146-NLR-NLR-V-55-PARAKRAMA-SAMUDRA-COLONY-C.-A.-P.-S.-SOCIETY-LTD.-Appellant-and-E.-S.-WIMALA.pdf
GRATTAEN J.—ParaJcrama Samudra Colony G. A, P. S. Society, Ltd. 510'
*)v. Wimalasekera
Present: Gratiaen J. and Fernando A.J.o
PARAKEAMA SAMUDRA COLONY C. A. P. S. SOCIETY, LTD.,Appellant, and E. S. W JJVTALASEKERA, Respondent
tS. G. 479—D. G. Anuradhapura, 3,122
Co-operative Societies Ordinance (Cap. 107)—Section 18—Contractual liability ofsociety—Effect of by-laws.
*co-operative society, upon registration under the Co-operative Societies-
Ordinance, becomes incorporated by statute (section 18), and its liability incontract is regulated by the limits of its constitution and-of its by-laws. ThePresident of a co-operative society has, therefore, no power or authority to-commit the society to contractual obligations into which, according to the-by-laws, the Committee alone can enter.
^LpPEAL from a judgment of the District Court, Anuradhapura.
H. V. Perera, Q.G., with E. JR. S. JR. Goomaraswamy, for the defendantappellant* ,»
8. J. V. Ghelvanaydkam, Q.G., with N. Kumarasingham, for the plaintiff'respondent.
Cur. adv. vult.
June 16, 1954. Gratiaen J.—
The appellant is a co-operative society registered under the Co-operative-Societies Ordinance (Cap. 107), and the respondent is a trader doingbusiness at Hmgurakgoda. This appeal is from a judgment of the learnedDistrict Judge of Anuradhapura awarding the respondent Rs. 41,892*50’as damages against the society for an alleged breach of contract to supplyto bim a certain quantity of paddy.
According to the plaint, a contract was entered into between thesociety and thte Respondent on 15th November, 1949, for the sale of 20,000-bushels of paddy at Rs. 8 • 25 a bushel; the respondent had paid sums-aggregating Rs. 62,150 by instalments as part of the considerationbetween 15th November, 1949, and 6th December, 1949, but only 6,215-bushels’had been delivered in terms of the contract, so that the societywas in default in respect of the balance 13,785 bushels (for some of which,,admittedly, no payment had been made).
The amount claimed includes a sum of Rs. 10,876*25 representingthat part of the total amount advanced against which no deliveries hadbeen made, but Mr. Chelvanayakam concedes that this item also fallsto be included under the general head of “ damages ” for breach ofcontract. It was certainly not claimed upon any alternative cause ofaction such as “ money had and received ” or on the footing of “ unjustenrichment ”.,
For the purposes of considering the grounds upon which Mr. Pererahas challenged thd correctness of the judgment under appeal, I shall
-520GRATXAEN.J.r—JEZarakrama, Samudra Colony C. A. _P. S. Society, Ltd.
v. Wimalasekera,(.- i-
assume that the respondent’s version of the transaction is substantiallycorrect. The society itself was not in a position to offer *any reliableevidence as to what had originally taken place—the reason being (asthe learned judge points out) that two of the society’s office-bearers(with whom the respondent had carried on all his negotiations in regardto the alleged contract) had embezzled a large portion of the mo'ney paidto them by the respondent, and fabricated the society’s books in orderto cover their fraud. The relevant facts may be summarised as follows :The society purchased paddy from its members, who were cultivators,-at a guaranteed price of Us. 8 per bushel, and sold the produce to outsidersat prices determined from time to time by the Committee. {By-lav^ 44of the society prohibited credit sales except on terms as to securitypreviously approved by the Registrar of Co-operative Societies.)
On 1st November, 1949, the President of the society (with theCommittee’s authority) advertised in the “ Ceylon Daily News ” that26,000 bushels were available “ for immediate sale ”. On the same daythe respondent negotiated with the President for the purchase of 20,000bushels, and the President orally accepted his offer of Rs. 8 – 25 per bushelsubject to this rate being confirmed by the ‘Committee. So mattersstood until 15th November, 1949, when the previous arrangement wasorally confirmed. The respondent paid a sum of Rs. 500 to the Presidentout of the proposed purchase-price, and obtained from him a receipt P3describing the payment as “an advance agreeing to sell 20,000 bushelsat Rs. 8- 25 per bushel if the Committee agrees to seU at this rate ”.
The receipt P3 did not, however, incorporate all the terms of thebargain. According to the respondent, he did not possess either thefunds or the storage facilities to permit of a “ spot sale ” whereby hecould take immediate delivery of 20,000 bushels on payment of the fullcontract price. Accordingly, the arrangement was that, subject onlyto general confirmation of the price by the Committee (but withoutreference to any particular contract with any specified buyer) the re-spondent would be entitled “ to pay whatever money (he) had and buythe paddy from time to time ”.‘ t-
Later in the day, i.e. on the 15th November, 1949, the Committeepassed a resolution “ to sell the paddy at the store without gunnies atRs. 8'25 to be delivered at the store and further to receive paymentbefore delivery ”. The President immediately informed the respondentthat the price had now been fixed, and the respondent’s contention isthat his previous oral agreement with the President thereupon came intooperation as an enforceable contract binding on the society.
According to the plaint, this “ contract ” was performed in part bothby the respondent and by the President “ on behalf of the society ”.The respondent made various payments and received instalment'deliveriesfrom time to time—although it is not suggested that, against each payment,a precisely corresponding quantity of paddy was handed to him.
This is th6 contract which the respondent seeks to enforce againstthe society. Analysed in the context of the Sale of Goods Ordinance,it is capable of two alternative interpretations. Either a specific quantity
521
GRA^TIAEN J,—Pardkrama Samudra Colony C. A. P. S. Society, Ltd.
v. Wimalasekera
•—*
of 20,000 bushels was appropriated to the contract on 15th Novemberitself, the seSer undertaking to retain the goods at the buyer’s disposaluntil such time as the latter chose to remove them by convenient instal-ments (against payment of an equivalent instalment of the contractprice) ; or, in the alternative, the seller bound himself by agreement tosell an aggregate quantity of 20,000 bushels at future dates selected bythe buyer, so that the property in part of the goods would pass to thebuyer whenever he took an instalment delivery against an instalmentpayment.
The Committee itself had no knowledge of the fact that the Presidenthad, purported to bind the society in this way. The market price ofpaddy soon began to show an upward trend, and certain quantities instock on or after 15th November (including that which, according to therespondent, should have been ear-marked for him) were sold and deliveredto other purchasers at higher rates in the ordinary way. In the result,the President was not in a position fully to implement his earlierundertaking with the respondent even if he so desired. What he andanother office-bearer actually did was to embezzle certain instalmentsof the pur,ehasfj-j}rice received from the respondent, and to put him offwith false promises on various pretexts. Inevitably, the fraud came tolight, and the President was interdicted from duty. The present actionthen commenced..
The society’s books of account (fraudulently maintained by the dis-honest office-bearers) sufficiently establish at any rate that the societyhad not received the benefit of any sum exceeding the value of paddyactually received by the respondent under the “ contract ” sought to beenforced. No question of “ unjust enrichment ” would therefore havearisen as a ground of liability even if it had been put in issue betweenthe parties.
The defence which was pressed before us in appeal was that, evenupon the respondent’s version of the transaction, his agreement with thePresident did not constitute a contract enforceable against the society.In other words* the President had no power or authority to commit thesociety to contractual obligations of that kind. In my opinion, thisobjection must be upheld.
The society, upon registration under the Co-operative SocietiesOrdinance, became incorporated by statute (section 18), and its liabilityin contract is regulated by the limits of its constitution and of its by-laws.Under by-law 32, the Committee “ shall exercise all the powers of thesociety subject to any …. restrictions in the by-laws ”, and isspecially empowered “ to decide the terms of purchase and sale of anygoods ”—by-law 32 (14). By-law 32 (21 further empowers theCommittee (arfd no one else):-
“ to enter into contracts on behalf of the society. Such contractsshall bear on behalf of the society the signature of the President andof either the Secretary or the Treasurer of the society ”. •> I
I have already referred to the special restrictions imposed with regardto sales on credit. By-law 44 clearly applies to “ spot sales ” across.
-522 G-RATIAEN" J.—Parakrama Samudra Colony C. A.. P. S. Sod(• ty, ltd.
v. IVima.laae.kera
the counter. It also invalidates, in my opinion, any “ agreement to sell”,even if directly entered into by the Committee, on terms ks to creditnot previously approved by the Registrar. In order to minimise therisks involved in improvident transactions without adequate safeguards,only the Registrar is empowered to bind the society by decisions as towhether, and on what terms, credit facilities could safely be given to a•customer.
The President is merely the chief executive officer of the society, andhis powers and duties are specified in by-law 35. In the present case|the officer concerned was also the society’s Treasurer, and as such "he wasrequired to take charge of all monies received “ by the society ” f^omits members and its customers—by-law 41.
Having regard to these by-laws, it is perfectly clear to my mind thatthe society is not liable under the contract purported to have been enteredinto by its President in November 1949. Had the President, actingupon the Committee’s resolution of 15th November, merely sold 20,000bushels to the respondent against immediate payment at the approvedrate, the transaction would without doubt have been binding on thesociety. But we are here concerned with a nontracfi jmpoyng manyonerous obligations on the society, some of them to be fulfilled at a futureundetermined date : for instance, it involves an irrevocable undertakingto accept payment at Rs. 8'25 even if the market for paddy shouldsubsequently rise, and to keep in stock a very large quantity ear-markedfor the buyer for an unspecified period of time. The formation of such acontract fell entirely outside the scope of an individual office-bearer’sfunctions, and only the Committee was vested with power to bind thesociety in that way. This power was not exercised by the Committee,nor was it delegated to the President. Indeed, it was not capable ofdelegation. Moreover, it is implicit in the language of ^oy-law 32 (21)that a contract involving future obligations should, if entered into by-the Committee, be reduced to writing so that the ascertainment of itsterms should not depend on oral testimony. The present contract was■therefore also defective in matter of form. Finally, it(might well havebeen argued that the contract purported to grant the respondent creditfacilities in violation of by-law 44. For all these reasons, I conclude■that no cause of action had accrued to the respondent to sue the societyfor the recovery of Rs. 41,892-50 or any part of that sum.(
It was the duty of the respondent, before entering into this transaction,to satisfy himself as to the powers of the office-bearers with whom hechose to negotiate. Mr. Chelvanayakam conceded that it was theCommittee alone which could validly enter into a contract of the kindsought to be enforced, but he argued that these powers had, in theordinary course of business, been delegated to the President subjectonly to the limitation as to the price at which the paddy might be sold.I do not agree that the present case falls within the well-known “ principleof convenience ” which entitles a third party to assume against a corpora-tion that allunatters of internal administration have been duly compliedwith—Royal British Bank v. Turquand1 and Dey v. Pullinger Engineering■Co. 2. That principle only applies where the third party can point to ani (1856) E. <Ss B. 327.2 (1921) 1 K. B. 77.
Sameem v. Dap
523
article (or by-law) authorising the delegation of authority by the Directors(or persons jested with the actual power) to someone who had purportedto enter into the contract on behalf of the corporation. In such a case,the ostensible authority of the servant or agent binds the corporationeven though there had been no delegation in fact. But the presentaction concerns a contract with a President who had no delegatedauthority to bind the society, and to whom the Committee had no powerto delegate its own powers. In such a situation, the contract is whollyyoid as against the corporation—Kreditbank Cassell v. Schenkers, Ltd.1.
Mr. JChelvanayakam finally suggested that the respondent was atleast entitled to recover the sum of Rs. 10,876-25 which he had overpaidto tke President and in exchange for which no paddy had been delivered.Suffice it to say that no such claim was made on the basis of any alternativecause of action. Indeed, I do not see how it could have succeeded.The society was not “ enriched ” in any way by payments made to (andretained by) two office-bearers who had no authority under the by-lawsto accept money on behalf of the society under a contract by which thesociety was not bound..
I woulrj set-aside th® judgment under appeal and enter a decreedismissing the respondent’s action with costs both here and in the Courtbelow.
Fernando A.J.—I agree.
Appeal allowed.