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1915 Supreme(SC) 61
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
VISCOUNT HALDANE, LORD WRENBURY, SIR JOHN EDGE, AND MR. AMEER ALI.
BANK OF BENGAL - Appellant
Versus
RAMANATHAN CHETTY - Respondents
On Appeal from the Chief Court of Lower Burma.
Decided On : Dec. 16. 1915.
Solicitors for appellants :Arnould & Co. Solicitors for respondents: Bramall & White.
An agent entrusted with the general management of a money-lending business and express authority to borrow has the implied authority to pledge the principal's credit to secure advances for customers, as such authority is a necessary implication of the nature of the business.
Headnote:(A) Presidency Banks Act, 1876 - Section 37(e); Indian Evidence Act, 1872 - Section 114; Indian Contract Act, 1872 - Section 187 - Agency and Power of Attorney - Construction of authority - Where an act purporting to be done under a power of attorney is challenged as being in excess of the authority conferred, 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.
(B) Law of Agency - Implied Authority - In a general money-lending and financing business, an agent entrusted with general management and granted express authority to borrow money has the implied authority to pledge the credit of the principal to secure advances for customers. Such authority is a necessary implication of the nature of the business and an essential incident for a financier to operate effectively.
Facts of the case:
A principal carrying on a money-lending business appointed an agent for the general management of the business via a power of attorney. The instrument granted the agent express authority to borrow money from banks or other persons and to negotiate and endorse promissory notes. The agent pledged the firm's credit to enable a customer to open a cash credit account with a bank, endorsing a promissory note from the customer to the bank and providing a letter of guarantee. Following the customer's insolvency, the bank sought to recover the balance from the principal. The principal contended that the agent had no authority to guarantee loans for third parties.
Findings of Court:
The court found that the agent's express authority to borrow, combined with the general management of a money-lending business, implied the authority to pledge the principal's credit to secure advances for customers. The court noted that the agent had entered into numerous identical transactions over several years without objection, further supporting the existence of implied authority based on the nature of the business.
Issues: Whether an agent appointed for the general management of a money-lending business, with express power to borrow, possesses the implied authority to guarantee the loans of third-party customers by pledging the principal's credit.
Ratio Decidendi: The court ruled that authority can be derived by necessary implication from the nature of the business and the scope of management entrusted to the agent. For a money-lender, the power to borrow implies the power to secure advances for customers, as it is a matter of convenience and a necessary incident of the business. If the authority is established, the principal is liable regardless of whether they received a direct benefit from the specific transaction.
Result: Decree of the lower appellate court set aside and the original decree restored.
Legal Category Hierarchy
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civil law
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law of agency
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authority of agent
- implied authority
- power of attorney
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authority of agent
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banking law
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negotiable instruments
- indorsement
- cash credit
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negotiable instruments
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contract law
- guarantee
-
law of agency
Judgement
Appeal from a judgment and decree of the Chief Court (March 26, 1914) reversing a judgment and decree of Robinson J.
The suit was instituted by the appellants against L. A. R. L. Lutchumanan Chetty, since deceased and represented by the respondents, to recover Rs. 63,122, the balance of a cash credit account and interest due from one Hashim Ebrahim.
The deceased defendant carried on business as a chetty banker and money-lender in Rangoon under the style of A. R. L. Chetty, but resided in the Presidency of Madras. The business at Rangoon was conducted by his agent Chockalingam Chetty under a power of attorney dated October 24, 1904. The material provisions of the power of attorney are set out in the judgment of their Lordships.
On May 23, 1908, the appellants opened a cash credit account with Hashim Ebrahim, taking as security a promissory note of that date payable on demand for Rs. 50;000 and interest, made by Hassum Ebrahim in favour of A. R. L. Chockalingam Chetty or order, and indorsed by Chockalingam Chetty to the appellants. On the same date Chockalingam Chetty executed in the name of A. K. L. Chockalingam Chetty an agreement guaranteeing to the appellants all sums which might from time to time be due to them from Hassum Ebrahim upon the cash credit account. Prior to these transactions the power of attorney had been produced to and registered by the appellants.
The defendant by his written statement pleaded, inter alia, that the plaintiffs (appellants) had ful1 knowledge of the power of attorney, and that, as they well knew, Chockalingam Chetty had no authority thereunder, or otherwise, to indorse accommodation bills or notes, or to give guarantees for third persons, so as to bind the defendant; they also denied all the alleged facts. The plaintiffs, by leave, pleaded in reply that even if not authorized the transaction was ratified by the defendant.
The suit was tried by Ormond J. At the trial evidence was given on behalf of the plaintiffs (appellants) as to previous transactions between themselves and Chockalingam Chetty, in which he, purporting to act on behalf of the defendant, had guaranteed advances made to other persons, of whom some were and some were not chetties. There was also evidence that it was part of the business of a chetty banker and money-lender to guarantee loans and overdrafts. The defendant did not produce his books of account, although notice to produce was given.
Robinson J. gave judgment in favour of the appellants. He held that Chockalingam Chetty had no authority under the power of attorney to guarantee the cash credit in question, but that the defendant had held out his agent as having authority to enter into guarantees and had ratified the transaction.
This decision was reversed upon appeal. The Court (Ormond and Parlett JJ.) was of opinion that under the power of attorney the agent had a general authority to carry on the business of a chetty banker and money-lender on behalf of the defendant and an express power to borrow money for the purpose of that business. They held that the express power did not authorize the agent to borrow money for another, or to make his principal surety for anothers loan. Upon the evidence they found that it was not made out that it was part of the business of a chetty to become guarantor for others who were not chetties. It was agreed in argument that there was no question of ratification. The suit was accordingly dismissed.
1915. Nov. 16, 17. Sir Erie Richards, K.C., and F. J. Coltman, for the appellants. The case is of importance as the power of attorney is in a form commonly used by chetties. The transaction was within the authority conferred by the power of attorney. The instrument gave to the agent the entire management of the business and authorized him to borrow for the purpose of making loans with power to make or indorse notes ; the transaction was in substance a borrowing for the purpose of lending. The evidence showed that the particular metho
