inP36 the defendants state
"As mentioned in paragraph 4 of the letter under reference totalstock as at date (10.1.68) was 550,000 lbs. approximately under
your direct control We have already explained in earlier
Correspondence that we not only advance money on tea but do soalso on stocks of rubber and all other produce too. We wouldearnestly appeal to you to consider taking even the keys of the entirestores, so that all our produce will be in the control of the Bank'
The reference to the “entire stores* would be tostores C and D since A and B were already in the control of the Bank.The point to be noted is that the defendants understood and acted onthe basis that the handing over of the keys to the Bank meant thegiving of control to the Bank.
The penultimate paragraph of P37 of 27.168 addressed to thedefendants by the Bank reads thus :
"Kindly note that we are issuing instructions to our representativenot to release any teas without our prior permission with effect from3rd February 1968. Thereafter, releases will be permitted by us onlyof such stocks as may be in excess of our security requirements."
The evidence of Goonetilleke. the Assistant General Manager of theBank is that the defendants at no time questioned the g^ht asserted by
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the Bank not to release the tea. The reply to P 37 is by P 40 dated
which contains significant admissions :
we have now taken adequate steps to keep within vourrequirements. We are deeply concerned at your penultimateparagraph of the letter under acknowledgement and in thisconnection.we have to most respectfully ask for more time to enable
us to rectify the errors caused by us unknowingly In
conclusion, as stated in our letter of the 17th ultimo, we once againappeal to you to kindly consider taking over the keys of the entirestores so that all our produce will be under your control . . .
In P43 of 11.2.68 sent by the defendants to the Bank there is anadmission that the Bank had the right to stoo issues and receipts ofgoods into the stores – vide paragraph 1. In paragraph 4 of thesame letter the loan is described as a "pledge loan". As rightlyobserved by the trial Judge, the claim that the Bank did not have solecontrol but only joint control along with the defendants was made torthe first time only after the closure of the stores by the Bank.
Wille in Mortage and Pledge in South Africa (1920 Ed.) page 99discusses the nature of 'delivery- required to constitute a validpledge :
'The delivery that is necessary to perfect a pledge is the placing ofanother person in legal possession of the thing so that he may dealwith it as his own ; by possession is meant, not actual bodilycontact with the thing, but the physical power of dealing with itimmediately and of excluding any foreign agency over it (Savigay.Possession, p. 142-148). In other words, delivery is the ceding orgiving to another the power over a thing m such a way that thephysical control thereof is united with the legal right of disposing ofit. Delivery takes either of two main forms :
real delivery, where the natural possession is handed over,or
constructive delivery, where a handing over, which doesnot actually take place, is understood to have beeneffected (Voet, 41 : 1 : 34).'
The case for the Bank was that there has been constructive deliveryof the goods. On a close analysis of the evidence, the District Judgefound that 'there had been no delivery of possession of the goodspledged at or about the time the pledge was created as the plaintiffallowed the defendants to bring in and take out goods from stores A
CAWright v. People s Bank (G.P. S. De Silva. J.)307
and B without placing any restrictions on them." However, havingregard to the conduct of the parties in particular as evidenced by thedocuments P35, P36, P37, P39, P40, P43, P44, P45 and P47 andthe testimony of the Bank's witnesses Goonetilleke and Saheed, theDistrict Judge arrived at the conclusion that as from 10.1.68 theplaintiff "not only had paramount control over the right of entry andegress into stores A and B, but also exercised full control over thecontents of these rooms. This control ihe plaintiff exercised up to thedate of the closure of the stores. These facts to my mind indicate thatas from 10.1.68 there was 'delivery' of possession to the plaintiff ofthe goods pledged with them by the defendants ". These findingswere assailed by Mr. Sethukavalar as being unwarranted on theevidence but in my view they are fair and reasonable findings rootedfirmly on the contemporary documents and the oral testimony of thewitnesses for the Bank. For cogent reasons given by the trial Judge,the evidence of the principal witness for the defence, Samaranayake,has been rejected
The question now arises whether delivery of possession of thegoods must be at the same time as the advances of the money andthe agreement to pledge or whether it would suffice if delivery of thegoods takes place at a subsequent point of time. It was contended forthe defendants that if the delivery of the goods is notcontemporaneous with the agreement there can be no valid pledge.However, it is very important to note that each of the agreementsspecifically provided for the removal of the goods from the stores andthe substitution of other goods in their place. Moreover, the verynature of the business carried on by the defendants would not permitthe goods which were in the stores on the date of the agreements toremain in the stores throughout the period the agreements were inforce. The Bank's rights, as pledges, attached to the particular goodsin the stores on given date and time if such goods were in the Bank'spossession. The correspondence show that from January 1968 thesteps taken by the Bank were directed to the implementation of clause4 of the agreements. In my view, the dicta of Kekewich, J. in Hilton v.Tucker. (2) support the contention of the Bank that delivery of thegoods need not be contemporaneous with the agreement to pledge.Said Kekewich, J. –
“I have pointed out that until delivery is made there is nothing buta contract and the contract does not pass the property without suchincidents as I have already mentioned. But I am n« aware of anv
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authority which goes so far as to say that the delivery must becontemporaneous so long'as it is in honest fulfilment of the
contractI am at a loss to understand why delivery
should be actually contemporaneous with the advanceMy
view of the law certainly is that if money is advanced, as here, on acontract that goods shall be delivered and that then those goods aredelivered in pursuance of that contract, the same legal results followas if the money was handed over with one hand and the goodsreceived with the other".
No decision to the contrary was cited before us.
It was only in March 1968 that the Bank sought to exercise its rightsas pledgee by closing the stores. The evidence establishes the factthat at that point of time there was actual delivery of the goods intothe possession and custody of the Bank. The goods being a movingstock, the absence of exclusive possession prior to January 1968 isnot relevant. The District Judge has also accepted the position of theBank that there were 2 boards inside-stores A and B which bore thename "People’s Bank Stores'. This is rejevant on the requirement of"ostensible possession". I accordingly hold that the contention of thedefendants that there was no valid delivery of the goods in the storesA and B to the Bank is not well founded.
Finally, Mr. Sethukavalar submitted that inasmuch as the Bank didnot hold a dealer's licence under the Tea Control Act No. 51 of 1957and the Rubber Control Act (Chap, 436) the Bank could not have beenin lawful possession of the tea and rubber alleged to have beenpledged. The Bank's possession of the goods being unlawful, it wasargued that the contract of pledge was tainted with illegality. Althoughno such plea appears to have been taken in the answer and no issueraised on that basis, yet I shall proceed to consider this submissionsince it raises a pure question of law.
Section 15(1} of the Tea Control Act provides that no personother than a licensed dealer in made tea or a registered manufactureror a person acting on behalf of such dealer or manufacturer shall havein his possession tea in excess of-the prescribed quantity. A similarprovision is found in section 10 of the Rubber Control Act in respect ofrubber. On a reading of all the provisions contained in Part IV of theTea Control Act and Part III of the Rubber Control Act it would appear,as submitted by Mr, H. L. de Silva, that these provisions wereintended to regulate the purchase and sale of tea and rubber. Inconsidering the*question of the illegality of the contract of pledge it is
CAWright v. People's Bank (G.P.S. De Silva. J)309
relevant to have regard to the object and scope of the Act. It ispossession which is incidental to contracts of sale and purchase whichfalls within the prohibition contained in the statute. In the instant case,possession of tea and rubber by the Bank was incidental to thecontract of pledge which was to secure the loan to the defendants.The mere fact that the goods pledged are tea and rubber cannot taintthe contract of pledge with illegality. The Bank never held itself out tobe a dealer in tea and rubber. It is possession qua dealer in tea orrubber that is prohibited under the statute.
In support of his submission that the absence of a dealer's licencedid not render the contract of pledge illegal, Mr. de Silva cited theleading case of St. John Shipping Corporation v. Joseph Rank Ltd.
This was a case where the plaintiffs carried a cargo of wheat fromAmerica to UK in their ship which, when bunkered with fuel for thevoyage, submerged the load line contrary to the provisions of theMerchant Shipping (Safety and Load Line Conventions) Act of 1932.The master was fined £ 1200 for the offence in UK. The defendantsto whom the ownership of a portion of the goods had passed withheldpart of the freight on the ground that the plaintiffs could not enforce acontract which they had performed in an illegal manner. Devlin, J.rejected that contention, for the illegal loading was merely an incidentm the course of performance that did not affect the substance of thecontract. In the course of his judgment Devlin, J. stated .
"Whether it is the terms of the contract or the performance of itthat is called in question, the test is just the same : is the contract,as made or as performed, a contract that is prohibited by thestatute ?the question always is whether the statute meant
to prohibit the contract which is sued onCounsel for
the plaintiffs is right in his submission that the determining factor isthe true effect and meaning of the statuteIn the statutes
to which the principle has been applied what was prohibited was acontract which had at its centre – indeed often filling the wholespace within its circumference – the prohibited act*
On a fair reading of the Tea Control Act and the Rubber Control Act.I hold that contracts of pledge in the instant case are not within theambit of the statutes. The submission that the contracts of pledge aretainted with illegality therefore fails.
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tn a comprehensive and well-reasoned judgment, the District Judgehad found for the plaintiff-Bank oh all material issues. We see noreason to disturb the findings of the trial Judge, based as they are on avery careful and proper evaluation of the evidence, both oral anddocumentary. It is difficult to resist the conclusion that thecontemporary documents, while strongly supporting the plaintiffscase, tell heavily against the case for the defendants. We accordinglyaffirm the judgment and dismiss the appeal with costs
MOONEMALLE, J. – I agreeAppeal dismissed.