Viscount Haldane:-

This is an appeal from a judgment of the Supreme Court of Ceylon. The question is whether the respondents were entitled to recover from the appellants the whole or part of a sum of Rs. 1,45,860, being the aggregate of the amount of four cheques, drawn by one Williams as the respondents" manager, in favour of the appellants.

The facts of the case are shortly these : The appellants are partners in the firm of E. John and Co., carrying on business as share and produce brokers in Colombo. The respondents are a company incorporated and registered in England, and carrying on business as import and export merchants at various places, including Colombo, through branch offices. Williams had acted as their manager of that branch since 1905. He held a power of attorney which enabled him to conduct the business of the respondents at Colombo, and for that purpose conferred on him wide powers, including the drawing of cheques on their bankers. The respondents had transacted business with the appellants, relating in the main to the purchase and sale of produce. The latter had in their books an account with the respondents, and they had also opened a separate account with Williams, who employed them in the purchase and sale of shares. With Williams the appellants thus came into business relations in two capacities: in general business he dealt with them as the respondents" agent, but so far as his dealings in shares were concerned, these were private transactions on his own account as principal, and not as agent. He was reputed to have made a good deal of money by dealings of this kind, and he owned shares on which the appellants were able to procure advances for him when he needed them.

Williams had bought and sold shares largely in both of what were known as the rubber booms of 1905 to 1906, and of 1909 to 1910. He had employed the appellants and other brokers in these transactions. In the period of the second boom his dealings through the appellants were large, and in the course of these dealings he paid to them large sums for purchases and was credited with large sums for sales. Among the sums he paid to them were the amounts of the cheques in question. These were drawn as follows 15th June 1909, Rs. 11,51.750; 12th October 1909, Rs. 20,10,2.50; 3rd May 1910, Rs. 67,500; 5th May 1910, Rs. 46,740 - total Rs. 1,45,860. The cheques were drawn by Williams under his power of attorney in the name of the respondents and on their bankers, but they were in fact drawn, not in the conduct or for the purposes of the business of the respondents, but in the private interests of Williams himself, to be used in his own transactions. The employment of the funds of the respondents for this object was plainly outside the general authority entrusted to Wiliams. In so using them he was guilty of fraud and when the respondents, his principals, discovered what he had done, they not only claimed against him and proved in his subsequent insolvency, but took criminal proceedings against him which ended in a conviction.

At the trial before the District Judge of Colombo it was found that the appellants were neither in fact dealing with Williams as the respondents" agent nor believed themselves to be so. The District Judge held, however, equally clearly, that the appellants were not personally aware that they had received among the items paid over to them for the purchase-money of the shares which they bought for Williams as his brokers, cheques fraudulently drawn on the respondents" funds and that they took the cheques honestly without noticing the name of the drawers, and without thinking of them as in a different position from the other cheques received in the course of the transaction with him. But it is obvious that the appellants" clerks who brought the cheques to the partners for indorsement must have seen that the name of the drawers was that of the respondents. However little the clerks may have known of Williams real transaction, and however