National Bank Of India V. Stevenson

1913 Present: Pereira J. and Ennis J.

NATIONAL BANK OF INDIA v. STEVENSON.

109-D.C. Colombo, 34,614.

Compound interest-Whether a bank could charge-English law applicable.

Defendant had a running account with the plaintiffs, a banking corporation, in which there worn quarterly periods or rests, at the end of each of which defendant was debited with interest calculated on the average daily balance of the quarter, and a, balance struck, which was carried on to the next quarter. The payment of the balance was scoured by two mortgage bonds. It appeared that it was customary with banks to charge compound interest calculated as stated above, and that defendant had, by his conduct, acquiesced in the charge of such interest made by the plaintiffs and in the system of quarterly rests adopted by the bank.

Held, that the rights and liabilities of the parties in connection with the account current were, in terms of Ordinance No, 22 of 1866, which introduced into this Island the English law of banks and banking, governed by that law, and not the Roman Dutch ; and that, therefore, the charge of compound interest was not, as such, un maintainable.

While under the Roman-Dutch law compound Interest was not allowed, even though it had been expressly stipulated for, under

the English law it was allowed where, inter alia, there was an agreement, express or implied. to pay it, or where its allowance was in accordance with a custom of a particular trade or business.

Held, further, that by reason of the custom with the banks, and of the acquiescence of the defendant mentioned above, he became liable to pay the compound interest charged.

Held, further, that the mortgage bonds were no more than collateral security for the balance on the account current, and that it was no objection to charging the property mortgaged with such balance that it had been partly composed of interest turned into principal by rests and interest on that interest according to the course of dealing between the bank and its customers.

APPEAL from a judgment of the Additional District Judge (L. Maartensz, Esq.).

Elliott, for the defendant, appellant.-Under the bond the plaintiffs can charge only simple interest at 8 per cent. They have been charging compound interest, which the bond did not authorize them to do. The terms of the agreement are contained in the mortgage bond. This has nothing to do with the law of banks and banking. This is a pure contract of loan on a mortgage bond, and the Roman-Dutch law governs such contracts. [Pereira J.-The mortgage bond was only granted as a security. The transaction between the parties was an ordinary banking transaction.] The terms of the agreement are stated in the bond. If the bank wished to charge compound interest, it should have inserted a clause to that effect in the bond. The plaintiffs cannot vary the terms of the bond Custom cannot be pleaded to vary the terms of the bond as to the rate of interest.

Even if the English law of banking is held to apply to cases of this nature, Ordinance No. 5 of 1862, section 3, would not permit the plaintiffs to recover compound interest.

In any event the plaintiffs have not proved any uniform custom. There is no question of estoppel between the plaintiffs and defendant, as no one was prejudiced. Counsel cited 21 Cal. 366.

H. J. C. Pereira (with him Allan Drieberg), for the plaintiffs, respondents.-The case is governed by the English law as to banking. The defendant himself has acquiesced in the custom and allowed the plaintiffs to debit interest at the end of every quarter. Counsel cited Rufford v. Bishop 1[Russ. 346] and Creskill v. Bowen.2[32 Beav. 86.]

Elliott, in reply.

Cur. adv. vult.

July 1, 1918. PEREIRA J.-

In this case the plaintiffs sue the defendant for the recovery of the sum of Rs. 125,878.81, being the balance shown to be due from the defendant to the plaintiffs on a certain account cu

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