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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> British Bata Shoe Co Ltd v Double M Shah Ltd [1980] ScotCS CSOH_4 (06 June 1980)
URL: http://www.bailii.org/scot/cases/ScotCS/1980/1980_SC_311.html
Cite as: 1980 SC 311, 1981 SLT (Notes) 14, [1980] ScotCS CSOH_4

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JISCBAILII_CASE_SCOT_INSOLVENCY

06 June 1980

BRITISH BATA SHOE CO. LTD
v.
DOUBLE M. SHAH LTD

LORD JAUNCEY'S OPINION.—This is an action of payment for the sum of £17,450 in respect of shoes admittedly supplied by the pursuers to the defenders during the 15 or 16 months prior to April 1975. The defenders, who led in the proof, maintained that they had paid this sum. The circumstances relevant to the action are as follows.

In 1972 or 1973 the defenders were buying substantial quantities of the pursuers' shoes from a supplier or suppliers other than the pursuers. They were approached by a representative of the pursuers, Philips, who persuaded them to purchase direct from the pursuers. The first orders were paid for by cheque handed to Philips within 30 days of the order, but after the defenders had placed about four orders Philips suggested to one of their directors, Murphy, who was principally responsible for the ordering of the shoes, that they should open an account with the pursuers. This was duly done and, after the arrival of the first consignment of shoes ordered under the new arrangement, one Kreager, who was employed by the pursuers as credit controller, rang Murphy to ascertain that the assignment had safely arrived. Kreager, according to Murphy, introduced himself as being in charge of accounts and thenceforth he rang Murphy monthly and asked for a cheque in payment of the sums due by the defenders to the pursuers. During this time, in addition to receiving invoices in respect of the goods supplied, the defenders were receiving regular monthly statements of account from the pursuers.

At the end of 1973 Murphy was concerned that his competitors were able to sell shoes at the price which the pursuers were charging him. He rang up the pursuers on a Saturday morning to see whether he could obtain some reduction in price and was put through by the gateman to one Shaw who promised to look into the matter and get someone to ring him back on Monday. Some days later Kreager rang up. By this time Murphy said that he had formed the impression that Kreager was a director of the pursuers by reason of his wide knowledge of the trade which he and Murphy had discussed on various occasions on the telephone and his apparent connection with the selling side of the pursuers' business. According to Murphy, Kreager told him not to worry about the price and that everything would sort itself out. He further informed Murphy that if the latter sent to him within 24 hours a cheque for £2,400 with the name of the payee left blank the defenders would receive the maximum discount, although he did not state what that discount was. Murphy thought that Kreager's suggestion of the blank cheque was odd but he did not ask Kreager for an explanation and was unable to state why he had not done so. However, he discussed the matter with his co-directors, Martin and Shah, and it was agreed to do as Kreager had suggested. A cheque dated 28th January 1974 was duly sent and a few days later the defenders received a statement of account from the pursuers bearing the manuscript words "cheque paid £2,400 R. W. Kreager, 30/1/74." These words were written by Kreager. Thereafter the defenders sent to Kreager seven further cheques in which the name of the payee was left blank. Each of these cheques was signed by Murphy and the respective dates and amounts were as follows:—4th March 1974, for £1,750; 23rd April 1974, for £2,100; 24th June 1974, for £2,300; 14th October 1974, for £1,900; 19th December 1974, for £1,500; 14th February 1975, for £2,500 and 9th March 1975, for £3,000. I shall hereafter refer to each of these eight cheques as "the blank cheques." In addition to the blank cheques Murphy drew a cheque for £1,100 in favour of the pursuers on 14th October 1974 and Martin drew a further cheque for £2,105 in favour of the pursuers on 8th December 1974. Murphy's cheque for £1,100 was drawn upon the same day as his blank cheque for £1,900. Murphy stated that one of these two cheques was sent by rail and the other by post. His explanation for sending two cheques rather than one for £3,000 was not wholly clear. The eight blank cheques were all returned to the defenders' bank with the words "R. W. Kreager" typed in. They totalled £17,450 which is the sum sued for. Kreager misappropriated this sum and on 11th September 1975 at Chelmsford Crown Court was convicted after trial of stealing inter alia these sums from the pursuers contrary to section 1 of the Theft Act 1968. According to Murphy the circumstances in which the seven later blank cheques were sent were that Kreager rang up about once a month, told Murphy what the state of the defenders' account was and asked for a cheque within 24 hours for a specific sum which was always in round figures. At no time did Kreager tell Murphy what the percentage discount was and Murphy in his evidence was vague as to whether it was calculated at so much per pair of shoes or whether it was simply a global deduction from the amount then due by the defenders to the pursuers. On the day following the sending of a cheque Kreager rang up to acknowledge its receipt. Murphy was unable to give a satisfactory explanation for Kreager's demand for cheques at such short notice. Murphy and Martin deponed to the fact that after receiving the statement receipted by Kreager on 30th January 1974 the defenders received no further statements of account nor receipts from the pursuers until after the drawing of the last of the blank cheques on 9th March 1975. Their evidence on this matter received some support from Mrs Todd, the defenders' part-time bookkeeper who never saw any statements and I accept that none were received. Kreager was the person responsible for sending out monthly statements of account and was therefore in a position to take steps to prevent the defenders receiving them. Murphy said that he asked for statements on a number of occasions and was always told by Kreager that they were coming, but in fact they never came. It did not appear that Murphy queried the lack of statements of account with any other employee of the pursuers, although he considered this lack to be odd. The defenders' evidence as to the manner in which the blank cheques were transmitted to Kreager was somewhat confused. In examination-in-chief Murphy said that he was asked once by Kreager to send a cheque "Red Star" by rail, and that all the other cheques were sent by post to Kreager at the pursuers' accounts department. In cross-examination he said that he sent cheques "Red Star" by rail on about four occasions. Martin thought that all the blank cheques were sent by rail, although he was not personally concerned with their transmission. Wright, the pursuers' chief accountant, described the pursuers' system for opening daily mail at a central office which would, if properly carried out, have resulted in any letters addressed to Kreager at the accounts department being opened and details of the cheque therein contained being entered in a log book kept solely for that purpose. Under that system the cheque would not have reached Kreager. However, Wright accepted that on occasions it might be possible for someone having advance notice of the arrival of a letter to obtain the letter before it was opened by the person properly charged with that duty. In these circumstances I conclude that the majority of the blank cheques were sent by rail but that some were sent to Kreager at the defenders' premises. Kreager, who gave evidence very briefly for the pursuers, was not cross-examined upon the matter by the defenders nor upon any of the arrangements between him and Murphy to which the latter spoke.

Although Murphy had thought Kreager's initial request for a blank cheque to be odd he said that any doubts he may have had were dispelled, first of all by receiving the statement of account receipted by Kreager and secondly by the fact that the pursuers' representatives continued to call upon the defenders and that further orders by them were taken and executed without any suggestion on the part of the pursuers that the defenders were failing to make payment for goods already supplied. In fact in September 1974 Wright instructed Kreager to have deliveries to the defenders stopped in view of their outstanding indebtedness to the pursuers, but Kreager did not carry out that instruction and deliveries continued. It seems probable that Kreager's demand for the cheque of £1,100 which was drawn by Murphy in favour of the pursuers on 14th October 1974 had something to do with Wright's instructions to Kreager. Not until April 1975 did Wright again apply his mind to the state of the pursuers' account when he observed that there was a very large balance outstanding. Then followed a somewhat curious episode as described by Murphy and Martin. Murphy received a telephone call from Kreager stating that the defenders' account stood at £36,000, but that the computer was far wrong. Kreager asked him to send a cheque for £28,000 and stated that when the computer was fed the correct information the cheque would be returned. Wright and Cooper also telephoned to Murphy but did not mention the computer error to him, nor he to them. Murphy later handed the cheque to Philips but stopped it a few days later when he became suspicious about Kreager. Murphy's evidence as to what was then due by the defenders to the pursuers was confused. In cross-examination he stated that he handed on the cheque without knowing or caring what sum was due and without taking any steps to verify what the position was, but in re-examination he stated that he then knew something was due, probably £20,000. In the event the total sum due by the defenders was £36,109.66, upon the basis that the sum of £17,450 in the eight blank cheques had not been received by the defenders. If that sum had been received, as Murphy assumed it had, the total indebtedness would have been £18,659.66. Murphy's evidence on this matter is very difficult to understand and I do not feel able to place much reliance upon it. Until he mentioned the figure of £20,000 in re-examination the impression which he had created in evidence was that each payment to Kreager had more or less cleared the account as it then stood. If each payment to Kreager had in fact almost cleared the account the discount which the defenders would have been receiving would have been of the order of 50 per cent, whereas if the defenders were still due to pay £20,000 to the pursuers there would have been no discount at all. Martin's understanding was that Kreager was going to receive the cheque, show it to a superior and then return it to the defenders uncashed as their account was in order. Martin, however, was not directly concerned with Kreager or any other servants of the pursuers in the matter. I find it very difficult to draw any conclusion as to what Murphy's understanding of the position was when he drew the cheque for £28,000. Suffice it to say that the transaction was, to say the least, in every circumstance of a highly unusual nature. Between April 1975 and August 1976 the defenders paid to the pursuers the sum of £18,659.66 but they have refused to pay the sum of £17,450 which is the total of the sums in the eight blank cheques.

Against this general background of fact I turn to consider the questions of law which arise. The defenders submitted in the first place that standing the terms of the extract conviction of Kreager that the sums involved in the blank cheques were the property of the pursuers and their claim, as spoken to by Wright, in Kreager's bankruptcy under section 39 (1) of the Powers of the Criminal Courts Act 1973 they had made an election by which they were now bound so that they were precluded from suing the defenders. In support of this proposition counsel for the defenders relied first upon a passage in the judgment of Lord Anderson in Steven v. Broady Norman & Co. 1928 S.C. 351 at p. 365 in which his Lordship referred to the general rule that the Court will not aid a person wronged in any endeavour to obtain more than the just remedy to which he is entitled. That case concerned joint delinquents and appears to me to have little to do with this case. Counsel then referred to two cases concerned with principal and agent, namely David Logan & Son and Liquidator v. Schuldt (1903) 10 S.L.T. 598 and Clarkson Booker Ltd. v. Andjel [1964] 2 Q.B. 775. From these cases the principle clearly emerges that when a third party having the alternative of suing an agent or a principal elect with full knowledge of all the relevant facts to proceed against one and to pursue his claim against that one he will in normal circumstances be precluded from subsequently proceeding against the other. The matter was put in the following way by Lord Atkin in United Australia Ltd. v. Barclays Bank Ltd. [1941] A.C. 1 which is quoted by Willmer L.J. at p. 789 in Clarkson Booker Ltd.(supra):

"On the other hand if a man is entitled to one of two inconsistent rights it is fitting that when with full knowledge he has done an unequivocal act showing that he has chosen the one he cannot afterwards pursue the other, which after the first choice is by reason of the inconsistency no longer his to choose."

The fallacy in the defenders' argument lies in the assumption that the pursuers have two inconsistent rights in relation to the sum sued for. They have only one right. If the sum was received by Kreager as having ostensible authority to receive it on behalf of the pursuers they have a right to pursue Kreager but no right to pursue the defenders. If, on the other hand, it was received by Kreager without having ostensible authority to receive it on their behalf they have a right to pursue the defenders but no right to pursue Kreager. To determine against whom the right exists it may be necessary to initiate more than one process but that in no way alters the fact that the pursuers have a single right to recover from a single person. The failure of one process merely demonstrates that the pursuers never had the right claimed therein, a situation which not infrequently arises when a litigant initially sues the wrong defender and is obliged to institute fresh proceedings against the correct one.

The defenders argued in the second place that although Kreager had no actual authority to solicit and receive the blank cheques nevertheless he had ostensible authority so to do and the pursuers were accordingly not entitled to recover the sum sued for from the defenders. Having regard to the receipt which Kreager sent to the pursuers after the first blank cheque and the continued supply of goods without complaint to the defenders by the pursuers thereafter, the defenders had no reason to be put upon their enquiry by the manner of payment demanded by Kreager, nor to believe that he had not authority to receive blank cheques. The defenders relied on Gemmell v. Annandale & Son (1899) 36 S.L.R. 658 which concerned a payment made to a father who was praepositus negotiis while his son, the proprietor of a small business, was in prison. The circumstances in that case are so far removed from the present that I do not consider that the defenders derive any assistance therefrom. In particular the case cannot be treated as authority for the proposition that the receipt of Kreager for £2,400 binds the pursuers. The defenders also relied upon International Sponge Importers Ltd. v. Watt & Sons 1911 SC (HL) 57 in which case payments by a customer by open cheque to a dishonest traveller employed by suppliers, and appropriated by the traveller, were held to be irrecoverable from the customers by the suppliers. At first glance that case has a superficial resemblance on its facts to the present, but on a careful consideration of those facts I am satisfied that they are materially different in a number of respects. In both the Second Division and the House of Lords it is clear that the Court considered that on the facts the customers were fully warranted in believing that the traveller was entitled to receive payment not only by crossed cheque but by open cheque or cash. The facts which influenced the Lord Chancellor, Lord Loreburn, were that the good faith and integrity of the customer was undisputed and indisputable, the traveller occupied a position of fuller authority than was usual and that on an occasion some time prior to the last of the transactions in question the customers had paid the traveller by open cheque, and thereafter the attention of the suppliers was drawn to the sale and a question arose about it, without objection being taken by the suppliers. That case was essentially a decision on its own facts and I do not regard it as of any assistance in determining the law which is to be applied to the differing facts in the present case.

The law as to the circumstances in which an agent having ostensible authority binds his principal is not in doubt. Bowstead on Agency, 14th edition, at p. 235 puts the matter thus:—

"Where a person by words or conduct represents or permits it to be represented that another person has authority to act on his own behalf, he is bound by the acts of such other person with respect to anyone dealing with him as an agent on the faith of any such representation, to the same extent as if such other person had the authority that he was represented to have, even though he had no actual authority."

The representation to the third party must be made or permitted by the principal or by someone else other than the agent acting on the principal's behalf, a representation by the agent alone will not bind the principal (Bowstead op. cit. p. 357). As Diplock L.J. put it at p. 506 in Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd. [1964] 2 Q.B. 480 the representation to the third party must be "made by a person or persons who had ‘actual authority’ to manage the business of the company, either generally or in respect of those matters to which the contract relates." In the present case there was no evidence that any member, let alone any senior member, of the pursuers' staff had ever made any representations to the defenders about Kreager or the extent of his authority. According to Murphy his first contact with Kreager was when the latter rang him up and introduced himself after the first consignment had been supplied to the defenders on credit. Thereafter Kreager regularly rang Murphy to ask for payment of sums due and general discussions on other matters took place on these occasions. Murphy's understanding of Kreager's position with the pursuers derived entirely from these telephone conversations and from no other source. Martin suggested no other source of his understanding of Kreager's position than Murphy and Kreager to whom he spoke on at least one occasion on the telephone. Furthermore, the sending of the receipt dated 30th January 1974 and the continued supply of shoes after the defenders began to send blank cheques have not been shown to have taken place when the pursuers had full knowledge of the defenders' transmission of blank cheques. Indeed, not only had Kreager no authority from the pursuers to issue receipts but it is not proved that anyone in the pursuers' company knew that he had done so. Wright's instructions to Kreager to stop deliveries to the defenders in September 1974 were not carried out although Wright did not discover this until April 1975 and the abstraction of sales ledger sheets relating to the defenders which was spoken to by Wright made more difficult the task of those employees of the pursuers who required to check the state of the defenders' account. It is clear from Wright's evidence that he had no idea until April 1975 that Kreager had been receiving blank cheques from the defenders and there is no evidence to suggest that any other employee of the pursuers was aware of this. In these circumstances the continued supply of goods to the defenders was made by the pursuers without knowledge of Kreager's actings and accordingly such continued supply cannot amount to a representation by the pursuers to the defenders that Kreager was authorised to act in the manner in which he had been doing. It follows that Kreager had no ostensible authority to demand and receive any one of the blank cheques.

That is sufficient for the disposal of this case but it is right that I should deal with a further argument for the pursuers to the effect that in any event the circumstances of this case were such as to have put the defenders on their enquiry and that having failed to make such enquiry they must be deemed to have knowledge of Kreager's lack of authority. There is no doubt that, when there exist circumstances relating to an agent's ostensible authority which give rise to suspicion, a duty of enquiry may be cast upon those dealing with the agent (Gloag on Contract, 2nd edition, pp. 151-2, Bowstead op. cit. pp. 253-4). What are the circumstances here which it is submitted should have put the defenders on their enquiry? They are several. Prior to Kreager's request for blank cheques the defenders had paid for goods supplied by cheques drawn in favour of the pursuers and had received monthly statements of account. On no view could this method of dealing be described as anything other than normal. Sending of blank cheques, however, was not, I am satisfied, a normal method of dealing in the circumstances. Murphy thought the suggestion sufficiently odd to consult his co-directors about the proposal. Martin accepted that it was unusual to send cheques with the payee's name left blank and Wright was unaware of such a practice. Murphy thought it odd that no statements of account were sent to the defenders but, beyond asking Kreager for them, took no further action during the following 15 months and continued to make payment by lump sums only. Murphy denied knowledge of Kreager's name on the cheques when they were returned to the defenders by their bank but Martin was aware of this from the outset and even if he never vouchsafed this information to Murphy his knowledge must be deemed to be that of the defenders. Martin could suggest no reason why Kreager's name should be on the cheques if they were not being passed through his own account. Martin further agreed that it would not be common practice to make payment to a large company by way of a cheque drawn in favour of an employee thereof. Kreager's telephonic demands for payment of specified sums within 24 hours were met by Murphy without question as to the need for such urgency. Martin also, apparently, never queried the need to send cheques by rail, although he stated that he could not think of any conceivable reason for so doing. The foregoing matters demonstrate quite clearly that the dealings between the defenders and Kreager after the latter's request for the first blank cheque were of such an unusual nature that any reasonable person would have been put upon his enquiry. By failing to make any enquiries of the pursuers as to the unusual method by which they were being asked for payment the defenders put it in Kreager's power to misappropriate the money and they, rather than the pursuers, must bear the loss.

On the whole matter I shall sustain the fourth and fifth pleas in law for the pursuers and grant decree for the sum sued for.

[1980] SC 311

The permission for BAILII to publish the text of this judgment
was granted by Scottish Council of Law Reporting and
the electronic version of the text was provided by Justis Publishing Ltd.
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