"INNOCENT SUFFER"

Evening Post, Volume CIX, Issue 56, 7 March 1930, Page 10

"INNOCENT SUFFER"

"AN UNFORTUNATE CASE"

JUDGMENT FOR LOAN COMPANY

SPINSTER LOSES £600

"This is one of those unfortunate cases in -which one of two innocent parties must suffer loss by the fraud and dishonesty of a third person," remarked the Chief Justice, the Hon. Sir Michael Myers, in giving judgment at the Supremo Court this morning in the case of A. E. Cooper, of Wellington, spinster, v. the Te Aro Loan and Discount Company, Ltd., heard on 29th November last. From 1913 till May, 1929, stated his Honour, one Whitehouse was secretary and "practically manager" of tho defendant company. The plaintiff said that she knew him as secretary of the company, and in 1922 she handed Whitehouse, whom she had known for some years, various sums aggregating £600, as a loan, she supposed, to the company, on which she was to receive "good interest." TWENTY PER CENT! It was common ground between tho plaintiff and Whitehouse that she was to be paid interest for the first few months at the rate of £5 per month, and thereafter, when she had paid the whole sum of £600, at the rate of £10 per month, or 20 per cent, per annum. For each sum she handed him Whitehouse, she stated, gave her a receipt headed "Te Aro Loan Co." and signed by himself, his name being followed by the abbreviation "Sec"; but Whitehouse denied that the receipt was on one of the company's forms. Unfortunately, none of the receipts were forthcoming, as in 1923, when she was ill for some time, the plaintiff had given them to Whitehouse to keep in the company's safe for her. His Honour thought that the plaintiff was probably right in her description of the forms given her, but that they were not the company's proper deposit forms, which had spaces for the signature of two of the directors as well as of the secretary, and blanks for the term of the deposit and the rate of interest to be prid. She stated that the term of the loan was indefinite and that the rate of interest—namely, 20 per cent.—was fixed by Whitehouse orally. "IN DIFriCULTIES." Oil 3rd March, 1929, the plaintiff received from Whitehouse £5 in cash, and was tofd to call for tho other £5 the next day. She called back the same day, however, and Whitehouse told her that he was in difficulties. She asked him for a receipt, as she had nothing to show in evidenco tor her payments, and he had stated some time before that he had lost the previous receipts. Whitehouso thereupon handed her a promissory note for £605, antedated 21st December, 1928. "Mr. Neilsen, on behalf of the company, contended (said his Honour) that even if she had had a claim against the company she was estopped as against the company by her acceptance of this promissory note, and by an election to treat Whitehouse as her debtor. In my opinion this contention is not tenable in the circumstances. It is _ plain, I think, that she had no intention of giving up any 'claim that she might have against the company, and accepting in lieu thereof the indebtedness o± Whitehouse.' f "direct6rs had no knowledge." ■It appeared, added his Honour, that Whitehouse had used the £600 for his own purposes, and that the money had never been received by the company. "I am. satisfied on the evidence (he stated) that the directors had no knowledge or notice whatever of Whitehouses 's transactions with the plaintiff. . . That she received from Whitehouse at times the company's cheques for £10 I quite believe, but all these cheques vere paid to a number, and there was nothing to indicate to the directors that the cheques were being drawn to pay moneys other than debts for which the company was liable in the ordinary course of its business. Some of the. cheques that the plaintiff received, I am satisfied, were Whitehouse's own salary cheques. Others, if the plaintiff received others, as she m-obably did, were cheques which were properly drawn by the company in payment of its own debts, but which wero diverted by Whitehouse to the payment of the plaintiff's interest. These, I think, are the only inferences that can properly be drawn from the evidenco of the auditor, Mr. M'lntosh." CASE IN POINT. His Honour quoted the following judgment by Lord Hatherley in Mahony v. East Holyford Mining Co.:-»-"Every joint stock company has its memorandum and articles of association. Those articles of association are open to all who are minded to have any dealings whatsoever with the company, and those who so deal with them must be affected with notice of all that is contained in these documents. After that, the company entering upon its business and dealing with persons external to it, is supposed on its part to have all those powers and authorities which, by its articles of association and by its deed, it appears to possess, and all that the directors do with reference to what I may call the indoor management of their own concern, is a thing known to them and known to them only; subject to this observation, that no person dealing with them has a right to suppose that anything has been done or can be done that is not permitted by tho articles of association or by the deed. . . . Nothing can be of any avail to him that is contrary to the articles of association, with which he must be taken to be acquaintde." "LULLED INTO SECURITY." After citing other judgments, His Honour continued:— "The plaintiff knew Whitehouse merely as the secretary of the company. She knew, however, that there were directors, and she knew who those directors were. But she did not ask to see the company's memorandum and articles of association. Had she inspected them, she must have seen that Whitehouse had no power to enter into a contract with her so as to bind the company. The question involved seems to me to b©' more than a mere informality or irregularity, more than a question of indoor management of the company's business. The plaintiff chose to enter into the contract with Whitehouso without taking any precautions whatever to ascertain whether or not he had power to make a contract for the company. In any event, she did not rely on the articles of association, and was not entitled to assume that any powers had been delegated to Whitehouse. It seems to me, therefore, that unless there has been some ratification by the company, or something amounting to an estoppel, the plaintiff cannot succeed. I can find no evidence of either the one or the' other. The plaintiff may have been lulled into a sense of security by the regular payment of interest, particularly if a number of such payments were made by the company's cheques. But all this was part of Whitehouse's fraud and the directors of the company had no knowledge of the facts, and indeed there was nothing to arouse even their suspicions. EXORBITANT INTEREST. "Moreover, the rate of interest which the company; was in tho habit of pay_-

ing to any person from whom it received moneys on deposit was from 5J to 6J per cent.; ami it is well known that the usual rate which companies, other than banks, pay by way of interest on moneys deposited with them is from 5 per cent, to 6J per cent. That being so, tho very fact that Whitehouse agreed to pay interest at such an exorbitant rate for transactions of the kind as 20 per cent, should itself, I think, have been sufficient to put the plaintiff upon inquiry to ascertain whether Whitehouse had in fact any authority to make the contract. ... A number of other authorities were cited in argument—all of which I have examined, but to none of which, in the view that I take, do I think it necessary to refer. I must hold that the action fails." Judgment was given for the defendant company with costs according to scale. At the hearing Mr. W. Perry appeared for the plaintiff and Mr. C. W. Neilson for the Te Aro Loan and Discount Co.