[1944] 1 All ER 579

Contract - Construction contract - Money had and received - Cheques obtained by fraud and paid into wife's account - No privity of contract between wife and plaintiff - Wife agent of husband - Money paid out by wife without notice of fraud and under instructions of husband.

The plaintiffs were a South African company which had a London committee for the purpose of distributing dividends to shareholders in Europe. The first defendant was the secretary of the committee who by fraudulent means had obtained cheques which were intended for shareholders and paid them into a banking account of his wife, the second defendant. By an arrangement between the two defendants half the moneys so paid into the account were paid out to the first defendant. At no time was the second defendant aware that the moneys so paid into the account belonged to the plaintiff company. The plaintiff company brought an action for damages for fraud or, alternatively, to recover the money as money received for the use of the plaintiffs or, alternatively, as money paid under a mistake of fact:-

Held - (i) the plaintiff company were entitled to judgment against the first defendant.
   (ii) no contract to repay the money could be implied between the second defendant and the company. Nor could the company recover against the second defendant on the grounds of unjust enrichment at their expense unintended by them, for the second defendant received the money as agent for the first defendant and, before notice of the company's rights, had paid it away to her principal or on his instructions.

Notes
The judgment herein considers the present position of the law on unjust enrichment and particularly the statement of the law in Sinclair v Brougham. It was contended that money is recoverable where there has been unjust enrichment of the defendant unintended by the plaintiff. It is held, however, that the plaintiff must go further and prove that it is fair and right that the money shall be repaid and that the circumstances are such that the law will imply a contract to repay.
   As to Money Had and Received, see Halsbury (Hailsham Edn), Vol 7, pp 247-293, paras 382-405; and for Cases, see Digest, Vol 12, pp 539-567, Nos 4478-4725.

579

Action
Action by company for damages for fraud, or, alternatively, to recover certain sums of money received for the use of the plaintiffs, or as money paid under a mistake of fact. The facts are fully set out in the judgment.

25 April 1944. The following judgment was delivered.

ATKINSON J. In this case the plaintiffs, the Transvaal and Delagoa Bay Investment Co Ltd, are claiming from the defendants, Arthur Roy Atkinson, and his wife, Mary Gwendolen Atkinson, payment of certain sums of money as damages for fraud or, alternatively, as money received for the use of the plaintiffs or as money paid under a mistake of fact. Arthur Roy Atkinson has not entered an appearance; there is no question about his liability for the money claimed; he has not pleaded even the Statute of Limitations; and there must be judgment against him for the amount claimed. I shall in future refer to Mrs Atkinson as the defendant.
   The facts are as follows. The plaintiffs are a company registered in South Africa and carry on business there. They have a large number of shareholders in this country and the rest of Europe. For the purpose of dealing with transfers of shares in Europe and paying dividends of European shareholders there is a London committee and a London secretary. At all material times until 1938 the committee consisted of the chairman, Dereham, Frank Smith and Dereham junior. The chairman died in 1938, and then, as I understand it, the committee consisted of Smith, van der Felt and Humphrey Lake.
   The defendant Arthur Roy Atkinson was appointed secretary in 1925 in succession to his father. There was no office belonging to the company till 1938. The office used was room belonging to Dereham, then until after the last war a room in Africa House, and after that what work there was was done at Atkinson's home at Petts Wood.
   The practice as to the paying of dividends was as follows. Shortly before a dividend was to be paid a list of shareholders was made up by Atkinson and sent to South Africa to the head office there. The head office then transmitted the amount required to pay the contemplated dividend to European shareholders, and this sum so remitted was paid to a special account with Barclays Bank Ltd. Shares were of two kinds, shares issued to registered shareholders and bearer shares with coupons attached. After the receipt of the money from South Africa a member of the committee attended at the office with Atkinson to sign dividend warrants. The signatures of one member of the committee and of the secretary were necessary. The member would find several hundreds of cheques already drawn and signed by the secretary, and he proceeded to sign them. Those were mainly for registered holders. Of those, some cheques were drawn payable to the shareholders personally, and some were drawn payable to some bank for account of a named shareholder. This could be done only if the necessary authority had been received from the shareholder. On the cheques payable to the bank was a place for the name of the shareholder on whose account the payee bank was to receive the money. Dividends payable on bearer shares were usually paid to a bank collecting for a customer. A bank submitted the pink form, which has been produced, with the coupons in respect of which it wanted payments attached. Such demands might come, but seldom did, before the date for sending the big batch of cheques, and these would be dealt with at the same time, but in practice such demands used to come in driblets for several weeks after the due date for payment. The secretary did not trouble a member of the committee to come to his house to sign the dividend cheques for these late dividends; he posted them to a member, usually Smith, for signature, and having receiving the warrants signed, he distributed them to the receiving banks. His practice was to cancel the coupons before posting to a member of the committee, but he always sent to the member of the committee the pink form and the coupons along with the cheque for signature.

580

   The secretary soon discovered that the system adopted by the London committee was extremely lax. The committee was supposed to check warrants and transfers; that was why they existed. Smith was the member of the committee who usually signed cheques. He had been the secretary from 1895 to 1912; he is now 82 and very deaf. There was no system of checking whatever, no audit, and he signed any cheques put before him without checking their accuracy or asking any question.
   In 1931 Atkinson conceived, and for 11 years carried out successfully, an ingenious fraud, but a fraud made easy by the want of diligence on the part of the committee. In October 1931, he placed among the dividend warrants to be signed a cheque payable to the National Provincial Bank for £157 4s. Some member of the committee probably Smith singed it. Atkinson then placed his wife's name on the warrant as the person for whose account the bank was to received the money; he took it to the bank and opened with it an account in his wife's name; he then told his wife that the company were paying him, and going to pay him, a commission on all dividends paid, as in fact the company had paid his father, and that he had received a cheque for £157 4s, and had opened an account with it in her name, and that he proposed to go on paying his commission cheques into this account, but he was always to have half of any payment paid out to him, and she was to pay all household expenses out of the rest, and spend any balance on herself, meaning that it was to cover such expenditure on herself as a husband usually provides for his wife.
   A cheque for £75 was at once paid by his wife to him, and she proceeded to pay the household bills. In June 1932, a further sum of £186 12s 8d was paid in, and thereafter, every half-year or thereabouts, the National Provincial Bank received for her account substantial cheques, the proceeds of which were dealt with in the same way. By January 1942, sums amounting to £4,908 had been received and credited to her account. I have traced cheques paid out within a day or two of the receipt of these sums to the husband Roy Atkinson; they amount to £1,656. That figure must not be taken as an accurate figure; I have not checked it very carefully, but at any rate it is approximately correct. These were paid out under what one of the witnesses called the 50-50 arrangement.
   During the 11 years Roy Atkinson paid into the same account fairly regularly sums out of his salary in order further to provide for household expenses. Again, quite roughly, I make the figure that he paid in this way £1,815. He seemed to begin with £16 a month, then £20 a month, and later £30 a month, not with perfect regularity, but with reasonable regularity. Throughout the whole period the defendant believed that these cheques, the big cheques which her husband was paying into this account, were his cheques paid to him for commissions which were being credited to this account on his instructions. If the bank sent her periodically, as banks usually do, with returned cheques the dividend counterfoils, they must have been extracted by her husband; I am satisfied that she never saw one, and at no time had any reason to doubt the truth of what her husband was telling her. Except for two matters which were touched upon the money was spent as arranged. In December 1923, a house was bought in her name through a building society, and £9 11s 9d a month was paid out of the account. she also bought a second-hand car on the instalment system. This was not investigated, and I do not know when it was. The only payments I can find to a garage, which were very early on at the very beginning of the account, are certain payments amounting to roughly £40 to the defendant's garage account. Those may, or may not be-I do not know-the payments for the car.
   It cannot be said that the building society was paid, or at any rate paid only out of the plaintiffs' cheques. There were something like 100 of such payments. I have roughly checked them all, and I should say at least half of them could not have been paid out of moneys of the plaintiffs, and others may or may not. To explain what I mean I will take the second, third, fourth fifth and sixth payments. Admittedly, the house was bought some time in December 1933, because the first payment was in January 1934, and the second payment, on 1 February, of £9 11s 9d, I say could not have been paid out of the plaintiffs' money for this reason, that on 31 January, the balance to the credit of the account was only £4 4s 3d. On that date a sum of £30 was paid in out of Atkinson's salary, so that the balance became £34, and out of that the sum581 of £9 11s 9d. On 21 February the credit balance had fallen to £4 5s 1d, then two sums, one of £8 one of £30, were paid in, bringing the balance up to just over £40; and on 1 March there was the instalment £9 11s 9d. So again with the next instalment it will be seen that between the two instalments the accounts fell of £4 4s 11d; then £40 was paid in out of salary and the instalment was paid, and so on with the next two. Those five I take as examples of what I means, and I say many of these payment could not have been paid out of the plaintiffs' moneys.
   In April 1942, Page a chartered accountant, was instructed by the committee to look into some matter quite unconnected, as I understand, with these frauds, and during his investigation he discovered this fraud. Besides the half-yearly payments of substance there were four smaller payments of £45, £65, £53 and £ 47, and the probability is that these cheques were signed as a result of Atkinson sending to Smith one of the pink forms and some cancelled coupons, and after getting back the cheques Atkinson filled in his wife's name as in the case of the large cheques.
   These is only one matter about which there is any conflict of evidence. Atkinson says that his wife's name was on the cheques when signed by Smith. Smith is quite sure that it was not. He is confident that he would have noticed the name if it had been there. I must and do accept his evidence about that. At any rate, he is honest, and I cannot say that, of course, for the defendant Roy Atkinson. Further it seems to me very unlikely that Atkinson would put his wife's name on the cheque before signature, because at any time the member of the committee might notice the name and ask about it, and it is difficult to see what possible explanation could have been given consistent with innocence.
   As to the cheques which went with coupons attached, of course the name would not be there, because it would have been very noticeable, as normally the names of holders of unregistered shares simply sending in coupons would not even be known. But what seems again pretty strong evidence is this. A few of the cheques, the ones, have been produced to me, and the last cheque, one for £257, has not got her name on even now. It was payable to the Westminster Bank. How it got into the defendant's account I do not know, and no explanation has been given, but it is significant that even now, after the cheque has been paid into her account, her name is not on the cheque. The only other fact of importance is that when the fraud was discovered and inquiries made the account was not in credit.
   The claim against the defendant based on fraud fails. There was no evidence that she was in any way party to it and I am satisfied that she was not.
   It may be difficult to regard the payments as money paid by the plaintiffs to the defendant, whether under a mistake of fact or at all. The plaintiffs never consciously paid the defendant anything; the defendant never consciously received anything from the plaintiffs. Indeed, I doubt whether strictly she received anything from them. What happened was that her husband stole certain signed cheques, and forged them by making false alterations, and instructed the bank to receive and deal with the proceeds. The bank had no authority from the defendant to receive anything or her behalf, nor had the plaintiffs any authority to pay anything to the National Provincial Bank for her account or on her behalf. The passage from Lord Sumner's opinion in Sinclair v Brougham,at p 453, seems very relevant. Adapted to this case it would read as follows: "The money no doubt reached the defendant's coffers. She had the money in that sense of possession which is necessary to found 'tracing orders,' but she did get it, and there was no receipt of it, in the sense which is necessary to raise the implication of a promise to repay. Receipt and privity are essential to found such an implication": see The Colonial Bank v The Exchange Bank of Yarmouth, Nova Scotia, and Prince v Oriental Bank Corpn.
   So far as I see, it makes no difference whether the payments be claimed as payments made under a mistake of fact, or whether they are more properly claimed as money received for the use of the plaintiffs; the conditions under which the law will impose an obligation to restore them seem to be the same. They depend partly on the rules of the common law and partly upon the rules of equity. The former rules give a personal remedy; the latter a proprietary582 remedy. Equity allows the money to be followed, not only if it is still in existence in its original form, but also if it has been converted into another form, provided that it is clearly indentifiable in its changed form. It is clear in view of the decision in Banque Belge v Hambrouck that, if, when the claim was made, there had been money in the defendant's account clearly attributable to the stolen cheques, that money could have been followed and claimed. In that case a man had stolen money from the plaintiffs by means of forged cheques, and given the proceeds to his mistress who paid them into her account. She was innocent of fraud. When the matter came to light there was £300 to the credit of the account. This sum was successfully claimed by the plaintiffs. It was not claimed nor suggested that there was any personal liability in the defendant, or that she could have been held liable for payment to her which had been expended. But I need say no more about the proprietary remedy, as it forms no part of the claim, and there was in fact no money whatever to the credit of the account when the claim was made, nor has there been any attempt to establish conversion clearly identifiable into another form of any of the money received.
   The principle upon which the personal remedy for what has been called unjustifiable enrichment is based is perhaps not finally settled. Everyone is familiar with the description of the action of indebitatus assumpsit given by Lord Mansfield in Moses v Macferlam. After saying that the claim for money paid by mistake or money got through imposition, extortion, or an undue advantage of the plaintiff's situation, he added, at p 1012:

Later judges limited the remedy to cases where they could say that it was fair that the law should imply a promise by the defendant to repay, and this view was affirmed by the House of Lords in Sinclair v Brougham. In that case a building society with power to borrow only for the proper objects of the society started and developed a banking business which was in fact ultra vires. A number of depositors opened accounts and banked money in the usual way. The society was wound up, and in the winding up the depositors, clients or customers claimed the return of their money as money had an received to their use or as money paid under a mistake of fact. It was held that the basis of any such action was an implied promise to repay, and that such promise whether express or implied would have been part of an ultra vires contract of loan, and the depositors could not recover.
   At p 415, Lord Haldane said that to hold that a remedy would lie in personam against a statutory society, which by hypothesis could not have become a debtor or enter into any contract for repayment, would be to strike at the root of the doctrine of ultra vires, and that this doctrine excluded from the law of England any claim based even on the circumstances that the defendant had been improperly enriched at the expense of the plaintiff. He said:

And lower down:

At p 440, Lord Parker said:

And at much greater length, Lord Sumner dealt with the same point at pp 452 to 456. He said at p 452:

Then at the top of p 453 came a passage I have already referred to, that although the money was in the company's coffers it really had not been received by the company, and at pp 454, 455 and 456 he considers a great many of the cases, and ends up:

   So too Romer LJ, in Re Simms, at p 31:

It seems reasonably clear that such a promise will not be implied unless it is inequitable or contrary to natural justice that the payee should retain the money as against the plaintiff in the action.
   The late Sir William Holdsworth in 1939 wrote:

   However, this view has lately been challenged by Lord Wright. He had attacked it in the Cambridge Law Journal, Vol 6, p 305, and in the recent case of Fibrosa v Fairbairn, at p 62 ([1942] 2 All ER, at p 137), a case dealing with the position created by the termination of a contract as a result of the frustration of its purpose, where money had been paid, expressed a strong dissent from the view taken in Sinclair v Brougham, and a strong opinion in favour of the obligation to repay arising solely from an unjust enrichment of the defendant unintended by the plaintiff. Viscount Simon LC left it open. He said, in effect, at p 47 ([1942] 2 All ER, at p 128): "Once it is realised that has Lord Sumner said in Sinclair v.Brougham," and he might have added, as Lord Haldane and Lord Parker also said in Sinclair v Brougham, "the action rests on a notional or mputed promise to repay, or if it is preferred to omit reference to a fictitious promise, upon an obligation to repay arising from the circumstances, etc." And Lord Macmillan, on p 59 ([194] 2 All ER, at p 135), left it open as well. At any rate, I am sure that Lord Wright would accept one sentence of the judgment of Hamilton LJ, as he then was, in Baylis v Bishop of London, at p 140:

   A judge of first instance is necessarily in some difficulty in reconciling such divergent views, but it seems to me that the law as laid down in Sinclair v Broughamis that which is binding upon him, and if that be so, I fail to see how the law can imply a promise by the defendant in this case to repay money to the plaintiffs where she never had the faintest idea that she was receiving anything from them at all. If A steals a £5 note from me and gives it to his wife, asking and receiving £2 10s by way of change, and instructing her to spend the rest in paying a coal bill, and buying herself a pair of shoes, those she was wearing being full of holes, even the law could not imply a promise by the wife to repay me may £5 note. There is no privity on which to found such a promise.
   But for all that, I think it right to deal with the case on the view held by Lord Wright, that the real basis of law in such an action as this is that of an unjust enrichment at the plaintiffs' expense unintended by them, and on that view the question I have to ask myself is this: do the circumstances of the case oblige by the ties of natural justice that the defendant should have a judgment584 against her for the money which found its way into her account? I think that by the many cases involving questions of this sort it has been established that there are, at any rate, two sets of circumstances which deny a personal remedy, and which entitle a defendant to resist a demand for repayment. One, which I do not think is of help to the defendant in this case as she never acted on nor indeed received any representation by the plaintiff, is based on equitable estoppel, whereby, when the plaintiff has expressly or impliedly represented to the defendant that the money paid was truly due and owing to the defendant, the plaintiff is estopped from denying the truth of the representation, if the defendant has in reliance upon the representation changed his position for the worse by spending the money: see, for example, Holt v Markham, and Deutsche Bank v Beriro.
   The other set of circumstances which I think is very material to this case is that where the money has been received by an agent for a principal he cannot be sued for its return if before notice he had paid it away to his principle or on his principle's instructions. In this case counsel for the plaintiff advances the proposition that once it is established that the plaintiff' money had reached the defendant's account by mistake the plaintiffs are entitled to judgment, whether she had paid it away or not, or in whatever capacity she received it, and he relied on Jones v Waring & Gillow. I cannot think that that case had anything to do with this one. There a man named Bodenham owed Waring & Gillow £5,000 under a hire purchase agreement. Because of his default they resumed possession of his furniture. He went to R E Jones Ltd, and represented to them that he represented the manufacturers of a new car, and offered to them an agreement as sole agents for the sale of it if they were ready to pay a deposit of £5,000 on 500 cars. He said Waring & Gillow's were financing his scheme, and if they chose to come into it they could, if they liked, make their cheque payable to Waring & Gillow, which they did. Bodenham then took the cheque to Waring & Gillow, represented it as money owing to him which he had asked Jones to make payable to them, paid them the cheques which they cashed, and the money found its way into their account, and they then let Bodenham resume possession of his furniture. The truth was later discovered, and Jones brought this action against Waring & Gillow and succeeded. By a majority of three to two they were held entitled to recover, but nothing was said in that case which threw any doubt upon the propositions which I have enunciated. Lord Cave and Lord Atkinson thought the plaintiffs were estopped by what they have done; they thought that their conduct amounted to a representation which they were estopped from denying. Lord Sumner and the other two members of the court, Lord Shaw and Lord Carson, thought there was no estoppel, and Lord Sumner in terms, said that he could not see that there was any representation made or implied by anything that the plaintiffs had done, or that the defendants had acted on any such supposed representation, and he said that he need not discuss how the case would have stood had those things been proved.
   I do not think that case helps me here at all. Certainly the proposition of counsel for the plaintiffs is too wide. For example, it is not the rule of law as expressed by Lord Loreburn, quoted with approval by Lord Mersey, in Kerrison v Glyn Mills Currie & Co, that when money paid under a mistake of fact is re-demanded from that person before his position had been altered to his disadvantage the money must be repaid in whatever character it was received, but I think the law is more clearly and fully expressed by Collins MR, as he then was, in Continental Caoutchouc and Gutta Percha Co v Kleinwort, Sons & Co, at p 476, and I take this to be the law:

   In the same case, Romer LJ, says at p 477:

   In Kleinwort v Dunlop, Lord Atkinson says in effect precisely the same thing. There certain question had been put to the jury, and one question that the jury had answered was that the money had been received by the defendants in their capacity as principle, but Lord Atkinson fully recognised, and dealt with at some length-I need not read what he said-the position of a person who came within those words which I have just read from the judgments of Lord Collins MR and Romer LJ.
   I satisfied in this case that the defendant did not receive the money for her own benefit or personal enrichment, but merely as her husband's agent. The husband was not a thief in order to benefit her but himself, and so far as she was concerned the money came not from the plaintiffs but from her husband on the terms that part was as once to be returned, and that household and her personal expenses (for which as a husband he would be bound to provide) were to be paid out of the rest. Regular payments from his salary were later made into the account, and it is plain that she was in truth but her husband's agent for the distribution of the money. Where is the unjust enrichment in this case? What are the circumstances which make it ex aequo et bono that the defendant ought to refund? I can see none. The position, therefore, is that it is impossible to imply a promise to repay, that it would be unjust to imply such a promise even if it were possible, and that there are no circumstances which make it unconscientious for the defendant to resist a personal judgment against her, and I think the defendant is entitled to judgment.
   This view is in harmony with a principle which I take from Lloyd v Grace Smith & Co, at p 727:

   There is one other matter with which I ought to deal. It is pleaded that in any event the plaintiff cannot recover more than the moneys paid into the defendant's account during the 6 years immediately preceding the action. In reply to the defendant's plea of the Statute of Limitations the plaintiff rely upon the Limitation Act 1939, s 26, which is as follows:

I think 6 years is the limit. I think the plaintiffs with reasonable diligence could and must have discovered it. They signed warrants with the space for the shareholder's name not filled in. Smith admits negligence. There was no system of check; there was no supervision; there was no audit of any kind. The committee were supposed to check, according to Atkinson-and I see no reason for disbelieving him on this point-the transfers and warrants, and they did nothing of the sort. There was in fact a complete absence of diligence and that is really not challenged. The accountant called by the plaintiffs said he was surprised to find there was no system of check, and that any system of check would have discovered the fraud right away. I find, indeed I am bound to find, that there was no diligence exercised, and that with reasonable diligence these frauds, or the long series of mistaken payments would have been discovered at or very soon after her inception.
   Therefore I give judgment for this defendant with costs, but for the plaintiffs against the first defendant for the full amount claimed.

Solicitors: Lawrence Jones & Co (for the plaintiffs); S Myers & Son (for the defendant).

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