DE MEL, Appellant, and MARIKAR, Respondent

029-NLR-NLR-V-44-DE-MEL-Appellant-and-MARIKAR-Respondent.pdf


de Mel and Marikar.
147
1943
Present: Soertsz and Hearne JJ.
DE MEL, Appellant, and MARIKAR, Respondent.
40 & 129—D. C. Colombo, 12,458.
Broker—Undisclosed principal—Liability according to custom—Liabilityremains though inconsistent with general law—Right to indemnity—Extent of damages.
Where, by reason of a custom, a broker is liable to be sued by theseller he is not relieved of liability because it is inconsistent with hisposition as agent under the general law.
1 42 N. L. R. 317.
148
de Mel and Marikar.
Where a broker is bound to take delivery of coupons tendered and to-pay the full contract price for them, whether the buyer was preparedto take delivery or not, the broker is entitled upon the default of thebuyer to be indemnified against the liabilities he has incurred.
The right of indemnity covers not merely the losses actually sustainedby the broker but also the full amount of liabilities incurred by him.. even though they may in fact never be enforced.''
T
HE plaintiff-respondent averred that he had requested theappellants, who are a private company of brokers, to buy as welL
as to sell rubber coupons for him, that in pursuance of his requests theappellants had put through various purchases and sales, details of whichappeared in the plaint, and that, on a balance of these transactions,31,000 lb. of coupons of rubber were deliverable by him to the appellantswhich they wrongfully refused to accept. In their answer the appellantsaccepted liability as the brokers employed by the respondent but pleadedthat the statement of dealings in the plaint was incomplete.
It was alleged that on May 15, 1940, the respondent instructed themto purchase 1,000,000 lb. coupons and that in consequence so far fromthere being a liability on their part to take delivery of 31,000 couponsfrom the respondent, the latter was liable to take delivery of 69,000 lb.coupons from them. The respondent denied that he had given instructionsfor the purchase of 1,000,000 lb. coupons as alleged by the appellants.
It was agreed that if the appellants failed in regard to the 1,000,000 lb.coupon contract, they would be liable in the sum of Rs. 56,185.68 andthat if they succeeded they would be entitled to judgment forRs. 107,055.81.
The learned District Judge, while holding with the appellant on thefacts, was of opinion that his claim was not legally sustainable.
Counsel for, the plaintiff-respondent raised a preliminary objection thatnotice of tender of security was not given “'-forthwith”.
The objection was overruled.
H. V. Perera, K.C. (with him E. F. N. Gratiaen and D. W. Fernando) rfor defendant, appellant.—Defendant is a broker for an undisclosedprincipal. His claim against the plaintiff is on a contract of employmentnot on a contract of sale. As regards the rights of reimbursement andindemnity of an agent, see Halsbury (Hailsham Edition), Vol. I., sect. 437.Once the agent has incurred a liability he can recover even though theliability is in fact never enforced—Bowstead’s Law oj Agency (1931 ed.),p. 216. The agent need not wait till he is sued—Lacey v. Hill1, BritishUnion and National Insurance Co. v. Rawson1. Evidence of customin the trade is admissible if such custom is not inconsistent with thecontract. If, by reason of a custom, the broker is liable to be suedby the seller, he cannot be relieved of his liability because it is inconsistentwith his position as an agent under the general law of agency—Fleet v.Murton *
N.E. Weerasooriya, K.C. (with him A. R. H. Canakeratne, K.C.,
A. Rajapakse, and J. M. Jayamanne), for plaintiff, respondent.—Theclaim in reconvention was made by defendant on a breach of contract1 (1874) 43 L. J. Eg. 182.1 (1916) 2 Ch. 476.
(1871-72) L.R. 7 Q. B. 126.
de Mel and Marikar.
149
with plaintiff not on the ground of an indemnity. A mere allegation,of a possible liability is not enough. Unless an averment was madethat a liability was in fact incurred there is no cause of action.
Although Mrs. de Mel is named as a contracting party the evidenceis that she left the transaction entirely to her husband. The defendantCompany therefore had a direct interest in the contract. Where a person,,as a broker and acting in a fiduciary capacity, puts through a transactionin which he is interested, such transaction is bad in law—57 S. A. L. J.,p. 32. There is a conflict of interest and duty. It is immaterial whetherloss or damage is incurred by a client. It is purely based on publicpolicy—Story, on Agency (1889 ed.), p. 172. Agents cannot act so as tobind their principals where they have an adverse interest. They mustact with, the sole regard of the interests of their principals—Costa v.Silva1, Hallv. Pelmadulla Valley Tea and Rubber Co., Ltd. ~
On the question of liability, the cases cited by the other side can bedistinguished on the facts. The prospect of a claim being made isinsufficient—Dyson v. Peat. ’. There is a distinction between a real anda prospective liability. One cannot be indemnified for a liability whichhas not yet resulted in a judgment. There must be a judgment or some-thing equivalent to a judgment.
It is finally submitted that defendant’s claim is based on a wageringcontract. If in substance the transactions were wagering contractsthen it is conceded that both claim and counterclaim must fail—Bartleet v. Lebbe Marikar'. The trial Judge should have directed hismind to find out the Teal nature of the transactions.
H. V. Perera, K.C., in reply.—The plaintiff’s case was that therenever was a contract, defendant’s that there was a contract. Defendant’scase does not show a wagering contract. It does not show that bothparties did not intend delivery but only payment on the happening of anevent. A wagering contract is a bet. There must be mutuality.Speculation alone does not make a contract a wagering contract. Havingsold coupons the broker covers himself by buying. This is speculation,not wagering. The evidence does not disclose a wagering contract—see the Privy Council’s decision in Bartleefs case (supra). The admissionsmade during the trial negative a wagering contract, and that is conclusive.
The custom, or usage admitted to exist in the rubber coupon marketmerely regulates the terms of employment. The broker is neither sellernor buyer. He merely undertakes to perform.
There is no evidence led by plaintiff to show unreality of seller. Onthe contrary, Mrs. de Mel was treated just as any other buyer or seller.
On the question of “ interest ” it is submitted that defendant is a-limited liability company and has its own legal persona and its own legal'capacity. The company has no “ interest ” in the contracts of itsmembers. The true test is “ whose contract was it? ” The case ofCosta v. Silva (supra) can be distinguished.
Cur. adv. vult.
1 (1917) 19 N. L. JR-, ill.» (1929) 31 N. L. R 55.
* (1917) 1 Gh. 99.
‘ (1941) 43 N. L. R. 225.
150
HEAHNE J.—de Mel and Marikar.
January 15, 1943. Hearne J.—
The plaintiff, who is the respondent to this appeal, No. 129, allegedthat he had requested the appellants to buy as well as to sell rubbercoupons for him, that in pursuance of his requests the appellants had“put through” various purchases and sales, details of which appearin the plaint, and that, on a balance of these transactions, 310,000 lb.coupons of rubber “ were deliverable by him ” to the appellants, whichthey “wrongfully and unlawfully refused to accept”. In their answerthe appellants accepted liability as the brokers employed by the respon-dent but pleaded that the latter’s statement of their dealings was incom-plete. It was alleged that on May 15, 1940, the respondent instructed themto purchase, 1,000,000 lb. coupons and that, in consequence, so far fromthere being any liability on their part to take delivery of 310,000 lb.coupons from the respondent, the respondent was liable to take deliveryof, 690,000 lb. coupons from them. The respondent denied that he hadgiven instructions for the purchase of 1,000,000 lb. coupons as allegedby the appellants.
The appellants are a private Company (Austin de Mel, Ltd.). It isadmitted that, when approached by buyers, they had on some occasionsissued “ bought notes ” in which reference was made to undisclosedprincipals whose existence was entirely mythical. Indeed, in regardto the sales to the respondent, which are set out in the plaint, the sellerswere, admittedly, .in every case, the appellants themselves. It is,however, not necessary to consider whether, on the authority of Sharmanv. Brandtthe respondent should have been entitled to repudiate thesesales; for the respondent in his plaint gave , them credit for them andin the course of ,the trial a clear cut agreement was reached. It wasagreed that, if the appellants failed in regard to tthe 1,000,000 lb. couponcontract, they would be liable in the sum of Rs. 56,185.18 and that,if they succeeded, they would be entitled to judgment for Rs. 107,055.81.
By reason of this agreement it appeared that the decision of the casedepended upon the determination of one question of fact. But this wasfar from, being so. Sixteen issues had originally been framed and afterMrs. de Me), the alleged seller of the 1,000,000 lb. coupons, had beencross-examined at length, further issues were raised. One of the issuessuggested that the 1,000,000 lb. coupon contract was unenforceable as itwas a wagering contract, and others suggested that the use of Mrs. deMel’s name was a mere cloak to hide the real transaction, namely a sale,not by Mrs. de Mel, the “ undisclosed principal ”, but by the appellantsthemselves..
The position that obtained from this stage onwards was not free ofcomplications. Apart from the evidence in the case, the agreed courseof dealing between the parties negatived the idea that the contractsmade by the respondent were wagering contracts. He himself professedto know what these contracts are. He had had experience of them andhad carried two or three cases involving the defence of wagering as far asthe Privy Council, and yet, while he was maintaining in evidence that hiscontracts were not wagering contracts and that he did not enter into the 1
1 (1S71) L. B. G. Q. B. 720.
HEABNE J.—de Mel and Marikar.
151
000,000 lb. coupon contract at all, his Counsel was arguing that thecontract which was denied by his client was, if made, a wagering contract.Alternative defences are, of course, possible in law but arguments insupport of them in circumstances such as these must of necessity losemuch of their force. Again, while the respondent’s contention was thathe was not a party to the 1,000,000 lb. coupon contract his Counsel was,in effect, arguing that he was, and that the other party to the contractwas, not Mrs. de Mel, but the appellants themselves.
An examination of documents in the case, e.g., D 50 and P 39, indicatesthat before and after May 15, 1940, Mrs. de Mel had bought and soldcoupons through Austin de Mel, Ltd. The Judge said that “he had nohesitation in accepting the story of the defence that the plaintiff did putthrough the contract pf May 15, 1940, and in rejecting the plaintiff’sdenial”. He held that “the seller on the 1,000,000 lb., coupon contractwas not the defendant company but Mrs. de Mel” and that it was not awagering contract. Nothing has been said on appeal that, in my opinion,could have the effect of disturbing these findings. No argument wasbased on the fact that Mrs. de Mel is the holder of one share in Austin deMel, Ltd.
Notwithstanding the Judge’s strong findings of fact in favour of theappellants he held against them as a result of the view he took of the law-in Kngland which governs the rights and liabilities of principal and agentin Ceylon.
It had been agreed at the trial that “ the brokers’ bought note or soldnote never discloses the name of the other party to the contract; thatthe broker is, as far as the seller is concerned, liable to accept delivery ofall coupons tendered, and to pay the full contract price of the amounttendered by the seller whether the buyer accepts delivery or not; that,as far as the buyer is concerned, the broker is liable to tender and deliverthe coupons irrespective of whether the seller has tendered or not ”.
The Judge held that “ there was nothing in the local usage by which thedefendant Company (the appellants), who acted merely as agents for anundisclosed principal, can claim to act as a principal and sue on the con-tract of the undisclosed principal ”.
I agree that in accordance with the general law of agency the appellantscould not sue on the contract of the undisclosed principal (Mrs. de Mel).But, before it can be said that the local usage did not affect the generallaw, it is necessary to consider the legal implications of the local usagesubject to which the contract was made.
It will be noted at once that the appellants undertook, as far as theseller is concerned, to accept delivery of all coupons and to pay the fullcontract price, whether the buyer accepts. delivery or not. If, in theevent of the buyer refusing to accept delivery, as in this case he did,the seller is entitled to sue the appellants, then the general law of agencyis affected by the local usage ; for, under the general law, the brokerswould not be liable to be sued by the seller.
Now, there is authority for saying that, where by reason of a customthe brokers are liable to be sued by the sellers, they are not relieved oftheir liability because it is inconsistent with their position as mere agentsunder the general law.
152
HE ARNE J.—de Mel and Marikar.
In Fleet v. Mutton (supra), the defendants, M. & W., fruit brokers inLondon, being employed by the plaintiffs, merchants in London, to sell for.them, gave them the following contract note addressed to the plaintiffs—“ We have this day sold for your account to our principal ” so many tonsof raisins. (Signed) “ M. & W., brokers The defendants’ principalhaving accepted part of the raisins, and not having accepted the rest,the plaintiffs brought an action against the defendants, and they soughtto make them personally liable by giving evidence that, in the Londonfruit trade, if the brokers did not give the names of their principals in thecontract, they were held personally liable, although they contracted as.brokers for .a principal. The brokers were held to be liable.
Cockburn C.J. said “ If the custom attaches, the non-liability, whichwould under ordinary circumstances prima facie exist in a contractmade by a person purporting to contract as broker, ceases, and thecontract assumes a different form and character, and carries withit different legal consequences, by reason of the customs of the trade . .
In his judgment Blackburn J. said “ If the matter were res Integra,
I should have felt great difficulty indeed, as some of the Judges in theExchequer Chamber did in Humfrey v. Dale, in making out how thecustom could make the broker, who is, in fact, not contracting aspurchaser, liable in the terms of the count in that case which chargedthe defendant as purchaser ”. But after considering in this connectionthe case of Couturier v, Hastie, he said: “ It seems to me, therefore,as Mr. Cohen said, that this custom must be taken as merely regulatingthe terms of the employment” of the brokers.
It will be seen that, in the case cited, the custom, either because of thelegal consequences which flowed from it,- or because it was held to attach,.not to the contract of sale, but to the terms of employment, was enforcedalthough it conflicted with the general law of agency. Similarly, in thepresent case, if, by reason of the local usage, an action by the appellants(or rather a claim in reconvention) is maintainable by them against therespondent, they would not lose their jright of action because it is inconsist-ent with their position under the general law. This, I think, disposes ofthe difficulty which the learned Judge felt.
The next question is what rights, if any, have the appellants againstthe respondent ? They became liable to tender and deliver to therespondent the coupons contracted for irrespective of whether the sellertendered or not, and also to take delivery from the seller of all coupons•tendered and to pay the full contract price for them whether the respond-ent was prepared to take delivery or not; and, upon the default of therespondent, they are entitled to be indemnified against the liabilitiesthey have incurred. “ The right of indemnity covers not merely thelosses actually sustained by the agent, but also the full amount of theliabilities incurred by him, even though they may in fact never beenforced —Halsbury (Hailsham Edition), Vol. 1., Article 437. Theauthority for this proposition is Lacey v. Hill (supra). See also British.Union and National Insurance Co. v. Rawson (supra).
DE KRETSER J.—Kumarihamy v. Maitripala.
153
In this state of the law, and having regard to the term of the agreementto which I have referred, the appeal of the appellants must be allowedwith costs and judgment must be entered in their favour for Rs. 107,055.81,with interest as claimed and costs.
A preliminary objection had been taken that the notice of tender ofsecurity was not given “ forthwith ”. It is, however, clear from therecord that notice was given on the very day that the petition of appealwas received by the Court. The objection fails.
It was agreed that if this appeal was allowed, the appeal by the plaintiffin S. C. No. 4P would not arise for consideration. It must be put aside,1 make no other order.
Sozrtsz J —I agree.Appeal allowed.